PowerHouse Data Centers Launches $1 Billion Expansion in Data Center Alley

PowerHouse Data Centers Launches $1 Billion Expansion in Data Center Alley

October 21, 2022 | Powerhouse Data Centers | Rich Miller, Data Center Frontier

PowerHouse Data Centers, a new platform created by AREP and investor Harrison Street, plans to invest $1 billion to build six data centers representing 2.1 million square feet of space in Northern Virginia between now and 2026.

Powerhouse Data Centers is entering the world’s largest market for cloud infrastructure at a complex moment for data center development. As the Northern Virginia market seeks to manage power constraints imposed by Dominion Energy, Powerhouse may have fortuitous timing in its entry into the Loudoun County market.

The company is positioned to bring a new data center online in 2023 – when new capacity is likely to be tight – as well as have two big new campuses set to arrive as the power constraints lift.

Powerhouse is the new brand for the digital infrastructure business of American Real Estate Partners (AREP), which has big ambitions in Ashburn and beyond. The company has been scaling up its data center development operation since its 2015 acquisition of Quantum Park, the former UUNet site in Ashburn that was a key connectivity hub dating to the early days of the Internet.

This year AREP and investor Harrison Street outlined plans to invest $1 billion to build six data centers representing 2.1 million square feet of space in Northern Virginia between now and 2026, In July, the operation was rebranded as Powerhouse Data Centers.

“We are excited to offer a new data center solutions company to meet the rising demand of hyperscalers in Ashburn and change the landscape of Data Center Alley,” says Doug Fleit, Co-founder and CEO of AREP and PowerHouse Data Centers. “We provide hyperscalers a unique competitive advantage of an accelerated speed to market while overcoming the challenge of a fierce ‘data center land run’.”

Before it begins building out its data centers, PowerHouse has been building out its team. The company recently appointed Luke Kipfer as Vice President of Data Center Development and Construction and Jarrett Appleby to Data Center Strategy Consultant and Senior Advisor. Kipfer brings more than 15 years of mission-critical experience leading dollar data center design and construction, notably at Markley Group. Appleby has successfully led strategic operations at several of the world’s leading digital infrastructure companies over the past 30 years. He was Chief Operating Officer of Digital Realty and Coresite Realty and Chief Marketing Officer (CMO) of Equinix.

‘We intentionally brought them on at the beginning stages to be part of developing and establishing our custom solutions that empower hyperscalers with accelerated speed to market, robust connectivity and dedicated power while bypassing limited land and leasing challenges in Data Center Alley,” said Fleit.

PowerHouse ABX-1

The first project to come to market will be PowerHouse ABX-1 at Beaumeade, a 265,000 square foot (SF) data center scheduled to come online in October 2023. The site, which was acquired in 2021, is next door to data centers for Equinix and RagingWire, and immediately adjacent to major new campuses for Equinix and Amazon Web Services. It also lies in close proximity to the original Equinix Ashburn campus, which is the center of connectivity in America’s most wired neighborhood.

Importantly, the site came with 30 megawatts (MWs) of power, which is important in light of constraints at Dominion Energy, which has limited power availability for new data centers in parts of Data Center Alley, the central interconnection hub in Ashburn. Dominion Energy says it has resumed providing new connections to some data center customers in a power-constrained section of Loudoun County.

But the available power remains far less than data center providers had originally been expecting, and power constraints are likely to persist until new transmission infrastructure is completed in 2026.

Dominion is building a new 300 MW substation on the ABX-1 campus, which will serve Powerhouse and several neighboring facilities.

“We’re big partners with Dominion in this market,” said Fleit. “We are building an asset and substation together on our Beaumeade property, and I think they are supportive of our mission. Dominion needed to serve the market, and it was important for us to make sure we have the power for our building.”

The Beaumeade site had 30 megawatts of power allocated to it when it was purchased, and has an agreement for the new substation to provide another 50 MWs for the site. “It’s been in planning for almost two years,” said Fleit. “We’re under construction, delivering our building in October of 2023, and the substation comes online at the end of 2024.”

PowerHouse Pacific

The most high-profile project for PowerHouse will be its redevelopment of the former America Online (AOL) headquarters campus in Ashburn, which was a launchpad for the Internet revolution that swept the country in the early 1990s. AOL served as the initial on-ramp to the Internet for many Americans with its ubiquitous installation CDs and “You’ve Got Mail!” notification earbug.

“We own two of the most iconic properties in Ashburn, the Quantum Park campus and the AOL campus,” said Fleit. “At some point or other, I believe that that the vast majority of people who work in and around Ashburn in the telecom and data center sector have probably worked in one of those two properties.”

The AOL site on Pacific Boulevard will be known as PowerHouse Pacific, and will host three build-to-suit data centers for hyperscale tenants. To create the new buildings, PowerHouse will demolish the exciting buildings on the site.

The company is currently in the planning process, but expects to complete construction in late 2025 or early 2026, and is hopeful Dominion will be able to deliver additional power by then. Dominion has said publicly that it expects to complete an expansion of its transmission system by 2026 that will make more power available for data centers in Eastern Loudoun County.

“With our Powerhouse Ashburn Pacific, it’s possible that something could happen in 2025,” said Fleit. “We’re certainly capable of having our buildings up in 2025, and we’re moving along that line. Dominion is still working through their issues. I suspect they’re being a little conservative. I think everything’s moving very rapidly.”

PowerHouse Arcola

The PowerHouse Arcola Data Center project is set for completion in 2026 and will provide 80 MW of critical power for a two-building facility with 364,100 SF of data hall space. The campus will be near Google and Amazon Web Services campuses in the Dulles Cloud Corridor, a fast-growing data center district to the south and west of Dulles Airport. It’s one of several sub-markets in Northern Virginia where data center builders can add availability zones to support the massive cluster around Ashburn.

Fleit says the project is on schedule, and not really impacted by power constraints.

“Power delivery for that site was always anticipated to be the early part of 2026, and in our conversations with Dominion it is still in early 2026,” said Fleit. “That’s always been the game plan, and we’ve been working closely with Dominion and make sure that we will stick in that timeframe.”

The Arcola site will provide additional options for companies interested in IT infrastructure in Northern Virginia.

“Ashburn has evolved from a multi-tenant colocation market to more of a hyperscale market,” said Fleit. “It’s now actually shifted to a campus market, more so than any other market we’ve seen in the world. You can see all of the significant hyperscalers creating campuses.”

Fleit also noted the importance of “virtual campuses” with multiple sites linked by low-latency networks to create regional IT ecosystems. “That’s a paradigm shift,” said Fleit. “It has expanded beyond Ashburn. You’re seeing growth in Prince William County, and you’re going to see the Ashburn market expand out west.”

Future Plans

PowerHouse brings together two partners with extensive success in real estate development. AREP was founded in 2003 and has acquired more than 17 million square feet of real estate totaling more than $4 billion in value. The company focuses on development in the Mid-Atlantic region, with a concentration of properties around Washington, D.C.

Its financial partner for PowerHouse is Harrison Street, which focuses on real estate in sectors like senior living, student housing and life sciences, and has recently stepped up its investments in the data center sector. Harrison Street has teamed with 1547 Data Center Real Estate to acquire carrier hotel buildings in Milwaukee and Portland, Oregon.

“AREP with its successful track record and deep local connections is an ideal partner for Harrison Street and we look forward to working with AREP to capitalize on the significant data center demand in Ashburn,” said Michael Hochanadel, Head of Digital Real Estate at Harrison Street.

PowerHouse is focused on Northern Virginia, but is also scanning the horizon for opportunities in other markets.

“Our venture is expanding its presence, and looking strategically at what markets we want to serve,” said Fleit, who said the company is closely tracking how growth, connectivity and sustainability are shaping the geography of data center real estate.

“We’ve been watching this unfold,” he said. ” A central part of our strategy is looking at sites outside of Ashburn that are important to end users.”