Economic Development, Real Estate, and Technology

Regional tech industry welcomes Switch

Data center is ‘industrial park for the new economy.’

December 18, 2015
| By Pat Evans |
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The data center will begin with a $400 million construction budget that will likely exceed $2 billion over 10 years. Courtesy Switch

Michigan could be on its way to becoming a leader in the new economy.

Following the approval of legislation last week that “evens the playing field” and makes Michigan’s data center tax policies competitive with at least 20 other states, Nevada-based Switch will start construction of a SuperNAP data center at the former Steelcase Pyramid in Gaines Township.

Switch is considered by many as the leader in data center and technological infrastructure.

The legislation faced significant political opposition, passing the House 61-45 and the Senate 26-12, as many want all businesses to be on a level playing field and others worry about lost tax revenue.

The company deemed the tax legislation exempting data centers from use and sales taxes necessary before locating in West Michigan what it says will be the largest data center in the eastern United States. Switch expects to invest $5 billion and create at least 1,000 jobs in the next 10 years, and will pay property, income and payroll taxes.

Switch fell in love with Michigan while it was scouting eastern locations for a SuperNAP center, Adam Kramer, vice president of strategy, told the Business Journal in November, but needed similar tax policies to other states to help save clients money in the long run.

Switch said it will begin with a $400 million construction budget, which will likely exceed $2 billion during the 10 years, and has said much of the work will be done by West Michigan subcontractors. The $5 billion investment also includes data center equipment to create the infrastructure needed.

Skeptical of the company’s declaration of 1,000 jobs, politicians included jobs assurance pieces in the legislation that require 400 jobs tied to the center by 2022 and 1,000 jobs by 2026 for the tax exemptions to continue.

Another amendment requires legislators to ensure any monetary losses to K-12 schools are covered, which could equal between $15 million and $20 million from existing tax revenue from data centers.

Switch states the pay rate for the jobs will begin at $15 an hour plus benefits, but most jobs in the data center will pay between $60,000 and $200,000. Approximately 400 of the jobs are expected to be Switch employees; the rest will be employees of the companies that locate within the data center.

The job totals won’t be known for several years, but the success in Nevada of Switch’s two data centers should carry some weight, said Michael Lomonaco, director of marketing and communications at Grand Rapids-based Open Systems Technologies.

OST does not operate data centers but does work with companies that house equipment in Switch’s Nevada operations.

The Steelcase Pyramid site will be approximately 2 million square feet, much smaller than Switch’s 6.5-million-square-foot SuperNAP at the Tahoe Reno Industrial Campus. The company’s Las Vegas Digital Exchange Campus is 2.4 million square feet with nine buildings and three more on the way.

Lomonaco said the jobs within a co-located data center include hardware technicians, service providers, data center and network specialists, as well as business development, sales and operations employees. Because of the sensitivity of much of the data stored in the facility, a security force also is on hand.

According to Switch, about 70 percent of employees are military veterans.

Aside from the jobs, some of which will be transient, Lomonaco said clients of Switch’s might look at physical locations in West Michigan to house IT and technical leadership as they invest tens of millions of dollars into their technology in the area.

Switch has more than 1,000 clients, including Google, Amazon, eBay, HP, Intuit, JPMorgan Chase and Intel.

One such physical investment came in September when Toronto-based Barrick Gold Co., the world’s largest gold mining company, opened its IT and corporate affairs hub in Henderson, Nevada, largely because of its relationship with Switch, according to the Las Vegas Sun.

The SuperNAP data center is unlike any of the data centers currently operating in Michigan, said Larry Andrus, CEO of Trivalent Group, a Grand Rapids-based cloud and managed IT services company. Switch provides the safe, redundant environment for its clients’ data equipment.

“It’s a very unique business model,” Andrus said. “The companies decide what technology they need, and Switch provides the environment, but the companies control their equipment.”

Lomonaco referred to the SuperNAP centers as an “industrial park for the new economy.”

Andrus said he expects the SuperNAP center to have slow, incremental growth, but Switch largely services different, larger clients than the current array of data centers in Michigan.

He said he understands Switch’s desire to locate in Michigan, as it’s a great state for a data center, with no floods or hurricanes and a mild climate.

While Andrus said the Michigan Data Center Alliance, of which Trivalent is a member, was wary at first, the new legislation works for all data centers in Michigan. There are nine companies operating 38 data centers in the state. As long as it didn’t provide an unfair advantage for one company, the alliance supported the passage of the exemptions.

Andrus said there is still some concern about fairness when it comes to personal property tax incentives, which can be provided by local governments.

“That’s one thing we can’t control,” he said.

Switch also will help expand the services available in the technology field, Lomonaco said, as it is a leader in the data center industry. He said the legislation shows that politicians have heard what both Switch and existing Michigan companies have said for awhile: This is the direction the economy is headed.

“As they enter into our region it allows us to offer a huge diversity in what we offer,” Lomonaco said. “Our companies in the state can intimately service (everything from) very small companies to the largest companies in the world.”

The diversity in services offered also will expand the technology workforce in the state, Lomonaco said. Currently, many of the technology positions in the region are executive level, but as more of a focus is placed on the new information and technology-driven economy, a wider net will be cast.

“This is not a fad,” Lomonaco said of the data industry and the companies’ major investments into data services. “This will help develop a diverse talent pool, give more people an opportunity and (offer) flexibility to those who are here.”

Many Michigan-based technology companies are already pushing for more attention to be paid to the workforce, and the awareness Switch brings helps magnify it, Lomonaco said. He also said Switch’s company culture seems to fit into the region’s philosophy, as well.

“All of the existing technology companies already have demonstrated a willingness to partner with schools, and Switch is no different,” he said. “They really seem to put their money where their mouth is, and it’s awesome. They fit with the collaborative nature of who West Michigan is, and it’s important that they do.”

Andrus said the fear initially was the tax policy would cater to one company, but ultimately he believes it will be a positive for the region. Now it’s important that technology companies pick the niches they want to serve, if they haven’t already, he said.

“If they’re coming, we wanted the tax policy for the whole industry, not just one company,” Andrus said. “I do believe over time this will enhance West Michigan’s IQ for IT.”

“Now it’s back to business as usual.”

Switch officials said they are excited to get started.

“We are grateful to Republican and Democratic leadership in the Michigan Legislature, Gov. Rick Snyder and Lt. Gov. Brian Calley, Birgit Klohs and The Right Place in Grand Rapids, the Grand Rapids Area Chamber, the Detroit Regional Chamber and others who worked together to make Michigan’s tax policies competitive and attractive to data centers and our clients around the nation and world,” Kramer said following passage of the legislation.

“We look forward to working in partnership with Michigan to attract the largest companies in the world to the Switch ecosystem here in the Great Lakes State.”

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