Digital Realty Trust, a real estate investment trust that owns, invests and operates data centers across the globe, is scaling back investment plans in downtown Dallas in a move that could jeopardize its tax abatement with the city.
The REIT that relocated its California headquarters to Austin, Texas, in 2021 told the city of Dallas it no longer plans to invest $100 million into its downtown Dallas tower because of "unforeseen circumstances and technical challenges" related to the expansion of its data center capacity, according to a city document.
The Dallas City Council plans to talk at its Wednesday meeting about amending Digital Realty's economic incentive agreement it received in 2021. The company had "intended to make more than $100 million in capital improvements to expand both corporate staffing and data center capacity" at 2323 Bryan St. in downtown Dallas, officials said in the city memorandum.
Digital Realty "no longer intends to move forward" with those plans. Rather than a large investment, the REIT completed a small $13 million renovation, officials told city staff. Digital Realty did not immediately respond Tuesday to an interview request from CoStar News.
The REIT is asking the city of Dallas to revise its economic incentive agreement allowing it to still benefit from a $2 million grant it received in fiscal year 2020-21 from the state's Texas Enterprise Fund, which is often referred to as the deal-closing fund because it is a financial incentive meant to help lure companies considering rival states or locations for their expansions. To qualify for state incentives, a company often needs support from its local municipality.
In turn, Dallas benefits from a boost in property value for the tax rolls and access to high-paying jobs for residents. To date, Digital Realty has created or retained 143 jobs in downtown Dallas with an average salary exceeding the required minimum salary of $120,000, the company said.
In revising the city's economic incentive agreement to meet Digital Realty's new specifications — while allowing the REIT to maintain eligibility for its Texas Enterprise Fund grant — the city is proposing to no longer offer Digital Realty a business personal property tax abatement.
The REIT would also see a reduction from its Chapter 380 economic development grant tied to full-time permanent jobs from $1,000 per job to $290 per job. The city would boost its minimum number of required full-time employees with a minimum average annual salary of $120,000 from 143 to 175, according to the memorandum.
Hybrid work positions assigned to 2323 Bryan St. would also count toward the local hiring requirement, with only 25% of those hired being Dallas city residents.
Meanwhile, Digital Realty filed a state work permit last month outlining a $2.5 million project to build out more than 11,000 square feet of office space in Austin on the 32nd floor of the downtown building known as Sail Tower at 601 W. Second St. along Lady Bird Lake.