Area Development Q4 2015 by Area Development

INCENTIVES: OUT OF STEP WITH THE TIMES

THE NEXT GENERATION OF LIVE, WORK, PLAY

ADVANCED MANUFACTURING CHANGING THE ECONOMIC LANDSCAPE

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Q4/2015

TOP

LOCATION FACTORS HOW TO PINPOINT YOUR NEXT LOCATION/EXPANSION DECISION

Town. country. READY FOR BUSINESS. Are you looking for a business location that provides easy access to global markets, a world-class workforce and cutting-edge infrastructure? Then you’re looking for Fauquier County. • This prime locale is just 40 miles west of

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WARRENTON ECONOMIC DEVELOPMENT • Highly educated and scalable workforce • Affordable commercial space and sites • Water, sewer and high-speed internet • George Mason business incubator • Hospital and community college Learn more: hstinson@warrentonva.gov.

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locations for every type of industry.

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VINT HILL VILLAGE, LLC • 700-acre mixed-use community • 300 acres of shovel-ready parcels • Commercial; light industrial space • 28 miles from Dulles Int’l Airport • Local incentives available Learn more: www.vinthill.com.

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CONTENTS 29

FEATURES 18 Advanced Manufacturing

COVER STORY

Changing the Economic Landscape

Across the country, states and localities are working with manufacturers to create and grow outposts for advanced manufacturing.

20 Companies Diversify

TOP LOCATION FACTORS

Shallow Economies While Building New Markets

The New Markets Tax Credit program has helped companies to establish and expand their businesses, while bolstering the distressed economies of their chosen locations.

2015

TOP 10 LOCATION FACTORS This special report examines in detail the top-10 location factors from our Q1/2015 Corporate Survey that determine where our readers will locate and/or expand facilities. Highway access remained a primary concern, and occupancy and construction costs also proved vital.

22 The Next Generation of Live, Work, Play

Thinking “outside the box,” how can rural America outcompete big cities for top talent? Be cool and be unique.

Exclusive Online Content

www.areadevelopment.com

NOW ONLINE... In Focus: Is It Time To Go Solar? In Focus: Leveraging Applications Experts and Tools for Effective HVAC Systems JLL — North American Seaport Outlook: Potential Shift in Ports of Call JLL — Top Airport Locations for Real Estate Investors

Area Development® Site & Facility Planning (USPS 345-510) is published five times per year (Q1, Q2, Q3, and Q4 — and Annual Directory in December) at Richmond, VA, by Halcyon Business Publications, Inc., 400 Post Ave., Westbury, NY 11590. Periodicals postage paid at Westbury, NY, and additional offices. Single copies, $10. Yearly subscription U.S. & Canada, $75; foreign, $95.

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Volume 50 | Number 4 Q4/2015

Quote:

A leader is someone who cares enough to tell the people not merely what they want to hear, but what they need to know. Reubin Askew (1928–2014), American politician and Governor of Florida from 1971 to 1979

26 Life Sciences Hub

54 Incentives: Out of

The pressure to innovate means the right locations are worth their rising rents and labor costs.

Advanced manufacturing, which requires fewer workers than lowtech operations, often cannot take advantage of incentives tied to large job-creation requirements.

Cities Come With Big Price Tags — and Big Returns

Step With the Times

Impact of the “Patent Cliff”

52 ADA 25 Years Later: It’s All About Education

A lot has changed since the act was passed in 1990, with building owners and designers becoming more educated and understanding the spirit of the law.

DEPARTMENTS 4 Editor’s note U.S. Manufacturers Will Spend Their Money at Home

6 In Focus Co-Working Spaces: Shaping a New Generation of Emerging Urban Landscapes

12 Front Line

8 In The Know

• Demand for Data Centers Increases in North America • Business Location Tracker

Part-Timers (By Choice) Diversify the Workforce

10 First Person Nigel Dessau, CMO, Stratus Technologies

Walmart’s “Made in USA” Program Encourages Reshoring

56 Ad Index/

Web Directory

Join Our Newsletter areadevelopment.com/newsletter Follow Us On twitter.com/areadevelopment

Online Database Resources www.facilitylocations.com Follow Us On www.fastfacility.com

POSTMASTER: Send address changes to Area Development, Circulation Department, 400 Post Ave., Westbury, NY 11590. Subscribers requesting address changes must provide both old and new addresses. © Copyright 2015 by Area Development® magazine. ISSN: 1048-6534. Printed in the U.S.A. Area Development® is a registered trademark of Halcyon Business Publications, Inc.

AREA DEVELOPMENT | Q4/2015

EDITOR’SNOTE

Q4/2015

U.S. Manufacturers Will Spend Their Money at Home In mid-October, PwC released its Q3 2015 Manufacturing Barometer, which revealed U.S. industrial manufacturers’ concern about the direction of the global economy. Optimism about the global economy dropped to 23 percent of PwC’s survey respondents from 30 percent the year prior, reflecting the impact of the slowdown in China and the stronger dollar. Industrial executives did, however, remain optimistic (60 percent) about the U.S. economic outlook. According to Bobby Bono, PwC’s U.S. industrial lead, industrial manufacturers “are keeping their cash at home and directing investment toward their value propositions in an effort to remain competitive and drive future revenues.” In fact, 37 percent of the industrial manufacturers surveyed by PwC plan major new investments during the next 12 months. If those investments include new facilities, the top concern for manufacturers, according to Area Development’s most recent Corporate Survey (Q1 2015) is highway accessibility. But, as has been widely reported, the state of the nation’s highways is cause for concern. Globally, the U.S. ranks 16th for the quality of its overall infrastructure as well as the quality of its roads, according to the World Economic Forum’s Global Competitiveness Report (2014–2015). As the importance of just-in-time manufacturing and distribution of goods increases, the availability and condition of the nation’s roads will also continue to increase in importance. In this issue, we examine in greater detail highway availability, which was ranked as the most important location factor in our Corporate Survey, as well as the next nine most important site selection criteria. Second most important was occupancy and construction costs, followed by available land and available buildings. Again, industrial firms need to get their projects up and running as quickly as possible, and the importance of available buildings reflects their expedited project timetables. Our 2016 Corporate Survey will be e-mailed in November. The responses will give us an indication of our readers’ location priorities and plans for new and expanded facilities in the year ahead. If the PwC survey presages Area Development’s Corporate Survey, we can expect fewer respondents to be planning investment in new foreign facilities and more respondents investing at home.

www.areadevelopment.com EDITORIAL E-mail: editor@areadevelopment.com Editor Geraldine Gambale Staff and Contributing Editors Lisa Bastian Cynthia Kincaid James Berger Beth Mattson-Teig Dale D. Buss Phillip Perry Dave Claborn Mali R. Schantz-Feld Mark Crawford Steve Stackhouse -Kaelble Dan Emerson Karen Thuermer Clare L. Goldsberry Craig Guillot DESIGN/PRODUCTION Art & Design Patricia Zedalis Production Manager Jessica Whitebook Production Assistant Talea Gormican EXECUTIVE Publisher Dennis J. Shea dshea@areadevelopment.com Sydney Russell, Publisher 1965-1986 ADVERTISING SALES William Bakewicz (ext. 202) billbake@areadevelopment.com Valerie Krpata (ext. 218) valerie@areadevelopment.com ONLINE SERVICES Digital Media Manager Justin Shea (ext. 220) jshea@areadevelopment.com Business Development Matthew Shea (ext. 231) mshea@fastfacility.com Web Designer Carmela Emerson BUSINESS SERVICES Reader Service Barbara Olsen (ext. 225) olsen@areadevelopment.com Circulation Gertrude Staudt circ@areadevelopment.com

Editor

CONFERENCE SERVICES

2015 Editorial Advisory Board Christine Bustamante National Co-Leader, Global Location and Expansion Services, KPMG

Scott Kupperman Founder, Kupperman Location Solutions, LLC

Gregory Burkart Managing Director, Specialty Tax Practice Leader, Duff & Phelps, LLC

Dan Levine Practice Leader, Scott Redabaugh Managing Director, Location Strategies and Economic Development Jones Lang LaSalle Oxford Economics, Inc. Dick Sheehy Director, Advanced Planning & Jamie M. Lominack Real Estate Manager, Site Selection, CH2M HILL Michelin North America Eric Stavriotis Senior Vice President, Bill Luttrell Senior Locations Strategist, CBRE Werner Global Logistics, Werner Enterprises, Inc. Thomas Stringer Esq., Managing Director Michael McDermott Consulting Manager, & Practice Leader, Site Selection & Business Global Business Consulting, Incentives, BDO Consulting Cushman & Wakefield Dean J. Uminski Executive, Bradley Migdal Executive Managing Director, Site Selection Consulting, Crowe Horwath LLP Business Incentives Advisory Services, Dan White Senior Economist, Transwestern Moody’s Analytics John Morris Leader of Industrial Services for the Americas, Cushman & Wakefield, Inc.

Les Cranmer Senior Managing Director, Savills Studley Dennis Cuneo Partner, Fisher & Phillips LLP Tim Feemster Managing Principal, Foremost Quality Logistics Larry Gigerich Managing Director, Ginovus Stephen Gray CEO, Gray Construction Minah C. Hall Managing Director, True Partners Consulting LLC

Kathy Mussio Managing Partner, Atlas Insight

Program Manager Annie Gregson (212) 579-4469 annie@areadevelopment.com EXECUTIVE OFFICES Halcyon Business Publications, Inc. President Dennis J. Shea Finance Mary Paulsen finance@areadevelopment.com All correspondence to: Area Development Magazine 400 Post Avenue, Westbury, NY 11590 Phone: Toll Free: Fax:

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16/07/15 12:41 AM

INFOCUS

Co-Working Spaces: Shaping a New Generation of Emerging Urban Landscapes By Jerry Hoffman, President and CEO, Hoffman Strategy Group; and Jeff Green, President and CEO, Jeff Green Partners

A new, alternative workspace is emerging where freelancers, entrepreneurs, contract workers, and small businesses collaborate and create a business community — a space where professionals reserve a desk, room, or “hot seat” at a table without the fixed financial strings attached. It’s a cheaper office space alternative placed in an ideal downtown or urban location with added amenities, flexibility, and scalability. It offers the opportunity to be working amidst a variety of like-minded people in an environment that inspires innovation and nurtures creativity. The concept is gaining considerable traction around the country and world with nearly 1,000 co-working locations in the U.S. alone.

Jerry Hoffman, president and CEO of Hoffman Strategy Group, brings 30 years of economic and market analysis that provides insights for all pieces of mixed-use projects.

The effect these co-working environments have in shaping the surrounding urban landscape is particularly interesting. Where co-working spaces exist, a creative class is emerging — individuals who share an appetite for places, spaces, and resources that meet their unique personal and professional preferences. These communal hubs are creating an entrepreneurial “ecosystem” that is part of a milieu where the whole is greater than the sum of its parts. And those parts are a mix of local retail boutiques, pop-ups, chef-driven restaurant concepts, micro-apartments, and trendy national retailers. Creative, socially-driven and entrepreneurial-minded people that work and dwell in these urban populations value diverse and different dining options and entertainment, along with coffee shops and communal areas that support social engagement. Such urban ecosystems exist in major cities like San Francisco, Los Angeles, New York, Austin, and Dallas. Other areas booming with development of alternative working spaces include Denver’s Union Station/LoDo/RiNo area, Chicago’s West Loop and Hyde Park, and Boston’s downtown area around Prudential Center Plaza. A player that recognized the strength in developing hot office markets early on is New York-based We Work. The co-working startup has 47 locations in 16 cities and is making its way into London and Israel. And the co-working trend has even started to impact large companies such as Google, Amazon, and Twitter, which all offer their staff temporary spaces to get work done on the road. The business model is allowing companies to test a new market in a prime location relatively risk-free.

A Byproduct of the Recession Jeff Green, president and CEO of Jeff Green Partners, combines more than 30 years of retail industry experience to provide comprehensive consulting services to national retailers, developers, shopping centers, and healthcare facilities.

AREADEVELOPMENT

There’s no question that the emergence of co-working spaces was a byproduct of the recession. Recent grads found themselves without jobs, leaving them to carve paths as freelancers and entrepreneurs. Ironic as it may be that a recession was an inspiration for one of the most influential drivers of commercial real estate in successful mixed-use urban developments — the results are impactful. As revitalized urban centers continue to surface in major cities across the U.S., the upward trajectory of co-working spaces looks like it’s here to stay. It can even be considered a disruptive idea for office property owners. Also contributing to the healthy outlook for co-working spaces, the demand for freelancers is on the rise as employers seek to streamline operations and reduce overhead. About 34 percent of the U.S. workforce is comprised of freelancers. Millennials are particularly driving this shift, as they prefer greater flexibility and a project-to-project lifestyle. Employers and developers must accommodate this increasingly diverse workforce with different expectations of what work is, and where and when it should happen.

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21/08/15 3:20 AM

INtheKNOW BUSINESS LOCATION TRACKER New Advanced Casting Tech Center Opens in Indiana

CMC Biologics Opens Bothell, Washington, Manufacturing Facility

General Atomics Plans Training Facility in Grand Forks, North Dakota

A global leader in commercial manufacturing of therapeutic proteins, CMC Biologics, Inc., opened its first-in-class Bioreactor 6Pack manufacturing facility at its campus in Bothell, Wash.

General Atomics plans to establish an unmanned aerial systems training academy at the Grand Sky UAS business and technology park in Grand Forks, where the manufacturer will train UAS flight crews.

L.K. Machinery, Inc., the world's largest die cast production machinery manufacturer, and SAPP Group, a die cast tooling manufacturer, have opened a first-of-its-kind advanced casting tech center in Edinburg, Ind.

New Solar Wafer Manufacturing Facility for Upstate New York 1366 Technologies plans to build a state-of-the-art, commercial solar wafer manufacturing facility in Genesee County, which will eventually produce more than 600 million high-performance silicon wafers per year and employ 1,000 people.

L&S Machine Co. Expands to West Coast With San Jose Facility By acquiring Advanced Manufacturing, a full-service prototype and production manufacturing facility in San Jose, Calif., which specializes in the fabrication of plastic and metal parts for the semiconductor and aerospace industries, L&S Machine Co. has expanded its reach to the West Coast.

Portuguese Pharma Company Expands New Jersey Production Portugal-based Hovione, an international developer and manufacturer of active pharmaceutical ingredients and drug product intermediates, plans to expand its production facility in East Windsor, N.J.

Equinix to Open International Business Exchange Data Center in Dallas Opening later this year, Equinix’s new approximately $20 million IBX, called DA7, will support growing demand for interconnection in the Dallas/Fort Worth metropolitan area, one of Equinix’s most network-dense locations.

Eagle Bend Manufacturing to Expand in Tennessee The Tier 1 automotive parts supplier will invest $54.9 million to expand its current operations in Clinton, Anderson County, Tenn., creating 127 new jobs in the process.

Viacom Plans Miami Production Complex Viacom Inc. will open a two-stage, 88,000-square-foot, state-of-the-art production facility in Miami that will serve as a production hub for Viacom’s global entertainment brands including Nickelodeon, MTV, and Comedy Central.

Demand for Data Centers Increases in North America Global companies are increasingly moving their data to the cloud. With that, several North American data center markets have emerged as hotspots, according to JLL’s annual Data Center Outlook. Affordable utility rates, tax incentives, and expanded service offerings are leading companies to look at locating their data centers in Northern Virginia, Reno, and Dallas, says the JLL report. “For every penny a data center provider can save in kilowatt hours (kwH), there is the potential to save millions in operations,” notes Jon Meisel, East Region lead for JLL’s Data Center Solutions. “So our clients have to be very strategic with their footprints. It’s still about locating near infrastructure-robust metropolitan areas like New York and New Jersey, which remain the most important target markets for these providers. But it’s also about finding ways to be efficient with their locations. If that means placing some part of their Track business relocations and expansions on Area Development Online.

Studies/Research/Papers on Area Development Online.

We track announcements of all significant investment and job-creation projects throughout the United States and Canada at www.AreaDevelopment.com/NewsItems.

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footprint in regions with more flexible utility costs, incentives packages, or lower taxes, providers will expand into those areas.” In addition to the three markets noted above, the healthcare sector is driving data center growth in Minneapolis; and capital investment by Toronto Hydro to improve the city’s aging infrastructure in the financial core is drawing interest from third-party data center space in that city. The JLL report examines 17 markets overall. There’s also been a shift to colocation as small providers combine with larger ones to seek capital. “Colocation is the choice for more enterprise businesses that had previously built, owned, and operated their own facilities due to the upfront capital expenditure associated with building, maintaining, and updating the equipment to stay current with new technology efficiencies,” says Mark Bauer, West Region lead for JLL’s Data Center Solutions.

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We cull insightful corporate real estate-focused studies, research, and papers from credible industry sources at www.AreaDevelopment.com/Studies. 800-735-2732, EXT. 225, OR VISIT US ONLINE AT www.areadevelopment.com

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08/10/15 7:29 PM

FIRSTPERSON NIGEL DESSAU

CMO

STRATUS TECHNOLOGIES

Recently there has been some discussion over robots and technology automating significant numbers of jobs in the future. But you don’t agree. Why? Dessau: There have been some alarmist studies that say nearly half the jobs in America could be done by robots. But my focus has always been on what you need to do to build a career in the 21st century. If you go about that the right way, you will avoid getting yourself into a career that could be done by a machine. People who are successful in the 21st century need two sets of skills: communication skills and problem-solving skills. Robots don’t do either one of those very well. What robots do very well is something they’ve done before and they can do a million times again.

How can executives better manage their own content, become experts, and stand out? Dessau: There are many ways to expand your content knowledge, but they all require a desire to learn. The most obvious ways are talking to your people, reading more, and attending more industry or specialist events. The reality is that the best learning comes when you leave your office, or your comfort zone, and talk to your peers. Where do you see technology falling on the spectrum of leadership? Dessau: For a leader, technology is a tool; it’s never an answer. If you use it as an answer, then it becomes a crutch and can be harmful. Technology expresses emotions poorly and it’s often misinterpreted. I think technology is about enabling us to be more effective, but it doesn’t replace the skills we need. Sometimes we just have to pick up the phone or walk down the corridor and go see the person. When you use technology as a replacement for leadership skills, you become ineffective.

Can you specifically address manufacturing jobs? Dessau: The basis of manufacturing is repeatable jobs that you do multiple times. Manufacturing jobs like that have mostly gone from the U.S. But there are places that proximity to customers, quality of work, and the ability to personalize the service to the specific needs of the customer will mean manufacturing has to be more local. But what we’ve done a poor job of in this country is tailoring our manufacturing to the future of the country. You believe that the new world of work won’t require robots as much as “content.” Please explain. Dessau: Robots are very good at repetitive tasks. They are very left brain in their thinking. The jobs of the 21st century use the right brain, where it’s about context, industry knowledge, customers, and communicating with people. So as people go to build 21st century careers, they have to think about that kind of context. I hire people who say, ‘Here’s a different way of thinking about it. Here’s a different perspective.’ So the people who will be most attractive won’t be the ones who can do repetitive tasks, but those who can bring content to a conversation. They are able to place the work in context of the world around them.

AREADEVELOPMENT

In your book, Become a 21st Century Executive, you talk about executives getting known for their approach. What do you mean? Dessau: In my book we talk about the three critical foundation skills: content, approach, and network. If content is what you know, approach is how you use what you know to complete your objectives. For instance, can you solve problems, work with other people, or manage teams? How do you get work done? You might be the smartest person in the world, but if you can’t work with other people, you can’t lead them, and you are going to be ineffective. At some point in your career, your success will be as defined by your ability to work with others as by what you know. You believe that even executives need mentors. Why? Dessau: I have never met a successful person who doesn’t have one or even multiple mentors. I think everybody needs

FOR FREE SITE INFORMATION, CALL 800-735-2732, EXT.

225, OR VISIT US ONLINE AT www.areadevelopment.com

multiple mentors. But we have confused coach and mentor. The coach is the person that runs up and down the sidelines shouting instructions, but that doesn’t really help you think. What the mentor does is train your brain to be more effective. It’s less about giving you answers and more about giving you the right questions. All of us need this. It helps us expand our brain, and it increases our diversity of thinking. How is entrepreneurial thinking affected by all of this? Dessau: Entrepreneurial skill is as essential to large companies as it is to startups. This ability to think laterally, analyze situations, and communicate is at the heart of the entrepreneur, but it’s also at the heart of a good leader in a large company. Those are two of the foundations of being a 21st century executive. Entrepreneurialism is thinking about resources you have and taking your vision and combining them to achieve success. In your book you also discuss the “paradox of leadership.” Can you explain that? Dessau: We know that a paradox is a statement that leads to

a contradiction. It defies logic, but it’s still true. Business is nothing but paradoxes. We need to move faster, but we don’t have more time. We need more money, but we don’t have more budget. We need more people, but we can’t have them. Any good leader learns to live with those paradoxes, but more importantly, manages through them. They don’t let these paradoxes get in their way. They think beyond the restrictions. They fix what they can fix, and they manage through the rest. Where people derail is they get into these paradoxes and it freezes them. Learning to understand that there will be these paradoxes and then being willing to manage through them is a really important skill for a 21st century executive to have.

THE ASSIGNMENT

One of Area Development’s staff editors recently interviewed Nigel Dessau, author of Become a 21st Century Executive: Breaking Away From the Pack. Dessau has more than 25 years experience in marketing and sales support in both the U.S. and Europe, having previously held positions at ADCLARO, AMD, and Sun Microsystems.

When it comes to successfully expanding or relocating your business,

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09/12/13 10:10 PM AREA DEVELOPMENT | Q4/2015 11

FRONTLINE

Part-Timers (By Choice) Diversify the Workforce

here is a growing population of workers who, by choice, prefer to work part-time hours. According to a U.S. Bureau of Labor Statistics figure cited by Bloomberg, six million Americans are choosing to work part time — an increase of about 12 percent since 2007. It’s not that these workers can’t find full-time, corporate jobs; instead, they choose to have time to pursue personal interests — a flexibility that most full-time jobs do not provide. Overall, employees voluntarily working part-time are happier, more productive, and more engaged when at work. They also tend to be younger, well-educated independent thinkers. Because of these attributes, more companies are building flexibility into their own hiring practices to attract and retain these workers.

Why Hire Part-Timers? Many of these part-timers have what it takes to be selfstarters, where their independence, diligence, and creativity are valued by employers. Many are also millennials, who are tech-savvy and career-oriented, but can be more challenging to recruit because of their desire for independence. For example, a recent study by Accenture revealed that only 15 percent of 2015 college graduates want to work for a large corporation. According to Joshua Kim, director of Digital Learning Initiatives at Dartmouth’s Center for the Advancement of Learning, there are several key reasons why “part-timers by choice” are valuable to an organization: • No slack time — They tend to spend their “work hours” actually working and can get as much done in a day as their full-time counterparts. • Project work — Part-timers excel at projects because projects are shorter term and better defined than operations work and easier to fit into their schedules.

AREADEVELOPMENT

By Mark Crawford

• Presentation of self — Because they need to demonstrate their value in the workplace, part-timers care about how they are perceived and work hard to follow through. • High energy — Since part-timers by choice are enriching their personal lives, they come to work with greater energy and resilience. • Digital and mobile communications — Because they are focused and dedicated, part-timers are highly effective when working remotely. “They might work part-time hours at the office, but in my experience they put in as many nights and weekend hours as everyone else,” says Kim.

No Time Like the Present Millennials enjoy their freedom and flexibility and tend to pursue their careers “on their own terms and in less conventional ways,” writes business consultant Leah Arnold-Smeets on PayScale.com. “It’s no surprise, then, that this generation seeks out professions that offer them fulfillment and the freedom to express themselves as individuals, even if it costs them that six-figure salary.” Forward-thinking companies are on the lookout for these types of employees. For example, Deloitte has created a group called Deloitte Open Talent to recruit talented, parttime workers. According to Bloomberg, over 11 percent of Deloitte’s total workforce consists of part-time workers. “In some deep sense, the people I know who have chosen to work part-time are very wise,” adds Kim. “They have chosen perhaps to trade-off some income for time, in search of balance. They are making choices based on what is best for them and their families, not their employer, and this makes them better and more internally motivated workers. Part-timers are a necessary and important part of a diverse team. We are lucky to work with them.”

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CUSTOM TRAINING FACILITY State-of-the-art workforce training facility through a partnership with Bossier Parish Community College PRO-BUSINESS CLIMATE Lowest business taxes for new and expanding manufacturing operations in the U.S., according to the Tax Foundation and KPMG LED FASTSTART® Customized workforce recruitment and hands-on simulation training in company operations STRATEGIC LOCATION Ideal location at The Port of Caddo-Bossier plus state investments in site infrastructure and equipment improvements ROBUST INCENTIVES Tailored incentive package to meet speciﬁc project needs

“Louisiana’s custom-fit solutions are enabling us to identify and train a highly qualified staff to meet our specific technology requirements.” CORNÉ BUIJS | BENTELER STEEL/TUBE CEO & PRESIDENT

Benteler Steel/Tube, a division of Benteler Group specializing in manufacturing and processing of seamless steel tubes, utilized Louisiana’s custom-ﬁt solutions to establish its 675-job hot-rolling tube mill in the U.S. What can Louisiana do for your business? Find out at OpportunityLouisiana.com.

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08/10/15 7:27 PM

FRONTLINE

Walmart’s “Made in USA” Program Encourages Reshoring

rnold Kamler, CEO of Kent International, Inc., has a strategic plan. This year the Parsippany, N.J.-headquartered global supplier of bikes and accessories is assembling 175,000 bikes in the United States. Next year the goal is 300,000, and by 2017, 500,000 assembled. Kent International opened its first U.S. bike assembly facility in 2014 in Manning, S.C. Prior to that, it assembled all of its products in China. While the company still maintains a manufacturing facility near Shanghai, efforts by Walmart’s “Made in USA” program made Kamler consider moving a plant to the United States. “The buyer back then called me and asked if I would like to meet governors of some states,” Kamler recalls. “He arranged a meeting with South Carolina Governor Nikki Haley and her staff.” In January 2013, Walmart introduced its “Made in USA” program to encourage U.S. suppliers to manufacture goods on home soil. In return, Walmart is committed to purchasing an additional $250 billion in American-made goods by 2023. “According to data from our suppliers, items that are made, assembled, sourced, or grown here already account for about two thirds of what we spend to buy products at Walmart U.S.,” reveals Scott Markley, Walmart spokesperson. “We have over 1,300 categories of products, and we’re evaluating each and every one of them.”

Reshoring Initiative This year Walmart partnered with the Reshoring Initiative to help companies manufacture more consumer products in the U.S. The mission of the Reshoring Initiative is to bring good, well-paying manufacturing jobs back to the United States by assisting companies to more accurately assess their total cost of offshoring, and shift collective thinking from “offshoring is

AREADEVELOPMENT

Kent International, Inc., a global supplier of bikes and accessories, opened its first U.S. bike assembly facility in South Carolina in 2014.

By Karen E. Thuermer

cheaper” to “local reduces the total cost of ownership.” Harry Moser, founder and president of the Reshoring Initiative, estimates that Walmart’s increased purchases will add 300,000 U.S. manufacturing jobs. According to Moser, “About 60 percent of companies ignore the 15 to 30 percent of the cost of offshoring, [and these costs] are rising rapidly.” “When Walmart committed to buy an additional $250 billion over 10 years in products that support American jobs, we knew we could also play an important role as facilitator and accelerator,” says Cindi Marsiglio, vice president of U.S. manufacturing at Walmart. “We created Walmart-Jump.com to help companies find resources on manufacturing in the U.S. The Reshoring Initiative’s support page is a great addition to that resource library.” The support page links to the Reshoring Initiative’s Resources for Retail Suppliers page. “The site is designed to help retail suppliers decide to reshore and then implement successfully,” comments Moser. “Thirty-five listed manufacturing trade associations, companies, and U.S. Commerce Department offices have provided contacts to help companies reshore or do foreign direct investment.” Currently, Walmart has active initiatives on certain products in categories including light bulbs, tires, bicycles, home textiles, toys, pets, cookware, and many more. “Some categories and certain products are more ready to be reshored,” remarks Markley. “They share similar characteristics, including accessible raw materials, highly automated production, and high transportation costs, and are impacted by seasons or trends.” Walmart has already seen some success in its reshoring efforts with companies such as Kent International. “Overseas labor costs are rising while energy costs in the U.S. are low,” says Markley. “It just makes sense to build things closer to the point of consumption.”

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WHAT HAPPENS WHEN

LUXURY location meets

Port Huron welcomes Eissmann Group’s new North American headquarters. A leading German automotive manufacturer of high-end interior components, the Eissmann Group sought to expand by establishing a North American headquarters. After considering multiple states, the company chose Port Huron, MI, thanks in part to an $850,000 Michigan Business Development Grant. That’s in addition to the $13.5 million the company plans to invest, which will create over 200 new jobs. “Ultimately, Michigan’s location and availability of workforce drove the site decision,” said Brian Tinney, President of Eissmann Automotive North America, Inc. Proof yet again that nothing drives business like Pure Michigan.

1.888.565.0052 michiganbusiness.org/AD

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ECONOMY/MARKET REPORT

Advanced Manufacturing Changing the Economic Landscape Across the country, states and localities are working with manufacturers to create and grow outposts for advanced manufacturing. By Dale Buss

Alabama’s Robotics Technology Park in Tanner hosts about 75 employees each month sent for training by manufacturing companies with investment in the state..

f American manufacturing is going to reassert worldwide leadership, the move will be based on bits and pixels. “Advanced” equipment, robotics, 3-D printing, cutting-edge processes, and other manifestations of digital technology are going to lead the way — if anything is — to a renaissance of U.S. manufacturing after a half-century of slippage, as domestic fabricators synergize the sort of determinative global edge their U.S.-based counterparts in the software industry enjoy in their own realm. Many top U.S. manufacturers already recognize this reality, of course, and have pushed the nation far down the road toward that goal. The federal government also has recently hopped on board with some initiatives to give various types of digital and other advanced manufacturing very real boosts. And with the ever-intensifying interstate derby to land capital investments and jobs in advanced manufacturing, new regions are coming to the fore to join traditional industrial capitals to nurture this unique American advantage. “Digital is how the United States wins in manufacturing,” says William King, chief technology officer of the Digital Manufacturing and Design Innovation Institute, a new research center on Goose Island in the Chicago River. It was launched in 2014 with $70 million

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in funding from the federal government and $250 million in commitments from many of the icons of U.S. manufacturing, including General Electric, John Deere, Procter & Gamble, Caterpillar, Lockheed Martin, and Boeing. “The whole world looks to the U.S. for digital innovation, [and] digital is a really good fit for the American way of doing things, for our business and culture and education system,” King says. “And as manufacturing becomes much more of an information industry, we’re really poised to win because of the things that have helped America to win at digital in other industries.”

Midwest Rides the Digital Wave Already, for example, the Chicago institute is attracting interest not just from its supporting behemoths but also from small and medium-sized manufacturers that also must ride the digital wave for American manufacturing overall to dominate the era. One of them is AskPower, an Aurora, Ill.-based maker of terminal lugs, electrical splices, and other fasteners and connectors for the telecom, automotive, and other sectors. CEO Steve Kase wants the institute’s guidance in bolstering AskPower’s digital chops in both product development and in process improvement for designing, costing, manufacturing, and replicating its components — and in making sure that at every step along the way, the company is completely integrated as possible with customers’ FOR FREE SITE INFORMATION, CALL

digital environments. “Buttressing suppliers like us is totally critical” to the success of digital manufacturing overall, Kase explains, “because it’s one thing to have the front end of the supply chain — the major manufacturers like General Electric — ‘geeked up’ for digital manufacturing, but what if there are no suppliers to play with them?” Besides the digital-manufacturing institute in Chicago, under its fouryear-old effort the federal government also has set up manufacturing innovation hubs in Youngstown, Ohio, to advance 3-D or “adaptive” printing; in metro Detroit, to develop lightweight materials and technology; and at North Carolina State University in Centennial, N.C., to devise smaller, faster, and more efficient power electronics. Others are planned as well. Interestingly, the Obama administration’s push to seed various outposts across the country with responsibility and funding to develop specific aspects of advanced manufacturing has coincided with the flourishing of existing and new hot spots that are being created and nurtured by state and local governments, industries, and specific big companies. “There has been a groundswell of support for advanced-manufacturing initiatives,” says Larry Gigerich, managing director of Ginovus, a site-selection consulting firm based in Indianapolis. “There’s a lot of activity in the Midwest, but there are things going on

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from coast to coast with different applications. Geographic clustering will emerge more over time.”

The Southeast: A Formidable Hub Already, however, in addition to the industrial Midwest with its depth and diversity of manufacturing from steel to farm equipment to autos to machine tools, the Southeast is emerging as a formidable regional complement in various aspects of advanced manufacturing. Much of this is based on the growth of automotive and aerospace fabrication there, and it has been accelerated by the savvy of state and local governments and universities. For instance, Airbus in September opened its first civilian aircraft factory in the United States, in Mobile, Ala., a $600 million facility situated on 116 acres on an old Air Force base where the Europe-based manufacturing consortium — Boeing’s biggest global competitor — has begun assembling its latest, most fuel-efficient airplanes. The city and state dangled generous tax breaks and other financial incentives to attract Airbus — and the prospect of up to 4,000 jobs with the company and suppliers over the next several years — to the city of about 200,000 people, where unemployment has continued to hover at about 8 percent. Meanwhile, about 200 miles to the north of Mobile, in Tuscaloosa, Ala., Mercedes-Benz recently announced a $1.3 billion, 300-job expansion of it auto-assembly plant, representing one of the single largest investments for the German automaker at the site. Mercedes-Benz will install new robots and other advanced equipment by the middle of 2017 in order to support assembly of the brand’s next generation of sport-utility vehicles for the U.S. and worldwide markets. Expansion in Alabama by both auto and jet assemblers and their many suppliers has been given a big boost over the last few years by the Alabama Robotics Technology Park in Tanner, Ala. It hosts about 75 employees each month sent for training by companies with manufacturing investments in the state, which also include Honda, Toyota, and Navistar. The trainees attend classes on safety, maintenance, welding, or operating robots and programmable controllers. The park has been open for nearly five years and doesn’t charge for the training. Once the third phase of the facility, where ground was broken in late 2014, is complete, Alabama will have invested more than $73 million overall. “It’s such a huge success,” Gigerich notes. “Companies can use this facility to train their senior employees, who can then go back to train other people on the front line. And of course robotics manufacturers like it because they can showcase their equipment there. It’s become a real center of excellence.”

Coast-to-Coast Examples All over the country, venerable industrial companies also are coming up with new techniques and products that assure a brighter future for them as the new era of manufacturing progresses. For example, Alcoa developed an advanced new aluminum manufacturing technique it calls Micromill and then figured out how to leverage it into a huge role as a principal supplier for Ford’s groundbreaking, aluminum-based F-150 pickup trucks.

Micromill is a new casting technology that allows for alloys to be digitally shaped more easily than traditional aluminum, making it a prime candidate for complex parts such as fenders and door-panel interiors in cars. Micromill technology, announced in 2014, produces an alloy that is 40 percent more formable than today’s automotive aluminum, allowing for the use of a thinner, lighter aluminum sheet without compromising dent resistance. And Micromill can turn molten metal into aluminum coil in just 20 minutes versus 20 days using traditional methods. In Louisville, Ky., United Parcel Service recently rolled out 100 industrial-grade 3-D printers at its logistics hub there, in an experiment to make everything from iPhone components to airplane parts. The company’s 3-D project is run by an Atlanta startup in which UPS has invested, wanting to find out if 3-D printing centers could shorten supply chains and cut into its $58 billion annual transportation business — or give it a leg up in a potentially emerging market for local production and delivery. In Detroit, Rush Manufacturing, a major supplier of parts and logistics to the auto industry, is using highly advanced ultrasonic welding in the manufacture of plastic components that go into instrument modules for cars that it makes with global partner Faurecia, employing about 500 people in inner-city Detroit in the process. In Macomb County, Mich., in suburban Detroit, Macomb Community College is leveraging financial support from Goldman Sachs and JPMorgan Chase to forge a new role for institutions like itself: boosting the local manufacturing base in a much more tightly integrated way. Macomb is fostering development of software and big-data applications for a range of industrial IT needs, including automotive “infotainment” and connectivity, as well as coming up with innovations for big area defense contractors such as tank manufacturer General Dynamics. In Berea, Ohio, a 76-year-old family-owned fastener manufacturer, Standby Screw, can keep up with making about 1,100 different parts for cars, appliances, and other products only by operating a pair of dual-armed collaborative robots that are so versatile they can do everything from pack boxes to run milling machines with only occasional supervision. With their help, the company ships out about two million pieces every week. In Kansas City, Mo., Hostess Brands has come back from bankruptcy in part by streamlining production by upgrading the equipment at its pared-down number of bakeries with robots that pack Twinkies into boxes. In Fargo, N.D., John Deere Electronic Solutions recently opened a $22 million addition to its plant that will use advanced techniques perfected by its parent company to manufacture power electronics components and systems designed to perform in rugged and extreme environments in agriculture, construction, and forestry. And there are hundreds of other examples of how states and localities are working with manufacturers to create and grow outposts for advanced manufacturing. In letting a thousand such ideas and applications attempt to take on vitality, America is placing lots of bets on grabbing hold of the digital future of manufacturing. ■ AREA DEVELOPMENT | Q4/2015

FINANCE/LOCATION ANALYSIS

Companies Diversify Shallow Economies While Building New Markets The New Markets Tax Credit program has helped companies to establish and expand their businesses, while bolstering the distressed economies of their chosen locations. By Charlie Spies, CEO, CEI, Capital Management LLC

iven the economic difficulties now facing rural communities that once relied on, and even thrived in, a natural resource-driven industry, one might expect that worldclass innovation could only be found in Silicon Valley and other diverse, urban settings today. When shallow economies lose their core economic base they face a variety of consequences that erode the community — outmigration, in particular, as workers, especially youth, move away to seek better prospects and leave an aging population behind. But there is good news on the horizon. Forward-thinking companies are reinventing rural communities through public-private partnerships that are attracting new investment capital to support new enterprises and diversify their economies. Not only are they building job-creating enterprises, their success is rippling to the broader community.

Attracting New Business Take for instance the rebuilding under way in Barnwell County, South Carolina. In 2009, the community was reeling from the closing of the local textile plant that had been a signature employer in the region for more than 50 years. Then the closure of the Hanesbrands and Allied Air Enterprises plants followed. All told, more than 700 jobs were lost in a county with just 22,000 residents. The poverty rate soared to 20.7

AREADEVELOPMENT

Horsehead Corp.’s facility in Barnwell County, S.C., which recycles EAF dust, was brought to fruition through $10 million+ from the New Markets Tax Credit program.

percent, and the area was designated as an Economic Impact Zone by the state. Local economic development agencies worked around the clock — and around the country — to attract new businesses to the area. They found success with Pittsburgh-based Horsehead Corporation, a leading U.S. producer of specialty zinc and zinc-based products, and among the world’s leaders in zinc recycling. The timing was right. Horsehead was working on a way to expand its capacity for a new economy and continue to enhance its position in sustainable development. It wanted to construct a facility that would recycle FOR FREE SITE INFORMATION, CALL

Electric Arc Furnace (EAF) dust — a byproduct of the steel mini-mill industry — into a safe and useful material. EAF dust is classified by the EPA as a hazardous waste due to its concentration of heavy metals. But through its recycling process, Horsehead is able to transform that waste into products that can be used in brass manufacturing, battery production, and corrosionresistant coatings. As the company sought a site for its EAF dust-recycling operations, it found the right elements in Snelling, in the heart of Barnwell County. The South Carolina Department of Commerce, the Barnwell County Economic Develop-

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ment Commission, the Southern Carolina Regional Development Alliance, the town of Snelling, and other agencies worked together to construct an economic development package, which relied on more than $10 million in New Markets Tax Credit capacity to bring the project to fruition. Indeed, this project met the New Markets program criteria set by Congress for attracting capital to economically distressed census tracts. And it has succeeded in revitalizing the community. During 2014, Horsehead recycled 132,000 tons of EAF dust at that facility, which otherwise would have ended up in landfills. The operation supports 61 full-time positions with an average annual wage that well exceeds the county per capita level by 62 percent.

“

Bolstering a Distressed Economy

As officials of

economically

distressed cities and counties

seek investment

Another company that employed a similar to diversify strategy to reinvent its business in the heart of a distressed rural economy is Associated Hardtheir woods Inc., a full-service wholesale lumber company headquartered in Cherokee County, communities, South Carolina. With nationwide closures of sawmills straining the availability of raw materials, Associated Hardwoods took the initiative many are to open its own sawmill in its backyard, where natural resources are abundant. The company finding that built a state-of-the-art mill that utilizes nearly 100 percent of the raw materials that are public-private processed. The mill’s energy-efficient technologies and unique low-waste production process allow the company to substantially partnerships reduce energy costs and maximize the lumber recovery out of every log. with companies Because the facility employs 17 fulltime workers in a census tract where one seeking to make third of the population lives under the poverty rate and the unemployment rate is nearly double the national avera social impact, age, the project qualified for financing through the federal New Markets Tax and the availability Credit program. The average annual wage for employees at Associated of New Markets Hardwoods’ new mill is 60 percent higher than the county living wage and includes overtime, medical financing, are insurance, paid vacation and holidays, and training opportunities. attracting needed But the project’s benefits reach far beyond Cherokee County. The capital. sawmill supplies more than 20 percent of the raw materials for Associated Hardwoods’ operations in Granite Falls, significantly mitigating supply-chain risk to the parent company and

helping it better serve its customers. Furthermore, the new mill provides a prime location for local loggers to bring their loads, reducing transportation costs, and maintenance supplies and services are being supplied by many local businesses.

Creative Financing The New Markets Tax Credit program works across industry categories and geographies. It’s proven to be a creative financing solution for a Greek yogurt manufacturer that sought start-up financing in 2011 in order to establish a plant in rural Vermont. At that time, lending options were scarce as the nation’s economy was struggling to find its footing. Undeterred, the founders of Ehrmann Commonwealth Dairy recognized that the economic benefits of Greek yogurt production would extend well beyond the plant walls and ripple through the rural, economically challenged community in southern Vermont. The promise of economic recovery in the region, coupled with the inability to secure financing from traditional sources, made this an ideal New Markets project. When getting started, the founders had meaningful yet modest goals for their new enterprise. The initial objective was to create 40 jobs in five years. Fast-forward to today and Commonwealth Dairy has overachieved those early projections exponentially. In four years they’ve topped $100 million in revenue and now oversee a second factory in Arizona. The dairy counts 125 direct employees in Vermont and another 125 people working at the new facility. That’s not all. As with the other New Markets projects, the benefits are felt throughout the value chain. Now a cooperative of regional dairy farmers has a regular customer keeping its members employed, along with supporting veterinary, logistics, and farm support businesses. One more thing: With the dairy’s “triple bottom line” business, they donate 5 percent of sales to local nonprofits and last year wrote a check for $360,000 to the Vermont Farm and Forest Viability Program.

In Sum As officials of economically distressed cities and counties seek investment to diversify their communities, many are finding that public-private partnerships with companies seeking to make a social impact, and the availability of New Markets financing, are attracting needed capital. Horsehead Corporation, Associated Hardwoods, and Ehrmann Commonwealth Dairy credit county and city officials for their cooperation and role in facilitating their efforts. The communities these companies call home also benefit significantly from their success, as the ripple effect is felt both locally and beyond — to the customers in their backyard, across the country, and around the world. ■ AREA DEVELOPMENT | Q4/2015

SITE SELECTION

The Next Generation of Live, Work, Play Thinking “outside the box,” how can rural America outcompete big cities for top talent? Be cool and be unique. By Charles L. Ruby, Director, Deloitte Tax LLP

imes are changing — and at a much faster pace than ever have before. Since the invention of air conditioning in 1902 in Buffalo, N.Y., by Cornell graduate Willis Carrier (allowing us to live almost anywhere) to the invention of the smartphone in 1994 (allowing us to work almost everywhere), where we work and when we work have been in flux. As technological advances continue to modify and form how we work, a sea change in U.S. demographics is also pushing for and even demanding changes to the traditional work model. Millennials (ages 18 to 34) are becoming the dominant generation, and through sheer force of numbers are bringing with them new ways to work, live, and play. Continuing technological advances and our transforming demographics will continue to bring about significant changes over the next decade in how we define an employee and how we represent a workweek. For those companies that aren’t nimble enough to follow the pack or brave enough to be out in front, these changes will have a significant and profound impact. It’s truly a global “game-changer,” approaching us not at the speed of a

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comet, but at the speed of light — and with all the sights and sounds of the ever-changing digital world.

A Major Shift The year 2015 has already been an historic one. In March, for the first time in history, U.S. citizens spent more money at restaurants and bars than at grocery stores (excluding big-box retailers).1 This Commerce Department statistic speaks volumes as to the direction America is going — a service-oriented society where others, for a fee, are doing things for us, which in turn is allowing us more free time for other things that we think are important. This phenomenon represents a major shift in our economy and how we “live, work, and play.” The traditional large offices with window views have evolved to cramming our workforce into rows and rows of cubicles and then to neverending benches, and we are now moving to “just-in-time” spaces within a vibrant urban community that blends the shades of work and play. Enjoying what you do and how, when, and where you do it is resulting in higher retention rates and attracting some of the best and brightest to work for a forward-thinking company over one tied to the status quo. Today’s workforce and its desire to be engaged and challenged are driving businesses into areas previously unknown or not considered viable. We in the commercial real estate world have in some respects encoun-

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that make life easier and save us valuable time and energy tered half-truths for years. We’ve been told real estate is will be motivating factors for where people live and work. all about “location, location, location.” I will say that this is still true for the retail industry and residential property. We may want to live in one neighborhood over another, or Change Is Upon Us, Ready or Not! have our children go to one school over another. And traAmerica is also undergoing a truly spectacular evolution ditional brick-and-mortar retailers may choose one corner in how and when we work. Our millennials (ages 18–34), over another, but those three “Ls” mean less and less when who are making up a greater percentage of our workforce, it comes to office and industrial site selection. I tell my are bringing fresh ideas to the workplace and pushing clients it is not the three “Ls” that drive corporate relocachange more than any generation before them. Millennials, tions and expansions, it’s the four “Ts”: talent, technology, also known as Generation Y, are questioning the very fabric transportation, and taxes. Companies can make almost any of “live, work, play.” According to the U.S. Census Bureau, parcel of land work (excluding environmental inadequathis year millennials outpaced baby-boomers (ages 51–69) as cies) if these four critical pillars are fully understood and a percentage of the U.S. population.2 adequately addressed. Some of the millennials’ most notable traits include ap1. Talent: For years availability of labor has been driving not proaching a career as a series of individual challenges and only the site selection process but also the success of companies worldwide. Today we are starting to see companyspecific curriculum being addressed at the Associate and Bachelor degree ENABLED THE programs, including co-ops and internships, to provide for a steady flow of highly trained candidates for corporate America. Collaborative approaches SYNTHETIC ORGAN between government, colleges and universities, career technology centers, and companies have made major strides with POSS® technology and are still evolving. 2. Technology: Technology and the resources upon when it depends drive businesses forward. From traditional Headquartered in Laurel, Mississippi utilities such as electric, water, and sewer to high-speed broadband access, all provide a base upon which the “cooler” technologies (known today, and under development for tomorrow) can flourish. 3. Transportation: Airports, roadway and rail infrastructure, and access to each other keep businesses and people connected. 4. Taxes: I use this final category to cover the overall cost of doing business and the business-friendliness of the community, county, and state. A location with high taxes, inferior transportation, outdated technology, and little available talent stands no chance in making a site selector’s short list — even if it’s the prettiest place on earth! There is also an underlying belief that “quality of life” is more and more of a driver than it was just a couple of Mississippi is a prime location for today’s advanced manufacturing years ago. This quality-of-life quotient companies. The state offers key advantages, including the thirdwill continue to rise on the critical list lowest union membership rate in the nation, a top 5 ranking for of business drivers for all levels of speed of permitting and a top 5 ranking for overall cost of doing corporate professionals (from the most business. Visit mississippi.org/manufacturing. experienced CEO to the entry-level intern). Also, the availability of services

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life as a series of shared experiences. Their neighborhood and circle of friends don’t necessarily include the people with whom they are living in close proximity, but may include people from all across the world who share similar interests and goals, and connect frequently through social media. Technology allows all this to happen, and when technology is leveraged appropriately, it often results in efficiencies, freeing up time for a bit more play. Also, as a society, we are more transient than we’ve been in a while. This is not just transient in a geographical sense, but in a lifestyle sense. More and more, we choose to lease a car vs. buying, and to rent an apartment vs. owning a house. Millennials are moving quickly and efficiently as the globalized and tech-savvy country becomes their playground at large. Often, in larger cities, millennials will trade in their cars and the associated expenses inclusive of monthly payments, repairs, insurance, and gas, for public transportation and a bit more cash in their pockets. It is this “millennial-driven evolution” that got us looking directly at how smaller communities could compete with the pull of big cities for top local/national talent.

A Case Study: Urban Living in Rural America So using the four “Ts” approach, a working group3 was assembled to look at MidAmerica Industrial Park. The industrial park, centrally located in the Midwestern United States, consists of 9,000 acres 40 miles east of Tulsa, Oklahoma. The challenge was simple: how does one make an industrial park “cool” and how can it compete for jobs from coast to coast (San Francisco to New York City)? And the answer seems to be, use what increases the uniqueness of the space and the appeal to a workforce and add in all the services, technology, and conveniences anyone could wish for. Who knew that hiking and the great outdoors would have an even more profound and ever-increasing allure and thus ascend to an even higher level of “cool,” or that we would all be texting and not talking on the phone? In the case of Pryor, Oklahoma, “cool” is the proximity to Tulsa, the cultural and arts center of the state, and to Grand Lake, home of worldclass bass fishing and outdoor experiences, coupled with several Fortune 500 giants already calling the park home.

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“

Putting aside utilities and infrastructure for the moment, I see quality of life and availability of talent as being the two biggest drivers for success, and the first rural communities to the finish line with a solution that meets both will be the leaders of tomorrow and will re-write history and how we all live, work and play. — Tom Gray, Grand River Dam Authority

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The planned urban development within a rural community setting would include new construction vs. renovating and updating older structures. This route avoids environmental issues and cost overruns often associated with building re-use (asbestos abatement, lead paint contamination, structural inadequacies, etc.). In addition, somewhat like a combination of a gated community and a college campus, public safety is closely monitored and enforced. The thought is to have the best of both worlds (an urban edge, yet a country feel) and, finally, a place close to nature and very pet-friendly where one can enjoy the outdoors and all that includes (walking, running, biking, etc.). Thus, urban living in rural America, like the park outlined, would include the following: • Residential — Technology-rich, openconcept rentals with concierge services and community-only space • Services — retail, business and consumer services, and dining establishments • Entertainment — an independently operated attraction • Conveniences — shuttle service and communal bicycles • Green space — appropriate for outdoor activities and central gatherings It is envisioned that not unlike the synergies one gets from a business incubator, this residential/retail complex’s communal space will serve as the impetus for fluid communication and real-time results, streamlining a successful path forward for both employer and employee. As the prototype continues to evolve, this could truly be a global game-changer for “cool and unique” and a bold move forward. We have all heard the expression, “If you build it, they will come.” For years we have seen young, talented individuals leave rural and suburban communities for larger cities. Part of that quest is for new and challenging experiences and for the excitement big-city living has to offer. But just as important is the search for employment and the ability to connect premier positions with top-level talent. The real question is, “If you build it, will they stay?” In my opinion, jobs (availability and talent pool) and the ex-

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istence and attraction of employers are very important, if not essential. And if talent is given an opportunity to stay near home and is provided the state-of-the-art amenities and services that urban living has to offer, many will choose to combine a career with the comforts of home. With technology today, all we know is that tomorrow will be vastly different.

Making a Bold Move

les

Now that we have a handle on what the millennials want, we can begin to forecast what the forward-looking C-suite executive needs. Solving that riddle has and continues to be one of the central factors in both short- and long-term corporate success. And with millennials outnumbering babyboomers in the workforce, the time for a bold move is now. The C-suite executives — the ultimate decision-makers as to where the jobs are and what those millennials will do — are also looking for something “cool and unique” — both for themselves (today and into retirement) and for their children and grandchildren. And don’t forget, today’s millennial will be tomorrow’s CEO, if he/she isn’t already. The future will present us with increased choices combined with increased demands on our time. We will likely be a more service-driven society than we have ever been. Job opportunities, for those who are nimble and technology-facing, should be available. And the companies and communities that figure out the future of our next generation of employees and catch the attention of the C-suite executives will lead us forward. Trying to find the right mix of “play, live, and work” in this jumbled world will be integral to the success of employers and employees alike. We live in interesting times and the next decade will define a generation of talent and open doors that we didn’t even imagine existed. ■

Technology

drives convenience and community,

which allows for sharing of ideas

and experiences.

This article does not constitute tax, legal, or other advice from Deloitte Tax LLP, which assumes no responsibility with respect to assessing or advising the reader as to tax, legal, or other consequences arising from the reader’s particular situation. Notes: 1 “Estimated Monthly Sales for Retail and Food Services, by Kind of Business,” Table 1, Page 2. In Advance Monthly Sales for Retail and Food Services – March 2015, U.S. Department of Commerce: U.S. Census Bureau News. 2 “Millennials Outnumber Baby Boomers and Are Far More Diverse, Census Bureau Reports,” U.S. Census Bureau, Release Number CB15-113, June 25, 2015. 3 The working group involved Dave Stewart, Lifetime Trustee and Chief Administrative Officer of MidAmerica Industrial Park; representatives from the Grand River Dam Authority; a group of community leaders; local high school and university educators and students; and existing companies.

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INDUSTRY REPORT

Life Sciences Hub Cities Come With Big Price Tags — and Big Returns The pressure to innovate means the right locations are worth their rising rents and labor costs. By Roger Humphrey, Executive Managing Director, Life Sciences, JLL

t’s no coincidence that Boston, the hottest life sciences real estate market in the United States, is also a hotbed for higher education. The Boston area, with its 50plus colleges, eight research universities, and 82,000 skilled life sciences employees, has brain cells to spare when it comes to thinking up advanced new chemical formulas and medical devices. That’s exactly what pharmaceutical and biotech companies count on when they lease admittedly expensive Boston-area facilities with rents that are roughly twice the national average for comparable properties. In this industry — and not just in Boston — the best locations are expensive, but worth their weighty price tags in innovation results. Beyond Boston, this year’s top five life sciences markets are Raleigh-Durham, San Francisco, San Diego, and New York City, according to JLL’s fourth annual Life Sciences Outlook Report,1 which ranks the U.S.’ top life sciences clusters and analyzes global industry trends. The top five cities on the list haven’t changed much since 2014, except in order. That said, despite consistent interest in these premier markets, the playing field is anything but stagnant. To keep up with today’s fast-changing global economic trends, life sciences organizations shopping for new R&D space are taking a much

more strategic approach to site selection than simply “let’s go where we’ve always gone.” Life sciences companies are looking for new locations, to breath life into their innovation and development programs. To do so, they are using data to look at possible new sites in an unbiased manner.

Familiar Locations, New Motivations: Four Trends Influencing Site Selection Powerful forces are dominating biopharmaceutical operations and R&D location decisions today and shaping site selection priorities. Think patent

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18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0

* s s ton Area elphia urham ro DC Diego Jersey k City icago eattle A-OC enver lorida apoli apoli h t e n L F S r D n e a n C o i w a Bay hilad igh-D M S Ind Ne ew Y Min P e N Ral

Bos

*Includes Long Island and Westchester markets Source: JLL Life Sciences Outlook 2015

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cliff and the rise of generics, biologics and biosimilars, startups and M&A, globalization and talent wars.

Here are four trends emerging from this complex landscape: 1. Balancing affordable vs. profitable products — The loss of patent protection for numerous branded medications, popularly dubbed the “patent cliff,” continues to have a major impact on product development and revenue. Generic products have quickly emerged to replace such best-selling branded drugs as Lipitor® and Plavix®. The global appetite for generics is also being driven by new policies, including the Patient Protection and Affordable Care Act in the United States, and cost concerns among national health systems. Generic medicines are not only cheaper for consumers to buy, but cheaper to produce than branded drugs. In the United States, rents for generics R&D and production facilities comprise only 2.9 percent of the total production cost, in contrast to 4 percent of the total production cost for branded drugs. Real estate is partially responsible for this efficiency: generics companies don’t need large, highly customized laboratories or proximity to academic centers of research discovery. They require more office space than laboratory facilities, since their business focus is on manufacturing, commercialization, and marketing — not innovation and primary research.

AREA0483.indd 1

California dominates U.S. generics manufacturing, commanding 17.9 percent of the total domestic volume. Large population centers in Texas, New York, Pennsylvania, North Carolina, and Florida are also popular generics locations. In the face of rising demand for generics, large pharmaceutical companies are increasingly moving manufacturing to low-cost land and labor markets like China, Indonesia, and Central and Latin America. These markets also offer the opportunity to reach expanding middle-class populations with growing access to healthcare. To fill the new-product pipeline, companies large and small are racing to create, license, or acquire new, specialized products with the patent protection that helps assure profit margins. Production of “biologics,” or biological medicines, based on mammalian cells, has become a booming sector requiring very specialized, tightly controlled facilities. The “orphan drug” sector, focused on rare diseases, is also attracting new attention.

2. Rising M&A drives consolidation at the top, creates opportunity for startups — In response to the patent cliff, big companies have rapidly consolidated to achieve greater operational efficiencies. Innovation is being driven by start-ups and mid-sized companies, and investors have flocked to promising products and companies. On the ground, these smaller companies are driving most facility development and leasing transactions in premier markets,

03/10/15 5:03 PM

AREA DEVELOPMENT | Q4/2015

swooping into R&D and production space vacated by the largest companies.

Impact of the “Patent Cliff”

3. Choosing peoplefocused, modern laboratory design over outdated concepts — Traditionally, lab space has been all about focused, heads-down work. Today’s young scientists — millennials fresh out of the nation’s leading research institutions — are more productive when they have the opportunity to engage and collaborate, as well as work solo at the still-essential lab bench. Laboratory layouts are evolving to reflect this collaborative, people-focused approach while incorporating state-of-the-art equipment.

4. Investing in talent — Since high-level researchers are most likely to make high-impact discoveries, the top U.S. life sciences clusters have generally emerged around elite universities. Rising wages reflect this priority. Between 2011 and 2014, annual wages for life sciences Ph.Ds. in the United States jumped 6 percent, from an average of roughly $66,000 to just over $70,000.

By The Map: Talent, Infrastructure, and Modern Space Mark the Spot Despite the onslaught of low-cost generic products, the life sciences industry is growing in terms of company values and product sales. According to a Deloitte study,2 the net present value of the life sciences sector jumped 46 percent between 2012 and 2013. That growth continues, but not without high-priced laboratories. Consider the three top U.S. life sciences markets: Boston: Establishment has its perks. Access to elite research institutions, established R&D infrastructure, and the largest concentration of life science researchers in the world plays a huge role in Boston’s appeal. Boston-generated life sciences innovations secured 1,879 patents in 2014, which explains the market’s premium rents. Rents for laboratory space have soared to a whopping $47.40 per square foot, almost double the national average of $24.30 for laboratory space. Raleigh-Durham: Startups shake up innovation-as-usual. Ousting San Francisco for the number-two spot this year, the hot Raleigh-Durham market boasts a vibrant life sciences startup sector emerging from the region’s renowned research institutions and the local operations of global biotech companies. San Francisco: A patent parade occurs through modern lab space. Northern California’s Bay Area leads the nation in life sciences patents, with 1,972 approved just last year. Inno-

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vation-friendly laboratory space is in high demand, with a focus on flexible workspace that includes open areas for collaboration, and amenities to improve quality of life for employees. What do all of these markets have in common? Flexible, modern research facilities that attract top professionals, foster collaboration, and can accommodate cutting-edge research and production.

Feeling the Squeeze: Too Many Scientists, Too Little Elbow Room Talent, state-of-the-art laboratory space, and life sciences infrastructure are the perks of the key markets, but that doesn’t mean there’s enough room for everyone. Across the country, rising rents reflect a growing shortage of high-quality laboratory space. Average rents for laboratory space rose by only 3 percent in the last year nationally — but skyrocketed in the top-tier markets: 16.9 percent in San Francisco, 15.5 in San Diego, and 12.4 in Raleigh-Durham. Los Angeles is seeing occupancy rates around 100 percent. With capacity stretched in premier areas, companies are shifting their attention beyond the premium sites in the toptier markets. While cities without a well-established life sciences field may lack the deep and longstanding life sciences infrastructure of Boston or San Francisco, they provide access to major research institutions without the sky-high real estate costs — leaving more budget on the table for talent investment. For most companies, site selection is a balancing act. Take Cambridge, Massachusetts, vs. Bothell, Washington, for example. The Boston submarket is clearly rich with academic star power, but Bothell has access to the strong talent pool in nearby Seattle, an emerging life sciences cluster ranked tenth on JLL’s list. The price tag says it all: The going rate for lab space in Cambridge is a blistering $51.60 per square foot. In Bothell? Only $19 per square foot.

Where Will the Market Grow? While established markets are still the crowd favorite in life sciences, forward-looking site selection is more complicated than rents and vacancy trends alone. The smart companies are on the hunt for the right combination of two not-so-secret ingredients: access to talent and great space for cutting-edge research. ■ Notes 1 2

http://www.us.jll.com/united-states/en-us/services/industries/life-sciences-companies/life-sciencestrends-2015?utm_source=pr&utm_medium=press-release&utm_campaign=life-sciences-2015 http://www2.deloitte.com/content/dam/Deloitte/global/Documents/Life-Sciences-Health-Care/ gx-lshc-2015-life-sciences-report.pdf

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TOP

LOCATION FACTORS HOW TO PINPOINT YOUR NEXT LOCATION/EXPANSION DECISION

This special report examines in detail the TOP-10 LOCATION FACTORS from our Q1/2015 Corporate Survey that determine where our readers will

locate and/or expand facilities. Highway access remains a primary concern, and occupancy and construction costs also prove vital.

Factor articles written by Mark Crawford and Steve Stackhouse Kaelble

AREA DEVELOPMENT | Q4/2015

H I G H W AY A C C E S S I B I L I T Y

H I G H W AY A C C E S S AFFECTS THE BOTTOM LINE Access to a high-quality

chain and manufacturing operations.

forget the transportation expense.

Therefore, it is no surprise that highway

Transportation costs can range from

access is a top concern for companies

50 to 80 percent of supply chain costs,

that are locating or expanding their

depending on the industry and type of

facilities.

operation.”

Highways need to be multi-lane

High-speed road access is needed

highway infrastructure

roads with some limited access and

to meet the “Five Minutes to 55 MPH”

will improve a company’s

speeds of 55 mph or higher. Interstates

rule. For every minute/mile driven below

profitability.

are even better. Trucks use fuel more

55, one minute/mile of total distance

When companies undertake a site search,

efficiently when they are traveling

will not be covered by the driver in

they are evaluating three key elements:

at 60 miles an hour, compared to

a day of legal driving. Multiply that

sitting at traffic lights or in stop-and-

by the number of trucks in and out

go traffic congestion. Faster speed to

per day and the impact of reduced

market improves a company’s overall

speed becomes very noticeable. “For

profitability.

example,” says Feemster, “an extra

1. How to reduce the total cost of operation 2. How to reduce the risk of business interruption 3. How to improve speed to market for customer deliveries All three of these elements can be

“Logistics site selection cost analysis

15 minutes per truck for 400 trucks/

needs to be focused on total costs,

day (200 in and 200 out) means 100

greatly impacted by proximity to high-

not any individual cost element,” says

hours per business day. Multiply that by

quality transportation systems, especially

Tim Feemster, managing principal for

250 business days per year and 25,000

highways. Transportation costs are

Foremost Quality Logistics in Dallas,

hours of driving is lost getting in and

easier to manage with good access

Texas. “Many companies focus on

out of the operation — that is over 10

to highways, particularly for supply

incentives, tax, or labor costs and

man-years of time every year.”

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MEETING JUST-IN-TIME DELIVERY NEEDS Quick access to well-maintained, highly reliable, high-speed highway

distribution companies that must meet tight shipping schedules. Ready access to high-quality, well-

16th for the quality of its roads. “Differences in infrastructure will continue to grow in importance as we

systems — as well as their connections

maintained highways and interstates is

become even more of an economy

to intermodal sites — is critical for

critical for meeting customer shipping

where just-in-time manufacturing

meeting the growing needs for

demands, as well as deploying future

and distribution of goods are

just-in-time delivery of supply-chain

business strategies that may involve

more critical,” says Larry Gigerich,

manufacturing components and final

new markets. However, deteriorating

managing director of Ginovus, an

product deliveries. Just-in-time delivery

roads and bridges in the U.S. are a

Indianapolis-based location consulting

is preferred because it reduces inventory

major concern for companies that

firm. “States and communities that

costs — but will only be effective if

depend on trucking for shipping and

make the investments in increasing

manufacturing and shipping deadlines

receiving. According to the World

road infrastructure, and in existing

can be met. Excellent highway access

Economic Forum’s 2014–2015 Global

infrastructure, will be in better shape

is especially important for logistics and

Competitiveness Report, the U.S. ranked

for economic development.” (•)

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AREA DEVELOPMENT | Q4/2015

O C C U PA N C Y & CONSTRUCTION COSTS

O C C U PA N C Y & CONSTRUCTION COSTS ON THE RISE

These costs can also vary significantly

“In both these scenarios, high-end

from city to city, or region to region. If

construction costs can play a pivotal site

all other factors are about even between

selection role, whether in terms of higher

competing locations, then occupancy

acquisition or lease rate premiums, or

and constructions costs can be the

higher expenses associated with custom

deciding factor in selecting the final site.

fit-outs and future expansions,” says

Occupancy and construction

Historically, manufacturing

John Boyd, principal with The Boyd

costs are escalating, with

companies tend to construct their

Company, a location consulting firm in

variations among and even

own new facilities, given their

Princeton, New Jersey.

within local markets.

industry specialization and the often-

One of the biggest up-front costs

proprietary nature of their technology

LABOR AND MATERIALS COSTS UP

for any expansion or relocation

and production processes. Companies

Labor costs and material costs — both

project is occupancy and construction.

looking for offices or distribution

of which are showing modest growth

Fortunately, it is a one-time cost that

facilities focus more on finding existing

during the 2014–2015 period (under

can be amortized over a long period of

space that meets their workforce and

2 percent) — are the key drivers that

time, which lessens the financial impact.

occupancy requirements.

control construction costs, followed by contractor overhead costs. Material price

Manufacturing Construction Costs

increases in 2015 are led by gypsum

San Francisco, CA

$927,470

Holland, MI

$657,714

board prices, up some 23 percent from

Marlborough, MA

$806,538

Georgetown, KY

$652,429

last year, followed by lumber and PVC

West Kingston, RI

$764,960

Lafayette, IN

$644,592

piping (both about a 6 percent increase).

Redlands, CA

$739,507

Nashville, TN

$627,610

Labor costs are affected by higher-

Beaverton, OR

$725,194

Savannah, GA

$594,301

than-market union wage scales; more

Milwaukee, WI

$723,308

Austin, TX

$572,748

restrictive contract work rules can further

Sterling, VA

$717,326

Kannapolis, NC

$571,293

increase overall construction costs.

York, PA

$696,619

Albertville, AL

$559,002

“This is where states with right-

Plattsburgh, NY

$676,194

Catoosa, OK

$540,878

to-work legislation definitely have an

Littleton, CO

$674,873

Greer, SC

$525,411

advantage,” says Boyd. “Also, the

Source: Based on the construction of 100,000-square-foot light manufacturing space, using Boyd BizCosts® construction cost data for the third quarter of 2015 and assuming a 25-year level amortization period at 3 percent

August 2015 National Labor Relations Board decision — backed by unions —

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that blurs the lines between employer and contractor will likely have an

percent), and New York (5.1 percent). Manufacturing is one of the most

Island, South Florida, and southern California markets.”

inflationary impact on costs, especially

robust sectors for new commercial

“Note that construction costs within

for already expensive liability insurance,

construction. “This is the first year since

a metropolitan area’s submarkets — for

considering the many contractor and

we began tracking U.S. construction

example, downtown, midtown, and

sub-contractor relationships in the

activity in the 1990s that manufacturing

multiple suburban markets — can vary

construction industry.”

spending during the past year has led all

as much or more than comparisons

According to The Boyd Company,

sectors, with almost $100 billion in new

with other metro areas,” adds Boyd.

hot construction markets are registering

projects,” says Boyd. “Another growth

“New York, Chicago, San Francisco,

the highest rates of construction-cost

sector we are experiencing is retail

and Phoenix are good examples of cities

increases in 2015 — including San

construction, where demand for new

with wide variations. Seattle and St.

Francisco at 6.4 percent, Washington,

brick-and-mortar stores is rebounding,

Louis are examples with small variations

D.C. (5.9 percent), Chicago (5.3

especially in the New York City, Long

among their submarkets.” (•)

A VA I L A B L E L A N D

# 03

AVA I L A B L E LAND BECOMING SCARCER

prepared? Is it shovel-ready? Is it close

“When you talk about the availability

to critical transportation infrastructure?

of land, it really depends on the type of

What incentives are available for

project,” says Eric Stavriotis, senior vice

keeping the costs down?

president for CBRE’s Location Incentives

Available land, in a good location

practice in Chicago. “For many office

with infrastructure and incentives in

projects, such as technology companies

Market conditions are

place, can be a critical factor in deciding

or financial institutions, the availability

tight, but some states are

whether to build a new facility or not —

of land is not even on the radar because

certifying large sites as

especially when the cost of retrofitting an

they want to locate in a market with

“shovel-ready” in order to

existing building, and the move-in date,

available office space that they can lease

make sure they have an

is comparable to building a new one.

or purchase. Clients with larger projects

inventory on hand.

Another major consideration with a land

— over 150,000 square feet — start to

Available land is an important part

purchase is being sure there is enough

look at development sites and available

of any selection decision. Has it been

additional space for future expansion.

land as an option for a build-to-suit.”

AREA DEVELOPMENT | Q4/2015

NOT MUCH INVENTORY Many of the best land sites for big

channel retail strategies, land sites in most major metros have been gobbled

archeological/environmental studies. Because many of the best land sites

projects in major markets, however,

up by industrial developers in the past

in major markets are controlled by

have already been developed or

five years. As a result, corporate users

developers, “we will continue to see

acquired by developers — creating tight

continue to lease property that is already

infill re-development as the catalyst for

market conditions for land. For example,

under control of developers, as opposed

office growth in the future,” Stavriotis

Atlanta, Chicago, Los Angeles, San

to self-development or owning their

notes. “But we will also need to see the

Francisco, and Washington, D.C., have

own real estate.”

flexibility for re-zoning on the part of

very few prime land sites remaining that can be developed for office buildings.

To provide a high-quality inventory of

local government in order to support

attractive sites for building, many states

further office development and job

are investing to “certify” sites that are

growth. Given today’s current trend

larger factor in the overall decision

“shovel-ready.” This key documentation

toward re-migration into urban areas,

process. “In terms of manufacturing or

allows timely project evaluation, which

one could predict that we are nearing

distribution to major markets, land sites

helps companies make informed

the top of the development cycle in

and their readiness for development

property-acquisition decisions under

terms of the availability of land sites for

are a critical factor when examining a

short deadlines. Most certified sites

office. Creativity will be key to keep up

given market,” says Stavriotis. “Given

have already been vetted for minimum

momentum, or a counter-trend back to

the massive spike in distribution to

acreage, ownership security, zoning,

the suburbs may begin as companies face

support same-day deliveries and omni-

road and rail accessibility, utilities, and

steepening pricing in urban areas.” (•)

For industrial projects, land is a much

A VA I L A B L E BUILDINGS

Building availability has become an

Indianapolis, Indiana, “after the recent

increasingly important site selection

five-year economic downturn, most

factor for most companies looking to

companies are still waiting as long as

expand or relocate. In today’s fast-paced

they can before making a decision to

business climate, companies often face

invest capital. When they do decide to

sudden and unexpected issues that

do something, they will want to move

Locating in an existing

require a quick response. “In addition,”

forward as fast as possible after making

building will save a

says Larry Gigerich, managing director

the decision.”

company time and money.

for Ginovus, a site location firm based in

AVA I L A B L E B U I L D I N G S N E E D E D F O R EXPEDITED T I M E TA B L E S

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existing building than to build a new

quick decisions when quality facilities

community. “This will ensure that

one, especially if the existing building

are available in a location.”

an area has the required real estate

offers the internal infrastructure the

The numbers and types of quality

company needs (or can be upgraded

buildings that are available can vary from

growth and attract and retain

quickly at reasonable cost) and is

market to market. In some cases, an

companies,” says Gigerich.

close to transportation connections or

older, redeveloped industrial building can

the location the company seeks. This

be a good fit, while for other projects

are also showing interest in being inside

saves considerable time and expense

a new, custom-designed building is

the city, often downtown or in a historic

compared to constructing a new

the best option for a company. “For

part of town, where there is very little

building. Most companies, if they can

example, a market well-positioned for

space (if any) that is available for new

find an existing building that works

the logistics industry may need to have

construction. According to a 2014

for them and they can take occupancy

an inventory of larger industrial buildings

report by Smart Growth America and

quickly, will select the existing building

with higher ceiling heights, a certain

Cushman & Wakefield, more companies

instead of constructing a new facility.

number and size of truck bays, and

are setting up in walkable downtown

interstate/highway access nearby,” adds

locations to attract and retain workers,

Gigerich. “Markets focused on growing

build brand identity, and be closer to

and attracting information technology

customers and business partners.

EXISTING BUILDINGS ARE A BIG DRAW Businesses must be agile and

and buildings necessary to stimulate

An increasing number of companies

responsive to marketplace conditions

companies need flexible and expandable

and customer needs to enjoy sustainable

space to accommodate start-ups and well-

downtown location to help them better

success. The ability to expand, re-size,

established technology companies alike.”

compete for talent and resources,” says

or open a new facility on an expedited timetable is essential. “As a result, the availability of quality existing buildings

“These companies select a walkable

Geoff Anderson, president and CEO of

PLANNING FOR THE FUTURE Real estate developers, economic

Smart Growth America. “That tells us two things. First, that creating these

in a community and state is critically

development officials, local and state

kinds of places is a crucial economic

important for an area to compete for a

governmental entities, utilities, site

development strategy for cities. And

project,” says Gigerich. “A build-to-suit

selectors, and corporate users can

second, that companies which haven’t

facility often is not possible in this era

collaborate to identify and plan for

considered a walkable location may be

of tighter timetables. It is easier to make

future business needs of a region or

at risk of falling behind.” (•)

Find the Right Location for Your Next Project. FacilityLocations is a GIS map-driven, online economic development directory used to research potential locations during the business re-location or expansion process.

FacilityLocations.com AREA DEVELOPMENT | Q4/2015

A VA I L A B I L I T Y O F SKILLED LABOR

labor availability,” says consultant Scott

AVA I L A B I L I T Y O F SKILLED LABOR A LW AY S A T O P PRIORITY

The best way to deal with the

Kupperman of Kupperman Location

shortage of qualified workers is by

Solutions in Lake Forest, Illinois.

drilling down into workforce data to

Availability of skilled labor is

identify regions with the best potential

especially critical for manufacturing

to meet a company’s workforce needs.

companies. A new report by Deloitte

For example, the distance workers are

and the Manufacturing Institute — “The

willing to commute continues to play

Matching skills with

Skills Gap in U.S. Manufacturing: 2015

a critical role in evaluating a location

employer needs is critical

and Beyond” — indicates the gap is

from a labor perspective. The analysis

to the location decision.

widening. According to the report,

of commuting patterns and times can

Almost every economic developer or

nearly 3.5 million manufacturing jobs

help define the labor-shed proximity to a

site selector will say that skilled labor

will be created over the next 10 years —

particular location.

availability is one of the top factors in

yet two million of them will go unfilled. The report notes that the two

WORKFORCE DEVELOPMENT PROGRAMS

boomers retire, finding enough qualified

major factors contributing to the gap

To meet employer needs for skilled

workers will become an increasing

are baby-boomer retirements and the

workers, many states have established

challenge — a big concern for employers

need for more workers as a result of

workforce development programs that

who must fill vacated positions as

natural business growth. Other factors

help companies recruit, screen, train,

well as new ones. “This situation is

include less interest by high-school

and hire employees — typically at no

both a challenge and opportunity for

students in manufacturing careers and

cost to the company. “The programs

economic developers attempting to

a gradual decline of technical education

that are most highly rated by employers

make their regions stand out relative to

programs in public high schools.

move workers through training

any location decision. As more baby-

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AREA0479.indd 1

24/09/15 8:52 PM

programs quickly, focus on relatively

college system. For example, in 2014

few target industries, and are based

Hyundai DYMOS LLC announced plans

on stable, long-term programs and

to build a manufacturing plant in West

likely wish for a magic wand that would

initiatives that only increase in size and

Point, Georgia, creating 350 new jobs.

create skilled labor at a moment’s notice,

scale when demand and financing are

The company partnered with Quick Start

the reality is that there is little, if anything,

assured,” says Kupperman.

and West Georgia Technical College

that can be done to change the dynamics

to develop a customized training

of a workforce in a short period,”

workforce development programs

program based on company-specific

concludes Kupperman. “The opportunity

include Georgia, Alabama, South

requirements. During construction of the

lies in digging deeper into workforce

Carolina, and Louisiana. Georgia’s Quick

new facility, Quick Start designed and

data and creating awareness of programs

Start program delivers comprehensive

built a simulated conveyor system and

that exist to provide training and match

training through the state’s technical

production line at its LaGrange training

available skills with employer needs.” (•)

States with highly acclaimed

facility to start training new employees. “While many economic developers

LABOR COSTS

LABOR COSTS VA RY B Y P R O J E C T & L O C AT I O N

Labor costs are usually manufacturers’ biggest

operations, labor is by far the biggest

of manufacturing workers or other

cost, but for others, it’s further down

highly skilled employees, other

the list, and thus not as major a

factors are far more prominent.

location factor. Given that, labor cost’s

The cost of labor, of course, has

relative position on a ranking is bound

historically been a major reason for

to vary with the prevalence of different

companies to choose locations in

kinds of projects.

faraway, low-labor-cost places such

On one hand, “labor factors,

as China and Eastern Europe. It

cost factor, but the

both cost and availability, tend

makes sense, then, that “rising labor

rise of e-commerce has

to be major factors for large

costs in China and Eastern Europe

made these costs more

manufacturing projects, and quite

have contributed to the reshoring

important for distribution

frankly, we’re seeing more of

impacts on North America,” observes

centers as well.

them,” observes Dean Uminski,

Mark Sweeney, senior principal with

partner with Crowe Horwath LLP.

McCallum Sweeney Consulting,

labor? That depends significantly

On the other hand, he adds, for

referring to the return of some

on the type of facility. For some

projects that are not big employers

manufacturing operations to North

How big a factor is the cost of

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American shores. “That has certainly

demographics,” Sweeney says.

everyone else. Now, 35 percent of the

helped add to the momentum of

“We’re finding an expectation that

demand for industrial real estate is

reshoring.”

the anticipated shrinking of the labor

e-commerce-related.”

Once on these shores, of course,

market because of baby-boomers

That’s noteworthy because

there are significant labor cost

[retiring] has begun, and there is a

e-commerce distribution requires a lot

differences from one place to another.

sense that labor will slowly but surely

more labor, dramatically upping the

Uminski recently had an international

be harder to find.” That, of course,

labor cost. “If you were to put up a

client seeking a U.S. location, and

tends to drive up labor costs.

million-square-foot distribution center

because it was a project with a large

The cost of labor is increasingly on

that’s more traditional, fulfilling stores,

number of workers, “labor cost was

the radar in the distribution sector,

it would employ 100-plus people,

a big factor. It’s not just wages — it’s

where it has not always gotten as

maybe 150,” Thompson says. “But the

benefits and workers’ comp,” he says.

much attention because many massive

same million-square-foot building for

In this particular project, the varying

distribution centers don’t have that

e-commerce may employ 1,500 people,

labor costs of six different states had to

many human beings inside. Richard

with the ability to scale up to 2,500

be weighed.

H. Thompson, who leads the Global

people during peak seasons. From a

Supply Chain & Logistics Solutions

labor perspective, that’s huge.”

Observers expect to see upward wage pressure for a number of

team for JLL, says that with many of

That’s certainly a cost issue, but

reasons, including the decline in the

today’s distribution projects, “one of

also an operational consideration that

jobless rate and the movement of

the biggest drivers is the e-commerce

can really drive a location decision.

baby-boomers toward retirement.

facility. Everyone knows Amazon

“There are not many markets where

“Some of it is a natural economic

continues to grow, Walmart continues

you can just wheel in 2,500 people at a

cycle, and it’s exacerbated by

to expand its e-commerce, and so is

good rate,” Thompson concludes. (•)

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AREA DEVELOPMENT | Q4/2015

R I G H T- T O - W O R K S TAT E

# 07

R I G H T- T O - W O R K S TAT E O F T E N T H E FIRST LENS ON L O C AT I O N D E C I S I O N

Mark Sweeney, senior principal with

Indiana and its neighbor to the north,

McCallum Sweeney Consulting, sees

Michigan, which added its own right-

the same sentiment among a variety

to-work law in 2013. “The state of

of manufacturing clients. “Most prefer

Indiana and the state of Michigan can

to [locate] in a right-to-work state, and

already point to increased activity in the

some will make it a requirement.”

manufacturing sector,” Sweeney says.

Indeed, there have always been

“If you’re a right-to-work state, you get

Manufacturers often will

some companies that flat-out refuse to

more manufacturing opportunities than

not consider a state that’s

consider locations that are not in right-

if you’re not.”

non–right-to-work, but

to-work states. Location consultants

today that rules out about

often advise against drawing quite such

2015, when Gov. Scott Walker signed

half the country.

a firm line in the sand. “We try to talk

legislation making it the 25th right-

Half of U.S. states are now “right to

them out of it,” Sweeney says, for the

to-work state. The Governor then

work,” which means they have laws

simple reason that turning right-to-work

took his ideas on the road as a GOP

in place ensuring that workers are not

into a make-or-break issue can instantly

presidential hopeful, proposing to

required to join a union or pay dues or

rule out half the country.

enact federal right-to-work legislation

Wisconsin joined the list in early

fees to a union, even if there’s a union

“You can eliminate some good

operating at their workplace. It’s a hot-

locations that have a low unionization

out of right-to-work status, rather

button issue in politics, and is also on

risk,” he points out. Indeed, one of

than opt in.

the minds of executives making location

the more recently added right-to-work

decisions.

states was Indiana, but even before

to-work is not presently the law,

that law was passed in 2012, Indiana

there may be locations pleasing to

H. Thompson, who leads the Global

was not considered to be place where

companies eager for right-to-work

Supply Chain & Logistics Solutions

unionization was that big a risk.

status, observes Bob Hess, executive

That comes as no surprise to Richard

Team for JLL. “From a manufacturing

that would force states to actively opt

Even in some places where right-

managing director and head of Global

perspective, that’s the first lens on the

LAW SAID TO INCREASE

Consulting for Newmark Grubb Knight

decision. They don’t want to be in a

MANUFACTURING ACTIVITY

Frank. “Kentucky is creating right to

union environment, and that’s why most

Be that as it may, some believe

work zones,” he points out. A number

of the auto manufacturers have gone to

the change has opened the door to

of Kentucky counties have decided not

the Southeast.”

increased location consideration, both in

to wait for state action, and have passed

AREADEVELOPMENT

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local right-to-work laws of their own.

states, including Illinois.

Though some have questioned whether

In the meantime, while right-to-work

Distribution, for example, is driven so much by proximity to markets that

county-level right-to-work rules are

is a significant deal for manufacturing,

companies simply can’t afford to cross

permissible under federal labor laws, the

it’s less so with other kinds of location

half the country off the location list by

idea has already been proposed in other

decisions, Thompson points out.

insisting on right-to-work status. (•)

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AREA DEVELOPMENT | Q4/2015

PROXIMITY TO MAJOR MARKETS

regard to online shopping. “Ten years

That, says Thompson, is one reason

ago when you ordered a shirt online,

why Amazon has about five dozen

or a book, it got to you in five to seven

distribution centers, not just a handful.

days and you were pretty happy,”

They’re all over the map. To serve the

observes Richard H. Thompson, who

New York area, for example, Amazon

leads the Global Supply Chain &

has fulfillment centers not just in New

Logistics Solutions team for JLL. “Now,

York, but also four in neighboring New

you’re kind of thinking you’re going to

Jersey. There are five in California and

Today’s expectations of

get it next-day. The customer-service

seven in Texas. That kind of proximity is

next-day delivery make

requirements continue to escalate.”

now allowing Amazon to offer same-

PROXIMITY TO MAJOR MARKETS PROVIDES ACCESS TO CUSTOMERS & TA L E N T

proximity to markets

Enabling next-day delivery once

day service at reasonable rates in many

critical, but it also helps

meant locating distribution within

in recruiting workforce

reasonable proximity to an airfreight

talent.

hub, such as the major FedEx facilities

costs can boost the prominence of

Customer service is what’s behind

in Memphis or Indianapolis. But back in

proximity as a location factor, too.

the importance of proximity to major

the day, next-day customers were more

“When transportation costs soared,

markets. Proximity has, of course,

willing to pay extra for such a quick

gaining market access by locating in

always been an important location

turnaround. Now that buyers not only

close proximity was common,” says

factor, but as expectations regarding

want faster, but also cheaper, fulfillment

Mark Sweeney, senior principal with

customer service change, so does the

needs to happen with the kind of

McCallum Sweeney Consulting. Does

need for proximity.

proximity that allows next-day delivery

that make it less of an issue now that

at regular parcel rates.

oil prices have returned to Earth?

Consider customer service with

major markets. Increases in transportation

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Not necessarily. “Even with abating

to customers. Increasingly, it’s also about

lot of headquarters projects have been

transportation costs, proximity to major

being close to where employees live —

going from second-tier cities to big

markets is growing in importance.”

or want to live. Sweeney says employers

cities,” he says.

hoping to appeal to millennials are

INTERSECTION OF LOCATION FACTORS

Bob Hess, executive managing

finding that younger employees like

director and head of Global Consulting

more urban environments. “We see

for Newmark Grubb Knight Frank, has

different location factors intersect and

that a lot in our headquarters projects.

also observed a bit of a shift in thinking

influence each other. Proximity to major

They’re going to major metros from

when it comes to team-building in

markets isn’t just a matter of being close

smaller metros because of access. A

headquarters and other talent-heavy

Here’s a good example where

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environments. Technology increasingly

and more innovation doesn’t happen

better access, but not just access to the

allows remote working arrangements,

on WebEx — it happens in a room,” he

buyer, Sweeney says. “There’s a little

but some companies are wondering

says. That’s one more factor driving the

more sensitivity to access — access to

whether something important gets lost

need for proximity to major markets,

talent, access to customers, and for your

in the process. “I’m seeing more people

where the executives and creative

headquarters, access to other major

interested in a campus environment

staffers often live.

facilities.” (•)

and bringing people together. More

In any case, close proximity allows

E N E R G Y A VA I L A B I L I T Y & COSTS

ninth-place ranking takes into account

from 10.04 cents per kilowatt-hour

the importance of energy in all varieties

in the East-North-Central region to

ENERGY AVA I L A B I L I T Y & COSTS LEADING C O M PA N I E S T O RESHORE

of projects, but it tends to understate

14.92 cents in New England (not to

its influence on manufacturing, says

mention, 22.95 cents in Alaska and

Dean Uminski, partner with Crowe

Hawaii). Industrial rates, which were

Horwath LLP. “Energy is very relevant to

6.99 cents in the East-North-Central

manufacturers,” he says. “I’m surprised

region, were 11.79 cents in New

it is #9. I’ve done big projects where

England and 21.46 cents in Alaska

Competitively priced

that was probably a top-three choice.”

and Hawaii. And there are low-cost

energy is having a

A relatively recent case he cites

standouts in other regions, too,

transformative effect on

involves an international company

including the 4.49-cent industrial rate

the U.S. economy.

seeking a U.S. location. Six states were

in Washington State and the 7.90-

in the running for the project, and

cent commercial rate in Texas.

Who cares about energy costs? Everyone, of course, but it’s only likely

“three states did not fare well because

to be a major location consideration for

of their utility rates,” Uminski says.

such big energy users as manufacturing facilities and data centers.

Indeed, availability and cost varies significantly from one part of the

SPECIAL PROGRAMS AND GREEN ENERGY When wooing projects, states

Energy availability and costs have

country to another, according to the

and communities often take aim at

held relatively steady in the location

latest statistics from the U.S. Energy

these kinds of differences through

factor rankings generated by Area

Information Administration. As of

special energy programs, though

Development’s Corporate Surveys. The

June 2015, commercial rates ranged

Uminski wishes such incentives were

AREA DEVELOPMENT | Q4/2015

AVERAGE RETAIL PRICE OF ELECTRICITY (CENTS PER KILOWATT HOUR) UNITED STATES

Commercial Industrial

NEW ENGLAND

Commercial Industrial

MIDDLE ATLANTIC Commercial Industrial EAST NORTH CENTRAL Commercial Industrial MOUNTAIN Commercial Industrial PACIFIC CONTIGUOUS Commercial Industrial PACIFIC NONCONTIGUOUS Commercial Industrial

Q3 2014

Q4 2014

Q1 2015

Q2 2015

11.11 7.36

10.59 6.76

10.49 6.76

10.56 6.73

14.43 11.42

14.33 11.18

16.93 13.18

15.18 11.72

13.94 7.28

12.94 7.07

13.18 7.87

12.98 7.19

10.00 7.01

9.88 6.85

9.75 6.87

9.94 6.78

10.19 7.38

9.42 6.25

9.38 6.18

9.95 6.65

15.67 9.59

13.78 8.63

12.30 7.83

13.40 8.29

27.14 26.98

25.43 25.37

23.13 21.83

22.71 20.84

Source: www.eia.gov/electricity/data/browser

volunteered a bit more freely. “There

places where renewable energy is most

Google notes, while renewables don’t

doesn’t seem to be a lot of flexibility

readily available.

often work that way.

with some of the utility customers, and

Google, for example, has made a

The ability to secure competitively

the same kind of creativity you see in

corporate commitment to using green

priced energy has been part of the

other areas. There are things they can

power, and says it does so for more

“transformative change driving

do,” he says.

than a third of its operations now.

U.S. economic and manufacturing

But the company acknowledges the

resurgence,” observes Mark Sweeney,

the data center industry to plug into

conflict between that and other location

senior principal with McCallum Sweeney

green power. Though there are plenty

factors. Google literature on the subject

Consulting. It has helped cancel out

of examples of green data center power

notes that “the places with the best

the factors that had been encouraging

across the country, it’s not easy to obtain

renewable power potential are generally

the offshoring of manufacturing jobs in

enough power from renewable sources

not the same places where a data center

the past, he says. “This has been a key

to fully drive a data center. It’s not

can most efficiently and reliably serve its

driver in re-shoring. It’s important in the

always feasible to locate a data center in

users.” Data centers must operate 24/7,

big-picture global economy.” (•)

There are increasing demands from

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AREA0422.indd 1

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C O R P O R AT E TA X R AT E

C O R P O R AT E TA X R AT E TA K E S A BIG BITE

McCallum Sweeney Consulting. “That

deemed profitable, particularly if startup

can make a difference.”

costs are high?

Richard H. Thompson, who leads the global supply chain and logistics solutions team for JLL, adds that concern about

CHANGES IN TAX LAWS As if that weren’t complicated

the tax bite is not just a matter of a state’s

enough, the picture is made all the

The tax rate varies,

corporate income tax rate. “It could come

murkier by the never-ending changes in

depending on location

in the form of property taxes, inventory

state tax law, as varying jurisdictions try

and type of facility,

taxes, personal property taxes. These are

to make themselves more attractive to

and the tax laws are in

very different from state to state.”

expanding companies. “More states are

constant flux. The old adage suggests that taxes are

There are all kinds of project-specific

looking at the tax structure,” says Dean

variables that enter into how big that

Uminski, partner with Crowe Horwath

as certain as death, but they certainly

tax bite will be, including “how much

LLP. Some, in fact, are betting that

are not equal from one place to the

capital investment you have and how

they’ll be more attractive if they revamp

next. How much that matters depends

much inventory you’re carrying,”

the tax structure enough that at least

on what kind of facility is being planned

Thompson notes. Is it a corporate

some of their incentives and exemptions

— and the location-based variations in

headquarters? A manufacturing branch

won’t even be needed anymore.

taxation are changing all the time.

of a much bigger entity? A distribution

“State corporate tax rates vary from

In particular, Uminski says, “A lot of

center? And for that matter, even if a

states are going to single sales factor.”

0 percent to 8 or 9 percent,” observes

tax based on profits would be expected,

That refers to the way that states

Mark Sweeney, senior principal with

how soon will a brand-new location be

apportion the amount of tax a company

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SPONSORS

owes on its profits. A standard approach has been to determine what’s owed using a formula based on multiple factors, including the share of that company’s property, payroll, and sales located in a particular state. Single sales factor, on the other hand, determines the share of profits to be taxed solely on the proportion of sales that take place in that state. Under that concept, a company that sells all of its goods elsewhere, in other states or countries, would not owe any corporate income tax in its home state.

FLORIDA

Greater Fort Lauderdale Alliance Greater Fort Lauderdale offers “Life. Less Taxing” to more than 150 corporate and international regional headquarters including AutoNation, Citrix, DHL, Emerson, Microsoft, and Nipro Diagnostics through a costcompetitive business climate and no state personal income tax, combined with robust domestic and international air and seaports and exceptional quality of life. David Coddington, Vice President - Business Development Greater Fort Lauderdale Alliance 110 East Broward Blvd., Suite 1990 Fort Lauderdale, FL 33301 954-627-0123 dcoddington@gflalliance.org www.lesstaxing.com

OKLAHOMA

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NEBRASKA BURDEN HEAVIER IN THE U.S. Beyond the state tax picture, the federal tax applies uniformly across America, and it’s often seen as a bigger issue. “A lot of companies are saying the U.S. rate is so high that they’re not repatriating profits,” Sweeney says. There are moves to change tax law, but he says it’s a complicated issue, and there’s a risk

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that certain changes could inadvertently just encourage more investment overseas. What seems clear to many observers is that U.S. tax law sometimes puts the U.S. at a location disadvantage, compared to some other countries. “Our corporate income tax rate is one of the highest in the world,” says Bob Hess, executive managing director and head of Global Consulting for Newmark Grubb Knight Frank. He has seen some major investments end up elsewhere, in part because of the tax question. “It is

KENTUCKY

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impacting FDI. It’s driving away certain industries.” (•)

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Nebraska Public Power District (NPPD) Nebraska Public Power District is Nebraska’s largest electric utility, with a chartered territory including all or parts of 86 of Nebraska’s 93 counties. NPPD uses a diverse mix of generating facilities to meet customers’ needs, including nuclear, coal, natural gas, oil, wind, hydro, and diesel resources. NPPD and public power utilities work with their local, regional, and state economic development organizations to position communities and regions for economic growth, to assist with the expansion and retention of existing industry, and to attract new businesses. Rick Nelsen, CEcD, Economic Development Manager Nebraska Public Power District 1414 15th Street P.O. Box 499 Columbus, NE 68602-0499 402-563-5534; 800-282-6773 Fax: 402-563-5090 econdev@nppd.com econdev.nppd.com

NEW JERSEY

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Vital. Useful. Updated Daily. The best information on site selection and facility planning available online • Current News: Real estate & industry news, and economic indicator reports updated throughout the day • Valuable Resources: Tax and incentive information, development contacts, and insightful surveys • Latest Studies, Research,

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Providing What Others Don’t

FACILITY DESIGN

ADA 25 Years Later: It’s All About Education A lot has changed since the act was passed in 1990, with building owners and designers becoming more educated and understanding the spirit of the law. By Tom Walsh, Senior Principal, and Jerry Serbonich, Project Manager, Stantec

t’s been 25 years since the Americans With Disabilities Act (ADA) was signed into law, changing the way facilities are designed to accommodate disabled workers. The act revolutionized building design, from schools and restaurants to manufacturing facilities and office buildings. And while advances in technology and equipment have certainly helped improve accessibility since the act was passed, it is education — of building owners, of designers, of the public — that has moved the needle the most in the last quartercentury.

The Early Days of ADA When the act was passed in 1990, the focus, for the most part, was on accessibility to public spaces such as schools, stores, churches, civic buildings, and the like. But, because this was now federal legislation, the act applied to ALL types of buildings, including industrial facilities. The first reaction from most industrial building owners and designers was, “So what does this mean for us?” Designers and owners had

to quickly get up to speed on how to interpret the guidelines for the types of facilities they worked with, which have vastly different needs and challenges than do more public spaces. In those early days, the employers that took the most immediate action were those particularly concerned with being seen as considerate employers and community advocates. Those companies wanted to ensure employees, clients, and visitors alike had access and were comfortable in their facilities. But many industrial facility owners were hesitant to invest in upgrades, deciding instead to simply reassign employees with a disability to another role rather than adapt the space for them. As disabled employees and the legal community became savvier about the laws, however, that type of decision began to introduce concerns of parity and discrimination. So, owners began to make some smaller accommodations, primarily geared toward wheelchair users, such as ramps, wheelchair lifts, and wider clearances in places like bathrooms, entries, and common areas. As time passed, even those accommodations began to draw criticism as they set disabled people apart from the rest of the community. In other words, if a group was moving from one floor to another, the wheelchair-bound employee would need to go to a wheelchair lift rather than toward the stairwell with the group, therefore setting him apart. Instead, the preference began to move toward ramps or elevators directly next to the stairs so that disabled employees maintained a sense of equality with non-disabled staff.

Education and Evolution

Places like manufacturing floors have unique circumstances when it comes to ADA compliance. (Source: Stantec)

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The changes industrial facility owners have implemented to respond to ADA over time have certainly evolved as everyone — from owners and designers to disabled employees and enforcement authorities — became more educated and understanding of the spirit of the act. Owners — who once said “We don’t need to make any changes since we don’t have any disabled employees” — realized the responsibility they had to address the needs of visitors, such as an electrical inspector, as well as future employees. They also learned that the guidelines provided some 800-735-2732, EXT. 225, OR VISIT US ONLINE AT www.areadevelopment.com

practical flexibility. For instance, while the egress stairs in an industrial facility must comply with ADA, the stairwells leading to a maintenance platform may not. For smaller businesses that simply could not afford ADA upgrades, authorities were accepting of changes that provided reasonable accommodations, such as curbside delivery at a dry cleaning business. With growing attention on ADA compliance, consultants began developing ADA master plans for larger facilities and industrial campuses. These master plans assess the entire building or campus’s accessibility and recommend alterations and improvements that would address any issues. In addition, master plans prove to ADA regulatory authorities that for areas where upgrades have not yet been made, there is a plan and schedule for implementing them over time. Some companies and institutions have gone so far as to hire their own ADA specialists, whose sole job is to ensure all facilities meet ADA requirements. While this type of position is becoming more common now at universities and public entities, it’s not quite the norm for industrial companies yet. Industrial owners more often hire design consultants to manage their ADA compliance as part of the facility design. Another avenue owners and designers have negotiated since the 1990 passing of the act is the variety of guidelines that fall under ADA. Each jurisdiction can adopt the standards of its choosing, whether those are the federal, state, or municipally mandated guidelines. What’s more, the authority having jurisdiction (AHJ) over a building or site can vary by location. Pennsylvania, for example, has its own department focused on ADA compliance. In other locations, the state may defer to federal authorities, the county, or another local entity. There are currently movements in the direction of unifying the various versions of the accessibility guidelines into one common national or international guideline. This would streamline the process and clarify individual interpretations of the intent.

25 Years Later Today, the education that time and experience have provided has made an enormous impact on accessibility at all types of sites. From those early days of attention on wheelchair-bound employees, companies now have realized that a multitude of disabilities are included within the guidelines, such as hearing and sight impairments. So, for example, while an elevator helps people with wheelchairs or crutches reach another floor, that elevator must also be accessible to those who are hearing or sight impaired, with a braille control system, audio notifications, etc. Similarly, fire alarms and other warning systems must include both an audible horn as well as flashing lights or other visual cues. Engineers and designers have also learned how to best balance ADA requirements with the rest of the facility’s needs. Because the guidelines are often open to interpretation, designers rely on the commentary in building codes to help clarify the intention of the law’s literal wording. For example, to design an ADA-compliant bathroom stall, there should be adequate clear space adjacent to the toilet

and opposite the entry door. This allows the person in a wheelchair to enter straight in through the door, close it, and then dismount onto the toilet. In a literal sense, that means the floor space opposite the door must be large and clear. However, the designer might find that the space is limited when renovating an existing bathroom, maybe only an inch short of the clearance requirements. The solution may be making the door oversized to allow reasonable clearances and providing a good-faith, best effort to meet the intent of the provision. Advancements in equipment have also made it much easier to comply with ADA requirements. When ADA-compatible bathroom sinks first hit the market, they simply allowed those in wheelchairs to fit their knees under the sink. But when people began burning their legs on the exposed pipes, innovative manufacturers developed kits to place over those pipes to avoid contact with bare skin. Chemical fume hoods have also evolved to be lower and provide unobstructed access below the surface and for reaching research equipment and hardware. Even if a facility is designed to meet ADA requirements, that doesn’t ensure it will be built exactly to the plans. In one real-life example, a new building had an ornamental staircase with glass panels and a top railing that was open to the floor below. An employee fell over the rail and was injured. The investigation determined that the handrail/guardrail system was one inch shorter than the requirements. The architect’s detail showed the correct measurement but the shop drawings did not, which made the ultimate difference. When these discrepancies come to light after a facility is built, it is much more costly to make the necessary changes for a safe and compliant facility. Facility owners are best served by making ADA compliance a priority for the entire project team, from design through construction.

Into the Next 25 Years Ultimately, ADA compliance is largely acknowledged and accepted now as any owner or developer plans upgrades to existing facilities or to build brand new ones. Just as a building must accommodate lighting and heating systems, it must incorporate ADA needs. And as the entire building community has become more educated, it’s become much easier to comply. Designers now see their role as continuing to educate clients on what accommodations need to be made, but with that understanding, pushback is rare — a significant change from 25 years ago. Undoubtedly ADA requirements and their scope will continue to evolve over the next 25 years. In fact, the latest edition of the guidelines has now been expanded to include more types of facilities, such as boat ramps and other outdoor recreation sites. As we all become more sensitive and accommodating to the needs of all others, the trend is to expend the additional effort and cost to do what is right and in the best interest of the community as a whole. ■ TOM WALSH, senior principal, and JERRY SERBONICH, project manager, are both based in the Binghamton, New York, office of design firm Stantec. They can be reached at tom.walsh@stantec.com and jerry.serbonich@stantec.com, respectively. AREA DEVELOPMENT | Q4/2015

TAX & FINANCIAL SITE SELECTION INCENTIVES

Incentives: Out of Step With the Times Advanced manufacturing, which requires fewer workers than low-tech operations, often cannot take advantage of incentives tied to large job-creation requirements. By Dan Emerson

n any industry, constant change is a fact of life. Nowhere has that been truer than in manufacturing, where automation and other process improvements have drastically reduced the number of workers needed to achieve a given level of productivity. Large manufacturing plants, which might have once employed 500 or more workers, may now function with 100, 75, or fewer highly skilled employees. Have state governments that use tax breaks and other inducements to attract industrial projects updated their incentives to reflect these changing times? Conversations with site selection consultants and state officials paint a varied picture.

A Decline in Number of Jobs Per Project While “high-labor content projects are still coming to the U.S., there is an advanced manufacturing meta-trend: replacing man-hours with kilowatt-hours,” says Darin Buelow, a principal with Deloitte Consulting. “Machines are doing more work, and the average number of jobs per project has been going down for some time.”

To stay competitive, North Dakota created an “automation credit,” designated for tax years 2013 to 2015; it’s an income tax credit equal to 20 percent of the cost of automation equipment.

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One example of the modern metrics: Monogram Food Solutions, a major manufacturer of meat snacks, is expanding its business into the city of Schulenburg, Texas. The new plant will only employ 30 workers, but involves a total capital investment of nearly $3 million. The city of Schulenburg was awarded $750,000 from the Texas Capital Fund (TCF) to finance infrastructure upgrades to support the new facility. Buelow says he has long contended that state incentives “have not kept pace with the times; for example, tax incentives that don’t kick in until 300 jobs have been created. If you’ve got $100 million capital investment but only create 100 jobs, you don’t qualify. Some states see proposals for (projects creating) 100 or 150 jobs all day long, but can’t use that program.” Buelow believes there should be a more flexible posture when it comes to manufacturing. “Incentives need to be more accessible by advanced manufacturers,” he explains. Jeff Forsythe, a principal with Greenville, S.C.-based McCallum Sweeney Consulting, notes that different locations often have different priorities when using incentives such as tax breaks. “Some locations…where unemployment is a major concern…are more in interested in jobs. More urban areas that have full employment — less than 4 percent unemployed — are just trying to enhance the tax base and don’t mind highly automated facilities that involve high capital investment.”

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Although they employ relatively few people, large industrial projects (especially data centers) that are capitalintensive and consume large amounts of electricity can often qualify for additional incentives offered by utilities — particularly in the southeastern U.S., Forsythe says. In addition to rate reductions, some utilities are also putting cash in land and infrastructure to incentivize projects. Ironically, Buelow notes, state incentives often seem to “be countercyclical to the broader economic cycle. When we’re in a recession, projects dry up and more states are wondering ‘What’s wrong with us? Why aren’t we seeing more activity? We need to retool.’” On the other hand, he says, “When the economy is rocking and rolling, legislatures seem to be inclined to remove available incentives. They may think, ‘Times are good, companies are talking to us; we don’t need some of these things.’ So, we seem to go back and forth between extremes.”

Getting More Creative Economic development competition among states has intensified over the years, and many companies that tap into incentives have been doing so for decades. As a result, states are being asked to get more creative, and think about other ways to help businesses, beyond tax breaks, cash grants, and low-interest loans. “There is this ‘frontier of creativity.’ Some states are quite adept at offering different modes of assistance, some that are a little nontraditional,” Buelow says. Often, these creative ideas don’t cost taxpayers — so-called “soft assistance,” Buelow explains, such as adding a job-creating newcomer to state bid lists. Buelow also sees more states offering custom training tailored to the specific needs of a company “rather than offering something on shelf that has to be delivered by the state training authority.” While some states that formerly lagged behind have developed “best in breed” training programs, such as Georgia’s Quick Start program and Louisiana FastStart, others have been reluctant to do that, Buelow says. One useful strategy is allowing state economic development funds to be used “to pay workers’ salaries, while they are being trained. Companies want flexibility, customization, and fungibility,” he notes. Josh Bays, a principal with the Dallas-based Site Selection Group, agrees that not all states have kept pace with changing industrial times. “Historically, economic incentives have rewarded job creation more than capital investment. Intuitively, you would think that those states and communities that want to be more aggressive would start rewarding capital investment more than they have in the past. But a lot of state-level incentives are still based more on job creation.” One state that has updated its programs is North Dakota. To stay competitive, and help its resident companies stay competitive, in 2013 the state created an “automation credit,” according to Laura Willard, a project manager for the North Dakota Department of Commerce’s Economic Development and Finance division. The credit, designated for the tax years 2013 through 2015, provides an income tax

credit equal to 20 percent of the cost of automation equipment. The state is in the process of evaluating “all of our tax incentives,” Willard notes.

Evaluating the Effectiveness of Incentives Programs Several years ago, The Pew Charitable Trusts developed a “business incentives initiative” to help states identify and share best practices for collecting, managing, and analyzing data on economic development incentives. Pew funded research to evaluate the effectiveness of states’ economic development initiatives. Pew concluded “lawmakers often approve or continue incentives without knowing their potential cost or whether they are working,” and cited a “knowledge gap.” According to Pew, from 2012 to 2014, 10 states and the District of Columbia passed laws that will require regular evaluation of tax incentives or will improve existing evaluation processes. Maine, Minnesota, Nebraska, North Dakota, Oklahoma, Tennessee, and Texas enacted laws requiring regular evaluation of tax incentives in 2015. Jason Hickey, president of Hickey & Associates, LLC, says that although jobs are “still the critical factor” in most states, some have allowed capital investment to be the qualifying inducement to capture incentives, citing Alabama as one example. Earlier this year, the state of Alabama adopted a new incentives platform that, for the first time, included an incentive specifically tied to job creation. However, the jobcreation target to qualify for incentives is relatively low — 50 jobs. In order to stimulate investment in rural areas, Alabama has lowered the number to 25 jobs for projects in counties with populations below 25,000, according to Alabama’s Commerce Secretary Greg Canfield. Hickey says companies often sign up for incentives that have very little value to them — such as incentives based on tax revenue levels “they would never be able to achieve. It’s not up to the state to decide what is valuable; it’s up to the company,” he notes. Almost half of all incentives available are never realized by companies because they don’t meet the requirements. For companies that accept incentives, it’s also important to have an “aftercare process in place so they can make sure they live up to the expectations they agreed to,” Hickey says. Bays says companies sometimes fail to consider key “operational factors. Incentives are awarded for finite periods of time — most often between one and 10 years. Most companies have plans to be operational in a location much longer than that.” And, it’s still the case that economic incentives rank lower on location-decision lists than workforce considerations, regulatory hurdles, and infrastructure factors. Bays sees a trend of states becoming “more stringent on the compliance side. They’re requiring a more lengthy compliance process and more stringent clawback policies, making sure they are holding companies accountable.” On a final note, he advises companies to “make sure you really understand what portion of an incentive package is actually useable by your company, and also carefully evaluate compliance requirements.” ■ AREA DEVELOPMENT | Q4/2015

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Find the Right Location for Your Next Business Site, Facility or Headquarters FacilityLocations is a GIS map-driven, online economic development directory used to research potential locations during the business re-location or expansion process.

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