Sunday, December 10, 2023

Startup pitches $100 million data center in Cascade Locks

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A collection of data center professionals wants to spend up to $100 million building a data center in Cascade Locks, a deal the port authority hopes will rescue it from a financial jam.

But their new company, called Roundhouse Digital Infrastructure, is still putting together financing and seeking customers in a highly competitive market. Roundhouse wants a 25-year lease from the port for a vacant industrial building and for 10 acres nearby.

Port officials say the data center project represents a big opportunity for the tiny, scenic community about 40 miles up the Columbia River from Portland. The port owes nearly $6 million in loan payments on the building Roundhouse wants, and officials say Cascade Locks needs to expand its economy beyond seasonal tourism work.

“Things come and go, and we need to be diverse,” said Jess Groves, president of the five-member port commission.

Data centers have grown into one of Oregon’s largest industries, in large part due to hundreds of millions of dollars in property tax breaks awarded by suburbs and small towns across the state.

Roundhouse’s project would qualify for property tax breaks, too, but at 10 megawatts of power capacity — a proxy for its computing power – and $100 million in equipment costs, its proposal is orders of magnitude smaller than the hulking, multibillion-dollar installations that Apple, Amazon, Facebook and Google operate in other parts of the state.

Big tech companies dominate the data center industry, but Roundhouse hopes to prove there’s a market for “boutique” data centers serving niche government and energy industry clients with a more hands-on approach. It hopes to employ at least 40, and maybe as many as 80 eventually.

Roundhouse wants to start incrementally this spring, installing a small number of servers in a 43,000-square-foot building the port calls Flex 6. The company envisions eventually filling the facility with $40 million in computers and upgrades, then spending $60 million to build and equip a new structure on 10 acres nearby.

The port built Flex 6 in 2020 to house a Cascade Locks company called the Renewal Workshop, which employed 40 rehabilitating discarded clothing for big-name fashion brands. But Renewal Workshop walked away from its lease last year after selling the business to a Dutch company and shipping the jobs to Ohio and to locations in Europe.

That left the port on the hook for $53,000 in monthly loan payments and upkeep. The port had borrowed $6.5 million from Oregon’s economic development agency to finance construction.

Groves, the port commission president, said he isn’t sure why the Renewal Workshop’s new owner isn’t responsible for the lease payments. He said the port’s former general manager negotiated the company’s exit from Cascade Locks.

A memorandum of understanding between the port and Roundhouse describes a 25-year lease of a little more than $49,000 a month for the Flex 6 building. The port says that’s more than Renewal Workshop had been paying and enough to cover the port’s loan payments from construction.

Roundhouse would pay just $22,500 a month this spring, though, and about $37,000 a month from July until March.

Additionally, Roundhouse would pay $2,000 monthly per acre if it expands to the neighboring 10-acre site. Rents on both sites would increase by 2% annually. The value of Roundhouse’s property tax breaks will depend on how much it actually spends, and how quickly.

Complicating matters, port manager Olga Kaganova just quit, complaining in a resignation letter last month of “harassment, retaliation, and reputational harm” from port commissioners. Among other issues, Kaganova said she had been excluded from “essential” communications with Roundhouse and other port clients.

She referred questions about her resignation to Groves, who declined to comment except to confirm Kaganova’s departure and to say that he believed she had been included in discussions with Roundhouse.

Previous efforts to diversify Cascade Locks’ economy failed in the face of determined opposition to a pair of controversial projects.

The port spent years working with the Confederated Tribes of Warm Springs on plans for a casino but gave up after opposition from neighboring tribes, environmentalists and then-Gov. John Kitzhaber. Nestlé spent years seeking to build a bottling plant at the port, but its effort failed when former Gov. Kate Brown shut down an associated water agreement.

The port and Roundhouse are trying to avoid a similar backlash on their data center proposal and have scheduled a community meeting Wednesday night. But skeptics are already emerging in the city of roughly 1,400 people.

Cascade Locks resident Rachel Najjar calls the proposed deal “reckless.” She said she’s concerned that Roundhouse has released so little information about its business, because of the port’s apparent inability to hold Renewal Workshop’s buyer to its lease agreement, and because she’s concerned a data center is an inappropriate use of land and resources.

“I personally think it’s a power grab and a water grab and a land grab,” Najjar said.

Because Roundhouse’s project isn’t very big, as data centers go, the company says it doesn’t need big electrical upgrades for the initial phase. But Roundhouse says it is counting on a previously planned electrical substation upgrade to help power the project’s second phase.

Roundhouse said it expects to rely heavily on atmospheric cooling in windy, rainy Cascade Locks to chill its computers. Co-founder Stephen King said that means its operation won’t be as water-intensive as other Oregon data centers.

Roundhouse says it’s pursuing a similar project in Pennsylvania and hopes to build more in other parts of the country. King said the company’s name is a referencing to railroad roundhouses, which served as switching stations for train engines. King said Roundhouse envisions playing a similar role for data.

King said he has worked in community development and marketing. The company says other executives have managed data centers for a federal agency and worked at other data center and information technology companies. None, though, appear to have built large startups.

Though Roundhouse doesn’t have an established business, King said his company is a good bet for the port because it plans to use investor funds – not port money – to build its business.

“We haven’t asked a penny of the port,” King said. And he said investor support is a good signal of Roundhouse’s prospects, because investors “aren’t going to put the money in if they don’t think it’s going to survive.”

— Mike Rogoway | | 503-294-7699

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