The fastest growth area in construction today is data centers. From Virginia to Indiana to California, data centers are springing up across the U.S. As construction companies are positioning themselves to participate in this boom, they’re also looking for ways to manage their capital outlays on equipment.
What are the best ways to optimize equipment financing to effectively manage capital throughout the data center construction process?
State of Data Center Construction
It’s not just the number of data centers that’s growing; it’s also the size. According to Dgtl Infra, centers exceeding 250,000 square feet and supporting hundreds of megawatts in power capacity are becoming increasingly common.
Construction of data centers can take from 18 months to three years and cost hundreds of millions of dollars. Some are enterprise data centers, meaning they are fully owned by one company such as Amazon Web Services or Meta. Some are cloud centers, which are owned by providers that offer data storage and processing to many different customers. Colocation centers house equipment for multiple companies under one roof. The largest installations are called hyperscale centers.
Types of Construction Processes
Depending on the size of the planned center and the circumstances of the site, data centers may be built all at once or with phased construction. They may be created from modular components. They may be brought online all at one time or be activated on a staggered commissioning schedule.
- Phased construction – In this process, separate buildings of a data center are added individually until a full campus is completed. Phased construction has become the industry standard, as it allows for improvements in power and water infrastructure to keep up with building construction.
- Modular construction – Modular construction uses purpose-built units to meet specialized needs for data processing and storage. They’re especially useful as edge data centers, i.e., those built near high-demand users, such as healthcare facilities and autonomous driving training centers.
- Staggered commissioning schedules – In this type of center activation, different sectors are brought live (commissioned) at different times, giving construction teams workable timelines for completing each section.
Equipment Needed
A data center build requires a wide variety of equipment at different stages of construction. During site development, the primary demand is for earth movers (graders, excavators, etc.) When building the structure itself, needs shift to cranes, concrete mixers, and transport machines such as forklifts and skid steers.
For the heart of the data center, specialized equipment for installing HVAC and power are needed, including cranes and aerial work platforms.
Planning for Equipment Needs
In such a complex building environment, it’s crucial to plan for what equipment will be needed at what time. Tying up capital in idle equipment can strain cash flow and delay project delivery.
Leasing offers the opportunity to spend only on the equipment that’s needed when it is needed. It takes away the capital crunch associated with buying equipment outright.
Types of Leases
Construction companies can choose between operating and finance leases:
Operating leases are structured like simple rental agreements. The user pays a set monthly fee for a limited time, then relinquishes the equipment at the end of the lease period. They’re ideal for equipment that will only be used for a short time or will become obsolete quickly.
Finance leases are better suited to equipment that will be used for an extended period. Often, they include a clause allowing the lessee to purchase the equipment at the end of the lease term at a significant discount.
Tax Advantages
Companies that acquire equipment through a finance lease can benefit from two separate, but similar, tax advantages. Both can significantly lower taxable income in the year the equipment is acquired.
Section 179 deductions – This section of the IRS tax code allows for companies to deduct the full value of a qualifying piece of equipment in the year it was first leased and put into service, while still allowing for payments to be extended over time. There is a taxable income cap on this deduction, so it is usually claimed before the other tax benefit (100% bonus depreciation).
100% bonus depreciation – Similar to the Section 179 deduction, 100% bonus depreciation allows for the full cost of a piece of equipment to be depreciated as an asset in the year it is acquired and put into service. Doing so lowers a company’s taxable income in that tax year, but it’s important to consult with your tax advisor to determine eligibility and optimize savings.
Choosing a Leasing Partner
Selecting the right equipment leasing partner is key to efficient capital management during a data center build. Prioritize providers with strong industry knowledge and a track record of supporting construction projects like yours—they can anticipate common challenges, offer valuable guidance, and help tailor solutions as your equipment needs evolve. Transparent communication about process and pricing is also essential, ensuring you can adapt smoothly to changes throughout your project.
Mike Fitzsimmons serves as Vice President of Sales – Construction and Material Handling at Summit Funding Group.
