Why TV Might Not Be The Best Place To Learn About Data Center Property

It’s not exactly fair to say CNBC’s foremost investment guru Jim Cramer touches on commercial real estate very often.  As is usual with folks following equity markets on TV, publicly traded REITs come into his view only every now and then, he makes his pronouncements, slaps a button to make a sound effect and moves on to the next sector with nary a pause.

That said, nobody twists Mr. Cramer’s arm to give investment advice on TV.  So when he consistently gets a sector wrong, it’s worth noticing.  If it’s a hugely successful and growing commercial real estate market, all the more worth noticing. And Jim Cramer couldn’t get data centers more wrong than he has.

Over at DataCenterKnowledge.com, Rich Miller was the first to notice the wild misses in Cramer’s pessimistic prognostications about data centers.  The following chart says it all:

A chart showing Jim Cramer's mistakes in data center stock picking

Again, these are only stock picks and shouldn’t be treated as more than that.  But it does show that a very widely regarded analyst of all things financial has blown it when analyzing a key commercial real estate sector.  If he can, so can many others.

It wouldn’t be the first time. CRE is complex, highly local and intimately intertwined with many economic, regulatory and social factors.  Yet, here, Mr. Cramer is missing a very simple point about technology and floor space when he says “I think the data center industry is in decline. I see an industry that’s about to be brought low by new technology, so I think you should sell, sell, sell.”

With technology, it can be difficult to tell where limits are.   In our lifetimes, we have seen such massive changes, and such radical miniaturization of powerful business technologies, that we may simply guess that every physical need related to technology’s march will simply continue to shrink.  Apply that guess to data centers as a commercial property investment — in other words, believe that a new technology is coming that operates in thin air, without roofs or power or physical security —  and you might, as Cramer does, come up bullish.

But that guess couldn’t be more wrong.  The growth of the internet, the launch of every new service, of every new startup, means a directly heightened, not lowered, demand for data center capacity, and therefore for all the real estate features:  roofing,  power, physical security, etc.

Every story you see of, say,  user growth at Facebook or about the new record number hundreds-of-gazillions of Google searches translates into heightened demand for data center capacity.  Electronic commerce and telecommuting is displacing traditional commercial real estate buildout formulas, certainly, but that displacement must have a destination – and the consistently heightened demand for data centers is it.   Each of those individual users – the telecommuting worker, the online shopper, the social media maven –  have to connect to something somewhere when they wield their smart phones, pads or laptops.   That somewhere is a data center.

Obviously, picking stocks and picking a commercial property sector to patrol in your CRE career aren’t the same thing.  But let it be known data centers are the commercial square footage that drive every internet application.  They are affecting your market far beyond the primary cities — from Apple’s $1 billion data center investment in secondary-market Reno, NV to the surprising server farm projects that, well, are being built on farmland. 

Let the guy on TV do his thing.  We have to do ours.

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