Converting industrial buildings into data centers in Opportunity Zones

Because the site may already have what new data centers struggle to get: heavy utility service, industrial zoning, water and a low purchase price. Many Opportunity Zones are former manufacturing districts, where land and building values are low and large structures sit vacant.

There are precedents. Sibley Mill in Augusta, Georgia, a former denim mill with 2.5 MW of on-site hydropower, was planned as a data center and technology park.¹¹ Mayo Mill in Dover-Foxcroft, Maine, a woolen mill, was redeveloped with housing, commercial space and a data center with EPA brownfields support.¹² At a much larger scale, the former Homer City coal plant in Pennsylvania is being converted into a planned 4.5 GW gas-fired data center campus on more than 3,200 acres.¹⁰ In Millinocket, Maine, Nautilus Data Technologies announced a 60 MW facility on part of the former Great Northern Paper mill site, described as in an Opportunity Zone; its current status is unconfirmed.¹⁴

Not every building works. Modern AI racks are heavy and dense: an NVIDIA GB200 NVL72 rack draws about 120 kW and requires liquid cooling.¹⁶ Floor loading, clear height, column spacing and room for generators and heat rejection can rule out a building no matter how good the tax math is. The broader framework is in Data centers in Opportunity Zones: the complete guide.

The building must be improved by more than its own adjusted basis within 30 months, or by more than 50% in a wholly rural zone. Opportunity Zone business property must be either original use in the zone or substantially improved by the Qualified Opportunity Zone Business (QOZB). Under §1400Z-2(d)(2)(D)(ii), property is substantially improved if, during any 30-month period beginning after acquisition, additions to its basis exceed its adjusted basis at the start of that period.^1,2

Three refinements matter for conversions. First, land is excluded: it does not have to be separately improved, and only the basis allocated to the building sets the hurdle (Rev. Rul. 2018-29).⁴ Second, improvements do not have to be finished within the 30 months; the additions to basis must exceed the threshold in that period.³ Third, the final regulations allow aggregation, so qualifying new property on the parcel can count toward improving the property as a whole.⁶ How far aggregation reaches data center equipment should be confirmed with counsel.

An anti-abuse rule applies to land: unimproved land bought with the intent not to improve it by more than an insubstantial amount within 30 months cannot rely on the land exception.⁵ A conversion that leaves most of a large parcel idle should document the plan for the rest of the site.

The rural threshold comes from Public Law 119-21 and applies to determinations after July 4, 2025. Notice 2025-50 applies it to current zones that consist entirely of rural area, defined as anywhere other than a city or town of more than 50,000 people and the urbanized area next to it.⁷ Husch Blackwell flags adaptive reuse of rural buildings for data centers as one of the uses that benefit⁸, and Tax Notes has covered the rule in its analysis of data center tax planning.¹⁷ The rule is explained in The Opportunity Zone substantial improvement test.

Example (illustrative). A QOZB buys a vacant mill for $8 million. An appraisal allocates $3 million to land and $5 million to the building. The QOZB plans a 10 MW conversion with structural reinforcement, a new roof, electrical rooms and a utility service upgrade.

The conversion clears either threshold by a wide margin. The real work is documentation: a defensible appraisal for the land and building split, a record of each addition to the building's basis by date, and a clear line between building improvements and separate equipment. Only the building's basis sets the hurdle, so a low allocation to the building makes the test easier, but that allocation must be supportable. Cushman & Wakefield's 2026 guide puts all-in greenfield cost at about $8.9 million to $23.3 million per MW excluding chips, a reminder that the conversion's total budget will dwarf the building's purchase price.¹⁵

The tax math for investors is the same as any Opportunity Zone deal; see Opportunity Zone tax savings: a worked example. A rural conversion owned through a rural fund can also give investors a 30% basis step-up at year five for investments after December 31, 2026.⁹

When it has been vacant long enough, or when the data center is a new building on the site. Under the final regulations, a building that has been vacant for at least three years before purchase can be treated as original use, so it does not need to be substantially improved.³ A new building constructed on an old industrial parcel is original use regardless of what stood there before.

New equipment installed in the building, such as switchgear, generators and cooling units bought from an unrelated party, is separately original-use property. For leased buildings, see Leased property rules for Opportunity Zone businesses.

Power, structure and site room come first. The factors below are practical considerations, not tax rules.

Site-level screening, including fiber and flood risk, is in Data center site selection inside Opportunity Zones.

They run side by side, so the spending plan should satisfy both. The substantial improvement clock runs 30 months from a start date the QOZB chooses after acquisition. The working capital safe harbor lets the QOZB hold cash for up to 31 months under a written plan and schedule, with overlapping plans extending to a maximum of 62 months.¹⁸ A conversion that spends steadily on the building inside the first 30 months usually satisfies both.

Power upgrades are the usual source of delay. See Data center power timelines and the Opportunity Zone clock.

Community response, hidden building conditions and power reliability. In Jay, Maine, a mill-to-data-center redevelopment collapsed after local opposition and the developer withdrew.¹³ Industrial sites can carry contamination, and older structures can hide problems that only show up during demolition. Federal policy is also in debate: September 2026 bills in Congress propose excluding data centers from Opportunity Zone benefits, but none had been enacted as of October 20, 2026. Engaging the community early is covered in Community engagement for Opportunity Zone data centers.