COVER STORY, OCTOBER 2011

ECONOMIC DEVELOPMENT IN AN EXPANDING ECONOMY
Economic development continues to draw businesses and fill properties in cities across the Northeast.
By Amy Bigley Works

One of the driving forces in city and regional development is the presence and intensity of the local economic development authorities — whether public or private organizations. Marketing an area for development and attracting new business to a city is a task that these organizations do not take lightly. The competition has always been fierce, but cities are experiencing the rewards of aggressive promotion plans as more and more companies begin to expand across the Northeast.

The office and industrial sectors are making the biggest waves in cities such as Pittsburgh; Rochester, New York; and Philadelphia. From financial and corporate headquarters to food and beverage manufacturing, the Northeast is experiencing an increase in interest and follow-through from businesses.

“Recent office activity has been driven by the region’s robust financial and business services sector,” explains Dewitt Peart, president of Pittsburgh-based Pittsburgh Regional Alliance (PRA). “The region largely avoided the financial meltdown of 2009 with major headquarters players such as PNC Financial Services Group and BNY Mellon holding the industry steady.”

Pittsburgh’s financial sector is also strengthen by the presence of Federated Investors, First Commonwealth Bank, First Niagara, First National Bank and Huntington Bank, which all have regional headquarters in the city.

Corporations are continuing their expansions in the Pittsburgh as well. According to the PRA, there has been a combined investment of more than $1.1 billion to develop and renovate 5.7 million square feet of office space in the region since 2005. The expansions include a variety of companies, including Dick’s Sporting Goods, K&L Gates, Reed Smith, the University of Pittsburgh Medical Center, rue 21 and foreign-owned firms such as Mitsubishi Electric Power Products and Westinghouse Electric Co.

On top of property expansions, offices are also expanding their staffs. PRA reports that employment at headquarters has increased 55 percent from 2005 to 2010, which is second only to Dallas in top 50 MSAs.

Highwoods Properties recently acquired the iconic PPG Place in Pittsburgh’s central business district for $214 million.

As for transactions, Pittsburgh’s central business district (CBD) is experiencing a flurry of active. Highwoods Properties recently acquired the iconic PPG Place for $214 million; a New York-based real estate group acquired U.S. Steel Tower for $250 million; and a Munich, Germany-based real estate group recently purchased the 11 Stranwix Street building for $66 million.

The office interest does not stop in Pittsburgh; Rochester is also experiencing some office expansion with Atlanta-based EarthLink’s acquisition of LogicalSolutions.net. In addition to the acquisition, EarthLink is investing $12 million over the next 3 years to move its local operations office to a 65,000-square-foot facility in Rochester’s Alexander Park complex.

Rochester also boasts a variety of food and beverage manufacturing companies and the area’s credentials continue to attract more companies.

“The Greater Rochester region outperforms communities five times our size in terms of patents per capita, percentage of workforce enrolled in college and number of companies consistently recognized among the best places to work in America,” says Staci Henning, marketing director for Rochester-based Greater Rochester Enterprise. “The depth and breadth of talent present here enables our community to excel in a range of industry sectors such as food and beverage manufacturing, energy innovation and life sciences.”

Rochester-based Karma Culture recently launched a new line of natural, nutrient-enhanced water called Karma Wellness Water. The creation of the new water line highlights the collaborative environment that thrives in Rochester — 10 local business leaders and companies joined forces to make Karma Wellness Water possible.

This collaborative environment helps to attract companies looking for innovative workforce and ideas.

LiDestri Food & Beverage follows Alpina Foods and Kraft Foods by investing $40 million in its Rochester operations and creating approximately 250 new jobs. The manufacturer of sauces, dips, salsas and spirits plans to consolidate its East Coast sauce operations to Rochester.

“Companies such as LiDestri Foods, Alpina Foods and EarthLink recognize the high-caliber workforce available in the Greater Rochester region and have chosen to expand their operations here,” notes Henning. “In addition to our workforce, Rochester’s proximity to major markets without major market costs provides our region with a distinct competitive advantage.”

Another hot spot in the Rochester business market is research and development companies, such as Moser Baer Technologies, a subsidiary of Moser Baer India Limited. The company recently broke ground on a new facility at the College of Nanoscale Science and Engineering’s Smart System Technology & Communication Center of Excellence in Canandaigua, New York. Moser Baer Technologies plans to invest up to $17 million in the project, which involves carrying out research and development related to clean energy in the United States.

As Pittsburgh and Rochester have experienced large upticks in office and food and beverage interest, Philadelphia is experiencing increasing interest in industrial properties and projects.

“In the city of Philadelphia, we are seeing a growing awareness of the value of industrial properties that have adequate infrastructure, highway access and entitlements in place,” explains Thomas Dalfo, vice president of real estate services with Philadelphia-based Philadelphia Industrial Development Corporation (PIDC).

Dalfo notes that in years past, sites with these characteristics would have been strong candidates for conversion to other uses, particularly large-format retail, but now industrial companies are taking a second look.

Tasty Baking Company has a new LEED-certified bakery at The Navy Yard in Philadelphia.

Last year’s multi-million industrial investments in the city have heightened interest from local and national industrial players. Recent activity includes a $220 million state-of-the-art wholesale produce terminal in southwest Philadelphia, a $100 million investment by a regional baked goods company in a LEED-certified bakery at The Navy Yard, and a large pharmaceutical manufacturer recently broke ground on a $300 million distribution center in northeast Philadelphia.

Industrial activity in Pittsburgh is mainly focused around energy companies looking to benefit from the Marcellus shale gas operations. The energy operations support a variety of companies up and down the supply chain from drillers to parts manufacturers and engineers.

The greater Rochester area is seeing industrial activity in Rochester Precision Optics’ $10.7 million investment to expand its facilities in Henrietta, New York. The expansion will retain 144 jobs and add 151 jobs to the area. The company plans to add 43,000 square feet to its existing 64,500-square-foot facility.

Although these cities are seeing upticks in interest and development, economic development organizations are still aggressively marketing their respective areas.

For example, Philadelphia is currently undergoing a comprehensive overhaul of its zoning code, which, when completed, will facilitate real estate development in the city.

“PIDC has contributed to and supported this [overhaul] effort through an analysis of the city’s industrial market as outlined in the Philadelphia Industrial Land & Market Strategy released last fall,” notes Dalfo. “Taken as a whole, these efforts provide a clear indication that suitable and attractive industrial development opportunities exist, and will continue to exist, in the city.”

Having business-friendly zoning is a must for attracting new businesses and development to a city but another plus is offering incentives, which may push a city over the top for new business.

PRA is launching several new growth initiatives focused on specific industries that Pittsburgh is looking to attract. From natural gas and wind energy supply chains to water technologies and international businesses, Pittsburgh is focusing its marketing and promotion efforts to bring these industries to the area. The city is looking beyond natural gas drillers and wind energy operators to attract all companies that manufacture and engineer components for the natural gas and wind energy sectors. Additionally, the PRA takes advantage of the world-renowned Pittsburgh Symphony Orchestra, which offers unique marketing opportunities when the orchestra tours abroad.

Pittsburgh has the rebound numbers to bolster its marketing, as the region has had approximately 90 expansions announced in the first half of 2011, which will account for more than 4,600 jobs.

“The Pittsburgh region is showing significant economic progress — first and impressively — during the recession, and now as the nation and region are beginning an economic rebound,” explains Peart. “The regional employment growth rate has outperformed the U.S. and Pittsburgh’s 14 benchmark cities for nearly 36 months.”

In Philadelphia, PIDC offers a breadth of financing incentives, including below-market loans, grants and tax-exempt financing, which are designed to encourage growth in the city. Federal, state and local government resources, as well as private sector funds capitalize the incentives, which are available for any size for-profit or non-profit corporations.

“Generally, financing is targeted to capital projects — building acquisition and renovation, new construction, machinery and equipment — that retain and grow employment in Philadelphia where the borrower is not otherwise able to fully fund the project with private-sector debt and equity,” says Dalfo.

An Urban Outfitters office building in The Navy Yard in Philadelphia was formerly an industrial building. Photo credit: Lara Swimmer Photography

Additionally, PIDC manages more than 600 acres of industrial land on behalf of the city of Philadelphia, including opportunities in The Navy Yard and the former wholesale produce terminal site in the Food Distribution Center/Stadium District. The majority of PIDC’s inventory has been designated as Keystone Opportunity Zones by Pennsylvania. This designation provides relief from a number of state and local corporate taxes for companies that meet the program’s criteria.

The concentrated efforts of economic development organizations have proven fruitful in the Northeast, as noted by the recent activity in Pittsburgh, Philadelphia and Rochester. As the economy moves toward a more positive outlook, more businesses and companies will be eager to invest in cities that offer prime locations, stable assets and business-friendly environments.

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