Taking data by storm
As Published in: San Francisco Business Times
Snapping photos and watching movies online, today’s consumers are creating a deluge of data. Loans from the Small Business Administration have helped Hurricane Electric grow to meet the demand for places to store it all.
This year, the Fremont-based data center company launched an upgrade of its “Fremont 2” building with a roughly $4.7 million construction loan, about $2.3 million of which was backed by the SBA. The loan allowed the company to expand the facility by 24,000 square feet, making room for additional tenants.
Hurricane Electric bought the 208,000-square-foot data center, its second in Fremont, with another SBA-backed loan in 2005. TMC Financing, a certified development company based in the Bay Area, provided the financing and serviced the loans for Hurricane Electric.
The 504 program provides real estate loans that the SBA backs in part, which results in a lower interest rate to the borrower. The purchase of the new data center would not have been possible without the program, said Mike Leber, president of Hurricane Electric.
“We wouldn’t be as far along as we are now without their financing,” he said.
The Small Business Jobs Act of 2010 raised the maximum amount of SBA 504 real estate loans that a company may have out at a time from $2 million to $5 million, allowing companies such as Hurricane Electric to come back for additional support.
Although just 5 percent of local loans are more than $2 million, the higher cap has enabled a number of companies to invest in large facilities without diminishing their operating capital, said Mark Quinn, district director of the SBA for San Francisco.
“Companies that have more operating capital can expand business faster and hire more people,” he said.
Hurricane Electric has done just that, increasing its ranks from 35 employees in 2005 to 85 today. The new data center allowed the company to take on so many new customers that revenue has risen by 150 percent to 200 percent since the building was purchased, Leber said.
Many of the data center’s tenants — which include Internet companies, network equipment manufacturers and universities — have requested more connections to the facility’s core routers, additional space for their servers and more electrical circuits as they grow, Leber said. The new expansion, the third phase of the company’s buildout plan, will bring the facility to 4.5 megawatts of its 15 megawatt capacity.
Hurricane Electric plans three to four more phases of expansion in the coming years, which would bring the company’s workforce to about 250 employees by 2016, Leber said. He noted that the company may also upgrade its original Fremont 1 data center, which has a 1 megawatt capacity, next year.
Kelly Morgan, research manager for data centers at 451 Research, said Hurricane Electric has been smart to expand in phases. That approach is now the norm, but it was once common for Bay Area data centers to complete their buildouts all at once.
“Hurricane Electric has been able to match expenses more closely with revenue,” Morgan said.
Regardless, Morgan said, the clamor for data centers is not likely to let up anytime soon: More than 9 million servers are purchased each year worldwide, and 50 terabytes of new data capacity is created every day.
Ed LaFrance, CEO of Connex Internet Services Inc., said his business grew by 30 percent last year, and Hurricane Electric was able to keep up with the demand. LaFrance’s company sells cabinet space, power and Internet bandwidth in data centers. Hurricane Electric is the only vendor that they work with in the Bay Area, though the data center faces competition from local firms like Bay Area Internet Solutions.
“Hurricane Electric is very price competitive, and their service is among some of the best that we experience,” LaFrance said.
Aside from its data centers, Hurricane Electric’s business also includes a global Internet backbone that stretches from Singapore to Stockholm. Since securing its SBA-backed loans, the company has become significantly more international, with 40 percent of data center customers and 60 percent of network clients now based overseas, Leber said.
“By getting the SBA loans, we have been able to bring in more revenue from all around the world,” Leber said. “The program is a fantastic business enabler.”