Data center real estate investor Daniel English on converting an empty Chicago office tower into a 50-megawatt AI data center

English from Legacy Investments. He's a managing partner there. We'll bring him in to the TVP at Ultradome from the waiting room. Legacy Investments does private real estate and infrastructure investment platform. Daniel, welcome to the show. How are you doing?

What's going great? Thanks for having me.

How was your Fourth of July?

Uh uh in the nation's capital. So, I was here for all the storms and the fireworks.

Very fun.

Well, since it's your first time on the show, I would love for you to kick it off with a little bit of an introduction on yourself and Legacy Investments. Get us up to speed.

Yeah, absolutely. So, my original background was tech entrepreneurship. Uh, probably similar to you guys and then saw the opportunity in infrastructure for the buildout of the internet and

15 years ago started investing in data centers and

uh data center commerce warehouses.

Yeah. e-commerce warehouses as well and also some life life sciences real estate. Is that correct?

Yeah, sort of all takes the same kind of infrastructure. So the whole idea was own the infrastructure that you know the the digital world is being built on top of.

Yeah, thesis makes a ton of sense. Take us through the very first deal. Like did you have to marshall capital? Is it like raising a venture fund? Are you just deploying your own capital and working with a bank for a mortgage? Like what was that first deal like?

Yeah, it's very similar to venture, right? So, you know, just huge sums of money. I mean, today our typical

deal is $600 million. Yeah.

Just just each. So, and that's a small data center investment, right? So,

so, so big big dollars. But, yeah, I mean, you go out, you raise your money, you have a pitch deck, uh, uh, the same basic, um, same basic process. So, we started, you know, I think 15 years ago, nobody understood what a data center was. So, it was fascinating. In fact, I got laughed at a lot by private equity who was like, "You left tech and venture to go center."

Wow. Who's laughing?

It's amazing now.

Yeah, exactly. They're like, "Hey, we'd love to catch up and get coffee and you can tell us about how

So, so I I I want to understand uh data centers went from being something that no one really cared about to suddenly everyone cares about them all the time. So much so that if anything happens at a data center tied to any hyperscaler, it gets like reported to the front page of the Wall Street Journal or even the New York Times, right? Like

it's like satellite photos monitoring the

So so uh through that process, how how did the game change from an investing standpoint? you know, rewinding, let's say, early 22 to to 23 and then I want to go from like 2023 to 2024 and like understand those those changes because it's just been

ramping up to such an extreme degree and it still feels like there's a ways to go.

Oh, absolutely. I mean, the first transition was in call it 2010 when cloud really came on the scene, right? So, so you had data centers before 2010. 2010 to sort of 22 you had a big run up in cloud

and and so that was a whole era of data centers that shifted but really with with the introduction of AI you got this huge increase in density and demand I mean demand was already growing astronomically but but as you guys know AI is really pushing pushing that and and at the same time and we're also constraining on on power so the biggest transition was just the amount like of of power so in in 200 2010, you know, a five megawatt data center was a good one. 30 megawatts was sort of peak.

Now, you know, 30 megawatts is a small data center. Uh you're, you know, everybody wants a gigawatt. Uh and and so that scale is just astronomical versus what we had before. And so what we're seeing is, you know, really everything we're doing, including this show, is happening in a data center. And what's fascinating to me is most people like

somebody's got to tell Theo Vaughn that.

I don't know if you saw saw that clip where he's like data centers.

No one wants these on his like video podcast

distributed via a million data centers all over the world.

It's fascinating.

But but but when we talk like my branding firm interviewed a bunch of 20some year olds and they're like where do you think everything that's happening on your phone is happening? They're like well it's happening on my phone and we're like no it's not it it happens in a building. Yeah. And but but that creates an arms race right now around AI because everything we do in our lives happens in in a building in digital infrastructure and there is a massive supply constraint because of that that increase in power demand. I mean there's only so much power and frankly there's only so much land particularly with the political sentiment right now that you can build these and so having access to a building to house your compute becomes a distinct competitive advantage

in the AI

So what does your search process look like if I'm I mean I've seen data centers in downtown where it's like a converted office building no windows that's probably for a CDN or some local delivery but uh if you're just driving through the middle of America and you see some land. Are you thinking about power or is there natural gas in the ground? Are you how are like or are you doing more of the deals where it's like what happened at Colossus where there was a building that already had a lot of power for manufacturing appliances like washing machines and then it was easier to convert and upgrade that building. Do you do everything like what's the process for finding a a site? Yeah, I mean data centers are really giant machines, right? I think that's probably obvious. And and what's exciting to me is it's the first time in human history we had buildings that weren't designed for humans truly, right? You think about most buildings you interact with or real estate or private equity invest in are designed for people.

Uh data centers are it's not about a person, it's about a machine. So So in terms of where do you pick a data center, you're really picking on where the machine wants to go.

Machines care about power, right? So power is you know to get quick power you need infrastructure. So so we're really looking at infrastructure and then you're looking at fiber uh so that we can get all the digital bits around. So that's also a form of infrastructure. So you're really looking at power and fiber first and foremost. Uh water obviously is a hot topic anymore. Most of particularly what we're building it's all closed loop systems. You're not using a lot of water. And so really it's it's fiber and and power infrastructure. And and then the third piece is latency. So, how much time does it take to deliver those digital bits? How close are you?

And so, historically, you did not see data centers downtown other than for networking.

Uh, today, like we bought the Chicago Board of of Options Exchange building on on Lal Street downtown, and we're turning that into a large AI data center right now. And that is wonderful because I've got great latency, great fiber, and lots of power infrastructure I can tap into. But what's fascinating is I can put 50 megawatts in about 40,000 square feet in that building today because of densities. In 2010, I may have gotten four megawatts in that building.

Wow.

Interesting.

Fascinating. Um, what does your uh your government relations team or strategy look like? uh interfacing with neighbors to data centers uh regulators uh senators to you know mayors all sorts of different who are the important constituents to get on board when you're working on a project. Yeah, I would say part right now. I mean, you guys obviously are highly aware of this. The political problem with with data centers is very real right now and and it's interesting because we all use them, right? Our our lives are dependent on them, but I think there's a need for partnership with the cities and the communities. So, that's something we take very seriously.

You know, I got a question recently about, you know, the data centers are are bad or ugly or are using all our water and power. A lot of those are either misconceptions or, you know, somebody did build a bad building. You can always build a bad building. Uh, and so I would say something we work very hard at is partnering with cities on deploying uh data centers that are not using all the water, are using existing grid infrastructure, and frankly are not ugly. I mean, I think part of part of the problem is it's not ugly.

Yeah. Is there a uh I mean we were talking about the the cell phone towers in Los Angeles. They're sort of dressed up like trees. Uh I don't know that that's effective at being beautiful. Although they do sort of they do sort of melt into the background of course like when you're up close you can clock it, but when it's just on, you know, the horizon, you don't really notice it. Um, have you seen any trends in sort of like lowhanging fruit in like, oh, if we just do this, yeah, it'll increase the cost 1%, but the response from the community is going to be 50% better because we did X, Y, or Z.

Yeah. No, absolutely. So, I converted a glass or my team and I converted a glass office tower in downtown Minneapolis into a large AI data center. It's a beautiful building and and in fact, nobody even knows there's a data center in there for the most part. uh we're doing, you know, the Chicago Board of Option Exchange building is a beautiful architectural building.

Part of what I love about data centers is it's really infrastructure and so you can bury it underground, you can put it on top of a roof, you can do these mixed use. They do not have to look like prisons, which some of them do.

Yeah.

And and so that gives you a lot of creative flexibility. uh like we're we're building a a green field data center in Texas right now and our architecture team found ways that to do uh fencing that effectively uh you can imagine Frank Garry's you know museums it sort of looks more like that and and so there are actually a lot of windowless buildings that you know we all like culturally and uh and so we take a lot of inspiration from that.

Yeah. Basically every every sports stadium is sort of windowless from the outside and yet we love them and they look great.

Yeah. Are you are are you involved in any conversations or have you heard of any conversations where uh local communities are effectively asking for direct uh payments

in order to uh provide support for a data center because you said like we all use data centers but the thing about data centers is Google's going to find a way to serve me no matter what regardless of of if they're my neighborhood or my community open to a data

center. three milliseconds of extra latency to put it five counties over. And so it's very easy to push the not in my county uh rhetoric if the only impact of that's going to be a millisecond of latency or something like that.

We're seeing yeah I mean there is a lot of pressure obviously on where data centers go right now. We are seeing communities make direct asks. We're seeing tenants and investors such as ourselves uh do as much as we can to benefit the community. There there are significant benefits. So, let me take my building in in downtown Minneapolis. That building's uh recently sold for we still manage it, but it recently sold for the highest price of a building in Minneapolis or in Minnesota.

Um and so you imagine that building when I stepped into it was basically mostly worthless. It was an office building, mostly vacant, let's call it less than $30 million of value, and and now it's one of the the the highest priced buildings in in Minnesota. I mean, that shift is and and it still looks like a beautiful glass office tower. Yeah.

It's not using huge amounts of water.

And you're saying that it's like massive Yeah. massive increase in property tax revenue

because the new sale price. That makes a lot of sense. Interesting.

Well, and then you you also have hundreds of millions of dollars of infrastructure going in from the tenants.

Sure. you've got hundreds of millions of dollars in investment from us. We did create new jobs and so so those are good. Those are obviously positive benefits um on a you know we are seeing everything from uh tenants and and uh investors sponsor everything from new fire stations and fire trucks to uh you know uh benefits for for housing, schooling uh in addition and on top of sort of just tax benefits, right? What is your process for sequencing out finding tenants? I imagine it's sort of a if you build it they will come moment for you but uh in terms of talking to hyperscalers neoclouds doing something yourself partnering with a chip company I mean everyone is participating in various levels of the stack. What does it look like for you as you're uh sussing out an opportunity? Yeah. And obviously it's a it's a big deal right now for anybody to have access to um to to infrastructure for compute, right? So the the hyperscalers, the the neoclouds, everybody's competing for the same space. In fact, we often see that

um the same we've had video game companies, Neocloud cloud uh users all try and get in the same building, right? So So everybody's competing for a fairly um limited supply. It is very I would say it functions much more like partnerships. similar cities very partner oriented tenants it's very partner oriented because these are huge massive capital investments right so on the low end you're looking at half a billion dollars on the high end you're looking at $10 billion right and so but they're making just as big of investments I'm guessing that's obvious but you know they're they're the ones providing the chips and uh and serving their customers too and so and so there's mutual investment on both sides so there's a I would say a tight relationship between the tenants and developers and capital partners such as ourselves uh to help make sure these are successful. Nobody wants them to not be successful. Um but it is speculative on the capital's part. So these are not build disuts like we're not we're not sort of buying land with a tenant in tow. We're buying land and getting the development going and risking capital to make sure that they have it on time that they need it. Uh,

friend of mine is in the art business. I know you're a collector. He was telling me over the weekend about what a mess the the the art world is right now in the art industry. Does that make it a great time to be a collector?

Uh, yeah. Well, there's what I love about art collecting is it's a lot like investing, right?

Yeah. You want to buy low and sell high. So, if like the market's in turmoil and it's bad, it's probably a good time to

acquire things that you love.

Uh, before a a correction upward. But how have you been approaching it?

Yeah, I would say yeah, exactly that. I think the art market the the argument is always bet on art history, right? So so what's fascinating about art is it captures this moment in time, right? Where there's there's a shift in perspective or ideas or thinking and and that's where the great art really is and the value tends to be captured in those pieces. And so uh so I would say my particular art investment

leanings collectings are on you know what's big in art history. So, like I just picked up a Dan Favven uh who was uh famous for light light art, light bulb art, um in the 60s and uh and so I got the piece uh this month the first piece he ever did with multiple light bulbs and uh the whole thesis to that is well one it's beautiful and and I love it but but two it's it's an important moment in art history and so you know you're sort of it's it's like betting on core real estate or or I suppose you know a great tech tech company that's building something brand new.

Does uh does does buying a historically significant piece of art feel more risky than buying uh than buying let's say like a rundown building or a billion a building like you described in Chicago or is it feel about the same? Do you have a similar uh confidence level when buying both? I would say what I love is both of them have a lot of specialized knowledge and so if you have the specialized knowledge you can do sort of that risk adjusted analysis. So I would I would say they feel equivalent to me. At least the ones that that I've been the bets that I were making feel equivalent to me. But you know data centers uh adaptive reuse you know real estate all all of that is just highly specialized right and so so you know I like a lot of people I surround myself with other really smart people to give me good guidance but it it feels like a safe bet.

Have you ever thought of combining the two passions? I know that you're describing this glass building, which which sounds amazing, but have you thought about working with a contemporary artist to try to make the world's most beautiful data center? I feel like that would be a good kind of flagship project for you that I at least would like to see.

Yeah. Uh yes, we have some things in the works in Chicago. In fact, uh one of my favorite, this is maybe slightly different than where you're going, but my favorite example of this is what Louis Vuitton did on Fifth Avenue.

Yeah. in Manhattan where they wrapped a construction project in what looks like a giant Louis Vuitton trunk and uh I have an apartment right around the corner from it and I see people photograph it constantly

and and I I love that idea but but I keep thinking can we wrap data centers in something that's interesting and beautiful.

Yeah.

Uh that that people want to photograph instead of hate.

Yeah. Something where if aliens are are monitoring us, they're like what what are these crazy things that they're so obsessed with? I like it.

Um,

awesome.

Well, thank you so much for taking the time to come on the show.

Yeah, thanks for thanks for the update.

Have a fantastic weekend.