ByteGrid looks beyond Ashburn for data center purchases

February 16

Kenneth R. Parent and Manuel F. Mencia have visited a lot of what they call “NFL cities.”

An NFL city is a Denver, a Minneapolis, a Cleveland — not one of the largest cities, but big enough to have a pro football team.

And those cities are where Parent and Mencia are buying the building blocks of McLean-based ByteGrid, a data center company formed in 2011 and backed by private equity.

Data centers are a centralized space for IT equipment and are traditionally located in packs, including locally in Ashburn, home to millions of square feet of data center space.

But Parent and Mencia are taking a different approach. Instead of clustering their centers in popular areas like Ashburn, they’re seeking facilities in what they consider underserved areas, the NFL cities of the country.

“There’s a herd mentality,” Parent said. In some of the cities ByteGrid has pursued, “there was certainly demand coming through, and there was no place for that demand to land.”

Stephen Hoopes, an industry analyst with IBISWorld, said clustering makes sense, given the need for energy and fiber optic connectivity. In many cases, data centers are located near major cities to be close to customers. But he agreed that the tendency to bunch might create some underserved areas.

Backed by Altpoint Capital Partners, a New York-based private equity firm, ByteGrid has already bought four data centers and is close to finalizing a deal for its fifth.

The first buy was a data center on an 11-acre site in Silver Spring, a nondescript squat building near a strip mall. ByteGrid bought the facility in 2011 from a bank that opted to become a lessee, rather than an owner and operator.

In late 2012, ByteGrid bought a 77,000-square-foot Alpharetta, Ga., data center that is fully occupied by a software and technology services company and, in 2013, it picked up a data center in Cleveland with 333,000 square feet of space.

Earlier this year, the company purchased a 70,000-square-foot data center in Aurora, Ill., about 30 miles west of downtown Chicago, from an affiliate of CNA Financial Corp., a commercial insurance writer. CNA will continue to occupy about one-third of the space through a lease.

Parent and Mencia established ByteGrid just as the government was promising to consolidate its own data centers to save money. While some observers saw this as bad news for data center companies, ByteGrid executives say the initiative has in fact resulted in work from agencies. One agency, for instance, is consolidating 10 data centers into ByteGrid’s Silver Spring site.

Parent acknowledged ByteGrid has growing to do; its Silver Spring site, for instance, is only about 25 percent occupied. Still, he said the company is where it expected to be and continues to look for new opportunities, including putting another data center under contract.

While private-equity investment typically comes with a relatively short time line, Parent said ByteGrid’s investors are more patient than typical firms. Still, he said, “the money will eventually have to get out,” perhaps in the form of going public.

In the meantime, Parent and Mencia are traveling the country, seeking new sites.

“Right now, our focus is on the U.S., but we get increasingly tempted to look outside the U.S.,” Parent said.

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