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HomeMy WebLinkAbout2011-12-13 MINUTES CITY OF COTTAGE GROVE E CONOMIC D EVELOPMENT A UTHORITY MINUTES December 13, 2011 Pursuant to due call and notice thereof, a regular meeting of the Economic Development th Authority was held at Cottage Grove City Hall, 7516 80 St. S., Cottage Grove, Minnesota 55016 on the 13th day of December, 2011. CALL TO ORDER The meeting was called to order at 7:30 a.m. by EDA Vice President, Justin Olsen. ROLL CALL Members Present: Justin Olsen, EDA Vice President Tony Jurgens, EDA Member Craig Patterson, EDA Member Paul Poncin, EDA Secretary/Treasurer Members Absent: Myron Bailey, EDA President Chris Reese, EDA Member Richard Remackel, EDA Member Staff Present: Robin Roland, Finance Director Ryan Schroeder, EDA Executive Director Ken Smith, Communications Coordinator Danette Parr, Economic Development Director Laura Bolstad, Economic Development Specialist Others Present: Justin Fox, ReMax SueMichaletz, Tapestry Management, LLC Greg LaSalle, Tapestry Management, LLC APPROVAL OF MINUTES A motion was made by EDA Member Jurgens to approve the November 8, 2011 EDA minutes. The motion was seconded by EDA Member Poncin, all present were in favor. DEVELOPMENT UPDATE / BR&E UPDATE / BUSINESS LEADS EDA Executive Director Schroeder provided the development update. Activity has been minimal in November, but with the permits that are pending in December the City is expecting to meet its initial estimate for building permits in 2011. PSCH –The new City hall construction is continuing. Pictures of the construction site are taken every ten minutes and are available online so residents can follow the progress of the project. Economic Development Authority - Minutes December 13, 2011 Page 2 Home Depot – We are in a holding pattern. The City is waiting for the developer and the owner of the shopping center to come to agreement. Cottage View – An agreement on a portion of the property is pending. EDA VP Olsen asked if any other parties are interested in the other adjacent developable chunks. ED Director Parr stated that the broker is confident that he can market the other chunks. Yo-Joe’s – Announcements of Yo-Joe’s upcoming opening have been posted on EDA President Bailey’s Facebook page and published in the newspaper. Thompson Grove Community Hall – The city recently hosted a design charrette to determine a future use for this community building (pool) in part funded by the EDA. The City Council is st scheduled to vote on the contract with the architectural firm on December 21. If approved, the architect will present three different design concepts at the All Commission Meeting on January th 14: 1) Teen Center 2) Activity Center (e.g. Indoor playground), and 3) Senior Center. USPS – The building on Point Douglas has now been listed with CBRE. We are aware of at least one interested party. One type of potential user could be an adjacent property owner. EDA Executive Director Schroeder provided the economic outlook. Sources from the state and the St. Paul Area Association of Realtors predict a slightly upward trend in 2013, with positive momentum increasing in 2014. Both EDA Executive Director Schroeder and EDA VP Olsen pointed out three additional news items of interest: 1) Twin Cities on hand real estate inventory is the lowest since 2007, so supply and demand may be balancing out; 2) The Federal Reserve has observed increased hiring patterns; and 3) 3M is offering 4,900 employees early retirement. Incubator Update ED Director Parr stated that in November the EDA instructed staff to continue the conversation with Tapestry, with the goal of having a contract by the December meeting. While the contract language has not been tailored to the City’s needs, a generic contract template is included in today’s meeting packet for the EDA’s review. ED Director Parr went through the pro-forma for years 2012-2016 of the proposed incubator. EDA Executive Director Schroeder clarified that the real estate taxes line item for year 2013 should be removed from the pro-forma because real estate taxes will not be incurred until 2014, and the maintenance, operations, insurance, etc. expenses for 2012 should be annualized to reflect that the incubator would only be operating for a small portion of 2012. With these adjustments, the incubator would have a net profit by year 2016. ED Director Parr introduced Sue Michaletz and Greg LaSalle with Tapestry Management, LLC. Sue and Greg explained how they have worked with the University of Minnesota to develop University Enterprise Laboratories (UEL), a collaborative research center offering lab and office space to early stage biotech and life science companies. Tapestry manages the property, handles leasing, and organizes business development programs for tenants (e.g. lunch and learn series). Companies benefit from the synergy of co-locating with similar businesses and sharing amenities. The 125,000 square foot UEL building is 100% occupied. 5 tenants have graduated to new locations, creating an additional 75 jobs in the local economy. EDA VP Olsen asked where those five businesses that graduated decided to locate. Sue and Greg answered that two moved one block away and the others moved to Golden Valley, Minneapolis, and Eden Prairie. Their location decisions were largely dependent on where the owners lived, and if the employer is considerate he/she may factor in where his/her employees Economic Development Authority - Minutes December 13, 2011 Page 3 lived. EDA VP Olsen asked what the UEL waiting list looks like. Sue and Greg responded that UEL is considering expanding the building. There is a waiting list for 30,000 square feet of space. Tapestry receives approximately 3-4 inquiries each month about leasing space at UEL, with the average inquiry requesting 1,500 square feet. EDA VP Olsen asked what Tapestry’s vision is for the Cottage Grove incubator. Sue and Greg said that the wet lab space at UEL is a very specific need. In contrast, he sees the Cottage Grove incubator as a non-industry specific center. His network skews towards the high- tech/life-science fields, so the eventual tenants may reflect that. EDA VP Olsen asked if the building has potential to transition to serve high-tech or life science businesses. Greg said yes. EDA VP Olsen asked about how UEL’s move-out rates compare to its original projections. Sue and Greg said that UEL has a mortgage and is a market rate building, so it does not follow the traditional incubator model. He cited the UW Madison incubator as the traditional golden model for incubator success. In UEL’s first five years its goal was to fill the building and stay operational. They are now examining the prospect of whether it would be appropriate to force graduations. At some point businesses reach a tipping point where they have both access to capital and a need to increase their number employees. Move-out is a natural occurrence at this stage because UEL is at maximum capacity and cannot offer its tenants additional space when they want to grow. Greg and Sue said that the pro-forma is a starting place. Rents may change. The goal is to break even in five years, and help tenants who traditional landlords may see as too risky because they are new businesses. The idea would be to wait to open until a critical mass of space has been leased. There would be an application process to be accepted into the building. The businesses would have to meet certain parameters. The building would be an “Accelerator” rather than an incubator—we are here to help their business grow. EDA VP Olsen asked what control the city would have over the parameters guiding acceptance into the building. EDA Executive Director Schroeder answered that the city would provide general guidelines but not be in charge of lease approval. The City would set a geographical preference for area residents. The first invitation would go to Cottage Grove home-based businesses—see the list in today’s packet. EDA Executive Director Schroeder then stated that the goal for the next meeting should be to have the exact contract drafted. EDA VP Olsen said the City should take a long term view with the Accelerator project and look at the long term benefits, even though the City may lose money in the short term. EDA Member Poncin asked how long it would take for Tapestry to fill the building, and what the targeted businesses’ competitive edge would be. We should look for businesses that have growth potential. Sue said that while the building could accept bookkeepers, etc. that could serve tenants in the short term, the long term vision would not include those businesses. Holding an open house would be helpful to see what kind of businesses would be interested in the building. EDA Executive Director Schroeder provided examples of market rents in the area, which ranged from $14.50 and up. This building would be hoping to charge in the $8-$10 range. EDA Executive Director Schroeder said that the City may have the opportunity to access third party funds if the EDA provides a cash grant. That money could be leveraged to get access to DEED or other Business Foundation funds. Sue and Greg replied that UEL received approximately $5 million in grants and donations from the business community. Economic Development Authority - Minutes December 13, 2011 Page 4 EDA Member Poncin asked how much building renovations would cost. Greg said that he and Sue toured the building last week, and in their view carpet replacement (in about 50% of the building) and painting would be the most costly renovations. The building would also need to be re-keyed, which he was lead to believe may be complicated. The bathrooms could use some touching-up, but so could the bathrooms at UEL. UEL is at full capacity despite the outdated bathrooms. The renovations would cost approximately $3-$5 per square foot, especially if the bathrooms are redone. The City could get participation from tenants if they need significant modifications through increases from the base rent. Justin Fox asked about the length of the leases Tapestry would use. Greg said that they would need flexibility, so some terms could be 3 years, others 1-2 years, and very small businesses may need a month-to-month lease. Justin Fox asked if Tapestry is seeing a lot of tenants with cash reserves or whether they use personal guarantees. Greg and Sue said they do not use any personal guarantees. In the past five years they have lost $60,000 in rent. There were a couple of early closures. Tapestry helped fund the wait-out period while businesses were waiting for grant funds or venture capital. You become a lender for the short term. EDA VP Olsen asked if they ever use percentage rent. Sue and Greg said no. At UEL they sometimes offer a graduated lease agreement, where they charge lower rent in the early months or years and gradually increase the rent over time so that on average they achieve market rate. EDA Member Jurgens stated that by offering this business accelerator the City would be fostering a growth profile for companies we want to see grow jobs. It would be good to look at who is looking for space in the area. EDA VP Olsen said that creating this business accelerator feels like something the City needs to do. Such business accelerators/incubators may become more popular in the long term. EDA Executive Director Schroeder stated that most landlords want to charge more rent than we would be charging. EDA VP Olsen stated that we would not be competing with office space at market rate because we would be targeting early stage businesses that traditional landlords may view as too risky. The location is attractive because it is highly visible and accessible. The numbers do not scare him. EDA Member Jurgens asked how Tapestry would work with us to foster an environment where businesses would stay in the City after they outgrow the accelerator. Greg said that by establishing the accelerator Cottage Grove has the first opportunity to present them with options for other locations within the city. The City and Tapestry will have relationships with the businesses and have knowledge of the business. Businesses at UEL rely on Tapestry to help them find their next location. The City will need to be prepared to let them know what is available. The accelerator will have anchored them a bit to the community already. They will be used to the commute and they may have attracted staff from the area. EDA VP Olsen said the more we involve the businesses in chamber events, tours, etc. to establish relationships the better. We will not be able to keep all the businesses in Cottage Grove, but we will have a good chance—the first chance to show them opportunities in Cottage Grove. EDA Executive Director Schroeder asked for feedback on the idea of providing seed money. EDA VP Olsen asked Director Schroeder to expand on what that would entail. EDA Executive Director Schroeder explained that the EDA would take some trust fund money and put it on the balance sheet. He outlined three advantages to this approach: 1) The accelerator would start with a positive cash balance so cash flow would be positive; 2) The money could be used to fund capital improvements; and 3) The seed money could be leveraged to access third party Economic Development Authority - Minutes December 13, 2011 Page 5 grants. EDA Member Poncin stated that he was in favor of providing seed money. EDA VP Olsen said that this type of effort is exactly why the EDA exists. Sue and Greg explained that the only initial expenditure would be money for marketing. They could create a studio show- room example. EDA VP Olsen asked how much seed money would be needed. EDA Executive Director Schroeder responded that he would get back to him. EDA Member Jurgens asked how Tapestry would be paid. Sue and Greg stated that they receive a lease commission and a management fee. EDA Member Patterson asked what we have to lose. He pointed to the 90 day parachute in the contract. Sue confirmed that both parties do have the ability to cancel the contract. EDA VP Olsen requested an updated spreadsheet showing the seed money and other corrections at the next EDA meeting. He asked if the EDA had to make an annual donation or just the one-time seed money. EDA Executive Director Schroeder responded that the one-time contribution of approximately $200,000 is all that would be needed. EDA Member Poncin stated that he would prefer if the seed money would not exceed $150,000. Marketing Work Plan ED Director Parr introduced a discussion of the costs and value of different marketing options. She reviewed each marketing item and its associated cost as outlined on the marketing matrix included in the meeting packet. EDA Executive Director Schroeder told the EDA that the advantage of advertising on Comcast is that the City could target specific demographics, geographies, time of day, etc. to get our message out to our target audience. He explained that there are smaller and less expensive packages available than the one listed on the matrix, but the listed number provides a barometer of the cost. We could use Comcast to advertise for Crazy Days, East Ravine homes, and Strawberry Fest. EDA Member Patterson asked how much the production costs would be for making a commercial using Comcast. EDA Executive Director Schroeder replied that the production costs would be $1,000-$1,500, but Comcast will accept a commercial we produce on our own. ED Director Parr said that KARE 11 described the target audience for its mid-day show as middle-aged women at home with their kids.The contract for Shop QA expires on 3/1/2012, so the EDA should decide whether or not to renew that contract. ED Director Parr presented the staff recommendation to not renew the Shop QA contract. It does not provide enough value. With the new website we can provide much of the same information without the additional cost. If there are local businesses that do not have a website we can link to, then City staff can provide some technical assistance to help them set up a website. A motion was made by EDA Member Jurgens to approve the staff recommendation to not renew the Shop QA contract. The motion was seconded by EDA Member Poncin, all present were in favor. General consensus among EDA members that the MN Real Estate Journal would be the best journal to advertise in if we advertise in a journal. EDA Member Poncin asked how Cottage Grove is perceived in comparison to nearby communities. ED Director Parr said that it depends on who you ask. EDA Member Poncin asked if we are proposing a PR campaign on Comcast promoting the quality of life Cottage Grove provides its residents. If so, he thought it would be a good idea. EDA VP Olsen and Justin Fox said when they say they live in Cottage Grove people do not know where it is until they explain that it is between Woodbury and Hastings. People know Woodbury and Hastings. EDA Member Poncin suggested that the City could use local cable access to promote local businesses. ED Director Parr explained that we recently started doing just that with the commercial that Danette recorded. EDA Member Poncin suggested that we could also use the local cable station to promote Strawberry Fest, Cottage Grove Schools, etc. EDA Member Patterson said that he thinks there is an industrial perception surrounding Cottage Grove. EDA Economic Development Authority - Minutes December 13, 2011 Page 6 VP Olsen agreed that the smokestacks of the oil refinery impact how people perceive Cottage Grove as they drive South on 61. EDA Member Patterson said that we need to work with what we have. EDA VP Olsen said that if the Shop Cottage Grove campaign works, residents will be investing in community growth and they will see expanded options. EDA VP Olsen pointed out that the City’s website is in need of an upgrade. He highlighted the increasing importance of an online presence and pulling people to your digital space through coordinated efforts on Facebook, Twitter, etc. He informed the EDA that Councilmember Thiede had an idea about doing the Amazing Race in Cottage Grove. EDA VP Olsen further suggested that Shop Cottage Grove signs could be posted on City vehicles, on the fence at the ball park, etc. He asked if there is a need to develop an area-wide EDA and whether there are other opportunities to work with the chamber. Finance Director Roland stated that with the upcoming website upgrade, our website will have smart phone compatibility. The new website is on the agenda at the next City Council meeting, and if approved it will be ready in 4-6 months. EDA VP Olsen said that Cottage Grove has a lot to offer that people do not think of because we are not on the top of their mind. Print is not what it used to be. Justin Fox agreed that print media is irrelevant. EDA VP Olsen said it is all about relationships, whether through social media or face to face. He said Danette has done a great job with developing relationships through face to face interactions. Social media is not expensive and it pulls on an emotional connection. The downside is that there will be some people who post negative things. That can hurt the City badly, so monitoring the digital conversation is vital. EDA Member Jurgens said the accelerator is just one prong of a multi-prong approach. We can also work with colleges and universities to establish relationships. EDA Member Jurgens emphasized the importance of making sure that Cottage Grove is a Destination. Is there a way to preserve a drive in theater in this community? EDA Member Poncin suggested a 1950s car-hop restaurant, with a screen on the side of a department store building. EDA Vice President Olsen suggested that it does not have to be a drive-in, but there needs to be some kind of entertainment venue to draw people to the community. EDA Executive Director Schroeder suggested a band shell and arts in the parks series. ED Director Parr requested feedback from the EDA about other marketing efforts the City should not pursue. EDA Vice President Olsen and Justin Fox said the City should not spend money on postcards, but EDA Member Poncin stated that postcards are very effective for his business. ED Director Parr mentioned that people do remember the tuxedos, for better or for worse. Post cards are a cost-effective way to tell people to take another look at us. Postcards targeted to the right business people and site selectors would serve as the perfect crescendo to our new marketing plan and website. EDA Vice President Olsen asked if business analytics were important to postcard mailings, and EDA Member Poncin replied no. Justin Fox suggested using a Facebook ad targeted to developers. EDA Member Poncin pointed out that not all of our target audience would be on Facebook. EDA VP Olsen said that Professional memberships are valuable if they give you access to people and discounts to events the City would be attending anyway. The ICSC conference was beneficial, but the other conferences were not as beneficial. It is hard to calculate how the value of attending each conference. ED Director Parr requested direction on whether to pursue marketing on Comcast. EDA Member Patterson requested more information on what a Comcast deal would entail as well as Economic Development Authority - Minutes December 13, 2011 Page 7 clarification on what our overall objective would be. ED Director Parr said that she will invite a Comcast representative to talk to the EDA about what a Comcast campaign would look like and provide details on targeting our audience. EDA VP Olsen stated that the City has a great story to tell. EDA Member Patterson requested to see a draft script or outline. EDA Member Poncin said we could highlight the quality of life, safety, and peaceful community Cottage Grove offers. EDA Executive Director Schroeder mentioned that we did attract one business from Minneapolis because the owner was tired of unreliable phone service and graffiti. Communications Coordinator Smith said when he asks residents why they live here the most common answers are: 1) They grew up here and came back; 2) They like the events and activities in the community—Strawberry Fest, golfing, Holiday Train, etc.; 3) Simple things like the sense of community here, the peaceful quality of life. ED Director Parr mentioned that the staff came up with an idea to have a video contest where people tell why they like Cottage Grove. EDA VP Olsen suggested the City publicize the awards and special recognition they give to community businesses and residents because it shows what a great place to be Cottage Grove is. He also suggested putting Shop Cottage Grove signs on police cars. EDA Member Jurgens asked for an update on the Fashion Bug site as well as the new industrial company moving into town. ED Director Parr said that Charmed Shops is selling Fashion Bug and focusing on their Lane Bryant chain. The lease was bought out by the Dollar Store, which will be opening in the spring. EDA Member Patterson suggested that Maurices might be interested in locating in the community. ED Director Parr said the City has already contacted Maurices. EDA Executive Director Schroeder reported that DMC currently has a location on the Newport/St. Paul Park border, and they have opened a location in Cottage Grove which they intend to use as their corporate headquarters. ED Director Parr explained that DMC bottles and formulates hand lotions, etc. They plan on having a grand opening in the spring. EDA VP Olsen recommended featuring them as a new Cottage Grove business. CALENDAR The EDA reviewed the list of calendar events for late 2011 through May 2012. EDA Executive Director Schroeder said that he has not made the phone call yet for the 3M business breakfast. MISCELANEOUS BUSINESS ITEMS EDA VP Olsen reported that the City Council met last week and approved the final plans for the new building. Rather than funding it through private placement bonds, the Council decided to borrow money from itself and pay it back at a 1% interest rate, which is the same rate of return the City’s portfolio had been making previously. This plan will be less expensive for the City and will not impact the City’s bond rating. ADJOURN EDA Member Patterson moved to adjourn the meeting. Seconded by EDA Member Poncin, all present were in favor. The meeting adjourned at 9:45 a.m. Respectfully Submitted, Laura Bolstad Economic Development Specialist