CBE one of many business parks here
- Published: September 18, 2014
The city of Springfield’s first research and technology park, Nextedge, is a beautiful integration of modern buildings with marshes, prairie fields and a fiberoptic grid designed to bring new jobs to the Champion City. Completed in 2006, the property boasts 160,000 square feet of office space and 400 aerospace and data management jobs for five local and national companies, including a recently added Speedway data center. The park has met its aim to attract new industries to Springfield, according to John Landess of development partner the Turner Foundation. And though it suffered from the recession and has not yet recovered the infrastructure investment, Landess sees the project as a success.
“It’s been a lot, a lot of work,” he said. “But it’s absolutely worth it. When a company comes to town now, we have something we can show them — we’re in the game.”
The story of how and why Springfield built Nextedge is similar in some ways to the effort Yellow Springs has made on its potential business park, the Center for Business and Education, whose public funding for about $1 million in infrastructure costs is a referendum in the November election. Both the CBE and Nextedge share company with approximately 30 other office and industrial parks in Springfield and the Dayton East market, which together have about 2.8 millon square feet of available space that’s ready and waiting for takers.
With a glut of space, competition for businesses among the parks is high. To insure their success, many park developers (often a partnership between municipalities, community improvement corporations and private developers or banks) commissioned some kind of market analysis showing the need for business space in the area or had an anchor business before they invested in infrastructure for the park. Though significantly bigger than the CBE, Nextedge, Miami Valley Research Park in Kettering, and Mission Pointe in Beavercreek, for example, are somewhat comparable to the local project. All three had either a market study or an anchor business before they started, while the CBE has neither.
Whatever the initial risk, developers say that the process of building and leasing a business park is typically a 20- to 30-year prospect that may never produce its own revenue. And the challenge for smaller parks like the CBE, according to Landess, is that big corporations are the only businesses that are able to build their own buildings in the current market. If the park can’t attract one of those, then it’s left to smaller businesses to fill it. But smaller operations generally can’t afford to build their own structures, and developers are not building speculatively right now.
Still, say developers, Yellow Springs may be unique enough to attract the companies that do want a community setting or space near schools like Antioch University Midwest and Antioch College. And there is no denying that new jobs produce a net gain for the surrounding communities, often spawning service businesses and housing growth for employees who want to live and play near when they work. And that gain may be worth all the risks.
Fairborn Development Director Chris Wimsatt explained the advantage of Valley Green North, a mixed commerce and retail center built along I-675 in 1990.
“If you subtract all the infrastructure costs, we’re still making money from a city income perspective,” he said. “And now we’re developing residential neighborhoods around the business park because people want stuff and jobs around their homes.”
Though the city financed the initial investment at Valley Green for sewer, water, roads and sidewalks by allowing the developer to use future gains in property taxes to pay down infrastructure costs (known as tax increment financing, or TIF), Wimsatt believes that ultimately the investment was worth it.
“From a development perspective, if there was no TIF, that development would not be there … and I would hate to not have my two business parks,” he said of Valley Green and Commerce Center, formerly Elder Beerman.
The business park market
Of course, there are many dozens of business parks in the Miami Valley, and each of them came about in its own unique way. But there are some common practices and market trends that are instructive for any project.
According to the most recent 2013 Dayton East market studies completed by real estate group Miller-Valentine GEM, currently there is an overstock of office park space. The East market alone has a vacancy rate of 28 percent, with over 1 million square feet of built space still available out of a total 3.6 million square feet in that market. Office vacancy in the Dayton region as a whole is at 25 percent, up from 16 percent in 2009. In summary, Miller-Valentine’s report “indicates a net negative absorption for the East market of 208,777 square feet.”
According to Miller-Valentine operations manager Dave Dickerson, both sequestration for the Department of Defense and the economy are still hampering the East market’s office space, where businesses have lots of opportunity to purchase already built spaces instead of spending the money to build new. In other words, according to Fairborn’s Wimsatt, “a business would have to drive past lots of other parks with available space to choose Yellow Springs.”
The CBE is intended to also accommodate light industrial, and the industrial park market is showing signs of expansion, according to Dickerson and Miller-Valentine’s study. In the East market, the study counts 35 facilities with 176,000 square feet of vacant space, or an 8.8 percent vacancy rate. Though Dayton overall has an industrial vacancy rate of 20 percent, the East market is faring much better with net positive absorption.
However, parks with no buildings must deal with the fact that developers are not building speculatively unless they have businesses already committed to occupying the facility, said both Dickerson and Springfield city’s Mike McDormand. And the economy shows no sign of returning to a practice of “build it and they will come.”
“Most of the time municipalities begin by putting in as little as possible until they’ve attracted the first users — then they put in streets and sidewalks,” Dickerson said.
Both developers and city officials also agree that market studies before investing in infrastructure is another common practice, as well as hooking one or more anchor businesses to guarantee some initial revenue and to solicit some of the specifications for the facilities.
Nextedge did as much with its fiberoptic study, which indicated demand for high-speed communications in the tech and defense market at the time. Indeed, Dick Honneywell, chief executive of UAS, said the reason his company chose Nextedge was because of the fiberoptics and its proximity to different airfields close to Dayton.
Regarding the CBE, property owner Community Resources has not completed an official market study, which according to former chair Jerry Sutton wasn’t necessarily a “conscious decision” but rather ancillary to fulfilling its charter “to get the development under way.” Current Community Resources President Dave Boyer agreed that the community had already decided it wanted a business park at its western gateway and the group didn’t want to spend additional money to gauge a market its informal development partner Synergy already knows. Representatives at Synergy did not return calls for comment.
Community Resources did complete a study of the local market, showing how many jobs Yellow Springs has lost over time and which businesses have left partly because there was no space in town in which to expand — including, according to Boyer, LaserLinc and Antioch Publishing/Creative Memories. And according to Boyer, the intent of the CBE is largely to attract home-grown businesses and to partner with neighbors Antioch University and Antioch College to grow from the inside out.
While some developers believe that approaching a business park without at least a sense of the volume and kind of businesses that park will attract is tantamount to an act of faith, others acknowledged that even market studies can’t adequately predict the economic trends and whims of businesses. According to Bruce Pearson, CEO of Miami Valley Research Park Foundation, sometimes a community’s need for economic activity is so great, it doesn’t matter what the market will bear.
“If a community has suffered tremendous job losses, something has to happen if you want to grow as a community,” he said.
And if a park isn’t “shovel ready” — it doesn’t already have exactly the needs the businesses are looking for — “it’s not even on the short list for businesses who are looking,” Greene County Economic Development Director Pete Williams said.
How Nextedge came to be
The emergence of Nextedge began around 2002 when Springfield’s largest business, Navistar/International Harvester, announced it would close its truck plant in Springfield. The city was losing much of its main manufacturing industry and wanted to diversify its job base. So the Turner Foundation led the charge by pooling the city’s private and public sector resources to start a 240-acre tech park two miles west of I-70 just north of the city.
Developers had some evidence that the park would be successful. The team completed an analysis of Ohio’s marketplace and identified its regional competitors, noting that fiberoptics would give it a unique advantage. They also commissioned a peer review, using subject matter experts such as the Green Tree Group, regarding what makes defense-related business parks successful. And they had an early tenant, Lexis-Nexis, which wanted to build a disaster data recovery center to anchor the Nextedge park.
From the perspective of Springfield’s Economic Development Director Tom Franzen, who helped develop Nextedge, there was clearly a need in the region for a tech park.
“We saw a lot of opportunities in the mix of industries at the time, including data centers, research and development, and local prototyping and product commercialization — and an increasing need for those services in the U.S.” he said.
But for Landess of the Turner Foundation, Springfield’s need for new kinds of businesses drove the project more than evidence that it would turn a profit.
“With projects like these, there’s never assurance that it will succeed,” Landess said. “We relied on the fact that the community needed new jobs to increase its tax base. It was a long-term investment in the community. … You lay the table out and you market it. There are always entities looking for opportunities in a particular region.”
The Turner Foundation purchased the property, and the project got an early shot in the arm with heavy support from then-Ohio Representative Dave Hobson, who helped procure $5.25 million in federal and state grants for infrastructure and roadwork, and $750,000 in “Shovel Ready Funds” through the Dayton Development Coalition. The City of Springfield bid and managed the construction, and the Nextedge Development Corporation managed to get a bank loan for the remainder of the total $15 million cost to install detention ponds, landscaping, pathways, lighting and $2.5 million in high-security fiberoptic capacity connected to Wright Patterson Air Force Base, the Springfield National Guard and south to Cincinnati.
To say that Nextedge was a model park is a bit of a stretch. Lexis built the first structure and moved its data center there. But about a year later, the recession hit, and the bank that was carrying the loan, which had hoped to turn it around in five years, couldn’t move the property. In 2012 the bank auctioned off the park, and the Springfield Chamber of Commerce, the only bidder, bought it back for a song ($1.6 million with a bank note and some private investors), and has slowly but steadily been marketing the space and filling it. Developer Mills Morgan used Jobs Ready Ohio funds to build a $3 million speculative building and has been successful in leasing it to defense and security firm Laidos (formerly SAIC), unmanned aircraft test center UAS and others. This year, 12 years after the park began, it nearly filled its built space with Speedway. Nextedge, which is owned and managed by the Chamber, still has an outstanding loan for the infrastructure. And though Chamber Director Mike McDormand is optimistic that by continuing to market the 170 acres of unoccupied land in-house at little to no cost, the park will eventually fill in, he is prepared for a long haul.
“Every community has a tech park now, and only 10 percent of the pie now is tech,” he said, referring to shifting economic needs. “It’s very cluttered and competitive here, and Columbus, Cincinnati and Cleveland get the hot picks — a billion dollar data center will go to Columbus” over Springfield.
Another East market office park
Similar to both the CBE and Nextedge, Miami Valley Research Park was to be the solution for lost jobs in the Kettering and Beavercreek communities, which felt the pinch when big manufacturers such as NCR, Frigidaire, Dayton Tire and Dayton Press closed. The park was built in 1981 as a university-related research park, and like Nextedge, got a huge start with $20 million free and clear from the state for 675 acres, with infrastructure and brand new buildings, according to Pearson of the Miami Valley Research Park Foundation, which owns the park.
The Research Park is a long-established business venue fortunate to have enough infrastructure already in place to accommodate future growth. And growth has occurred there, both in terms of owner-occupied building — since 2004 Reynolds & Reynolds, Community Tissue Services and Mound Laser & Photonics have all expanded by building their own buildings there — as well as speculative building. In 2006, three developers, Synergy, Miller Valentine and the Miami Valley Research Foundation itself, each built buildings and either sold or leased them to businesses such as Woolpert, ATK and other defense-related firms.
But the risk at each step has been measured before jumping in, Pearson said. In the beginning, for example, city leaders did a market study to gauge demand for the space, identify companies within the community that needed to grow but couldn’t, and identified the types and volume of jobs that were moving into the Dayton area. And later, when the Foundation built its own building, the board tried to gauge the risk of construction. They looked at the park’s vacancy — of 2.3 million square feet of built space, 2.2 million were occupied, giving the park a low 5.5 percent vacancy rate. The board also reached out to various businesses to gauge opportunities for future growth. And before construction began, the group had 75 percent of its facility leased and a good idea of the tenants’ needs, including fiberoptic capacity, a backup power grid, and facilities with climate controlled storage spaces, common meeting rooms and adequate parking.
“We reached out to different companies … [and] used those conversations to specify what kind of needs these prospective businesses would have,” Pearson said.
While growth has occurred, it slowed during the recession, but in 2010 Montgomery County awarded a $250,000 ED/GE grant that incentivized international law firm Wilmerhale to locate at MVRP if it promised the city 187 jobs. According to Pearson, “Wilmerhale lied. They now employ 280 people.”