Debt Comes Due on Santa Clara Data Center

GI Partners, San Francisco, Data Infrastructure Fund, Equinix

By Sharon Simonson

Morningstar Credit Ratings LLC has added a $52.8 million loan backed by a Santa Clara data center to a credit watch list. But the designation is more procedure than reflection of worry based on a scheduled Oct. 1 repayment deadline.

San Francisco-based Digital Realty Trust Inc. bought the data center at 1350 Duane Avenue and 3080 Raymond Street in October 2009, paying $489 a square foot, according to Morningstar. The seller was Inland Real Estate Investment Corp.

Digital Realty assumed the $52.8 million debt at purchase. The interest-only loan is the sixth largest in a loan pool securitized in 2006. It represents 3.3 percent of the pool as measured by unpaid principal balance.

Digital says it expects to repay the note in full on Sept. 4 without penalty, according to a supplement to its second-quarter financial report to the Securities and Exchange Commission. The loan represents less than 2 percent of Digital’s outstanding debt.

The loan required interest-only payments and at issuance was structured to pay a 5.42 percent coupon rate. The 185,000-square-foot property produces annual rent in excess of $10.25 million.

The data center is leased to Sprint Nextel, which has sublet the space to Equinix Operating Co., which occupies the property. The lease and sublease expire in September 2014. In 2006, the annual rent was $48 a square foot, but the lease has annual rent increases.

Morningstar estimated that the building is worth $89.5 million, or not quite $560 a square foot.

Digital Realty owns more than 1.8 million square feet of data center space in Silicon Valley, producing not quite $100 million in annual rent. The company owns another one million square feet in San Francisco, which has annual rent of more than $78.5 million.

In total the company owns more than 17 million square feet of data center space and another 775,000 square feet of technology office space worldwide. The properties produce annual rent of more than $845 million.

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