I’m just leaving The Conrad Hotel in the Financial District in Manhattan, NY where I attended Information Management Network (IMN) 4th Annual Spring Forum on Financing, Investing, and Real Estate Development for Data Centers, May 28 and 29th, 2014

IMN, founded in 1994, is a global organizer of institutional finance, investment, and healthcare IT conferences. In 2004 IMN was acquired by Euromoney Institutional Investor PLC, a UK company listed on the London Stock Exchange. Their divisions include Structured Finance, Real Estate, Investment Management, and Healthcare IT. Hallmarks of an IMN conference are a quality and rigorously vetted speaking faculty, interactive panel discussion and a balanced audience composition which facilitates excellent networking opportunities.

The data center vertical for IMN was originated by Steve Glener, program director, four years ago as they realized the re-emergence of the data center as a real investment asset class. I say re-emergence because pre dot-bomb they actually had a data center conference with hundreds of attendees. Given the dot-bomb was facilitated by 9/11 it’s a bit ironic the Conrad is only steps from the 9/11 Memorial and now open Museum. Steve’s target audience is primarily private equity, investors, lenders, and the C-Suite. The Conrad Hotel venue delivers what IMN wants, a high end, premium, higher value experience. It presents as sophisticated, refined, and intellectual, which is reflected in the audience of more suits and ties than you see at any other event.

The data center conference business remains a relatively new and boutique industry relative to others. This audience travels well, but given this audience’s tax bracket, Steve knows he’s not going to get them out often given the demands of their day job and a conscious consideration for other industry events. Steve was in Atlanta for a Banking Real Estate conference which is held six times a year in various major markets. Due to the characteristics and nature of the banking audience, who don’t travel well. Steve says they “bring the mountain to Mohammed.” IMN holds the data center product twice a year – Spring @ Conrad in May and this fall they will be returning to the Bay Area for their 5th Annual Financing, Investing & Real Estate Development for Data Centers Forum November 12-13 in Half Moon Bay, CA at the Ritz Carlton.

One of the unique and differentiating features of IMN from traditional conferences is their Direct Connect interface. This allows you to see the attendees of the event who have submitted as much information as they want to share and opens up a direct communication path for direct inquiries and at venue meeting requests. I had the opportunity to sit down with a few people I’ve known for a long time in the business where new business wasn’t on the agenda. It was refreshing just to stay in touch, lean on each other for advice, and catch up.

Scott Tillman @ Altered Scale moderated the first panel of the day, 101Primer - An Industry & Best Practices Guide for Prospective Data Center Providers, even before IMN & Mintz Levin’s own Jeffrey Moerdler stood up for opening remarks. This panel included Owen D, IP v6 Evangelist, Troy Tazbaz, Global DC & Colo Development, Oracle, Michael Allen, Principal @ Ryan LLC, and Joe Capes, Business Development Director – Cooling, at Schneider Electric. This was a primer for all things a data center provider ought to be thinking about from market entry, branding, business model, what technology to invest in, to financing. All thoughtful but really a tough opening act to make impactful on all fronts for a bleary eyed crowd less sure of what to do with the pre-introduction panel. Moerdler, a lean forward New Yorker and attorney with a grasp on the macro, shared  his participation and promotion of the data center space to IMN almost 15 years ago and thanked everyone for being there. Then boom, three out of the next four panels were probably the best of the days.

Data Center Market Update: Highlighting an Industry in Flux

Jonathan Schildkraut, Managing Partner of Equity Research at Evercore Partners and Jason Statham look-alike, kicked the energy up here giving Tesh Durvasula, Chief Commercial Officer at CyrusOne, a little grief for his unique and now trademark forehead sunglasses holder.  Johnathan put his own sunglasses up and Tesh noted “Imitation is the most sincere form of flattery,” to which Johnathan responded suggesting Tesh might shave his head. These light and personal interplays are too few and far between. Now the conference started.

Yes, the industry is in flux. It’s immature. Consider comparing it to telecom which has been around since you used your finger to actually dial 4 numbers in a clockwise rotation to reach a neighbor in rural areas. Michael Allen Seeve, President with Mountain Development, provided a healthy relative perspective. As a real estate developer, he keeps one foot in more traditional commercial and retail real estate. Data centers are risky on one hand involving a higher capital investment which can’t be simply traded out like a store in a mall. He lauded the data center market as forward thinking and enabling relative to other real estate developments.

Summer Putnam, VP at Jones Lang LaSalle in New York, offered a healthy negative perspective in that pricing is down 20-25 points in the wholesale sector in his NYC market backyard and likened the effect to a “knife fight in a phone booth. Tesh offered pricing was really bound to geographical markets suggesting of the 37 providers “within a Joe Junda (CIT) drive” from CyrusOne’s facility in N VA you weren’t going to see prices fluctuate more than 5 points by any provider on a sustained basis. Tesh also looked for a greater measure of competitive success to track the consumption rates of providers, which obviously reflects a confidence from the provider which has opened more sq ft than any other in the past two years.

President / CEO Wholesale & Hybrid Player Perspective – Being ahead of the game

Next came a CEO panel moderated by Peter Hopper of DH Capital discussing Wholesale and Retail business models and the challenges associated with their convergence. Chris Crosby, CEO of Compass Data Centers headlined a stacked panel to include Hunter Newby of Allied Fiber, Michael Boccardi of Cervalis, Peter Stevenson of Latisys, and Tony Wagner of i/o.

Another panel that could have gone on all day. I for one was left wanting when 5 executives of that caliber each only get a peck at sharing their knowledge and perspective spread out over 45 minutes. They all come from such different businesses. Newby offered a refreshing perspective of data centers as a connectivity utility first and foremost in an environment that doesn’t even need to spell IT. Crosby is building an incredibly expeditious product solution, Wagner is delivering technology solutions in modular form, Boccardi leads perhaps the most traditional data center hosting business of the bunch.

They pointed out the lines of demarcation in comparing wholesale to retail which falls to the difference in management, service offerings, and operational challenges. Basically low touch real estate vs high touch customer facing orientation requiring more people which introduces the frightening notion to some of human performance variability. This is managed by great staff which requires expectation setting and performance management of goals, metrics, KPI’s, and culture. Wholesale requires real estate leases vs retail SLA’s have entirely different lengths, terms, constraints, and considerations.

Crosby pointed out the differences from a capital perspective, with just a hint of conviction, which require entirely different investment philosophies and timing. Wholesale requires 10 years of patience for a positive return. Retail leverages every aspect of every asset owned by adding additional services and layers. The lending markets are good now, says the $100M man, but also noted in wholesale right now that “debt is free until the bullet comes due in 10 years.” What’s the tolerance for that?

There was also the notion of operational efficiencies and economies of cost associated with the internet companies operating at scale. Facebook has one technician for every 24,000 servers compared to one per 9000 average elsewhere. Newby again offered the simplicity of the fiber and connect layer without having to spell IT. Just connect them and they work. He has an interesting point that may have investors and operators looking more down than up after this conference. He also noted that network growth is currently constrained by M&A activity. All of the required digital communication activity is helped by greater and broader bandwidth which is happening, but only regionally and incrementally.

I’d like to see Hopper moderate a panel consisting of Crosby and Tesh for the entire morning session. Hopper is the best panel moderator in the business yet, even better that he sit down with them to hear more of his perspective, on any topic, and we perhaps have Chris Trapp moderate, if we can lure him out of Aspen again.

Additional topics on site selection, data center design and construction assessing cost, inefficiencies, risk, and meeting the needs of future demand and technologies presented as complex as their titles. No matter the measure of the cost associated with the build, the location, the definitions, configurations, target customers, risk profiles, applications, circumstances, capital requirements, and availability of that soup of complexity at the time and place desired is challenging to say the least.

Mike Hagan, VP with Schneider Electric’s Data Center Services Provider (DCSP) business which serves the hosting, cloud, and managed services customer, and Stephen Maddaffari, Principal with Data Centers Delivered, represent a dichotomy representative of the still wild west nature of this development business. Schneider represents the larger corporation with vast experiential knowledge for data center providers to leverage which Mike has packaged up in an innovative solutions set delivering the elusive high quality, high speed, at a lower cost trifecta. Stephen’s scrappy and lean business helps the end consumer aggregate a custom for unique applications, assembles them in their own warehouse, and delivers the end product to a location on a skid. As far as I know, neither has a like competitor in the space.

It’s tough to keep up on notes, particularly when the tracks split and I can’t be both places at once, but the overview of the early panels should give you a sense for the value for them all. What differentiates IMN from other conferences is the value of the intellectual capital shared. Powerpoint presentations were scarce to non-existent. Company logo’s are replaced by the founder and figure heads of the organizations. You get a front row seat to front lines of our business. If you weren’t in attendance or paying attention, you were losing value by the minute. If only there were more time for each panel and topic because it was a veritable How-To industry line up -

Data Center M&A: How to Buy / How to be Attractive to a Buyer

Staying Ahead of the Curve on Service: What to Offer, How to Price & How to Provide for Competitive Advantage

Small / Mid-Sized Data Center Executive Perspective: Attracting Captial and Adapting to Survive in an Evolving Industry

Sale Leasebacks: Trends in Enterprise Sales & Leasebacks

Data Center & Enterprise End User Perspectives: What it Takes to Win and Retain End-User Clients Today

Data Center Lease Negotiations, SLA’s and Handling Defaults: The Latest Strategies for Tenants & Landlords

Enterprise End User Perspective: Demand; New Services & the Cloud

IMN was kind in respecting the often typical dinners and participation in Schneider Electric’s sponsoring an evening’s reception at The Conrad’s rooftop Loopy Doopy Bar by not starting Day 2 until 9am. The half day’s agenda offered more of the same high value oversight and consultation from the industry’s leaders -

The Enterprise Perspective: Containers vs Modular Data Centers vs Colocation

Open –IX Connectivity: Examining the Latest in Alternative Exchange Platforms – A Game Changer?

Securing Debt / Equity Finance in the Public vs Private Data Center Markets

Cutting through the Hype: Examining the Cloud & Its Impact on Data Centers & Enterprise End Users – An Opportunity or a Threat?

After it was all over my take away was job security for everyone. There is constant talk of commoditization in the data center business. While moving toward more predictable and efficient solutions reflects healthy, competitive market dynamics, there are just too many different end users of data centers to suggest one or two or ten sizes fits all. Retail vs wholesale vs hybrid. Colocation vs managed services vs cloud vs hybrid. Enterprise data centers. Modular data centers. Telco and connectivity data centers. Throw IT hardware advances, densities, and HPC on top of each of those solutions and models.

As much as we tease the cloud as an overused and abused term, we might or should start adding a descriptor in front of the term data center every time we use it. In this regard, I have to side with the fellas who describe this ‘game’ as being more toward the early innings. I’ve heard some of the smarter people in the room in the last couple conferences, Johnathan Schildkraut, Analyst with Evercore and Townsend Devereaux with DH Capital suggest we’re toward the middle innings but that may be more in context to the pace of an initial maturation process of ownership and transactions of data center providers as we know them now. Being 15 years into the business, as was stated a few times during the conference, would suggest that data centers cease to exist in the next 15. Schildkraut offered the competitive advantage has shifted from an early mover or existence advantage to a battle around creativity for differentiation.

Here’s another example of going deeper vs wider on a topic and really gaining from the private equity perspective vs. some of the operators who suggest its closer to the beginning of the game. Put a few Private Equity firms on the stage and ask their levels of confidence and approach to when and where to put capital. That akin to industry secrets but we can dream a bit.

Michael Allen Seeve, Troy Tazbaz, and Hunter Newby added new content and perspectives to the panels. Seeve offered an appreciation of the data center as a productive and empowering real estate asset. Troy, along with multiple cash flow analysis angles, provided a little insight into how a behemoth like Oracle uses a blended approach to it’s global hosting footprint. Newby reminded the real estate market of the real infrastructure layer and value of connectivity as an essential and simple enabler for our ever growing digital economy.

It’s a privilege to be a part of the collective group IMN manages to attract to its quality venues twice a year. How often do you find those who have already made it in a business, still there eager to learn, meet, and share with those who are making it happen now. You get Private Equity and Executive operators with years of experience there fully engaged with those organizations making the next generation of data centers and markets happen. This era of co-opetition and healthy camaraderie exemplifies the DNA of this industry’s leaders. IMN brings a wheelbarrow full of content to discuss, more than can be addressed in two days of 45 minute sessions. Unfortunately we all need to get back to our day jobs, until Data Centers West, November 12 & 13th @ Ritz Carlton, Half Moon Bay, CA.