Colony’s Digital Playbook Powers Edge Strategy for DataBank

Marc Ganzi believes edge computing is going to change the digital economy. As our devices become more distributed and mobile, delivering data requires infrastructure in more places. That includes a diverse range of technologies spanning data centers, enclosures, wireless towers, distributed antenna systems and small cells.

As CEO of investment firm Colony Capital, Ganzi hopes to conquer the edge amid a convergence of technologies, companies and investors. The primary vehicle for this strategy is DataBank, a colocation provider that has become the platform for a series of acquisitions to implement a “digital playbook.”

“Edge computing is a huge opportunity and we’re helping DataBank capitalize on it,” Ganzi said last week on Colony Capital earnings call. “This is a story about executing on converged networks.”

Colony Capital is bringing together colocation, modular data centers, small cell networks and fiber to create a converged digital infrastructure. That effort has accelerated in 2020 as DataBank has acquired zColo and invested in modular specialist EdgePresence, massively increasing its data center footprint and edge capabilities. These deals also create more opportunities to work with other Colony portfolio companies like Vertical Bridge and ExteNet, which provide tower and antenna infrastructure for carriers.

“This is really an equation of taking multiple portfolio companies and looking to deploy infrastructure for the benefit of our customers,” said Ganzi. “Providing these integrated solutions is really the future of where digital REITs are going. The breadth, power and value of the Digital Colony platform is on full display here. Edge computing is a huge opportunity and we’re helping DataBank capitalize on it.”

Looking Beyond Data Centers

At Data Center Frontier, we’ve been tracking the evolution of multi-sector strategies that spread investment across the entire spectrum of digital infrastructure assets, including data centers, telecom towers, wireless antennas and fiber. The emergence of edge computing and 5G wireless networks will enable new technologies that shift IT infrastructure outside of core data markets, and require additional integration between data centers, telecom towers and antennas

But multi-sector strategies get complicated. Expertise doesn’t translate neatly across technology boundaries, nor does asset valuation.

Ganzi’s solution is to work with a range of investors and talent, using multiple vehicles to align investment criteria and business goals. The result is a sometimes complex mosaic of companies designed to manage risk and capture targeted opportunities in digital infrastructure.

In the data center sector, that means two operating platforms – DataBank for retail colocation and edge computing, and Vantage Data Centers for wholesale and hyperscale requirements.

DataBank is led by CEO Raul Martynek and has been an active consolidator, buying C7 Data Centers (2017), Edge Hosting (2017), a data center portfolio from 365 Data Centers (2017), Lightbound (2017), and now zColo (2020) and a stake in EdgePresence (2020).

This series of deals has transformed DataBank from a regional specialist into one of the largest U.S. data center operators, with 64 data centers, 1.2 million square feet of data center space, and 138 megawatts of installed UPS capacity.

Colony’s Digital Playbook Powers Edge Strategy for DataBank 1

“With the continued expansion of 5G and internet infrastructure, we are seeing the need for geographic-specific colocation solutions,” said Martynek. “The combination of DataBank’s expanded footprint with zColo facilities and EdgePresence modular solutions will allow us to offer customers almost unlimited geographic flexibility for their IT infrastructure.”

“These are really important deals that sync DataBank’s profile with the demand tsunami we see coming down the road in edge computing,” said Ganzi.

Edge Architecture and Trends

The goal is to position DataBank for a major shift in Internet architecture, according to Ganzi, who laid out Colony’s vision for the edge during last week’s earnings call.

“Everyone has been talking about the edge for the better part of the last 18 months,” said Ganzi. “While computers continue to grow rapidly over the last 10 years, what’s been underappreciated is the exceptional growth in demand that’s yet to come. Machine-to-machine communications will underpin use cases for AI, IoT and cloud computing, which will cause compute demand to skyrocket.”

The explosion of machine-to-machine (M2M) data will drive demand for more servers in more places.

“Cowen estimates over the next eight years edge servers will support 10% of cloud workloads globally, up from around a little over 1% today, ” said Ganzi. “That’s over 1.5 million servers sitting in edge data centers around the world. That’s a huge opportunity for DataBank.”

Colony’s Digital Playbook Powers Edge Strategy for DataBank 2

Earnings presentation from Colony Capital.

The shift to decentralized computing is forcing changes in network architecture, as these new use cases require lower latency, faster speeds and greater device efficiency.

“This is not a short-term trend,” Ganzi added. “It’s really important to focus on that. It’s part of a multi-decade cycle that we’ll see compute migrate back to a distributed model at the edge of networks.”

Translating Edge Complexity Into Investor Value

In building the DataBank and Vantage platforms, Colony Capital has used a combination of its own capital, equity funds from investor consortiums, and debt.

“We raised all the equity and coinvested capital of over $1.4 billion, and we’ve arranged $1.5 billion of debt over the past four years creating the fuel for DataBank to grow,” said Ganzi. “These deals really position DataBank for the future in edge computing.”

The EdgePresence deal reflects the ways a multi-sector strategy can create value, Ganzi said.

“Not only is DataBank making a $30 million strategic investment into this business, but EdgePresence is also partnering with Vertical Bridge, one of our other digital Colony portfolio companies to deploy their micro data centers at the base of Vertical Bridge’s towers,” said Ganzi. “We’re already in-flight at 12 locations and Vertical Bridge has tower locations in over 9,000 locations across the United States today.”

Martynek sees real value in Colony’s multi-sector approach, which builds understanding about how different asset classes will work together in an edgier future.

“These have all been bought in the past as point solutions, but these are all connected pieces of the digital fabric,” Martynek told DCF earlier this year.  “We can share insights into what we’re seeing from demand and customer experience perspectives that we’ve never really had before. That is an example of the power of this loosely controlled group. We’re just in the beginning of trying to figure out how to make this synergistic.”

“Everyone has been talking about the edge for the better part of the last 18 months. What’s been underappreciated is the exceptional growth in demand that’s yet to come.”
Mark Ganzi, CEO of Colony Capital

Ganzi and Ben Jenkins founded Digital Bridge after playing similar roles for a decade at Global Tower Partners (GTP), the largest privately owned operators of telecom towers. The company was created in 2002 and built a portfolio 16,000 sites before it was acquired by American Tower for $3.3 billion in 2013. Ganzi and Jenkins founded Digital Bridge in 2013 with a “singular focus” on owning and operating communications infrastructure companies with strong cash flow. That has extended to Colony, which has driven plenty of data center M&A activity since 2016, with more to come.

“We deployed over $530 million between DataBank, zColo and Vantage in the last year,” said Ganzi. “I can commit to you is that we will make another significant balance sheet investment over the next six months.”

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