HomeMy WebLinkAbout2015-09-16 PACKET 12.A. REQUEST OF CITY COUNCIL ACTION COUNCIL AGENDA
MEETING ITEM #
DATE 9/16/2015 / �► �
PREPARED BY: Finance Robin Roland
ORIGINATING DEPARTMENT DEPARTMENT HEAD
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COUNCIL ACTION REQUEST:
Workshop Session: Economic Development Authority, River Oaks Golf Course, and Capital
Improvement Program.
SUPPORTING DOCUMENTS:
❑ MEMO/LETTER:
❑ RESOLUTION:
❑ ORDINANCE:
❑ ENGINEERING RECOMMENDATION:
❑ LEGAL RECOMMENDATION:
❑ OTHER:
ADMINISTRATORS COMMENTS:
� ��
Ci y Administrator Date
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To:
Honorable Mayor and City Council
From:
Jennifer Levitt, Community Development Director/City Engineer
Robin Roland, Finance Director
Alicia McMonigal, Economic Development Assistant
Date:
September 8, 2015
Subject:
BEC Review and Future Direction
Background
Creation of the Business Enterprise Center
In June 2011, after it was determined that a new Public Safety/City Hall building would be built, a
great deal of research and consideration went into options for the 7516 80th Street property. In
2011, the economy was in recovery making the re-sale of the building for commercial purposes a
less desirable option due to a lack of a market for the building and land. If a sale had been at-
tempted, the building and land would likely have achieved a sale price below fair market value.
The decision was made to retain and re-purpose the building.
The re-purposing decision was to create a business incubator or accelerator. A subcommittee of
the EDA researched metro area incubators in an attempt to determine what needed to be done
to the current building to be a viable alternative within the marketplace.
The following short and long term objectives were determined and found to be supportive of the
economic goals of the City and the EDA for the Business Enterprise Center (BEC):
Short Term Objectives
To repurpose 7516 utilizing the most economical option.
o
Provide space for start-up companies or future expanding companies that may not qualify
o
for traditional rental space.
To provide a place where new or expanding businesses can receive supportive services
o
that encourage their chances of success short term.
To provide an opportunity to create public and private partnerships.
o
To offer an alternative location for current Cottage Grove home occupations that have
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grown beyond the home occupation classification and may no longer be in compliance with
zoning regulations or compatible in a residential setting.
Long Term Objectives
To provide an opportunity for the City to foster relationships with the businesses located
o
within the Accelerator, which increase the likelihood that they will remain in Cottage Grove
to expand into the business park or a market rate space within the City.
Honorable Mayor and City Council
BEC Review and Future Direction
September 8, 2015
Page 2 of 9
To create an opportunity to spur even more public and private partnerships.
o
To provide a place where new or expanding businesses can receive supportive services
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that encourage their chances of success of long term success.
To foster an image of innovation to others outside the community and attract further
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reaching economic development.
The mission of the EDA is to work with its partners to encourage businesses and industry and to
create quality jobs in the City using all tools and methods that are appropriate. The 2007-2012
work plan noted the following specific goals:
Attract new industries to bring an enhanced tax base, quality jobs, and new capital into the
o
region. Work toward completing build out of the industrial park.
Successfully become one of the first communities mentioned as a choice business location;
o
one that enthusiastically supports economic development as essential to improving quality
of life; one that provides ease of process and has the technology needed for the upcoming
business needs.
Influence local, regional, and state issues critical to business site location decisions and
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overall business climate.
The BEC was determined to be one of the means to help achieve those goals. It was determined
that the creation of the BEC within the old city hall met the stated mission of the EDA to recruit
and retain quality commercial/industrial partners.
As proposed to the EDA and City Council in March 2012, the Cottage Grove BEC would focus on
fostering success by what it had to offer prospective start up tenants.
Services and Trainings
Business coaching
Marketing assistance
Networking activities
Links to investors/strategic partners
Technology synergy
Affordable
Flexible office lease rates
Building Features
Office suite options
Single offices
Lab space
Free parking
High speed internet
Convenient access
Free parking
Shared copier
Free access to conference and training rooms
Honorable Mayor and City Council
BEC Review and Future Direction
September 8, 2015
Page 2 of 9
By offering supportive services, the intent was for businesses to develop and thrive while at the
BEC and to eventually grow into the Business Park or another local commercial space.
Developing the Business Enterprise Center
At the March 21, 2012 at the City Council meeting the following was approved:
1. The transfer of 7516 80th St to the EDA.
2. Nominal Approach for Rental of the Operation of the BEC. In summary, nominal rent rates are
$6/square foot plus tenant improvements maxing at $10/square foot. This was approved as it
most directly responded to the EDA mission and the vision for the BEC. If rent rates were
nominal, property taxes could be avoided.
3. Approved Tapestry Management as building management and brokerage contract.
From mid-2012 through 2013, Tapestry Management was responsible for planning and re-
searching efforts regarding recruiting tenants, tenant improvements, construction, remodeling,
and technology upgrades. Working alongside EDA staff, spaces within BEC were leased and
improved including but not limited to:
The installation of a key card security system.
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The remodeling of the training room, telecommunication room, lobby, and lower level
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restrooms. A technology grant for audio/visual was obtained from the South Washington
Cable Commission for the technology in the Training Room.
Kramer Signs completed suite/office signage for current tenants.
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Tenant improvements.
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Rekeying of tenant space and outside doors.
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Electrical carousel bulletin in east entrance.
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An advisory board was created to govern the BEC. The first meeting of the BEC Advisory Board
was held on February 13, 2013.
Board members include:
Randy Olson, MN Angel Network, VP of Business Development
Frank Jaskule, Life Science Alley, Director
Ben Granley, Werner Electric of MN, President
Dave Thiede, City of Cottage Grove Council Member
Paul Poncin, City of Cottage Grove, EDA Member
Mission and Vision of the Business Enterprise Center
Mission
To accelerate the success of innovative small businesses, foster high-quality job creation, and
increase the economic vitality of the City of Cottage Grove and the Twin Cities region.
Honorable Mayor and City Council
BEC Review and Future Direction
September 8, 2015
Page 2 of 9
Vision
BEC will become a growth engine for successful businesses in innovative industries within the
City of Cottage Grove and the Twin Cities region.
Strategy
BEC will set the stage for business success by providing entrepreneurs in technology, bio-
science, manufacturing, and other innovative industries with affordable workspace, a collaborative
environment, training, mentoring, and by connecting them to other resources.
Tenant/Lease History
ConexSpace entered into a lease agreement for April 1, 2013 through January 31, 2016.
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Conexspace provides world class sound masking, overhead paging, background music, and
mass notification systems.
Marine 61 rented garage space the first quarter of 2013.
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Gophermods entered into a lease agreement on May 1, 2013, and vacated a year later.
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Gophermods provides repairs for smartphones, iPods, tablets, gaming consoles, PCs, and
Macs. This is the BEC’s first success story, even though there is not a Gophermods located
in Cottage Grove. This email from Casey Profita, Founder of Gopher Mods, speaks of their
success relating to their opportunity at the BEC:
“Its (sic) been a wild ride since we realized that we can open retail stores and have
them be successful. We truly do owe all credit to the City of Cottage Grove, you and
Gregg LaSalle for the opportunity to take the space in the BEC and help us prove to
ourselves that we can open up retail spaces and be very successful. I can say without
a doubt, if we didn’t rent that space, we’d only be in our Minneapolis location and no-
where else right now. We certainly had our share of hiccups with the break-in, and hard
to find location, but all positive learning experiences.
The space in the BEC definitely let us tinker and experiment with this model and I am
glad that we’ve finally perfected it where we can go into new spaces and not be daunted
by signing a three to five year lease and worry about sinking the businesses. The BEC
truly did its job and incubated a business that at the time, had one location and six
employees, to now five locations and 25 employees. All thanks to the City of Cottage
Grove.
I appreciate the opportunity again Danette, and please let me know if there is anything
else I can or need to do for you or the BEC. It’s been such a wonderful opportunity and
I’ve been encouraging several other business associates of mine to contact the BEC
for space.”
Currently, Gophermods offers five locations in the Twin Cities and a branch each in Iowa and
Nebraska.
Honorable Mayor and City Council
BEC Review and Future Direction
September 8, 2015
Page 2 of 9
Premier Biotech entered into a lease agreement August 15, 2013. We are in the process of
o
renewing their lease until August 31, 2016. They have expanded four times to meet their grow-
ing needs. Their square footage totals 2,163 square feet. Premier is a provider of drug testing
diagnostics.
Cottage Grove Area Chamber of Commerce entered into a lease agreement for October 1,
o
2013 to September 30, 2018. They offer a free chamber membership to all BEC tenants.
The Renew Solar Store entered into a lease agreement October 1, 2013 to September 30,
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2016. The Renew Solar Store sells solar products.
American Nursing and Tech Institute entered in to a lease agreement January 15, 2015 to
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August 31, 2016. They provide Emergency Medical Training and Certified Nursing Assistant
training certificates for low income immigrant women.
Tower Lease Agreement with Verizon is effective February 5, 2014 to December 31, 2018. In
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addition to the tower, they have 250 square feet leased in the lower garage.
BEC Outreach/Marketing Efforts
The following efforts have been used to promote the BEC:
Kick-off Event on March 20, 2013 at the Boy Scout Basecamp Center in Bloomington.
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MN High Tech Association Spring Conference on April 30, 2013 at the Minneapolis
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Convention Center.
Kick-off Event on February 19, 2014 at the Boy Scout Basecamp Center in Bloomington.
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MN High Tech Association Fall Conference on October 1, 2014 at the Minneapolis
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Convention Center.
Craig’s List ads.
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BEC Facebook Page.
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Numerous press releases.
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Featured in 2013 and 2014 Annual Reports.
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Highlighted in Cottage Grove Reports.
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Bulletin has completed stories on every new tenant and open houses.
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BEC luncheon on November 14, 2013 – Tenant Amenities.
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BEC Open Houses on August 20, 2012 and January 22, 2014.
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BEC Pamphlets.
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BEC Folders.
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BEC web presence.
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Honorable Mayor and City Council
BEC Review and Future Direction
September 8, 2015
Page 2 of 9
Management Company
The City entered into a Management Agreement with Tapestry Management on March 29, 2012,
wherein Tapestry Management agreed to manage the day-to-day affairs of the building with a
term of March 21, 2012 to December 31, 2013. A synopsis of the responsibilities of Tapestry
Management under the Management Agreement were:
Complete operational services of the building.
o
Hire personnel and subcontractors.
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Submit an operating budget for the future calendar years.
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Utilize funds to pay building expenditures, make ordinary repairs gaining three bids for
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Owner’s consideration.
Provide monthly statements of receipts and disbursements.
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Collect rent from tenants depositing into bank account maintained by the Manager.
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Supervise capital expenditures for tenants and building improvements.
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Manage prospect tours, assistance in qualifying prospects and lease negotiations. Devel-
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opment and implementation of marketing plan.
Manager compensation for managing the building is a fee equal to 4 percent per month of
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property revenues based on an average of $8.00 a square foot average rate for all leased
spaces. Manager compensation for leasing building space is a fee equal to 6 percent of
the gross rent for the term of the lease, based on an $8.00 a square foot average rate for
all leased spaces. Commissions are payable upon execution of the lease.
Although the contract with Tapestry Management was to run through the end of 2013 and could
have possibly been renewed or extended after that point, the company’s responsiveness and
attention to the BEC was insufficient to meet City expectations.
City of Cottage Grove Staff Assumed Management Duties of the BEC
Beginning in January 2014, City staff took over management responsibilities of the BEC. These
responsibilities include:
Resolving mechanical issues with the building.
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Weekly property checks.
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Responding to and rectifying tenant requests/issues.
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Lease renewals and negotiation of lease terms.
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Tenant improvements.
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Overseeing contractor work completed to contract specifications.
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Obtaining snow removal bids.
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Marketing efforts to fill building: Craig’s List ads on a daily basis.
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Answering all potential tenant inquiries by phone or email.
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Offering tours and BEC information to prospective tenants.
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Performing ‘in services’ to new tenants on building amenities and move in checklist.
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Corresponding with US Postal Service advising of new tenants and requesting mailbox
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keys.
Honorable Mayor and City Council
BEC Review and Future Direction
September 8, 2015
Page 2 of 9
Coordinating all tenant improvements: obtaining bids for all improvements, determining if
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work is completed to contract specifications.
Updating clients in person and via email.
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Maintaining relationships with the Garden Club.
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Requesting services from Public Works.
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Meeting mechanical contractors to open secured areas for routine maintenance.
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Insuring all technology is operational.
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Contacting vendors if problems arise and rectify issues.
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Coding and reviewing all invoices for accuracy.
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Discerning potential tenant’s feasibility.
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Quarterly copier reading reports supplied to Metro Sales.
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Building and grounds maintenance: Snow removal services in winter and weekly mowing
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and trimming in the summer.
Solar Array
At the May 13, 2014, EDA meeting, EDA members approved moving forward with the 40kW pro-
ject at the BEC. The agreement was signed on February 3, 2015 and covers a 15-year period. To
date, the solar panels are in place on the BEC roof but Xcel has yet to add the second meter and
flip the switch to make the solar operational.
Discussion
Financial Analysis of the Business Enterprise Center
The original budget for the operation of the BEC was estimated in 2012 by Tapestry Management.
It assumed 24,000 square feet of rentable space – 20,000 in the building and 4,000 of garage
space. The assumption was 55 percent occupancy by 2014 and 95 percent occupancy by 2016
at between $8 and $10 per square foot for the building and $3 and $5 per square foot for the
garage space. These estimates resulted in revenue projections of $118,800 by 2014 and
$209,000 in 2016.
Related expenditures, including management fees and lease commissions for Tapestry, totaled
$113,035 for 2014 and $127,152 for 2016. As may be seen in the following financial recap, 2014
did not generate anywhere near the anticipated level of revenues from tenant leased space and
expenditures, although less than the estimates, were still high compared to the actual amount of
leased space.
Staff recognized that the initial budgets for the project were optimistic and that the EDA’s goal
with the project was not to create a profit center. However, since the inception of this project
through the end of 2014, the EDA has seen total expenditures in excess of revenues totaling
$208,991. It is anticipated that an additional ‘loss’ of $16,000 or more will be experienced in 2015.
Honorable Mayor and City Council
BEC Review and Future Direction
September 8, 2015
Page 2 of 9
BUSINESS ENTERPRISE CENTER
2013201420152015
ACTUALACTUALBUDGETESTIMATED
REVENUES
BEC Rentals 9,196 34,258 96,660 36,000
BEC Tower Rent 28,684 57,879 29,000 62,955
Total Revenues 37,880 92,137 125,660 98,955
COMMODITIES 98,059 6,633 - 12,666
CONTRACTUAL SERVICES
Prof. services Admin/Marketing 9,291 8,666 16,656 12,000
Engineering & Legal 789 4,267 500
Fees for service (mgmt) 3,559 2,066 6,750 500
Communication 480 2,032 6,365 2,000
Data processing 550 363
Printing/publishiing 343 295 1,000
Property insurance - 5,250 5,250 5,250
Utilities 15,561 27,724 6,450 30,000
Maintenance/repair-bldg 22,511 27,208 23,484 15,000
Rental/lease 3,211 2,318 3,200
Clean/Waste Remv 16,036 5,795 6,000
Total Contractual Services 72,331 85,984 64,955 75,450
CAPITAL OUTLAY 52,527 - 35,045 26,950
Total Expenditures 222,917 92,617 100,000 115,066
Net Revenues over Expenditures (185,037) (480) 25,660 (16,111)
Current Staffing for the Business Enterprise Center
Marketing and General Inquires:
Phone calls, emails, website, tours, meetings, updating Craig’s List ads, posting on BEC Cottage
Grove Facebook page, recently updated marketing materials
Honorable Mayor and City Council
BEC Review and Future Direction
September 8, 2015
Page 2 of 9
Contact with Potential Tenants:
Reviewing potential tenants that are viable and providing them information is about 10-15 hours.
Creating a new lease and getting it executed.
Lease Renewals:
Typical follow-up on a lease renewal is approximately 5 hours per lease. Recent leases were
streamlined and improved
The majority of staff effort is dealing with tenant response and/or lack of follow through.
Maintenance of the facility:
General day to day needs – Jammed towel dispenser, roof leaks, weekly walk through, picking
up trash outside building, emails to clients regarding issues found at BEC, quarterly copier
data retrieval and submission to Metro Sales, calls regarding calendar requests for training
rooms, temperature issues, quarterly replacement of batteries on fire alarm door in training
room, answering requests for the garden ladies who volunteer their time at the BEC front gar-
den, lower level men’s urinal continuously running, lower level men’s bathroom signage
reminding tenants not to dispose of tobacco products in toilets, signage, emails, and eventual
taping doors shut of restrooms in old community development area as toilets are not opera-
tional and will not be replaced until we have a tenant in that area. Periodic reminders regarding
tenant courtesies.
Emergency call outs – Air conditioning issues in lower level Renew Solar Store, staff had to
stay with contractor to provide access to tenant space as tenant was not present, ultimately it
was determined that the blower motor was out on unit #2 in the lower level. As a result, there
was a 30-40 foot issue with sweaty pipes that damaged ceiling tiles, which had to be replaced.
Recent replacement of hot water heater in lower level. HVAC issues in old community devel-
opment area resulting in changing batteries and resetting all thermostats.
Routine maintenance – HVAC service, window cleaning, carpet cleaning, weed spraying in
parking lots and sidewalks, weekly lawn mowing and trimming, tree trimming when appro-
priate, biannual HVAC maintenance contacts.
Janitorial Services – Review, monitor, and meet with contractor.
Maintenance – HVAC yearly contract.
Snow Removal – Goes out for bid every year and service fulfillment must be monitored by
staff.
Tenant Improvements:
Meeting with contractors, obtaining quotes, monitoring work, developing a punch list.
Prior to the hiring of a full time maintenance position, the duties surrounding building maintenance
and tenant improvements have been conducted by the previous Economic Development Director,
Chief Building Official, numerous Public Works staff members, and the Economic Development
Assistant. These tasks were absorbed into their current job duties. Now with a dedicated staff
Honorable Mayor and City Council
BEC Review and Future Direction
September 8, 2015
Page 2 of 9
member to assist with maintenance duties, other employees will carry less of the burden and be
able to fulfill their stated job responsibilities.
Future Direction for the Business Enterprise Center
Questions:
1. Does the EDA continue with the BEC? How long?
2. What is the exit strategy?
3. What future options exist for the building or land?
4. Should there be an increase in our marketing efforts to get more tenants?
5. Is there a positive benefit-cost ratio for the staff hours committed to the BEC?
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Document Path: M:\\MGIS_Department Projects\\MGIS_Department Projects_2015\\EDA\\BEC_LIBRARY\\BEC_Library_Area.mxd
ConexSpace
Premier Biotech
HEADING 1
BEC
7516 80St. S.,
th
American
Cottage Grove, MN
Tower
Nursing &
Lease
Tech
Assigned Suites
Institute
Insert Text (I’ve inserted pictures on the right to show how you
•
Renew Solar Store -202
could use photos.)
Chamber of Commerce -205
Premier Biotech -210 & 240
American Nursing & Tech Institute -250
Cell Tower -280
Upper level office space -48% rented
Lower level office -36% rented
Lower level production space yet to be rented
(5,227 sqft) –0 rented
Hallway
Hallway
Premier
Biotech
Rest Rooms
Hallway
Tenant
Occupied
Premier
Renew Solar
Biotech
Common Area, Utility, Restrooms,
Conference Rooms
Hallway
Hallway
Chamber
Furnace
BEC
7516 80St. S.,
th
Cottage Grove, MN
Assigned Suites
Conexspace-Suite 146
122
Premier Biotech -Suite 165
Upper level office -48% rented
Lower level office -36% rented
Lobby
Lower level production space yet to
be rented (5,227 sqft) –0 rented
Video
Conf
ConexSpace
Training Room
124
Rest
Rooms
Tenant
Occupied
Common Area, Utility, Restrooms,
Premier Biotech
Conference Rooms
Lab
Premier
Biotech
Office
BEC Amenities
Training Room
Lobby
Teleconference Room
More than Just a Building
The Business Enterprise Center (BEC) will
space
and supportive services to increase their
chances for businesses success.
a
mentorship program, and learning from other
Convenient Location
below-market rent, you can invest money in
7516 80th Street South
your business rather than overhead.Cottage Grove, Minn. 55016
Easy freeway access to Hwy 61
Business Accelerators Work
4.5 miles to Interstate 494
9.8 miles to Interstate 94
Business accelerators and business incubators
11.4 miles to downtown St. Paul
have become recognized nationwide as an
20-minute drive to MSP airport
Contact
succeed. According to NBIA (National
If you are interested in applying for space
Business Incubation Association): business
in the BEC
incubators generate up to 20 times more
jobs than any other federally-funded
community infrastructure
projects at a fraction
of the cost.
Setting the Stage
for Business Success
Visit www.growthpartnerscg.com
BUSINESS
ENTERPRISE CENTER
What We OfferEligible Businesses
Building Features
Businesses with the following characteristics
will be the most seriously considered:
of workspace
manufacturing space
a business plan
a commitment to growing their business
Flexible Lease Terms
Campus Services and Training Events
business opportunity with high job
creation potential
large training room
- Financial analysis
- Business planning
working closely with the BEC team and
to devoting the time necessary to
- Banking, lending, SBA, credit
and trails
Targeted Industries:
Frequently Asked Questions
- Permitting and licensing
Credit Program (e.g. biotechnology,
Q: Who decides who gets into the BEC?
clean technology, IT, electronics,
A: The BEC has a management company
manufacturing technology consumer
(Tapestry Management) and advisory board
product creation, etc.)
that determine if potential tenants meet
- Human resources
CNC machining or support)
- Insurance and risk
creating
Q: How long can a business stay in the BEC?
A: This can vary. However, the goal is that
- Marketing and sales promotion
businesses will graduate within three
- Customer relations
to BEC tenants
years or less.
- Technology
Q: Is my retail business eligible?
A: The BEC is not intended for
retail uses. However, the
City is happy to assist you
in locating available space
within Cottage Grove for
your retail use.
Resources. Collaboration. Innovation.