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Tips for Navigating Incentives in Site Selection Process

A thorough understanding of the components of each incentive program is key to a mutually successful incentive offer and ultimately a community partnership.

Q1 2020
Rose Davidson, Sr. Vice President, Business and Economic Incentives, at JLL, spoke with Area Development about navigating incentives during the site selection process, after her presentation, “Moving the Needle - How to Navigate Projects, RFPs and Offer Letters in the Right Direction,” at our Charlotte Consultants Forum. This article was based on an interview conducted by Margy Sweeney, Founder and CEO, Akrete, Inc. and Area Development Editorial Board member
More Collaboration Expected
Compared to 10 years ago, there have some notable changes to today’s site selection process. I think one of the more important changes is the incentive package. The kinds of incentives offered a company 10 or 15 years ago, or maybe even five years ago, are going to be very different than what they're going to receive right now.

Unemployment's really, really low right now, so communities aren’t as concerneddon't care right now about the number of jobs. It's about the quality of the jobs and how they're going to impact their community. Even the approach taken working with the communities has changed. Things are a little bit more collaborative; there's more of a partnering spirit than what we saw, say, 10 years ago.

Recent Successful Site Selection Project
We had an apparel company looking to secure one million sq. ft. of space for a distribution center. Fortunately, in the area they were looking, a few spec buildings were available. Their investment was going to be really high because it was going to be a highly automated center with lots of robotics. And these were going to be high-wage jobs to pay people to program, engineer and fix the robotics, etc. The company’s investment was $70 million; and they expected to create 700 to 800 jobs.

When we were interviewing different communities in the area, all were super-supportive of the project. You could really see this sort of this partnership and collaboration even within the communities -- and with the client, who was heavily involved in the interviewing too. The client was there to address any issues or questions, so there was a full disclosure and transparency in this open communication. I think that it really helps to have a collaborative partnership with all parties involved.

When we’re working with a community, we want to know about any challenges they have supporting a client’s project. For example, say you don't think your community is going to have the skilled labor needed, or the right logistics aior supply chain, or whatever. If you can't meet those project needs, stating that fact upfront is very important because maybe we, the company and consultants, can work through those challenges. Maybe there's something else your community offers that can sort of outweigh what you consider to be a challenge or deal breaker.

At the same time, we encourage our clients to be very forthright and open with their project numbers and project scope. If you don't think you can meet a wage threshold, or there’s another issue like that, let the community know because they're thinking you're committing to certain numbers. So if you can’t commit—if can't reach the numbers—it's sort of a lose/lose situation for both parties.

How to Ensure a Positive Partnership With an EDO
When a company wants to shape a positive partnership with an economic development organization (EDO), that's where we come in as consultants. I think we need to help manage our client’s expectations. They may have wild or outrageous expectations because they haven’t done a project in the past 10 years. So it’s our responsibility to let them know what the trends and requirements are now.

In today’s economy there are a lot of projects communities are attracting, and that means we have to be competitive. We need to approach a project with honesty, and not be too optimistic by saying we're going to create 1,000 jobs when maybe realistically, when really only 750 are expected. And if numbers change, tell a community upfront. Go in with a good attitude. Understand this relationship is a partnership, a collaboration; it’s not good to come inhing combative with a “if we don't get this, we're going to leave” attitude, because that never works. It’s not something where a company has to withhold information or keep it “close to the vest”; instead a company needs to be open and honest, because the communities see it as a partnership too.

Common Location Requirements
We hear it all the time and are probably tired of hearing it, but labor is the biggest driver right now in site selection. Everybody wants to talk about it. The last thing you want to do is open a facility or location and not find the people you need to be productive. We want companies to know that a lot of times, there are job-creation requirements, wage requirements or expectations, capital investment requirements, and related topics to discuss. That means there are guidelines for a lot of these programs and milestones to reach in order for them to receive any type of funds. We need to let them know all that.

Other key location requirements, of course, depend on the client, their industry, and their project needs. If it's manufacturing or distribution, then supply chain and logistics could be really important. Maybe they need to be near rail. Or if they're heavy water users, they need an ample water supply. Maybe they have high-volume electricity needs.

I’d also mention “quality of life,” which is really more of a qualitative than quantitative issue, but we have seen that become a little bit more important. A good example of quality of life are these mixed-use developments you see all over the place. I think a lot of communities are attracted to those due to the “live, work, play” element. The walkability factor is really important, too, especially if an area doesn't really have access to mass transit and traffic is terrible. Just even having a natural resource available is attractive, like a river, lake or ocean. Not everybody wants to be stuck behind a desk or in a building or behind a production line working the entire time. There’s also more of a focus by communities and employers on family and personal time — on anything to enhance lives of workers in their off time.

Creative Incentives + Labor Recruitment
Some communities are offering what may be called “creative incentives.” In regards to labor, I’ve noticed now that a lot of communities will say they can help with recruitment efforts. Maybe they’ll hold a job fair or two just for that company — not a community job fair. Maybe they’ll inform a company of some partnering opportunities with the local technical colleges or universities that can provide/create some courses or training — even customized training, at no cost, especially if skilled labor is required. We've seen that….Since training can be really expensive, customizable training at no cost could be a huge benefit.

The kinds of jobs communities hope to create via these incentives, I’d say, would be advanced manufacturing ones where either the company’s technique or its product is unique. Sometimes a company already exists, and they need to make huge updates or buy new equipment to remain competitive. Those are all opportunities for training because they require specific skill sets.

Managing Expectations in the Incentives Process
That first conversation is really important because you do want to manage or temper those expectations about incentives. We want companies to know that a lot of times, there are job-creation requirements, wage requirements or expectations, capital investment requirements, and related topics to discuss. That means there are guidelines for a lot of these programs and milestones to reach in order for them to receive any type of funds. We need to let them know all that.

We also like to talk specifics about the type of benefits. Are these income tax credits? Do you have income tax liability? Can you even utilize them? We like companies to know which programs give up-front cash grants, since those requirements always have a performance period. If there are any clawback provisions they need to understand them, and that they really do need to fulfill their commitments. You can't just be up and running in two years and then close shop. A lot of times you're required to pay those funds back. Sometimes there' are performance requirements that may require certain milestones to be hit before you get any funds. So managing those expectations is important.

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