Area Development Q3 Issue 2021 by Area Development

CHANGING THE DEFINITION OF MSA

LOCATION ECONOMICS DRIVING PE DECISIONS

TOP STATES for Doing Business

A REVITALIZED CORPORATE CAMPUS

SHIFTING DYNAMICS POST-PANDEMIC

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SITE

AND

FACILITY

PLANNING

Q3/2021

Changes in the Incentives Landscape

SUPPLY CHAIN BOTTLENECKS CREATING NEW LOGISTICAL HOTSPOTS W W W . A R E A D E V E L O P M E N T. C O M

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America’s top state for talent

Virginia continues to raise the bar on talent development. Virginia Talent Accelerator Program: Fully customized workforce recruitment and training solutions — at no cost to eligible companies Tech Talent Investment Program: America’s largest investment in computer science education ($2 billion in new public/ private funding), doubling annual grads in CS and related fields Computer Science in K-12: First state to incorporate computer science, including coding, as a mandatory part of the curriculum for all public school students (K-12)

CONTENTS

Cover Story

Changes in the Incentives Landscape

As the business environment continues to change post-pandemic, state and local incentive programs must continue to evolve in order to help companies mitigate risk and boost their return on investment.

features

23 Supply Chain Bottle-

14 Location Economics

necks Creating New “Logistical Hotspots”

as an Emerging Driver of Private Equity Decisions As they evaluate where to expand and which operations to relocate, private equity groups are increasingly evaluating location-specific factors.

16 Shifting Dynamics in a Post-Pandemic World

Your business may benefit from economic developers’ new targeted approaches that support new norms in the workplace, promote inclusive economic recovery, and place ESG at the center of their value proposition.

Governance

ESG Environmental Social

Among the forces rapidly transforming supply chains is the acceleration in e-commerce, along with recent weather events, tight labor markets, and land constraints.

52 A Revitalized Vision for the Corporate Campus As COVID-19 starts to subside, the tech industry is reimagining the corporate campus, as well as workspaces, and that is bound to also affect companies in other industries.

61 Keys to Successful Capital Project Delivery Early collaboration between team members will help to keep a project on track and eliminate added costs.

Area Development® Site & Facility Planning (USPS 345-510) is published four times per year (Q1, Q2, Q3, and Q4) at Lancaster, PA, by Halcyon Business Publications, Inc., 30 Jericho Executive Plaza– Ste 400W Jericho, NY 11753. Periodicals postage paid at Jericho, NY, and additional offices. Single copies, $20. Yearly subscription U.S. & Canada, $75; foreign, $95.

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Volume 56 | Number 3 Q3/2021

“

The good thing about science is that it’s true whether or not you believe in it.

Neil deGrasse Tyson (1958–

departments

”

American astrophysicist and planetary scientist

4 Editor’s Note

Strong Government/Business Partnerships Mitigate Location Risks

In Focus

Creative Funding to Enable Sustainability

8 Front Line

U.S. Supply Chains Face Critical Stage

10 Front Line

Changing the Definition of MSAs

special report

Annual 12th

TOP STATES for Doing Business

12 Despite the economic uncertainty of the last year, plenty of companies continue to grow, and with growth comes the need to expand and explore new locations. The “Top States” in which to locate represent the general views of our expert panel of site consultants.

SITE CONSULTANTS SURVEY

First Person

Brooke L. Beebe, Senior Vice President, Advocacy and Engagement, Hemlock Semiconductor Operations

64 Ad Index/Web Directory

exclusive online content

• In Focus: How to Compete in the Industrial Real Estate Gold Rush • Maximum Impact: Saving Time and Money with BIM 360

location

canada

• In Focus: Facilitating Commercial Real Estate Transactions Using Technology •

Michigan Invests in Its Talent Ecosystem

• Tennessee Sees a Surge in Headquarters, Tech, and Finance Facilities

•C anadian Industrial Sectors Expand with Business and Government Investment

• In Focus: The Construction Industry’s Secret Weapon

• Canada’s Diversity and Positioning Is Promising

POSTMASTER: Send address changes to Area Development, Circulation Department, 30 Jericho Executive Plaza– Ste 400W Jericho, NY 11753. Subscribers requesting address changes must provide both old and new addresses. © Copyright 2021 by Area Development® magazine. ISSN: 1048-6534. Printed in the U.S.A. Area Development® is a registered trademark of Halcyon Business Publications, Inc.

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EDITORS NOTE

Q3/2021

Strong Government/Business Partnerships Mitigate Location Risks

espite the rise of the new Delta variant of the novel coronavirus, companies are trying to get back to “normal” operations — whatever that “normal” now represents.

www.areadevelopment.com EDITORIAL Editor Geraldine Gambale editor@areadevelopment.com Staff and Contributing Editors

Among the business dynamics that are shifting in a postpandemic world are workplace norms, which now emphasize environmental, social, and governance (ESG) issues, including climate change, social equity, and business ethics. Goals are being established to reduce greenhouse gas emissions, support diversity and inclusion (D&I), engage with the community, prioritize employee safety and wellness, and more, according to Steve Tozier at EY.

Lisa Bastian Dave Claborn Mark Crawford Dan Emerson Tom Ewing

Brooke Beebe, who is senior vice president of Advocacy and Engagement at Hemlock Semiconductor, says her firm has hired its first diversity and community liaison, as well as increased the number of women and non-white males in professional and technical roles.

Production Manager Jessica Whitebook jessica@areadevelopment.com

Economic developers are also targeting their business attraction approaches to ensure they support these post-pandemic goals. And while the financial incentive programs that economic development departments are known for will remain a priority, these programs are evolving in order to help companies mitigate risk and boost their return on investment, according to those on the Business Incentives Practice team at Cushman & Wakefield. Supply chain disruptions, a shortage of industrial real estate product, and hybrid employment models have increased site selection risks. Incentives are usually based on the capital investment and job creation numbers that a company has promised at the location of choice. However, a large capital investment for automation would reduce employee headcounts, and a hybrid or work-from-home scenario would do the same – both resulting in a company not qualifying for incentives. This is where a strong partnership between government and industry adds value by providing flexible incentive programs to accommodate projects varying in terms of scope and size.

Tom Gresham Mark Schantz Steve Kaelble Karen Thuermer

DESIGN/PRODUCTION Art & Design Patricia Zedalis

EXECUTIVE Publisher Dennis J. Shea dshea@areadevelopment.com Sydney Russell, Publisher 1965-1986

ADVERTISING SALES National Accounts Executive William Bakewicz (ext. 202) billbake@areadevelopment.com

ONLINE SERVICES Digital Media Manager Justin Shea (ext. 220) jshea@areadevelopment.com Web Designer Carmela Emerson

CONFERENCES/EVENTS Business Development Manager Matthew Shea (ext. 231) mshea@areadevelopment.com

CIRCULATION circ@areadevelopment.com

FINANCE

Editor

finance@areadevelopment.com

EXECUTIVE OFFICES Halcyon Business Publications, Inc.

2021 Editorial Advisory Board Bradley Migdal, Senior Managing Director, Business Incentives Practice, Cushman & Wakefield, Inc.

Josh Bays, Principal, Site Selection Group, LLC

Stephen Gray, CEO, Gray

Marc Beauchamp, President and CEO, The CAI Global Group

Anthony Johnson, LEED AP; President, Industrial Business Unit, Clayco

H. Robert Boehringer, III, Managing Director, Global Location and Expansion Services, KPMG

Michael Kruklinski, Head of Real Estate, Siemens Energy and Siemens USA

Paul Naumoff, Principal, National Director of Tax Credits and Investment Advisory Services, EY

Brian Corde, Managing Partner, Atlas Insight, LLC

Scott Kupperman, Founder, Kupperman Location Solutions, LLC

Eric Stavriotis, Senior Vice President, Advisory & Transaction Services, CBRE

Les Cranmer, Senior Managing Director, Savills

Dan Levine, Practice Leader, Location Strategies and Economic Development, Oxford Economics, Inc.

Margy Sweeney, Founder & CEO, Akrete, Inc.

Kate Crowley, Principal, Baker Tilly Capital, LLC Dennis Cuneo, Partner, Fisher & Phillips LLP Amy Gerber, Executive Managing Director, Business Incentives Practice, Cushman & Wakefield

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Bill Luttrell, Director of Corporate Real Estate, Werner Enterprises, Inc.

Dan White, Director, Government Consulting and Fiscal Policy Research, Moody’s Analytics Joshua Wright, Vice President, Economic & Workforce Development, Emsi

President Dennis J. Shea Business/Finance Assistant Barbara Olsen (ext. 225) olsen@areadevelopment.com All correspondence to: Area Development Magazine 30 Jericho Executive Plaza– Ste 400W Jericho, NY 11753 Phone: 516.338.0900 Toll Free: 800.735.2732 Fax: 516.338.0100

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A Division of the Missouri Department of Economic Development

IN FOCUS Creative Funding to Enable Sustainability Organizations that are attempting to reduce their energy use or carbon footprint are finding there are affordable to ways to do so.

BY MARK REINBOLD, Vice President and General Manager, Performance Infrastructure, Building Solutions North America,

JOHNSON CONTROLS FINANCIAL GROUP Mark Reinbold is responsible for transforming buildings and infrastructure to enable mission-critical activities and achieve carbon reduction/ net zero goals for Johnson Controls.

Many building managers have realized that — in the same way that they have a responsibility to keep their occupants safe and healthy — they also have a responsibility to keep the planet safe and healthy. In fact, Johnson Controls found in its 2020 Energy Efficiency Indicator Survey1 that 65 percent of participating organizations have an internal or public goal for energy or carbon reduction. A global leader for smart, healthy, and sustainable buildings, Johnson Controls has delivered more than 3,000 energy-saving projects globally that reduced carbon emissions by more than 30.6 million metric tons and achieved

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$6.6 billion in energy savings and operating costs. A common challenge that organizations faced was how to implement the necessary building upgrades to achieve these goals when budgets are stretched thin. With a good strategy and infrastructure partner, however, it is possible to get the best of both worlds: reducing carbon footprint while keeping operational costs low.

possible through Energy Performance Contracting and P3. HACP designed the community solar project to reduce energy costs for lowincome individuals and multi-family affordable housing properties. The solar installation will generate enough renewable energy to power 200 households and provide employment training and clean jobs for the local community. The BaaS approach allows a third-party vendor to absorb the risks of the project and pay for infrastructure updates for a specified period of time, identifying new opportunities for cost-efficiency and bolstering energy-

WHEN CONSIDERING THE BUDGET FOR BUILDING SUSTAINABILITY, INVESTMENTS IN CONNECTED TECHNOLOGIES SHOULD BE A PRIORITY FOR EVERY ORGANIZATION. Creating Funding Opportunities Modern funding options are available to building managers through a variety of procurement methods, including public-private partnerships (P3), Buildings as a Service (BaaS), and Performance Contracting (PC). As a real-world example, the financing, operations, and maintenance of a two-megawatt community solar garden for the Housing Authority for the City of Pueblo (HACP), Colorado, was made

saving capabilities. Children’s Hospital of Alabama signed a 25-year contract with a buildings industry leader who would design, build, operate, and assume the risk for a new central utility plant for the hospital so they could maximize energy savings. This plant resulted in nearly $250,000 in annual savings while also allowing the hospital to reduce the use of gas by 69 percent and maximize efficiency of operations. BaaS offerings continue to evolve to provide customized and expert

partnership that delivers on the outcomes that matter most. For example, Net Zero Buildings as a Service provides the decarbonization solutions and full-service risk management models to power organizations’ environmental, social, and governance (ESG) goals. With sustainability wholly managed by a partner, organizational leaders are free to focus on their primary business missions.

Maximize Funding to Maximize Impact Once funding is secured, building managers can hit the ground running to immediately begin reducing their organization’s carbon footprint. This starts with building technologies, such as LED lighting, efficient HVAC systems, and advanced water metering, as well as upgrades and efficiency-focused audits of existing assets, such as the central utility plant. As projects get under way, organizations can deepen their commitment to a healthy building through larger scale, longer-term projects, such as constructing solar photovoltaic (PV) arrays to reduce reliance on fossil fuels and increase savings in operating expenses. When considering the budget for building sustainability, investments in connected technologies should be a priority for every organization. By moving away from siloed, one-use equipment and integrating building

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technologies to work together and connect to a single platform, building managers and owners can achieve greater outcomes, not only for the planet but also for security, occupant health, and occupant experience. Integrating advanced security technology such as location-based monitoring with advanced HVAC assets, heating, cooling, and ventilation systems can allow for automatic adjustments to the number of occupants in a threshold, allowing for energy savings and the creation of a smart, data-

driven environment. Making building improvements is one of the most important steps building managers can take toward reducing the building’s carbon footprint. These improvements do not have to be capital-intensive, thanks to modern funding mechanisms. As businesses commit to keeping their people healthy and keeping their buildings efficient, these innovations will also contribute to a healthy planet. The financing, operations, and maintenance of a two-megawatt solar garden for HACP was made possible through Energy Performance Contracting and public-private partnerships.

https://www.johnsoncontrols.com /-/media/jci/corp/media/news/ files/2020/2020_eei_survey.pdf

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FRONT LINE U.S. Supply Chains Face Critical Stage The pandemic accelerated the reexamination of U.S. supply chains, and a new report sets out a path for addressing vulnerabilities.

BY KAREN E. THUERMER

It’s too soon to gauge the ultimate result of the Biden administration’s efforts to address longstanding vulnerabilities in the nation’s supply chains. But findings from the comprehensive Executive Order (E.O.) 14017 “America’s Supply Chains” released on June 8th set out to put the nation on a stronger course.1 Following the release of the report, officials told reporters during a White House briefing that the administration had created a task force that would tackle nearterm bottlenecks in construction, transportation, semiconductor production, and agriculture. The group would be led by President Biden’s Cabinet secretaries.2 Some in industry view the effort as much needed. Others, such as some who work in logistics, remark off the record that it has little substance.

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Need for More Security and Resiliency Whatever the viewpoint, the voluminous 250-page document is the result of a 100-day effort by more than a dozen federal departments and agencies and

14017 in February by writing in a statement, “The administration’s goal of increasing manufacturing investment in the United States is one we share. And their focus on key sectors, like the pharmaceutical manufacturers whose incredible innovation is saving lives and arming us against COVID-19, will help us emerge stronger from this crisis.”3 Pharmaceuticals and pharmaceutical ingredients (APIs) are one of the four sectors deemed critical and assessed for supply chain vulnerabilities in the study. The others are semiconductor manufacturing and packaging; large capacity batteries with specific analysis of electric car batteries; and critical minerals,

THE 23 RECOMMENDATIONS IN THE REPORT REPRESENT “A RETURN TO WHAT USED TO BE CALLED INDUSTRIAL POLICY AND MIGHT NOW BEST BE DESCRIBED AS INNOVATION POLICY.” hundreds of stakeholders from labor, business, academic institutions, Congress, and U.S. allies and partners who were asked to consider how to make U.S. supply chains more secure and resilient for national security, economic security, and technological leadership. The effort was praised by industry groups, including the conservative National Association of Manufacturers (NAM). NAM President and CEO Jay Timmons praised President Biden after he signed E.O.

rare earth elements, and manufacturing of defense products.

An “Innovation Policy” Groups like the Center for Strategic International Studies (CSIS) also see great value in these efforts. “The Covid-19 pandemic has accelerated a reexamination of U.S. supply chain resiliency that began earlier, driven by China’s dominant position in critical sectors like rare earth minerals and its demonstrated willingness to use trade

policy as a means of responding to criticism or furthering its foreign policy goals,” writes William Alan Reinsch, senior adviser and Scholl Chair in International Business, CSIS, in an article entitled “Experts React: Assessing the White House 100-Day Supply Chain Review.”4 He notes that the 23 recommendations in the report represent “a return to what used to be called industrial policy and might now best be described as innovation policy — a greater role for the government in promoting research in essential areas and, if necessary, promoting either onshore production or the development of secure supply chains based on relationships with trusted partners.” Reinsch adds that the United States has done this sort of thing well before. If correctly done this time, he says, the result will be more resilient supply chains and a more secure America. He also warns, however, that the recommended “Buy America” and reshoring policies recommended in the report may ultimately make achieving greater supply chain resilience more difficult and more expensive. 1

https://www.whitehouse.gov/briefingroom/statements-releases/2021/06/08/ fact-sheet-biden-harris-administrationannounces-supply-chain-disruptions-taskforce-to-address-short-term-supply-chaindiscontinuities/ 2 https://www.nytimes.com/2021/06/08/ us/politics/biden-supply-chain. html?smid=em-share 3 https://www.nam.org/manufacturersshare-biden-administrations-goal-ofstrengthening-manufacturing-supplychain-12238/ 4 https://www.csis.org/analysis/expertsreact-assessing-white-house-100-daysupply-chain-review

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“FINDING STEM TALENT DOESN’T HAVE TO BE DIFFICULT.” PRAMOD RAHEJA, CEO AND CO-FOUNDER OF AIRGILITY

For Airgility, a company developing autonomous vehicles designed for disaster response situations, only the best and brightest STEM workers will do. Its affiliation with a University of Maryland incubator has been crucial to finding talent. And that’s just one of the ways being in Maryland helps them thrive.

Get to know Airgility’s story and get to know the talent surrounding them at open.maryland.gov/innovation. Innovation lives here.

FRONT LINE Changing the Definition of MSAs Will the proposed redefinition of Metropolitan Statistical Areas and subsequent funding communities receive affect your company’s location decision?

BY DAN EMERSON

Earlier this year, the federal Office of Management and Budget (OMB) announced a proposed change that would double the minimum population threshold for Metropolitan Statistical Areas (MSAs) from 50,000 to 100,000. MSA designations are used to identify cities and surrounding communities linked by social and economic indicators as established by OMB for the purpose of allocating federal funds. Metropolitan and non-metropolitan designations are used by agencies across the federal government to determine eligibility for funding and services. The OMB proposal to revise the standard could threaten access to vital federal resources for about 150 communities across the country, according to the bipartisan authors of a bill introduced in Congress — the Metropolitan Areas Protection and Standardization Act — to put

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the proposed changes on “hold.” However, the federal government has not provided a full analysis of which programs use this designation, some critics say. While losing MSA status may not necessarily result in

says. “Communities are in the middle of a tenuous recovery, and any dramatic changes in how they are treated on the federal level will have a significant financial impact,” she notes. “So, we certainly hope the government will tread carefully.” Tony Pipa, a senior fellow in the Brookings Institute’s Center for Sustainable Development, told Area Development there are some major, unanswered questions surrounding the proposal to change the MSA standards. “The suggestion to increase the minimum threshold for what defines an MSA is a statistical

METROPOLITAN AND NON-METROPOLITAN DESIGNATIONS ARE USED BY AGENCIES ACROSS THE FEDERAL GOVERNMENT TO DETERMINE ELIGIBILITY FOR FUNDING AND SERVICES. a loss of federal funds, some leaders say there is major uncertainty about the proposal that could result in harmful, unintended consequences.

Why the Change Now? Jennifer Steinfeld, director of Entrepreneurship and Economic Development for the National League of Cities, says the league has not taken an official position on the proposal. But, with the U.S. still recovering from the pandemic, this would not be a good time to make the change, she

adjustment that does not seem to have overwhelmingly strong scientific rationale. The committee’s rationale seems to be ‘Since we started using this standard, the population has doubled, so we have to double the standard.’ “That doesn’t give you much to go on for the future and raises a lot of questions. Will you continue to recalibrate this in the future, what are the things that trigger such a recalibration, and what is the scientific basis for this?” Pipa asks. “The recommendation

didn’t come with that sort of depth of analysis,” Pipa says. Also, there are major policy implications for what locales receive federal funding and how that funding is allocated, he notes. “The OMB thinks the standard should not be part of the funding criteria, but we know it is, in lots of places. Nobody has a good handle on who would be the winners and losers. Will the federal money go to communities that really need it?” For local communities across the U.S., there are also larger questions of identity, Pipa says. “Do these areas think of themselves as agricultural, non-metro, or metro — those questions are out there. How is that perceived in the marketplace? Are economic developers going to look differently at a place that has a population of 70,000 but all of a sudden is no longer a metro area? Are companies going to look at them differently?” Pipa has “heard from a lot of local leaders who are worried about not getting attention because they feel that businesspeople and economic development investors see that MSA designation as a benchmark. Or, they look at that list,” when they are starting to consider sites for projects.

Thinking Things Through Pipa doesn’t know if changes in the MSA

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standards will directly impact the incentive packages that communities will be able to offer business and industry. “But, indirectly, they are worried about their ability to be a part of transportation planning…being able to access resources to develop infrastructure. That might impact their ability to make offers. So, they are concerned about the ripple effect,” he notes. Before OMB makes any change, Pipa would like to see the OMB take the committee recommendation under advisement, and “put a process in place, for example, through the national academies of science to bring together a set of experts who are outside of govern-

ment, and start to understand the statistical part of it in a much more rigorous way,” he says. He also contends the agency needs to engage more directly with rural areas, “which — since the 2008 recession — have been struggling in ways that are different from suburban and urban areas. Do the financial analysis and also understand through interaction with rural and metro leaders what the overall impact would really be, so they can make more informed, smarter decisions.” The bipartisan legislation introduced in Congress would require OMB to provide a public report to Congress estimating the countylevel impact and justifying the

scientific basis for any proposed change to an existing statistical area standard. The bill, sponsored by Senators Gary Peters (D-MI) and Rob Portman (R-OH), chairman and ranking member of the Homeland Security and Governmental Affairs Committee, would also step up reporting on current uses of statistical area standards and mandate time for public comment before recommending, adopting, or implementing changes. The Metropolitan Areas Protection and Standardization Act is supported by the U.S. Conference of Mayors, the National Rural Health Association, and the National Association of Counties, among others.

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FIRST PERSON Why is a strong manufacturing sector important to a post-pandemic U.S. economic recovery as well as to national security? Beebe: We believe the proposed semiconductor and advanced solar manufacturing production incentives are a crucial step in building a strong American supply chain within the next decade. By incentivizing manufacturing directly, we can harness American ingenuity, while creating highquality jobs in Michigan and across the country. The United States has a strong foundation in the most costly and difficult-to-operate part of these supply chains: polysilicon. Expertise at the front end has been demonstrated for decades by Hemlock. Building out American semiconductor and solar manufacturing capabilities creates supply chain control and reliability, as well as tens of thousands of high-quality jobs.

BROOKE L. BEEBE, SENIOR VICE PRESIDENT, ADVOCACY AND ENGAGEMENT, HEMLOCK SEMICONDUCTOR OPERATIONS

How does Hemlock think the U.S. should respond to China’s efforts to dominate the market for both polysilicon and semiconductors? Beebe: Policy actions such as the U.S. Innovation and Competition Act (USICA) and the Solar Energy Manufacturing for America Act signal that the U.S. government is ready to incentivize robust domestic semiconductor and solar manufacturing supply chains and invest in thousands of high-quality semiconductor and clean energy manufacturing jobs across America. For its part, Hemlock is invested in contributing to sustainable global semiconductor and solar supply chains. We want to see semiconductor and solar manufacturing increased in the U.S. to meet the ever-expanding demand for connected devices and clean energy to meet our nation’s ambitious climate goals. We also want to see the highest manufacturing standards adhered to worldwide.

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As the largest electricity user in the state of Michigan, what is Hemlock doing to improve its energy efficiency and reduce its carbon footprint? Beebe: In 2017, HSC purchased a data analytics platform — a significant investment that seemed like a huge financial risk at the time. This gave HSC the tools to visualize how it was using energy and to turn its engineers and operators loose to look for ways to reduce energy consumption. For example, instead of energizing reactors and raw materials with electricity to create polysilicon rods in the afternoon, when power demand is high, HSC now runs more of the process in the evenings and on weekends. This also has allowed Consumers Energy to reduce its peak demand reserves, lessening its costs, reducing variability on the electrical grid, and creating fewer of the emissions that drive climate change.

The shortage of skilled workers in the U.S. has been long documented. How is Hemlock making sure it has the pipeline of skilled workers necessary to produce its products? Beebe: HSC puts a strong focus on supporting youth programs and STEM (science, technology, engineering, and math) education in the Great Lakes Bay Region. To ensure the next generation in our communities has the support it needs, HSC has invested in the Hemlock Area STEM

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center, the new home to STEM after-school programs such as FIRST Robotics for five local school districts. We also have granted scholarships annually to around 30 high school students in the Great Lakes Bay Region to cover all costs for attending Michigan Technological University’s annual weeklong Engineering Scholars Summer Youth Program.

The pandemic brought to the forefront the need for diversity and inclusion in the workforce. Are there specific D&I initiatives being undertaken at Hemlock in this regard? Beebe: We recognize we have a way to go in creating a more diverse and inclusive organization. In 2020 we created a new role to focus our efforts in this area and hired our first diversity and community liaison. Over the past three years, we have increased our hires of women and nonwhite males into professional and technical roles and worked more closely with university D&I departments to reach diverse student populations. Our culture is very focused on learning and development, and we have formed groups such as the Women’s Technical Network that provides an environment where women technical professionals share experiences and develop their capabilities and potential as leaders within HSC.

How and why is it important for manufacturing companies to be good corporate citizens in the communities in which they are located? What specific efforts has Hemlock taken to build community relations? Beebe: As one of the largest employers in the Great Lakes Bay Region, we have a strong commitment to making life better in the communities where our employees live and work. That commitment was behind HSC’s efforts in recent years to help its area communities deal with the danger and harm caused by the COVID-19 pandemic and a devastating flood, as well as to give grants to community organizations so they can extend their work in the Great Lakes Bay Region. It’s one of the reasons we won the Michigan Manufacturers Association’s Community Impact Award in 2021. As an example of our commitment to the community, HSC scoured its plant for supplies

during the early weeks of the COVID-19 pandemic when Covenant HealthCare was trying to find additional personal protection equipment for its healthcare workers. HSC workers boxed up more than 15,000 masks, coveralls, gloves, and other materials that healthcare workers at Covenant could use at its four main campuses in and around Saginaw and facilities in 14 surrounding counties. HSC also purchased 650 gift cards to support 14 local establishments in Saginaw County’s Richland and Thomas Township and gave the cards to employees to use. After two area dams broke during heavy rains, severely flooding Midland and the surrounding area, HSC set up an employee emergency fund to support HSC workers affected by the flooding. Our employees also donated personally to the fund to help their fellow team members. HSC also has created its Community and Regional Empowerment (CARE) Fund, whose grants are awarded by a diverse internal committee comprised of 15 HSC employees. The company has awarded more than $300,000 in CARE grants in 2020 and 2021, with another round about to be announced in July.

Is there anything else you would like to add? Beebe: Hemlock is the only American company creating the foundational material for the electronic (semiconductor) and solar industries that are critical to the ever-connected and clean energy economy of the future. Hemlock manufactures its polysilicon using cleaner, renewablesrich electricity, closed loop manufacturing, and energy efficient operations, ultimately leading to a significant reduction in embodied carbon.

THE ASSIGNMENT Hemlock Semiconductor in Saginaw, Michigan, is the nation’s largest manufacturer of ultra-pure polysilicon that is sliced by other manufacturers into wafers to be used in solar cells and semiconductors. Area Development’s editor recently asked the company’s senior vice president of Advocacy and Engagement about the recent shortage in the global production of semiconductors that has been causing delays in the manufacture of products utilizing these chips.

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PORTFOLIO MANAGEMENT/CRE

Location Economics as an Emerging Driver of Private Equity Decisions As they evaluate where to expand and which operations to relocate, private equity groups are increasingly evaluating location-specific factors. By Steve Brunson, Principal; and Jacob Everett, CEcD; Credit & Incentives Practice, McGuire Sponsel

or private equity firms focused on value creation, location has historically been an overlooked contributor to business unit performance and earnings. This is changing as leading private equity groups are increasingly evaluating the effects of location on companies targeted for potential acquisition as well as companies within their existing portfolio. Location can significantly affect profits and cash flow, so private equity partners should consider how to incorporate “location economics” to create competitive advantages. While some private equity (PE) groups focus on buying distressed assets and instituting extreme cost-cutting measures, more PE firms are looking to grow companies through capital infusions that enable them to pursue market opportunities. Their goal is to use the acquired company as a starting point for capital injections that will create additional value. While increasing efficien-

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cies may be an objective, the ultimate goal is to increase value through growth. The newly acquired portfolio company is a launch point from which to expand sales and profits. These growth-focused PE firms often follow acquisition with expansion in the form of capital investment and headcount increases. Whether the PE group’s strategy is to own the company in the short or long term, the motivation is the same — grow the operation to increase earnings before interest, taxes, depreciation, and amortization (EBITDA) and enterprise value (EV).

Using Location Economics to Drive Strategy, Decision-Making Location economics can be a significant value driver for businesses. For private equity, this involves understanding the advantages and disadvantages of specific locations on EBITDA, EV, and the sustainability of the business’s operating strategy. Location-specific cost factors are familiar metrics in the real estate and economic development ecosystems, including real estate/ occupancy, labor, utilities, supply chain/distribution, taxes and incentives. With red-hot competition in equity markets and multiples increasing, forward-looking PE groups are increasingly focusing on these areas — using location economics to drive strategy and decisionmaking as they evaluate where to expand and which operations to relocate. “The investment objective of our firm is to identify and capitalize on market distress, disruption, and growth. Many of our portfolio investments are in a period of transition and may require significant additional capital post-acquisition. Increasingly, when evaluating opportunities for growth or improvement, the physical location of the operations has stood out. Access to abundant labor, a desirable location to recruit talent, and a friendly business environment can unlock significant value,” said Jeff Holland, a director with Innovatus for free site information, visit us online at www.areadevelopment.com

8/25/21 4:50 PM

WHILE MUCH CAN BE DONE TO Capital Partners. “We are in the process of relocating a significant portfolio company after determining that free cash flow was being negatively impacted by the company’s location. What we have learned during this process has us thinking deeper and earlier about the strategic value of location across the portfolio and when underwriting new opportunities.”

EVALUATE LOCATION

Post-Acquisition Revelations

While much can be done to evaluate location economics prior to acquisition, ECONOMICS the post-acquisition period always provides new revelations. PE buyers generally PRIOR TO develop a good picture of what they are ACQUISITION, buying through due diligence activities, but the first six months or so of ownership is THE POSTwhen the buyer truly begins to understand ACQUISITION the purchase. At this point, PE ownership’s strategy, vision, and outcome targets beProactively Assessing the Effects PERIOD gin to crystalize, and it becomes natural of Location to question whether the current facility or Throughout the PE life cycle — from ALWAYS facilities align with the new vision. Locapre-acquisition due diligence to long-term PROVIDES tion economics begin to play a large role in hold/disposition — more focus is being what happens next. placed on location economics. PE buyers NEW Even when buyers do not have relohistorically scrutinize business fundamenREVELATIONS. cation plans during the pre-acquisition tals and future opportunities before makperiod, relocation is often evaluated seriing a purchase. Increasingly, the analyses ously during the first year or two under PE are now looking much more critically at ownership. This has little to do with a failthe effects of location economics. Astute ure by the community or state but rather PE buyers are applying resources to underis a result of the PE owners determining stand whether the location of the facility the ideal strategy to create additional value by optimizis helping or hurting financial performance. Specifically, ing location economics and aligning operations with they are looking for optimized supply chains, sufficient that strategy. This decision-making process by the PE cost-effective labor, and an attractive tax and incentive group will likely be quite different than that of previous environment. ownership. PE firms can create significant value by proactively While closely held and family-owned businesses may assessing the effect of location on EBITDA, EV, and susbe resistant to location discussions — their propensity tainability earlier in the process. While most PE firms to relocate is lower than average — PE-owned operations will eventually recognize when location is hurting operaare typically much more amenable to relocating. With tions once they are settled in, leading PE groups seek exposure to multiple markets and investments spread to gain an understanding of this before they close on across wide geographies, PE groups will drive decisions an acquisition target or make post-transaction capital based on expected financial performance, including infusions. When a location is hampering growth and location economics factors such as logistical efficiency, profitability, it may hold hidden bargains that others are utility and tax environments, and labor markets. overlooking. What if a target company with EBITDA of A detailed location assessment (before or after trans$10 million could achieve $12 million in EBITDA if reloaction) can help uncover hidden value just waiting to be cated to a community that better aligns with its specific unlocked by an investor with the vision and resources needs? When location effects can be evaluated during necessary to effectively utilize location as a true driver due diligence, PE groups can often avoid land mines or of value. n even find opportunities.

Contact: Andrew Martelli • 84 South Main Street Cheshire, CT 06410 • 203-271-6670 • Email: andrew.martelli@cheshirect.org • www.cheshirect.org

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GOVERNMENT POLICY

Shifting Dynamics in a Post-Pandemic World Your business may benefit from economic developers’ new targeted approaches that support new norms in the workplace, promote inclusive economic recovery, and place ESG at the center of their value proposition. By Steve Tozier, Managing Director, U.S.-East Global Location Investment Credits & Incentives Leader, EY

Governance

ESG Environmental Social

any individuals and small businesses have faced enormous hardships over the last 18 months — illness, layoffs, furloughs, shortages, remote schooling — due to the global COVID-19 pandemic. During this same period, governments too, at both the state and local levels, faced unprecedented challenges as they worked to address the pandemic’s impact on their citizens. Charged with protecting public health and safety, governments have responded to the pandemic by supporting critical infrastructure, especially in healthcare. They’ve established new sources of funding, improved coordination between agencies, and supported vulnerable populations, rapidly deploying stimulus funding while trying to monitor its use and effectiveness. At the same time, governments have been operating in an uncertain fiscal environment and adapting in real time to budget shortfalls. These challenges were met while the officials themselves worked remotely, in large part, and adapted to virtual meetings like many of us. Within the state and local government response, economic development has played a central role. In many cases, these officials “focused local” to

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help support the small business community and facilitate worker retention and re-employment. This has been a departure from the prepandemic status quo for many. As one economic development official in the Midwest recently shared with me, “Before the pandemic, I spent very little time on our small business community. Today, it’s about a third of my responsibilities and growing.” To this end, states and localities have implemented new small business grants and loans. Many have created new programs to help manufacturers transition existing operations to produce personal protective equipment (PPE) and other supplies critical to fighting and treating COVID-19. States such as New Jersey, New York, and Texas have recalibrated their legacy financial incentives programs to ensure awardees wouldn’t default on their agreements due to layoffs or other shortfalls caused by COVID-19.1 Many economic development officials across the country have collaborated with the business community regarding the present labor shortage and return-to-work initiatives. The events of the last several months have shown that economic development is more important now than ever, something that will continue to be the case going forward.

The Next Normal Workplace As the U.S. economy gradually reopens, the economic develop-

for free site information, visit us online at www.areadevelopment.com

8/26/21 1:43 PM

ment community is turning its attention toward the future — “the next normal.” Everyone within this sphere — government officials, business leaders, investors, developers, workers, site selection consultants — is trying to anticipate what comes next in terms of a return to the physical office, the future of remote work, necessary investments in new collaborative technology, changes in corporate real estate strategy, potential ridership on mass transit, the frequency of business travel, and other issues. The situation is fluid, and there are few clear answers now. However, it is helpful to look at current trends to try and assess how the labor environment is evolving and what it might look like in the future. A recent EY Work Reimagined Survey of over 16,000 employees across multiple industry sectors and employers worldwide found that 9 in 10 workers want flexibility in where and when they work. More than half (54 percent) of employees surveyed would consider leaving their job after the pandemic if they are not afforded flexibility, with millennials being twice as likely to leave their jobs as baby-boomers.2 These expectations for ongoing flexibility may present a challenge to many business decision-makers. Area Development’s 35th Annual Corporate Survey,3 released in March, reveals that three-quarters (76 percent) of businesses have not changed their corporate real estate strategy in response to COVID-19. In addition, 51 percent of the business leaders surveyed indicate that they have only temporarily transitioned to an increase in remote workers, while just 13 percent indicate that such a transition is permanent. As employers seek to attract and retain top talent, they will be increasingly expected to offer a flexible work environment. And offering such flexibility can come at a significant cost to businesses in the form of technology platform upgrades, reimbursements for high-speed Internet and phone expenses, and the procurement of inhome equipment such as monitors, printers, and headsets. In addition, a higher incidence of remote workers may create new income tax withholding obligations for their employers as residences in multiple states supplant previously concentrated places of work.4

ESG While the business community attempts to embrace a new flexible workplace, another key trend has emerged within the private sector — a widespread emphasis on environmental, social, and governance issues (commonly referred to as “ESG investing”). With matters of climate change, social equity, and business ethics increasingly in the public consciousness and across the headlines, large commercial enterprises have begun to establish

new goals for reducing greenhouse gas emissions, supporting diversity and inclusion, developing community engagement, prioritizing employee safety and wellness, ensuring equitable compensation, protecting data privacy and security, and more. Though employee expectations are among the factors driving this trend, executives are facing pressure to place ESG at the forefront of their business strategies from several sources. In its 2020 Proxy Season Preview Report5 published in February 2021, the EY Center for Board Matters found that 98 percent of investors evaluate ESG performance based on corporate disclosures. In addition, sustainably invested assets represent $1 of every $3 of U.S. assets under professional management.6 More than 150 members with $4 trillion in purchasing power are using the Carbon Disclosure Project (CDP)7 supply chain program to request ESG information from approximately 10,000 suppliers worldwide. Nearly 6 in 10 consumers are willing to change their purchasing habits to help reduce negative environmental impacts.8 And yes, millennials are more likely to seek employment at a company because of its stance on social and/or environmental issues.9 Given all this, many corporate boards and C-suite executives are concluding that ESG is integral to their overall sustained success in attracting talent, investors, suppliers, customers, and consumers. However, there is another driving force behind this paradigm shift — new regulation. Since the beginning of 2021, the SEC has made four separate announcements related to ESG, including that it will begin to review companies’ climate change disclosures.10 The SEC also announced the formation of a new Enforcement Task Force on Climate and ESG Issues to proactively identify ESG-related misconduct and misstatements.11

An Inflection Point for Economic Development The transition to a more mobile and dispersed workforce, as well as the integration of ESG into core business strategy, presents a unique opportunity for those who practice economic development. Officials who have in the past concentrated their message on the availability of a skilled workforce, access to markets, and high quality of life in their communities, may choose to think creatively about how they can help business leaders satisfy the refocused expectations of their many stakeholders. An economic development official previously

Continued on page 25 AREA DEVELOPMENT | Q3 2021

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COVER STORY

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for free site information, visit us online at www.areadevelopment.com

8/27/21 10:56 AM

shortage. While the need for increased automation brings a higher level of capital investment on a per square footage basis and higher electric use, there is a downside on the incentives side. In many states the smaller headcounts will preclude a company from qualifying for certain state incentives. In addition, in these same states, there are no state programs that recognize high capital investment or that provide a usable benefit to offset the hit on the company’s Profit and Loss statement. Automation is not the only aspect triggering higher capital investment, with a lack of existing real estate and the increasing need for build-to-suit facilities, commodities critical to real estate construction, such as steel and lumber, have had a significant impact on construction costs.

a case-by-case basis, and the ability to view a project’s ROI on more than just number of jobs created and/or average wage. There are several states and localities that have embraced these changes and designed incentive programs that provide the flexibility to account for nuances such as work-from-anywhere. As we hope to finally arise from the pandemic, states and communities that are progressive and listen to the customer will continue to evolve their incentive programs to account for the changing environment in which business finds itself. The incentive programs of 20 years ago do not work with the ever-changing global economy in which we live. States and communities must be true partners and offer flexible programs to support projects of all shapes and sizes.

Changes in the Incentives Landscape

Adoption of a Hybrid Workforce Model As companies continue to understand how office space will be utilized in the future, many companies are evaluating a move to a hybrid workforce model, in many cases, adopting a work-from-anywhere methodology. This structure creates its own set of incentive qualification challenges. In many states, incentives are based upon the employees working from a single location or in a special incentive zone. With a work-from-anywhere model those positions that are not in the office a “majority” of the time will not qualify for the incentive. Similarly, certain states require a local incentive match in order to qualify for a state incentive. Typically, local incentives are based upon the incremental property taxes generated by new capital investment. If a company is a 100 percent work-from -home or maintains a minimal footprint, it is unlikely that a company would generate enough investment to qualify for the local incentive and, therefore, would not qualify for the state incentive. The other component impacting the level of capital investment being made is the abundance of office space that exists. With many companies requiring less space, there has been a significant increase in sublease space, requiring little to no capital investment. Not all changes to the incentives landscape are a result of operational changes within business. One of the effects resulting from the increased industrial activity that was occurring pre-2020 and continuing throughout 2020 and 2021 is a lack of wage diversity in many communities. To address this, many communities have created incentive program thresholds requiring wage levels, that for a large portion of active industrial projects, are unachievable.

1 https://www.cnbc.com/2021/08/06/jobs-report-july-. html Quotes Today, a strong partnership between government and private enterprise is more important than ever. Many of the projects in the market today face hurdles in either qualifying for the incentive programs or generating enough tax liability to realize a benefit. With a work-from-anywhere model those positions that are not in the office a “majority” of the time will not qualify for the incentive.

As the business environment continues

to change post-pandemic, state and local Related articles https://www.areadevelopment.com/workplace-trends/ incentive programs must continue to evolve Q4-2020/expanded-incentives-support-growth-in-remotework.shtml in order to help companies mitigate risk https://www.areadevelopment.com/covid-19-response/ Q2-2020/how-to-pivot-the-perception-of-economic-develand boost their returnopment.shtml on investment.

https://www.areadevelopment.com/taxesIncentives/Q32020/proactive-management-of-incentives-deals.shtml

d Flexibility in Incentive Programs Needed irector; an D g in g a n Each type of industry and project has its own merits and a ld l, Senior M & Wakefie n a value add, whether it is a Fortune 500 company creatingr; Brad Migda m h s u irecato tice, C 1,000 new jobs or a newly established aging Dwith tives Prac ancompany n M e c e v In ti s u s c e e in Busprojects single facility rber, Etoxcreate 100r new lyst;both Anajobs; my Gelooking io By Atheir n e S , s o have own level of corporate risk and value add to Gayd Meghanlocation. the respective A healthy incentive program has enough flexibility to evaluate each project and its inputs on

AREA DEVELOPMENT | Q3 2021

ChangesInTheIncentives.indd 19

8/27/21 10:57 AM

The economic development industry and the site selection process saw significant changes brought on by the events of 2020 — from economic development groups learning how to conduct effective virtual site tours to managing the disbursement of federal funding through the Cares Act. These changes may have been more manageable had it not been for the abundance of industrial activity in 2020, leaving many economic development organizations stretched very thin, which is still taking its toll today, and the inability for some locations to keep up with inquiries and activities. Similarly, for most businesses and industries, while 2020 brought new challenges, it also exacerbated other challenges that companies have been tackling for many years such as labor shortages, operating costs increases, and a shifting economy. When we couple these challenges with a shortage of industrial real estate product, supply chain disruptions, and a move to a hybrid employment model, to name a few, site selection risks have increased significantly. There are increased financial risks and equally important are the increased timing risks. Today, a strong partnership between government and private enterprise is more important than ever. This partnership can help erode delays and reduce costs. Governments control timing, permitting, public hearing timelines, and even responses on local issues that can either make or break a deal.

Today, a strong partnership between government and private enterprise is more important than ever.

While there are differing opinions on the use of incentive programs to attract new investment and employment, the fact remains that these programs, when structured properly, can have a significant value on a project’s upfront and ongoing operating cost structure, mitigate certain project risks, increase the viability of a project’s success, and generate a positive return on investment for the government entity providing the incentive.

Matching Business Needs We also learned in 2020 the resilience of companies, their ability to adapt to the most difficult situations and evolve in order to keep their businesses afloat and their workforce employed. We have seen this same level of flexibility and adaptation in many states and localities as they have revised their incentive programs to better match the needs of the growing businesses and industries. Unfortunately, however, there are many that have not. While there are still many unknowns about how office

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space will be used in the future, the scale of the hybrid workforce, and when the negative effects of the pandemic will end, it is clear that if states and localities intend to use incentive programs to attract investment and jobs, there is a need to evolve the programs to account for the changes discussed. One challenge in this discussion about evolving the incentive programs is the diversity of projects and companies that are active in the market today. The great news for the U.S. economy is that there have been significant projects announced throughout 2020 and 2021, notably in the life sciences, research and development, data center, and manufacturing industries. Due to the scale, these projects tend to meet the requirements of the incentive programs today from a headcount, average wage, and capital investment perspective, with many of these projects constructing new facilities with the intention of having a large portion of their workforce located in the office. The dilemma is that many of the projects in the market today face hurdles in either qualifying for the incentive programs or generating enough tax liability to realize a benefit. There are challenges for both industrial and office projects. The operational changes that are impacting incentive eligibility include: • Increased automation to help mitigate labor shortages; • Increased construction and fit out costs due to materials shortages; and • Adoption of a hybrid workforce model.

Increased Automation and Construction Costs A challenge that continues to plague the industrial sector is the ongoing labor shortage compared to the soaring number of job openings. Job placement site Indeed estimates there were 9.8 million job openings as of July 16, and the Bureau of Labor Statistics indicates a current unemployment rate of 5.4 percent.1 Many companies have increased the use of automation to help mitigate their workforce challenges caused by the labor shortage. While the need for increased automation brings a higher level of capital investment on a per square footage basis and higher electric use, there is a downside on the incentives side. In many states the smaller headcounts will preclude a company from qualifying for certain state incentives. In addition, in these same states, there are no state programs that recognize high capital investment or that provide a usable benefit to offset the hit on the company’s Profit and Loss statement. Automation is not the only aspect triggering higher capital investment, with a lack of existing real estate and the increasing need for build-to-suit facilities, commodities critical to real estate construction, such as steel and lumber, have had a significant impact on construction costs.

Adoption of a Hybrid Workforce Model As companies continue to understand how office space

for free site information, visit us online at www.areadevelopment.com

8/27/21 10:58 AM

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will be utilized in the future, many companies are evaluating a move to a hybrid workforce model, in many cases, adopting a work-from-anywhere methodology. This structure creates its own set of incentive qualification challenges. In many states, incentives are based upon the employees working from a single location or in a special incentive zone. With a work-from-anywhere model those positions that are not in the office a “majority” of the time will not qualify for the incentive. Similarly, certain states require a local incentive match in order to qualify for a state incentive. Typically, local incentives are based upon the incremental property taxes generated by new capital investment. If a company is a 100 percent workfrom-home or maintains a minimal footprint, it is unlikely that a company would generate enough investment to qualify for the local incentive and, therefore, would not qualify for the state incentive. The other component impacting the level of capital investment being made is the abundance of office space that exists. With many companies requiring less space, there has been a significant increase in sublease space, requiring little to no capital investment. Not all changes to the incentives landscape are a result of operational changes within business. One of the effects resulting from the increased industrial activity that was occurring pre-2020 and continuing throughout 2020 and 2021 is a lack of wage diversity in many communities. To address

this, many communities have created incentive program thresholds requiring wage levels that, for a large portion of active industrial projects, are unachievable.

Flexibility in Incentive Programs Needed Each type of industry and project has its own merits and value add, whether it is a Fortune 500 company creating 1,000 new jobs or a newly established company with a single facility looking to create 100 new jobs; both projects have their own level of corporate risk and value add to the respective location. A healthy incentive program has enough flexibility to evaluate each project and its inputs on a caseby-case basis, and the ability to view a project’s ROI on more than just number of jobs created and/or average wage. There are several states and localities that have embraced these changes and designed incentive programs that provide the flexibility to account for nuances such as work-fromanywhere. As we hope to finally arise from the pandemic, states and communities that are progressive and listen to the customer will continue to evolve their incentive programs to account for the changing environment in which business finds itself. The incentive programs of 20 years ago do not work with the ever-changing global economy in which we live. States and communities must be true partners and offer flexible programs to support projects of all shapes and sizes. 1

https://www.cnbc.com/2021/08/06/jobs-report-july-.html

IDEAL LOCATION ◆ 6,000 acres in Southern Indiana, near the Louisville Metropolitan Area ◆ Convenient access to four nearby interstates ◆ Within a day’s drive of two-thirds of the U.S. population ◆ Near international and regional airports and the Port of Indiana-Jeffersonville ◆ Abundant aquifer water supply with recharge rate of 100 million gallons per day ◆ Onsite rail access ◆ Site sizes: 25 acres up to a 1,100-acre megasite

FIRST-CLASS AMENITIES ◆ Scenic setting with lakes and parks

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◆ Miles of walking/mixed-use paths ◆ Easy access, plentiful parking

BUSINESS-FRIENDLY ◆ Relocation tax credits and other tax incentives ◆ Indiana Urban Enterprise Zone ◆ Near U.S. Foreign Trade Zones

for free site information, visit us online at www.areadevelopment.com

8/27/21 10:59 AM

LOGISTICS/INFRASTRUCTURE

Supply Chain Bottlenecks Creating New “Logistical Hotspots” Among the forces rapidly transforming supply chains is the acceleration in e-commerce, along with recent weather events, tight labor markets, and land constraints. By Grant Miller, SIOR; and Don Moss, CCIM, SIOR; Senior Directors; Colliers International

courtesy Amazon

ost businesses have not escaped supply chain challenges over the previous 12 months. When everyone expected COVID-19 to slow demand, it accelerated demand to a point where supply chains were stretched to their limits. But it not just COVID — the winter storm of 2021 reduced Texas’ capacity to refine petroleum, which created a ripple effect for a reduced ability to manufacture nearly all paints. Major manufacturers of cushion foam were also hit by a hurricane, causing multiple industries to temporarily shut down for repairs, which has exacerbated the shortage due to high demand. Currently, many companies, both large and small, continue to have threats of shortages or product delivery delays. The point to understand is while one event can cause a shortage, multiple events can cripple a supple chain. Industry and retailers alike are having to throw out the old and embrace new strategies to keep their supply chain from completely failing. Supply chains had been operating digitally for several years but were starting the process of using block chain, artificial intelligence (AI), and the Internet of Things (IoT) to help keep the process moving ever more smoothly. No one expected how

quickly COVID and a series of weather events would accelerate the digital transformation and turn the “just-intime” model upside down.

tives all play a role. Below, we expand on a few of these factors that make up a logistical hotspot and how organizations can capitalize on them.

L ogistical Hotspots — Uncharted Territory

• • Infrastructure Diversity —

New considerations are in the mix as companies determine where to locate their next facility. Companies are starting to ask themselves, where is the best logistical hotspot? Access to both U.S. and world markets, utilities, workforce, higher education, real estate or sites, and state/local incen-

Transportation and Access to Markets

Diversification of how goods are transported is paramount when evaluating a new location. The United States is part of a global economy, where access to ports is critical in moving goods on a global scale. AREA DEVELOPMENT | Q3 2021

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“

Just-in-time has gone away — companies are looking for redundancy and resiliency; increased inventories drive need for space.”

Interstate accessibility is always important when moving products across the country. However, access to a seaport means access to world markets. New inland ports are continually developing and offer another avenue of diversification in moving products via rail, which connects cities to ports and other parts of the country. Additionally, the process of moving freight by air cargo has increased and provides additional diversification within the supply chain. While transport by air might not be the preference for every industry, consideration should be given to airports that can accommodate that service for future options. According to thebalancesmallbusiness, “Transportation costs can be a significant part of a company’s overall logistics spending. With increases in the price of fuel, the proportion allocated to transportation can be upward of 50 percent. This cost is passed on to the customer and the price of goods continues to rise.”1 Therefore, multiple avenues for moving products are important to a robust supply chain.

• •Access to Population Centers

E-commerce demand, fueled by COVID, completely transformed and jump-started the e-commerce industry ahead five years in just one year’s time. Therefore, to be considered a logistical hotspot, a location must be near or just outside of larger population centers. Consumers currently and will continue to require increasingly shorter delivery times for both goods and meal delivery. The only way to solve this customer demand is for companies to locate facilities near these population centers. There are high barriers to entry for locating large, complex distribution centers or food commissaries within the middle of actual population centers. Nonetheless, companies must consider locations where access to population centers is uninhibited. Access to transportation — including interstate-quality roads — is of paramount importance. Additionally, access to public transportation is becoming increasingly important as a selling point to recruit workers.

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• •Land Availability Add the availability of land for development purposes to the definition of a logistical hotspot. As land opportunities continue to become scarce within the traditional logistical locations, the new hotspots must be able to support new development. As the supply chains change, newer and more modern facilities are warranted to accommodate what occupiers now need to compete. Occupiers are demanding taller ceiling height, greater floor thickness, and wider column spacing to allow for the increased use of automation within the facility. Sites are also required to have the ability for additional trailers, delivery trucks, and vans. This is in addition to auto parking, which will accommodate multiple shifts. All these requirements have multiplied in a span of time just under 24–36 months. In addition to the availability of land within proximity to major population centers, requirements for utilities must also be considered. All newer facilities have Early Suppression Fast Response Sprinkler Systems or ESFR. This type of sprinkler system requires a large amount of water on standby both in terms of pressure and flow capabilities. Many sites do not have adequate water supply, so upgrades will be needed. Next, sites must have ample, redundant electrical service. Given the concern with climate change, some companies that have carbonneutral goals will require the ability to track their use of green energy from a smart grid. As important as utilities are to a site, communication between a company’s various locations is critical to tracking inventory. Sites without access to multiple fiber providers are not viable options for logistical hotspots.

• •Entitlement Process

One additional note along the lines of land availability is understanding the entitlement process, as costs and time to take a site through the entire process continue to increase. Understanding the process and expectations along the way will lead to success. Getting land ready for development takes time. Preparation is key to moving a site forward. Determining the size structure for a site, along with future utility needs, is important. Most transportation departments will give you an idea of road improvements they will require.

• •Access to Workforce

Understanding the ability to recruit workers is also key to becoming a logistical hotspot. For e-commerce companies, this is especially important as recent studfor free site information, visit us online at www.areadevelopment.com

8/27/21 1:47 PM

ies have shown that these types of organizations utilize three times more labor than traditional warehouse operations. Furthermore, studies have determined that turnover rates at e-commerce facilities are four times higher than at traditional warehouses facilities. It is critically important that companies understand the labor force in the area before choosing a location. Research into demographics, population growth rates, commuting patterns, and access to public transportation is paramount when choosing a location. A qualified labor study will go in depth to understand which types of jobs will be utilized in the new operation. Those job profiles must match with the current labor shed or labor submarket in the short list of sites. Companies should ask themselves, are those skill sets available? What other companies are competing for the same type of skills? Will a new employer to the area have to pay more or increase its benefits to attract the necessary skills to keep an operation in business?

In Sum While supply chains had already started the digital transformation in adapting to automation, AI, and the IoT, COVID and recent weather events have further accelerated this transformation. Understanding where to find qualified and skilled labor underscores the need for extensive research before entering a labor market. Access to workforce training and higher education through technical schools and universities will be more important going forward. Land constraints will begin to hamper the ability for large distribution centers and commissaries to locate near major population centers. Therefore, allowing time for entitlement of sites to obtain the right zoning, utility extensions, and driveway permits, and getting redundant fiber will be key to finding successful logistical hotspots. n 1

https://www.thebalancesmb.com/reducing-transportation-costs-2221049

Shifting Dynamics in a Post-Pandemic World – Continued from page 17 concerned with labor cost differentials between competing metropolitan areas may be well-served to demonstrate how his/her community is compatible with a business’s long-term plans to improve diversity, equity, and inclusion, or perhaps how it has the right local assets to help the company achieve its carbon-neutral or carbonnegative objectives.

Examples of this creativity are already emerging throughout the country. For instance:

• • V IRGINIA has harmonized its incentives programs with telework situations.12

• • G EORGIA now offers tax credits to employers that

implement formal telework arrangements to help offset the incremental cost of remote work.13

• • L OUISIANA, OKLAHOMA, AND WEST VIRGINIA are

among several states that are offering newly available incentives intended to attract teleworkers and selfemployed individuals into their communities.14

• • N EW JERSEY has recently legislated new incentive

programs to help address food deserts and foster what it calls equitable economic growth in underserved neighborhoods, and it is welcoming business and public participation.15 In addition to the significant federal tax sustainability proposals, over 30

states currently have pending legislation that would create, extend, or expand programs intended to help improve the economics of commercial renewable energy projects.

In Sum As the U.S. emerges from the pandemic, economic developers have an opportunity to integrate some of the lessons learned and new ways of thinking into their overall approach. The large-scale project attraction efforts and financial incentives programs that economic development departments are known for are likely to remain a priority. However, officials also find themselves at a turning point that offers them the opportunity to develop targeted approaches that support new norms in the workplace, promote inclusive economic recovery, and place ESG at the center of their value proposition to business. n 1

https://www.njeda.com/njeda-board-approves-implementation-of-grow-nj-accommodations-to-address-covid-19-impacts/ https://www.ey.com/en_us/news/2021/05/more-than-half-of-employees-globally-wouldquit-their-jobs-if-not-provided-post-pandemic-flexibility-ey-survey-finds 3 https://www.areadevelopment.com/Corporate-Consultants-Survey-Results/Q1-2021/ 35th-annual-corporate-survey.shtml 4 https://www.ey.com/en_us/tax/how-remote-workers-can-create-business-risk 5 https://www.ey.com/en_us/board-matters/what-investors-expect-from-the-2020proxy-season 6 https://www.ussif.org/blog_home.asp?Display=155 7 https://www.cdp.net/en/articles/media/cdp-reports-record-disclosures-despite-covid19-as-corporate-environmental-action-rises 8 https://www.ibm.com/downloads/cas/EXK4XKX8 9 https://www.conecomm.com/research-blog/2016-millennial-employee-engagement-study 10 https://www.sec.gov/news/public-statement/lee-climate-change-disclosures 11 https://www.sec.gov/news/press-release/2021-42 12 https://www.vedp.org/incentives 13 https://law.justia.com/codes/georgia/2015/title-48/chapter-7/article-2/section-48-7-29.11/ 14 https://www.cbsnews.com/news/west-virginia-incentive-remote-workers-12000-relocate/ 15 https://www.jdsupra.com/legalnews/the-new-jersey-economic-recovery-act-of-6289835/ 2

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h Annual t 2 1

Top 20 States 1. Georgia 2. Texas 3. Tennessee 4. South Carolina 5. North Carolina 6. Alabama 7. Indiana 8. Virginia 9. Ohio 10. Florida 11. Arizona 12. Mississippi 13. Louisiana 14. California 15. Nevada 16. Kentucky 17. Utah 18. Oklahoma 19. New York 20. Kansas

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TOP STATES for Doing Business 2021

SITE CONSULTANTS SURVEY By Steve Kaelble

hen we last took stock of Area Development’s Top States for Doing Business, it was a bit hard to gauge what “doing business” was even supposed to look like. In 2020, the country was riding one wave of COVID-19 after another, mixing times of turmoil and concern with ripples of reassurance and optimism. A year later, the country has undergone significant economic recovery, followed by another time of coronavirus concern. Still, amid the roller-coaster ride, there have been some significant high points and positive business headlines. Plenty of companies continue to grow, some of them dramatically, and with growth comes the need to expand and explore new locations. And so, we turn once again to our expert panel of consultants, who have been around the business of location and economic development for many collective years. Our location professionals know what businesses are seeking and how states are responding — and they have exceptional instincts for which states are faring the best in several key categories of interest.

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To be sure, even in these times of dramatic change, some things don’t change. Like which state is at the top of our overall list. It is, once again, Georgia, for the eighth year in a row. In fact, the entire top 10 from last year remains in place, and almost in the same order. The exception is that Texas moves up from fourth to second, bumping both Tennessee and South Carolina down a notch, to third and fourth places, respectively. As always, though, it’s worth mentioning that these “Top States” represent the general views of our expert panel; they are not necessarily the last word when it comes to which location is right for your next location. Every company is unique, every project is different, and each and every state can rightfully boast projects for which it was absolutely the best choice. One of our top states may, indeed, be the top state for your plans — or you just might find your own top state that’s not on our list.

Overall Cost of Doing Business It would be tough to become the overall top state for doing business if your costs were out of hand, so it’s hardly surprising that our top state is also the leader in the category of overall cost of doing business. Georgia is the cost leader for the second year in a row. A number of different factors play a role in the total cost of doing business, as covered in more detail in some of the following sections. According to our survey, Georgia tends to perform well across the board, thanks to comparatively easyto-find qualified labor, workforce development programs that fill in any gaps, reasonably priced energy, a favorable real estate situation, and business incentive programs that also boost the bottom line. Below Georgia’s top ranking, the list of cost leaders is shuffled a bit from the last couple of years. Moving up into a tie for second place are North Carolina and Alabama. North Carolina’s strong performance in this department has to do with a number of important factors. For example, its state and local business tax burden is among the lowest in the country, its utility rates are super-competitive, and construction costs in its metro areas tend to run below the national average. Alabama, too, benefits from some cost advantages with strong business incentive programs and reasonable energy

METHODOLOGY Our 2021 Top States for Doing Business rankings reflect the results of our recent survey asking leading consultants to industry to give us their top state picks in 13 categories that impact companies’ location and facility plans. The states in each category were ranked based on their number of mentions in the particular category, and total mentions in all 13 categories were calculated to rank the top 20 states overall.

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OVERALL COST OF DOING BUSINESS

1 2T 2T 4T 4T 4T 7 8 9T 9T

Georgia North Carolina Alabama Texas Tennessee South Carolina Mississippi Indiana Florida Arizona

BUSINESS INCENTIVE PROGRAMS

1 South Carolina 2 Georgia 3 Alabama 4 Tennessee 5T Indiana 5T Mississippi 7T North Carolina 7T Virginia 7T Louisiana 10 Texas

ACCESS TO CAPITAL & FUNDING

1 2 3 4 5 6 7 8 9T 9T

California Texas New York Massachusetts Georgia North Carolina Illinois Florida Tennessee Arizona

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Plenty of companies continue to grow, and with growth comes the need to expand and explore new locations. costs, according to our survey respondents. Tennessee and Texas are perennial top performers for their overall business costs, and they place next in the rankings, tied this time with South Carolina.

Business Incentive Programs South Carolina’s incentives add up to high rankings year after year in this category. It had been the leader, ranked second last year, and is back on top again for 2021. Check this state’s list of statutory incentives and you’ll see a lot of “no’s” when it comes to taxes (no state property tax, no local income tax, no inventory tax, no wholesale tax, no unitary tax on global profits, no sales tax on manufacturing machinery and other elements of finished products). Add in the “yes” of discretionary incentives that range from job-development credits to rural infrastructure benefits to set-aside benefits for economic development, to name a few (and there are many others on the list). Georgia is second in this category this year, having topped the list last time around. Among the newer things on its list is the Life Sciences Manufacturing Tax Credit Bonus that covers such things as pharmaceuticals and medical supplies/equipment. The state’s generous offers of incentives even include such pandemic-pertinent options as credits for companies that make hand sanitizer and personal protective equipment. And speaking of the pandemic, there are options

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THIS NEVER GETS OLD

For an unprecedented eight straight years, Georgia has been named the best state for business. How can our partnership approach to business help your company grow?

Georgia.org

to help companies maintain credits they were awarded in years before COVID-19 hit, even if they experience a period when they can’t adhere to the job maintenance requirement. As usual, this list is dominated by Southern States, including Alabama, Tennessee and Mississippi. An exception is Indiana, with business incentive programs tied for fifth place with Mississippi.

COMPETITIVE LABOR MARKET

1T 1T 3 4 5T 5T 5T 8 9T 9T

Georgia Texas North Carolina Florida Tennessee Virginia Arizona Indiana South Carolina Alabama

Access to Capital and Funding This section is filled mostly with the places you would expect to see offering a generous flow of capital and funding options. Topping the list is California, which pretty much serves venture capital for breakfast, lunch, and dinner. Last year, nearly a quarter of the venture capital deal-making took place in the Bay Area, and companies headquartered there

2021 Top States Commentary Pandemic Accelerates Pre-Existing State Trends Pro-business tax structures, responsive state governments, workforce training programs, and sitereadiness programs are allowing top-ranked states to hold their positions.

The effects of COVID-19 have fueled many companies to recalibrate priorities for their location strategies and resulting real estate footprints. However, despite the implications COVID-19 has had on businesses and economic development organizations, the pandemic has accelerated many of the pre-existing state trends within the U.S. In reviewing this year’s rankings, the top 10 states for doing business

remained the same as the prior year. Texas and Florida upheld their top 10 ranking primarily because of their pro-business tax structures, while states in the Southeast — including Virginia, Tennessee, North Carolina, South Carolina, Georgia, and Alabama — maintained their competitive top-ranked positions in large part due to their cooperative and responsive state governments and workforce training programs. As the war for talent has intensified in recent years, labor availability continues to be a crucial driver for employers when creating

and implementing a location strategy. As such, states that prioritize investing in workforce development continue to separate themselves as destinations for organizations looking to relocate or expand. At the same time, Ohio and Indiana continued to prevail among the top 10 states primarily for their site-readiness programs and logistics and infrastructure. In light of significant supply chain disruptions caused by the pandemic, logistics and infrastructure play increasingly important roles as market connectivity to customers, clients, and

suppliers is paramount. Successful markets will continue to benefit from a major airport, strong interstate/rail access, and other transportation infrastructure. As such, it is fitting that of the overall top 10 states for doing business, eight were rated among the top states for logistics and infrastructure, including Texas, Georgia, Tennessee, Indiana, South Carolina, Virginia, Ohio, and North Carolina. States that continue to invest in logistics and infrastructure are drawing the attention of both businesses and residents as they help cultivate more employment opportunities and increase productivity.

By Eric Stavriotis, Executive Vice President, Advisory & Transaction Services, CBRE

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Average low of 60 degrees F. 4 of the top 10 beaches in the U.S. 1,350 miles of coast line. #2 infrastructure in the U.S. 20 Commercial Service Airports. Largest Air Traffic Hub in western hemisphere.

WITH A UNIVERSE OF REASONS PEOPLE LIVE AND WORK HERE, FLORIDA IS WHERE YOUR BUSINESS BREAKS THROUGH.

ULA ROCKET LAUNCH Cape Canaveral, FL

15 Deepwater Seaports. #1 ranked state for higher education. 3rd largest overall workforce in U.S. No Manufacturing equipment sales tax. 20-Year Capital Investment Tax Credit. 4th ranked U.S. state in foreign-owned firm employment. $153.6 billion in international trade (airport and seaport). Second largest FTZ network in the country.

EnterpriseFlorida.com

WORKFORCE DEVELOPMENT PROGRAMS

OUR NAME HAS CHANGED OVER THE YEARS, BUT OUR FOCUS HAS STAYED THE SAME We are committed to helping new and expanding companies recruit and train the skilled workforce they need to be successful 1961 2021

1 2T 2T 4 5 6T 6T 8T 8T 10T 10T 10T

Georgia Virginia Louisiana South Carolina Alabama North Carolina Tennessee Arizona Ohio Texas Florida California

took two-fifths of the funds raised, according to PitchBook.1 That said, analysts are expecting the picture to be a bit different once the 2021 numbers are tallied, thanks to some pandemicrelated shuffling. New York, of course, is as prominent as it gets with regard to finance in America, so no surprise it is third on this particular list, and like California, fourth-place Massachusetts is a perennial hotbed for venture capital activity. Texas claims the second spot on the list, thanks to its special programs and incentives that open the spigot for business funding, and fifthranking Georgia also makes funding easier through generous incentives.

Competitive Labor Market

Find out more at www.readysc.org

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Those on our panel of experts report that the labor market is particularly competitive in Georgia and Texas — which is not really news because labor is always a plus in these two states that tie for top honors this year. Companies choosing locations in Georgia and Texas appreciate the fact that they both have wages below the average in more than half of all other states, while at the same time their educational opportunities and quality-oflife factors help them attract highly qualified workers. A common thread through the most laborcompetitive jurisdictions is the fact that all are right-to-work states.2 The top states for labor

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also tend to have generous and effective programs for filling in any gaps in training and education.

Workforce Development Programs To build upon that last statement, workforce development programs are a major differentiator that can play a vital role in site decisions. Georgia earns its top ranking in this area with the help of Georgia Quick Start, often seen as the gold standard when it comes to workforce development. More than a million employees have tapped into new skills and opportunities with the help of this program, which offers customized, free services to any qualified company that’s expanding its Georgia workforce or adding technology to be competitive. Georgia Quick Start is part of the Technical College System of Georgia. Likewise, Virginia’s community colleges make that state’s FastForward program a reality, with its workforce training programs providing credentials for in-demand jobs. Virginia Career Works and the Virginia Talent Accelerator Program are additional examples of why that state is highly ranked in this area. Tied with Virginia for second place in the workforce development category is Louisiana, which has its own highly

ENERGY AVAILABILITY & COSTS

1 2 3 4 5 6T 6T 8T 8T 10

Tennessee Georgia Texas North Carolina Washington South Carolina Kentucky Arizona Alabama Oklahoma

POWER TO GROW

With resources like low-cost, reliable power, creative incentive packages, and a wide-ranging property portfolio, Santee Cooper helps South Carolina shatter the standard for business growth. In fact, since 1988, Santee Cooper has worked with the state’s electric cooperatives and other economic development entities to generate more than $15.3 billion in investment and helped bring more than 83,000 new jobs to our state. It’s how we’re driving Brighter Tomorrows, Today.

POWERING SOUTH CAROLINA

www.PoweringSC.com AREA DEVELOPMENT | Q3 2021

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regarded program known as FastStart. The program assists in multiple ways, including employee recruitment, screening, training development, and training delivery, and for qualifying companies, the services carry no cost. Rounding out the top five in workforce development programs, according to our survey respondents, are South Carolina and Alabama.

Energy Availability and Costs Tennessee and Georgia are perennial favorites among companies seeking to locate operations for which energy is a big factor. They were tied for the top spot in this category last year, and now Tennessee ranks first and Georgia second.

2021 Top States Commentary Location Strategies Altered by the Pandemic, But Not Results Although both the location advisors and economic developers have had limited project experiences during this past year, the 2021 results align with what we have seen in past years.

2020 was indeed an unusual year — as one of our clients asked rhetorically, “So, when’s the last time the world stopped?” Capital projects were placed on hold (with only a few exceptions). Uncertainty in buyer demand, government regulations, and financial performance caused a major time-out in both the public and private sectors. Most locationfocused projects were suspended, if not outright cancelled. Therefore, it must be recognized that any advisor’s opinions collected with this survey are most likely limited based on severely curtailed

project activity — but will the results be different than in past years? All the advisors responding to this survey have based their opinions on their individual recent experiences garnered while assisting clients with the few projects of various types and sizes that went forward. In dealing with the various states, one must keep in mind that those experiences varied greatly in terms of sitereadiness, labor availability, operating costs, etc. However, if one were to view this year’s results by comparing them to those of 2016–2020, interestingly, many of the same states have appeared in the top 10 rankings over the past five years (specifically GA, SC, TX, TN, AL, IN, NC). Therefore, we find this year’s results very credible despite the unusual circumstances.

Prior to 2020, at the highest level of perspective, business was extremely robust, and corporations were enjoying a time period that saw strong consumer confidence, low economic volatility, and little hesitation making long-term business commitments. While we all know there are exceptions to anything, the pandemic will certainly bring about major change. Several factors come to mind: overall corporate location strategies may be modified; search criteria may be re-emphasized to include how well states and local governments handled COVID mandates; and how the process is conducted may be altered (e.g., minimal community tours, etc.). In short, corporations were (maybe still are) not comfortable making longterm decisions, and costs

associated with location analysis are thought to be better spent elsewhere. Additionally, based on delayed business growth during this past year, many advisors and client organizations have found themselves performing incentive restructuring/ recasting with state and local governments. New job creation and capital spending time commitments contained within initial incentive agreements have been delayed in most cases — and although these investments will eventually occur, time schedule relief is necessary until business resumes in a normal fashion. Therefore, the category of “cooperative and responsive state government” will become increasingly important in the next few years, perhaps in a way not seen in the past.

By Les J. Cranmer, Senior Managing Director, Savills, Inc. 34

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Top States for Doing Business Over Past 5 Years Rank 2016 2017 2018 1 2 3 4 5 6 7 8 9 10

GA SC TX TN LA AL FL IN NC MS

GA SC TX TN LA AL IN NC MS OH

GA TX AL TN SC NC LA MS IN FL

2019 GA TN SC AL NC TX MS LA OH IN & VA (tied)

2020 GA TN SC TX NC AL IN VA OH FL

Georgia Power

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LOGISTICS & INFRASTRUCTURE

1 2 3T 3T 5T 5T 7 8 9 10T 10T

Texas Georgia Tennessee Indiana Virginia South Carolina Ohio California North Carolina Kentucky Illinois

SITE READINESS PROGRAMS

1 Tennessee 2 Georgia 3 North Carolina 4T South Carolina 4T Ohio 6T Virginia 6T Indiana 8 Alabama 9T Texas 9T Arizona 9T Kentucky

AVAILABLE REAL ESTATE

1T 1T 3 4T 4T 6 7T 7T 9 10

Texas Georgia North Carolina Ohio South Carolina Tennessee Arizona Alabama Indiana Florida

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Workforce development programs are a major differentiator that can play a vital role in site decisions. Tennessee has long had a leg up in the area of available and affordable power, an advantage known as the Tennessee Valley Authority, established in the 1930s as a federally owned utility. Today it’s a public power wholesale provider serving more than 150 local power companies, and customers in its area have rates lower than 70 percent of the nation. Georgia, meanwhile, also boasts commercial rates below the national average along with energy services that are business-friendly. Georgia Power, for example, has a full menu of rate and usage programs that can be tailored to the size and very specific needs of individual customers. Rounding out the top five are states with diverse energy supplies and competitive rates. Texas gets an increasing amount of its power from the wind, North Carolina is among the nation’s leaders in production of nuclear power, and Washington produces nearly a third of America’s renewable hydropower.

Logistics and Infrastructure For those in the manufacturing and distribution sectors, your bottom line depends on the ability to get things from here to there, across quality infrastructure served by exceptional logistics capabilities. Infrastructure must be well-maintained and well-connected from an intermodal point of view. Texas moves to the top of this category this year on the

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FOR A BETTER VIEW OF THE TAX RATE, LOOK DOWN. WAY DOWN. At just 2.5%, North Carolina is home to the lowest corporate tax rate in the United States. Picture what that can mean to your business. See what else North Carolina has in store for you at EDPNC.com/ALLinNC.

ALL IN NORTH CAROLINA

In partnership with:

COOPERATIVE AND RESPONSIVE STATE GOVERNMENT

1 2 3 4 5 6T 6T 8 9 10T 10T

Georgia Tennessee Indiana South Carolina North Carolina Alabama Virginia Mississippi Arizona Texas Ohio

basis of its road, rail, and water connections, in particular — i.e., more miles of freight rail and public roadway than any other U.S. jurisdiction, plus 16 seaports, 11 of which are deepwater. Georgia has a couple of deepwater ports of its own, with direct links to I-95 and I-16 and on-terminal rail, not to mention the world’s most efficient (and busiest) airport, in Atlanta. Its location, of course, is also ideal for serving the Sunbelt and connected with U.S. and global markets. Tennessee and Indiana tie for third in this category. Both have favorable locations along with extensive highway and rail systems. Together they host the biggest and secondbiggest FedEx airport hubs, in Memphis and Indianapolis. And they offer port access, as well. Indiana’s access comes by way of Lake Michigan and the Ohio River, and Tennessee offers river ports including Memphis and Nashville.

Site-Readiness Programs We’re living in a strange time when you may have to wait and wait to obtain furniture, certain computer chips, appliances, and some new vehicles (and who can forget toilet paper shortages?). By contrast, it’s nice to find a great spot for development that is ready to go, with a head start on the necessary due diligence, infrastructure, and approvals. Tennessee helps make this dream come true with wellregarded site-readiness initiatives, landing once again in first

2021 Top States Commentary Commonalities Shared by the Top-Ranked States Responsive economic developers, clearly defined property solutions, and minimization of risk and cost put states on consultants’ top-10 list.

to note the following state-level factors I think most have in common and which have likely driven a favorable rating by those of us who responded to the survey:

Looking at the 10+/- states which top this list, I have to say there is not too much that I find surprising. While I cannot claim to have recent (within the past 12–18 months) experience working projects within all the states that rank highest overall on this list, I do have enough familiarity

• A state level economic development team, who is visible and accessible to the site selection community, is able to share valuable insight in addition to raw data, and can help match project and new investment opportunities with appropriate locations

— This includes senior leadership who are willing to meaningfully engage with consultants and their clients in situations where final opinions are being formed. • A robust choice of clearly defined property solutions in more densely populated metro areas, lower cost rural areas, and intermediate locations, which can result in acceptable compromise on some mix of these types of

locations • A mix of programs that can demonstrate a clear ability to minimize the risk and cost associated with delivering and operating a new facility — Such programs relate to workforce recruiting and training, one time and recurring tax minimization, property related due diligence, and infrastructure and supply chain resources that support target industry.

By Scott Kupperman, Founder, Kupperman Location Solutions

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Louisiana is a 2021 Silver Shovel Award recipient, recognized for creating impactful investment and job creation projects. This marks the 10th time in 12 years that Louisiana has won Area Development’s Silver Shovel Award. The LED team is ready to help your business dig into big opportunities. Contact us today to learn how we can help your business grow in Louisiana.

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CORPORATE TAX ENVIRONMENT

1 2 3T 3T 5 6 7T 7T 9 10T 10T

Texas Florida Nevada North Carolina Tennessee Ohio Indiana South Dakota Georgia Utah Wyoming

place in this category. What are sometimes called “shovelready sites” are known here as Certified Sites, and they’re all over the state, from a nearly 2,000-acre mega-site in middle Tennessee, to one more than double that size near Memphis, to smaller and mid-sized sites in every corner of Tennessee. Second-place once again is held by Georgia, with a similar certified sites program called Georgia Ready for Accelerated Development. When Georgia economic development officials say “certified,” they mean it — these fast-track sites have been evaluated by a third party to be sure they’re up to standards with regard to zoning, environmental assessment, utility services, and other factors that, if lacking, could otherwise derail projects. The North Carolina Certified Sites program also is all about reducing site risk. These sites are prequalified rigorously, and periodically reviewed to ensure they’re still ready to roll if some time has passed. North Carolina ranks third in this category, and programs in South Carolina and Ohio helped those states achieve a fourth-place tie in the eyes of our responding consultants.

2021 Top States Commentary A Look Behind the Rankings While the top states overall remain consistent year-over-year, a deep dive into the data shows some interesting movement in the rankings. There was some slight movement at the top of the Top States for Doing Business survey, and, yes, the Southeast fared well once again. A deep dive into the data, however, will show some interesting movement in the rankings. Was this caused by one year’s worth of polling, desktop site selection during COVID, a few bad projects? Alternatively, does this data reveal trends worth noting? Let’s take a closer look.

• Utah drops from #7 to #11 in the Competitive Labor Market. This is a location our clients with office and/or manufacturing needs are asking about, and the state’s success is partially attributable to the cost increases in Denver and Phoenix. We’ll have to wait until next year to see if this is a one-year drop or if all those wins substantially tightened the labor market. One truly has to visit Salt Lake to understand the possibilities, and widespread travel restrictions could account for Utah’s lower score.

• In back-to-back years, California doesn’t make the list for logistics. My rationale for this is California is a great place from which to serve the West Coast, but if at all possible (and it’s usually not), companies avoid the Republic. • North Carolina (#5) and South Carolina (#4) have new secretaries of Commerce leading their teams. Can they keep up the momentum? • Taxes matter. Florida (#2 for Corporate Tax Environment) sees a large influx of financial positions bolstering the wages and disposable income in

beachfront communities. This has been happening for years, but in 2020 this trend accelerated — possibly aided by reduced COVID restrictions. • Arizona is top 10 in every category except Corporate Tax Environment, Business Incentives, and Logistics and Infrastructure. These are extremely important categories depending on the project, but with a strong labor market, workforce training, land availability, and energy costs, expect to see more projects here. The state is heavily reliant on Phoenix, so changes in the nearby markets will affect its rankings.

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Available Real Estate You can’t have site readiness if you don’t first have good available sites, so we asked our experts about this basic category, as well. Texas and Georgia tie for top honors when it comes to available real estate. For example, since 2014, the Savannah real estate market has seen tremendous growth, with industrial inventory increasing by more than 60 percent, according to CBRE.3 North Carolina fares well in the real estate hunt, earning a third-place ranking, and the fourth-place spot is a tie between Ohio and South Carolina. Tennessee is an excellent choice for available real estate, too (and as mentioned above, much of that real estate is primed and ready to develop).

ooperative and Responsive C State Government And then there are the factors that collectively can be seen as the “welcome mat” states place at the doorsteps of companies doing business within their borders. Some of this is reasonably measurable, such as the tax burden, and some of this is more of a subjective gut feel regarding which states are the most eager and welcoming, the best able to make helpful introductions on the local level, and the most willing to go the extra mile in tailoring incentive and training programs.

FAVORABLE REGULATORY ENVIRONMENT

1 2 3T 3T 5 6 7 8T 8T 10T 10T 10T

South Carolina Texas Georgia Alabama Indiana Tennessee Mississippi Arizona Nevada North Carolina Florida Utah

DIVERSE INDUSTRIAL BASE EXCELLENT LOCATION SERVING

AEROSPACE, AUTOMOTIVE, PHARMA & IT INDUSTRIES

AUBURNALABAMA.ORG AREA DEVELOPMENT | Q3 2021

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“

States try to take care of permitting in advance when they create shovel-ready locations.

SPEED OF PERMITTING

1 2 3 4 5 6 7 8 9T 9T 9T

Alabama South Carolina Georgia Mississippi Texas Tennessee Virginia North Carolina Arizona Louisiana Indiana

2021 Top States Commentary Auto Industry Projects Driving Top-Ranked States Their pro-business environments — with skilled labor, top workforce training programs, competitive utility rates, fast permitting processes, and more — have propelled states across the South to be ranked highly for auto-related and other projects.

The Top States for Doing Business survey results show several states in the Southeast and Southwest on top. The top three — Georgia, Texas, and Tennessee — have seen major project investments in the electric vehicle and battery industry (SK Batteries/$2.6 billion, Tesla/$1.5 billion, GM/LG $2.3 billion). The auto industry is

booming and lots of supplier projects are also happening. Why are such projects selecting these regions? These states offer a business-friendly environment, competitive utility rates, availability of skilled labor, excellent training programs, and fast permitting processes. As projects have to be realized much faster than in the past, an easy regulatory environment is very attractive to clients. Low utility costs in the southeastern states add another benefit when competing for large energy-demanding projects like the battery plants. The survey also shows that the southern states surpass states like Michigan for

their competitive labor market. Although postpandemic, unemployment rates are back down to around 4 percent and lower in Alabama, for example. Beyond the top three, North and South Carolina, Virginia, and Alabama have been aggressive in providing an ideal project environment. They are also running national advertising campaigns to get companies’ attention. Indiana and Ohio join the top 10 with top scores in logistics and infrastructure as well as available real estate. The pandemic highlighted the importance of logistics capabilities and available real estate.

Training programs have also become more and more important to clients, and Louisiana and Virginia have established very strong programs. The states are tied for second place for their workforce development programs, behind Georgia’s Quick Start program. Florida, Arizona, Mississippi — states that are getting more and more popular for manufacturing projects in addition to their corporate, aviation, and life science clients — also rank in the top 10 overall — whereas Massachusetts, Illinois, California, and New York score highly for their access to capital and funding, but overall only rank in the mid-tier.

By Alexandra Segers, General Manager, Tochi Advisors LLC

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CABINET FOR ECONOMIC DEVELOPMENT

2021 Top States Commentary Top Ranked States Hold Their Positions Despite increasing competition between states because of rising wages and a lack of ready-to-go sites, the top ranked states have remained consistent year over year. On the surface, not much is surprising about this year’s Top States survey. All the usual suspects are there in the top 10. Only four states scored top 10 in all criteria: Georgia, Texas, Tennessee, and

North Carolina. They have longstanding momentum regardless of the business cycle, the pandemic, or policy changes. On the other hand, we are seeing more competition for two reasons, the first being national wage compression. Manufacturing and distribution wage rates are going up everywhere. Eighteen months ago,

$13–$14 an hour starting pay has been replaced by $16–$17 even without a change in minimum wage laws. Supplemental unemployment insurance is part of that, but employers are telling us that these workers are also demanding more flexibility and work-life balance since they can’t enjoy the benefits of work-from-home. At the highest skill levels, we are

also hearing employers say they are not finding big savings in what used to be lower-cost markets for engineers, programmers, and scientists. Secondly, there are so few ready-to-go sites that second-tier markets are showing up well compared to the usual target markets if they have created a real pipeline of accessible and utility-served parcels.

By Daniel Oney, Managing Director, Newmark

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Our top five this year for most cooperative and responsive state government are the same as last year, with the order a bit shuffled. Georgia remains tops in this regard, according to our responding consultants, thanks to overall fiscal strength, a critical mass of successful companies, and economic development leaders ready to open up opportunities, share data, and connect prospects with all the right resources. Tennessee moves up to second place, placing at or near the top of various rankings of business friendliness and positive climate. Indiana moves up from fifth to third place, proclaiming itself to be “a state that works.” North and South Carolina round out the top five.

Corporate Tax Environment Speaking of cooperative, one of the most cooperative things a state can do is not be too burdensome with taxes. Lots of states boast about a business-friendly environment from the perspective of taxes, but our experts rank Texas as the best in this category. There are no corporate or personal income taxes there, after all. Florida was tops in this category last year and is second this year, and it’s easy to see why. It doesn’t have a state-level property tax, and certain corporate structures don’t have corporate income taxes, either. Florida also doesn’t levy a personal income tax, which pleases corporate executives. Rounding out the top five are Nevada and North Carolina, tied for third, and Tennessee in fifth place.

Your Success. Nevada Born. Nevada is a One-of-a-Kind State with a Great Business Climate and a Wonderful Place to Live. Let Us Be Part of Your Success!

NEVADA NAMED #15 IN THE U.S. In Area Development National Survey of Leading Site Consultants #3 #8

For more info, visit:

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#12 #13 #13 #14 #15

Corporate Tax Environment Favorable Regulatory Environment Available Real Estate Overall Cost of Doing Business Speed of Permitting Site Readiness Programs Competitive Labor Environment

#16 #16 #18 #20 #21 #24

Workforce Development Programs Logistics & Infrastructure Access to Capital & Project Funding Business Incentives Energy Availability & Costs Cooperative & Responsive State Government

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avorable Regulatory F Environment Benjamin Franklin said nothing is certain except death and taxes, yet the previous category disproves the part about taxes, at least in some states. What about red tape? That feels like pretty much a certainty, too, but our final two categories highlight states that have found a cure for the most common hassles of location and expansion. With regard to regulatory hassles, our location experts say South Carolina is the place that has the most favorable regulatory environment. Same with lots of other Southern locales, including secondplace Texas and the two states tied for third: Georgia and Alabama. Continuing the South’s success, Tennessee places sixth, Mississippi seventh, and two of the states tied for 10th are Florida and North Carolina. Still, this category is decidedly less exclusively Southern than it was before. Indiana makes the list again, this year in fifth place, up a notch from last year. But we’re also spotlighting the regulatory

friendliness of three states to the West this year: Arizona, Nevada, and Utah.

Speed of Permitting Last but not least is the speed at which the permitting process moves. Permitting can be a nightmarish hassle, and it’s one of the things that states try to take care of in advance when they create shovel-ready locations. Generally speaking, the Southern States are the speediest when it comes to permitting. Just check out the top five: Alabama, South Carolina, Georgia, Mississippi, and Texas, ranking in that order in this category. With only a couple of exceptions, the rest of the list is pretty Southern, too: Tennessee, Virginia, and North Carolina, and Louisiana, which ties for a ninth place spot with Arizona and Indiana. n

https://www.cnbc.com/2021/01/14/silicon-valleys-share-of-venture-capitalmay-drop-below-20percent-in-2021.html https://www.nrtw.org/right-to-work-states/ 3 https://f.tlcollect.com/fr2/121/60995/SEOR_2021_Report.pdf 2

Site and Facility Planning E-mail Newsletter This Week Area Development editors aggregate the most industry-relevant site and facility planning features and commentary from the best sources around the web. Also included is a roundup of the most important news items from the Area Development Online News Desk.

The Insider Exclusive online content including the latest industry-wide studies and research as well as features from Area Development magazine focusing on all aspects of site and facility planning.

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SPONSORS

NEVADA NEVADA GOVERNOR’S OFFICE OF ECONOMIC DEVELOPMENT Nevada is a one-of-a-kind state. It is a business-friendly state with a very low-regulation environment, streamlined licensing and approval processes, and a favorable tax environment for business and industry; a state with the workforce development, education, and infrastructure in place to support our economic development. Nevada is a state to visit and an astonishing place to live. It captivates visitors and residents with all the adventures and entertainment Las Vegas has to offer as the capital of tourism, conventions, meetings, and special events, but it also offers natural beauty and yearround recreational opportunities like skiing, golfing, hiking, fishing and swimming at Lake Tahoe. Gregory Bortolin, Director of Communications Nevada Governor’s Office of Economic Development 808 W. Nye Lane Carson City, NV 89703 775-687-9917 Cell: 775-434-3583 grbortolin@diversifynevada.com g o e d . n v. g o v

NORTH CAROLINA ECONOMIC DEVELOPMENT PARTNERSHIP OF NORTH CAROLINA 54,000 Square Miles of Endless Opportunity: North. South. East. West. No matter where you look, North Carolina is the home of endless opportunity. From the mountains to the coast, everything that makes life fulfilling can be found right here, right now. Ranked #1 for business three years running. Economic Development Partnership of North Carolina Wells Fargo Capitol Center 150 Fayetteville St #1200 Raleigh, NC 27601 919-447-7777 EDPNC.com

OHIO JOBSOHIO JobsOhio is the state’s economic development organization charged with driving job creation and capital investment in Ohio through business attraction, retention, and expansion efforts. JobsOhio collaborates with public and private partners across Ohio to address the needs of growing businesses and support them with the resources necessary to succeed. Andrew Deye, VP, Strategy JobsOhio 41 S High St #1500 Columbus, OH 43215 855-874-2530 JobsOhio.com

SOUTH CAROLINA SANTEE COOPER Santee Cooper supports South Carolina’s business community by providing low-cost, safe, reliable and sustainable power, along with sites and incentives, all designed to improve your bottom line. In addition to residential and commercial customers, Santee Cooper powers 27 large industrial customers, Charleston Air Force Base, and municipalities and electric cooperatives across the state.

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Bill McCall, Economic Development Specialist Santee Cooper One Riverwood Drive Moncks Corner, SC 29461 843-761-8000 ext. 5381 w m c c a l l @ S a n t e e C o o p e r. c o m w w w. P o w e r i n g S C . c o m SC TECHNICAL COLLEGE SYSTEM readySC™ was established as an economic development training incentive designed to guarantee South Carolina could remain competitive through changing economic circumstances. It remains a key component of the state’s economic development engine and has been recognized for 60 years as one of the nation’s premier programs of its kind. Brad Neese, Vice President, Economic Development SC Technical College System 803-896-5376 neese@sctechsystem.edu w w w. r e a d y s c . o r g

TENNESSEE TENNESSEE DEPARTMENT OF ECONOMIC DEVELOPMENT & COMMUNITY DEVELOPMENT It’s no accident that some of the biggest and most respected brands in the world have chosen to call Tennessee home. We provide companies a central location with unparalleled infrastructure, a highly qualified workforce backed by game-changing education reform, a low tax burden, and a collaborative environment with a business-friendly administration. Allen Borden, Deputy Commissioner, Business, Community and Rural Development Tennessee Department of Economic Development & Community Development Tennessee Tower, 27th Floor 312 Rosa L. Parks Ave. Nashville, TN 37243 615-741-1888 https://TNECD.com

TEXAS GREATER SAN MARCOS PARTNERSHIP The Greater San Marcos Partnership invites you to explore the Texas Innovation Corridor and all the communities within Hays and Caldwell counties. Recent U.S. Census data reveals Hays County as the fastestgrowing county in Texas. The region is attracting innovative and disruptive companies like Urban Mining, goodblend Texas, Visionary Fiber Technologies, Iron Ox, and more. Jessica Inacio, Senior Director of Business Attraction Greater San Marcos Partnership 113 N. Guadalupe Street San Marcos, TX 78666 512-781-2094 jessicai@greatersanmarcostx.com w w w. g r e a t e r s a n m a r c o s t x . c o m

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Mid-way between two major metropolitan cities, you’ll find an unexpected innovation ecosystem...

TEXAS INNOVATION CORRIDOR Buda • Dripping Springs • Kyle • Lockhart Luling • San Marcos • Uhland • Wimberley

Anchored by Texas State University, the region has been hailed by Forbes as “The Next Great Metropolis.” Metropolis.” Hays and Caldwell County alone have filed over eleven times the number of patents per captia than the entire state of Texas.* As the home of industry disruptors like Urban Mining Company and Visionary Fiber Technologies, this region is getting noticed by brand-name companies like Amazon, Lowe’s Distribution, and Best Buy e-commerce, along with many others who have found success here. Discover what the region has to offer a growing company at TexasInnovationCorridor.com.

For assistance, contact Jessica Inacio at 512-781-2094

WORKPLACE TRENDS

A Revitalized Vision for the Corporate Campus As COVID-19 starts to subside, the tech industry is reimagining the corporate campus, as well as workspaces, and that is bound to also affect companies in other industries. By Nick Bassing, Vice President, and Nick Clayton, Vice President, Project Management Advisors, Inc.

hen the COVID-19 pandemic struck, tech companies were among the first to successfully adapt to working remotely at scale. Having quickly deployed tools and strategies to keep workers connected and productive, many of the major players in tech leaned into the new workfrom-anywhere paradigm, announcing that their flexible or fully remote working arrangements would continue indefinitely. The rest of the world followed suit, primarily out of necessity as social distancing and lockdown orders became the new normal. But as the beginning of the end of the pandemic starts to emerge, companies of all sizes may soon follow tech again — back to the office and maybe even to a reimagined corporate campus.

Building at Scale

Tom Harris Photography

Silicon Valley is known for popularizing a workplace culture that prioritizes the needs and desires of its workers as a means for keeping them focused on work. While in the past decade this has meant sprawling corporate campuses with private transportation systems and catered breakfast, lunch, and dinner, the tech industry’s target demographic for talent has shifted —

Designed to mimic the vibrancy of city living, offices are integrated with the “always-on” ambiance of the surrounding environment.

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and so has its corporate footprint. While the biggest of big tech has successfully drawn up-and-coming talent to suburban locations, there is a generational shift among knowledge workers that prioritizes a dynamic urban environment with a short commute via public transit as opposed to a rush-hour drive in bumper-to-bumper traffic. While many predicted the death of cities in the wake of COVID-19, tech companies have spent the past 18 months signing record-breaking leases in urban areas of all sizes, from coast to coast. But they haven’t abandoned their corporate campuses either. The next generation of Silicon Valley campus caters to this emerging preference, prioritizing developments that tear down the walled-off complexes of the past. A handful of tech developments are moving toward mixed-use minicities that encompass affordable and market-rate housing, high-end hotels, retail outlets, and public use parks in addition to traditional, and non-traditional, office space. They are deliberately designed to mimic the vibrancy of city living, where offices are integrated with the “always-on” ambiance of the surrounding environment. While few companies have the scale to build their own company town, this integrated approach is likely to influence other corporate

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office spaces, from location to on-site amenities. For developers, that means a renewed focus on mixed-use developments and the zoning issues that accompany them. For instance, in Austin, where major tech developments have stretched the capacity of the city’s housing stock and transportation readiness, a large mixed-use development called River Park ran into zoning hurdles related to the number of affordable housing units, overall environmental impact, and concerns about gentrifying one of the last few affordable areas within easy distance to downtown. While the project will move forward with roughly 10 percent of its 4,000 plus multifamily units set aside for affordable housing, it serves as an example of the complex factors that can trip up or stop a development that encompasses housing, office, commercial, medical, and public space.

presents considerable challenges to developers, beginning with site selection. Despite a global competition for top talent, tech companies want to build in locations that attract the best of the best, particularly where there is a critical mass of recent university graduates and other prospective employees. Another component of a thriving tech company is creative, enticing amenities. Large tech companies famously boast master kitchens stocked with gourmet coffee,

Peeking Behind the Tech Curtain Diversity in corporate developments doesn’t stop at the front door. Workspaces themselves are changing. While many think of tech companies as pioneers of perfecting the algorithm and working from the cloud, today’s industry leaders are also embracing hardware — from manufacturing their own chips, to rolling out consumer products like phones and tablets, smart thermometers, and home security systems. These lines of business demand sophisticated lab and manufacturing space with proximity to distribution centers — requirements similar to those of the life sciences sector, one of tech’s chief rivals in the war for talent. Building hardware isn’t a work-from-home task; tech campuses need benchworking spaces equipped for designing and manufacturing physical prototypes and products. While most companies won’t suddenly pivot to these kinds of scientific inquiries, they may find their employees need different kinds of accommodations than they had before: larger meeting rooms, for instance, or more private offices as opposed to wide-open space. The only constant in the years to come is likely to be a need to stay flexible to meet the next evolution of office space as the demands of work evolve. We’re already seeing companies embrace smart ways to plan for dedensification and potentially the reverse trend at some future point, creating office plans for normal office density and ongoing COVID distancing. By overlaying office plans and creating hookups for power and connectivity for all scenarios now, these companies have spent a little more today but will potentially save thousands in the years to come as their office becomes near-endlessly reconfigurable.

Today’s Challenges Build on the Past Meeting the many needs of the new world of work

organic produce, and craft beer, as well as offering other perks like sun-drenched outdoor space, yoga classes, gym facilities, and more. Staying competitive in the amenities race requires keeping a finger on the pulse of employees’ expectations and coming up with fresh ideas that make them want to spend more time at work. For instance, companies that didn’t offer such techinspired amenities before are incorporating those experiences into their return-to-office plans, making executives more accessible through coffee “office hours,” for instance, and taking advantage of courtyard space to host a summer concert series. And, in a campus setting, the possibilities are unconstrained compared with more traditional leased space. Last but not least, these mixed-use campuses must strike the optimal balance between accessibility to public transit and availability of parking. Even at the most eco-conscious, urban-minded firms, some employees still want to drive to work; and visitors who arrive by car will always need a place to park. How much space to devote to parking, and where to put it, remains a challenge each developer must approach thoughtfully and strategically with an eye toward the company’s future needs. The COVID-19 pandemic has ushered in a new era of work: one where 9 to 5 is a suggestion, not a mandate; where productivity is possible in a wide variety of settings; and where workers need to spread out and feel connected all at once. For tech industry leaders, a fresh take on the corporate campus offers the flexibility to keep workers engaged and inspired as they navigate a cautious — and hopeful — post-COVID reality. And once it hits the tech industry, it’s bound to impact everyone else. n AREA DEVELOPMENT | Q3 2021

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Steele Business Park is a state-of-the-art industrial development in the heart of CentrePort Canada — a 20,000-acre inland port in Manitoba, where a new rail park will give companies access to three Class I railroads.

Canadian Industrial Sectors Expand with Business and Government Investment Diverse public-sector infrastructure investments, streamlined regulations, and certified site programs are driving private-sector industrial investment and expansions across Canada.

vidence that economic globalization is under pressure and evolving into a more regional/ continental stance in the near-to-medium term continues to mount. Pandemic disruptions to production and distribution have hampered global industries, producing a range of temporary and permanent

BY Gregg Wassmansdorf, Senior Managing Director; and Gabriel Dion, Director; Global Corporate Services and Consulting; Newmark

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adjustments to trade flows, business location strategies, and investment trends. In this context, businesses and governments are signaling and executing on strategies to domesticate global production and improve distribution capacities and efficiencies. This is equally true for Canada. In April 2021, a new ranking by U.S. News & World Report and BAV Group1 made the headlines naming Canada the “Best Country” in the world. In addition to the Quality of Life and Social Purpose categories for which Canada ranked first out of 78 countries, Agility and being Open for Business were also strong showings for Canada with third-place rankings overall. These are simple indicators of the momentum that has been building in a wide range of industrial sectors across the country, supported by diverse infrastructure investments by governments at all levels. Agility: Federal governments are rarely considered to be agile but strong alignment within successive Canadian governments regarding the importance of infrastructure investment has allowed Canada to advance its investment strategies and adjust to regional and industry needs. Today, the industrial economy is supported by infrastructure investments led by two arms of the federal government: the Ministry of Infrastructure and Communities and the relatively new Canada Infrastructure Bank (CIB). Through the Investing in Canada Plan, launched in 2016, the government of Canada committed $180 billion over 12 years for infrastructure. To date, the plan has invested over $96 billion in over 73,000 projects, 95 percent of them completed or under way. The Investing in Canada Plan delivers investments across five broad streams: public transit, green, social, rural and northern communities, and trade and transportation. As in many countries, Canada has taken a wide-angled perspective on the definition of “infrastructure” with overall objectives to promote economic growth and jobs, support resilience and a low-carbon economy, and build inclusive communities. Still, the “hard concrete” projects

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Industry is at a Crossroads. It’s called Woodstock, Ontario, Canada The City of Woodstock is a rapidly growing, industry based community, centrally located in Southwestern Ontario’s manufacturing corridor. Uniquely positioned at the crossroads of super-highways 401 and 403, Woodstock boasts one of the most optimal ground transportation systems in the province. Quick and easy access to international airports, shipping ports and rail systems, further add to Woodstock’s logistical excellence.

With these attributes Woodstock has attracted more than $2 billion in new investment and created more than 4500 private sector jobs over the last decade. At the intersections of industry, productivity and sustainability, it’s not surprising why economic powerhouses such as Toyota, Sysco & General Motors continue to invest in the City of Woodstock. (519) 539 2382 x2115 information@cityofwoodstock.ca

www.cometothecrossroads.com

Canada Makes Foreign Investors Feel at Home Canada’s economy is coming back strong in 2021 after the severe global downturn due to the COVID-19 pandemic. GDP grew by 20% between April 2020 and April 2021, and the OECD has upgraded its economic forecast for GDP growth to 5% this year. Inward foreign direct investment in the first quarter of 2021 was 87% higher than the 10-year quarterly average. What’s more, Kearney’s FDI Confidence Index again ranks Canada the second-most attractive investment destination in the world. Clearly, Canada offers global investors numerous advantages — including business and political stability, top talent, ecosystems that foster innovation, and unmatched market access — that present Canada as a strong and stable economy for investment. Canada’s response during the pandemic has been to continue actively encouraging trade flows through 14 trade agreements that give companies located in Canada unfettered access to 51 countries, including the United States, with whom US$1.7 billion of cross-border trade occurs every day. Canada has also taken necessary steps to secure stronger supply chains in key sectors such as agribusiness, through an integrated and secure farm-to-fork food system exceptionally well-oriented to exports. Another high-opportunity sector for Canada is cleantech — described as any product, service, or process that reduces environmental effects. Canada is fortunate to have an abundance of both renewable and non-renewable energy resources to form the basis for cleantech innovation. Through firm government commitments to fight climate change, businesses located in Canada are in a good position to flourish in cleantech. One cleantech industry with great potential for investment in Canada is the electric vehicle (EV) battery supply chain. Canada is the only country in the Western Hemisphere able to manufacture electric vehicles from start to finish, including critical minerals required for EV batteries. Canada offers both proximity and free-trade access to automotive assembly plants, with five in Ontario and over 30 in the U.S. within a day’s drive. Global companies can unlock these investment opportunities in Canada through Invest in Canada, Canada’s national investment attraction and promotion agency. Invest in Canada offers customized services that facilitate and accelerate foreign direct investment into Canada. If you are interested in establishing or expanding your company in Canada, please contact our team at Invest in Canada. Katie Curran, Interim CEO

Invest in Canada

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are getting done, with more than $14 billion devoted to projects related to national infrastructure, major regional projects, national trade corridors, and other provincial and municipal infrastructure priorities. The Canada Infrastructure Bank (CIB) also has a unique authority to contribute to infrastructure projects through equity investments, loans, and loan guarantees to promote public-private partnerships and accelerate new investment. Projects that have been approved or are already under way — 24 projects as of July 2021 — include the Port of Montreal’s expansion, the indigenousowned Tshiuetin Railway in northern Quebec and Labrador, hydroelectric grid expansions in Nunavut and the Northwest Territories, broadband expansion for different rural communities in multiple provinces, a 250-megawatt energy storage project in southwestern Ontario, and major highway and bridge replacements or expansions in key supply chain markets and corridors. For certain key infrastructure projects around the country, the focus on community support to achieve public approvals has evolved to include the community’s active participation in the project. First Nations, in particular, must be meaningfully engaged as stakeholders and will be increasingly involved in select projects as investment partners, strategic suppliers, or as a workforce to be trained and deployed. This reflects Canada’s passage of a law implementing the United Nations Declaration on the Rights of Indigenous Peoples and a broader orientation toward pursuing inclusive economic growth. Open for Business: While it is commonly accepted that Canada is open for business, different elements have put that to the test recently. Lengthy delays and uncertain

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processes for major project permitting can be a challenge, especially for infrastructure and energy-related projects. Lack of redundancy and optionality for certain transportation corridors remains a latent supply chain risk. And natural hazard risks like forest fires and floods have caused increasing frequency or intensity of periodic regional business disruptions. The good news is that the country is taking steps to address these issues and has further increased its efforts in the wake of the pandemic. Through investments by three levels of government and through public-private partnerships, Canada is advancing its industrial agenda across the country. Project funding is improving core infrastructure, addressing climate change with investments in renewable energy, supporting First Nations’ unique infrastructure challenges, adding rail tracks and roads, expanding broadband service, and growing cargo freight capacities at ocean, air, and ground hubs. What comes next for the infrastructure evolution is a deeper connection between tangible assets and data analytics and machine learning. This explains the Canadian government’s launch of Scale.ai in 2018. Part of a broader superclusters’ initiative, Scale.ai is a group of supply chain operators, solution providers, and digital technology experts partnering in collaborative projects that improve the efficiency of supply chains using artificial intelligence and machine learning. Close to 30 projects across the country have been funded so far, addressing challenges in the retail, mining, food, manufacturing, transportation, and aerospace industries. Supporting private investment through streamlined regulatory procedures and improved investment readiness is also a key ingredient to being open for business. For example, the government of Ontario, has put several strategic measures and programs in place to further support global investors who are looking for their next business expansion location. After creating Invest Ontario, an investment attraction agency with a dedicated fund to help secure strategic investment opportunities, the province recently launched Canada’s first mega industrial site initiative. Ontario’s Job Site Challenge will identify suitable mega sites for very large manufacturing investments. Newmark has the privilege to be supporting the province and local communities with this initiative to help them compete with other mega-site programs popular — and successful — in the United States. The Job Site Challenge builds on the province’s existing Investment Ready: Certified Site Program, launched in 2013. This program facilitates site development pre-qualification for investors and site consultants. The Atlantic provinces and Quebec similarly

launched certified site programs in the last year. Ontario, however, seeks to remain one step ahead by launching a new Site Readiness Program this fall to support smaller sites by undertaking advanced due diligence and site preparation work for investors, thereby reducing their development burden. Private-Sector Momentum: Around these public-sector infrastructure and policy initiatives is the private sector, which continues to drive industrial investment and expansion. One major Canadian electric utility executive recently said privately that he has not seen so many large project initiatives in his 30 years in the industry. This volume of project initiatives is reflected in the general industrial real estate market conditions around the country, where every major metro outside of the prairies has availability rates of 3 percent or less, including the three largest markets of Toronto (1.2 percent), Vancouver (1.1 percent), and Montreal (1.4 percent). Overall, Canadian banks are healthy, lenders are well-capitalized, and funds are available to support industrial property growth. If anything, municipalities and utilities would benefit from accelerating their development/capital planning and approvals so new industrial construction can catch up with burgeoning demand for manufacturing, flex industrial, and distribution space, whether speculative or build-to-suit product. Good news industrial stories abound throughout the country. CN Rail is investing $250 million at a new logistics hub in Milton, Ontario. A private developer continues to offer new sites and vertical construction alongside a new rail park served by three Class 1 railroads at CentrePort in Winnipeg, Manitoba. More than $1.5 billion in new life science projects have been recently announced in Ontario’s Greater Toronto area. The list of large and creative developments is lengthy, from Canada’s first multi-story industrial warehouse in the Greater Vancouver area, to an Amazon pickup depot in Iqaluit that connects a remote population to products from the rest of the world. Other examples include the world’s first net-zero hydrogen production facility announced in Edmonton, Alberta, and Lion Electric’s new production facility in Montreal, Quebec, where it makes electric trucks and school buses and will soon add battery manufacturing capacity. From the Pacific to the Atlantic to the Arctic, the development of next-generation infrastructure and industrial projects in Canada is creating a new and interesting future. 1

https://www.usnews.com/news/best-countries/overall-rankings

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the global financial crisis. Similarly, Canada’s foreign Canada’s sources of inward FDI now more diversified investment performance (share of inward FDI stock by immediate investing country) dipped by 49 percent, led by a decrease of 57 percent in FDI inflows from the United 64% 61% United States, and Canadian direct 54% States investment abroad dropped 44% 40% by 41 percent. Consequently, 34% 31% Canada’s source of FDI is 28% Europe now more geographically 11% diverse, with Europe and 10% 6.5% Asia/ 4.5% Asia now responsible for the Oceania majority ownership of FDI stock.1 1990 2000 2010 2020 Globally, the pandemic Source: Statistics Canada, Table 36-10-0008-01 via Government of Canada, State of Trade 2021 and national lockdowns forced multinationals to reconsider new projects and intra-firm financial flows. While, developed economies were subject to a greater decline in the value of FDI, down by 58 percent, developing economies experienced the strongest decline in the number of FDI projects. Indeed, the decline in numbers of new greenfield project announcements and cross-border M&A were more significant in developing countries (42 percent and 24 Although the pandemic caused FDI to slow, with percent, respectively) than in developed economies (19 its diverse workforce, Canada is experiencing a percent and 10 percent, respectively). surge in Industry 4.0 projects and may benefit These numbers could suggest that developed from U.S. firms nearshoring their supply chains. economies are better positioned for a sustainable recovery, as these types of investments are crucial for the development of productive capacity and infrastructure. Interestingly, FDI in developed hile this past year called for worldwide economies through international project financing is resiliency and adaptation, foreign investment the only type of FDI with growth in terms of numbers, flows slowed down globally, and Canada was even though they were subject to the largest decline in no exception. In fact, global FDI flows plunged by 35 terms of values. Considering their quick recovery after percent in 2020, down to $1 trillion. For comparison, an initial dip, the growth in foreign project financing these levels are 20 percent lower than FDI in 2009 after should continue along with the currently favorable low interest rates and the access to diverse long-term BY Marc Beauchamp, President & CEO, CAI Global refinancing programs.

Canada’s Diversity and Positioning Is Promising

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FDI’S FLOW INTO CANADA Foreign countries remain invested in Canada’s three primary sectors: manufacturing; mining and oil and gas extraction; and management of companies and enterprises (financial holdings). The vast majority of FDI from the U.S. is evenly divided between these three sectors, whereas almost half of FDI from Asia and Oceania is invested in the mining and oil and gas extraction sector. The majority (54 percent) of foreign investment into the manufacturing sector comes from European investors. Canada’s total stock of FDI has grown significantly since the 2000s and is now equivalent to 47 percent of its GDP, of which 15 percent is directly accounted for by foreign multinationals. Foreign Multinational Enterprises (FMEs) also account for 12 percent of all employment and three-fifths of trade in goods and services — even though they only represent 1 percent of companies in Canada.

MANUFACTURING INDUSTRY’S CONTINUED ADVANCEMENTS

manufacturing compared to other advanced economies. Canada must continue its effort of incentivizing investments in transforming industry, as finding the right talent will only get harder for the sector as it is expected that more than a quarter of the manufacturing workforce will retire by 2030. The federal government has recently renewed its commitment to helping firms adopt Industry 4.0 processes by increasing funding for two critical innovation programs. The Strategic Innovation Fund (SIF) will receive over $7.2 billion across seven years beginning this year, while the Superclusters program will see an additional $60 million over two years. These programs have allowed the government to support companies looking to make viable investments in

”

While global investment declined drastically, the pandemic has only accelerated the growing trend in Industry 4.0 projects. Many of CAI’s recent projects with manufacturers have been focused on adopting technology in their operations to allow for increased automation and data exchange. To achieve digitalization and supply chain integration, investments tend to involve smart factory processes, predictive maintenance, 3D-printing, and smart sensors. The surge in Industry 4.0 projects is distributed across different sectors and is reaching record numbers – e.g., there were 838 deals related to computer programming in 2020 alone. This trend furthers the growing manufacturing skills gap, while also reflecting the search for skilled workforces, the main factor driving FDI rather than market accessibility. Despite having no option but to follow the global trend, many studies rank Canada near the bottom in both technology adoption and innovation in

Manufacturers have been focused on adopting technology in their operations to allow for increased automation and data exchange.

automatization and research and development in Canadian manufacturing. On the provincial level, Quebec augmented its Credit for Investments and Innovation (C3i) by temporarily doubling its tax credit rate to 40 percent. The program was introduced in the 2020 Quebec budget and is intended to provide additional incentives for investments in manufacturing or processing equipment and computer equipment. Lastly, Ontario’s 2021 budget introduced an investment of $400 million over four years to create the Invest Ontario Fund supporting investments in advanced manufacturing, technology,

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location

canada Foreign multinationals play an important role in the Canadian economy (share of enterprise activity, 2018)

and life sciences through programs related to R&D, site selection, and workforce.

LOOKING FOR WORKFORCE DIVERSITY

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

GDP Employment Merchandise Commercial Merchandise Commercial imports services exports services imports exports

Foreign multinational enterprises

Canadian multinational enterprises

CAI’s experiences with Non-multinational enterprises Public and non-profit sector international investors also revealed a new Source: Statistics Canada, Table 36-10-0356-01 via Government of Canada, State of Trade 2021 complement in location selection: demographic diversity. Companies are Canadian manufacturers. Canada’s proximity to the U.S. not only describing their ideal location as having the market is an advantage, with the increased reshoring of best availability of skilled workers but aiming for diversity American multinationals. among a region’s workforce. With less than a third The geographic diversity of Canada also has a lot of the manufacturing positions filled by women, the to offer multinationals looking to relocate closer to challenge to attract skilled and diverse employees forces suppliers and resources. For example, supply chain companies to use more specific demographic data to regionalization has already begun with electric vehicle locate themselves strategically. manufacturing. The auto industry’s growing shift to CAI is looking for diverse demographics, a broad Canada due to its auto parts market and abundance talent pipeline with a high proportion of STEM of natural resources required for producing electric graduates, as well as specific industry-related programs. vehicle batteries reinforce Canada’s position as a leader Even in 2018, manufacturers were ranking STEM and in the industry’s supply chain, just as it is in many other analytical skills above mechanical and technical skills as industries. more desirable for their employees. While leading the OECD rankings in percentage of population with tertiary IN SUM education, Canada remains below the G7 average in terms of proportion of graduates in STEM programs, Consistent with global post-pandemic performance, but it can continue to count on immigration for talent Canada’s FDI faced a temporary setback. The economic with a record half-year in terms of the numbers of recovery will depend on how the federal and provincial invitations issued to Express Entry candidates qualified governments take advantage of new global trends in as high-skilled workers. This further complements the project financing and smaller cross-border mergers and demographic diversity of Canada. acquisitions, as well as support sustainable investments in adaptation. Although lagging in terms of technology GLOBAL SUPPLY CHAIN DISRUPTION: adoption in manufacturing, the tools are here to help AN OPPORTUNITY innovation be financially viable. Furthermore, Canada is well-positioned given site selection requirements Additionally, the pandemic has quickly awakened shifting toward requiring a diverse and knowledgeable companies to the vulnerabilities of their supply chain to workforce, along with the reshoring of American sudden restrictions, delays, and drastic rises in shipping multinationals closer to their supply chain needs. cost. Through network restructuring to rebalance international production, supply chains have become 1 https://www.international.gc.ca/transparency-transparence/state-trade-commerceinternational/2021.aspx?lang=eng a bigger factor in production location decisions for

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CONSTRUCTION/PROJECT PLANNING

Keys to Successful Capital Project Delivery Early collaboration between team members will help to keep a project on track and eliminate added costs. By Shawn Buchanan, Vice President/General Manager; and John Trussell, Operations Manager; Graycor Southern Inc.

apital projects, because of their scope and size, have many “moving parts” during construction. It is important to keep all these parts aligned as the project progresses. Failure to do so results in delays and extra costs. Large-scale capital projects are known to suffer disproportionately from such overruns. A McKinsey report estimated “98 percent of megaprojects suffer cost overruns of more than 30 percent; 77 percent are at least 40 percent late.”1 Therefore, as construction activity resumes, it is imperative to find a smoother project delivery process. Traditional design-bid-build project delivery, in which the design team makes all decisions and then sends a project to bid, purposefully keeps teams and tasks siloed in order to limit liability. Even as project delivery methods have diversified, with new methods — such as design-build, early contractor involvement (ECI), and integrated project delivery (IPD) — seeking to bring teams together more collaboratively, there is still room for improvement. Payoffs associated with newer project delivery methods, or with better execution of existing delivery methods, are most likely to occur if collaboration happens early, has full buy-in from all participants, and is iterative.

Early Collaboration Putting the team together early, and truly weighing the input from various members, achieves an active approach to the capital project as op-

posed to a reactive one. Creating a formal pre-planning or preconstruction phase is key. Pre-project planning helps identify strategic information that owners can utilize to address risks and commit resources to ensure successful project outcomes. Many project delivery methods emphasize the importance of preconstruction. For example, ECI, while closely related to design-build project delivery, brings subcontractors to the table even earlier in the process, at the design concept or schematic phase. Such project delivery methods add value because they tap the expertise of the subcontractors, who are often able to contribute unique perspectives, ideas, approaches, and solutions regarding constructability.

Using a combination of structured approaches and responsive team management, owners, consultants, contractors, and vendors can overcome the challenges that have historically beset capital projects when it comes to on-time, on-budget delivery. AREA DEVELOPMENT | Q3 2021

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Contractor knowledge can influence:

• • ESTIMATING AND PROCUREMENT. A wider se-

lection of options may be considered and items with long lead times can be ordered early, leading to improvements in both cost and scheduling. Accuracy of estimates is also improved. Often, the “boots-on-the ground” knowledge of the subcontractor can identify potential cost risks such as constructability, scheduling and sequencing, productivity, or unusual site conditions. The owner then becomes aware of these risks and can address them during the project funding stage.

• • SCOPE AND SCHEDULING. Project schedules can

be coordinated with engineering and procurement timelines. Doing so can positively impact the project by shaving weeks to months off the construction schedule.

• • VALUE ENGINEERING. Creative solutions can be

developed to bring costs under control. Subcontractors brought on as consultants can identify cost-saving opportunities associated with prefabrication, modularization, and more.

• • WASTE ELIMINATION. By finding ways to minimize

waste, such as reducing order quantities and planning efficient routing, designs can be streamlined to simplify both construction and facility operations.

• • RISK IDENTIFICATION. Projects that progress

through the construction phase with inadequate information are inherently riskier. ECI and other delivery methods that consult early with subcontractors lay the groundwork of information as well as pinpoint risk areas early, improving risk management and mitigation throughout project execution. While there are costs associated with bringing contractors on as consultants early in project planning, the costs are mitigated by the fact that the subcontractors don’t have to cushion their price as they would with traditional bid models. Getting involved early informs the contractor’s strategy, which in turn results in the most accurate pricing and more predictable project outcomes. These projects also achieve faster permitting, better regulatory compliance, and fewer change orders — by orders of magnitude. Overall, these projects are delivered on time and on budget more often. ECI can greatly improve progressive turnover, especially for projects that require extensive startup and commissioning. If the contractor understands the owner/ commissioning needs and the engineered process, the team can make a collective effort to incorporate items into the design that may allow construction to proceed while commissioning begins (for example, by adding in items for safety such as break outs or additional valves). This approach will also keep the focus of the team on the end goal. If hurdles or delays are encountered, the proj-

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ect team can respond with informed decisions. There are many technologies that support project collaboration. Building information modeling (BIM), file sharing, RFI and submittal tracking, cost reports, safety checklists, scheduling tools, project management software, and more enable communication and accountability. The ways in which they streamline the construction process are almost limitless; they offer quicker documentation, access to real-time information, reduced delays, improved accuracy and, if the software is cloud-based, accessibility from any location. Technology tools have uses during every stage of a project, from planning through closeout. The result is greatly improved project quality. In addition to cutting-edge project delivery methods and technologies, updating means and methods of construction (especially those associated with mechanical work and advanced welding applications) also offers a pathway to better productivity and quality. Companies can develop formal quality programs, invest in new equipment, or phase projects so that portions are eligible for progressive turnover of assets — which not only alleviates bottlenecks associated with construction resources, but eases the schedule for the operations teams’ testing and commissioning. An example is improving welding processes by using semi-automatic or mechanized equipment that can decrease the amount of time a welder spends under the hood. The time saved improves all upstream and downstream activities associated with welding (e.g., material preparation and staging, pipe fit-up, weather protection, fitter to welder ratio, etc.).

Team Buy-In Because competitive, and even adversarial, relationships were built into architecture/engineering/construction contracts for so many years, companies must be open to changing their culture to truly achieve collaboration and open, honest communication. At the level of owners and senior managers, active participation and a time commitment during preconstruction are required. In exchange for the time invested, owners quickly gain insights that help determine if a project is viable or not. As the project progresses, the owner retains greater control than with traditional delivery methods, since the decisions that were made upfront tend to require fewer alterations than they do with traditional project delivery. Owners also reap the benefits of greater cost certainty throughout the project. At all levels of each organization involved, team members must have a sense of shared interest in the project outcome. Employees need to fully understand their roles and responsibilities, including how their tasks relate to overall project activities and the scope of work. Giving all stakeholders input and decision-making capabilities will help create shared goals. Benefits accrue not only by improving task-specific efficiencies, but by creating a rewarding work culture, which in turn builds a strong talent pool. for free site information, visit us online at www.areadevelopment.com

8/25/21 4:52 PM

Training on the benefits of collaborative workflows will help all team members form the right mindset and habits. Such training should address:

those for project procurement (or supply management), project risk identification and mitigation, project staffing, construction execution, cost/budget management, project controls, and project quality. For aligning roles and responsibilities of team members, the Construction Industry Institute (CII) has long How responsibilities will be distributed; provided a useful tool. Known as the Owner-Contractor Work Structure (OCWS), it provides owners with “a S pecific benefits, such as reduced comdecision-making process to identify project competenpetitiveness and improved trust; and cies, determine whether these competencies are core or non-core to the owner, and decide upon the most effecR eassurance that the company will offer tive approach to outsourcing different project competenongoing support to ensure the process cies.” An updated and simplified version of the OCWS, functions optimally. the Core Competency Toolkit, was issued in 2005. The Core Competency Toolkit provides a practical framework It should be noted that for training to for allocating various project activities among contracreflect the reality of day-to-day experience, tors. It also guides hiring and outsourcing decisions. owners must be diligent to work with the right Once processes and documents are in place, the consultant at the project’s outset. The conteam should conduct ongoing measurement and recordsultant chosen should have proven ability to keeping. Because each step in a capital project is conprovide proper technical support and superior nected to, and builds upon, the previous step, frequent project management. In addition to formal review processes (for document control, materials training, informal sessions or even individual management, construction work package execution, conversations should not be underestimated etc.) should be when it comes to creating confidence performed to enamong team members. sure that work is Companies must be willing to work toPutting the team together meeting the criteria gether, sometimes at a sacrifice. Keeping established by the the long-term picture in mind will help evearly, and truly weighing group (including eryone on the team overcome resistance the input from various the owner) at the to this sacrifice, since the better project members, achieves an beginning of the outcomes achieved through collaboration project. Having a will translate to better client relationships active approach to the formalized routine and a better firm reputation. capital project as opposed for review processes — even when Iterative Processes to a reactive one. it comes to smallSophisticated project controls should scale items — enguide data gathering and analysis. Projsures the project ect controls include initiating, planning, stays on track. Throughout the project, regular meetings monitoring, communicating, and closing out project with clients, along with open lines of communication, costs and schedule. They are iterative processes for should be used to manage day-to-day issues. measuring project status, forecasting likely outcomes At the end of a project, customer satisfaction surveys based on those measurements, and then improving help all parties learn from their experience. When adoptproject performance if those projected outcomes are ing a new workflow or delivery method, openness to unacceptable. feedback and change is essential. Documenting lessons Every project should have some form of alignment learned (both the positive and negative aspects of a document, such as a Division of Responsibility docuproject) and applying them to future projects will enable ment or Project Execution Plan (PEP). These documents true growth and improvement. provide a road map of how construction should proceed. Underlying each of the individual keys to success is A good alignment document will include information on early — and then ongoing — analysis, control, and risk who, what, why, when, and how work gets done, offermitigation for various project variables. Using a coming guidance over every applicable element of a project. bination of formalized structures and responsive team This level of organization is particularly important for management, owners, consultants, contractors, and heavy industrial projects where safety, quality, schedule, vendors can improve upon the historic shortcomings of and cost are paramount. The exact nature and details of capital projects when it comes to on-time, on-budget an alignment document will depend on project scope, delivery. n scale, complexity, resources, and other factors. Statements of Work (SOWs), PEPs, and other high-level docu1 https://www.mckinsey.com/business-functions/operations/our-insights/the-constructionproductivity-imperative ments should be accompanied by sub-plans such as

•• •• ••

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Area Development Q3 Issue 2021

Articles inside

Keys to Successful Capital Project Delivery

Location Economics as an Emerging Driver of Private Equity Decisions