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AUTOMATION Propels

MANUFACTURING

Key Drivers IN THE HQ DECISION

Boosting Investment

THRU TAX REFORM

Q4/2013

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www.areadevelopment.com www.facilitylocations.com


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It’s time.

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CONTENTS FEATURES

23

16 AUTOMATION PROPELS MANUFACTURING FORWARD

LIFE SCIENCES TO THRIVE

Manufacturers are turning to automation as a means to improve quality, productivity, safety, speed, and competitiveness, while reducing costs.

18 WORKPLACE PLANNING

FOR THE MIDDLE MARKET

Even small to mid-size companies need to understand their workplace flow and patterns in order to increase productivity and optimize their real estate footprints.

COVER STORY TOP 10 SITE SELECTION FACTORS The articles that follow examine the top-10 site selection factors from our Q1 Corporate Survey. Labor costs, skills, and a nonunion environment are top of mind; highway access is key; and tax rates and exemptions deserve close scrutiny. Find out what else your company should consider when making its next location/ expansion decision.

50 ADVANCES IN BIOTECH HELP

45 REVOLUTIONIZING THE SUPPLY CHAIN WITH TECHNOLOGY

Biotechnology is driving growth in the life sciences sector, which has faced numerous challenges, particularly in the pharmaceuticals industry.

58 TECH INCUBATORS’

OUTSIZED IMPACT ON INNOVATION AND JOB CREATION

The ecosystems created by high-tech incubators popping up all over North America have become true job-creation drivers.

60 HOW DOES ECONOMIC

Integrated supply chain technology solutions provide end-to-end security and efficiency in the distribution process.

47 PEOPLE AND CULTURE: KEY DRIVERS FOR HEADQUARTERS RELOCATION

DEVELOPMENT LEGISLATION AFFECT YOUR BOTTOM LINE?

A company’s final location or expansion decision hinges on a financial analysis that may be closely tied to the winning state’s economic development legislation.

62 EMPLOYING A

An organization’s employees and its corporate culture are paramount in any corporate relocation.

TEAM APPROACH

By utilizing a multidisciplinary development firm, companies can ensure their facilities are delivered on time and within budget.

Exclusive O N L I N E Content FEATURES NOW ONLINE... Criteria for Selecting a High-Tech Cluster Companies locating in “tech-friendly” communities can find the foundation for their success, while also helping the local economy to grow — a win-win situation all around. Making a Statement with Office Space: Finding Workplaces that Last Well-designed office facilities will aid a company in recruiting and retaining talent in today’s marketplace — and well into the future. The Move Beyond Building Automation Systems to a More Secure Energy Infrastructure Today’s facility managers are faced with the challenge of finding systems that securely automate and centralize their organization’s disparate, but critical, energy assets. Area Development® Site & Facility Planning (USPS 345-510) is published five times per year (Q1/Winter, Q2/Spring, Q3/Summer, and Q4/Fall — 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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FOR FREE SITE INFORMATION, CALL

800-735-2732, EXT. 225, OR VISIT US ONLINE AT WWW.AREADEVELOPMENT.COM


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Volume 48 | Number 4

Q4/ FALL 2013

Quote:

“It’s empowering to be asked to look at what’s possible, not told how to do it.” Jack Dorsey, co-founder and co-creator of Twitter, and founder and CEO of Square, a mobile payments company, received The Wall Street Journal’s “Innovator of the Year” award for technology in 2012.

4 EDITOR’S NOTE — Economic Growth in Fits and Starts

DEPARTMENTS FIRST PERSON

IN FOCUS

6 14

Doing Your Diligence – Foregoing Assumptions

10

Jeff Burnstein, President, Association for Advancing Automation (A3)

12

Additive Manufacturing Becomes National Technology Focus

64

Web addresses to this issue’s advertisers

Nature’s Cleanup Crew: Peace of Mind for Site Managers

8 IN THE KNOW • Which States Have the Best Business Tax Climate? • Boosting Investment and Economic Growth Through Tax Reform • Shale Boom to Cut Deficit, Enhance Manufacturing, and Add to Household Incomes • Business Location Tracker A FORMULA FOR SRENGTHENING U.S. ECONOMIC OUTLOOK

1 2

Cut the Federal Corporate Tax Rate +

Improve Capital Allowances +

= Higher Investment Rate = Stronger Economic Growth

3

5 4

Lower Tax Rates on Pass-through Business Forms +

FRONT LINE

AD INDEX/WEB DIRECTORY

SPECIAL INVESTMENT REPORT 53

LOUISIANA: Climbing the Rankings State sources report that Louisiana’s economy held strong during the recession, and that during the past five years, its GDP growth was about 50 percent faster than the national average.

Reduce Shareholder Taxes +

Move to a Territorial Tax System +

Sustainable Sites: The Good, The Bad, and The Ugly Facility designs to manage stormwater are integral to a site’s sustainability, but they will only accomplish the goals for which they were designed if properly operated and maintained.

VIDEOS NOW ONLINE...

Join Our Newsletter areadevelopment.com/newsletter

Follow Us On twitter.com/areadevelopment

• The State of Industrial Real Estate • How E-Commerce Is Changing the Face of Industrial Distribution Center Real Estate

www.areadevelopment.com

Online Database Resources www.facilitylocations.com 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 2013 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/Fall 2013

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EDITOR’S NOTE

Q4/FALL 2013

Economic Growth in Fits and Starts A survey by the National Association of Business Economics of its members conducted in late September shows business profit margins growing in the third quarter. Also, 70 percent of the surveyed economists predicted GDP growth of 2 to 3 percent. PricewaterhouseCoopers’ Q3 2013 Manufacturing Barometer also indicated optimism about the economy, with 60 percent of the respondents expressing optimism about the domestic outlook; 78 percent believed the U.S. economy grew in the year’s third quarter. In fact, U.S. factory activity did expand in September at the fastest pace in two and half years, as reported by the Institute for Supply Management. The Institute’s index rose to 56.2 that month, the highest since April 2011. Of course, all of these prognostications were made before the 16-day government shutdown that began on October 1. As we went to press on this issue, Congress ended that shutdown and averted a major financial crisis by raising the debt ceiling through an 11th hour deal. However, as pointed out by economic analysts, this was just a short-term fix until the next budget showdown on Jan. 15, 2014. Needless to say, all this uncertainty could have a dampening effect on business and consumer confidence and negatively impact year-end and first quarter 2014 economic growth, damaging what’s been called a less-than-robust economic recovery. Unfortunately, many economists expect Congress to once again engage in last-minute deal-making as the next deadline looms. If, at that time, a longer-term solution is not found, this could negatively affect economic activity for all of 2014 — a very dire consequence. As reported in The New York Times, the 16-day shutdown has already trimmed about 0.3 percentage points from fourth quarter growth, or about $12 billion, as estimated by the St. Louis-based forecasting firm Macroeconomic Advisers. Standard & Poor’s was more pessimistic, estimating that the shutdown cut about 0.6 percent off inflation-adjusted GDP, equivalent to $24 billion. And when all the calculations are made, analysts say annual growth will now register just 2 percent or less — not the 2 to 3 percent previously predicted. If the U.S. economy is to continue to grow in more than fits and starts, Congress needs to come up with a longer-term solution to the budget and debt-ceiling crises. Only then will it instill in companies the confidence to invest in their facilities and work forces in order to grow and expand.

www.areadevelopment.com EDITORIAL

E-mail: editor@areadevelopment.com Editor Geraldine Gambale Staff and Contributing James Berger John Borchardt Lisa Buddecke Dave Claborn Mark Crawford Clare L. Goldsberry Craig Guillot

Editors Beth Mattson-Teig Phillip Perry Jim Romeo Mali R. Schantz-Feld Steve Stackhouse Karen Thuermer

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 CONFERENCE SERVICES Program Manager Annie Gregson (212) 579-4469

annie@areadevelopment.com EXECUTIVE OFFICES Halcyon Business Publications, Inc. President Dennis J. Shea

Editor

Finance Mary Paulsen

finance@areadevelopment.com All correspondence to: Area Development Magazine 400 Post Avenue, Westbury, NY 11590

2013 EDITORIAL ADVISORY BOARD Tim Feemster Managing Principal, Foremost Quality Logistics Larry Gigerich Managing Director, Ginovus Robert Hess Executive Managing Director, Newmark Grubb Knight Frank Andy Mace Principal Consultant, Cushman & Wakefield Global Consulting, Supply Chain Solutions

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John Morris, Leader of Industrial Services for the Americas, Cushman & Wakefield, Inc. Kathy Mussio Managing Partner, Atlas Insight Scott Redabaugh Managing Director, Jones Lang LaSalle Andrew Shapiro Managing Director, Biggins Lacy Shapiro & Co.

Noah Shlaes Senior Managing Director, Newmark Grubb Knight Frank Thomas Stringer, Esq. Director, Business Advisory Services, Ryan & Company Dean J. Uminski Executive, Site Selection Consulting, Crowe Horwath LLP

FOR FREE SITE INFORMATION, CALL

Phone: Toll Free: Fax:

516.338.0900 800.735.2732 516.338.0100

MEMBER of

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IN FOCUS

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Doing Your Diligence – Foregoing Assumptions By Courtney Dunbar, Economic Development Leader, Industrial Site Consulting Team, Olsson Associates

One of the hottest economic development trends right now involves site certification. Site certification involves identifying a list of diligence factors, assessing a site for assets and deficiencies, curing deficiencies, and then preparing the site to accommodate prospective users. While site certification programs are helpful in quickly identifying site attributes, these programs were never intended to be all-encompassing. The programs just weren’t designed to replace thoroughly assessing a site for suitability to specific, individual users. That responsibility resides with the site selector and the company to make the decision on the location for the business’ new home. Site selection decisions are optimally made following a thorough site diligence investigation. Why Diligence Matters Courtney Dunbar has 17 years of combined career experiences in economic development and project funding. In her current role as economic development leader, she is actively engaged in industrial site planning, community planning, economic analysis, and identification of project funding options.

The average American will state that the largest capital investment they will make in their lifetime will be their homes. Now, if you own a home, consider all of the diligence you underwent in making the decision to purchase. You likely checked the school district, the transportation routes to areas of personal significance, the home’s condition, the property’s suitability, the property tax rates, and the proximity to services. Diligence matters. Now, consider the site selection process for an industry. Company representatives are making multimillion- if not multibillion-dollar capital investments when they invest in a site. The products they produce require significant infrastructure support and capacity. Labor matters. Roads matter. Rail matters. Zoning matters. Other analytical, site preparedness items matter. Timeliness to market is paramount. An underestimation of a site’s ability to serve specific industrial needs can result in catastrophic outcomes, including closures, layoffs, or worse. Diligence matters. It is critical for companies to thoroughly perform the due diligence and planning of industrial sites as part of the location decision-making process. Companies simply cannot afford to take a risk on a “maybe this site can serve” or “we think we can obtain property control.” Absolutely, without a doubt, risk avoidance in the form of site preparedness is crucial to site selection decisions. No Shortcuts

Site selection has evolved considerably over the last few decades. As companies have become more efficient in their processes, the timelines for selecting new sites have become shorter. The shortened duration of time to vet sites under consideration can lead site selectors and company decision-makers toward a path of least resistance, creating an environment where important site attributes are missed prior to selecting the final site for development. This mistake can lead to costly development delays and missed opportunities. As many as 75 different site and community attributes may be needed to provide an in-depth analysis of a company’s ability to function at optimum efficiency. Identifying the risk-to-development factors is not only wise, but also assists the site selector and company in playing the selection game intelligently. Additionally, thorough site diligence provides site selectors and companies with the ability to save critical resources by limiting the amount of land purchased to the amount of land needed; the means to determine how their sites will serve their facilities and if the sites are zoned properly to protect them from adjacent users; as well as the ability to negotiate incentives that provide the most impact. Foregoing assumptions on site preparedness and practicing thorough site diligence is crucial to successful development.

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EVERYTHING WE DO IS ORIGINAL. What does it take to compete with the best? It takes a workforce driven by pride to do things right. It takes relevant training programs that equip workers with the skills of tomorrow. And it takes leadership that’s ready and able to find solutions – no matter the challenge. Mississippi has what it takes to help your business compete with anyone. Find out why our workforce is ready for you at mississippi.org.

mississippi.org

1.800.360.3323

© Mississippi Development Authority 2013

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IntheKnowQ4

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IN THE KNOW WHICH STATES HAVE THE BEST BUSINESS TAX CLIMATE? The Tax Foundation recently released its “2014 State Business Tax Climate Index.” Now in its tenth year, the Index collects data on more than 100 tax provisions for each state and aggregates the data into a single score. The states are then compared against one another in order to be ranked relative to the actual policies in place in other states. The top-10 states are shown below. It appears that the absence of a major tax is a dominant factor in the rankings. Although all states levy property and unemployment insurance taxes, it should be noted that Wyoming, Nevada, and South Dakota have no corporate or individual income tax; Alaska has no individual income or state-level sales tax; Florida has no individual income tax; and New Hampshire and Montana have no sales tax. Interestingly, Indiana and Utah do levy all the major taxes, but do so with low rates on broad bases.

1. Wyoming 2. South Dakota

3. Nevada 4. Alaska

2014 TOP BUSINESS TAX CLIMATE 5. Florida 7. Montana 6. Washington 8. New Hampshire

9. Utah 10. Indiana

Source: www.taxfoundation.org

BOOSTING INVESTMENT AND ECONOMIC GROWTH THROUGH TAX REFORM

I

N A RECENT STUDY by the nonpartisan Tax Foundation, Chief Economist William McBride, Ph.D., explains how U.S. tax policy is stifling economic growth and domestic investment. According to the study, the low investment and slow economic growth in the U.S. are in sharp contrast to the high investment and rapid economic growth in China and India — and even to more moderate growth in countries such as South Korea, Slovakia, and Estonia. “Since the 1960s, the higher investment rate of many of our trading partners has shown a strong correlation with economic growth,” says McBride. “This means that in the long run, a growing economy is largely determined by investment. Furthermore, it indicates that if the U.S. increased investment by about 50 percent, growth would likely double.” In order to address these issues, McBride outlines five tax reform measures that will strengthen the United States’ economic outlook in the competitive global market.

A FORMULA FOR SRENGTHENING U.S. ECONOMIC OUTLOOK

1 2

Cut the Federal Corporate Tax Rate +

Improve Capital Allowances +

= Higher Investment Rate = Stronger Economic Growth

3 8

AREA DEVELOPMENT

5 4

Lower Tax Rates on Pass-through Business Forms +

Reduce Shareholder Taxes +

Move to a Territorial Tax System +

FOR FREE SITE INFORMATION, CALL

800-735-2732, EXT. 225, OR VISIT US ONLINE AT WWW.AREADEVELOPMENT.COM


IntheKnowQ4

10/21/13

12:10 PM

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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.

We cull insightful corporate real estatefocused studies, research, and papers from credible industry sources at www.AreaDevelopment.com/Studies.

BUSINESS LOCATION TRACKER Ford To Open Lab at University of Michigan Genentech Expanding California Biologics Facilities Genentech, a member of the Roche Group, plans to invest more than $285 million to expand its biologics manufacturing facilities in Vacaville and Oceanside.

A new $8 million battery lab at the University of Michigan will help Ford develop electric vehicle batteries that are smaller, lighter, and less expensive to produce.

Titanium Manufacturer Expanding in Ohio A chemical producer, Cristal, is investing $64 million to expand its two Ashtabula, Ohio, facilities.

Pepperidge Farm Expands in Utah

New York Nano R&D Center to Create 1,000 Jobs

Pepperidge Farm has completed a $45 million expansion to its manufacturing facility in Richmond, Utah, the company’s only manufacturing facility west of the Rocky Mountains.

Six technology companies are investing $1.5 billion to create “Nano Utica,” the state’s second major hub of nanotechnology R&D.

Global Auto OEM Investing $1.1 Million in Its Indiana Plant Coram USA LLC, a global manufacturer of automotive components, is expanding its Fort Wayne, IN, production facilities, and moving its warehousing for the North American market from Italy to the new facility.

Indian Textile Company to Manufacture in Georgia Great Lakes Cheese Invests in Manchester, TN Great Lakes Cheese will invest $100 million to open its first Southeast manufacturing facility at the Manchester Industrial Park, Coffee County, creating 200+ new jobs.

India-based ShriVallabh Pittie Group, a textile manufacturer, will invest $70 million to build its first U.S.-based manufacturing facility near Sylvania, Georgia, creating 250 jobs.

Go to www.AreaDevelopment.com/NewsItems to track business expansion & relocation announcements

SHALE BOOM TO CUT DEFICIT, ENHANCE MANUFACTURING, AND ADD TO HOUSEHOLD INCOMES Earlier this year, Alexander Frei of Cushman & Wakefield’s Business Incentives Practice told Area Development magazine’s editor that the EIA estimates the United States will be nearly self-sufficient in energy by 2035. According to Frei, the technological advancements that have taken place over the last 20 years, which ultimately resulted in the establishment of fracking as an economically feasible method of accessing fossil fuels, are arguably the biggest single reason for this projection of U.S. energy independence. In fact, not only will the U.S. no longer need to import energy, but also fracking for shale gas could result in the United States becoming a net exporter of natural gas in the next decade, Frei noted. A report from IHS — “America’s New Energy Future: The Unconventional Oil and Gas Revolution and the Economy – Volume 3: A Manufacturing Renaissance” — indicates that Frei’s thinking was on the right track. According to the new study, the shale oil and gas boom is already cutting the U.S. trade deficit by reducing the need for imported energy, while also enhancing America’s global manufacturing competitiveness, especially for U.S. manufacturing companies that operate in energy-intensive sectors. In fact, the study projects that the shale boom will result in a reduction in the U.S. trade deficit of more than $164 billion by 2020 — thereby eliminating one third of the nation’s current trade deficit. “The unconventional oil and gas revolution is not only an energy story; it's also a very big economic story that flows throughout the U.S. economy in a way that is only now becoming apparent,” IHS Vice Chairman Daniel Yergin said. “In addition to significant job and economic impacts from the energy production and its extensive supply chains, the growth of long-term, low-cost energy supplies is benefiting households and helping to revitalize U.S. manufacturing, creating a competitive advantage for U.S. industry and for the United States itself.” AREA DEVELOPMENT | Q4/Fall 2013

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FirstPersonBurnstein

FIRST PERSON

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JEFF BURNSTEIN

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PRESIDENT ASSOCIATION FOR ADVANCING AUTOMATION (A3)

Is the cost of installing robotics and other automation technologies prohibitive for smaller manufacturers? Burnstein: No. There is a huge opportunity for small and medium-sized companies to invest in and realize the benefits of robotic automation systems, especially because the costs of these systems have gone down dramatically over the years. Medium and small companies are indeed realizing the return on their investment. We have many examples of small companies that are now thriving because of automation. They can use automation to develop higher-quality products faster, leading to more business, which leads to the hiring of more employees. It’s a great cycle to be on.

Large manufacturers like automakers have used robots in their manufacturing process for some time. Can you explain how mid-sized and even small manufacturers are using robotics today? Burnstein: More and more small and mid-sized companies are realizing the benefits of automating their operations. These benefits include improved quality, productivity, safety, and speed, as well as cost reduction. As a result, they are better able to compete in the global marketplace. How are today’s robots different from the ones previously on the factory floor? Are they more intelligent? Burnstein: There has been an explosion of new technologies introduced in the robotics field over the last several years. The robots themselves and automation software are all evolving to provide more utility to end-users. User interfaces are simpler; gripper technology has improved; better vision-guided systems have opened up robots to new manufacturing opportunities. Robots are now able to handle more complex and intricate tasks, which was not possible in the past. What specific jobs are robots performing at small manufacturing operations? Burnstein: Robotics and automation technologies installed at small manufacturing operations are assisting employees in completing what we call the “dirty, dangerous, and dull” jobs. Instead of an employee completing a mundane or unsafe task all day, that same employee could be trained to operate automation equipment that can do that task in a safer environment. This leads to many benefits to the employee and employer, including higher job satisfaction. Besides the use of robots, are other types of automation technologies being used by mid-sized and small manufacturers today? Burnstein: There are many types of automation technologies in use today — from programmable logic and linear controllers to CNC machines, sensor technologies, laser cutters, mechatronics, and machine vision systems.

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In addition to reduced labor costs, what are the advantages to a business employing robotics and other automation technologies? Burnstein: The main driver is the need to compete, often on a global basis. Can certain tasks be automated in order to improve productivity and product quality? Can overall manufacturing costs be lowered by automating? Can the company respond to changing demands more quickly if they automate? Can the company find new customers if they automate (because they are now producing more products faster and with greater quality)? Have our competitors automated in order to gain an advantage? If the answer to any of these questions is yes, automation is likely to be considered. What are the risks to a firm of not using automation technologies? Burnstein: If a firm that is not automating is losing business because of competitive pressures, then they risk going out of business. Marlin Steel in Baltimore is a great example of this. They used to bend wire baskets by hand, producing about 300 a day. Once they automated, they were producing thousands a day with higher quality and no injuries to employees. This allowed them to remain competitive, win new business, and ultimately add more and better (higher-paying and safer) jobs. Marlin is a great example of increased productivity and profitability through automation.

FOR FREE SITE INFORMATION, CALL

800-735-2732, EXT. 225, OR VISIT US ONLINE AT WWW.AREADEVELOPMENT.COM


FirstPersonBurnstein

10/16/13

4:39 PM

Page 11

Do you believe there will come a time in the future where robots will replace most people on the factory floor? Burnstein: No. Overall, we believe automation has a positive impact on employment. The real threat to jobs is when a company is no longer competitive. In that case, the options are (a) go out of business, in which case all the jobs are lost; (b) outsource the jobs to another country; or (c) automate, in which case jobs are saved and the opportunity for growth exists. Of course, I’m just talking about the jobs inside a factory or business. When you include the jobs outside a factory, automation that helps keep a plant open also is helping keep open restaurants, gas stations, bowling alleys, and many companies that supply the factory — an entire ecosystem of jobs that might otherwise be lost. Is there anything else you’d like to add? Burnstein: One challenge manufacturing companies face is that they have open positions that remain unfilled because they can’t find employees with the right skills. We need to do

a better job educating the work force and providing retraining programs to prepare people for today’s jobs. I think there’s a growing awareness of this need, which is why we’re seeing so much support for STEM education. But, we also need to do a better job of supporting community colleges and two-year programs that teach vocational skills because often these programs produce students with the practical, hands-on experience needed to work with automation technologies.

THE ASSIGNMENT The Robotic Industries Association estimates that some 230,000 robots are now in use in U.S. factories, placing the United States second only to Japan in robot use. To find out more about this, the editor of Area Development recently spoke with Jeff Burnstein, president of the Robotic Industries Association, as well as president of the Association for Advancing Automation (A3).

Global market access. Excellent labor force. Centralized transportation routes. Low energy costs. Thousands of businesses have already discovered what makes Nebraska a place of unequaled potential. There’s ample opportunity for you, too. Consider this your personal invitation to enjoy everything that makes business in Nebraska great.

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Nebraska 800.282.6773, ext. 5534 | econdev@nppd.com

econdev.nppd.com NEBRASKA PUBLIC POWER DI STRICT

AREA DEVELOPMENT | Q4/Fall 2013

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FRONT LINE

Additive Manufacturing Becomes National Technology Focus

Brian Adkins, Production Manager for rp+m — a 3D printing/additive manufacturing service bureau located in Avon Lake, Ohio, and a member of America Makes — oversees a 3D printing operation.

By Clare Goldsberry

A

year ago, the current administration launched the National Additive Manufacturing Innovation Institute (NAMII), managed by the National Center for Defense Manufacturing and Machining (NCDMM), to maintain a competitive advantage in 3D printing (known as additive manufacturing or AM) and accelerate the position of the U.S. in the development and use of this technology. After a successful first year NAMII announced in October a rebranding of the institute, now known as America Makes. The announcement was made by Bre Pettis, CEO of MakerBot, a global leader in the desktop 3D printing industry, at a meeting at the organization’s Youngstown, Ohio, facility. That facility is a pilot institution for up to 15 national America Makes organizations across the country. America Makes has been awarded a $5 million grant from the National Institute of Standards and Technology for continued AM research. And, recently, the organization announced its second call for additive manufacturing R&D projects from its members for which it will provide $9 million in funding.

Additive Manufacturing Continues to Grow While 3D printing started out more than two decades ago being a means for producing primarily prototype parts, the use of AM technologies in both polymers and powdered metals, for direct production of end-use parts, continues to grow. According to Terry Wohlers of Wohlers Associates, a member of America Makes and an AM industry researcher, “In 10 years, 3D printing of end-use products has gone from almost nothing to 28.3 percent of the total product and service revenues from additive manufacturing worldwide.” The annual Wohlers Report also reveals that while additive manufacturing in the U.S. is big and gaining ground, trends suggest the United States may be losing its competi-

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tive advantage in the AM industry. According to Wohlers’ latest report, 38 percent of all industrial AM installations are in the states; Japan is second with 9.7 percent, followed by Germany with 9.4 percent, and China with 8.7 percent. Sixteen companies in Europe, seven in China, five in the U.S., and two in Japan now manufacture and sell professional-grade, industrial additive manufacturing systems. “This is a dramatic change from a decade ago, when the mix was 10 in the U.S., seven in Europe, seven in Japan, and three in China,” said Tim Caffrey, a principal author of The Wohlers Report and associate at Wohlers Associates.

A Key Technology To promote new manufacturing technologies and maintain the United States’ manufacturing edge, 3D printing (AM) was selected as a key advanced technology. America Makes is a public-private partnership with 80 member organizations from industry, academia, government, and work force development resources all collaborating with a shared vision to transition AM technology to the mainstream U.S. manufacturing sector and create an adaptive work force capable of not only meeting industry needs but also increasing domestic manufacturing competitiveness. AM is becoming increasingly in demand as 3D printing equipment has expanded from very low-end DIY machines to professional desktop printers to high-speed manufacturing 3D equipment with larger build beds to accommodate increased part sizes and create more end-use components. A recent collaboration between ExOne Company, which manufactures and sells 3D printing equipment, and 3D printing service bureau rp+m (rapid prototype + manufacturing) resulted in bringing a new material — powdered tungsten — and a new 3D printing technology to the commercial marketplace via the M-Flex™ 3D printing system.

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InFocusNaturesCleanup

IN FOCUS

10/25/13

11:59 AM

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Nature’s Cleanup Crew: Peace of Mind for Site Managers By Dr. Aaron Peacock, Scientist, Haley & Aldrich

Most organizations view the redevelopment of formerly contaminated sites as a risky proposition, and for good reason. Despite remediation technologies advancements over the last 30 years, most “remediated” sites still have a low level of residual contamination. Usually this stems from impacted groundwater that may be deep below the surface.

Dr. Aaron Peacock is a scientist at environmental and engineering firm Haley & Aldrich. He can be reached at apeacock@ haleyaldrich.com.

That’s all changed, thanks to the application of biological treatments and intrinsic bioremediation — that is, naturally occurring contaminant-degrading microbes — as a “polishing” technology to complete remediation. Biological approaches to remediation usually include adding oxygen or a microbial food source to stimulate naturally occurring bacterial bioprocesses that destroy a specific contaminant. Environmental firms increasingly are using these techniques at later remediation stages to augment traditional remediation methods. Not only are these new techniques reducing redevelopment risks, but they can also help justify no further action or site closures. Executives responsible for site selection and management can have ongoing peace of mind, too. As low contamination levels may still be present at a “remediated” site, executives and stakeholders are reassured that biological cleanup will continue to destroy harmful contaminants as long as necessary. This knowledge can ease the concerns that come along with redevelopment and recycling of land resources. Here is a look at the analytical technologies behind this peaceof-mind.

Environmental Molecular Diagnostics (EMDs) During the past decade, bio-scientists have developed new analytical methods called Environmental Molecular Diagnostics (EMDs). EMDs directly measure various biochemical components of microbes. These tests, which consist of a collection of nucleic-acid (DNA)-based tools that analyze environmental samples, provide clues called biomarkers, which inform environmental professionals about current and future site contaminant degradation. Other EMDs can also help pinpoint the source of contamination. EMD techniques can be more accurate and cost-effective than traditional methods in assessing in situ biodegradation for sites in the final stages of remediation. While EMDs don’t take the place of traditional contaminant analysis, they supplement environmental data sets by providing key information previously not accessible by other tests. The most popular EMD test among environmental practitioners is the quantitative polymerase chain reaction (qPCR) assay. The qPCR test allows professionals to directly detect and quantify microbial genes from the environment. They can determine direct evidence of the microbe’s contaminant degrading activity at a particular site through the presence and relative quantities of various genes in soil or groundwater. For example, for an organization considering redeveloping a remediated site that exhibits low-level contamination, the environmental engineer could apply EMDs like the qPCR test to check if microbes capable of “polishing off” the remaining contaminant are present and active. If the qPCR test shows high levels of contaminant degrading microbes, this would serve as evidence that contaminant removal is likely to continue. If, on the other hand, the test shows low numbers of contaminant degrading microbes, the organization would know that they may need to consider more active remediation alternatives before undertaking redevelopment. At this time, there are several specific qPCR assays for various contaminants such as gasoline, solvents, and metals. This list will grow, and with it the significance of EMDs to the redevelopment and environmental management process. EMDs can provide critical knowledge of how effectively nature is cleaning up and reclaiming formerly contaminated sites. This information can in turn provide stakeholders with a level of comfort when proceeding with redevelopment of a contaminated or formally contaminated site.

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“Texas is a state where a dream can be put to work.” - Texas Governor Rick Perry

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AutomationPropels

10/16/13

4:44 PM

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INDUSTRY REPORT

Automation Propels Manufacturing Forward Manufacturers are turning to automation as a means to improve quality, productivity, safety, speed, and competitiveness, while reducing costs.

Credit: David Bohrer/National Association of Manufacturers

By Beth Mattson-Teig

FANUC welding robots at Marlin Steel Wire Products

S

tep into any major manufacturing facility in the United States today and it is clear to see that the “future” of advanced manufacturing is already here. Innovative technology at work is evident in tools such as robotic arms, programmable logic controllers, and CNC machines that are helping to produce everything from cars to computers. Such automation is taking root and changing the face of manufacturing among companies both large and small. Case in point is Baltimore-based Marlin Steel Wire. A decade ago, employees were bending wire by hand to make steel baskets. Owner Drew Greenblatt saw demand plummet as the company’s primary clientele, bagel shops, shifted their orders to cheaper Chinese manufacturers. “He made the decision to transform his business and invest in automation to build baskets for many different industries,” says Bob Doyle, a spokesperson for the Association for Advancing Automation. Today, Marlin Steel Wire makes baskets for the automotive, aerospace, and pharmaceutical industries. Those clients have significantly higher design specifications compared to

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the bagel shop owners, notes Doyle. “The only way [Marlin Steel Wire] could do that was to invest in automation, both in robotics and other types of manufacturing technologies,” says Doyle. Marlin Steel Wire has since grown from 15 to almost 30 employees. The higherskilled jobs also pay higher wages and benefits. “That is just one example of a small company that has really seen the benefits of investing in robotics and automation,” he adds. Manufacturers across the board are increasingly turning to automation as a means to improve quality, productivity, safety, speed, and competitiveness, and to reduce costs. The shift has been a boon to the robotics industry. In fact, 2012 set a new record for the North American robotics industry, and sales/orders for the first half of 2013 have continued to push the bar higher. The Robotic Industries Association estimates that some 230,000 robots are now in use in U.S. factories, placing the United States second only to Japan in robot use. The potential for continued growth is significant as advanced manufacturing processes continue to gain a foothold. Some industry sources estimate that only about 10 percent of U.S. companies that could benefit from robots have so far installed them. In particular, the 300,000-plus small to medium-sized U.S. manufacturing companies represent significant growth opportunities as more of those firms embrace automation, notes Doyle. Factors that will continue to fuel that growth include reduced costs for robotics systems, as well as an explosion of new technologies in the robotics field that have made user interfaces simpler, improved gripper technology, and created better visionguided systems that have opened up new manufacturing opportunities for the use of robots.

Will Automation Fuel Growth? Advanced manufacturing processes could provide just the boost that the manufacturing industry needs to regain

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AutomationPropels

10/16/13

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some of the footing that it has lost over the years. Manufacturing remains an important force in the United States, contributing $1.87 trillion to the economy in 2012. Yet the industry has seen jobs disappear, and its contribution to GDP has diminished over the years from a high of 26 percent in 1947 to its current level of about 11 percent. The manufacturing industry is still working to regain the 2.3 million jobs that it lost during the recession. So far, the industry has added back about 500,000 jobs. Manufacturing production is only 73 percent recovered compared to prerecession levels of December 2007, with a full recovery still about a year away (i.e., fourth quarter 2014), according to data from the Manufacturers Alliance for Productivity and Innovation (MAPI). In addition, exclude the high-tech segment of computers, semiconductors, and communications equipment, and those projections drop to only 64 percent recovered with a full recovery that is not anticipated until the third quarter of 2015. “Overall, firms are profitable. They have low debt and high cash ratios, and interest rates are the lowest they have been in decades,” says MAPI Chief Economist Daniel J. Meckstroth, Ph.D. “One would expect in this environment to see very strong growth in new investment. Unfortunately, we have not seen that.” New business equipment orders have been modest. Demand for goods also has been held back by more conservative consumer spending, as well as by uncertainty earlier in the year related to concerns about the impact from sequestration and the fiscal cliff. However, there are signs that those orders are accelerating, which bode well for manufacturers, adds Meckstroth. Manufacturers do appear to be gaining confidence in the recovery. According to a second quarter Manufacturing Barometer survey conducted by PwC, 82 percent of industrial manufacturers predicted revenue growth in 2013. Another positive sign that the recovery is on track is data from the automotive sector that shows that vehicle production has once again reached pre-recession levels. Yet manufacturers remain hesitant in capital spending, which will continue to hinder investment in new jobs, equipment, and facilities. With regard to capital spending, 40 percent of the second quarter survey respondents planned major new investments during the next 12 months, which was down from the 55 percent recorded in the Q2 of 2012, according to PwC.

The Necessary Infrastructure One of the keys to fostering growth in advanced manufacturing is providing the necessary infrastructure — skilled labor, access to innovation related to R&D and engineering, and strategic locations. As greater automation is driven into the manufacturing process, it is putting more emphasis on locating in areas that have those resources in place. At the top of the list is demand for a skilled work force and resources to assist with the ongoing training and development of such workers. There is recognition at all levels — from industry and government — that there needs to be a greater focus on science, technology, engineering, and math (STEM) to create that skilled work force in this country, says Matt Highfield, a director at Deloitte Consulting LLP who

specializes in global location strategy. “I think that is something that is slowly being addressed,” he notes. Those communities and those educational partners that are successful in producing a work force with STEM skills will be more successful in growing and attracting manufacturing businesses. Continued investment in the community and technical college network is critical, and that also has to be done in partnership with manufacturers, so that the pipeline of talent is aligned with their needs, says Highfield. One good example is the Center for Advanced Vehicular Systems (CAVS) at Mississippi State University, which is partnering with a number of auto manufacturers in the region to improve processes and bring further innovation to auto manufacturing, he adds. “The importance of state and local industrial training programs has risen in the past few years in terms of the priority clients — and states — tend to place on it to train new skills and to maintain the skill base as the manufacturing/ production work force turns over,” agrees Andy Mace, managing director, Global Business Consulting, Supply Chain Solutions for Cushman & Wakefield. Companies need to begin planning and investing in training earlier in the planning and implementation processes of their facility initiatives. States that also are seeing greater competition for those industrial businesses need to be particularly focused on it, he adds. The federal government has stepped up its efforts to support advanced manufacturing. The Obama administration has created an agenda to support the growth of advanced manufacturing in an effort to grow manufacturing jobs and production. The President’s manufacturing agenda includes a vision to create a National Network for Manufacturing Innovation. The President’s fiscal year 2014 budget includes a $1 billion investment at the Department of Commerce to create the network. Each institute would serve as a regional hub designed to bridge the gap between basic research and product development, bringing together companies, universities and community colleges, and federal agencies to co-invest in technology areas that encourage investment and production in the United States. Ultimately, the goal is to create a unique “teaching factory” that allows for education and training of students and workers at all levels, while providing the shared assets to help companies, including small manufacturers, access the cutting-edge capabilities and equipment to design, test, and pilot new products and manufacturing processes. The factories of the future are going to be “lower touch” and more highly automated, notes Highfield. They are going to have higher capital expenditures with a lower labor component, which will also translate to higher skills and higher-paying jobs. In theory, those factories will be more efficient and will be able to produce more, as more automation is introduced. Yet there needs to be a shift in education and perception about what constitutes a manufacturing job. Manufacturers will need to work to dispel perceptions that manufacturing jobs are “dirty, dull, and dangerous” and to put forth the notion that they represent not just jobs, but career opportunities, he concludes. AREA DEVELOPMENT | Q4/Fall 2013

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WorkplacePlanning

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FACILITY PLANNING

Workplace Planning for the Middle Market Even small to mid-size companies need to understand their workplace flow and patterns in order to increase productivity and optimize their real estate footprints. By Kanan Desai, Vice President, SCGroup Real Estate

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major shift in work style has taken place. Technology has not only changed the way we work, but also the space we use. We no longer need a desk space that accommodates a large computer tower — nor do we need lots of drawers for filing paper documents. Over the past several years, large corporations have been looking at their workplaces and the space they use through a magnifying glass to ensure that even the smallest criteria for improving their business has been addressed. Among all these factors, office rental costs and employee compensation are probably the two largest expenses for a company. With the economic uncertainty, it is imperative that companies look at alternate ways to keep their business growth successful and business costs low. Companies that pay attention in evaluating their organization’s real estate plan find it beneficial. With this in mind, companies like Google and Apple have spent time and money to implement alternative workplace strategies. These are large corporations with large real estate portfolios. The basic principal is to create an efficient space with less real estate, but with more flexibility and choice. However, it is important to point out that the small and mid-size companies can be equally successful with workplace alternatives. These companies may not have a large facility, but the end-users are ultimately humans striving for a productive environment.

Opportunities of the Middle Market America is made up of hundreds of thousands of small to mid-size companies. Business owners may find it difficult to justify the reason to look into understanding their workplace flow and patterns as an important factor that can lead to increased productivity and reduced real estate. But offices with even 10 to 50 employees can implement the process of workplace planning and realize the benefits. Through the strategies presented in the accompanying chart — gained from experience — businesses can find a strong connection between real estate, a well-designed workplace, and company performance. The chart presents a few a guidelines to consider when developing cost-efficient and productive workplaces.

Implementation Timing THESE STRATEGIES CAN BE IMPLEMENTED WHEN A CHANGE IS REQUIRED. THIS CHANGE COULD BE IN: • COMPANY SIZE — Running out of space or too much space, or merging and acquiring • OFFICE LOCATION — Relocating, consolidating, or lease expiring • BUSINESS OBJECTIVES — Reducing rental costs, improving business performance, emphasizing employee retention • WORK ENVIRONMENT — Increasing mobility, flexibility, or agility • CULTURE — Collaborating, balancing work life and personal life • BRAND — Establishing a new vision or company mission As a business owner, create an office space that works for you. Don’t go overboard in trying to adapt everything that is out there. An office space should be designed with these alternative workplace strategies in mind, not forgetting your economic goals. Consult a workplace strategist or a designer and/or a real estate professional to help guide you through the process. Build on what you learn, and learn from what you build. Kanan Desai, RA, RID, LEED AP BD+C, is vice president at SCGroup Real Estate, a consulting and brokerage firm in Chicago. She advises her clients on design and workplace strategies, in addition to helping them locate alternative sites for their businesses.

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WorkplacePlanning

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PRODUCTIVE WORKPLACES: Guidelines to Consider

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“The WHO we are and WHAT we do” This is your company brand, your mission. By organizing brainstorm sessions internally with your management staff or externally with workplace and design professionals, a vision for the future success of the company can be established.

2

4

OPEN OFFICE VS.. ENCLOSED OFFICES

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TECHNOLOGY

REDUCING DESK

This has been a hot discussion for many companies in establishing the positive effects. Some of the benefits include increased communication, flexible space, reduced square footage, and increased daylight for productivity. While, on the other hand, the negative effects of noise, distraction, and reduced privacy need to be managed. Though this has been seen as a culture change, employees seem to embrace the situation. A combination of both types of offices helps achieve a good result.

We are connected with work 24/7. Today, employees are answering e-mails, conferencing, and connecting with team members at anytime. Establish mobility of staff and the necessity to be connected with them and your clients. Adapt and manage changes in technology that are relevant to your business. Allow employees to be mobile but stay connected to keep the work process flowing smoothly.

SIZE

There has been a historical decline in the amount of space assigned to an individual. This is relative to the digital age we live in and to account for less paper storage space. A typical workstation is now around 60 to 70 square feet per person. With reduction in desk space, there is now room to provide creative work zones giving employees a choice of location that can be innovative and agile.

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3MOBILITY

With today’s technology and smart workplaces, employees have an option to work as they move. Consider how many employees are mobile, how many can share workstations and, if at all, do they need an assigned desk?

COLLABORATIVE AREAS VS. CONFERENCING ROOMS Provide opportunities to collaborate more often. Instead of designing several enclosed conference rooms, provide more impromptu open collaboration areas. Many times these can accommodate an equal number of staff members, while at the same time reducing square footage requirements. This has also been found to increase employee engagement and creativity.

HUMAN FACTOR Design for employee retention. Provide spaces that promote a healthy environment and comfort. Provide a learning environment and mentoring opportunities. Face-to-face communication is important. Help employees manage the cultural change and there will be less resistance.

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SUSTAINABILITY Sustainable goals are plenty, but simply using

energy-efficient solutions, harvesting daylight, and employing strategies to reduce waste (real estate and material) can strongly impact your return on investment. Many of these ideas can be established by merely reconfiguring your current office or by using furniture and its systems combined with technology.

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AÉROPORTS DE MONTRÉAL

The Ideal Real-Estate Partner

Two World-Class Aero-Industrial Sites Aéroports de Montréal (ADM) and its two world-class airports, Montréal-Trudeau and Montréal-Mirabel, offer you the most favorable opportunities for locating or expanding your firm.

• An international airport with 24/7 cargo and general aviation operations • A regional base for business aviation • A unique motorsports complex • 24 all-cargo carriers

At the Heart of Montréal’s Aerospace Industry Greater Montréal is one of the world’s three aerospace capitals, along with Seattle and Toulouse. It is among the rare places in the world where all the main components of an aircraft are manufactured within a 20-mile (30-kilometer) radius. Nearly two-thirds of Canadian production is centered here. More than 250 enterprises are located at ADM’s two airports, generating a grand total of 60,000 direct and indirect jobs. Montréal’s aerospace industry boasts prime contractors, equipment manufacturers, among the world’s top subcontractors and suppliers, as well as a qualified and competitive labor force and unique training centers. The presence of all these key industry players explains why the Greater Montréal region is renowned for its leading-edge expertise in the design, manufacturing, integration, overhaul, and repair of aircraft and aeronautical subsystems.

Montréal-Trudeau: Ideal for logistics and aeronautics • 14 million square feet (1.3 million square meters) available for aeronautical development • Located in Québec’s industrial and aerospace heartland • 20 minutes from downtown and accessible via several highways • A 4,000-acre (1,620-hectare) site where more than 25,000 people already work • Canada’s largest MRO and aircraft manufacturing center • A congestion-free international airport • More than 30 carriers serving 130 destinations

Montréal-Mirabel: Focusing on all-cargo, aeronautics, light manufacturing, tourism, and recreational • 50 million square feet (4.6 million square meters) of land and buildings available for lease • Located in the Laurentians, Québec’s top tourism region • Easy access to all services and a quality labor force • An industrial zone where more than 4,000 people already work • Québec’s second-largest aerospace hub • An aerospace training center and engine test facilities

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FOLLOW THEIR LEAD! Aerospace design and manufacturing • Bombardier Aerospace • Mirabel-Mecachrome Inc. • Pratt & Whitney Canada • Aerolia Canada (safran group) Maintenance, repair, and overhaul • AeroToy Store • Air Canada • Air Inuit • Avianor Group • Innotech-Execaire Aviation Group • L-3 MAS • Kelly aviation • Nolinor Training • École des métiers de l’aérospatiale de Montréal (annexe Mirabel) Engine test centers • Pratt & Whitney Canada Logistics distribution centers • Aeroterm • FedEx • Purolator • Spire Freezers • Everest Cold Storage

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Real Estate and Commercial Services

Aéroports de Montréal Telephone: 514-394-7201 Fax: 514-394-7356

www.admtl.com

03/10/13 7:47 PM


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MIRABEL

DORVAL

Countless opportunities.

Infinite possibilities.

Location, location, location. To be at the heart of one of the world’s aerospace capitals – that’s why developers like you are choosing to do business in Greater Montreal. By setting up shop here, you’ll be in close proximity to two world-class industrial sites, Quebec’s highly-skilled workforce, and a network of the world’s top suppliers and subcontractors.

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And with the vast amount of commercial space available, you’ll have plenty of room, not only to get your business started but to take it wherever you want to go. By choosing to develop in Greater Montreal, you’re investing in the success of your business.

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ADONov2011Fullpage

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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, White Papers: Aggregated from the top consultants, think tanks and institutions, and distilled into usable information • Reviewable Archives: Search the Area Development archives for content, opinion, and reports spanning the last five years from the top industry minds

Visit – www.areadevelopment.com

Providing What Others Don’t


TopTenSite

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3:17 PM

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The articles that follow examine the top-10 site selection factors from our Q1 Corporate Survey. Labor costs, skills, and a nonunion environment are top of mind; highway access is key; and tax rates and exemptions deserve close scrutiny. Find out what else your company should consider when making its next location/expansion decision.

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#1

Labor Costs

Keeping the Cost of Labor in Check Although labor costs seem to trump all other factors, they must be analyzed as part of overall operating expenses. According to a 2012 survey of business leaders by Boston Consulting Group, 57 percent of all respondents indicated the top factor driving future location decisions is cost of labor. This was also the number-one factor in the site and facility planning decisions of more than 90 percent of those responding to Area Development’s 2012 Corporate Survey. “There is no question that the true balancing act in site selection involves maximizing labor and skill set value-add, while minimizing the cost functions surrounding it,” says Thomas Stringer of Business Advisory Services, Ryan & Company. “Labor tends to dominate the equation for most of our site selection projects,” agrees John Boyd, principal for The Boyd Company, a site selection consulting firm in Princeton, N.J. “In particular, what varies the greatest are the nonexempt labor costs — typically hourly positions — that fall under federal wage and hour legislation mandating overtime compensation. Exempt salaries — those positions in supervisory or management — tend not to vary significantly by geography.”

COSTS OF BEING UNIONIZED “Right-to-work” states typically have lower wages and are less unionized — two factors that are highly attractive to manufacturing companies. About half the states are right to work — in December 2012 Michigan became the 24th right-to-work state. According to reporting by The Wall Street Journal,

“Private-sector employees in right-to-work states earned an average of $738.43 a week in the past 12 months, 9.8 percent less than workers in states without such laws; according to Labor Department data, that didn’t include healthcare and other benefits.” As might be expected, manufacturing employment grew 4.1 percent in right-to-work states over the past three years, compared with less than 3 percent in other states. However, some economists also say that, when differences in cost of living are taken into account, wages are roughly the same — or even higher — in right-to-work states.

LABOR PRODUCTIVITY The Economics and Statistics Administration (ESA) indicates that American workers continue to increase their productivity. U.S. unit labor costs dropped nearly 17 percent between 2000 and 2011, meaning that productivity rose faster than labor costs. “This is not the situation in many countries that historically have been considered attractive destinations for outsourcing,” states ESA economist David S. Langdon. “In the case of China, for example, wage increases have easily outpaced labor productivity growth. As a result, economy-wide unit labor costs in China have ballooned by more than 85 percent since 2000. Canada and South Korea also face rising unit labor costs, with gains of 21 percent and 9 percent, respectively.” Boyd adds that wages in China are rising at an annualized rate of about 20 percent. “Much of the early labor savings in low-cost countries like China is now being trumped by hidden waste and overhead costs and a risky and over-extended supply chain bloated by soaring diesel prices,” he says. Langdon agrees. “Some companies have found the expected savings from foreign labor have been whittled away over time in numerous and unexpected ways,” he notes. “For example, specialized footwear manufacturer Keen cited the changing dynamics of

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(2000=100)

training costs. Labor overseas labor costs as costs are an important key in its decision to Indexed Unit Labor Costs in the Manufacturing 180 factor, but they should expand its U.S. manuSector of Selected Countries, 2000–2011 be analyzed as a part facturing operation.” of other operating Most companies, 160 China (economy-wide) costs such as tax rates, adds Larry Gigerich, utility costs, transportamanaging director for 140 tion costs, and real Indianapolis-based site Canada estate costs.” selection firm Ginovus, 120 are not strictly chasing South Korea Note: The the lowest labor costs 100 Department of they can find in a given Germany Commerce recently location. “There is a United States 80 introduced the balance between 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Assess Costs affordable labor costs Everywhere tool and quality of the Source: Economics and Statistics Administration analysis of data from Bureau of Labor (http://acetool. employee’s work,” he Statistics, International Labor Comparisons program and National Bureau of Statistics of China commerce.gov), which says. “Companies can outlines the costs and certainly pay lower risks firms need to weigh when considering manufacwages, but they are then typically faced with higher turing and supply chain locations. turnover, quality challenges, and significant internal

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#2

Highway Access

The Road to Profitability

A business won’t go anywhere without easy access to well-maintained, high-capacity highways that connect to customers, distributors, and shippers. This is especially true for the logistics and manufacturing industry sectors, where transportation costs typically account for more than 60 percent of all supply chain costs. That’s why excellent highway connections are essential for a wellfunctioning supply chain, as well as for the on-time delivery of goods to the marketplace. For some site selection projects, highway access should also be viewed in terms of the visibility it creates and ease of access for the work force, especially for labor-intensive operations like call centers and customer service centers. Access to public transit, signage, and the ability of applicants to readily recognize and find the hiring site are all part of the access equation.

for United Parcel Service, recently testified to the U.S. House of Representatives’ Committee on Transportation and Infrastructure that, “if every UPS delivery vehicle is delayed just five minutes each day, it would cost UPS an additional $105 million annually.” This means good highway connections make a huge difference to controlling operating costs and elevating customer service performance. Some companies embrace large centralized/regional facilities, while others prefer smaller market-centric facilities. Companies that are delivering products direct to customers or customer outlets tend to prefer the regional/market-centric facility approach to ensure delivery speed and minimize “last mile” delivery costs. Companies shipping raw materials and/or component parts to other companies tend to have larger and more centralized facilities. Columbus, Ohio, and Indianapolis, Indiana, have been very successful in leveraging their transportation systems to attract business investment. Finish Line’s recent expansion project in Indianapolis exemplifies this trend. The company announced it would create over 300 new jobs by 2015 in a multi-million dollar expansion. Part of this investment will strengthen its distribution system to take better advantage of the four interstate highways that intersect in Indianapolis, providing north-south and east-west transportation connections.

MINUTES MATTER

INTERMODAL’S ROLE

Highway transportation by truck is often the first domestic stage of shipping for many products — the closer a company’s facility is to interstates and state highways, the faster the products are delivered. “The rule of thumb is ‘5 to 55’ — meaning taking only five minutes to get to 55 miles per hour,” says Tim Feemster, managing principal for Foremost Quality Logistics in Dallas, Texas. The bottom line is that every minute matters. For example, David Abney, chief operating officer

Depending on the company and its markets, interstates and state highways that connect directly to intermodal centers (rail, port) are essential for crosscountry or international delivery of products. Key intermodal sites include the Alliance Intermodal Terminal north of Dallas/Fort Worth (connecting BNSF and interstates 20, 30, 35, and 635); San Antonio Intermodal Terminal (Union Pacific, interstates 35 and 410); and CenterPoint Intermodal Center outside Chicago (BNSF, Union Pacific, interstates 55 and 80).

A well-connected location is essential for accessing suppliers and customers, as well as connecting to intermodal hubs leading to the global marketplace.

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Eastern states with strong connections between their highway systems and deepwater ports — such as Florida, Virginia, Maryland, and South Carolina — will likely see more warehousing and distribution activity with the Panama Canal expansion in 2014. The addition of a new highway can transform the economic potential of a region. For example, an interstate has been proposed that would connect Las Vegas and Phoenix, two of the largest metropolitan areas in the Southwest. The proposed interstate, I-11, would also help make Las Vegas Valley cities like Henderson and North Las Vegas distribution hubs in the Southwest, as well as reduce local traffic congestion. Business executives, labor union leaders, and politicians are all behind the project — the hard part now is coming up with the funding — at state or federal levels.

Financing highway construction is one of the most critical issues facing Congress. The Highway Trust Fund is in big trouble — in April 2013 the Congressional Budget Office (CBO) reported, “The current trajectory of the Highway Trust Fund is unsustainable. Starting in fiscal year 2015, the trust fund will have insufficient amounts to meet all of its obligations, resulting in steadily accumulating shortfalls.” Revenue for this fund is largely generated by excise taxes on gasoline and other motor fuels, which have declined steadily because Americans are driving more fuel-efficient cars and spending less on gas. According to the CBO, these taxes come from an 18.4 cent-pergallon tax on gasoline and ethanol-blended fuels and a 24.4 cent-per-gallon tax on diesel fuels. Those taxes were last increased in 1993.

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Highway Accessibility Underpins Location Decisions Few aspects of an area’s competitiveness are more fundamental than its infrastructure systems, and no other infrastructure system exerts a more elemental influence on a facility’s location than the complex of highways that will serve it. Accordingly, Area Development’s annual Corporate Survey has consistently ranked highway accessibility among the top-five location factors.

A Basic Need While corporate decision-makers, economic developers, and site selection consultants often overtly concentrate on seemingly sexier location decision factors, highway accessibility is never out of mind. Whether it delivers workers, materials, services, goods, or emergency vehicles — or provides entry to markets and customers — an area’s highway system is basic to business operations. Further, the efficiency of that highway system enables informed decisions as to which modes of transport will best achieve a company’s time-to-market objectives. Although highway systems are among the least elastic and most expensive and time-consuming to construct, they are also among the most effective at stimulating new investment. Numerous examples exist to demonstrate this proposition, and one fact is inescapable: highway accessibility exerts a preponderant influence on the distribution of economic activity throughout the United States.

Interconnected Modes A rail-served site is often key, with strong emphasis on competing carrier access. Some preference for a connection to a main-line carrier is appropriate, although shortline rail carriers are playing ever-larger roles today, as major carriers concentrate services on higher-volume tracks in denser markets. A rail yard or transloading facility is frequently desirable in close proximity. As with the air transport considerations noted below, each transport component relies heavily on highway access and ease of use to carry out its role efficiently in the business process. Air transport is often critical for customers, suppliers, vendors, and company executives alike as we move deeper into a truly global economy. Typically, proximity to a hub with flights to primary destinations is a preferred, but not absolute, requirement. Most North American operations have fairly common domestic destinations and often enable businesses to source high-value materials or services from distant suppliers. Such reach becomes more advantageous when combined with good highway access. The need for waterborne transportation will vary with each project depending on where components are sourced, the nature and volumes of the commodities shipped, and their ultimate destinations. In many cases, containerized subassemblies, components, or finished goods may be coming from South America, the Caribbean, Asia, or Europe, and a link to a deepwater port via rail and interstate highways is important. Under any conditions, highway accessibility provides the essential connection among all modes of transport in use.

Transportation infrastructure is crucial to virtually every facility for access to people, support services, just-in-time materials delivery, and end-product distribution. Moreover, logistics costs comprise the single largest variable cost category for production and distribution. Inefficiency in any one aspect of the supply chain Highway accessibility is often echoes throughout the entire operation, often in an assumed, but not always explored unfortunate way. openly in site selection discusAlthough it may be a sions. Arguably, it may very well be factor that’s taken for Transportation cost, reliability, highway access, and granted, highway a factor that we take for granted. market connectivity are all interconnected. An interaccessibility undeniably Nonetheless, highway accessibility state-quality highway with dual access is highly desirforms the essential undeniably forms the essential nexus between workers, able for large-scale manufacturing and distribution nexus between workers, suppliers, suppliers, producers, facilities. At the site level, redundant ingress/egress producers, distributors, and mardistributors, and points on high-quality, public secondary roads are kets. And while it may be supmarkets. important, not only to minimize potential barriers to planted from time to time by other access, but also to ensure access for fire-fighting, decision factors — such as labor emergency medical, police, and other essential servavailability or energy cost — highway accessibility will ices. Additionally, assurance of adequate design stanremain near the top in its enduring influence on the locadards to accommodate commercial traffic needs careful tion of new business investments. attention. Appropriate controls for truck access and employee vehicle access are also important, as is highway Excerpted from an article by David V. Brandon, access for other transport modes coincident with highSenior Vice President, Site Selection Group, LLC, ways. Considered together, transportation and infrastructhat appeared in the August/September 2008 issue ture factors converge at the highway to promote or conof Area Development magazine strain commerce.

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ThreeSkilledLabor

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Skilled Labor Availability

Workers Who Have the “Right Stuff” Having a pool of highly skilled workers can tip the balance in a location’s favor. Finding highly skilled labor is the numberone driver for nearly every site-selection decision. Companies are increasingly seeking more refinement in identifying specialized skill sets as their labor needs become more specialized. For example, the software development field has an extensive array of specialties and certifications that can be critical requirements for employers — yet there is very little reliable data on the depth of these specialties across markets. “The best method to evaluate the depth of the market for these specialties is to put the data aside, roll up your sleeves, and start talking to experts in the market,” says Mark Seeley, senior managing director for CBRE’s Labor Analytics Group in Phoenix, Arizona. “HR managers and recruitment agencies can provide a wealth of insight into the availability of highly specialized skill sets. While this can be a time-consuming process, it is also highly enlightening and provides insight into local labor dynamics that go well beyond what the data can tell you.” CBRE Labor Analytics Group recently completed a relocation project for a large financial services company that required 350 corporate IT jobs. Because these workers required such specialized skill sets, the site selection criterion was highly focused on the supply, skills, and costs of the available work force. After conducting a nationwide search for the financial services company, the client selected New Orleans as the final location for its IT center of excellence. “The operation has been open for approximately 12 months and has already measured a 25 percent increase in productivity,”

says Seeley. “They attribute a large part of this improvement to the skilled labor force they found in New Orleans.” John Boyd, principal with site location firm The Boyd Company in Princeton, New Jersey, has worked extensively in the pharmaceutical sector, helping locate GlaxoSmithKline’s Stiefel Laboratories to North Carolina’s Research Triangle Park and Melbournebased Mayne Pharma to Montreal. Requirements for both projects included finding clusters of highly skilled scientific and technical talent in the life sciences to staff these expanding operations. “Many site-seeking clients, especially in the life sciences sector, don’t want to be the ‘pioneers’ who go first into a city or region,” says Boyd. “The successful retention of key management and technical staff in the initial move, and the ability to recruit top talent nationally in the years ahead, will be severely compromised if transferees or applicants feel that, if the current job does not work out, they have limited options in the same field in that city.”

WORK FORCE DEVELOPMENT CAN HELP Companies also like to have access to state-run work force development departments that are eager to help design pre-employment assessment and selection processes for identifying the best job candidates. Some states also provide low-cost or zero-cost, statemanaged training programs to tweak the skill sets of new employees, if needed. Georgia’s program —Quick Start — is one of the most renowned in the nation. “The Atlanta, Charlotte, and Nashville regions are doing some excellent work in work force development to match employers and employees, including delivering credential/certification programs for residents in their areas,” says Larry Gigerich, managing director for Ginovus, a site selection firm based in Indianapolis. “This focus in Atlanta and the state of Georgia was critical to ExactTarget’s decision to add

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about 500 new employees 200 positions in Atlanta over the next five years. during the next three to New positions will include five years,” he adds. production workers, toolExactTarget, a digital makers, manufacturing marketing software-as-aengineers, and product service provider, will invest design engineers. $1.25 million in the expan“There is a phenomenal sion. Top site selection facwork force in this area,” tors the company focused states Sturm, Ruger, and on included a talented Company President and work force with solid IT Stiefel Laboratories’ global headquarters, Research Triangle Park, N.C. CEO Mike Fifer. “We’ve had skill sets, advanced IT infratwo job fairs and the structure, and low operatresponse has been tremendous — the caliber of the ing costs. potential employees is really impressive.” Advanced manufacturing is another industry that requires highly skilled labor, especially with computerized equipment and assembly operations. That’s one “SKILLS” AND “QUALITY” reason firearm manufacturer Sturm, Ruger, and Company will invest $26 million in a new manufacturSome companies confuse “skills” with “quality.” ing plant in Rockingham County, North Carolina, hiring Companies want both, of course, but the methods

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Skilled Labor Availability

Manufacturing Heats Up! Oswego County Companies Compete Globally. “We considered expanding at our existing facilities in Ohio, Texas, UK and China. We chose Oswego County because it’s a pro-business community with excellent educational resources that provide a skilled workforce with a get-it-done attitude.” – Kevin LaMontagne, CFO, Fulton Companies, maker of commercial boilers

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used to evaluate these factors can vary widely. Data can be used to evaluate a market’s depth of certain skills (although, as skill requirements become more specialized, data integrity erodes and more “boots on the ground” methods are required). Evaluating “quality” — a blend of work ethic, attitude, and skills — is a far more subjective process that is not easily defined by data. Measuring the cost impact of locating in a market with a larger talent pool of higher-quality, highly skilled labor is very difficult, because it impacts each

company differently. However, a company is likely to see substantial savings from the benefits of the higher productivity that are often associated with a skilled labor force. “By locating in a market that provides a deep base of the requisite skills, companies will experience shorter training cycles, lower turnover, and overall improvement in operational performance and efficiencies,” says Sean Carman, senior director for CBRE’s Labor Analytics Group. “All of these things have a positive effect on a company’s bottom line and profitability.”

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Advanced ICT Services

“Connected” Locations Support Innovative Companies Locations offering a robust telecom infrastructure — with adequate speed, choices, and bandwidth — are becoming hotbeds for technology development and entrepreneurship. Information and communications technology (ICT) is all about connectivity and speed — telecommunications and wireless, Internet capability, fiberoptic networks, back-up systems, and the integrated software that makes it all run smoothly together. U.S. companies are doing more business globally, so it is more important than ever to have advanced ICT systems in place that can handle all business needs, including the transmission of big data. Perhaps more important than the technology itself, cities that invest in advanced ICT services are showing a commitment to the future that companies find attractive. Most high-tech companies have needs for advanced ICT services to increase the speed of delivery of their products and services. Location consultants agree that ICT is an especially important factor for companies that are pursuing a data center or shared-services type of facility. Telecommunications infrastructure, including multiple carriers and redundancy, are critical issues for these types of projects. Speed, choices, and bandwidth can impact a region’s competitiveness when trying to attract and grow these facilities. Places like Austin and Salt Lake City/Provo have done a great job of attracting these types of projects. Therefore, it’s no surprise that these two locations are consistently ranked among the top cities for technology development and entrepreneurship. Austin, for example, was ranked as the second-best hotspot for

technology start-ups by Payscale.com in 2012 and was ranked fifth among major cities as a technology market by Jones Lang LaSalle in 2012.

ULTRA–HIGH-SPEED OFFERINGS Google Fiber has announced it will enter both the Austin and Provo markets — attracted by the high-caliber ICT infrastructure that can handle its ultra highspeed gigabit Internet offerings. Only a few cities have the fiberoptic networks that Google Fiber or other gigabit Internet services require. Atlanta is also well known for its ICT infrastructure, which supports a booming health IT industry. Seven top Atlanta-based health-related IT companies generate nearly $4 billion in revenue every year. In terms of overall technology, Atlanta is among the fastest-growing high-tech metro areas in the country, with 13,000 technology companies employing more than 260,000 people. This kind of rapid cluster development is only possible with a top-notch ICT infrastructure. Two of the country’s largest fiberoptic routes — north/south and east/west — cross in metro Atlanta, placing the city in the top-five U.S. markets for total bandwidth and fiber access. This kind of robust cluster growth and ICT support continue to attract new business development to the city. For example, Athenahealth, a provider of cloudbased services for electronic health records, practice management, and care coordination, will undertake a $10.8 million expansion in Atlanta. In addition, PointClear Solutions, a leading healthcare software development provider, recently announced plans to relocate its corporate headquarters to Atlanta. “We made the decision to move our corporate headquarters to Atlanta due to the large footprint of health IT companies and the breadth of academic and technology resources it offers,” noted David Karabinos, CEO of PointClear.

FourAdvancedICT

Technology continues to support all of our businesses and availability of advanced ICT services stays top of mind with many corporations when considering relocation. Brett Hunsaker, Executive Vice President, Regional Managing Director, Newmark Grubb Knight Frank

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FiveOccupancy One pager

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Occupancy and Construction Costs

Costs of a New Vs. Existing Facility Of course, it’s less expensive to rehab an existing facility than go with a build-to-suit, but the latter will give a company a custom fit. One of the most critical site selection factors for any project is occupancy and construction costs. Although it is one of the biggest expenses a company faces during a relocation or expansion, it is a fairly predictable cost that is generally not complex to determine and factor into budgets. There are also some key options associated with occupancy and construction — it may be more costefficient to move into an existing building compared to constructing a new facility, for example. It is also easier to get up and running when leasing or purchasing an existing facility, compared to waiting on a construction project — especially if funding is a challenge. However, if a company is highly specialized, it may prefer constructing its own building that totally fits its needs. Construction costs — including site acquisition, site preparation, and installing infrastructure — can often be discounted through incentives from local and state governments. Land may even be donated to the company for the project.

CONSTRUCTION LABOR & MATERIAL COSTS The larger the rehabilitation or construction tab, the more important the cost differences become in the site selection process. Construction costs are mostly tied to labor and material costs. As a result, the main difference from location to location will be labor costs for construction, since material costs are about the same across the country. Construction labor costs can also be impacted by whether the area is experiencing a construction

boom or is struggling economically. Construction labor costs can vary by up to 10 percent or more depending on the region — this difference can have a big impact on an expansion/relocation budget. Site selection experts often consult the RS Means Construction Cost Index for the latest material and labor costs across the country. Presented by Reed Construction Data, the index tracks construction cost trends from January through December, with reports issued every quarter. Cities that show higher construction cost trends over the last year or two may have more difficulty competing with other locations on the short list.

VARIABLE ACROSS REGIONS Just like construction costs and labor costs, occupancy costs also vary dramatically from region to region. For example, according to CBRE’s December 2012 Prime Office Occupancy Costs report, occupancy costs in downtown San Francisco increased to $90 per square foot from September 2011 to September 2012 — a 36 percent jump. In Seattle the increase was closer to 22 percent. These trends are driven by the resurgence of high-tech companies in these areas as the economy improves. Oftentimes, site selection consulting firms maintain their own proprietary databases. The Boyd Company of Princeton, N.J., put together such a database for a manufacturing client in the metalworking sector. Key considerations included a work force of 225 people, land acquisition (25 acres of fully serviced, industrially zoned land), construction of a 140,000-square-foot light industrial building, and local property and sales taxes. Land and construction costs were amortized over 25 years at 5 percent interest. According to Boyd’s database, annual occupancy costs (land, construction, property, and sales taxes) for this project ranged from a high of $6.8 million in Toronto to a low of $3.3 million in Greenville, South Carolina. (Go to our website to see the online comparison table.)

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SixEnergyAvailibility

10/25/13

#6

10:51 AM

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Energy Availability and Costs

While some operations are more energy-intensive than others, reducing energy costs is always an important consideration in the location decision. Every development needs energy — it would be difficult to work in the dark. But how big a factor the availability and cost of energy is depends a lot on the kind of development. “The two main types of projects most sensitive to energy costs and availability are data centers and manufacturing,” says Ginovus’ Managing Director Larry Gigerich. “Data centers tend to consume a lot of energy, whether they’re a single location or collocation. Not only [are they] cost-sensitive, but also having energy availability from multiple sources [is important]. Often the requirement is to have direct feeds from two different substations and transformers.” While manufacturing operations also tend to take big gulps of energy, it’s not always electricity. In fact, says Gigerich, the plunge in natural gas costs has changed the playing field a bit. “In a lot of cases they’re trying to do more using natural gas as a part of the manufacturing process,” he explains. In any case, energy is a big deal. “A few locations are really good and competitive for electric costs,” Gigerich says. The Mountain/West part of the country has been quite attractive for data centers, he points out, with the prevalence of hydro power a significant reason. “Those areas offer not only an abundance of energy but the price point is attractive.” Of course, many companies require data centers in more than one region. “If data centers are geographically dispersed, the Midwest is attractive,” Gigerich adds. The U.S. Energy Information Administration’s most recent annual report shows industrial rates averaging

“ 36

the lowest in the West-South-Central States — Arkansas, Louisiana, Oklahoma, and Texas — followed closely by the Mountain States and the West-NorthCentral States ranging from the mountains in the west across toward Minnesota, Iowa, and Missouri. Industrial rates in the East-South-Central region that includes Tennessee, Kentucky, Alabama, and Mississippi are nearly as low, too.

REDUCING COSTS For larger companies, there are ways to make energy cost less of an issue, even for sites in areas that tend to have higher energy costs, says John E. Robbins, cofounder and principal of Turner & Townsend Ferzan Robbins. “These days we’re dealing with a lot of clients having great success on the energy side by buying bulk power,” he explains. Power is still delivered by the local utility, but sourced through a national contract. “Companies well represented across the U.S. are able to bulk-buy their power needs at better rates. They’re able to really bundle their business across the country.” And eBay’s new data center in South Jordan, Utah, offers an example of an additional twist. Utah already enjoys favorable electric rates, but the new center is employing fuel cells as a primary source of energy. It’s also connecting to a waste-heat recovery system that will generate power using the waste heat from the pipeline that delivers natural gas to the site. An indirect energy-related factor is the climate — while the site is subject to desert heat during summer days, it’s a generally cooler-than-average location, which means less energy used on cooling the racks and racks of servers. A relatively new General Motors data center in Michigan enjoys a similar energy-related benefit. Green energy considerations also come into play at Google’s data center in Pryor, Oklahoma. Like Utah, it’s a location known for reasonable energy rates, but Google is buying the entire output of a Texas wind farm to help offset the power consumption of the Oklahoma center.

Powering Up While Keeping Costs Down

Smart technology — in electrical grids and in building automation — can not only help reduce the frequency and damage of power failures, but also pay for itself quickly through reduced energy usage and cost.

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10/24/13

12:45 PM

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#7

Corporate Tax Rate

Keeping Government’s Hand Out of the Company Coffer Although corporate tax rates figure more prominently into some location decisions than others, there’s generally an overall tax bite — including property and sales taxes — that needs to be looked at carefully.

during the early years, it’s not going to be as much of a deciding factor.” On the other hand, the activities at some locations are expected to generate large profits, and in those cases, the corporate tax rate is a much more significant consideration, Buelow says. Further, “corporate income tax rates are much more important when you’re looking country-tocountry than when you’re looking just in the U.S.,” he adds. “Then, all of a sudden you have the federal rate involved.”

TYPE OF CORPORATION

DEPENDENCE ON PROFITABILITY In fact, if it’s early enough in the deployment of a new manufacturing facility or other project with high startup costs, corporate income tax might not be due at all. “There are lots of deployment projects where the deployment isn’t expected to be profitable for the first several years,” says Darin Buelow, principal and the national leader for Deloitte Consulting’s Real Estate and Location Strategy Practice. “They’re not going to be paying state corporate income taxes while they’re chewing through those net operating losses,” he explains. “If you’re not profitable because of all of the capital expenditures you put in

Another important distinction involves the type of corporation. “A lot of small businesses file as S corporations,” Buelow says, which means profits may end up on the individual tax returns of the owners. “They’re going to be paying tax on corporate profits, but at a personal income tax rate.” C corporations, on the other hand, will owe taxes at the corporate rate, putting that rate more into play in a decision. What about those states that don’t have a corporate income tax at all? It pays to look closely. Ohio, for example, has a commercial activities rate instead, and taxes are collected on all revenues, not just profits. It’s not that one is better than the other, notes Buelow — they’re just different, affecting various companies differently, and Ohio formerly had a corporate income tax. “Most examples would suggest that Ohio businesses that were in place before and after the switch tend to pay a little bit less than they were.” The bottom line, Buelow advises, “A wise site selection team is going to look at all the taxes in play, such as corporate income tax, property tax, sales tax. The state is going to get its money for operations somewhere.”

It’s not a surprise that everyone wants lower taxes, so it makes sense that corporate tax rates are a key factor in site selection decisions. “It goes into every decision,” says Mark Sweeney, senior principal with McCallum Sweeney Consulting. How much it goes into every decision, though, can vary quite a bit, he adds. “If it’s a branch manufacturing facility for a large company and they do have a presence, they would have to pay some, but the burden isn’t particularly onerous. In most projects, it’s not frequently the key.”

When tax competition leads taxing authorities to create lower, simpler taxes, it’s a good thing… Regardless of the type of tax competition — good or bad — [taxes] do in fact matter to businesses. If they did not, why would states offer such lucrative tax incentive packages to firms, attempting to lure them in? Lyman Stone, Economist, the Tax Foundation’s Center for State Tax Policy

AREA DEVELOPMENT | Q4/Fall 2013

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EightAvailableBuildings

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#8

1:09 PM

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Available Buildings

Existing Facilities Satisfy Demand for a Quick Project Turn-Around The economic downturn left a lot of available buildings on the marketplace, although not all have the infrastructure needed by specialized firms. It’s hard to find many silver linings connected to the Great Recession. But for some companies planning facilities, the recession left behind the gift of available real estate. That’s helpful, because the availability of buildings moved from 15th to eighth on the list of most prominent factors in Area Development’s 2012 Corporate Survey. “No question existing buildings have become more important,” says Larry Gigerich, managing director of the Indianapolis-based site selection consulting firm Ginovus. “As you look at the last few years, there’s been a slow, steady economic improvement,” he says. “In this economic environment, companies have tended to wait as long as they can to do a project. If they have to invest capital and hire people, they want to make sure there’s momentum in their business, and they want to be sure they have done everything they can to leverage their facility and their people.” That kind of timetable, says Gigerich, often rules out build-to-suit. “They want to go quickly because they waited as long as they can,” he says. Such a strategy works hand-in-hand with the supply of buildings, at least in some markets. “Because of the downturn, there are a lot of quality buildings available,” he notes. He cites Columbus, Ohio, as an example, noting that a spec building spree had taken place just before the economy tanked. Yesterday’s problem is today’s opportunity. “They’ve had a lot of good quality buildings available,” Gigerich adds.

on the decline for eight straight quarters, to just over 8 percent. Available spaces vary significantly from one place to another, of course. According to Colliers, going into 2013 the vacancy rate in Las Vegas, for example, was three times the rate in Omaha. New construction, meanwhile, is increasing but, not surprisingly, it’s primarily build-to-suit. In fact, some of the fast-growing users have little use for available buildings because their needs are so specialized, according to Rich Thompson, managing director and leader of the Supply Chain and Logistics Solutions practice at Jones Lang LaSalle. That includes big e-commerce companies in search of distribution space; they’re more likely to go build-to-suit. “They’re really defining exactly what it needs to look like — how high the ceilings are, the column spacing,” he says. “There are very few buildings existing that can fit their requirements.” Data from Cassidy Turley shows ongoing improvement in the industrial sector, slowly drying up the roster of available buildings. “Among the primary demand drivers fueling the gains are the auto sector, housing construction, e-commerce, and manufacturing of durable goods,” according to the real estate firm’s U.S. Industrial Trends Report for the second quarter of 2013. Available buildings and space certainly can’t be found everywhere, or across all kinds of property. For example, John E. Robbins, co-founder and principal of Turner & Townsend Ferzan Robbins, does a lot of Manhattan office work. “By and large, for large tenants with multiple floors, the inventory is pretty limited in buildings that they find acceptable,” he says. And what tenants find acceptable has a lot to do with IT infrastructure. “Even companies that five years ago would have been less sophisticated in their technology needs are looking for buildings that have robust infrastructures.”

MARKET INDICATORS U.S. INDUSTRIAL SECTOR

AVAILABILITY IS MIXED The generous supply of available industrial buildings has been steadily declining in a lot of markets, though, as the economy has slowly recovered. Colliers International tracks vacancy rates and, in the company’s mid-year 2013 report, noted that U.S. industrial warehouse and distribution center vacancies had been

Net Absorption Vacancy

2013 2Q

TREND

(FROM PREVIOUS QTR.)

26.7msf 8.5%

Asking Rents

$5.06

Under Construction

45.5msf

Source: Cassidy Turley Research AREA DEVELOPMENT | Q4/Fall 2013

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Tax Exemptions

Making a Dent in the Tax Bill With Exemptions

VALUABLE ADDITION TO THE BOTTOM LINE

Although there are variations in which taxes are exempt in different jurisdictions, they not only offer an upfront break when a facility is being deployed, but also can result in ongoing tax savings. Considering just the base tax rate is kind of like knowing the initial charge on a bill from the doctor’s office — nobody wants to pay that much, and few people ever do, once all of the discounts and deductions are figured in. That’s why tax exemptions are a key factor in choosing a site. Certainly, the base tax rates are important, but exemptions can make a big dent in the tax bill. Actually, there are a number of ways the initial tax bill can be reduced — one is through tax exemptions, and the others are similar but with their own twists, says Darin Buelow, principal and the national leader for Deloitte Consulting’s Real Estate and Location Strategy practice. Most prominent are tax exemptions, tax credits, tax rebates, and tax abatements, he says, and “all four have different nuances.” The key to exemptions, Buelow explains, is that “you never have to pay the tax. With tax rebates, you have to pay the tax, but assuming you do X, Y, and Z, you can get it back.” He adds, “With tax credits, it’s like a bucket full of credits. You typically apply them to state income taxes, and once you use the credits up, they’re gone.” Abatement, he says, seems a lot like an exemption in that you don’t have to pay a certain tax, though it’s typically for a set length of time, and the amount of the reduction may diminish as time passes until it eventually sunsets.

Tax exemptions, says Buelow, most often apply to sales taxes, and they often drive some sort of public policy goal. A state may, for example, levy sales tax on all purchases, but exempt the purchase of machinery and equipment that will be used in the manufacturing process. That can be quite valuable, says Mark Sweeney, senior principal with McCallum Sweeney Consulting. If there’s normally a 5 percent sales tax but such equipment is exempt, that’ll save half a million dollars on a $10 million capital investment. Some states also exempt various components that go into the manufacturing process, from raw materials to energy — that not only adds to the value of the exemption, but makes it an ongoing savings, not just an upfront break when the facility is being deployed. “One exemption that’s getting a little more common is a sales tax on the construction materials used for a factory,” Sweeney says. Buelow adds that states interested in attracting distribution centers are exempting such things as warehouse conveyors, racks, and forklifts. “On the property tax side, there are classes of property that are sometimes exempt, as opposed to an abatement. The most common is pollution-control equipment,” says Sweeney. Property tax on inventory may also be exempt, depending on the jurisdiction. Suffice it to say, as Buelow notes, “It’s complicated. There are a lot of variations.”

Many communities…offer targeted economic development incentives — such as sales tax exemptions — that reward companies for capital expenditures. —

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Low Union Profile

Union Activity Can Be a Deal Breaker In order to be able to keep wages in check and maintain a flexible operating environment, many companies put low union profile high on their list of site selection priorities.

Much has been written about the declining influence of labor unions in the United States, and it would not be terribly surprising to see union-related factors drop in relative importance as time goes on. For now, 73.5 percent of the respondents to the Area Development 2012 Corporate Survey list low union profile as either “very important” or “important,” but that’s down several points from the year before. Check stats from the U.S. Bureau of Labor Statistics and it’s easy to see why. In 2012, 11.3 percent of employees were union members, down half a percent from just a year earlier. Two decades ago, that figure was about 20 percent. But union profile is certainly not a moot point just yet, and in fact is a big part of a site’s labor considerations, says Rich Thompson, managing director and leader of the Supply Chain and Logistics Solutions practice at Jones Lang LaSalle. “It’s probably the very first filter from a labor perspective,” Thompson notes. “For manufacturing, it’s near the top of the list,” Larry Gigerich, managing partner with Ginovus in Indianapolis, says of low union profile as a location factor. “We’ve seen it a little more on the logistics and warehouse side as well.” “From a distribution standpoint it usually is a factor, if it’s a fairly decent-sized facility,” Thompson agrees. “But there are certain markets when you can’t get around it.”

PERCEIVED ACTIVITY When it comes to how the union question plays a role in decision-making, “Number one, you start with perceptions,” Gigerich says. But it’s also important to take a closer look at unionization activity to get a sense of how things are trending. As for where things are at present, “all states in the Middle Atlantic and Pacific divisions reported union membership rates above the national average, and all

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states in the East-South-Central and West-SouthCentral divisions had rates below it,” according to the latest unionization report from the BLS. South Carolina, Arkansas, and North Carolina had the lowest rates of union membership, while New York, Alaska, and Hawaii were at the high end of the spectrum. It’s an important topic for a number of reasons. The most obvious is the rate of pay commanded by union members. According to the BLS, last year union members had a median usual weekly paycheck of $943, compared with $742 for non-union members. That can easily impact not just those workplaces where the unions operate, but nonunion employers that must compete for workers.

STEERING CLEAR OF UNIONIZED AREAS But it’s not just the money, of course. Companies that put low union profile high on the list are eager to steer clear of potential disruptions in their operations, as well as any potential impediments to the kind of workplace flexibility they see as essential to being globally competitive. With that in mind, many site selection professionals will cross a location off the list right from the start if it’s in an area with very active unions — and they may even steer clear of entire states if they’re not right-to-work states. Mark Sweeney, senior principal at McCallum Sweeney Consulting, Greenville, S.C., says 100 percent of his manufacturing clients express a preference for operating a nonunion facility because of workplace flexibility, “which allows companies to compete more effectively and respond in a more timely manner to opportunities in their highly competitive global markets.” According to John E. Robbins, co-founder and principal of Turner & Townsend Ferzan Robbins, the unionrelated influences can impact a new location well before its workers clock in for the first time. Even if it’s likely to be a nonunion operation, project owners might have to deal with the question of union vs. nonunion construction. What’s more, he says, labor influences may even vary from one part of town to another and, if the community is big enough, have an impact on the site choice. Take New York, for example. “On the union front, we’re often confronted with that,” Robbins says. “There are certain key neighborhoods that unions in the construction world have a strong hold over. But there are some neighborhoods where they’re still working on a nonunion basis.”

FOR FREE SITE INFORMATION, CALL

800-735-2732, EXT. 225, OR VISIT US ONLINE AT WWW.AREADEVELOPMENT.COM


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“Every day, we hear new stories about manufacturers that are reinvesting in America. This forum gives manufacturers an opportunity to learn from and be inspired by the best in the business.” Jay Timmons , President and CEO, National Association of Manufacturers

An event for global manufacturers making new capital investments in America.

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THE SPEAKING FACULTY: Eric Spiegel, President & CEO, Siemens Corporation Tina Donikowski, VP, Locomotive/Marine, Stationary Power & Drill/Energy Storage, GE Transportation David Allen, Senior Vice President, Tata Global Beverages (US) Tom Looney, VP & General Manager, Lenovo North America Bill Klussman, VP of International IE, UPS Mitch Higashi, VP and Chief Economist, GE Healthcare Drew Greenblatt, President & Owner, Marlin Steel Wire Products Mark Ward, Director, Supply Chain, Caterpillar Aric Newhouse, SVP, Policy and Government Relations, National Association of Manufacturers Jim Scotti, SVP and Chief Procurement Officer, Fluor Mike Russo, Director, US Government Relations & Regulatory Affairs, GlobalFoundries Mike Cicco, General Manager, Distribution Sales, FANUC America Corporation Scott Gardner, Vice President, Americas Supply Chain, Lenovo Jennifer McNelly, President, The Manufacturing Institute Catherine Morse, General Counsel and Director of Public Affairs, Samsung Austin Semiconductor Nancy L. McLernon, President & CEO, Organization for International Investment Pat McIntyre, Chairman and Chief Executive Officer, ET Water Natalie Schilling, Vice President, Human Resources, Global Primary Products, Alcoa

Latondra Newton, Chief Corporate Social Responsibility Officer, Toyota Motor North America, Inc Dr. Helmuth Ludwig, CEO, Siemens Industry Sector Mark Randall, SVP of Supply Chain and Operations, Motorola Mobility Katy George, Senior Partner, Global Manufacturing Practice, McKinsey & Company Paul J. Galeski, Chairman & CEO, MAVERICK Technologies, LLC Victor P. Smith, Secretary of Commerce, Indiana Economic Development Corporation Karen L. Kurek, Partner, National Industrial Products Practice Leader, McGladrey Michael A. Peck, Chairman, Isofoton North America Harry Moser, Founder & President, Reshoring Initiative Raymond C. Schlaff, SVP & Chief Procurement Officer, National Grid Alex Pearlstein, Principal and Director of Projects, Market Street Services Ed Herderick, Director of R&D, rapid prototype+ manufacturing (rp+m) Chelsea C. White III, Schneider Nat’l Chair of Transportation and Logistics, Georgia Institute of Technology Tim Morris, VP, North America, EOS of North America, Inc. Michael Pernici, Senior Manager, Business Development, Louisiana Economic Development Paul Ramseur, CRO, Siemens Financial Services, Inc. Steven Wiegers, Supply Chain Manager, Hubbardton Forge

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SponsorsFactors

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3:26 PM

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Sponsors 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 cost-competitive business climate and no state personal income tax, combined with robust domestic and international air and seaports and exceptional quality of life. PEGGY DOTY, EXECUTIVE ASSISTANT & PROJECT COORDINATOR, GREATER FT. LAUDERDALE ALLIANCE 110 East Broward Blvd, Suite 1990 Fort Lauderdale, FL 33301 954-627-0134 pdoty@gflalliance.org www.lesstaxing.com

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MISSOURI JOPLIN REGIONAL PARTNERSHIP •• For companies seeking a central location in the United States, excellent transportation connections and capable, hard-working, low-cost labor forces, the Joplin region is a great place to call home. Central, connected, capable. The Joplin region is a great place for your business. KEVIN WELCH, DIRECTOR, JOPLIN REGIONAL PARTNERSHIP 320 East 4th Street Joplin, MO 64801 417-624-4150 Fax: 417-624-4303 kwelch@joplincc.com www.joplinregionalpartnership.com

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800-735-2732, EXT. 225, OR VISIT US ONLINE AT WWW.AREADEVELOPMENT.COM


RevolutionizingSupply

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WAREHOUSING/DISTRIBUTION

Revolutionizing the Supply Chain With Technology Integrated supply chain technology solutions provide end-to-end security and efficiency in the distribution process. By Tom OConnor, Senior National Business Development Manager, Panasonic System Communications Company North America

M

any distribution centers today are relying on outdated methods to capture data and keep track of operations. In some cases, pencils, clipboards, and punch cards are still the tools of the trade, as operators are required to record information manually and input data into a fixed terminal. In today’s environment, these antiquated methods are no longer sufficient to keep track of the supply chain and operate an efficient distribution center. With the power of mobile technology, data analytics, and cloud computing, warehouses and throughput centers now have the opportunity to access, analyze, and relay businesscritical data instantaneously. Employees can access information from the warehouse floor, on the bed of a truck, or even while operating a forklift. Scanners and “smart shelf” technology can

instantly identify when a shelf is low on goods, or when a supplier has run out of stock, and technology allows companies to dynamically share information across a campus with little effort. All-weather fixed-video systems and facial recognition software can keep track of vehicles and people entering and exiting the premises, while vehicle-based technology can monitor hours of service information, customer interactions (delivery, returns, on-site sales, etc.), and incident capture. An integrated deployment of cutting-edge technology solutions such as these can keep a distribution center supplied with automated, reliable, and instantaneous data capture at every link in the supply chain. Because the control room and warehouse employees have faster access to business-critical data and end-to-end situational awareness of production, throughput, and distribution, an integrated technology approach will result in significant increases in efficiency, productivity, security, and cost-savings. Let’s take a look at some of the tech tools and processes available that can help revolutionize today’s distribution centers.

Tablets

Tablets’ smaller screens and increased portability allow employees to access and update information from anywhere — including on a loading dock or on the warehouse floor.

Instant, ubiquitous access to business-critical information is the key to situational awareness in the distribution center. With specialized data-capture technologies, information on shipping, warehousing, throughput, as well as customer and employee information can be made available in real time. Using cloud storage and analytics, frontline employees can access company sales data, shipping information, and more on their handheld device from anywhere in the facility. Granted, almost all supply chains have computerized inventory management systems in place. However, many still rely on fixed computer terminals to enter and receive data. What makes tablets special is their portability, their ease-of-use, screen size, and the ability to add new applications. Tablets’ smaller screens and increased portability allow employees to access and update information from anywhere — on a loading dock, on the warehouse floor, or in a freezer. When a warehouse receives an incoming shipment, for example, the receiving dock can categorize and process the delivery immediately at the point of contact on a wirelessAREA DEVELOPMENT | Q4/Fall 2013

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enabled tablet. Running separate applications, the same device can then also accompany a driver on his route, a warehouse manager inspecting the facility, or an executive managing purchase orders. Instead of remaining chained to a fixed location, tablet computers offer near-universal access to enterprise systems, and allow users to run a much wider variety of business applications on one device. It’s also important to make sure the tablets are suited for the tasks at hand. Many consumer-grade devices are ill suited to the often harsh environments of distribution centers. To meet this need, a new breed of rugged tablets has been developed that offer shock, temperature and water resistance, long battery life, and daylight-viewable screens. Because they can accompany an employee anywhere and provide instant access to business data, wireless-enabled tablets represent an evolution in supply chain technology, and are one of the most valuable tools available to distribution centers. A new generation is entering the work force — one that is accustomed to carrying more computing power in their pockets than was available in most PCs five years ago. Tomorrow’s workers will be accustomed to using consumerstyle tablets in their daily life. The ability to instantly access and capture data and an inherently user-friendly design mean tablets can be used by anyone, and they allow warehouse workers to focus on processing customer orders more quickly.

Vehicle Technology The lifeblood of the supply chain is transportation. Deliveries arrive and depart the warehouse hundreds of times a day. In order to track vehicle movements in real time, innovative logistics operations are now outfitting their trucks with telematics solutions that automatically communicate a vehicle’s location, service hours, travel time, and incident reports back to the command center. This data can be fed into cloud-based or on-site analytics solutions that can determine optimal shipping routes, respond to incidents, and communicate arrival/departure times to warehouse staff. In addition, many delivery fleets are being outfitted with dashboard consoles or tablets that allow drivers to record and transmit delivery information, capturing signatures, customer interaction, cargo data, and more. With this steady stream of instant information available to drivers and to headquarters staff, distribution centers can ensure the right cargo gets to the right place on time, and respond to any incidents along the way.

Barcode and RFID Scanners Manually receiving products and entering data into a fixed terminal is an inefficient and time-consuming process, and introduces the risk of costly data errors and delays. Instead, distribution centers should use mobile devices with bar code scanners or RFID readers at the receiving dock to instantly categorize materials when they arrive. With scanner-equipped mobile devices, the risk of human error is dramatically reduced, inventory accuracy is improved, and the receiving and identification process becomes much more efficient. In some cases, “smart shelf” technology keeps track of inventory with RFID scanners and sends alerts when a warehouse is running low on materials. This information

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can instantly be uploaded to an internal or cloud-based analytics platform that allows businesses to manage incoming shipments, allocate resources, and predict the number of goods they need to stock in the future. The larger a warehouse facility, the more difficult it becomes to keep track of inventory. With rows upon rows of shelves, crates, or specialty containers, it’s nearly impossible to maintain oversight of all inventory when relying on visual inspections alone. Without an automated inventory system using barcode and RFID scanners, determining if you are running low on stock and coordinating resource allocation can become a nightmare.

Fixed And Mobile Video Systems Of course, monitoring incoming deliveries to the warehouse shouldn’t end with barcode scanners and RFID readers. Fixed video camera systems can be installed on the loading dock, the warehouse floor, or any other high-traffic areas to increase visibility and monitor vehicles and people who enter the facility. This information can be transmitted immediately to management on a PC or tablet, allowing full situational awareness at all times. Many video systems are enabled with software that allows them to identify faces, vehicles, and license plate numbers. With integrated video systems, warehouses can take advantage of a real-time overview of the warehouse floor to make sure workplace regulations and safety procedures are being followed. The added security is especially useful at unsecured facilities and in distribution centers holding hazardous, delicate, or valuable materials. A number of delivery fleets also deploy mobile video solutions to capture video from vehicles. Fleets can capture a front-only video feed, or install up to five cameras to get a 360-degree view around their vehicles. With 4G, that video can be streamed to a command center, or just captured on a black-box-type device and downloaded at the end of the day. Video oversight of the delivery fleet can help ensure successful customer interactions, driver safety, and freight security.

Digital Signage High-definition digital displays allow managers to dynamically share information across a campus with little effort and extend situational awareness to everyone at the facility. These digital displays can be read even with high levels of ambient light, and can be easily updated from a central location. By offering constantly updated information, management can communicate results — such as productivity goals, urgent messages, and video feeds — with employees immediately. Distribution centers are aware of the value that technology-enabled situational awareness can provide in terms of greater efficiency, visibility, and productivity. IT managers should assess the options available to them and craft a strategy to introduce integrated situational awareness technology to their warehouses and distribution networks. Ultimately, complete end-to-end visibility and management capabilities will have a transformative effect on the distribution center in terms of efficiency, capabilities, and cost savings. For more information, visit www.panasonicforbusiness.com.

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FACILITY PLANNING

People and Culture: Key Drivers for Headquarters Relocation An organization’s employees and its corporate culture are paramount in any corporate relocation, with rapid changes in technology impacting the desired outcome. By Matthew Cryer, Senior Vice President, Turner & Townsend

© Benny Chan/Fotoworks

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aving a reputation as one of the largest global financial service institutions in the world, Barclays occupies roughly four million square feet across the Americas. In managing this real estate, its Capital Corporate Real Estate Services (CRES) team has traditionally relied upon long-standing relationships with service providers to assist in managing and delivering ongoing projects. When considering the impact of an upcoming and unusually extensive series of capital-related projects, the CRES team quickly realized it needed some additional assistance that required comprehensive strategic planning and support. A specialty service provider was needed to administer overall control and visibility for a major integration that would impact its business, real estate, and — most critically — its people. The most important factors to focus on in any corporate relocation, whether around the corner or across the country, are the people and the organizational culture. These projects can encompass everything from site selection and lease negotiation to the relocation of staff from a number of locations. Companies embarking on a major relocation are intimately engaged in a dialogue with a number of third parties. All parties on board should help perform the necessary due diligence required to develop appropriate solutions to the issues that prompted the relocation in the first place. In addition, understanding the implications of time, budget, and the overall duration of the project are critical. With constant and rapid changes in technology, it is important to be sure the final developed facilities are not obsolete once the relocation is completed. In recent years we have seen a paradigm shift that embraces an overarching emphasis on people as part of a more balanced approach. There are certainly many important and critical technical components, and while the metrics are important, the ultimate goal is making it work for the employees. Both of these aspects must be successfully addressed in order for a major move to be successful for any business. Just like any other significant initiative, the first step requires a lot of listening, followed by raising the examples of past experiences to apply the lessons learned. The project management team must focus on the nuances of the client’s business and corporate culture as much as the technical aspects of the project at hand. They need to embrace the bigger picture and address factors like a long-term view of occupancy and site selection, even if the relocation is within the same city. Over the years, there have been many corporations that have successfully relocated their headquarters, such as Bloomberg, Weight Watchers, Russell Investments, and Barclays Capital, and the Home Office of the British Government in the United Kingdom. It’s a huge endeavor, and we’ll highlight a couple of the projects and why they were a success.

Your Number-One Stakeholder: Employees

Barclays Capital, San Francisco

Back in 2009, following the acquisition of Lehman Brothers, Barclays Capital required a project management team to coordinate the moves of AREA DEVELOPMENT | Q4/Fall 2013

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multiple work streams, projects, and people around North America, South America, and Canada. A team was mobilized to provide overall control and visibility of all integration, normal business as usual, and future pipeline projects across the Americas region. Integration was successfully completed in less than six months, with more than 15,000 people moves. Two different cultures were being brought together, and the differences extended far beyond varying space standards and, for example, the color of carpet. In fact, there were core differences in their missions, beliefs, and corporate governance, all soon to be “under one roof.” In addition to managing the physical real estate assets, the project managers helped bridge the cultures by recognizing the differences, helping the organizations embrace change, and smoothing the transition for what was an extremely aggressive integration. Similarly, Time Warner recently announced its headquarters relocation within New York City, and early indications

have already evidenced a pattern shift that considers the work force as the most essential part of the holistic strategy. The technical aspects are critical, but it all emanates from the people. Project managers need to foster and coordinate a people-focused approach, with all efforts directed toward addressing employee needs. An important objective to remember is to never start with the metrics. Keep the team focused on the people. You will get to the metrics. Pose the following questions: Does this suit our staff? What is right for our people and for our business? When Nissan relocated its corporate headquarters from California to Nashville, the company took its team through a very structured process. The project managers needed to be there to assist everyone involved, not just the employees but also their families. Orientation visits and general meetings about the new location were conducted. Representatives from the chamber of commerce were involved in an advisory and supportive capacity. In any major relocation, employees must understand why they are moving in order to increase motivation for the move. It was all about giving people a feeling for the place. When moving across the country, individuals’ lives are disrupted and families need to find homes and schools. Both the client organization and the project management team need to do everything possible to support people and sustain the work force.

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Maintaining the Culture

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Another important component of a successful relocation is creating the appropriate structure and environment for the client’s organizational culture. Sometimes dealing with these issues is fairly straightforward, such as when you have a relatively uniform culture across the organization, with most divisions and departments operating in a similar fashion and situated in comparable facilities. However, different standards often exist, and there is a pressing need to marry all the elements harmoniously. How do you maintain identities while creating a unified whole? How do you ease the transition to a new type of work environment, one that may, for example, significantly reduce dedicated personal space? How do you maintain or create a high-functioning work environment? Start with the business achievements targeted for your staff and let those drive the design solutions. Shortly before lease expiration, Russell Investments sought to relocate its San Francisco offices to a new facility configured to support a more open style of working. A 12,000-square-foot site was required to accommodate market trading, back-office functions, and client meeting spaces. Resilient infrastructure was essential to address critical business needs, with built-in flexibility for future change.

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Russell Investments sought to implement this new open workplace strategy within a “turnkey solution,” whereby the building landlord was responsible to construct Russell’s space. As in its Seattle headquarters, the company required a flexible environment in San Francisco that encouraged collaboration to facilitate innovation and deliver the greatest business advantage. Significant constraints were placed on the project from the onset due to budget and an accelerated schedule of four months from lease signing to building turnover. Private offices were eliminated, and an open plan with a bench-style desk system was adopted, with rooms for private discussions. PCs were replaced with laptops, and “plug and play” technology was integrated into collaboration bars and meeting rooms to support flexible working. Docking stations with dual monitors were provided at each desk to support the new work style and reduce paper usage.

Technology Glues It Together Once all the people-focused, cultural goals and objectives have been delineated, technology will have an impact on the final desired outcome of the relocation. Make sure that the desired, required, and specified technical aspects of the project are a good fit for the objectives and goals set forth. It is very important to think beyond the obvious and present a range of factors for consideration such as: • • • •

is moving in. For the Weight Watchers organization, which has a long history of progressive thinking in helping people to attain their health goals, this same progressive approach was applied to its corporate headquarters relocation in New York. There was an early focus and visioning effort around building a technologically flexible work environment that would support varying business groups, from creative developers to those responsible for maintaining vast amounts of real-time data to facilitate 50,000 Weight Watchers client meetings each week, taking place in countries all over the world. Now in operation, the Weight Watchers’ vision has been achieved. In part, the technology backbone has served as the “glue” to provide progressive wireless mobility for staff around the workplace and while on-the-go, as well as a streamlined means of communicating with remotely located staff through various cost-effective video technologies. Things won’t be completely right. Be prepared to grasp that concept early on and carry it through the process. While some will profess to have a crystal ball and predict what a business environment will look like next year or five years or 10 years into the future, no one can really guarantee anything with certainty. The real foresight in a world of people, space, desks, and computers is to be flexible. Better yet, build an institutional mindset that embraces flexibility.

Workplace standards Critical systems support Available infrastructure Sustainable alternatives

Once again, this goes back to the overall business case and how the employees will use the facility. It speaks to branding, identity, and communications as much as it does to architectural design and technical specifications. Project managers are at the hub of coordinating these aspects. Finally, after the overall objectives have been set, it is important to put pencil to paper to test ideas and cost strategies (both initial investment and life cycle), and to conduct an analysis of long-term elements of the project plan. Once again, it is important to ask the question: Is the proposed plan sustainable for the long term for the business? Corporate headquarters relocation projects take place over long periods of time. The scale of these facilities is generally substantial, which means that the move-in date will be long after the initiation of the project. Even when things are fast-tracked or phased, the ultimate result will, in many ways, be a moving target. Especially now, with the fast-paced changes in technology, both for building construction and IT infrastructure, the team needs to be visionary in its choices, looking well into the future to know it will not be moving into an obsolete building. This is especially true with IT systems and infrastructure, which are constantly evolving. It is hard to know just where and what all the technology will be when the move-in date approaches. Things need to be up to date when the project is complete — not out of date as the team

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INDUSTRY REPORT

Advances in Biotech Help Life Sciences to Thrive Biotechnology is driving growth in the life sciences sector, which has faced numerous challenges, particularly in the pharmaceuticals industry. By Beth Mattson-Teig

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arlier this year, it was difficult to escape talk of the looming fiscal cliff that threatened to shake the U.S. economy. The life sciences industry has been battling its own challenging precipice — the patent cliff. The patent cliff, or the mass expiration of patent protections on a variety of drugs, is fueling significant change among big pharma companies and the broader life sciences industry. In 2013 alone, patents will expire on drugs that currently have sales of about $29 billion annually, according to data from EvaluatePharma. Those patent expirations are a big blow to large pharmaceutical firms such as Johnson

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& Johnson, Pfizer, and Roche that now face more competition from generic drug-makers. “Over the last few years, that patent cliff has been significant, and it has forced a lot of consolidation within the industry,” says Roger Humphrey, an executive managing director and lead of the Life Sciences division at Jones Lang LaSalle. Following years of growth, the life sciences industry is now facing a more challenging climate marked by expiring patents and greater competition from generics, as well as pricing pressures to provide affordable healthcare and heightened regulatory scrutiny. FOR FREE SITE INFORMATION, CALL

Patent expirations are at the forefront, because they are creating margin and price pressures within the pharmaceuticals industry. The global generic drug market is expected to grow at an annual rate of 10 percent between 2010 and 2015, from $87 billion to an estimated $140 billion, according to a 2013 “Global Life Sciences Outlook” report issued by Deloitte Consulting. That profit loss is fueling a wave of merger and acquisition activity as pharmaceutical firms try to acquire a pipeline to new patents and create added operational efficiencies. There is definitely a trend to acquire similar life sciences organizations in order to acquire drugs that are in discovery to help backfill that patent expiration loss. There also is a notable trend among big pharma firms that have built their business on the chemistry side to expand into the biology side of biotechnology, adds Humphrey.

Growth Shifts to Biotech The biotech sector has been a shining star in the life sciences industry in recent years. Biotechnology uses biology to develop technologies or “grow” new solutions and products for applications ranging from battling diseases and enhancing crop yields to creating products that can be made to improve food preservation. The biotechnology sector has been on an accelerating growth track even during the reces-

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sion. For example, the global “biosimilar” market — the use of biology and living molecules rather than chemistry to create drug solutions — was valued at $420 million at the end of 2010 and is expected to grow at a 52.2 percent rate through 2014, according to Deloitte. Another sign of the biotech industry’s growth is a surge in IPOs in 2013. Year-to-date through September, 23 U.S.-based biotech firms had launched IPOs, compared to 13 in each of the last two years. Currently, there are more than 250 biotechnology healthcare products and vaccines available to patients, many for previously untreatable diseases. More than 13.3 million farmers around the world use agricultural biotechnology to increase yields, prevent damage from insects and pests, and reduce farming's impact on the environment. And more than 50 bio-refineries are being built across North America to test and refine technologies to produce biofuels and chemicals from renewable biomass, which can help reduce greenhouse gas emissions, according to the Biotechnology Industry Organization. The promising future for this niche is attracting attention from pharma companies that are looking to find new avenues of growth. “I think that there is going to be continued acquisitions of biologics companies, but very targeted acquisitions,” notes Humphrey. In particular, there is likely to be a lot of focus on DNA type of research that focuses on very specific areas of illness versus broad spectrums of illness, he adds. Another segment of the life sciences industry poised for growth after weathering the recession is medical device manufacturing. The sector does face concerns that a tougher regulatory environment and a new 2.3 percent medical device tax will hamper growth. However, the sector is expected to benefit from the influx of newly insured people created by the healthcare reform bill, as well as the aging population that is sparking demand for everything from hip replacements to pacemakers. According to data from Jones Lang LaSalle, there are an estimated 9,274 firms within the 21 markets it tracks that currently employ

more than 311,000 workers. A common theme that will continue to drive decision-making among medical device manufacturers, as well as the broader life sciences industry, is the focus on delivering value as the industry faces more pressure to deliver affordable healthcare solutions.

Optimizing Real Estate Portfolios Recent merger and acquisition activity is definitely having an impact on location decisions and the physical footprint of life sciences companies. Mergers and acquisitions often occur among firms that are located in the same geographic markets; there is duplication and redundancy of facilities and infrastructure.

Another segment of the LIFE SCIENCES

industry poised for GROWTH after weathering the recession is

MEDICAL DEVICE manufacturing. “The story in most markets is that big pharma has been shrinking,” says Thomas Sullivan, a senior vice president at CBRE in East Brunswick, N.J., and director of the advisory board for CBRE’s Life Sciences Group. Drug manufacturers started shrinking in New Jersey a decade ago, he notes. The impact has been felt more in the office sector, and to a lesser extent in R&D space as pharmaceuticals companies have downsized in those areas. “That consolidation is still occurring and the impacts are still being felt, although we are starting to see the end of the curve as far as the big pharma decisions — at least for our region

here in New Jersey,” says Sullivan. For the most part, decisions have already been made as they relate to leases that companies decided not to renew, campuses they plan to vacate, and R&D facilities that will be relocated. The transactions that follow those decisions are still trailing in terms of disposing of those assets or backfilling empty space, he adds. For example, it was announced earlier this spring that real estate firm Advance Realty and a Boston-based investment partner have acquired the former Sanofi U.S. research and development complex in Bridgewater, N.J. The developer plans to relocate its own headquarters to the site and also is reportedly looking at plans to redevelop parts of the 1.2-million-squarefoot campus that sits on 110 acres. Paris-based Sanofi vacated the campus after relocating its U.S.-based R&D operations to Cambridge, Mass. That project will most likely be a redevelopment opportunity due in large part to the age of the existing office space, notes Sullivan. “M&A activity will continue to be a major driver toward location decisions,” says Sullivan. Once those mergers occur, there will be more focus on portfolio analysis on what are now combined operations and global redundancy. That will continue to have an impact on the life sciences industry over the next several years, he adds. “There is no transaction — of any scale — that you see in the marketplace that does not lead to some real estate implications,” he says. Yet where large pharma companies are shrinking, biotech firms are picking up the slack. In New Jersey, Celgene Corp. is one firm with a large and growing footprint. That firm owns their primary campus in Summit and continues to absorb additional leased space in the market — perhaps 200,000 square feet of office absorption each year. Another trend among both big pharma companies and some middle market biotechnology firms is to create efficiencies and run leaner by focusing on core competencies and choosing to outsource other functions, such as facilities management, real estate, and employee benefits. Companies also are AREA DEVELOPMENT | Q4/Fall 2013

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opting to outsource core functions, including contract research, contract manufacturing, and contract packaging and shipping of products. Centralizing services and outsourcing non-core competencies will be a bigger focus going forward as companies look for ways to create greater efficiencies and operate more profitably.

Clusters Remain Strong The life sciences sector as a whole

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remains a formidable industry. The global pharmaceuticals, biotechnology, and life sciences industries generated total revenues in excess of $1.1 trillion in 2011. Between 2007 and 2011, the global pharmaceuticals, biotechnology, and life sciences sector has been growing at an average rate of 6.7 percent, according to Deloitte. The sector relies heavily on talent, which is why location decisions focus primarily on existing clusters.

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Although there are a number of strong and growing clusters across the United States — from Minneapolis to Austin — the largest hubs for life sciences based on firms and employment numbers continue to be Greater Boston, San Diego, and the San Francisco Bay area. The Boston-Cambridge cluster is the country’s largest. There has been growth from both the large pharmaceutical firms, as well as a younger generation of start-ups that are growing in the greater Boston Area, notes Ted Lyon, a senior managing director and principal at Cassidy Turley in Boston. For example, The Massachusetts Life Sciences Center board of directors awarded a $5 million capital grant earlier this year to help fund the establishment of LabCentral in the Kendall Square area of Cambridge. The state-of-the-art facility will serve as an incubator for biotech start-up firms. In addition, several life sciences firms in the Boston area have held successful IPOs this year to add additional capital to fuel growth. “That is all positive in our market,” says Lyon. Life sciences firms also are driving build-to-suit activity with long-term lease commitments. “That has been happening for the last couple of years and this year is no different,” Lyon notes. One of the largest projects is the Alexandria Center at Kendall Square. The seven-building, mixed-use redevelopment will span more than 1.75 million square feet when fully developed, including apartments, office, and retail space. The project calls for 1.53 million square feet of office and lab space. The first building in this phased development project will be completed in the fourth quarter of 2013. Biogen Inc. is one of the firms that has committed to locating its new headquarters here. In sum, although there is going to be shrinking in some life sciences sectors, most notably among pharmaceuticals, growth is on the rise in other areas such as biotech. “That is why the clustering around places like San Francisco, Boston, and San Diego is going to continue, because that is where the talent is in this type of science,” concludes JLL’s Humphrey.

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Special Investment Report LOUISIANA

LOUISIANA: CLIMBING THE RANKINGS By Craig Guillot

State sources report that Louisiana’s economy held strong during the recession, and that during the past five years, its GDP growth was about 50 percent faster than the national average.

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rom the Port of New Orleans to the manufacturing facilities of the Shreveport area, Louisiana has been experiencing tremendous economic growth at a time when much of the nation has remained stagnant. Manufacturing, energy, transportation, and agribusiness continue to lead the state’s economy, while software development and biotech are blossoming into important sectors. Louisiana has made impressive strides in recent years to create — according to Area Development’s recent survey of location consultants (2013 Top States for Doing Business) — one of the most business-friendly environments in the nation. Economic development leaders say generous tax incentives, a well-trained work force, relatively low operating costs, and a robust transportation infrastructure — that includes world-class ports, six interstate highways, and access to all six Class 1 railroads — make Louisiana a great place to locate. A STRONG BUSINESS CLIMATE Deputy Secretary of Louisiana Economic Development Steve Grissom says that since 2008 the state has attracted development projects that have resulted in 83,000 direct and indirect jobs, along with more than $50 billion in new capital investments. Grissom explains that impressive economic “momentum” in the state has fueled tremendous growth and development in recent years. “We’ve seen impressive growth in energy, manufacturing, and process industries with a number of projects topping a billion dollars or more in capital investments. We’re also seeing an increase in software development and technology investments,” says Grissom. He credits Louisiana’s strong business appeal to generous tax incentives, a nationally recognized work force development program (Louisiana FastStart), low operating costs, and a business-friendly environment. He points out that Louisiana held strong during the recession and that during the past five years, BASF recently the state’s GDP growth was about 50 percent faster than made a $42.6 million the national average. investment in a Geismar “When you look at all the business climate rankings, polyurethanes Louisiana now stands higher than it did in 2008. We’ve blending facility. made a lot of positive reforms and we’re trying to build

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that momentum,” Grissom says. Among the large projects Louisiana has attracted recently is Dow Chemical Company’s plan to invest $1.06 billion in two polyolefins plants in Plaquemines Parish. Also, Teleperformance recently announced plans to add 740 new jobs to its Shreveport customer contact center. Other large investments include a $42.6 million BASF polyurethanes blending facility in Geismar; a $100 million natural gas-to-liquids plant in Westlake; and a $168 million investment by Cool Planet

LOUISIANA offers the second-lowest state and local tax burden for a new business operation, according to the Tax Foundation and KPMG. Energy Systems to build three biorefineries in Alexandria and Natchitoches. And just this past August, Incitec Pivot, Dyno Nobel, and Cornerstone Chemical broke ground on a $1 billion ammonia plant in Waggaman, one of the largest of its kind in the nation. WORK FORCE TRAINING, FINANCIAL INCENTIVES, AND MORE The 2013 Gallup report “State of the American Workplace” found that Louisiana leads the country with the highest percentage of “engaged” workers. LED FastStart was among the top-three leading work force development programs in the nation according to Area Development’s Top States report for 2013. Launched in 2008, the program helps companies recruit and train workers at no fee for employers if they commit to creating a modest number of jobs. According to a February 2012 report from the Tax Foundation and KPMG, Louisiana offers the second-lowest state and local tax burden in the nation for a new business operation. To top it off, the state also offers generous tax incentives. For example, the Angel Investor Tax Credit (AITC) provides a 35 percent tax credit on investments in early-stage businesses that

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need start-up and expansion capital. The Competitive Projects Payroll Incentive Program offers an incentive rebate of up to 15 percent of a company’s payroll for up to 10 years, and the Quality Jobs program provides a cash rebate of up to 6 percent to companies that create wellpaid jobs and promote economic development. There are also property tax abatements for the rehabilitation of existing structures, enterprise zone tax credits, industrial tax exemptions, and some of the largest motion picture tax credits in the nation. Local economic development organizations are also helping recruit businesses to Louisiana. Melissa Ehlinger, vice president of Strategy, Policy and Research at the New Orleans Business Alliance, says shortly after the organization was founded in 2010, it started developing ProsperityNOLA: A Plan to Drive Economic Growth for 2018. As an actionable plan created through months of research, it is designed to serve as the city’s roadmap for economic progress in the coming years. Ehlinger says ProsperityNOLA has been put into action in three phases and has a focus on five industry clusters: advanced manufacturing; bio-innovation and health services; creative digital media; sustainable industries; and transportation, trade and logistics. Tourism and hospitality has always been one of the city’s biggest revenue-drivers, but Ehlinger says the city has been eager to diversify its economy post-Katrina. In addition, Louisiana has seen so many television shows and films produced here in recent years that parts of the state have been dubbed “Hollywood South.” New Orleans, Shreveport, and Baton Rouge are top locations for filming and production. In 2011, Louisiana surpassed $1.3 billion worth of television productions.

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TECHNOLOGY EXPERIENCING GROWTH The high-tech industry is also seeing impressive growth. Louisiana offers one of the nation’s most comprehensive incentives for software development. The Digital Interactive Media and Software Development Incentive provides a 35 percent tax credit on payroll for in-state labor and a 25 percent tax credit for qualified production expenses with no cap or minimum required. Some major tech companies that have set up shop in the state in recent years include Electronic Arts, Pixomondo, and Moonbot. Gameloft, one of the top publishers of mobile games, chose New Orleans as the location for its new development studio. It was enticed by not only the incentives but also the FastStart program, which helped it attract more than 700 highly qualified applicants. Grissom says GE Capital recently established a 300-job software development technology center in New Orleans and IBM opened an 800job business solution center in Baton Rouge.

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“The incentives, quality work force, and low cost of living Moonbot is create a very one of the many tech low-cost envifirms located ronment for in Louisiana. many of these companies,” he adds. About 130 miles west of New Orleans, the rapidly growing city of Lafayette is earning national accolades in its own right. Area Development recently ranked it the number-one mid-size city and the best place for economic and job growth in a study of 380 metropolitan areas. Gregg Gothreaux, president and CEO of the Lafayette Economic Development Authority, says much of the city’s growth is attributed to the energy and healthcare industries, which account for 40 percent of the area’s GDP. He says those “recession-proof” industries have helped hold growth steady while providing an

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Globalstar develops and deploys satellite communications and software that powers mobile voice and data services.

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impetus for the area’s growing finance and entertainment industries. Lafayette’s bustling oil-and-gas–related economy supports over 1,300 related businesses. Gothreaux says Lafayette is also seeing growth in the technology sector. The city is home to one of the national’s largest municipally owned fiber-to-the-premises networks, which offers one gig symmetrical Internet access at inexpensive prices through LUS Fiber. The University of Louisiana at Lafayette plays a prominent role in Lafayette and creates and economic impact of $775 million. It has more than 16,000 students, 2,100 employees, and more than $51 million in external research funding. Gothreaux says the university helps maintain a highly skilled work force, which grew by 15,500 in 2012, while much of the nation was just emerging from a recession. “Forty percent of the local work force is employed in wealth-creating or high valueadded industries. This existing base of wealth creation is attractive to established businesses and entrepreneurs,” Gothreaux notes. Some parts of Louisiana are also experiencing heavy biotech investments. Currently under construction, the BioDistrict New Orleans will span 1,500 acres of the downtown area and will feature two major hospitals along with worldclass bioscience research and development. The project is estimated to create $3.3 billion of economic activity over the next 20 years along with 34,000 direct and indirect jobs. ENERGY AND MANUFACTURING THRIVING Importantly, Louisiana is the second-biggest crude oil producer and third-largest natural gas producer in the country. Eighty-eight percent of the country’s oilrigs are located off its coast. Industrial tax exemptions that include property tax abatements for up to 10 years have been instrumental in attracting large projects. The manufacturing sector is also thriving. Manufacturers’ News reported the second year

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of positive industrial employment gain for Louisiana — 2 percent more than the national average. The state is home to 5,264 manufacturers who employ almost 200,000 workers. In New Orleans East, NASA’s Michoud Assembly Facility features over 400,000 square feet of available manufacturing space, making it one of the largest production facilities in the country. The state is graduating more than 7,500 people per year with manufacturing credentials, and the LED FastStart program has helped manufacturers find a qualified work force. In northern Louisiana, German manufacturer Benteler Steel/Tube recently broke ground on a $975 million steel manufacturing project at the Port of Caddo-Bossier in Shreveport. Slated to be completed in phases in 2015 and 2020, the project will span 330 acres at the port. It is the company’s first manufacturing facility in the United States and will create 675 new jobs and 1,540 indirect jobs. Benteler Steel/Tube selected the area after a competitive site selection process that included 13 states and more than 100 potential sites. “What also helped seal the deal was having a commitment from regional and local partners to make sure they had the quality employees that they needed,” says Christine Rambo, vice president of Communications/Corporate Affairs at the North Louisiana Economic Partnership. North Louisiana is home to 12 universities and features a number of state work force training programs. Rambo says the area has an abundance of buildings and sites that can meet the needs of manufacturers, distributors, call centers, and headquarter operations, and that have been certified by the state as ready for development. SPONSORS ACADIANA ECONOMIC DEVELOPMENT COUNCIL

Acadiana Economic Development Council represents the primary economic development organizations in the Acadiana parishes (counties) of Iberia, St. Martin,Vermilion, St. Landry, Lafayette, Evangeline, and Acadia. AED’s marketing, advocacy, and business outreach stimulate long-term economic growth and job creation throughout the region Rebecca Shirley, Director Acadiana Economic Development 211 E. Devalcourt St. Lafayette, LA 70506

337-769-7646 Fax: 337-234-3009 rebeccas@teamacadiana.org www.teamacadiana.org

LOUISIANA ECONOMIC DEVELOPMENT

Visit OpportunityLouisiana.com to learn more about Louisiana's strategic advantages, including its best-in-class work force development program, competitive business incentives, and more. Receive the latest news and read about companies experiencing success in Louisiana. www.OpportunityLouisiana.com

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CUSTOMIZED

SOLUTIONS Built to Manufacturing Specs Louisiana has more than a vast workforce honed by decades of manufacturing expertise. The state offers an unrivaled business-friendly environment with bold incentives, and is ready to build innovative, customized solutions for manufacturing companies that are poised for growth.

UP TO

15

%

payroll l rebate ll Louisiana’s Competitive Projects Payroll Incentive provides a rebate of up to 15 percent of a participating company’s new payroll for up to 10 years.

Louisiana has the lowest business taxes in the nation for new labor-intensive and capital-intensive manufacturing according to the Tax Foundation and KPMG. The LED FastStart® team has experience managing workforce programs for leading manufacturers like Nucor and Lockheed Martin, and can deliver a highly qualified, trained workforce on day one.

© 2013 Louisiana Economic Development

Well-situated for both inbound and outbound logistics, Louisiana’s robust infrastructure includes 6 Class 1 railways, 6 deepwater ports, 6 interstate highways and 7 commercial service airports.

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A right-to-work state for over three decades, Louisiana offers manufacturers a large pool of available workers and graduates over 9,500 people per year with credentials related to manufacturing.

www.opportunitylouisiana.com/manufacturing

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ECONOMICS

Tech Incubators’ Outsized Impact on Innovation and Job Creation The ecosystems created by high-tech incubators popping up all over North America have become true job-creation drivers, attracting attention from CEOs for their distinctively collaborative workplace culture that drives innovation and growth.

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ccording to Amber Schiada, a research manager at Jones Lang LaSalle, “High-tech industry growth has outpaced the national economy by an average of four to one since 2010. This economic contribution is driven by startups, many located in high-tech incubators offering office space, but also access to professional services, collaboration, and venture capital opportunities.” Her comments refer to a 2013 research report that connects the technology sector’s impact on job creation to overall economic growth — and cites incubators as a major driver.

Contributors to Growth Whether an incubator is based in California or Canada, there are some basic principles that show how incubators are materially contributing to economic growth, as follows:

Incubators help start-ups become successful by providing access to numerous resources from government, universities, and nonprofit organizations. Originally envisioned as a way to draw freelance computer programmers out of their home offices, high-tech incubators evolved into networking power zones connecting start-ups with venture capital. Today, incubators and the emerging companies within them are collaborating with some of the largest and most esteemed organizations in the corporate and academic sectors. The teachers have become the students. A case in point is RocketSpace's Corporate Innovation Program, wherein many of the Fortune 1000, which are the target audience for the program, host innovation teams alongside the start-up community on the RocketSpace campus located in San Francisco. Its analysts, who cover over

20,000 start-ups around the world, actively seek ways of driving partnerships and business links.

Incubators are connecting big business with start-up innovation. This connectivity happens most naturally in areas that combine a strong base of traditional industry, along with a tech-savvy work force. For example, major companies like General Motors, British Airways, AB InBev, Pearson, Samsung, and Microsoft have located teams at RocketSpace’s San Francisco tech incubator. In the Greater Toronto area, global giants such as IBM, SAS, and Microsoft have been in the area for years, as have the headquarters of 40 percent of the country’s top ICT firms, including Google, Facebook, and Twitter. With that strong measure of industry success, it’s no surprise that hundreds of new tech ventures have sprouted in

The Mike & Ophelia Lazaridis Quantum-Nano Centre at the University of Waterloo, Ontario

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recent years — and multiple incubators make it their business to connect the two. The Toronto area now has more than a dozen incubators and coworking spaces, including Communitech, MaRS, Extreme Startups, and Digital Media Zone.

Incubators connect digital services with “real world” customers, corporate partners, and investors. Though the new tech companies that begin in incubators are overwhelmingly digital, they offer a diverse range of products that apply to every sector, from entertainment and marketing to financial services and life sciences. In an effort to be connectors, in addition to office space providers, RocketSpace encourages community engagement by offering educational events that range from cocktail parties to its RocketU courses, such as a 10-week developer boot camp. These add-on services and connections with investors represent an increasingly common strategy for incubators seeking to go beyond offering office space. According to RocketSpace CEO Duncan Logan, “We think clustering is essential and believe it is significantly harder to innovate in isolation than when you are surrounded by likeminded entrepreneurs. It is a little like practicing to play football on your own or practicing with the 49ers. We view RocketSpace as the modern-day stock exchange of tech. We want to be at the nucleus of the cluster — the central hub with a scale of activity that produces fast-growth companies.”

Connecting ideas within an industry, incubators can become a physical touch-point for an emerging specialized industry cluster. Across North America, incubators form reputations for bringing sub-specialties within the technology industry together. Beyond quantum computing, incubators exist that focus on biotechnology, mobile applications, and other specializations. Ontario’s Quantum Valley, for one, has been 14 years in the making, starting in 1999 with a quantum information group at the University of Waterloo, followed soon after with the

We think clustering is essential and believe it is significantly harder to innovate in isolation than when you are surrounded by like-minded entrepreneurs. It is a little like practicing to play football on your own or practicing with the 49ers.

TechIncubators

opening of IQC in 2002. Less than six years later, the university launched the Waterloo Institute for Nanotechnology. With the opening in September 2012 of the Lazaridis Quantum-Nano Centre, Waterloo became the world’s largest and most advanced hub for quantum science and nanotechnology — in large part thanks to that initial incubator group.

Venture capital and other investor connections can grow from incubator programs and locations. Associations and incubator pro-

grams alike can help bridge the gap between capital and idea. RocketSpace cultivates symbiotic relationships with local VC investment firms to connect its companies with third-party funding, while Silicon Valley's Plug and Play Tech Center has partnered with more than 150 venture capital companies, which come to the Tech Center for monthly deal-flow and brainstorming sessions. Other programs are more formal. For example, the Ontario Network of Entrepreneurs (ONE) has effectively fostered such relationships, in large part thanks to its own ecosystem, which includes Communitech, the innovation hub in Ontario’s technology triangle that boasts tenants such as Google and Blackberry, and MaRS, the Toronto technology and science incubator and accelerator.

International companies can use incubators to fuel expansion into new global markets. For many global companies, establishing a beachhead in North America is a critical step in their economic evolution. Incubators like the Plug and Play Tech Center specialize in accelerating international businesses — having incubated 250 companies from 20 countries since 2009. It offers geographically themed areas where entrepreneurs from the same country can office together if desired, providing a place for entrepreneurs from Asia, Europe, Africa, and Latin America to “hang their hat” for varying lengths of time while exploring business expansion in North America. Canada, New Zealand, and Brazil are three of many countries that participate in the Plug and Play international programs.

Others Getting on the Bandwagon Finally, Silicon Valley and the Greater Toronto area are not the only regions getting on the incubator bandwagon. You can see similar programs in places like Chicago (notably, the area’s 1871 project that offers space and access to venture capital), downtown Las Vegas (spurred by the new Zappos presence), and in emerging tech hubs like Phoenix and Minneapolis. — AD AREA DEVELOPMENT | Q4/Fall 2013

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ECONOMICS/GOVERNMENT POLICY

How Does Economic Development Legislation Affect Your Bottom Line? A company’s final location or expansion decision hinges on a financial analysis that may be closely tied to the winning state’s economic development legislation. By Von Hatley, Managing Director, Jones Walker Consulting LLC

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n the never-ending quest to spur economic development, states have left almost no stone unturned. Most have amended tax policy to make themselves more competitive — some by eliminating onerous, low-impact tax programs, others by creating new incentive programs. Either way, the result has been a legislative flurry of activity. But as states develop legislation to promote economic growth, they must make certain they are peering through the correct lens. That means, how will this legislation look to the companies they seek to attract? Legislators and economic development officials must remember that from any company’s viewpoint, the most fundamental question about any tax and incentive program is, “How is this legislation going to affect our financial statements?” As companies review the various alternatives of expansion or consolidation, each of these decisions fundamentally comes down to a financial analysis. While there are always qualitative considerations, such as quality of life and other community factors, most of these variables come into play only after the quantitative analysis has narrowed the field of sites. Even so, some states inevitably pass economic development legislation with questionable objectives. We call this “feel good” legislation, which on the surface sounds effective or “feels” good. A subset of this is “perception” legislation that is

intended to change opinions about the state. In reality, “feel good” and “perception” legislation has little to no meaningful impact on profitability. A second type of legislation, which we call “middle-of-the-road” legislation, much better serves states —and the companies they are trying to attract. Over time, and with continued positive changes, this type of legislation creates significant, positive impact for companies. And, finally, there are what we call “bold moves.” These legislative measures have a significant effect on a company’s bottom line and thus positively impact a state in terms of jobs and investment within the first several years of enactment. Let’s examine each strata of legislation with an eye on how it will be viewed in the corporate boardroom — and what state economic development leaders must keep in mind as they push for legislative reform.

“Feel Good” Legislation • Corporate fee or “processing” legislation reduces the amount of fees charged or eliminates onerous steps for companies locating in a state. Although this legislation has broad effect, it has very little impact on a company’s bottom line and is never a major issue in a site selection analysis. • Special interest legislation comprises tax benefits or incentives for companies to grow within a very specific, non–high-value-added (or non-high growth) sector of the economy. Special interest legislation often includes

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incentives for recreational or retail businesses in which specialized districts are created that impact only one region of the state and that support special interest groups. • “Perception” legislation is typically enacted by legislators to address a “perceived” problem in the state or region. Examples of this would be changes in ethics codes and tort reform. While this type of legislation can help overcome the perception of political wrongdoing in a state, or perhaps counter an overabundance of frivolous lawsuits, it generally does little to impact a company’s quantitative site selection evaluation. • Alliance legislation forms new alliances to promote a region or a specific industry. While on the surface it looks good for a state to coordinate its economic efforts, the simple enactment of legislation to create the specific entity in and of itself does not do that. Instead, alliances should be formed naturally through the hard work and efforts of local leaders banding together to pool their resources.

“Middle of the Road” Legislation • Enhanced job creation credits are available in most states. This has always been a key selling point for economic developers, but the leading-edge states now not only create a one-time credit, but also provide a per-head sum or, better yet, a percentage of total payroll over an extended period of time. Without a doubt, a long-term tax credit has substantial effects on the bottom line and can play a significant role in site selection. For example, Colorado employers receive a 50 percent credit for five years on the amount the employer is required to pay in federal Social Security and Medicare taxes on jobs created. Similarly, Arizona offers $3,000 for each full-time employee hired in a qualified employment position for up to three years of continuous employment. • Development of industrial parks and technology centers helps communities in positioning for the emergence of knowledge-based careers. During the most recent downturn, a substantial number of industrial sites became available. Now, as the economy rebounds, scrutiny of site availability is increasing. In

order for states to capitalize on this competitive dynamic, they must ensure their sites are well prepared, available (with on-line visibility), and cost-effective. Similarly, states that make a concerted effort to either refurbish facilities and/or invest in new state-of-the-art industrial parks have a better chance to make the final cut. For example, the North Carolina Global TransPark has seen a recent wave of funding and legislative support despite its creation decades ago. Further, states that have developed centers to capitalize on technological innovation have an added competitive edge. Michigan, for instance, has ramped up efforts to promote innovative technologies in the Centers for Innovation Program, which focuses on public-private partnerships and provides consulting and funding to Michigan businesses. • Formation of deal-closing funds addresses the “gap” between what the company is expecting on total operational costs and the final site analysis. To fill this gap, some states already have deal-closing funds in place. States without such funding in place are forced to rush through new legislation. While both scenarios can work and meet a company’s timeline, the former scenario sends a much stronger signal about the state’s focus and ability to prepare and plan for deals. In addition, deal-closing funds provide a cash infusion to the company, which can substantially improve the bottomline analysis for the project. Many states have recognized the importance of such funds. Among the largest such funds are the Texas Enterprise Fund, the One North Carolina Fund, and the Florida Quick Action Closing Fund. • Business retention programs and incentives strike a balance between incentivizing relocations and expansions with maintaining a competitive environment for existing businesses and providing incentives to struggling instate businesses. For example, Oregon provides consulting services through its Business Retention Program to instate businesses undergoing financial or organizational distress. Another method is to provide job retention tax credits, such as in California, where in 2013 the legisla-

ture provided the Governor’s Office of Business and Economic Development with the authority to enter into an agreement with a taxpayer to retain a certain number of jobs in exchange for a corporate income tax credit. These retention policies have the potential to substantially impact an existing business’ financial position and improve the business case for operating units of companies that have a multi-state portfolio to stay and expand as they internally compete for limited CAPEX dollars.

“Bold Moves” • Single sales factor apportionment formula promotes interstate and international export and can, over the long term, have a great positive effect on a state and its corporations. As of 2013, over half of the states use some combination of a weighted apportionment formula to calculate corporate income tax (based on property, sales, and payroll), while four states have no corporate income tax (Texas has a franchise tax calculated similar to an income tax). Twenty-four states either have a pure single sales factor, are phasing in a pure single sales factor, or have an election of a single sales factor for certain businesses. In fact, by the end of 2014, California, Louisiana, Minnesota, New Jersey, New Mexico, Pennsylvania, and Virginia will either end phase-ins, expand the availability of the election, or move completely to a single sales factor. • Fully utilizable double-digit incentives represent another “bold move.” On the initial screen in a siting project, companies calculate the overall cost of taxes minus incentives. When a state has incentives that offset over 10 percent of payroll or investment, the entire industry takes notice. Once the incentive is noted, the next review is whether a company can take full advantage of the benefit. A great way to gain immediate attention is to enact legislation that incentivizes payroll and/or investment in either annual cash rebates or tax abatement. In scenarios where the abatement is larger

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FACILITY PLANNING

Employing a Team Approach By utilizing a multidisciplinary development firm that can adapt to their specific needs, companies can ensure their facilities are delivered on time and within budget. By Daniel L. Kiley, LEED AP BD +C, DLK Construction Services

S

hoot often and master each position. This advice refers to basic soccer coaching I received as a child, i.e., “Shoot 10 times and you might get one goal.” Of course, in order to get close enough to the goal to shoot, I needed to understand each team member’s position and all the necessary skills — like how to dribble, trap, pass, receive, kick, etc. Similarly a good developer needs to know how to network with potential clients, perform site due diligence, provide a dossier of available incentives, raise capital, and offer a myriad of related services to close the deal. Developers can’t be all things to all clients, but a strategy of using a multidisciplinary development firm is vastly more successful than employing a traditional, univalent landowner-type developer. However, this multidisciplinary approach only works when coupled with the developer’s willingness to modify his vision to meet the vision of his client. Let’s focus on what your firm should look for to ensure you’re engaging a multidisciplinary development firm:

Components of a Multidisciplinary Firm Site due diligence: The developer should be able to provide detailed analysis on various sites that might meet your needs. Preferably, the developer engages a national network of specialized experts in the fields of architectural design and engineering. The development firm should be able to interpret the client’s program requirements and test their feasibility for each site, which removes a lot of guesswork and wasted travel to review sites that may have never been candidates in the first place. This due diligence typically includes: • Proposing development-ready sites with no environmental, community, finan-

cial, legal, or municipal encumbrances • Work force analytics • Demographics • Traffic patterns, counts, and type (foot, vehicular, public transit, etc.) Incentive negotiation: Job creation incentives, tax abatement credits and programs, grants, bonds, and enterprise zone incentives can be very difficult to understand. The developer should expertly understand this area so that the firm can assist you in this complex process. Ideally, the developer either does this in house or has strategic relationships with firms that specialize in navigating these complex issues. A developer that is educated and savvy in this arena should be able to source and secure incentive funds, lead the application process, and provide recommendations and analysis of the best financial

Facility for a Fortune 100 e-retailer under construction

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solution for your project. Project management: Each project and facility is unique. Again, look for a strong multidisciplinary developer who has partnerships with industryleading project management professionals. This will enable them to save you time as well as consultant and professional services dollars, since such a developer will be able to provide full-service turnkey facilities or customized delivery methods specific to your project needs that can include: • Design/architect/engineer selection and management of process • Management of construction process and selection of GC • Management of furniture, fixtures, and equipment (FF&E) selection and installation • Security, data infrastructure, and audiovisual equipment procurement and installation • Move migration Sustainability: Having an understanding and mastery of the everevolving innovations in green construction and site development is increasingly a prerequisite to being a relevant developer. The “green-savvy” developer ensures that clients’ projects are designed to promote construction practices that increase profitability, while reducing the negative environmental impacts of buildings and improving occupant health and well being. In addition, the “green” developer can provide clients with reports suggesting the best strategies to earn LEED certification while minimizing additional costs. Typically, this is accomplished by offsetting the upfront expenses with savings in other areas and spot opportunities for synergies in each particular project. Construction: Again, the key word is partnership. A multidisciplinary developer should be partnered with a general contracting firm(s) to be able to provide accurate estimates and ultimately deliver turnkey solutions for clients. Many end-users are experts in their specific businesses but delivering their envisioned project is typically not their expertise. To be poised to deliver turnkey projects, a successful develop-

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er must have the partnerships in place to construct.

Case Study of the Multidisciplinary Approach A Fortune 100 e-retailer wanted to expand its customer service facilities in Huntington, W.V. By consolidating two existing office spaces, the client was looking to add employee capacity and create a best-in-class work environment to maximize employee retention, productivity, and satisfaction. The ground-up construction of this 70,000-square-foot facility required an ultra–fast-track five-month schedule in order to accommodate the client’s critical holiday shopping season and up to 900 associates. Compounding this challenging timetable was the fact that the area was encountering record-setting rainfall during the first 45 days of construction. The client engaged a multidisciplinary developer who committed to working with the client’s project manager from start to finish to ensure that budget and schedule constraints remained at the forefront of the process. This shared vision of delivering a facility on time and under budget led the entire team to the successful completion of this project. The developer was able to work directly with the design team to create a facility that met the current needs of the client, but that would also be adaptable as the client’s environment and needs changed in the future. The developer relayed real-time pricing changes and schedule adjustments and kept the client informed of process modifications, keeping a constant flow of open communication between the parties involved. Partnering with a general contractor (GC), the developer then assisted in the evaluation of vendors and subcontractors to ensure capacity to meet the difficult schedule. Because so much effort was expended to select the best group of building providers, record-setting rain delays did not derail the project timeline. The building team was able to adapt its work and add manpower to meet the shared vision, ultimately delivering the site on time and under budget. At the end of the day, the multidisciplinary developer was the key to this client’s success.

How Does Economic Continued from page 61 than the tax owed, states can allow for the unused portion of the incentive to either be sold or, better yet, provided in the form of a rebate check at year-end. Typically, these credits are more targeted toward specific industries, such as film production or other technologybased industries. For example, the Louisiana Digital Interactive Media and Software Tax Credit provides a 25 percent credit on the base investment with an additional 10 percent for Louisiana payroll; any excess amount of the credit is both transferable and refundable. • Rapid response recruitment, screening, and training programs are evolving. One of the largest and most variable factors in getting a new facility up to full capacity is the availability of trained personnel. While all economic development projects have a training component, the simple answer of providing training dollars and/or creating a task force of regional educational providers isn’t enough anymore. In order to be most effective, states must create a dedicated training team to assist companies through the initial start-up stages. However, such teams remain rare. Alabama Industrial Development Training, Georgia Quick Start, and Louisiana FastStart are among the most well-known and successful. Companies need to look for programs that impact their bottom line. And, as the battle between the states for economic development dollars rolls on — and the competition and stakes grow — states must be more committed than ever to developing such programs, which will also affect their bottom line. Legislation is inevitable in this process. Whether states opt for “feel good,” “middle of the road,” or “bold” initiatives, they must never lose sight of how their efforts are viewed in the corporate boardroom, where the question is asked, “Does this state’s legislation financially benefit our firm?” If the answer is an unequivocal “yes,” that state will go a long way in differentiating itself from the competition. AREA DEVELOPMENT | Q4/Fall 2013

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AD INDEX / WEB DIRECTORY Advertiser

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Statement of Ownership, Management and Circulation. Publication Title: Area Development. Publication Number: 345-510. Filing Date: 9/26/2013. Issue Frequency: 5x. Number of issues published annually: 5. Annual Subscription Price: $75. Complete mailing address of known office of publication: 400 Post Ave. Westbury, NY 11590-2226. Contact person: Dennis J. Shea. Telephone: (516) 338-0900. Publisher name: Dennis J. Shea. Editor name: Geraldine Gambale. 400 Post Ave. Westbury, NY 11590-2226. Owner: Halcyon Business Publications, Inc. 400 Post Ave. Westbury, NY 11590-2226. Stockholders owning or holding 1% or more of total stock: President Dennis J. Shea and Secretary Randi S. Shea. 400 Post Ave. Westbury, NY 11590-2226. Known bondholders, mortgagees and other security holders owning or holding 1% or more of total amount of bonds, mortgages or other securities: None. Publication title: Area Development. Issue date for circulation data below: Q3 2013. Extent and nature of circulation: corporate real estate executives. Average number of copies of each issue during preceding 12 months: Total number of copies: 52970. Legitimate paid/requested distribution: Outside country paid/requested mail subscriptions stated on PS 3541: 20373. In-county paid/requested mail subscriptions stated on PS 3541: 0. Sales through dealers and carriers, street vendors, counter sales and other paid/requested distribution outside USPS: 0. Requested copies distributed by other mail classes through USPS: 0. Total paid/requested circulation: 20373. Nonrequested distribution: Outside county non-requested copies stated on PS 3541: 32011. In-county non-requested copies stated on PS 3541: 0. Non-requested copies distributed through USPS by other classes of mail: 0. Non-requested copies distributed outside the mail: 643. Total nonrequested distribution: 32654. Total distribution: 53027. Copies not distributed: 213. Total: 53240. Percent paid/requested circulation: 38%. Number of copies of single issue published nearest to filing date: Total number of copies: 62667. Legitimate paid/requested distribution: Outside county paid/requested mail subscriptions stated on PS 3541: 21336. In-county paid/requested mail subscriptions stated on PS 3541: 0. Sales through dealers and carriers, street vendors, counter sales and other paid/requested distribution outside USPS: 0. Requested copies distributed by other mail classes: 0. Total paid/requested circulation: 21336. Non-requested distribution: Outside county non-requested copies stated on PS 3541: 41233. In-county non-requested copies stated on PS 3541: 0. Non-requested copies distributed through USPS by other classes of mail: 0. Nonrequested copies distributed outside the mail: 550. Total non-requested distribution: 41783. Total distribution: 63119. Copies not distributed: 41. Total: 63160. Percent paid/requested circulation: 34%. Publication of Statement of Ownership for a requester publication is required and will be printed in the Q4 2013 issue of this publication. I certify that all information furnished on this form is true and complete: Dennis J. Shea, Publisher.

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