Pflugerville targets a new tech project
A recently announced plan to develop a $210 million data center in Pflugerville could bring hundreds of high-paying jobs and millions of dollars of tax revenue into the city—if the project is able to get past the planning stage.
On June 12, the Pflugerville City Council approved an incentive-laden deal brokered between the Pflugerville Community Development Corp. and Austin-based economist and development broker Angelos Angelou's "placeholder company," Arista Data Centers LLC.
"This project brings a large number of high-quality employment opportunities to our community, which is one of the most highly educated, trained and qualified in the state," PCDC Executive Director Floyd Akers said following the announcement. "In this case, Pflugerville and Arista are a perfect match because we want to attract promising, progressive, green-minded companies, and Arista needed to locate in an area that offered deregulated electricity in a pro-business community."
Speculative deals
There are some unusual aspects to the Arista deal that leave the certainty of the project far from a sure thing. For one, Arista is a company on paper only, created by Angelou with the specific purpose of securing the data center incentives from Pflugerville and the PCDC and then selling them to an actual developer.
"[Angelou] said, 'I would like to put together the development agreements and get the entitlements from the city,'" Akers said. "He knew he could take those entitlements and sell them to a developer—basically for his site selection fee that he would normally get."
Questions remain, however, as to why the Pflugerville City Council and the PCDC would offer incentives to Angelou to sell for a profit instead of contracting directly with a developer.
According to Akers, the city's incentive for working the deal through Angelou was the latter's business experience.
"[Angelou] has probably been the site selector for two dozen data centers worldwide," Akers said. "We could not have a better partner in a project like this than Angelos Angelou."
The recent history of high-profile projects in Pflugerville, however, has resulted in several deals falling through or stalling.
In 2010, Pflugerville agreed to a deal with RRE Austin Solar LLC to develop a $240 million solar wind farm east of the city. The project has since stalled, although in February Pflugerville Mayor Jeff Coleman said a deal to co-develop the site with electronics manufacturer Panasonic had been made.
In November 2011, Austin-based Baryonyx Corp. received an incentive agreement from Pflugerville to develop a $210 million wind-powered data center. That project was supposed to break ground during the first half of 2012. The deal for the land has since fallen through, and according to a Baryonyx official, the company is now considering separate Austin-area locations.
A third proposed Pflugerville data center project also failed to reach development.
"We had entered into a contract with [Angelou] at one time, but we didn't pay him because he didn't get the (data center) project," Akers said.
Pflugerville incentives
The finalized contract between Pflugerville and Arista calls for a minimum $210 million in capital investments over the project's first decade. Akers, however, believes it could be much larger.
"It has the potential to grow to $1 billion," Akers said, "but it should easily reach $500 million."
The incentive for Pflugerville to host a data center lies in the property value it would hold.
"Data centers' impact is they are very expensive and there is a lot of equipment that is taxable," Jerry Walker, principal economist for Impact DataSource said. "Data centers are attractive to communities because they add a lot to the local tax rolls."
Walker said a data center development also has the potential to alter a city's image.
"It kind of puts some smaller communities on the map because they can say, 'We're a technology community because we have a data center now,'" Walker said. "It is a good economic development plum for a community."
According to an IDS report, during the first 16 years the Arista data center would create 407 permanent jobs worth nearly $300 million in salaries, bring 116 new residents into the community, add 25 students to the Pflugerville ISD enrollment and create $528 million worth of taxable sales. The net benefits to Pflugerville and PISD over the next 16 years equals more than $31 million.
Whoever builds the data center will receive tax abatements, road construction, discounted water and an on-site electric substation. The PCDC agreed to provide cash grants for hirings and fibre optic cable lines. Akers said a proposed road to the data center was being planned regardless of the project. The contract with Arista, however, states construction will not begin until a developer has provided the city an irrevocable note of credit—allowing the city to recoup its expenses if the project falls through.
Angelou said the combination of incentives, geography and local government secured the deal.
"Pflugerville is extremely pro-business," Angelou said. "They have a very aggressive economic development corporation."
Will this deal be different?
Angelou said the Arista data center deal has already been passed on to Dimension Capital Partners, a Dallas-based real estate development firm. Dimension Capital has yet to make an announcement regarding the deal, and calls to the company have not been returned.
Ground breaking and construction of the project, however, remain far from certain. Even after contracts have been signed, significant hurdles remain before building on the site begins.
"Data centers require a large capital investment," Angelou said. "A project of this magnitude requires a master developer who has been in the business and is highly capable, and we have that in this project."
