Sandoval: $1B Switch data center coming to Reno area

Las Vegas-based Switch plans to build a 3 million square-foot data center project in Northern Nevada, Gov. Brian Sandoval announced in his State of the State speech Thursday evening.

"Switch is scheduled to expand to Northern Nevada, bringing $1 billion of investment with it," Sandoval said during his State of the State speech. The company will also invest an additional $1 billion to expand its existing operations in Las Vegas.

The project is considered a big win among economic development circles for a region that has focused on diversifying away from gaming, tourism and construction after the recession. Switch's "supernap" project also includes the development of a fiber optic network that will connect Reno, Las Vegas, Los Angeles and San Francisco — something the company calls a "superloop" and will dramatically increase the speed information can travel among the cities.

The announcement continues a string of major economic development victories for Northern Nevada, which includes landing Tesla Motors' $5 billion gigafactory battery plant late last year and Apple's $1 billion data center in 2012. And like those companies, Switch's data center expansion will include a tax incentive deal, according to a state economic development official.

The data center campus will be built in phases on a 1,000-acre site — about the same acreage for Tesla Motors' gigafactory site — at the Tahoe Reno Industrial Center just east of Reno. Switch expects the overall project to take five to 10 years but its first facility should be open by the second quarter of 2016, said Adam Kramer, vice president of government and public affairs for the company.

Kramer did not give an employee headcount and average salary for the Northern Nevada site. Kramer did say that Switch employs 400 people at its Southern Nevada data center, which will expand from its current 2 million square feet to 3.5 million square feet. The Las Vegas operation also has an additional 5,000 people who work on the site for Switch's clients.

So what does Switch do?

Unlike companies such as Apple, which builds and runs its own data centers for its own services such as the App Store and online retail, Switch builds data centers and leases space and equipment to its clients, who are responsible for operating and maintaining them. Among Switch's more than 1,000 clients are eBay, Xerox, DreamWorks and Shutterfly.

"We expect quite a few of our more than 1,000 clients in Las Vegas to join us here in (the Reno area)," Kramer said. "With Switch coming to Reno and the technology infrastructure we're bringing, we also anticipate bringing new clients and more technology companies who want to do business in Nevada."

Kramer says the company picked the Reno area for its vicinity to Las Vegas and the Bay Area. And with the planned fiber optic network, the data centers in Northern and Southern Nevada will be able to connect in just 7 milliseconds (which is considered to be exceptionally fast for data traveling between two cities).

And with the network extending to San Francisco and Los Angeles, "We'll have 50 million people within 14 milliseconds of the world's largest technology systems," Kramer said.

INCENTIVES AND NEW LAWS



Northern Nevada was named a finalist for Switch's "supernap" project alongside Phoenix last October. To help woo the company into picking Northern Nevada (the company already has a major operation in Southern Nevada), the state offered incentives that share similarities with the deal that brought Apple's data center to the region — but with some changes, said Steve Hill, director of the Governor's Office of Economic Development.

The deal involves a reduction of sales tax to 2 percent as well as a 75 percent reduction in personal property taxes for 15 years. The exact value of that abatement is still unknown.

"The incentive package still has to go through the county and our board," Hill said. "We'll be using the same statute we used in the Apple (data center) project, which was actually narrowed by the Legislature during the 2013 session."

Although there has been criticism of state incentives such as the $89 million for Apple and the $1.3 billion for Tesla, Sandoval has described them as a necessary tool to make Nevada more competitive against states with better resources.

Getting the Switch facility in Northern Nevada was absolutely essential, not just because of the impact on the Reno area but Southern Nevada as well, Hill said.

Phoenix, for example, developed a more "attractive tax environment for data centers" than Nevada, Hill said. If Phoenix were to get the new "supernap" center, it could potentially encourage the company to move more of its operations to Arizona, Hill said.

"If Switch goes to Phoenix, it had the potential to gradually drain what they have in Las Vegas," Hill said. "So the announcement isn't just great for Northern Nevada, it's great for the entire state."

Switch's Kramer agreed.

"Right now, there are 15 states with better data center incentives than Nevada so we hope that state looks at (these issues) in the upcoming legislative session," Kramer said.

Kramer pointed to an incentive for zero percent sales and use tax for equipment for two decades in Arizona. Such incentives could have easily caused Switch to pick Phoenix and potentially move other operations there as well, according to Hill.

The question now is how willing Nevada legislators will be to make changes to the law in order to improve the state's prospects against competitors such as Arizona. Hill said his office will be working with some lawmakers who plan to introduce legislation that should make Nevada more competitive when it comes to attracting businesses such as Switch.

"My understanding is that there are some legislators who will be introducing legislation (to address those issues)," Hill said. "We'll be working with them to help turn that into law."

DATA STATE OF MIND



Switch's arrival further broadens Northern Nevada's data center portfolio that already includes companies such as Apple, Ghost Systems, Verizon and NJVC.

It also raises questions about the area's infrastructure and its ability to provide the skilled workforce required by its growing technology industry. Kramer downplayed such concerns.

"We don't anticipate any problems," Kramer said. "We've worked really close with (the College of Southern Nevada and University of Nevada, Las Vegas) on developing that workforce and had a lot of success.

"We've already begun establishing a great relationship with (the University of Nevada, Reno) so we look forward to that partnership."

Kramer also says Switch has done extensive research on the area and felt "absolutely comfortable" with the area's infrastructure.

At the same time, economic development officials expect Switch's entry into the Reno to affect the region's infrastructure development while helping to attract other companies.

Meanwhile, having employees of major companies working in a Northern Nevada data center further exposes those businesses to the region and could encourage them to bring other operations here as well, Hill said. Until recently, the reality of what the Reno area had to offer and what people thought about it did not necessarily connect, Hill said.

"But if you can get companies to visit the region, (our economic development guys) have a really good chance of closing the sale," Hill said.

In addition to the benefits to the northern and southern part of the state, the deal could also benefit the areas in between, including rural areas. The technology infrastructure Switch will build to link Reno and Las Vegas will have benefits far beyond the company's clients, according to Hill.

"The will be connecting Northern and Southern Nevada with a fiber loop that will be critical for broadband services throughout the state," Hill said. "Switch has been a great corporate citizen and works with K-12 programs as well as helping schools connect to world-class technology infrastructure. This is really important for the whole state."