As it enters 2021, data center provider Flexential can tap a growing portfolio of services and markets to help enterprise customers sort out a complex IT landscape. CEO Chris Downie says recovery from the COVID-19 pandemic will bring a sharper focus on hybrid IT, as customers combine cloud, colocation and on-premises workloads to serve a distributed workforce.
“Enterprises will increasingly look to consume a hybrid set of resources, and that is our strategy,” said Downie. “In 2020 we saw an acceleration of data center consumption, and as we enter 2021. we are very focused on our hybrid solutions.”
Flexential is among the data center developers building platforms to help companies manage a business world being reshaped by digital technologies. That process has been accelerated by the pandemic.
“In 2020, digital infrastructure that is mission critical for businesses was required to be more geographically dispersed and more connected than ever before, as every company had to navigate the need for a more remote workforce,” said Downie.
As it grows beyond its roots as a regional provider, Flexential has built a national footprint and global connectivity, with 40 data centers and more than 3 million square feet capacity across 20 markets. With its theme of “beyond four walls,” the company is targeting customers that need to connect across markets, and sees the private 100 GB network for its data centers as a key player in its growth.
“Network is the ultimate enabler, and given the densities that have now diversified into the tier two markets, I believe they should be just as attractive as the tier one markets,” said Downie.
Adding Capacity in Dallas, Hillsboro
Flexential was formed through the 2017 merger of Peak 10 and ViaWest to create a national network, and is backed by private equity firm GI Partners, an experienced investor in the data center industry. Peak 10 targeted second-tier markets in the Southeast, while ViaWest built a similar network in the Western U.S. The combined companies rebranded in 2018, with a focus on “the power of people in a technical world.”
Downie joined Peak 10 as CEO in 2016, and has since charted a growth strategy for Flexential that has focused on building a national service delivery platform spanning regional markets like Cincinnati, Jacksonville and Richmond, with a strategic presence in major connectivity hubs like Dallas, Atlanta and Phoenix.
Flexential just announced a new facility in Plano, Texas, which will add 2.25 megawatts of capacity in the first phase of a 146,000 square foot expansion. This builds upon several highly-connected suites within the Infomart carrier hotel in Downtown Dallas, and stand-alone data centers in Richardson and Plano in the North Dallas market. When completed, the new Plano site will give Flexential 588,000 square feet of data center capacity in the Dallas market.
Dallas is currently a market with a lot of data center inventory, including substantial space optimized for hyperscale tenants. Downie believes there is plenty of opportunity to serve enterprise businesses.
“Dallas been an important market for us,” said Downie. “I believe that market is proven and has been robust over time. I’ve seen that market go through ebbs and flows, including periods where there’s a ton of supply and everybody’s concerned. Ultimately all that supply has been consumed.
“We serve enterprise demands of not more than five megawatts, and we still see steady demand there,” he added. “About 65 to 70 percent of our incremental growth comes from our existing base, so it’s got strong organic growth.”
In recent years Flexential has begun to invest in larger data centers to support a strategic shift into the market for wholesale data center space, in which a tenant leases a finished suite of “turn-key” raised-floor space. Those tend to be larger deals than seen in retail colocation, Flexential’s historic focus, in which tenants buy smaller amounts of space by the cabinet or cage.
The company newest data center in Hillsboro, Oregon reflects that trend. At 358,000 square feet and 36 megawatts of capacity, The Portland 3 facility is the largest that Flexential has built. That mirrors the evolution of the market in Hillsboro, the data center district West of Portland that has seen an inflex of larger developers building wholesale capacity.
“We have high expectations for Hillsboro,” said Downie. “We were one of the earliest entrants there. With the power availability and the cost of power, it was a very logical place for more of the California-centric companies to expand.”
Early Opportunities for Edge Deployments
Early last year Flexential lined up $250 million in borrowing to continue to expand its data center footprint. Beyond the immediate growth in hybrid enterprise deployments, Downie sees opportunities in edge capacity, as well as entering larger markets.
Much of the early edge activity has involved regional deployments by cloud providers, which have focused on second-tier markets rather than cell towers or remote aggregation points.
“We’re very actively deploying cloud nodes – smaller scale deployment that are in our markets because that’s where the population is growing,” said Downie. “We saw a fair amount of activity on that front. and we expect more of that in 2021 because (cloud providers) are not anywhere near done. They need to have more compute close to more population. That’s really their business model.”
For the next phase of edge growth, Downie highlighted Flexential’s partnership with American Tower, the huge telecom real estate landlord that has begun deploying a network of small modular data centers at its telecom tower properties. The companies are working on a local edge solution that tethers American Tower sites with Flexential data centers and the FlexAnywhere connectivity fabric. Early deployments have been announced in Atlanta, Denver and Boulder, Colorado.
“I look at that partnership as a tangible manifestation of the edge,” said Downie. “It’s still very early days, but we’re deployed in three markets with them, and we’re beginning to explore the use cases that are going to drive scale for that product.”
Capital Strategy and Growth Markets
The other opportunity is in adding new geographic markets where Flexential doesn’t yet have a presence. Downie likes regional markets, but the massive growth around Ashburn in Northern Virginia is hard to miss.
“We certainly have aspirations, just because I’ve got a lot of existing customers that would like to have a deployment there,” said Downie. “I never want to bet against Ashburn because it just continues to grow and grow and grow. It’s the easy default decision.
“But at the end of the day I think you can really make a difference by going to some different markets,” he said. “I look at our network platform, FlexAnywhere, and we have markets with comparable densities to what the larger players have in their tier one markets. Those requirements don’t need to be in Ashburn or a big expensive location like New York or California. That’s why I think like a Hillsboro is pretty interesting and Denver and Nashville are pretty interesting.”
The other consideration is capital. Downie has certainly noticed the recent investment in the data center industry by large financial players like infrastructure funds, sovereign wealth funds and marquee Wall Street firms. These investors bring affordable capital, and lots of it.
“We’re certainly thinking about getting access to that capital,” said Downie. “We have a great private equity partner, but the cost of that type of infrastructure capital is very attractive. It’s accelerating capacity for a number of our similar scale brothers in the industry, so our financial strategy should incorporate that.”
One factor in the investment outlook has been data center demand from hyperscale operators, who have exceptional credit and often lease entire buildings. Large investors are attracted by the economics of fully-leased wholesale data centers in major markets. For Flexential, that’s both an opportunity and a challenge.
“With a lower cost of capital and a big existing customer who may want to go to Ashburn or New York or Chicago, we can look at those types of markets because the execution risk is lower,” said Downie. “We need to educate the infrastructure capital sector about hybrid solutions. That capital is not coming into managed service providers right now. I believe we will be an attractive destination for that type of capital.”