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The site selection process for hyperscale data centers is a critical part of the development due diligence. The real estate location is key to the feasibility of the project. Key legal considerations include zoning requirements, applicable land use regulations, and access to power and water. Selecting optimal sites for data centers can also limit costs associated with design and construction, decrease the time necessary to bring the data centers online, and accommodate future growth.
Investment, development and infrastructure
Compatible zoning
Understanding zoning regulations and local politics is critical to obtaining necessary permits for development of data centers. The first step is verifying that the local zoning ordinance contemplates data center uses and related operations or similar uses and permits them on the development site. Data centers are commonly classified as industrial uses but may be permitted in commercial and mixed-use zoning districts. While data center uses may be permitted in the underlying zoning district, it is important to confirm whether the requirements and approval processes change if they are also located in special use overlay districts or environmental overlay districts such as steep slope, flood zone or conservation districts.
Zoning regulations restricting height and placement of buildings and accessory water towers and cooling ponds may indirectly preclude or reduce data center development on the site, even if data center uses are permitted. Additionally, noise ordinances, which may be in the zoning or general ordinance of a municipality, may limit development of the site. If the applicable zoning regulations do not permit data center uses by right on the project site or if the regulations restrict necessary design and operations, the process of obtaining zoning variances or conditional use approvals can be lengthy and uncertain. This is particularly true if the development involves multiple data centers in a campus setting with numerous accessory uses and structures.
Coordinating with local governments to amend zoning regulations to permit data center uses consistent with industry standard operations may be the fastest track to an approved data center. Engaging with local authorities early in the process can help identify any restrictions, ensuring compliance and reducing the risk of costly delays. Additionally, early community engagement is key to limiting potential opposition to the development and ensuring proper integration into the surrounding neighborhood. Data center developers often face municipal requests for exactions as a condition for the project’s, and consideration must be given to the legal basis for such conditions.
Existing conditions and land development plans
Preparing land for developments of this scale will likely require subdivision or consolidation approvals, and existing environmental conditions may be implicated. In addition to the practical risks associated with construction near steep slopes, flood zones, unstable soils and other natural hazards, these site conditions may increase costs due to land use regulation requirements for design and reporting, and extend entitlement periods due to additional public approval processes. These conditions also commonly trigger environmental testing and the submission of expert technical reports to local or state governments beyond what would be required for sites without these hazards. Further, grading needed to stabilize buildings on steep slopes and poor soils, or to raise sites above a flood plain, may substantially extend construction time.
These processes and approvals can sometimes be separated from the underlying zoning issues and may require a surprisingly intensive public process. Certain approvals may be required before the buyer can close on the real estate. Timing for other development approvals is a risk-based consideration for the developer, and the development team may need to dual-track these items prior to closing, depending on permitting and construction timelines.
Power and water
Some of the most unique considerations in data center development are the availability of power and water. The site selection process can include trade-offs between the availability of developable land and the necessary infrastructure for power and water to serve the project. In any event, data centers often require significant investments related to power and water upgrades. Due diligence may include reimbursement arrangements with the relevant service providers or municipal authorities to evaluate the engineering and other work necessary to deliver power and water in the quantities required for data centers. Additional easement work may also be necessary for the construction of new, or expansion of existing, transmission, water, wastewater, sewage and fiberoptic lines. The parties should evaluate whether the ownership and construction of such lines are private or public and whether the power of eminent domain is available to secure the necessary easements.
Conclusion
Understanding the required zoning, land use, subdivision approvals and public processes is essential to developing a realistic project timeline and budget. Data center developers should carefully consider the necessary infrastructure investment and time required for entitlements as part of the due diligence process. This understanding will help shape the negotiation of any land acquisition contracts, including appropriate due diligence timelines and establishing conditions precedent to closing, which can mitigate risk in the land acquisition process if the development is not permitted or ultimately proves no longer feasible.