Despicable campaign by Indiana to lure Illinois companies, shows paltry results.

Enjoy this article discovered by Daniel Smolensky, SIOR in Crain’s Chicago Business.

January 03, 2015

Inside Indiana’s campaign to lure ‘Illinoyed’ businesses

By MERIBAH KNIGHT

INDIANAPOLIS—Victor Smith sinks into an upholstered armchair in his office and smoothes the wrinkles from his charcoal gray suit. It’s been a good year for Indiana’s secretary of commerce. Following the largest tax cut in state history, Smith presided over a record-breaking year for economic development that included persuading dozens of companies to jump the border from Illinois. Soon, Smith will walk across the street to the cavernous state Capitol and listen to Indiana’s Republican Gov. Mike Pence tout the relocations and expansions as proof that “Indiana is open for business.”

AR-301039989.jpg&maxw=600&q=100&cb=20150113010941&cci_ts=20150106131110Indiana Secretary of Commerce Victor Smith – KENDALL KARMANIAN

For now, though, Smith, a boyish-looking 46, is taking a few moments to show off his department’s promotional handiwork. “I love this one,” he says, pointing to one of a half-dozen snarky tag lines mocked up for potential advertisements. It reads: “Can you spell decifit? We can’t.”

Others—all conceived by Smith and his team—read: “Hoosier Santa now?” “Do you have financial envy?” “Psst, the folks who raised your taxes are on the naughty list.”

Many never made it to print, but the ribbing probably sounds familiar. For three years, in an economic development strategy aimed squarely at jobs and revenue in higher-tax states, Indiana has been trying to poach Illinois businesses. While they say the tactic has succeeded wildly, officials in Illinois say the impact of cross-border moves largely has been a wash, more political theater than anything substantive.

It all started in 2011 when Indiana spent a paltry $369,000 to line the highway from Illinois with billboards asking drivers if they were “Illinoyed by higher taxes?” Since then, the state has lured—by way of low corporate tax rates, good fiscal health and financial incentives—more than 100 companies to expand or relocate from Illinois.

In mid-December, Pence spoke at the City Club of Chicago. Opening his speech, he thanked the club for the invitation despite his state’s “playful penchant to poach business.” Leaning into the lectern, Pence said he thought his state’s harshest jab came in the pages of Crain’s, in an ad telling Chicago-area readers, “Envy is a sin, but moving here isn’t.”

‘BEST SANDBOX’

The earnest push to target Illinois businesses started under Gov. Mitch Daniels, who—helped along by Illinois’ 30 percent hike in corporate income tax and nearly 70 percent hike in personal income tax—said he wanted to build “the best sandbox in America” for companies. In 2013, Pence picked up where Daniels left off and successfully pushed to lower the state’s corporate tax rate, which will drop from the current 7.0 percent to 4.9 percent by 2021. (On Jan. 1, 2015, Illinois’ rate dropped to 7.75 from 9.5 percent.)

But all that glitters is not necessarily gold. Jobs data show Indiana has a higher rate of growth in lower-end manufacturing compared with Illinois. This, experts say, means Indiana’s strategy may be appealing to companies that are footloose—but also low-wage and low-innovation.

“In some ways, it’s the easy way out,” says Howard Wial, executive director at the Center for Urban Economic Development at the University of Illinois at Chicago and a Brookings Institution fellow. “They can say they have attracted jobs. They have healthy job growth. But you have to look at the quality of jobs.” The problem with this strategy, Wial says, “is there is always someone who can beat them in a race to the bottom.” Texas and China come to mind, he adds.

Asked to respond, Smith says Indiana wages have been going up, averaging $20.17 an hour, according to the latest state figures. “We’re like, bring it on!” he says of the naysayers. (The most recent data from the Bureau of Labor Statistics, from May 2013, show Indiana’s average hourly wage is $19.61 and Illinois’ is $22.92.)

Indiana Gov. Mike Pence recognizes 16 manufacturers that will create 2,100 new jobs in his state over the next several years. Joining him at the press conference Dec. 18 are lawmakers, business owners and executives.
Indiana Gov. Mike Pence recognizes 16 manufacturers that will create 2,100 new jobs in his state over the next several years. Joining him at the press conference Dec. 18 are lawmakers, business owners and executives.
The recent example of food equipment maker AM Manufacturing could support either side in that argument. Exploring a move to Indiana, the company hit a snag that ostensibly rewarded sheer numbers of jobs over their quality. Mark Van Drunen, AM’s engineering and production manager, says his 35-employee company fell short of the 50-person requirement for certain tax credits, despite wages averaging more than $20 an hour.

“I made the argument that I am not bringing 50 minimum-wage employees—I am bringing 30 higher-quality jobs,” he says. In the end, his argument worked. Last fall, with $400,000 in tax incentives, AM moved its factory from south suburban Dolton about 5 miles southeast to Munster.

What’s more, Indiana’s personal income tax is not as low as it appears, even with a planned 5 percent reduction by 2017. While the state levy is only 3.4 percent compared with Illinois’ 3.75 percent, factoring in local income taxes can make it nearly equal, if not higher, depending on the county.

Smith, a former manufacturing company executive, likes to say Indiana has “a good story to tell” and “armed with the facts,” companies will “make the right decision.” In other words, because Illinois hasn’t gotten its fiscal act together—high debt, exploding pension costs and past increases in personal income taxes—Indiana is going to show folks what they’re missing. “Indiana just needs a bigger megaphone” is a phrase Smith comes back to again and again.

As head of the Indiana Economic Development Corp., a public-private company with about 60 employees and a budget of $75 million, Smith regularly logs 50,000 miles a quarter on the road. Once a month, he travels to Chicago, often in his state-issued Toyota Sequoia, to meet with companies and sell them on his state. Smith earns $162,999.98 a year, according to a state-maintained database of Indiana public-sector employees. On a mission to spread the word about Indiana, Pence and Smith rang in the new year in Israel, and they plan to go to Brazil this year.

SOFTENING THE TONE

Kelly Harrington Nicholl, head of marketing at the development corporation since 2009, is the woman behind Indiana’s most memorably catty catchphrases: “Illinoyed” and “Stillinoyed.” But after years of poking fun at its fiscally challenged neighbor, Indiana is about to soften its tone. “We’re not going to beat up on Chicago anymore,” Smith says.

This means that a cluster of billboards along I-90 cautioning northbound drivers that higher taxes lie ahead will come down soon, Nicholl says. “It’s time to play nice,” she says. She declines to say whether Illinois’ newly elected Republican governor, Bruce Rauner, has anything to do with it. “There is a sunset to everything.”

Nicholl, 52, says she and her three-person team, comprising a copy writer, graphic designer and events coordinator, do 95 percent of Indiana’s marketing—from coining the catchphrases that line Smith’s office to buying the ad space. “We operate like a mini ad agency,” she says. She declines to give specific spending numbers except to say that Smith has raised her budget since becoming commerce secretary.

Despite Indiana’s bravado, the number of state-to-state moves are increasing in both directions, according to an analysis of preliminary data by the Chicago Metropolitan Agency for Planning. The data, supplied by New Jersey-based research firm Dun & Bradstreet, show 70 companies in Illinois relocated their entire business or branches of their business to Indiana in 2013, up from 40 in 2012. During the same period, 48 companies in Indiana moved all or portions of their businesses to Illinois, up from 39 in 2012.

It’s important, too, to consider the size of each state’s economy, experts say. About 5.8 million people worked in Illinois in 2013, compared with 2.9 million in Indiana, according to the Federal Bureau of Labor Statistics. Census data show in 2012 roughly 29,300 new businesses formed in Illinois, compared with about 12,700 in Indiana. And Chicago pulled in more corporate investment projects than any metro area in the U.S. in 2013, according to Site Selection Magazine.

While Indiana’s job growth is outpacing Illinois’, “things are mostly moving in the same direction,” UIC’s Wial says. “Indiana is just growing . . . from a smaller base.”

‘ALL GROWN UP’

Following the press conference, Smith and Pence stop by a local television station to talk up Indiana’s record year, which includes a commitment of $4.4 billion in corporate investment over the next five years, up from $2.63 billion in 2013. Afterward, they head to a tour of Elanco, a division of pharmaceutical giant Eli Lilly specializing in products for animal wellness. Elanco is about to spend $13 million building a vaccine research center. The lab, opening in early 2016, will be 48,000 square feet and employ 75 scientists with annual salaries averaging roughly $60,000. Smith grins. “This is the old farm all grown up,” he says.

While Smith admits companies might move to Indiana without the snarky billboards and print ads, he says the efforts of his team work as a catalyst. “It’s like throwing Miracle-Gro on a plant that is already going to grow,” he says.

As Smith and the governor head out, Pence stops to recall a recent conversation with Rauner. “I told him, ‘As near as I can tell, the only person talking more about Indiana’s economic record for the last year than me was Bruce Rauner.’ “

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Do you expect to overpay on your lease?

US companies occupying industrial real estate, listen up!   The market has pivoted to a Landlord’s market, that means you will pay more.   Taking on this market without proper representation, well why not just tie a steak around your neck and walk into a Lion’s den…you’re dead meat.

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Chicago stats:

Unemployment is down to 6.2%

Vacancy rate has decreased to 8.2%, lowest since 2001!

15 million square feet is under construction!

This data tells us there are more people employed, the amount of available space is lowest since 2001, and developers can’t build enough space to meet demand (or to feed their performas).  What does it all mean? Asking prices are up and incentives are down like free rent, large tenant improvement dollars, and risk diversion, you are in a Landlord’s market… expect to pay more.

But you don’t have to.  Embrace the approach of creating a competitive atmosphere where multiple buildings are being seriously considered you should be able to compress the rental rate and get some concessions from Landlords. Consider the vacancy rate of 8.2% it reflects nearly 90 million square feet of available space in Chicago metro!

If you have a renewal or are considering a new location:

  • Engage a real estate professional who has access to on and off market properties
  • Go see everything. You may not have 10 options, but there should be three or four and you need to leverage them.
  • Give yourself time, 9-12 months before your back is against the wall.

This is nothing new, but its never been more important.

Data indicates strong activity in industrial real estate market

From CoStar’s 2014 Mid-Year Report.
The Chicago Industrial market ended the second quarter
2014 with a vacancy rate of 8.5%. The vacancy rate was
down over the previous quarter, with net absorption
totaling positive 2,303,618 square feet in the second quarter.
Vacant sublease space increased in the quarter, ending the
quarter at 1,416,465 square feet. Rental rates ended the second
quarter at $5.23, an increase over the previous quarter. A
total of five buildings delivered to the market in the quarter
totaling 1,708,735 square feet, with 7,721,186 square feet still
under construction at the end of the quarter.
Absorption
Net absorption for the overall Chicago Industrial market
was positive 2,303,618 square feet in the second quarter 2014.
That compares to positive 327,193 square feet in the first quarter
2014, positive 6,177,633 square feet in the fourth quarter
2013, and positive 1,375,931 square feet in the third quarter
2013

.ship data
Tenants moving out of large blocks of space in 2014
include: Quantum Foods, LLC moving out of (269,591) square
feet at 550 W North Frontage Rd, Silgan Containers moving
out of (187,850) square feet at 1191 Lake Ave and Channel
Distribution moving out of (165,762) square feet at CMD
Business Park.
Tenants moving into large blocks of space in 2014 include:
Pactiv Corporation moving into 898,560 square feet at
Pinnacle Business Center, Ferrara Candy Company moving into
747,152 square feet at Carlow Corporate Center, and Midwest
Warehouse & Distribution System moving into 650,494 square
feet at Carlow Corporate Center.
The Flex building market recorded net absorption of positive
84,263 square feet in the second quarter 2014, compared
to positive 287,109 square feet in the first quarter 2014, positive
54,574 in the fourth quarter 2013, and positive 212,314 in the
third quarter 2013.
The Warehouse building market recorded net absorption
of positive 2,219,355 square feet in the second quarter 2014
compared to positive 40,084 square feet in the first quarter
2014, positive 6,123,059 in the fourth quarter 2013, and positive
1,163,617 in the third quarter 2013.
Vacancy
The Industrial vacancy rate in the Chicago market area
decreased to 8.5% at the end of the second quarter 2014. The
vacancy rate was 8.7% at the end of the first quarter 2014,
8.7% at the end of the fourth quarter 2013, and 9.0% at the
end of the third quarter 2013.
Flex projects reported a vacancy rate of 12.1% at the end
of the second quarter 2014, 11.9% at the end of the first quarter
2014, 12.3% at the end of the fourth quarter 2013, and 12.4% at
the end of the third quarter 2013.
Warehouse projects reported a vacancy rate of 8.3% at
the end of the second quarter 2014, 8.5% at the end of first
quarter 2014, 8.4% at the end of the fourth quarter 2013, and
8.8% at the end of the third quarter 2013.Rental Rates
The average quoted asking rental rate for available
Industrial space was $5.23 per square foot per year at the end
of the second quarter 2014 in the Chicago market area. This
represented a 1.0% increase in quoted rental rates from the
end of the first quarter 2014, when rents were reported at $5.18
per square foot.
Rental rates
The average quoted rate within the Flex sector was $10.31
per square foot at the end of the second quarter 2014, while
Warehouse rates stood at $4.91. At the end of the first quarter
2014, Flex rates were $10.33 per square foot, and Warehouse
rates were $4.87.accounting for 276,031,840 square feet of Industrial
space.
ServeAttachment-3.ashx

Sales Activity
Tallying industrial building sales of 15,000 square feet
or larger, Chicago industrial sales figures fell during the first
quarter 2014 in terms of dollar volume compared to the fourth
quarter of 2013.
In the first quarter, 91 industrial transactions closed
with a total volume of $539,789,301. The 91 buildings totaled
13,210,857 square feet and the average price per square foot
equated to $40.86 per square foot. That compares to 154
transactions totaling $637,990,562 in the fourth quarter. The
total square footage was 15,821,506 for an average price per
square foot of $40.32.
Total year-to-date industrial building sales activity in 2014
is up compared to the previous year. In the first three months
of 2014, the market saw 91 industrial sales transactions with
a total volume of $539,789,301. The price per square foot has
averaged $40.86 this year. In the first three months of 2013,
the market posted 85 transactions with a total volume of
$232,203,922. The price per square foot averaged $31.84.
Cap rates have been lower in 2014, averaging 7.37%,
compared to the first three months of last year when they
averaged 8.56%.

Crain’s: Chicago’s tech companies innovating

thThis is story from Crain’s…

Midtronics Inc. came up with a way for a mechanic to safely work on a car battery without getting zapped. That’s not a problem with garden-variety, 12-volt batteries, but it’s a much bigger challenge with the 400-volt monsters that power hybrids and electric vehicles.

Cummins Allison Corp. invented a machine that can take pictures of currency and checks even as they fly past in a blur, and do it in a fraction of the time of older equipment.
Gogo Inc. figured out how to maintain a cellphone signal when the user is in an airplane traveling 600 mph between towers.
Who says all the innovation happens in Silicon Valley?
Those three companies finished at the top of Crain’s Eureka Index, our annual look at the most innovative businesses in Chicago and across the state. The rankings are based on an exclusive analysis of patents by Ocean Tomo LLC, a Chicago-based merchant bank that specializes in evaluating intellectual property.
The Eureka Index highlights both the prolific and the prodigious. It includes giants that produce the most patents, such as aircraft maker Boeing Co., and tiny private companies that do path-breaking work like PowerMag LLC, which is using magnets to heat buildings. Measures include the number of patents awarded, the quality of the patents and a company’s patent productivity.
Willowbrook-based Midtronics, which makes battery-testing equipment, had the highest-rated portfolio of patents granted in 2013. Ocean Tomo’s algorithms assess the uniqueness of an invention in a patent to judge its quality, or the likelihood that it will be developed into a product or maintained by the company, such as by defending it in court.
“If you look at the innovation on this list, we’ve got the latest in new technology, and it’s all happening here in the Midwest,” says Darius Sankey, managing director of Ocean Tomo. “We’ve got an impressive mix. It’s not as concentrated in one or two industries like Silicon Valley or Boston. But that’s Chicago’s strength—it’s so diversified.”

Chicago-based Boeing produced more patents, 760, than it did planes in 2013. By a wide margin, it topped the list of 166 companies that received at least three awards in 2013, according to data from the U.S. Patent and Trademark Office. (No. 2 was North Chicago-based Abbott Laboratories, with 576.) It’s the third year in a row Boeing finished in the top spot for total patents.
PowerMag, which is based in shared office space in the John Hancock Center, has just six employees but received seven patents last year for technology originally developed by a prolific Wisconsin inventor, Bob Albertson. That’s the highest output per capita of any company on the list.
Cleversafe Inc., a 10-year-old company that invented a new way of storing massive amounts of computer data, had the second-highest per-capita output at 64 patents per 100 employees. One of the most innovative computer-technology companies built in Chicago, Cleversafe more than quadrupled its patent output last year to 69. It was 16th in total patent output, despite having just 108 employees at the end of 2013. And it was 30th in overall patent quality. “Innovation drives differentiation for Cleversafe,” CEO John Morris says.

When you’re first to innovate in an area, it’s a lot easier to have high-quality patents.
— Doug Mennie, president,
Cummins Allison Corp.
Large companies such as Deerfield-based drugmaker Takeda Pharmaceuticals USA and Chicago-based cellphone maker Motorola Mobility also performed well. Takeda, which was awarded eight patents, was 12th in patent quality.
Motorola Mobility was 13th in per-capita output at about nine per 100 employees, in part because its patent production has remained relatively constant even as headcount has shrunk dramatically in recent years to fewer than 4,000.
Total patent awards in the U.S. rose nearly 10 percent last year to 302,948. Illinois companies received 5,375 in 2013, up 6 percent. Several people at local companies say their patent numbers increased, in part, because of improvements at the U.S. Patent and Trademark Office, which has sped up reviews and reduced its backlog of applications in recent years.
QUANTITY AND QUALITY
Cummins Allison pulled off the unusual trick of maintaining high quality while cranking out a lot more patents. The Mount Prospect-based company had the second-highest-rated portfolio, even though its patent output jumped to 38 last year from 10 in 2012. Quality usually goes down as the number of patents rises, which is why only one of the top 10 producers of patents, Abbott, is in the top 10 for quality. Abbott’s 576 patents, with an average score of 138, would rank near the top 10 percent of all U.S. patents.
Cummins Allison topped last year’s quality ranking.
“When you’re first to innovate in an area, it’s a lot easier to have high-quality patents,” says Doug Mennie, president of the company, which is best-known for currency-counting equipment but has moved into check processing in the past couple of years. “To take an image at low speed and low cost is easy. To take an image at high speed and high cost is easy. But to do it at high speed and low cost is very difficult. That’s what we’ve focused on in the past few years.”
<strong>Anand Chari, chief technology officer of in-flight Wi-Fi provider Gogo Inc.</strong> Photo: Stephen J. Serio
Anand Chari, chief technology officer of in-flight Wi-Fi provider Gogo Inc. Photo: Stephen J. Serio

Cummins Allison’s innovation also is easy to see in its products. Today, it’s selling $10,000 desktop equipment that replaced $1 million machines. The company, which has 500 employees locally and 1,100 total, spends about 20 percent of revenue on research and development.
HARDER THAN IT LOOKS
Itasca-based Gogo, which began developing technology to allow cellphones to work on airplanes more than two decades ago, has been pushing the envelope ever since. All that innovation made Gogo the third-highest-rated portfolio, according to Ocean Tomo.
“Aircraft is the last thing to be connected (to the Internet),” says Anand Chari, chief technology officer, who was Gogo’s first Chicago-area employee in 2006. The company now has more than 500 and will move its headquarters downtown from Itasca. He estimates that two-thirds of the employees have technical backgrounds. “The culture of innovation is out of necessity. . . . We’re in the early stages of in-flight connectivity.”
As more data—from movies to text messages—is traveling over the airwaves, Gogo is finding new ways to compress it. And the company has to make its onboard Wi-Fi gear work with both ground-based cellular towers and satellites.
Oakbrook Terrace-based Redbox Automated Retail LLC received a trio of patents last year related to its signature red kiosks that serve up DVDs and games. It wasn’t a big number of patents, but it vaulted the company to 10th place on the quality scale.
Those 44,000 machines have to be restocked and recalibrated constantly, and machines in different locations have different inventory. Using wireless technology, Redbox figured out ways to handle much of the work remotely. Recently, the company determined how to reconfigure components inside the machines to increase the number of discs they hold by more than 10 percent—without replacing the kiosks themselves.
“There are a lot of moving parts inside,” says Chris Kapcar, vice president of technology services at the company, a unit of Bellevue, Wash.-based Outerwall Inc. “People assume it’s less complicated than it is.”
STAYING AHEAD OF THE GAME
More than a decade ago, when the first Toyota Prius hybrids started showing up in the U.S., Steve McShane, CEO of Willowbrook-based Midtronics, bought one of the cars to see how it might change his business. The company manufactures equipment to test and charge batteries used in places from car dealerships to auto-parts stores.
“Because we had that Prius early on, we developed technologies that might address the challenges, which are quite different from (those of) traditional lead-acid batteries,” says Chief Technology Officer Kevin Bertness, who has been awarded more than 100 patents over the past 20 years at Midtronics. “Most of the battery voltages in electric vehicles are lethal. That creates some challenges for service. We didn’t know if it was a laboratory curiosity or if it was going to be real. By the time people got serious, we had our (intellectual property) stream in line.”

If you look at the innovation on this list, we’ve got the latest in new technology, and it’s all happening in the Midwest. We’ve got an impressive mix.
— Darius Sankey, Ocean Tomo LLC
Its new equipment is used by Nissan Motor Co. and General Motors Co. for their electric vehicles. Ford Motor Co., Honda Motor Co. and Mitsubishi Group are evaluating Midtronics’ machines. The company, which employs 240 people, is building an engineering facility in China.
“Our product, while it sounds mundane, it’s far from being commoditized,” Mr. McShane says.
Like Cleversafe (second in per-capita output in 2012), financial-trading software provider Trading Technologies International Inc. (first in per-capita output in 2012) and broadcast-technology maker Sportvision Inc. (15th in patent quality in 2011), Midtronics is a perennial standout on the Eureka Index.
But this year’s list features several newcomers.
Riddell Inc., a Rosemont-based maker of football helmets, was No. 5 on Ocean Tomo’s patent-quality index.
As concern over concussions mounts, the company has applied microprocessors, sensors, wireless transceivers and technologies from other industries to gather data from players on the field and transmit it to the sidelines. The technology was introduced a decade ago and used by about a dozen universities. Last year, the company introduced a less expensive version aimed at high school and youth leagues.
Riddell has increased its R&D staff, both inside and outside the company, by about one-third in recent years, says Thad Ide, senior vice president of research and product development. “Traditionally we were strong in testing, engineering and biomechanics,” he says. “Now we need software, firmware programming, electronics design.”