#06 Submit a grant application to construct business incubatorEconomic Development Memorandum
Date: September 8, 2009
TO: City Council
FROM: Doug Venable, Director of Economic Development
SUBJECT: Authorization to Submit a Grant Application to the Economic Development
Administration for Funding to Construct a Business Incubator
I. Summary
The Economic Development Administration has funding available to implement long-
term regional economic development strategies. Funding is targeted to areas impacted
by the flooding of 2008 – making the southern Wisconsin region eligible. Grants are
available for 75% of project costs with a local match (cash or in-kind) of 25%.
A consortium of development interests in southern Wisconsin has been meeting to
develop a regional “Auto Adjustment Entrepreneurial Support Initiative.” The strategy
seeks to link existing entrepreneur support programs to more effectively convert
business start-ups into growing diversified employers for the future. The key deficiency
identified in the Rock County area is the lack of suitable manufacturing space for start-
up companies needing less than 5,000 SF.
To fill this need, Staff is proposing an application to the EDA under this program to fund
the construction of a 25,000 SF flexible multi-tenant industrial incubator building to be
constructed in one of the City’s industrial TIF Districts. The budget for this project would
be $1.5 million, with $1.125 million (75%) coming from the EDA grant and the $0.375
million local match coming from the TIF district through the value of the land for the
project and other TIF funds.
Recommended Action
Staff recommends that the Council adopt a motion authorizing the Administration to
submit an application to the EDA for funding the construction of a multi-tenant incubator
building with local match coming from an existing TIF district.
City Manager Recommendation
I concur with the Economic Development Director’s recommendation.
Suggested Motion
I move to authorize the Administration to submit an application to the EDA for funding
the construction of a multi-tenant incubator building with local match coming from an
existing TIF district.
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Economic Development Department Box 5005 Janesville, WI 53547-5005 755-3180
II. Background
With the flooding during the summer, 2008, several Wisconsin and northern Illinois
counties were declared disaster areas. The federal stimulus programs created in the
fall, 2008 set aside monies for the Economic Development Administration to help
communities deal with the economic impacts of the flooding and of the severe economic
hardships caused by the distress in the US auto industry.
EDA partnered with the WI Department of Commerce to work with community and
regional groups to develop regional strategies to deal with these economic issues. A
group of ED professionals, educational institutions, and entrepreneurial service
providers have been meeting to create an “Automobile Adjustment Entrepreneurial
Support Initiative” for southern WI and northern, IL. Partners include the City of
Janesville, Rock County, Blackhawk and Gateway Technical Colleges; the UW-
Whitewater Small Business Development Center and Innovation Center; Wisconsin
Manufacturing Extension Partnership; Wisconsin Entrepreneur Network; the Eiger Lab
in Rockford; Rock Valley College; and Northern Illinois University.
These partners each have programs that have developed to meet the needs of
entrepreneurs and growing small businesses. Each program has their own area of
expertise that is sometimes unknown and unavailable to companies outside their
immediate area. The concept of working together to share information and resources
and to coordinate services provided to the entrepreneur should leverage resources and
improve results. This regional approach to the coordination and provision of services is
a high priority for the EDA. Using this regional initiative, local development needs can
be met.
III. Multi-Tenant Industrial Incubator Space
A. Demand: An inventory of existing industrial and warehousing buildings
shows that there are 162 structures that total 15 million square feet of space in the City
of Janesville. Of this total, only 19 structures are smaller than 5,000 SF and of these
small structures, none are currently vacant. While the economic slowdown has created
1.5 million square feet of vacant industrial buildings, none of the vacant buildings are
designed or available to meet the needs of a start-up manufacturer that only needs
2,500 SF of space.
B. Previous Efforts: This shortage of small industrial spaces has existed in
Janesville for over 20 years. In the mid-1990s Forward Janesville created a ‘small
business incubator’ by leasing 15,000 SF within the Hufcor building on Norwood Road,
and sub-leasing smaller units (1,500 SF to 2,000 SF) to multiple tenants. This
‘incubator’ was fairly successful in meeting the demand for smaller industrial spaces for
several years. However, the tenants that outgrew their spaces had difficulty in finding
5,000 SF to 10,000 SF spaces to move into, and stayed in the incubator. This limited
the availability of spaces for other potential incubator tenants.
One incubator tenant finally located and purchased a 20,000 SF building in the
Janesville area. Since the building was larger than needed, two other incubator tenants
relocated at the same time, leaving the incubator with unused space and a rental
income shortfall. After about 6 months, Forward Janesville had to relinquish the lease
of space within the Hufcor building, and the availability of smaller industrial spaces
diminished.
C. Proposed EDA Multi-tenant Industrial Incubator: A draft budget for an
incubator project would look like this:
25,000 SF building @ $50/SF $1,250,000
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6.25 A. TIF site $ $40,000/Ac. 250,000
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Initial Soft Costs for Incubator Mgr. 100,000
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Total Project Budget $1,600,000
EDA Grant (75%) $1,200,000
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Value of TIF Site (In-Kind) 250,000
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Additional TIF Monies 150,000
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Total Project Funding $1,600,000
A very preliminary operating pro forma would look like this:
Gross Rental Income at $2.75/SF (NNN) $ 68,750
Less vacancy at 25% (17,188)
Net Rental Income $ 51,562
Less CAM for vacant space ($2.00/SF) (12,500)
Net Operating Income $ 39,062
The EDA proposal would include an initial $100,000 to cover start-up costs and the cost
for an incubator manager while the facility is marketed and the initial tenants move in
and receive services. The “manager” services could be provided by a City staff person,
or by contract to a not-for-profit agency like Forward Janesville or the UW-Whitewater
SBDC.
Once the incubator was up and running, the operating pro forma shows that
approximately $39,000 per year in net operating income could be used to continue to
provide incubator services, to create a capital replacement fund for eventual
maintenance items; and to cover unforeseen cash flow variations caused by tenant
turnover.
IV. EDA Grant Program
Funding through the EDA for this project is currently available on a 75%/25% matching
basis. As the preliminary budget above shows, a 25,000 SF incubator project should
have a budget of $1,600,000 with 75% of the funds ($1,200,000) coming from the EDA
Grant, and 25% ($400,000) coming from the industrial TIF district. Of the local funding
required from the TIF district, $250,000 would be in-kind through the City donation of an
industrial site plus another $150,000 in TIF Funds. (Even if the incubator were to be a
tax exempt property, the budget for the incubator would be designed so that an
equivalent payment in lieu of taxes would be made annually, so the TIF investment
could be recovered).
The funding is currently available and applications are being accepted until the funds
are fully committed. The earlier an application is submitted, the better the chances that
a grant award can be made. If the application is successful, a more detailed contract
and budget would be negotiated with the EDA and the Council would have to take
action in Open Session to approve the contract, to accept the grant award, and to
commit the TIF funds for the local match.
V. Recommendation
Staff recommends that the Council adopt a motion authorizing the Administration to
submit an application to the EDA for funding the construction of a multi-tenant incubator
building with local match coming from an existing TIF district.
Doug Venable
Cc Eric Levitt, City Manager
Jay Winzenz., Assistant City Manager