Data center construction costs average $295 per square foot ($150 to $200 per SF shell, $12M to $18M per MW thereafter depending on the required design resiliency) – only hospitals compare in their costs to construct. With so much cost in every square foot of a data center, it is essential to extract any potential value out of the real estate. One of the easiest ways to create this value is to a pursue cost segregation analysis.
Cost Segregation Fundamentals
The Internal Revenue Service (IRS) requires commercial buildings to depreciate using a 39-year straight-line method. For example, a $39M data center can be written off at a rate of $1M per year over 39 years.
However, through a cost segregation analysis, a significant portion of the building costs can be reclassified from “real property” to “personal property” thus changing its tax depreciation life from 39 years to 5 years.
More of the CBRE post from Eli Varol