The Real Estate Behind AI: Data Center Land Deals Explained - Episode 193

0:08 This is the Alternative Investing Advantage podcast from Advanta IRA, where we show you how to explore investments beyond Wall Street and open your eyes to new options for your portfolio. It's time to take control and give yourself the freedom to choose where you invest your money. Hi and welcome to another edition of the Alternative Investing Advantage podcast. As always, my name is Alex Perie and today we're very pleased to welcome on Mike Embry of Embry Companies. Now, all of us, whether we like to think about it, whether we know about it, interact with data on a daily basis. If you're watching this podcast, you're interacting with data. And where does that stuff go, get stored, organized, and get back out into the world? But data centers. it's been getting a lot more press lately about where these things go, kind of the impact that they have, whether economically or ecologically. there's a lot of noise kind of around the whole topic and I feel that there's really not a core voice to kind of explain to people how exactly these things work. at the end of the day, they have to they are pieces of real estate. they have a very specific use case and function and there's a lot of infrastructure and stuff that goes into actually developing these things. But, you know, especially here at Advanta and especially, you know, most of our clients, you know, we're real estate people at heart. And when you can look at something that is, you know, on the cutting edge of technology as a real estate play, there's a lot of really powerful correlations that you can use from your experience in real estate to help you kind of guide into the next chapter of where real estate is going. Everyone's always going to need houses. We're going to need a place to lay our head at night. Businesses are going to need storefronts. So real estate in many of the forms and fashions that we're used to isn't going anywhere. But when you can see a new market segment start to emerge, especially in the data center segment, understanding how that works and where you can utilize your expertise to make some inroads and gains and hopefully generate some revenue, I feel is vitally important. So, we're really pleased to bring on Mike today who is leading some of the cutting edge stuff that's going on here doing investments and kind of going to talk about his portion of the vertical of this commercial real estate with regard to data centers. So, Mike, really appreciate you being on here today.

2:25 this stinks that we can't turn this whole thing into a discussion about motorcycles and cars like we were doing a few minutes ago, but something equally as interesting I think people would really love to dig into is data centers. So, you have a really interesting kind of backstory in real estate and kind of how you got here. So, give us a little bit of backstory about yourself and then we'll jump into the topic at hand. >> Yes. motorcycles and cars are great, but they don't make a lot of money unless you're selling them if you want to pull with a whole lot of money in >> but I've been in real estate all my life. my father and uncles after World War II started developing and building and had a real estate company.

3:00 So I grew up working with them maintaining a lot of their income producing properties and then when I was 23 started on my own and have been I've developed just about every kind of real estate there is we focused on the horizontal end of it where we would do the designing permitting and then do the development part of it. We tried to stay out of the vertical construction and just focus on what we thought we did best.

3:28 fast forward to, you know, last couple of years and data centers are exploding as we know. They're really not new. They've been around. The first one was in 1945 at the University of Pennsylvania. And a lot of the data center data centers, excuse me. As you came along through the 60s,7s, and 80s, they were repurposing office buildings or taking a portion. they would put the servers in and there just wasn't the need for data.

3:59 It was kind of a niche thing for companies that needed to store things, you know, people like IBM or Wang Computers, people like this that were actually needed the servers to store data. Then you got into where companies, everything's electronic now. I mean, everything we do, whether it's our gas card, our credit cards, you know, Facebook, Instagram, what we're doing here, you know, Netflix, you name it, everything is stored electronically. And it exploded. And Virginia was the epicenter mainly, a lot of it, the federal government where they're storing our data. But consumers now everything that we have whether it's our health records you know our financial records it does not matter everything we do is electronic our phone our computer and so it moved Arizona was another spot that got hot Texas has gradually gotten there but Virginia was really the epicenter they there's more data centers in Virginia than there is the whole country of Russia so that's kind of you know when you think about that how huge Russia is and that you know I'm not sure they're in the 21st century but I'm sure they're trying to get there but Georgia with Southern Company has become the leader of where data centers are happening and they saw this a few years ago they ramped up they got the power load and they can move power as they have Georgia power Florida power Alabama power and so on Mississippi and they're in part of Louisiana, but they're leading the charge. And they've also worked with Duke Power up in South Carolina, North Carolina, and we're working on projects in the state of Georgia, South and South Carolina, North Carolina. So, but that's kind of where the southeast is where there's a lot of power generated. And at the moment there's a runway a pretty long runway down here where you're going to see more data centers.

6:09 >> Yeah. And you know that's kind of the key component of this stuff, right? You know that the tenants don't need to eat and sleep. There's not a lot of bathrooms going into these places, but there's a lot of power, right? That's kind of I would imagine kind of the key component of this stuff is, you know, access to water and power for these data centers is kind of being a key component. Now, the southeast kind of being the, you know, forefront of where this development push is coming from, besides just power, right? You know, we hear a lot in the news about, you know, like people not wanting these things right next to their houses. And again, there's probably, you know, some truth to that of why you maybe don't want one right next to your neighborhood. But as with anything, right, you know, there is a there's a need for this. So how does the you know from your perspective because you focused mainly on the land aspect. So let's kind of clear that up like you are focused on getting the land acquired and entitled for these. Correct.

7:06 >> That is correct. Yes. >> Yes. We we're still doing the horizontal development and then the vertical part of it when they build the building is really end users hyperscalers the people that are putting them in the air. They have people and it's kind of everything's an NDA in this business and they're, you know, they pick and choose specifically who they got going vertical to build these things the way they want. >> Yeah. Exactly. So from that perspective, like when you go out and you're doing due diligence trying to find somewhere, what kind of makes like the key components of when you're going out trying to find the raw land to start a project?

7:50 Well, the components, as you said, power, fiber, water, and sewer. Those are four things that you mainly need, and it depends on how you're going to cool it. but you basically you need to follow where the power lines are at. if you get if you stray off or you've got to start getting easements and that type of thing, the power companies get a little uneasy. They they don't want something going wrong where there's going to be this project and all this time and money is spent and they allocate power and then there's, you know, two or three people and one of them pulls up, you can't do it. And besides that, it's $20 million a mile once you pull off that power line to run it. yeah. And P and fiber is $2 million a mile to run the fiber that you need to run one of these things. as far as the cooling aspect where the water, they use closed loop systems. The newer ones, the old ones, they would just suck water in, cool, and just blow it back out, let it go to the treatment plant.

8:57 And now they have a closed loop system where they can run that water through numerous times before it evaporates or it starts getting particles in it and they have to send it back to the treatment plant. but the other thing is we've got a couple of projects we're looking at where we're going to use gray water. We're going to pull treated sewage water from one of the treatment plants after it has been treated. Pull it through and treat. Then that way we're not taking potable drinkable water that people need to use for, you know, for their homes for them to drink and shower and everything else that we need to do. That's one of the things we've pushed pretty hard. And one of the other things that's come about here lately is natural gas where you take turbines.

9:46 These large companies like Seammens and other companies make turbines. They're powered by natural gas. They generate power and then you can use power from the power company as a backup. So you're not pulling all that load off and you're using natural gas to create it. That that's something that's coming about pretty fast. >> Yeah. And I'm assuming it's still a little bit early in the development cycle to really run these things on solar or is it just kind of a square footage issue for that? Like the amount of solar you'd have to have to make a meaningful impact would be so large that you can't really put these things anywhere meaningful.

10:22 >> The solar just will not work. I mean, we've looked at studies. We've talked with many data center developers and you just cannot produce. These things run 24/7 all the time. And there's just not enough that comes off solar to do anything with it. >> yeah, >> which is a shame, but I mean that's just the facts of life. Solar doesn't create it. Neither does when the demand that you need. But natural, there is a lot of natural gas as we all know in the United States. And that's something that's coming to the forefront where you can use both. You got to have redundancy. So you have to have a backup. But you can use gas as a backup or you can use it as your, you know, your first round of power generating off a turbine.

11:10 >> Absolutely. So, let's kind of start from the beginning, right? So, when it comes to finding a place that'll work well, right? Let's say it's, you know, I I would say probably the bigger thing is like the proximity because you said like what 20 million or 22 million a mile, right? So probably the power component being the most expensive is going to be the most critical, right? So you find a, you know, a good enough piece of real estate where you got enough square footage. It's not sitting next to a daycare center, right? Like it it meets that initial criteria for like saying, "Okay, this this might make sense." What does it look like when you start then in turn going to a power company and having that conversation? Because again, it's not as simple as saying, "Hey, I need, you know, two 200 amp service for my, you know, three-bedroom house." like are is it something where they just say, "Okay, like you have to put in a substation." Like talk us through a little bit about what those conversations with power companies look like when you found something that again is in general closely proximal to the power lines.

12:07 >> Well, if you if you find a piece of property and you feel that it's going to work when you looked at and there's different research items you can use and say, "Okay, this is a 230 volt line over here. We think it could pull enough power to run x amount of buildings for a data center campus. or we can upgrade those lines if they'll let us. you file paperwork with the power company for them to do a preliminary engineering study and they'll take that. You write them a check. They take and say, "Okay, you give them a concept plan and say, this is what we think we can put here based off what voltage is going through there now without the upgrades and all that." They'll come back to you and say, "Yes, this is a viable spot or it isn't." If it is, they say, "Okay, yes, there's 230, you know, megawatts there that you can pull off of, but you're going to have to upgrade. you know, put a substation on site, but you've got to go up and down the line and upgrade substations, upgrade lines. And that's where one of the fallacies kind of comes in with people is that the data centers aren't paying for anything. The power companies are telling you, you have to upgrade X amount of the grid for us to give you the power. So, they're actually saving that money from somewhere in the future that they would have to spend to upgrade that part of the grid. they're putting it on the data center developers. so that's kind of how that works. And then, you know, once the preliminary study comes in, if it is something that's applicable that you can use, then you start going from there and getting into the heavy engineering of the site, revamping your site plan, saying, "Okay, we're going to have to put a substation in of X to do it. What are we going to have to do?" Your engineers start working with the power company on what the upgrades are going to be. and then you start filing for your reasonzoning and then that's where the education of the public comes in.

14:13 >> So what kind of like again that all is easy enough to comprehend but I'm assuming some of those checks you got to write to get to that point are pretty sizable. So like what kind of capital outlays involved in you know again that initial you know survey and engineering study that you got to get from the power company and then what kind of things do they typically come back because again you know I know how much a home remodel costs I can't imagine remodeling a substation is a cheap endeavor. Well, the thing that you know when let's say your concept plan and some surveying work depending on what you're going to do, you're going to throw 30 $40,000 out quick before you can blink your eye.

14:53 >> Okay? >> That and then when you get in and these studies that you have to do, you give it's non-refundable. You pay for it up front. If you don't have a deal, then you lose the money. It's to cover the overhead for their engineering department at the power company. that can run from 30 to 100 grand depends on who the power provider is and you have to pay for that when you file for it and if it doesn't work that money's gone along with everything else. So you could be spending 60 to 130 $140,000 to find out from the power company it's going to be a deal that worked. So you have to do some research up front and that's what we try to do is make sure that we believe there's adequate power, fiber, water and sewer talk, make sure there's capacity in the sewage system, those type of things. Would they let us use gray water? So there's a lot of upfront research that you do before you even get there. But u you know, you can drop a couple hundred,000 and not have a project. So >> yeah, >> but let's say you you get there, they come back to say, "Yes, this is plausible. You can move forward." Then you're going to start really, you know, cranking down on having to do geotech phase one, all these other things that are going to go into it, environmental studies, sound studies, you're going to revamp your site plan, and then you're going to go back and start doing engineering with it as you get through zoning. So, you know, these things without the land cost, you're going to spend $200 or $300,000 real quick. And by the time if you get through zoning, you you're going to have $500,000 out of pocket in it before you get the zoning and then from there start working on your development plans to get your permits. So, it's an expensive and depth.

16:53 >> Yeah. And where you operate in this, right, is getting so do you go through everything up into acquiring the land like getting all those things done and then turning it over to your again your oracles, your Microsoft, whoever is going to be utilizing it and then they take over after you've acquired and titled it or like how far down that process do you get before you you know do the acquisition and then the sale to the actual company?

17:20 Well, we try and look at each project. If we're going into it, if let's say it won't work for a data center, what is our fallback position? You know, can we take this and do multif family on it? Can we do a subdivision on it? We can can we do an industrial park? Will they give us the industrial zoning and then say we don't want a data center? I mean, what whatever that may be. So, we try to have a fallback position to where we know we're going to come out on the end making money, paying a return if we've got investors in it, and you know, the deal still works. Will it be as profitable as a data center? Probably not. But, you know, we try to have a plan B on these things to where cuz it's a real estate deal and we've got to understand if we're not getting what we're getting that we want to to to maximize the profit, what can we do afterwards that that doesn't work that we know that we've got an endgame to get out and everybody gets paid. we prefer to acquire the property and work on it then because we can get a better deal on it than if we if we wait till the market in a certain area is going and people start seeing the sales prices, then getting the deals on the land doesn't work. And you know, like I said, we we worked on some where, you know, that it was zoned for PUB, let's say, and we could go do multif family, commercial, we had a a variant of things that we could put on there, but we took it doing data center on it and we're going to sell it and make money. Well, if for some reason we had not gotten the zoning for the data center, okay, we're going to go back. We had a deal with Kroger on the commercial. We had the multif family sold on that parcel. So, we had a good plan to start with. The data center is a better plan, but you know, like I said, you got to have a plan B to know that you're going to get out and you're not going to get stuck with 200 acres out in the middle of nowhere that nobody wants, right?

19:32 >> Yeah. And it's kind of a little bit of like the the Disney strategy, right? Like come in and buy it. And then, you know, if you set the market with everyone knowing that you're trying to entitle a data center, it's like, well, you know, people like, well, they got deep pockets. like, okay, the price just went up, right? Like, it was just vacant land. Now, I know they can make a lot of money. Well, the price went up by 20%.

19:52 So, it definitely is an understandable play from that point. And one thing that you said that I really like, especially for people interested in either getting into the space from a development standpoint or probably the more likely scenario is investing in that standpoint, is that it's not something where you're beholden to just the data center, right? At the end of the day, you own real estate, right? in real estate. The beauty of it is it's so flexible in its utilization, right?

20:16 Especially if you're developing something, assuming the zoning is right. you have a lot of different One second. I'm getting a lot of feedback for whatever. Oh, there we go. let me just make a note of what the time stamp is. So, 20 minutes. All right. you have a lot of interesting outs for everything. It's not just saying, "Okay, the data center didn't work. Now, what do we do?" Right?

20:46 It's a lot of different ways that you can kind of play this to your advantage. Again, assuming that you did your due diligence right, you underwrote it correctly and saying, "Hey, look, here's the outset we expect." Because just like with any investment, if you hitch all of your horses to one wagon, the wheels fall off, you're not in too a good place. But if you have multiple avenues of exit, again much much better for the ultimate end use case. And again, if you went through all the expense for the data center, again, it can make the other deals not as good, but it doesn't make them bad. It gives you an appreciable hedge to out that investment. So to to cycle back a little bit onto the actual data center play, right? So you've gone through you've acquired the property, right? Now you're working on all the entitlements. So you're kicking out, you know, several hundred,000 between surveys, between impact studies. Now, once all of that has kind of come to fruition, right, you've gotten that. Do you then in turn do it where it's a play to sell the real estate to the actual end user or do you get involved in any of the development then hold the land and do some type of lease back for it?

21:51 >> We do not do any of the development. we sell off once it's permitted or close to permitting after it's been zoned and all the engineering's done, that type of thing. That's where we get out of it. if we are asked to develop it, we have capabilities. we've got many years of development under our belt, but a lot of times these hyperscalers, end users, they've cut deals with people with these big grading contractors or GC's and building contract where okay, we're going to come in, we want you to do this and and they'll stay in the deal to help them work those numbers long term.

22:37 something that we wouldn't be adverse to, but it takes a lot more money on that end to do it. you know, developing property development costs are crazy. and we just we feel that if we can get out, take a profit, everybody makes money, then let the GC and the enduser make money and let them find somebody do the vertical and figure out how they're going to structure it on the back end because these things can be, you know, anywhere from three to 10 year buildout projects because the power more than likely will get phased in over time where they'll say, "Okay, your power starts in 2027 and you've got a three-year run and then we're going to upgrade, you know, this plan over here and then you'll start back in 2032 for your second phase. So, it just depends.

23:29 There's a rollout schedule that they give you once the everything is solidified on exactly what's going to go on site. The power company will give you a roll out schedule and then that how they and that's really the thing that comes as you're talking about the money end of it on the back end there. How are they going to take their money from their hedge funds or raising their capital from their stock sale, whatever it is that, you know, is beyond all of us, but because it becomes an extremely long-term play for them on how they put their money to work.

24:05 >> Sure. Now from the perspective and to to scale back a little bit. So understanding, you know, when you're going through all this and getting surveys and everything done, do you already have you already engaged with the end user on saying cuz you'll have to go and say like, hey, we need like x amount of something like is it are you trying to get the entitlements and designs done to a certain like industry-wide specification or is it pretty much tailored to suit what you're trying to do for the individual company that you've engaged with? like where does the engagement from the end user come in or is this kind of just like a general plan for a data center like that you just drop on site?

24:45 >> The majority of the end users, hyperscalers, collocations, whatever you want to call them, the building footprints get pretty generalized where they all know what their cost is going to be. It used to be where they wanted to do their own thing and now it's gotten to where okay this is the size square footage of a building. We know if we go in there this is how many racks we need to put servers in. We know how we can put our power and our cooling systems in. And they've kind of gotten to a point where if there's one or two footprints they can value engineer the construction cost of it so that they're not just designing every site. And you know, you get in, it's basically an industrial building is all it is, >> you know, and with concrete what it costs to pour the slabs on them, then to go vertical with the concrete buildings, you know, they've kind of used a standard footprint, if you will. And that's what we do on every site. And then if they come back and want to do something different, then, you know, we'll readjust it. But we do use basically two footprints is what we use when we do a layout on a piece of property.

25:57 Yeah. And I'm assuming that with the kind of maturation of the market that's gotten a little bit easier, right, from your perspective, it's not as much variance in it. So if you kind of, you know, nail it within like 90%, they can make it work as opposed to doing all this and like, well, actually, we want this to be changed drastically and it's like, well, now we got to get re-engineers. We have to get new surveys. Like they pretty much everything has been standardized to a point with what you're doing. Right.

26:21 >> Correct. Yes. >> Good. before it was, you know, they were trying to design and personalize it, I guess, to what they wanted. And with the cost of development and construction and everything else, it they had to find a way to streamline it. So, we've we on our end of it in the design phase, we we look at it and say, "Okay, we know this will fit. Here's two different footprints we can put on it, and we can switch them out pretty easily."

26:52 >> Gotcha. Now to transition a little bit, there's two other things that we kind of mentioned as kind of core components to this. you know, we talked about real estate, talked about power. but the other kind of two big things would be water and also fiber. And the water kind of plays into the human aspects. I think that's where a lot of people get you know, up in arms. So, let's talk about kind of the fiber infrastructure for a moment because I think a lot of people take for granted, you know, the connectivity of everything in our lives, right? you know, you might have fiber at your house, but that's not a big fiber trunk line. You know, you're not running the data center capacity through that stuff. it's not just a little technician in the van come to your house. This is enterprise level bandwidth that's needed for this. And that's kind of in a similar infrastructure vein as to high transmission towers, right? You know, it's not your local stuff with your pole transformer. This is, you know, the real deal kind of sizing of stuff that's not just what's running your neighborhood.

27:49 So are there kind of in the same way that we have kind of an infrastructure grid in the United States, is there a fiber grid? And how like what's kind of the integration play for that look like? Is it a distance thing? Is it I mean you said like $2 million a mile, but like are there main trunk lines like there are main transmission channels for power in the United States with fiber? >> There is. And most of it centers around the highway system. the big trunk lines through Georgia run I20 from you know the coast over near 95 as you come out of Augusta where 95 comes down all the way across I20 to the Alabama line and it stops but around 285 around Atlanta where you've got the airport and all that kind of stuff 285 carries a gigantic trunk line of fiber and then it shoots up 85 and 75 And it runs up and and it's you know it'll transition a little bit as it gets further out. As you get up about 50 miles north of Atlanta the some of the lines like up at 85 will transition and they're not usable for what you want to do to transmit the type of data that they need. But you know up and down 95 is huge. And in fact there's a huge fiber line and part of its dark fiber that comes under the ocean from Europe and comes up in Myrtle Beach and it splits off goes into Virginia of course that's where the government's based out of so that's where a lot of the fibers at so that was one thing that drove all the data centers in Virginia and they had a multitude of power but they've they've tapped out pretty hard on all of it except for the fiber but yeah the fiber basically follows the interstate system. so it's but when you get into the hubs, like I said, the the city cores and the airports and that type of thing is where you're going to follow and it's going to phase out from there. But, at $2 million a mile, you're not going to stray too far from it.

30:09 >> Yeah, for sure. And it's kind of an interesting concept that it just stops at the Alabama line. So you have the ability and it's kind of an interesting thing to look at the resources that you need for this where you can draw power from external locations but you're kind of geolocked with the fiber. I would say that would it would it be fair to say that the fiber is probably more of a limiting factor than the power per se because there's a lot more power lines than there are fiber around everywhere.

30:35 >> Yeah. Not all power lines can be upgraded. That's the other thing. It's not that you can just follow the transmission lines and you're going to end up with with the power you need. Some of it like the TVA, Tennessee Valley Authority, they don't have redundancy. But when you look around Tennessee and North Alabama and all around through there, you can find hydro power, nuclear power, and there's transmission lines everywhere, but there's no redundancy. So, there's no backup. You can't do a data center.

31:04 and that's part of the problem they've had like in Huntsville where they have the NASA program up there is they they have fiber and they have some power. So they have data centers up there for all the defense contractors and stuff that are based out of there. But, you know, I won't say it completely stops at the Alabama line, but the fiber falls off compared to what runs through Georgia, which we pull off 95. And then, you know, a lot of the fiber originally was put in by AT&T before the Olympics because that was probably the first time where the broadcasting and there were cell towers, computers, and that type of thing being used when they covered the Olympics that they built a huge huge trunk lines of fiber around Atlanta.

31:52 >> Yeah. Yeah. And that's surprising when you mention the power though cuz I know Alabama has got some of the I think like the third largest nuclear plant in the US. Brown's Ferry >> is an absolutely massive generating station. I think it's the only one in the US that has three reactors oper three operational reactors in it. It's it's a pretty pretty cool little place. I'm a little bit of a nuclear power nerd. >> Decar, Alabama.

32:18 >> Brown's Fairy. I'm not sure where exactly it is. It's >> well, we looked at a site in Decar, Alabama, and >> there was nuclear, there was hydro, and there were power lines. I mean, you felt like your hair would stand on fire if you had hair, which I don't, >> but but >> it's in Athens, Alabama. >> Where? >> It's in Athens, Alabama. >> It's right next to Decar. They're they're >> Yeah. Right on top, a couple of miles.

32:43 So, that's where we would have pulled from. Can't put a data center there. There's no redundancy. the the TVA never worked on getting redundancy where you can generate some type of backup power. it's it's pretty wild. We were blown away that because we were looking we were about 30 miles from Huntsville and we were going to put in a huge campus and >> wouldn't work. So we're actually back on that project trying to see if we can get the natural gas lines needed to put turbines and then use the power as a backup system. there's enough power to do that. it's really strange when we got up there looking around because we were looking in parts of Tennessee and northern Alabama and it's like can't do it. I mean, >> yeah. And you you you'd imagine >> think about it.

33:32 >> Well, yeah. I mean, especially because you have kind of the genesis of nuclear power in the United States being right there in Oakidge, right? Like, you know, that's where all the stuff spawned from. you know back in the 50s and the 60s you know you have Oak Ridge here and then you have out in Washington you have Hanford is kind of where you see a lot of those things kind of you know you know the progenitors of all those kind of things so you have a ton of nuclear down here in the southeast you have a bunch up there in the Pacific Northwest but the redundancy aspect I find very interesting and that's kind of one of those things that I think people really wouldn't realize is that you know all power is not created equal you could have a triple reactor nuclear plant right there that can pump out enough power to, you know, send Doc Brown back to the 50s, but you don't have some of the other aspects of what you need to put something in. That's definitely some interesting roadblocks. I'm assuming it's probably equally surprising to you when you look at that initially. Like on paper looks great.

34:28 You got hydro, you got nuclear, you got the ability to do gas turbine stuff, but without redundancy, you can't have something in there that needs to have 24-hour no downtime run times. And I think politically they had the ability to do data centers and then found out they didn't have the infrastructure. And you know they they may be able to get there with a timeline that allows them to garner putting data centers but right now they're you know they're having to work pretty hard at it. They'll probably figure it out. I mean they they got you know the power companies don't do this for free as we all know. So but I think they'll get there eventually.

35:08 Yeah, and I think you you know it's again there's enough dollars behind anything in the US you'll we'll get it done. you know for better or worse the capitalist side of things will create development whether we want it to or not. Sometimes worse than others but sometimes it does actually work to the benefit of things and again you got those dollars behind it. It'll it'll work out. Now you brought up kind of a a good segways to the next question I was wanted to ask where kind of you know water you know being what we all need for life is always closely tied into the political aspect because it's the easy you know thing to to carve out to say hey look this stuff's using water people get real up in arms when you start messing with their water and I would assume that's probably kind of the big tiein for the political aspect of developing these things. So let's talk a little bit on the political end of the spectrum for developing these because it can all look great on paper. You got the infrastructure, you got the fiber, you got the power, you got the site plan. but people, you know, for right or wrong have some real umbrage with these things going in. So talk to me a little bit about kind of the hurdles and things you have to jump with on the political side of things to get these things done. Well, real quick with what you said is out west when they went out there the old joke is that men fight for gold and kill for water.

36:26 So, you know, we have to have it to live and it is a huge issue and but the the political part of it in zoning a lot of people didn't realize they even had a data center near them for years. And if you go look in Virginia and anywhere else across the country, and we've looked over 50% of data centers join a residential subdivision. Most people didn't even know it was there. and it's become such a political football, but you know, you compare it to a distribution center or Amazon going in with their distribution center.

37:04 There's no truck traffic. There's no kids going in the school. you know, there it's open 24/7, but everything's internal except for the emergency generators, which on ours, we're putting them internal where all the buildings are around it to kind of baffle the sound from coming out. But everybody thinks it's going to contaminate their water, make their power go up, cause blackouts, pollution, you name it. And it's just I I it honestly feels like it's a lot of it's politically driven, but I'm not going to say that because I don't know it for a fact. But there's a lot of people I think they just don't understand it. And it's like cell towers. And I had this, you know, 25 30 years ago when cell towers started popping up. I remember people, hundreds of people falling out at a zoning and worried, you know, it was going to cause cancer and they didn't want their kids around it. Don't put it near a school.

38:04 And I'm in a zoning right now and there is a brand new cell tower going on the campus of Emory University right next to the new student housing and there's not one person opposing it. >> Yeah. And I think it's a lot of like understanding, right? an interesting example you bring up cell towers is that you know an an AM cell tower will kill you if you get within like 3 or 4 feet of it. Those things are energized which is kind of the funny people that people don't realize they have a they have a copper mesh grounding plate on them. They sit on a on a porcelain stilt, right? Like an AM tower will fry you. but an FM1 won't. And then like they get progressively safer and have different antenna technology.

38:48 And now I mean there's there's no harm. Like people for so long had data centers right next to each other. you know we're like you know it takes like one bad actor. And I think probably a little bit of it would be kind of you know I think honestly I think in the terms of what has caused this I really think it might be attributed to cryptocurrency. you have the big boom of cryptocurrency mining operations where you have people putting these things probably where they shouldn't be with really loud high power intensity stuff that has gotten people looking at it more and now you know factor in everything else people concerned about water and they have this kind of you know magnetism towards this stuff because it's a big footprint and it's easy for them to gravitate towards it then you get the political aspect of it it's easy to garner positive opinions if don't like what the majority of your bases don't like. So, I think that's probably some of the things that, you know, can play into it is the, you know, you know, animalism of human nature and not liking what the person next to you doesn't like.

39:50 >> And like anything else, as technology advances, these new data centers going in are quiet. We've taken commissioners, city council people, planning department people, and they're just amazed that they're standing outside. How, okay, it doesn't look like we thought it would look when we got here, but we're standing outside and this thing is not humming like a nuclear reactor. Like there people talk about how loud they are. Now, when you get inside of them, yeah, all the servers are running and all that cooling's going on. Sure, it's loud, but you're not going to be inside of it unless you're working there. And yeah, but I I think that a lot of it people just don't understand it. It's kind of blown up all of a sudden. And AI is driving a lot of that. I mean, that's what a lot of these data centers are for. And I mean, you're swapping out servers every two to three years with AI instead of every five to six years that you would do on a standard data set. So it that but the tax base that these you get into these municipalities that have multiple data centers in them and they're operating in the black. they have money left over and they can go do things with parks or what have you, whatever it is. And it's it's going to be here because everybody as I tell them, well, if you don't want to use your computer, your phone, these type of things, then we won't have to worry about data center. But everything's electronic.

41:22 It's like, yeah, it's like if you don't want that, get a ham radio and learn how to do Morse code because otherwise, you know, you're going to be using data center technology to basically operate the entirety of your life, right? You use a credit card, you use a cell phone, you interact with data on a daily basis. And I for the life of me, I can't remember, it's named after a mathematician, but it's the like the amount of data.

41:46 It's like the doubling standard of data, right? Like however much data we have now will be doubled within the next x amount of years and days and then that also goes down and like the doubling effect of how much data there is created every single day and it constantly goes up and it needs to go somewhere. This is you talk about putting stuff in the cloud. Well the cloud is the data center right? you know, it has to, you know, have a have a physical representation of this kind of esoteric concept. Is this you know, the sparks that come out of your wall come from a big, you know, magnet spinning inside of a copper coil, right? This is this is where the actual stuff is you know, produced and used on the resource that we all can't live without. You know, unfortunately, you know, our our world does you know, revolve around that. If you've been anywhere that has had any type of internet outage, we had one down here in in u Clearwater St.

42:44 Pete. big Verizon outage right after the hurricanes last year, which was great timing to have an internet outage. you know, you kind of see how fast life grinds to a halt, especially in a natural disaster. But you know this is something that I think people is a worthwhile area to look at simply for the fact like you're talking about there's good money to be made now from a real estate play to kind of get back to you know the dollars and cents of it all when you go through and let's say you know you you don't have to use one of your outs for you know commercial or industrial or or multif family or something. What are some of the kind of the like benefits on the return aspect of when you can get something entitled and then sold off to the developer for these data centers? Like in general, what's kind of the delta between your return profile between that or the exit strategies that you look at?

43:37 >> You mean on the A versus B? Is that what you're talking about? >> Yeah. like like getting something to getting a project that comes to Fortune for the data center buildout and getting it sold out versus what what you might expect on then in turn having to pivot to do industrial multif family or something just as a broad kind of stroke concept. >> We're probably looking at the profit wise being a third of what we would make on a data center. I mean that's how much more there is. Yeah. I mean, if we've looked at one project I'm thinking about right off the top of my head that we have right now, if we it would be a residential play and if we took it all the way through as a residential play, it's fairly large as compared to selling it off if we get everything done correctly on it. You know, we're looking at making three times what we would have as a residential pipe.

44:34 >> Wow. Now, and Yeah. I'm always optimistic, but on paper, if I'm rolling the numbers out and and being, you know, staying within a delta that's actual working and not, you know, blowing numbers out, that's what we're looking at doing with it. So, and also that is that project with a residential would take us longer probably because we'd have to sell it in two phases because it's so large is comparing it selling it once with a data center end user or hyperscaler. So, we can >> that's really interesting.

45:16 >> We could actually get out of the thing faster and make more money with the data center than we could with residential platform. Well, and that's because I think a lot of the play in this, I mean, it's buying, you know, you more or less I mean, are you always buying raw land or is it more or less like it's either that or just a tear down? the value's in the dirt of what you're doing most of the time, right?

45:35 >> It's the value of the dirt. >> I mean, I mean, at this point, I mean, you're looking >> we've located one site that's an office park that's fairly close towards town. And if we can get control of it, we would it would get raised completely. >> Yeah. So that's like I think a big like benefit to the expediency of this is that when you're going in for the real estate, it's like okay, whatever's on it, it's probably getting raised. So you don't really care like doesn't need to pass an inspection, right? You know, it's like, do the numbers work? We want it. We think we can do this. You buy it.

46:13 And then from there, it's just a lot of I mean, again, not to cheapen it by any means, but it's all kind of, you know, paper at that point. It's, you know, getting surveys, site plans, negotiations. It's not dealing with builders and tenants. It's all work that is a little bit you know, less drag than I'd imagine doing. Again, developing real estate, dealing with contractors, additional permitting, occupancy permits, inspections. you're just getting in there and then you have a asset to then in turn sell off that they deal with all that. So, you know, the the velocity of which you can seemingly turn around a deal from lock to lock. Again, I think you you actually said it specifically is where a lot of that value comes in and also what they're paying for it, too.

46:57 >> Well, and one of the things is, you know, we're paying for that stuff up front, which is of value and and cost. Then if we control the land, the other thing is with these power companies is they're trying to avoid people who are putting stuff under contract and coming in there and and working a deal, getting it through zoning, and then they can't close on the land. And then that power is allocated there. And it's supposed to go to this person who because you got to put a deposit down also. And we work with a couple of different people because you have to secure once they get the power and you get through and get zoned and you're going to make sure someone's going to get it, then there's a deposit that goes down on that power.

47:46 And on one big project, we had someone that came in and they had to put a $22 million deposit down on a huge Well, it's a huge project. It's a gigantic project. There was $22 million had to be put up front to secure the power after we got through zoning and all that kind of stuff. >> So that's absolutely >> the key is knowing that you've got to deal with the power also once you've got the zoning entitled. You have to be working on that power aspect at the very beginning also >> because the deposits can range depending on the size of the project.

48:23 >> Yeah. So, it definitely sounds like plays in this area need a lot of capital upfront. but the returns can be pretty pretty sweet though when you get it all done to a high degree of efficiency. >> They are. And the good thing is is that you can pull back the profit margins that are going you can pull back and and push the deal along a little faster. You know, you want to hold out and make that the huge margin, that's great. you can still make really good margins and and push the project along faster to move it along so that you know you're going to meet the return of whoever the investors are with you and whatever capital you're outlined.

49:00 >> Fantastic. Well, again, I really appreciate your time today. This has been fascinating. I know we it's kind of our third try at getting this podcast recorded and we've had some great conversations along the way on it. but if people are interested in learning more about this kind of stuff, you know, do you have any outbound education? If you take investors, how can they reach out to you? what's the best way they can kind of learn and connect more on this topic? they can contact me directly at u my cell number is 404-569-9756 and mike embryo companies.com is my email address and they can contact me and I'll give them more info, walk them through some of the projects and talk about what we're looking at as far as returns or anything else if they're interested.

49:46 >> Fantastic. Well, Mike, really appreciate your time today. The most valuable asset we all have is our time. We can't make any more of it no matter how quickly we get through a data center project. Right. So appre appreciate you being on with us today. Again, this has been another edition of the Alternative Investing Advantage podcast. My name is Alex and we'll see you on the next one. Thank you for tuning in to the Alternative Investing Advantage podcast.

50:07 Tune in next week for more investing tips and strategies. Want to hear more episodes of the Alternative Investing Advantage? Search podcast at advantirra.com and subscribe.