Cyxtera Technologies, which voluntarily filed for Chapter 11 bankruptcy relief in June 2023, has continued to reject unprofitable data center leases. Its latest target is two facilities located in Santa Clara, California, part of the Silicon Valley data center market. The buildings are owned by Prime Data Centers, a wholesale data center developer and operator backed by Macquarie Capital, the investment division of the Macquarie Group.
In June 2023, Cyxtera was granted a court order by the U.S. Bankruptcy Court for the District of New Jersey, authorizing the company to either reject or assume certain executory contracts and unexpired leases. Additionally, the order established formal procedures for carrying out these actions.
To date, Cyxtera has rejected leases for a facility in the suburbs of Chicago, Illinois, owned by STACK Infrastructure; another in Moses Lake, Washington, owned by Serverfarm; and one located outside of Amsterdam, Netherlands, owned by CyrusOne. Therefore, Cyxtera’s notice to reject the two leases for Prime Data Centers’ facilities in Santa Clara represents its fourth instance of data center lease rejection since entering Chapter 11 bankruptcy. Prime Data Centers has 10 days to file a written objection, should they choose to do so, in response to Cyxtera’s notice.
Cyxtera Rejects Data Center Leases in Santa Clara
Cyxtera Technologies plans to reject two unexpired leases at its SFO4-C and SFO4-D data centers, located just down the block from each other at 1111 Comstock Street and 1231 Comstock Street in Santa Clara, California. Prime Data Centers has leased these facilities to Cyxtera as single-tenant powered shells. This means that Cyxtera’s lease rejections may result in significant financial losses or operational challenges for the landlord, Prime.
Below is satellite imagery of the two facilities. It shows that the 1231 Comstock Street location appears not to have been redeveloped into a data center yet.
Cyxtera’s SFO4-C Data Center
Cyxtera operates its SFO4-C data center, which is a part of the Silicon Valley data center market. The facility is situated at 1111 Comstock Street in Santa Clara, California. This data center has UPS power capacity of 9.0 megawatts across total interior space of 121,000 square feet.
The landlord and building owner is Prime Data Centers, operating under the entity 1111 Comstock Property, LLC. Originally, Cyxtera’s lease for this property was scheduled to expire on November 30, 2037, which would have left a remaining lease term of approximately 14.3 years. However, Cyxtera is seeking to reject this lease as of July 31, 2023, effectively eliminating the entire remaining lease term.
Only recently, in June 2021, did Cyxtera sign a 15-year pre-lease for the SFO4-C data center, with the lease commencing on December 1, 2022.
Cyxtera’s SFO4-D Data Center
Cyxtera also pre-leased its SFO4-D data center, which is a part of the Silicon Valley data center market. The facility is situated at 1231 Comstock Street in Santa Clara, California. This data center will have UPS power capacity of 9.0 megawatts across total interior space of 119,000 square feet.
The landlord and building owner is Prime Data Centers, operating under the entity 1231 Comstock Property, LLC. Originally, Cyxtera’s lease for this property was scheduled to commence on April 1, 2024, and expire on March 31, 2039, indicating a lease term of 15.0 years. However, Cyxtera is seeking to reject this lease as of July 31, 2023, effectively eliminating the lease before it even begins.
In January 2022, Prime Data Centers announced plans to begin construction on the 1231 Comstock Street data center in the second half of 2023, but these plans might now be put on hold. Until recently, Prime Data Centers’ website stated that the “property is now available for pre-lease”.
Cyxtera Data Center Leases – Who and What is at Risk?
Cyxtera currently operates around 60 data centers. However, all but two of these facilities are leased, not owned, by Cyxtera. This means that the vast majority of the company’s data centers are housed within buildings they do not control. Through the Chapter 11 bankruptcy process, Cyxtera has already sought to reject a number of unprofitable data center leases.
In total, 28 unique parent companies, including Digital Realty, Digital Core REIT, Mapletree, Menlo Equities, STACK Infrastructure / IPI Partners, Prime Data Centers, Serverfarm, CyrusOne, Iron Mountain, Lumen Technologies, and Compass Datacenters, lease data center space to Cyxtera as landlords.
Download the comprehensive details of every Cyxtera data center lease, from UPS capacity and raised floor space to landlord identities and lease expiration dates, with Dgtl Infra’s Excel spreadsheet – Click Here.
Prime Data Centers – Portfolio, Funding, and Challenges
Prime Data Centers’ portfolio currently comprises operational facilities and development projects in Sacramento, California; Santa Clara, California; Hayward, California; Los Angeles (Vernon), California; Chicago (Elk Grove Village), Illinois; Dallas, Texas; Phoenix (Avondale), Arizona; and Saeby, Denmark.
In June 2021, Prime Data Centers partnered with Macquarie Capital to target data center investments of $5 billion (debt and equity), over the next 10 years.
Challenges and Opportunities in the Silicon Valley Data Center Market
Given that Cyxtera plans to reject its two leases as of July 31, 2023, Prime Data Centers faces an immediate vacancy risk at the 1111 Comstock Street building, as well as the need to once again pre-lease the 1231 Comstock Street building. Fortunately for Prime, the Silicon Valley data center market is relatively supply-constrained, with a vacancy rate of around 4%, while demand is robust, with over 40 megawatts of absorption occurring during the first six months of 2023.
Notably, in the Silicon Valley data center market, and particularly in Santa Clara, power procurement and site acquisition are more challenging due to a constrained power supply and the difficulty in assembling land in the area.