Data center provider razes 55 homes to make room for Illinois campus

The rush to build data centers has become the new Oklahoma land grab, with providers competing for prime real estate. In one instance, a data center provider bought 55 homes only to demolish them to make room for its campus.

Stream Data Centers, a Dallas-based provider of colocation and custom data-center construction services, last November purchased 55 homes in a 34-acresubdivision of Elk Grove Village, Illinois. According to published reports (here and here), Stream paid an average of $950,000 for each house.

After finalizing the purchases, Stream demolished the houses to make room for a 2 million square-foot campus with four-story buildings. When completed, it’s expected to be the largest data center in the city – which already has 11 data centers owned by companies including Equinix and Digital Realty Trust.

Elk Grove Village has become a popular destination for data centers in the state of Illinois. Its appeal comes from a combination of close proximity to Chicago, relatively cheap land, lots of fiber-optic network bandwidth, and access to fresh water from Lake Michigan. The result is a cluster of data centers all in one space.

Stream Data Centers closed the housing deal last November, but demolition didn’t begin until February as families were given time to move out. There are also commercial properties on the site, but they will not be vacated until April 2025. Groundbreaking for the first data center building is scheduled for late 2024, with occupancy projected for early 2026.

“Elk Grove Village is a critical market for major cloud deployments and network services companies, and this project gave us a chance to secure 34 acres and develop a large hyperscale campus in this land- and power-constrained market,” said a company spokesperson via email.

“Beyond getting an outstanding data center site, it was nice to see that the landowners did very well as evidenced by the support we received in our development process (who showed up at our public meetings voicing their support for this project). Craig Johnson, the mayor of Elk Grove Village, and the village staff have been hugely supportive throughout the development process,” the spokesperson added.

Elk Grove is the largest data center submarket in the Chicago area, and it offers several latency-sensitive connection points that developers want to be around, according to Andy Cvengros, managing director, data center markets, with Jones Lang LaSalle, which specializes in building data centers.

Regarding the 55-home purchase, it’s not the first time a data center company paid for and demolished homes, Cvengros said. Data center providers Prologis and CyrusOne have done the same thing.

Real estate generally follows “its highest and best use,” he said. In this case, when the land was used for residences, it was worth $20 per square foot. But if converted to data center use, it’s worth between $45 and $50 per square foot, according to Cvengros.

So, Stream is very likely to make its money back, even with the added expense of buying all those homes. “It is all a function of what can be developed there. Every data center operator is trying to build at scale by bringing massive power with multiple buildings. If they pull off what they intend to, they should very profitable, I would imagine,” Cvengros said.

Alvin Nguyen, senior analyst with Forrester Research, believes this is something to expect more of in the future. “Data centers need to be located near the users – residential, commercial, and industrial – so competition for this type of space makes sense. If their prospective clients are based nearby, or more importantly, their prospective clients’ clients are nearby, then this is an ideal opportunity,” Nguyen said.

Even considering that Stream paid a premium for the houses, Nguyen says that “unless they are horribly run,” the data center should make a profit. The cost of buildout for a new data center can start at around $1,000 per square foot, and additional costs come from power, cooling, network connectivity, monitoring equipment, management software, facilities staff, and security.