Pinnacle Holdings reversed itself last week on an announcement it made earlier this month that it planned to pursue opportunities in the colocation facility business.
Long a renter of space on towers, the Sarasota, Fla.-based company had said it wanted to branch out to host tenants at a much different, but highly sought-after location-the “telecom hotel.”
To that end, Pinnacle entered an agreement to acquire the Univision Center Building in Dallas. The building hosts numerous large anchor telecommunications tenants, including Cable & Wireless plc, WorldCom Inc., AT&T Corp. and Winstar. These companies use the space in these modified buildings to house high-speed communications and Internet infrastructure equipment.
In addition to the Univision Center Building, Pinnacle also said it planned to develop another similar $136 million facility in Dallas, the home of Infomart, one of the original and largest telecom hotels in the United States. Built in 1985 and modeled after the Crystal Palace-a famous Industrial Age building in Britain-at 1.6 million square feet, Infomart Dallas hosts more than 100 technology companies, including 26 telecommunications providers.
But Pinnacle now says it plans to focus its full attention on the growth of its tower business, and it is considering its options with respect to the properties it has acquired or has under contract.
“We have considered this business opportunity for some time,” said Bob Wolsey, chief executive officer of the company. “However, after much analysis and taking into consideration the views of our valued shareholders, we have decided to commit 100 percent of our efforts on the tower business.”
Telecom hotels, relatively unknown and uncalled for until a few years ago, are attracting attention as the burgeoning high-speed data services market is making the need for these types of buildings reach peak levels.
“We’re seeing a continued increase in demand. How long that lasts maybe will be determined by the telecom industry,” said Ted J. Zetzman, vice president of the corporate advisory services group for Pacific Realty Commercial L.L.C., a real estate company that manages a telecom hotel in Omaha, Neb.
“It’s a very popular product type at the moment and a lot of investors seem to be jumping on the bandwagon,” Zetzman said.
Because this type of space is a hot commodity at the moment, tech companies are willing to pay above-market prices, often $5 to $10 per square foot above what typical office space costs to rent.
Seemingly endless demand and profit potential aside, a venture of this kind does not go without risk. A telecom hotel requires many special modifications to safely and effectively support massive pieces of equipment.
In the 345,010 square-foot Omaha “Telecom Exchange” building for example, the first and second floors are dedicated to diesel-engine generators, with the tanks located in the basement. The floors are reinforced with concrete and steel, the ceilings are raised and the roof is modified to support towers and drycoolers that keep the equipment operating at a safe temperature. Fiber optic cables and extra electricity also are channeled into the building.
“There is risk in laying out $30 million in capital when you have a very nontraditional, highly modified building,” Zetzmen said.
Telecom hotels are not going without public criticism either. Residents living around a telecom hotel in Manhattan claim the building’s constant din is breaking the city’s noise ordinance. The Department of Environmental Protection became involved and residents say some of the noise was relieved when the phone companies stopped testing their generators at odd hours.
