Real Estate Forum - March 2008

based on a percentage of the salaries of the jobs a company creates, which is typically the largest credit, Sevim says. If you’re building in an enterprise zone, you might get sales tax exemptions on construction materials purchased from Illinois-based vendors or a credit based on the cost of machinery and other equipment.

“We typically go in with
a list of what would
really move the needle
for the client.”

ERIC STAVRIOTIS

JONES LANG LASALLE

“Dealing with an organization like WBC is not a negotiating process,” he emphasizes. “It’s a collaboration, and thus the key is to articulate what you’ll be able to accomplish and to commit to those projections.”

Eric Stavriotis, vice president of strategic consulting at Jones Lang LaSalle, notes that due largely to improved Internet technology and an ever-broadening web, doing business with EDCs has become far easier, and the dealings are less likely to end in hard feelings if a particular transaction doesn’t go through. The amount of information available on the Internet typically postpones interaction with an EDC until its market has been short-listed by the client, making things run more smoothly and swiftly.

“The whole process has become much more sophisticated, in terms of the information available and the depth to which our clients educate themselves before they ever meet with an EDC, be it local, regional or state,” says the Chicago-based executive. “We are able to do a lot more screening before we start reaching out to EDCs. This protects confidentiality and keeps us from ruffling feathers by working with a community and then having to tell them later on that they’re out of the running. Now, when we reach out to an EDC, we can let them know that we’ve been working on it for months and they’ve been short-listed.”

At that point, a tenant rep will ask an EDC to verify, update and supplement information that has already been collected, such as the availability and reliability of labor and average wages for specific jobs, as well as to set up meetings with financial and human resources providers, Stavriotis says.

“If you reach out to an EDC when the community it represents is on your short list, you’ll mostly be talking about what they can do to sweeten the deal,” he adds. “What you can get depends on the project. We typically go in with a list of what would really move the needle for the client. That usually means financing, whether cash grants or forgivable loans.

“Often clients are less interested in financing via loans or industrial revenue bonds; they can usually get better financing on the street,” Stavriotis continues. “What they’re after is direct offsets to their costs, such as cash abatements or direct grants. The more those concessions can be direct cash, the better. What a CEO typically wants is to tighten that ‘window of pain’ in the first couple of years where the company won’t be showing income.”

When corporate tenants sit down with EDCs, there are two

issues that seem to be popping up more often these days, says Stavriotis. One is the cost premium of building a new facility to LEED standards. Can the community share some of the expense of going green and/or expedite the permitting process if the development is LEED certified? The other is the ability to monetize or sell the incentives. For example, if a company can’t use all of a tax credit, can it sell it to someone else?

“That’s what we tell communities we want to see, if they want to put themselves forward,” he observes. “We try to prompt them in advance as to our clients’ key issues, and EDCs that can speak immediately to those issues will be the winners. We’ve seen the talent level at most EDCs improve dramatically and, consequently, they are presenting themselves well and telling us less about the touchy-feely, soft-sell benefits.”

Plain cash is the best incentive, agrees Van Power, COO of NAI Global’s new contact center/site selection services practice, although it’s not easily obtained. More readily available are things like job training partnership funds that can pay for teachers and training facilities, says the executive, who is based in Dallas. Tax abatements are often available for real property improvements in “reinvestment zones,” which are typically underutilized or blighted neighborhoods. An EDC can also arrange funding for site preparation, or for public improvements, from parking lots on up. “As far as contact centers are concerned,” he adds, “a huge incentive is the EDC’s ability to persuade day-care centers to locate nearby, or even in the facility.”

“These smaller EDCs are well
funded and they’ve become
more aggressive in going
after major corporations.”

VAN POWER

NAI GLOBAL

Power also agrees that EDCs have become increasingly knowledgeable and sophisticated, especially in secondary and tertiary markets, and thus their communities become viable competitors to the larger cities. “Here in the Dallas area, cities like Plano, Frisco, Arlington and Irving are all extremely strong competitors,” he says. “The economic development agencies have, in some cases, more latitude to grow. Ten years ago, they were just being fed off of Dallas. Today, these smaller EDCs are well funded and they’ve become more aggressive in going after major corporations.”

Power recalls a recent transaction in which the owner of a contact facility refused to give his client a cancellation option, which, he says, is normally vital to any contact center lease. By suggesting his client might relocate the operation elsewhere, Power persuaded the local EDC to lease that space itself, then sublease it to the client with the required cancellation option.