Key details of the data center, recently sold at 43915 Devin Shafron Drive in Ashburn, Virginia, have been revealed through commercial mortgage-backed security (CMBS) filings. Known as the Ashburn Data Center, this property, comprising 132,285 square feet of net rentable area and a 9-megawatt critical IT load, was sold by Starwood Capital to GI Partners’ TechCore investment vehicle for $150 million.
The data center at 43915 Devin Shafron Drive, situated within Digital Realty’s Northern Virginia campus, hosts major tenants such as Oracle and Morgan Stanley, contributing to NOI of $10.9 million. GI Partners’ TechCore investment vehicle is securing a $60 million CMBS loan against the data center.
In the following sections, Dgtl Infra delves deeper into key aspects of 43915 Devin Shafron Drive, including detailed lease agreements with Oracle and Morgan Stanley, the specifics of the mortgage loan associated with the property, and the complex history of the data center. Additionally, we provide an overview of the Northern Virginia data center market, offering a broader context to the strategic importance of this location.
Data Center at 43915 Devin Shafron Drive, Ashburn, Virginia
The data center located at 43915 Devin Shafron Drive in Ashburn, Loudoun County, Virginia, is held in fee simple. It is situated on an 8.2-acre parcel of land and is part of Digital Realty’s larger 98-acre data center campus, which is in proximity to Washington, D.C., and Dulles International Airport. This data center is located adjacent to “Data Center Alley”, a renowned area within the Northern Virginia data center market.
The net rentable area of the data center at 43915 Devin Shafron Drive is 132,285 square feet, out of which 67,500 square feet is raised floor area. It has a critical IT load of 9 megawatts in a 2N / N+1 redundancy configuration, ensuring that the facility’s systems remain operational even in the event of a component failure.
Constructed in 2010, this 13-year-old data center has underwritten revenues of $14.6 million and underwritten net operating income (NOI) of $10.9 million. The property was recently appraised at $150 million, equal to the purchase price paid for the data center by GI Partners’ TechCore investment vehicle. In terms of valuation, the data center is appraised at $1,134 per square foot, $16.7 million per megawatt, and yields a return of 7.24% on the property’s underwritten NOI.
The data center at 43915 Devin Shafron Drive in Ashburn, Virginia, is fully occupied. It is leased to two major tenants, Oracle and Morgan Stanley, with a weighted average remaining lease term (WALT) of 6.3 years, calculated based on the underwritten base rent. However, as discussed below, the remaining lease terms for each tenant vary significantly.
Oracle Corp (NYSE: ORCL), the data center’s primary tenant, occupies 91,809 square feet and 6.75 megawatts, or 75% of the facility’s critical IT load. The company pays $9.47 million in rent (straight-lined), which constitutes 62.1% of the underwritten base rent, implying pricing of $103.11 per square foot. Of Oracle’s leased area, 89,042 square feet are designated as data hall space, rented at $96.50 per kilowatt (kW) per month.
Oracle’s lease has annual escalations based on the Consumer Price Index (CPI), albeit with a minimum increase (floor) of 2% and a cap of 5%. Consequently, the underwritten base rent, which represents the straight-lined rent throughout Oracle’s lease term, is $115.84 per kW per month for the data hall space.
Oracle’s lease, which does not include any termination options, extends until August 31, 2032, providing the company with a remaining term of over 9 years.
READ MORE: Oracle Cloud’s Data Center Locations
Morgan Stanley (NYSE: MS), the data center’s second key tenant, occupies 38,715 square feet and 2.25 megawatts, accounting for 25% of the facility’s critical IT load. The company pays $5.66 million in rent (straight-lined), which constitutes 37.1% of the underwritten base rent, implying a pricing of $146.12 per square foot. Of Morgan Stanley’s leased area, 29,043 square feet are utilized as data hall space, rented at $193.18 per kilowatt (kW) per month.
Morgan Stanley’s lease has annual escalations of 3%. Accordingly, the underwritten base rent, which represents the straight-lined rent throughout Morgan Stanley’s lease term, is $202.24 per kW per month for the data hall space. Notably, Morgan Stanley’s data hall rent is materially higher than Oracle’s, in-part, due to its superior 2N configuration, which offers better redundancy protection compared to Oracle’s N+1 configuration.
Morgan Stanley’s 2N configuration for data center redundancy involves having two completely independent sets of infrastructure, like power supplies and cooling systems, each capable of fully supporting all operations. On the other hand, Oracle’s N+1 configuration has a primary set of infrastructure capable of supporting all operations, with one additional unit for redundancy.
Morgan Stanley’s lease, which does not include any termination options, extends only until March 31, 2025, leaving the company with a remaining lease term of just 1.8 years. Since 2010, Morgan Stanley has been a tenant at the data center and previously amended its lease in 2014 with a 10-year extension through 2025. The company has one, 5-year renewal option remaining.
The data center at 43915 Devin Shafron Drive is critical for Morgan Stanley as it powers the company’s sales and trading platforms for the New York Stock Exchange (NYSE) and Asian Markets via servers on-site at the data center. Given the significant investment and the resulting high stakes, a service interruption from Morgan Stanley’s servers going offline would have severe consequences.
The data center at 43915 Devin Shafron Drive has other minor tenants, including four telecom companies that collectively contribute $115,479, or 0.8% of the rent. Digital Realty, the property manager, also utilizes 1,756 square feet of the facility for storage and office space.
Mortgage Loan on 43915 Devin Shafron Drive, Ashburn, Virginia
GI Partners’ TechCore investment vehicle, operating under the entity GI TC Devin Shafron, LLC, is the borrower of a $60 million commercial mortgage-backed security (CMBS) loan. This loan will be used to replace the fund’s existing acquisition financing for the data center located at 43915 Devin Shafron Drive in Ashburn, Virginia.
Given the data center’s purchase price of $150 million, this principal loan balance represents a 40% loan-to-value (LTV) ratio on the property. The loan, which does not include any amortization, is an interest-only loan with an annual interest rate of 5.95%. The loan’s maturity date is set for June 6, 2033, signifying a 10-year term. Additionally, the loan is backed by sponsor equity of $91 million, which has been invested in the property.
The sponsor, GI Partners’ TechCore investment vehicle, operates through the entity TechCore, LLC. This core real estate fund was established in 2012 by GI Partners and the California Public Employees’ Retirement System (CalPERS). The fund specializes in investing in technology-advantaged properties across the United States, with a particular emphasis on data centers. These investments include properties such as:
- One Wilshire, 624 South Grand Avenue, Los Angeles, California (READ MORE)
- 7510-7610 Mason King Ct in Manassas, Prince William County, Virginia (READ MORE)
- 45360 West Severn Way in Sterling, Loudoun County, Virginia (READ MORE)
- 12800 Culver Boulevard in Los Angeles, California (READ MORE)
As of December 2022, TechCore boasted a net worth of approximately $2.1 billion and liquidity of around $37.5 million. Since its inception, the fund has invested in over 3.6 million square feet of stabilized, core technology-advantaged real estate, acquiring a total of 19 properties.
History of 43915 Devin Shafron Drive, Ashburn, Virginia
The data center located at 43915 Devin Shafron Drive in Ashburn, Virginia, has a complex financial history. It initially faced difficulties when a significant loan that its prior owners secured went into default. This was attributed to a major tenant, a social media company, deciding not to renew its lease in 2020. Consequently, the original lender decided to offload the financial obligation by selling the note to Starwood Capital for a sum of approximately $68.0 million.
Starwood Capital proceeded to foreclose on the property in April 2021. At that time, the data center’s equity owner was an 80%/20% joint venture known as Digital-GCEAR 1 (Ashburn), formed between Griffin Capital Essential Asset REIT (GCEAR) and Digital Realty (NYSE: DLR). Subsequently, Starwood Capital assumed equity ownership of the property.
Eventually, in 2022, the aforementioned social media company vacated the property, leaving a significant void. However, Starwood Capital managed to secure a 10-year lease of this vacant space to Oracle, who subsequently became the largest tenant at the property.
This leasing deal significantly enhanced the value of the once distressed property. As a result, Starwood Capital was able to sell the data center to GI Partners’ TechCore investment vehicle for $150 million. At the time, Digital Realty was a minority investor as well as the property manager and leasing agent for the data center.
Northern Virginia – Data Center Market Overview
The data center at 43915 Devin Shafron Drive is located in Ashburn, Loudoun County, Virginia, approximately 30 miles from Washington D.C., and roughly 7 miles from Dulles International Airport. Loudoun County is home to more than 25 million square feet of data centers and hosts over 3,500 technology companies, resulting in it having the world’s largest concentration of data centers. Approximately 70% of the entire world’s internet traffic flows through the Northern Virginia data center market on a daily basis.
In the last decade alone, nearly $12 billion has been invested in Virginia’s information technology (IT) sector, creating more than 3,000 data center jobs and 10,000 support positions in Loudoun County. Absorption in the market has increased from 90 megawatts of capacity in 2016 to over 700 megawatts in 2022.
In aggregate, the Northern Virginia data center market has more than 2,900 megawatts of commissioned power and an impressively low vacancy rate of approximately 1%. As of 2022, there is over 5 million square feet under active construction in the market, and it’s projected that 800 megawatts of critical IT capacity will be completed by 2024.
Key drivers of future growth in Northern Virginia’s data center market include low power rates, affordable land, tax incentives specific to data centers, and proximity to a primary internet exchange connectivity point.