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January 3, 2022

Sensing new opportunities, Hartford’s Shipman & Goodwin launches data center practice group

PHOTO | YEHYUN KIM/CT MIRROR One of over 290 Digital Realty data centers across the world is located in Trumbull, Connecticut. It is the highest-profile data center currently in Connecticut.

Promising new developments in the world of data centers, both across the country and in Connecticut, have prompted Hartford-based law firm Shipman & Goodwin to launch a new unit — the data center practice group — devoted to the industry.

Headed by Lisa Zana, a partner in Shipman & Goodwin’s real estate group, the division is intended to help property owners, investors and entrepreneurs navigate the often complex process of funding and setting up data centers, the collective cornerstone of a massive move toward cloud-based computing and data storage among many large employers.

Lisa Zana

“It can be quite complicated,” Zana said. “Often the land is environmentally challenged in some way, and the projects themselves require significant capital outlays. We’ve been quite busy with that in other states.”

Most of the firm’s data center-related work so far has been concentrated outside of New England, in places such as northern Virginia, Seattle, Denver, Arizona and New Jersey. But Shipman is reasonably optimistic that a raft of data center incentives, signed into law by Gov. Ned Lamont earlier this year, could make up for Connecticut’s high power costs and convince some companies to set up what are known as “edge” data centers — smaller facilities positioned closer to the entities they serve.

Earlier versions of data centers — sprawling, megalithic buildings clustered on the outskirts of major cities — are giving way to nimbler, more local outposts, Zana said, mainly because companies want to be closer to their data. Distance creates delays in retrieving needed information, she said, and that latency is unworkable for many companies.

Zana offered the example of a large, Connecticut-based company, such as ESPN in Bristol, which might want an “edge”-type data center in relatively close proximity.

Fred Carstensen

“Many forecasters are saying that this model, the edge data centers, are going to see a lot of growth over the next two years,” she said.

Some of Shipman’s optimism comes from what analysts see as a glaring gap in the Northeast data storage market.

As a white paper authored by Zana and Shipman associate Nikolas Kitteredge pointed out earlier this year, the New York City metro area contains a large number of prominent pharmaceutical companies, dozens of large universities and many top-flight medical centers, but lacks the data infrastructure found in markets such as Silicon Valley and Dallas, due in part to high costs. If those expenses could be controlled via tax credits and incentives, they wrote, developers may be willing to take a second look at the area.

Connecticut’s data center law, which includes provisions for tax forgiveness, could create momentum for new developments, Zana said, but it will take time and effort to build awareness for the new incentives.

“We’ve had some clients kick the tires a little bit to see how things are going here, but it’s mostly a matter of getting the word out there,” she said.

Cautious, but growing optimism

Connecticut’s new incentives allow data center operators who meet certain requirements to forgo state taxes on property, financial transactions and other state fees for up to 30 years after construction. Qualified data centers may also be shielded from paying taxes on construction, rehabilitation, renovation, repair and operation of the facilities.

While the package has not so far lured in any takers, observers said the state has at least made itself more competitive than it had been, and at a critical time, as millions of jobs move online permanently to accommodate the ups and downs of the COVID-19 pandemic and changing worker expectations in many white-collar fields.

Lamont, who supported the data center incentives, told the Hartford Business Journal in December that the state has two or three data center projects “in the offing,” but he wants the state to move slowly to ensure it’s getting the best deal. The governor was also quick to point out that data centers alone will not bring about the kind of post-pandemic economic revival the state needs.

“I have mixed feelings,” Lamont said. “It’s not like they hire a thousand people, and they drink a lot of electricity, to be blunt about it. But they create a lot of good-paying construction jobs, and you like to think they’re kind of the building block of the cloud. And to have that closer to home is a plus.”

Still, the governor said he’s optimistic the incentives will soon pay off.

“I think we’ll have some real announcements in the not-so-distant future,” he said.

Fred Carstensen, a UConn finance and economics professor and director of the Connecticut Center of Economic Analysis, has been an enthusiastic backer of data center projects for years.

Carstensen said the data center law was long overdue, since Connecticut has never truly recovered from the economic downturn of the late 2000s, and because development of the state’s IT industry — one route out of that malaise — has not been adequately supported.

“The hard reality is that we were a black hole,” he said. “Connecticut didn’t think too much about data centers, because the thinking is they don’t create that many jobs directly. That is true, but they’re still the foundational element of the modern economy. If you don’t have them, you’re just not relevant.”

If anything, Carstensen explained, the incentives should have gone further, to help Connecticut stand out.

“The new legislation at least made us competitive,” he said. “The problem is, when you’ve been behind, you have to offer more than the competition. I’m delighted the law was passed, but I was arguing for 50-year contracts.”

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