Tuesday, January 17, 2012

Richardson Racks Up Rackspace

The one piece of real estate most responsible for starting Richardson on the way to becoming "Telecom Corridor" is the old Collins Radio site on Collins Boulevard. Collins Radio opened its Richardson office in 1951. Sadly, more recently the site sat mostly abandoned after Collins and other tenants moved to newer homes. Recently, the old site is enjoying a renaissance as a computer data center.

After the jump, the electronic age sixty years after Collins Radio.

Perhaps you saw the news that Rackspace US Inc. signed a 15-year lease, valued at $134 million, for 58,000 square feet of raised floor space in Digital Realty Trust Datacenter Park. A data center houses racks of compute servers, file servers, data communication links, all protected by redundant power supplies, environmental controls and physical and electronic security. When you do business over the Internet, whether it's through Google, Amazon, your bank or your insurance company, your transaction gets routed through data centers like the ones growing up in Richardson.

Coincidentally, on January 9, the Richardson City Council reviewed the status of Richardson's use of Tax Increment Financing (TIF) to promote public/private financing for development and redevelopment. Richardson's TIF zones comprise only 6.7% of Richardson's total area and less than that in its property tax base, but they are key to Richardson reinventing itself.

Datacenter Park is part of a TIF zone. Here is a table from the city council's work session, showing the results of some of Richardson's key development projects:

Area 2006 Tax Value 2011 Tax Value
Collins Tech $5,813,330 $34,377,290
Brick Row $10,704,578 $44,368,620
Eastside $18,102,282 $45,886,870

Note that Eastside is not part of a TIF zone. That it, too, has become a big asset to Richardson indicates that TIF financing is not essential for all redevelopment. Sometimes, real estate has enough going for it to attract developers without government partnership. [Update: Eastside is in a TIF zone, but was not identified as a "TIF-supported sub-area" in the work session presentation. I don't know why. Thanks, Andrew, for the correction.]

But neither the Collins Technology Park nor Brick Row areas seemed to be going anywhere before the establishment of the TIF zone in 2006. Since then, both have shown significant increases in appraised value and neither one is yet fully built-out or occupied. The West Spring Valley Reinvestment Strategy is focused on turning that neighborhood around, too.

That's the good news. The bad news is that there are plenty of properties in that 2006 TIF zone that continue to struggle. Overall, property appraisals in the TIF zone are barely even over five years. But the outlook would be worse without the continual reinvention that projects like Datacenter Park exemplify.


glbeach said...

Was any of the activity there also funded by U.S. 'Recovery' money? (See: http://www.recovery.gov/Transparency/RecipientReportedData/pages/RecipientReportedDataMap.aspx?ZipCode=75081&datasource=recipient). While it is difficult to tell from the maps, certainly a couple of the loans appear in proximity to the Rackspace location. I'm simply curious, no overt intent in asking.

Anonymous said...

Eastside is in the TIF zone. See:

The City needs to be very careful about trying to "rack up" data centers for economic development. (Sorry, I couldn't help myself.)

Like all economic development there is a trade off. There are few people in these data centers so there isn't synergistic activity from people from these centers acting within the rest of the economy.

Also there is a serious consolidation trend in data management. This has two effects when it comes to data management. First is a demand for centralized data storage. That is good for Richardson's economic development. Second is a movement to reduce the footprint of data management and application management across an enterprise. That is not good. While the trend is going up on the first much faster than the second, the second will rise because it will become cost and resource efficient. Barriers to entry will be become lower, and the brink and mortar heavy infrastructure data center will lose business to diverse competition made possible by advances in cloud and virtualization. The City needs to be aware of this and avoid putting too many eggs in that basket. I have heard from data center folks who construct the actual physical environments of data centers that some of these folks get their EconDev deals and are prepared to move when incentives end. I have no direct evidence of this and I haven't seen literature on this so I don't know if its true. Given rapid changes in technology and the technology business it would be prudent for the City not to spend effort depending on data centers but consider them temporary deals (with lives from 5 to 15 years) with an anticipation of their end.

The problem with Richardson's TIF strategy is that it isn't strategic and targeted enough. The DataCenter Park deal is a great one where the owner gets payback on the investment from at most 50% of the increased of the tax increment and the City gets increased property value within its borders. Where does the other 50% go? That is the policy problem. All or part of that should be put into a reinvestment fund that is hands off except for targeted projects or acquisitions.

Mark Steger said...

Gary, I don't think any "Recovery" money was used, but I'm not positive. See this page from Recovery.gov for a list of projects in ZIP code 75081.

Andrew, I hope Richardson has learned the benefits of diversification from the telecom bust. And I hope every company and industry has learned the benefits of continual reinvention. Factoid: Nokia, which everyone thinks of as a cell phone giant, started as a paper mill in the 19th century. Today, it's in the process of reinventing itself yet again as its cell phone business is in steep decline.

Nathan Morgan said...

Whenever such news is announced, there is lots of bragging about the raw numbers but little about the net benefit to the city coffers.

We have poured millions of public dollars into this project in terms of grants, abatements and other economic development incentives.

The City likes to brag in gross numbers, but rarely ever tells the whole story, like what they spent and gave away from revenues to get there. Evidence is the TI deal, among others.

RackSpace is no stranger to this kind of arrangement. Their Wincrest headquarters cost the community tens of millions in give aways.

There are many cases where Richardson has given away future revenue to lure business to the city. And, many cases where those enterprises moved out soon after the free ride came to an end.

This lends a whole new meaning to the term "Transient Oriented Development".