Core Scientific converts Texas bitcoin campus to $6.1 billion data center hub as AI industry surges
According to Candiace Carlisle at CoStar News, "A North Texas city is paving the way for Core Scientific to spend $6.1 billion to convert its local bitcoin cryptocurrency operations to a data center hub for artificial intelligence applications, a sign of the shifting digital demand changing the use of some industrial real estate across the country.
Core Scientific is transforming and expanding its campus about 40 miles northwest of downtown Dallas as major cryptocurrency companies focus more on computing that caters to the AI boom. Data center leases provide a more consistent source of revenue compared with the volatile nature of the crypto industry, executives said, leading to a more favored valuation by investors.
Local officials approved amendments to Core Scientific's power purchase agreements and land leases at 8171 Jim Christal Road in Denton, Texas, during a meeting late Tuesday. The company is allocating a significant portion of its nine existing U.S. data centers mostly used for bitcoin mining in Alabama, Georgia, Kentucky, North Carolina, North Dakota and Texas to support AI-related workloads.
"Denton has been home to one of our most advanced data centers," said Core Scientific CEO Adam Sullivan in a statement following the city council's decision. He added that the company expects it will host one of the largest graphics processing unit "supercomputers in North America, powering artificial intelligence."
Core Scientific plans to lease from the city about 78 acres with access to 394 megawatts of power for the high energy use required by data centers powering AI needs, up from the original agreement for 31 acres with access to 297 megawatts of power. One megawatt can power about 1,000 homes.
The expansion is projected to include a $6.1 billion property investment, the company said Wednesday.
The firm has been focused on its high-performance computing operations since it emerged from bankruptcy in January. The transition from crypto mining to catering to AI demand provides Core Scientific with "long, steady contracts" with "large counterparties" in a move that takes away volatility and offers the ability to make countercyclical investments in bitcoin mining, Sullivan said in an interview on Bloomberg TV.
Core Scientific isn't the only bitcoin miner making a pivot to data centers as their executives say they are looking to boost revenue streams. TeraWulf has invested in expanding its high-performance computing capabilities, while another bitcoin miner, Bit Digital, acquired a data center company to gain a foothold in some major U.S. markets. Other bitcoin companies, including Hut 8 and Hive Digital Technologies, have made similar investments this year.
While data centers are attracting development that generate tax dollars and require relatively few employees that could otherwise strain local schools and other services, this type of real estate requires large amounts of power generation. As a result, debates among local officials typically include the amount of energy that the new facilities will require.
Local grid partners
Core Scientific plans to expand its portfolio by securing more power with local grid partners, Sullivan said. He added that the company believes it can capture an additional 300 megawatts of critical IT load, or the amount of power needed to operate a data center’s key systems, at its existing sites through power suppliers.
"We believe that we will secure some of this additional power allocation before the end of 2024, representing the quickest path to capacity growth," Sullivan said during the company's third-quarter earnings call in early November.
Austin, Texas-based Core Scientific unveiled a new development in Oklahoma this week, teaming up with an AI hyperscaler — or large cloud service provider — called CoreWeave for a 100-megawatt, high-performance computing data center in Port Muskogee, Oklahoma, about 50 miles southeast of Tulsa, Oklahoma.
The new Oklahoma data center represents a portion of the total 500 megawatts of critical IT load that CoreWeave has contracted from Core Scientific for high-performance computer hosting operations. In all, the contracted value of the deal totals $8.7 billion over the 12-year term.
The successful execution of the contracts on Core Scientific's plate would make the company one of the largest publicly traded U.S. data center operators based on megawatts, the company said last month.
The company has been investing in expanding its data center capabilities by adding data center facilities in Austin and Auburn, Alabama, comprising a contracted gross capacity of more than 1,200 megawatts, Sullivan told investors.
Adding property
During the third quarter, Core Scientific leased an option to buy an existing data center in Alabama with 11 megawatts of critical IT power, with this site potentially supporting an additional 55 megawatts of critical IT load, he said.
"We are building a data center business with CoreWeave as our anchor tenant, and our ambitions extend well beyond the initial 500 megawatts of critical IT load," Sullivan said on the call. "In fact, with our recent reallocation of infrastructure to high-performance computing and our new Alabama site with its growth plan, we now have another approximately 130 megawatts of critical IT load to offer to clients."
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As part of the Dallas-area campus transformation, Core Scientific is more than doubling the size of its campus by 42.9 acres, including 6.7 acres of land purchased for a proposed solid waste transfer station, city documents say. The firm expects to pay the city more than $5 million after the removal of a proposed land swap, according to the documents.
The hosted tenant of the site is expected to employ 130 to 300 full-time, on-site workers, the company told the city, with an average salary of $70,000 to $75,000 with benefits. Core Scientific has not requested any tax breaks from the city of Denton but has applied for state incentives and abatements, city documents say. Core Scientific did not immediately respond to an interview request from CoStar News seeking additional information on its expansion.
Local utility Denton Municipal Electric is also granting a temporary construction easement to help transform the site, with Core Scientific leasing more than 12.5 acres for $5,280 a month for a 48-month term.
This latest iteration of the project includes the addition of two new on-site substations and significant rerouting of on-site transmission lines, according to city documents. The transmission system improvements are expected to be complete between 2027 and 2029. The initial phases of the conversion project are underway, with a phased completion expected to begin in late 2025."
The trend of converting industrial properties like bitcoin mining facilities into AI-focused data centers could significantly influence property taxes, both positively and negatively, depending on local policies and circumstances.
Increased Property Valuation
Data centers often represent significant investments in infrastructure, as highlighted by Core Scientific's $6.1 billion property investment in Denton, Texas. These facilities often require extensive upgrades, including substations, power systems, and cooling infrastructure, which can elevate the assessed value of the property.
Higher property valuations typically lead to increased property tax revenue for local governments, which can be used to fund public services. For example, the expansion of Core Scientific's campus to accommodate AI workloads could result in a substantial boost to Denton's tax base.
Economic Stability and Long-term Contracts
AI data centers provide stable, long-term revenue through tenant leases and operations compared to the volatile cryptocurrency industry. This stability can make them a reliable source of tax revenue, mitigating the risks associated with fluctuating property values in less predictable sectors.
Limited Workforce Impact
Data centers generally require fewer employees than traditional industrial facilities, but the jobs they provide are often high-paying, such as the $70,000-$75,000 average salaries reported for Core Scientific's Denton facility. While this may reduce the strain on local services like schools, it could also mean less direct economic stimulation from increased population growth.
Energy Demands and Incentives
One key concern is the immense energy requirements of data centers. Local governments may need to invest in grid enhancements, as seen with the additional substations and rerouting of transmission lines for the Denton site. These costs might offset some of the tax benefits unless shared through partnerships or passed on to the operators.
Some data centers request tax abatements or state incentives to offset their setup costs. While Core Scientific has not requested local tax breaks in Denton, other facilities might, which could temporarily reduce the immediate property tax revenue.
Potential for Broader Adoption
If more bitcoin facilities pivot to AI data centers, municipalities may see a shift in the industrial real estate landscape. Properties previously associated with high volatility and lower valuation stability could become cornerstones of local economic development.
However, local officials will need to balance the trade-offs between incentivizing these developments and ensuring they contribute adequately to the tax base to cover increased energy infrastructure costs.
In summary, the shift from cryptocurrency operations to AI data centers has the potential to raise property tax revenue significantly, provided municipalities carefully manage incentives and energy infrastructure investments. The broader trend could stabilize local economies by attracting steady, long-term business operations, marking a shift in how industrial real estate supports municipal budgets.