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MICHIGAN
From Site Selection magazine, January 2016
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Pyramid Power

A real estate deal was the precursor to Switch’s $5-billion investment in the Grand Rapids area.

MICHIGAN
by RON STARNER

A timely real estate deal paved the way for Nevada-based technology company Switch to pull the trigger on a $5-billion data center investment in western Michigan.

As a result, Switch confirmed on Dec. 15 that it will establish the new SUPERNAP data center on the site of the former Steelcase Pyramid in Gaines Charter Township about 13 miles (21 km.) south of Grand Rapids.

Billed as the “largest data center campus in the Eastern US,” the project will ultimately encompass 2 million sq. ft. (185,800 sq. m.) and employ about 1,000 IT professionals on the 142-acre (57-hectare) campus.

Formerly known as the Steelcase Corporate Development Center, the site known for its pyramid-shaped facility had been on the market for half a decade. Although the building cost about $111 million to build in 1989, it went on the market in 2011 for $19.5 million, or about $3 million below its taxable value. Its final sale price was not disclosed.

The property in Kent County was initially sold last April to Roger Norman, a California real estate developer who has done real estate deals with Switch in Reno in the past. Switch is acquiring the building from Norman Properties.

Tim Mroz, vice president of marketing and communications for The Right Place Inc., the economic development organization for the Grand Rapids metropolitan area, says the real estate deal was put in motion when Switch founder and CEO Rob Roy and Norman were traveling together on business.

“When Rob Roy discussed Switch’s desire to establish an Eastern US presence with Norman, Norman told him that Switch should take a look at his building in western Michigan,” Mroz says. “That is really how the relationship started.”

A suitable building was just the first hurdle, notes Mroz. The company needed the high-powered infrastructure that could accommodate a SUPERNAP Tier IV Gold data center, and it also needed assurances that the state of Michigan would roll out the welcome mat in the form of tax breaks.

Switch got both and more, adds Mroz. “Steelcase built this site with an incredible amount of redundancy and infrastructure in the building,” he says. “It was a prime target for a high-tech data center. Plus, Gaines Charter Township [pop. 25,000] is close to our airport and has open, developable land near the highway. We will also provide very competitive electric utility rates through Consumers Energy.”

The facility will be just 2 milliseconds from Chicago and 14 milliseconds from New York.

The tax incentives, passed by Michigan lawmakers on Dec. 15, sealed the deal. The legislation exempts Switch and its co-located clients from paying sales or use taxes on servers, computers and other equipment for 20 years. The incentives will also be available to 40 existing data centers in the state.

Switch, which operates more than 8 million sq. ft. (743,200 sq. m.) of data centers in Las Vegas and Reno, had been looking at a site in New York just across the border from New Jersey, according to Mroz. “Switch made it very clear to us that the tax changes would need to be addressed to make this project economically feasible for the company,” he says. “Some 22 other states had existing, favorable tax policies referenced in the Michigan legislation. While the governor has not yet signed these bills into law, we have no reason for concern. It is simply a matter of time.”

Switch, a 16-year-old company whose 1,000 clients include Google, Amazon and eBay, continues to look for other domestic and international sites. In western Michigan, the company plans to start construction in January and hopes to be up and running this year with the first phase of the project.

“It is a 10-year build-out process,” notes Mroz. “In West Michigan, we have had several large projects but none of this scale. This is the largest data center investment in Michigan history.”

The company has said that its base compensation starts at $15 an hour plus benefits. Most Switch workers will make between $60,000 and $200,000 a year. The firm also intends to hire veterans for about 70 percent of its workforce, says Mroz. “That is their goal. West Michigan tends to be home to a lot of reservists. They will have 400 direct hires and eventually up to 1,000 badged workers on site.”

Birgit Klohs, president and CEO of The Right Place, says that weather and geological considerations were pivotal factors in the deal.

“We do not deal with tornadoes or hurricanes,” she says. “Our weather patterns are favorable. And we are not anywhere near earthquakes.”

Klohs says the Switch deal is further confirmation that 1.4-million-resident West Michigan is on a roll.

“We were just named the third-fastest-growing MSA behind Denver and Houston,” she notes. “We are pretty much firing on all cylinders now.”

Ron Starner
Executive Vice President of Conway, Inc.

Ron Starner

Ron Starner is Executive Vice President of Conway Inc. He has been with Conway for 16 years and serves as editor of the TrustBelt Report and lead organizer of the annual TrustBelt Conference. He also writes extensively for Site Selection and Conway's Custom Content Publishing Division. His Twitter handle is @RonStarner.

  



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