🔒Norwalk data center operator grows into $100M business; CT’s high electricity prices prevent in-state growth

Bob DeSantis is bullish about the future growth of data centers.

He should be. His Norwalk-based company, 365 Data Centers, runs them and has grown into a $100 million business since he took over as an owner and CEO in 2017.

DeSantis and two equity partners acquired 365 Data Centers in April 2017, when the company, based in San Francisco at the time, owned eight data centers spread across the U.S., including in major cities like Chicago, Detroit, Indianapolis, Nashville, Philadelphia, Tampa and New York state.

“We had about 11 megawatts of power and 125,000 square feet spread across eight data centers,” DeSantis said in a recent interview with the Hartford Business Journal.

In November 2022, 365 Data Centers expanded by acquiring the U.S. colocation and network business of Sungard Availability Services.

The company now owns and operates 20 data centers, with 80 megawatts of power stretched across its facilities, which span a total of roughly 1 million square feet. It employs more than 200 people.

DeSantis estimates 365 is the 10th-largest data center operator in the United States, based on the total square footage of its locations.

“But number nine is like 10 times bigger, and number 11 might be half our size,” he said. “So, we’re kind of in that top-of-the-little-guys, small-big-guys range.”

As demand for data centers to power artificial intelligence technology grows rapidly, DeSantis said his plan moving forward is to expand methodically.

“We have consistently been value acquirers, so we certainly are always looking at opportunities to acquire a data center, but we’re very, very disciplined,” he said.

Rather than expand its geographic footprint, the company is focused on becoming a “very large regional player here on the East Coast,” DeSantis said

Seventeen of its data centers are in, and to the east of, Chicago. The company also has data centers in Dallas, Denver and Rancho Cordova, California.

365 Data Centers has 1,400 customers, mostly in the United States, including network carriers like AT&T and Verizon.

The company is seeing top-line growth of 6% to 9%, after revenue lost from customer churn, DeSantis said.

About 80% of its business consists of colocation hosting, which involves businesses renting data center space to house their own servers and equipment. The other 20% comprises network and cloud-based hosting.

CT ties

DeSantis has held leadership positions in public and private companies. He was the chief financial officer of Frontier Communications’ predecessor, Citizens Communications, based in Stamford, for 14 years starting in 1986.

He also co-founded the company Xand, based in Westchester County, New York, which he helped grow into the largest private data center operator between Philadelphia and Boston. In 2016, he and his partners sold the company to St. Louis, Missouri-based TierPoint.

Despite being headquartered in Norwalk, most of 365 Data Centers’ operations occur outside of Connecticut.

Of the company’s roughly 200 employees, 14 to 16 work at its Norwalk headquarters, mainly handling back-office functions. About 160 employees work at the data centers. Others are based at customer service centers in Florida and New Jersey.

DeSantis said establishing a data center in Connecticut is not a priority, but he hasn’t discounted it as a possibility.

Connecticut’s high costs of electricity, real estate and wages make the cost of running a data center higher than in other states, such as Pennsylvania, Georgia and even Massachusetts, DeSantis said.

His company’s largest data center provides 20 megawatts of electricity. Because data centers consume so much power, energy costs are especially important determinants of their location.

DeSantis noted that in New York, the state has created an entity that subsidizes power for businesses, called ReCharge NY.

ReCharge NY provides discounted hydropower to businesses for up to seven years in exchange for job creation and investment commitments.

DeSantis said his data center in Long Island takes advantage of the program and pays about 10 cents per kilowatt-hour, a 6-cent per kilowatt-hour discount.

Tax incentives have limited impact

Connecticut has tried to attract more data centers by creating tax incentives through the state Department of Economic and Community Development (DECD).

In 2021, the legislature enacted the Connecticut Data Center Tax Incentive Program, which can waive sales and use, and property taxes for 20 years for data centers that invest at least $200 million ($50 million if located within a state-designated enterprise zone).

The tax exemptions could be extended up to 30 years for investments that exceed $400 million.

So far, Bloomfield-based health insurer Cigna Group is the only company to apply for benefits under the program, according to a DECD spokesman.

The health insurer is upgrading its 153,462-square-foot data center at 9 Griffin Road North, in Windsor. The cost of the renovation is about $380 million.

Cigna did not respond to a request for comment.

Connecticut has about 60 data centers, according to datacentermap.com.

DECD Commissioner Daniel O’Keefe supports leveraging the economic benefits of data centers, but said the state isn’t likely to further incentivize them.

“The state of Connecticut is a denser state than other states in the country, and regionally, our energy costs are comparatively high to other places,” O’Keefe said. “So, it isn’t necessarily a deeply logical place for a massive amount of data centers.”

He added: “If there’s an investment in compute that makes sense for our industries or academic institutions, there are ways to do it.”

Despite it not being a priority, DeSantis said he isn’t opposed to running a data center in Connecticut. If he were to do so, it would probably be in Fairfield County, he said, due to its proximity to businesses in New York City.

Companies prefer to rent space at data centers they can access by train or via a short drive.

Data centers don’t tend to create a large number of jobs, but they do require millions of dollars of investment each year to maintain their infrastructure, DeSantis said.

They support jobs indirectly, because more companies will stay in regions with data centers that can support their infrastructure needs, he said.

Evolving business

Meantime, 365 Data Centers is working to adapt to a changing business climate.

Around 2014-15, some businesses began switching from colocation to cloud services, which offer nearly unlimited storage capacity and a pay-as-you-go structure.

“There was a bit of cannibalization of (colocation), as the cloud opportunity became available,” DeSantis said.

While cloud hosting is still growing faster than colocation, DeSantis said some customers that switched to the cloud are now returning.

Also, many industries in the Northeast — including health care, financial services, higher education and tech — prefer colocation because it gives them more protection and control over their data.

“A lot of this has to do with the proprietary data and the proprietary applications they run,” DeSantis said.

Some companies are also choosing a hybrid-cloud deployment, he said.

As a whole, the data center industry is expected to continue growing, driven by “the rapid digitalization of businesses and rising investments from colocation, cloud, Internet and telecommunication providers,” according to the 2024 U.S. Data Center Colocation Market report.

For example, telecom companies such as AT&T and T-Mobile are deploying 5G services, which offer faster speeds, more reliable connections and higher capacity — and are preparing for the adoption of 6G technology.

The U.S. data center colocation market was valued at $12.4 billion in 2023, and is projected to grow to $26.95 billion by 2029, according to the report.

DeSantis said the proliferation of AI is requiring data centers to run more powerful equipment that uses more electricity.

365 Data Centers may, in the future, purchase an AI data center, he said. For now, the company is upgrading its data centers to provide enough power to meet customers’ needs.

“I lead the company in a way that we want to keep every customer we have,” DeSantis said. “To me, it’s very important, because I’m an owner, it’s reputational to me.”