HomeMy WebLinkAbout2015-10-11 PACKET 06.03.A.
To:
Economic Development Authority members
BEC Board members
From:
Jennifer Levitt, Community Development Director/City Engineer
Robin Roland, Finance Director
Alicia McMonigal, Economic Development Assistant
Date:
November 6, 2015
Subject: –
Workshop Business Enterprise Center (BEC)
Introduction
At a City Council workshop on September 16, 2015, staff shared the information which follows in
this memo and asked for Council feedback and direction. Staff was directed to bring the
discussion to the EDA in a workshop session to receive feedback from the EDA on what future
direction should be pursued. The City Council also expressed their belief that the BEC Board
should meet to review the current status of the facility and program. The BEC Board met on
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Thursday, November 5 and their feedback has been incorporated into this memo under the
discussion section.
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.
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Provide space for start-up companies or future expanding companies that may not qualify
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for traditional rental space.
EDA members
BEC Review and Future Direction
November 6, 2015
To provide a place where new or expanding businesses can receive supportive services
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that encourage their chances of success short term.
To provide an opportunity to create public and private partnerships.
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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
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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.
To create an opportunity to spur even more public and private partnerships.
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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 BEC was
determined to be one of the means to achieve this mission.
As proposed to the EDA and City Council in March 2012, the Cottage Grove BEC focused on
fostering success by:
Services and Trainings Building Features
Business coaching Office suite options
Marketing assistance Single offices
Networking activities Lab Space
Links to investors/strategic partners Free Parking
Technology synergy High speed internet
Affordable Convenient access
Flexible office lease rates Shared copier
Free access to conference and training rooms
The intent was for tenant 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 their March 21, 2012 meeting the city Council approved the transfer of the property to the EDA,
using Tapestry Management for building management and brokerage services. The Council also
approved a nominal rental rate structure of $6/square foot plus tenant improvements maxing at
$10/square foot.
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EDA members
BEC Review and Future Direction
November 6, 2015
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.
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.
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.
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
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.
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. Currently, Gophermods offers five locations in the Twin Cities and a branch each in
Iowa and Nebraska.
Premier Biotech entered into a lease agreement August 15, 2013. We are in the process of
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renewing their lease until August 31, 2016. They have expanded four times to meet their grow-
ing needs and currently lease 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,
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2013 to September 30, 2018. They offer a free chamber membership to all BEC tenants.
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EDA members
BEC Review and Future Direction
November 6, 2015
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 Events in March 2013 and February 2014 at the Boy Scout Basecamp Center in
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Bloomington.
MN High Tech Association Spring and Fall Conferences in 2013 at the Minneapolis
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Convention Center.
Craig’s List ads.
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BEC Facebook Page.
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Cottage Grove Annual Reports and Monthly newsletters.
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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 in August 2012 and January 2014.
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BEC Pamphlets, folders and press releases.
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Facilities Management, Tenant prospecting and Leasing
The City entered into a Management Agreement with Tapestry Management in March 2012.
Tapestry Management was responsible for managing the day-to-day affairs of the building. The
contract ran to December 31, 2013. A synopsis of the responsibilities of Tapestry Management
under the Management Agreement were:
Complete operational services of the building; personnel and subcontractors.
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Supervise capital expenditures for tenants and building improvements. Make ordinary
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repairs gaining three bids for Owner’s consideration.
Provide an operating budget annually and monthly statements of receipts and
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disbursements.
Rent collection.
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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.
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EDA members
BEC Review and Future Direction
November 6, 2015
Tapestry was chosen for the company’s understanding of the unique incubator/accelerator niche
they would be dealing with. Company management had emphasized their connections to
specialty funding organizations which could be accessed for potential tenant capital financing
needs.
Compensation for Tapestry’s services was based on a percentage of lease space. Commissions
for securing new tenants were based on the leases. 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.
In January 2014, City staff took over management responsibilities of the BEC. These
responsibilities include management of the facility, maintenance of the facility, tenant inquiries
and improvements, marketing of the facility to potential tenants and negotiating leases with new
tenants. No additional staff was added to handle these duties; they were absorbed by existing
personnel on top of regular duties.
However, City staff do not have the necessary expertise or connections with the Capital
Investment opportunities that the original respondents to the management RFP had. As such, we
are unable to provide this specific support to tenants who require it, reducing their ability to grow
and expand beyond the BEC.
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;
the system may be “bought out” after 10-years. The solar panels are in place on the BEC roof and
operational as of September 30th.
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 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. 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.
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EDA members
BEC Review and Future Direction
November 6, 2015
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)
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EDA members
BEC Review and Future Direction
November 6, 2015
For Discussion: Future Direction
1. What should the future of the BEC be?
a. Reinvestment?
The current situation does not meet the original stated goal regarding providing building
tenants with access to capital investment financing.
i. Current City staff does not have the necessary expertise with capital investment
financing.
1. Should a consultant be found to provide this access?
2. Does the BEC Advisory Board have the ability to provide access to capital
investment?
ii. City staff has absorbed significant workload to date. This workload is not
sustainable for the longer term without adjustments.
1. Should another management company be found to handle support
services? Fees for this could run anywhere from $60,000 to $120,000
annually.
b. Seek a public-private partnership for the BEC?
The City would seek to recover the operating costs of the facility through a lease
arrangement. The private partner would take over the operations of the facility,
including design of a structured program, vetting of potential ventures and connecting
entrepreneurs with capital investors. This arrangement could include some provision
for a purchase option on the building. The focus would be on job creation rather than
on building space and leaseholds.
2. Is there an exit strategy if the EDA chooses not to continue with the BEC?
a. Existing leases through December 31, 2016. If there is not a desire to continue the
operations, the City should commit to no further new tenants beyond December 31,
2016. Any new tenant improvements are at the expense of the lessees.
b. Should the building be sold? Site could be sold “as is” for office space or other
development.
i. Appraised value of the building from 2012 was $1,300,000 based on comparable
commercial sales at the time
c. Would “Mothballing” the building pending the City and/or Washington County planning
processes be advantageous?
i. Adjacency to the Washington County Library site makes it potentially appealing
to an expansion of that operation. Downside – Washington County Libraries are
only now beginning their visioning/planning process; decisions could be several
years into the future.
ii. Anticipated cost $50,000 annually for utilities, insurance and minimal
maintenance (exterior, snow removal).
1. Continued revenue streams may offset the costs.
a. Solar array would sell energy to the grid providing some revenue.
b. Cell phone antenna revenue would continue.
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