#3 Discussion of management structure of Janesville Innovation Center and direction to staff
Economic Development Department Memorandum
June 25, 2012
TO: City Council
FROM: Vic Grassman, Economic Development Director
SUBJECT: Discussion of the Management Structure for the Janesville
Innovation Center and Direction to Staff
Executive Summary
The Janesville Innovation Center (JIC) is currently under construction with
completion in November 2012. This 22,000 sf facility will have 18,000 sq. ft. of
manufacturing space, 2,100 Sq. Ft. of office and 1,900 sq. ft. of common area.
Potential tenants will fall into three categories, business start-ups, existing
companies needing temporary space to test new products or new manufacturing
processes and companies locating in Janesville but need temporary space. This
last category is often referred as “soft landing” space. The tenant benefits to
locating in this facility are the flexibility of potential lease terms. Examples being
considered include short lease terms, technical business support, space
flexibility, (tenants can lease space based on their current needs, 60 day notice
to leave etc.) The function of this JIC should be viewed as a “feeder” mechanism
to get start-ups to the level where they can economically commit to standard
private sector lease terms.
The management structure for a city owned incubator facility is typically
implemented in two ways. The most common from examples the City has
received is the creation of a 501 (c) (3) nonprofit corporation that is managed by
a board of directors based on a set of by-laws and articles of incorporation. The
city retains ownership of the real estate but grants the non-profit specific powers
by approving the above by-laws and articles of incorporation. This is typically
done through a master licensing agreement. This board is responsible for overall
management of the facility including policy development, financial management,
tenant selection, facility maintenance etc.
The second way is for the City to manage the facility and sometimes delegate
management powers to a separate company. A non-profit entity would not be
created and the city would retain the managerial powers of the incubator,
although the management may contracted out.
Both of these options are achievable from a legal perspective. Further
information will be provided in the sections below.
City Manager’s Comments
As stated above there are two mechanisms for the management of the facility
that are possible. Both examples have been used by incubators in the State.
The City of Whitewater wanted the incubator to be viewed as a separate
entity. Philosophically, their intent was to have a business centered focus
for this facility which provided additional support for a 501C-3. They felt
that this business “focus” would allow them to get greater financial support
in the future to develop the tech park.
The City of Portage did not create a 501C-3 nor a special committee. The
City of Portage manages the incubator including polices and tenant
selection set by the City Council. They contract with a firm to run it.
As City Manager, I believe that the Whitewater model may be the best for the
City of Janesville as long as the Board makeup is set by the City Council and the
master lease has appropriate checks and balances to protect the City.
At this time we are seeking direction from the Council of which of these two
models to establish.
Economic Director’s Comments:
I would like to ask the City Council to consider the above two options in light of
the policy issues below and provide staff direction as to which one should be
considered. Important issues to be considered include:
Should this facility be closely identified with the City (public sector) or
perceived as more private sector, “business focused” which would provide
a more private sector perspective as a resource for entrepreneurial
development?
By creating a nonprofit entity, the City Council would be giving its board
the managerial powers as specified by the by-laws which would be
adopted by the Council. In the second option, the City Council or its
committee would be directly responsible for the management of the facility
thus retaining all powers necessary to achieve this.
A 501 (c) (3) allows private contributors tax deductions for future
contributions. This tax deductibility mechanism would still be available if a
non-profit entity is not created. The question here is which option would
provide the greatest opportunity for potential private sector contributions.
Background
In order to put this request in the appropriate context, the following background
information is provided as an overview of the JIC’s proposed operational
infrastructure from the Economic Development Director. A 501 (c) (3) is included
however not required.
Organizational Relationships and Management
Successful implementation of the JIC requires definition of how the various
parties involved with the ownership, management and delivery of program
services to the Center and its tenants will interact, divide, and coordinate the
varied responsibilities of this facility.
Janesville Innovation Center Organizational Relationships
The attached, “”
provides a visual overview of the key partners, responsibilities and activities
related to the JIC project, including; ownership, financial investment,
governance, marketing and leasing, operations management, facilities
management, economic and business development assistance, and program
measurement and reporting. The following sections summarize the visual
overview and explore additional thoughts and considerations with regard to how
these various pieces might be addressed, assigned and agreed to by the parties
involved.
Ownership
The City of Janesville is the JIC owner. The City has contributed its ownership of
land and allocated up to $850,000 in Tax Increment Financing (TIF) to develop
the 22,000 square foot facility. The City will maintain land and building ownership
of the JIC property. The City was also the applicant for and recipient of a $1.2
million grant from the US Economic Development Administration (EDA). The
EDA funding comes with several expectations of the City to meet EDA
requirements including, but not limited to pre-approvals of project construction,
management oversight and program evaluation of the JIC job creation goals. City
staff is currently engaged in the development of the JIC property, development of
the Center’s operational plan and is ultimately responsible for meeting all EDA
communications and reporting requirements.
Management
Three distinct areas of management are proposed to oversee the operations and
programs of the JIC and to be accountable for all responsibilities to the City, the
EDA and the tenants. These areas include a Board of Directors, Operations
Management and Facilities Management.
Board of Directors
The Board of Directors will be responsible for broad policy development, financial
management and the oversight of the operations management of the JIC
including the approval of lease terms and conditions, tenant selection, as well as
tenant services and programs. This governing group will be made up of a diverse
Board of Directors that is representative of the economic and business
development interests of the City, County, regional development partners and
tenants served by the JIC.
This group will be comprised of 12-15 members to provide policy guidance to the
JIC and its programs. In addition, the Board and its members may also provide
guidance and mentoring to JIC tenants as may be deemed appropriate. Board
representatives would likely include the following: City of Janesville, Forward
Janesville, Rock County, Beloit representatives, Blackhawk Technical College,
UW Rock County, UW Whitewater, Alliant Energy and successful local
entrepreneurs. It might also include WI Econ. Dev. Corp., local foundations
and/or private sector manufacturers.
501 (c)(3) – Mission and Goals
Per Council approval, a new 501 (c) (3), non-profit organization (referenced as
Janesville Innovation, Inc
.) would be created with the specific mission of
fostering and supporting entrepreneurship by operating a “business incubator”
known as the Janesville Innovation Center; funded by the City of Janesville and
the US Economic Development Administration.
The primary goal of Janesville Innovation, Inc. will be to provide flexible space
and targeted services to encourage and assist entrepreneurial individuals and
firms in the formation, development and growth of innovative businesses.
The City Attorney will take the lead responsibility for drafting the 501 (c) (3)
application. He will receive input from a project advisory group including Vic
Grassman, Al Hulick, Eric Levitt, James Otterstein, Bruce Kepner, John Beckord,
Tom Eckert, Mike Mathews and/or others as may be deemed appropriate. The
project advisory group will review and provide comment regarding the roles and
responsibilities of Janesville Innovation, Inc., its size and composition, and its
relationship to the JIC.
Master Lease
Upon the creation of the 501 (c)(3), Janesville Innovation, Inc. will enter into a
master lease with the City of Janesville for the entire gross area of the building.
The City will deliver a fully improved building as specified in the attached floor
plan and construction contract. Janesville Innovation, Inc. will have the ability to
sub-lease the entire building at its discretion. The Master lease will define the
Lessor and Lessee responsibilities for maintenance of the property. It is
recommended that the City have responsibility for maintaining the physical asset
i.e. the building exterior and roof. Such maintenance responsibilities as care and
maintenance of lawn and grounds including mowing and general landscaping
and snow removal; window cleaning; trash collection; HVAC maintenance; and
annual sprinkler and fire extinguisher inspection would be contracted out through
the Lessee. (JIC) Additional responsibilities would include interior maintenance,
janitorial services for interior common areas, coordination of all tenant signage
and providing building access to tenants.
Operations Management
It is recommended that Janesville Innovation, Inc. contract with a separate party
to provide operational management services for the Center and its tenants.
Responsibilities would include the following;
Market JIC space and programs to prospective tenants
Respond to, follow-up on and show space to all prospective tenants
Record all inquires for space and outcomes
Negotiate and process all tenant leases
Manage check-in and check-out process
Bill and collect rents and service fees
Send all rents and fees to the City on a timely basis
Coordinate general building use and operations
Maintain and schedule use of conference room and office equipment
Maintain access to building infrastructure
Address tenant needs and concerns as appropriate
Coordinate the introduction and delivery of economic and business development
services such as accounting, finance, business planning, marketing, and other
business and manufacturing services as made available through Innovation
Center partners and resources.
Provide other services as may be mutually agreed to
In addition, the Operations Manager would oversee the various contracts related
to JIC’s building obligations as noted above; janitorial services for interior
common areas, coordination of all tenant signage and providing building access
to tenants. The Operations Manager and the City shall mutually agree upon any
expenditures to be reimbursed by the City for the provision of any additional
services in advance of any such expenditures.
Service Providers
It is recommended that the Board of Directors work with local and regional
economic and business development organizations and educational institutions
to develop a suite of service offerings to Innovation Center tenants. These
services should be customized to provide assistance and value in the formation
of companies, the development and validation of business models, raising
capital, as well as training, development and mentoring of entrepreneurs and
management staff. These services should be driven by the needs of
entrepreneurial founders and firms. Input regarding specific needs and
opportunities will be sought as part of the interviewing that will be done by
Economic Growth Advisors, LLC in the market assessment phase of the project.
Documentation and Reporting of Activities and Results
The Operations Manager will be responsible for the documentation and reporting
of all marketing, tenant recruitment and leasing activities and results. In addition,
the Operations Manager will also track all tenant assistance activities and the
results of those services. This reporting will be provided to the City, the EDA, and
the Janesville Innovation, Inc. Board. Ongoing contact with tenants and
feedback to the Board will be valuable to monitoring the usage and value of
Janesville Innovation Center programs and the emerging needs of tenant
companies.
Janesville Innovation Center
Organizational Relationships
City of Janesville
Land and Building Owner
EDA Financial Partner
and Investor
Janesville Innovation, Inc.
[501(c) 3]
Stated Purpose/Mission Board of Directors
as an Economic
Composition
Roles/Responsibilities
Development
Size
Organization
Master Lease with
Janesville Innovation,
Inc.
Management Contract
Facilities Management Onsite Management Service Providers
Sub-Lease Agreements
with Tenants
Documentation and
Reporting of
Activities/Results
Ongoing Feedback