Data Centers: A Good Investment or Risky Business?

“We are strategically located in the largest economical region in Wisconsin and within 90 minutes of Chicago and its outlying suburbs,” says Kurt O’Bryan, CEO of the Potawatomi Business Development Corporation, parent company of Data Holdings (pictured) in Milwaukee, Wisconsin. (Photo Courtesy Forest County Potawatomi Tribe)

Data Holdings is a $36 million Tier 3+ data center built by the Forest County Potawatomi Tribe in 2013, serving local, national and international customers including Fortune 500 companies, small and midsize businesses, and governments, including the state of Wisconsin. This week, the data center opened its expansion to customers. The multi-million dollar investment added 9,000 square feet of data space designed for 2.5 megawatts of power. The retail space is available for companies to co-locate their primary or secondary data sets, or use for disaster recovery. 

In our March “Infrastructure” issue, Native Business interviewed Kurt O’Bryan, Chief Executive Officer at Potawatomi Business Development Corporation, the parent company of Data Holdings, about the Tribe’s data center. We also spoke with other Tribal executives about the appeal and viability of entering the lucrative data center market.

Data Centers: A Good Investment or Risky Business?

Data centers are big business. According to MarketWatch, the global data center market is estimated to reach revenues of around $174 billion by 2023.

Is it any wonder that many Tribes are wanting a small slice of that big pie?

A data center, or “colocation facility,” is a very large, windowless space―some the size of many city blocks―where digital data is stored in a secure, cool, windowless area. Businesses will rent space at data centers for their servers and computing equipment because they offer fast connectivity, cooling, backup power and 24/7 security at a rate far less costly than if they built their own data storage facility.

Even tech giants like Google and Microsoft are partnering with data centers all over the world for auxiliary data storage space, as the Cloud in the sky does have its limits. Mind-boggling as it is, Digital Trends reports that every day, around 2.5 quintillion bytes of data are created by 3.7 billion Internet users. 

While the demand for data storage solutions is high, running a data center is not a business every entrepreneur can jump into, as the barrier to entry is also very high ― particularly start-up costs ― and it could be a long time before you see a healthy ROI.

Even so, some Tribes have bravely ventured into this market space. Native Business Magazine has reached out to a few to see if they have discovered whether data centers are a good investment or risky business. 

First Native-Owned Data center in Wisconsin

About 8 years ago, the Forest County Potawatomi Tribe in Milwaukee, Wisconsin, saw an emerging trend and pounced on it. “We noticed a significant number of data centers being built here in the U.S. and internationally,” explains Kurt O’Bryan, CEO of the Potawatomi Business Development Corporation, the Tribe’s investment division. A market study revealed that Southeast Wisconsin did not have a Tier III data center and the Milwaukee business community was underserved, as well. “We also identified a lot of interest from the Native American community,” he recalls.

Kurt O’Bryan, Chief Executive Officer at Potawatomi Business Development Corporation, the parent company of Data Holdings (Courtesy PBDC)

Two years later in 2013, the Potawatomi Tribe opened Data Holdings on Tribal lands in Milwaukee―a two-story, 46,000-square-foot Tier III facility, with scalability for an additional 40,000 square feet, giving them plenty of room to grow and acquire new tenants. When all phases are completed, the total cost of construction is estimated to be $36 million.

To date, Data Holdings services about 130 clients, including major corporations, state governments and other Native American Tribes. O’Bryan cannot name their clients specifically due to privacy concerns―“They don’t want people to know where their data is,” he explains. But he can divulge that the company’s largest client is the State of Wisconsin. And of course, the Potawatomi Tribe is on board, too.

“We are trying to encourage other Tribes to look at their data security for gaming operations and Tribal government to make sure it is adequately backed up,” says O’Bryan. “We believe this is an area of weakness for many Tribal Nations.”

The Data Holdings chief does not believe that data centers are good investments for all Tribes. It all comes down to location, location, location, he says. “Reservations themselves are not prime spots for data centers, although there are a few financial advantages to being on trust land.” 

On the other hand, O’Bryan says the Potawatomi Tribe has won the location lottery.

“We are strategically located in the largest economical region in Wisconsin and within 90 minutes of Chicago and its outlying suburbs. Our large Midwest radius spans from St. Louis to Minneapolis to Detroit to Indianapolis. And if clients need direct access to their data, transportation is easy between two big airports ― Milwaukee and O’Hare.” 

Then there’s weather to consider, he adds. “We don’t have hurricanes; we aren’t in a flood zone, and the building was designed to withstand any tornado. Plus, our ambient temperatures are relatively low, so we get a lot of free cooling from the outside, which accounts for one of the highest overhead costs for data centers.”

Data Holdings’ business formula seems to be working. “After four years of operation, Data Holdings is generating significant income that supports the directive to develop diversified income streams for the Tribe and simultaneously enhance Milwaukee as a hub for IT support,” says O’Bryan, adding that patience is key. “It is not a fast turnaround, and no one should expect, if you’re going to invest millions, to suddenly get a high return on your investment in a short period of time. It’s just not that kind of market right now.”

His advice to other Tribes contemplating data centers? Look for a lower cost alternative to manage your data. “Most Tribes are not in the right location, capital costs are extremely high, making your return on investment a challenge. And you’re not creating a lot of jobs.” O’Bryan says that is not an important metric for data centers, anyway. “A well-run center requires very few full-time employees. Computers do most of the work. Data Holdings was never built to create jobs. It was built as a business, as an investment, and as a much-needed service to the business community.”

For Another Tribe, Data Centers Are About Jobs

The Passamaquoddy Tribe of Indian Township has big plans. It hopes to build a $25 million state-of-the-art data center real soon, powered by hydrogen.

“By trying to make our data center green, it fits in with the Tribe’s mission of preserving and maintaining nature, Mother Earth,” says Darrin Coffin, CEO and chairman of Indian Township Enterprises, as well as the Tribe’s chief financial officer.

All that stands in the way is financing. Fingers crossed that the Tribe gets approved for the U.S. Department of Treasury’s New Market Tax Credit. “As soon as we get our allocation, we will be able to break ground and start build-out and be operational within 12 to 18 months,” Coffin is hopeful.

But for this Tribe, Coffin says that building a data center is more about creating much-needed jobs for Tribal members than it is about making a profit. “Washington County is the poorest county in the state and our Tribe suffers from 50 percent unemployment.” The Passamaquoddy data center would initially provide jobs for about 25 Tribal members at about $40,000 to $50,000 a year, which Coffin says is unheard of. “Most people work at Walmart, making $10 or $11 an hour. Or they work in the paper mill, but there are only so many jobs there.” 

The Tribe is partnering with Washington County Community College to help train future employees through a six-week Microsoft certificate program.

“They can take those skills and work in our data center or go work for the Microsofts, Googles and other companies that have virtual desktops,” Coffin outlines his long-term vision to help Passamaquoddy Natives find good jobs.

Certainly, the business plan for the data center calls for making tens of millions of dollars in revenue. But again, it takes a back seat to jobs, says the CFO. “We are not looking for that high return on investment, but rather, the social impact it will have on employment. If our data center broke even and we gave zero dollars back to the Tribe, but employed 25 Tribal members, then that is success to us.” 

Tips for Starting a Data Center

If your Tribe is mulling over the prospect of launching a data center, heed these words of wisdom from Tribal professionals who have been down that road already:

“My best advice would be to go small first, then go big. If you go big right out of the gate, that’s when you fail, because you don’t have enough margin or revenue to sustain your debt load. Also, consider energy costs and get local partners, as well as initial base customers onboard. After that, expand out and make industry connections.” ―Darrin Coffin, CFO of Passamaquoddy Tribe of Indian Township

 

“Make sure you have lots of extra capital to invest and think long and hard about what the ROI is reasonable to expect. Get a good read on the market and research other companies who have built data centers and see how it is working out for them. Also, be aware that this market is constantly evolving and you may have to increase your investment in three to five years to meet new market needs.” ―Kurt O’Bryan, CEO of the Potawatomi Business Development Corporation

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