MIDDLE MARKET HIGHLIGHT, MAY 2006

CEDAR RAPIDS, IOWA
Karen Stone, CCIM

According to Mark Seckman, president of Priority One, the economic development division of the Cedar Rapids Chamber of Commerce in Iowa, overall, the last 2 years have been exceptional. “During 2004 and 2005, we assisted with the creation of more than 3,000 new jobs in new and existing companies, and brought $430 million in investment into our community.”

Priority One has been very successful in attracting international companies to Cedar Rapids and the surrounding area in the past year. J.Rettenmaier USA, a German-based company, is building a $23 million facility to produce and distribute dietary fiber to the food industry. The facility, located in southwest Cedar Rapids, is scheduled to open by the summer. SunOpta Company, a Canadian company that also produces dietary fiber, opened a $15 million facility in spring 2005.

Red Star Yeast, a business owned by Lesaffre, a French company, just completed a $76 million facility for production of yeast using corn syrup, which is also located in southwest Cedar Rapids. The project was built on the campus of Archer Daniel Midland, the company that will be supplying the corn syrup directly into the Red Star facility. Genencor International, a Danish-owned company that makes industrial enzymes used in soft drinks and laundry detergent, is currently spending $35 million to renovate and expand its current facility. The project should be completed by the end of this year and will create an additional 25 jobs.

These four projects alone represent $149 million in total investment. “This is fantastic for our community because these jobs are highly skilled, higher paying jobs with average wages in the $18 to $22 per hour range,” Seckman explains.

AEGON USA, a Dutch-owned insurance company with its U.S. operational headquarters located in Cedar Rapids, just announced the acquisition of a 320,000-square-foot office facility in city’s northeast quadrant through a property swap. The company plans to spend approximately $20 million to renovate the new building and expansion. AEGON currently employs more than 2,750 people and its existing facilities total more than 500,000 square feet.

According to Scott Byers, president of NAI Iowa Realty Commercial, AEGON purchased the building from McCloud USA, a telecommunications company, for $27 million. As part of the transaction, AEGON will relocate McCloud to an existing 100,000-square-foot building. “This transaction, which was negotiated directly between the two parties, kept a large block of space from coming onto the market,” Byers says.  This campus will be called the AEGON Financial Park.

Another significant sale in the office sector was made by Alliant Energy, which acquired the office building in which it was leasing space in 2005. According to Byers, Alliant purchased the 265,000-square-foot building for $28 million, or $106 per square foot. Alliant currently occupies 80 percent of the building. Overall, there was some absorption of office space in the central business district, where the vacancy decreased from 20 to 18 percent.

 Rockwell Collins, the area’s leading employer, is headquartered in Cedar Rapids. The aircraft and aerospace electronic components manufacturer has a significant campus in the northeast quadrant of Cedar Rapids and recently announced that they expect to add up to 3,500 jobs in Cedar Rapids within the next 5 to 10 years. Rockwell completed two projects during 2005. The first project, a $10 million, 100,000-square-foot off-campus facility, was leased in fall 2005. Rockwell is also building a $14.2 million, 120,000-square-foot building on its 3.5 million-square-foot campus. Construction should be completed before the end of the year. OPN Architecture of Cedar Rapids designed the second project; The Ryan Companies of Minneapolis is handling the construction.

In addition to that, in fall 2005, Maytag opened a 750,000-square-foot Midwest distribution center in North Liberty, located 10 minutes south of Cedar Rapids. The $18 million facility will house 66 new employees and distribute all Maytag lines throughout the Midwest and Canada. In summer 2005, Amana Refrigeration, which is headquartered in Amana, Iowa, approximately 20 minutes west of Cedar Rapids, completed a $64 million expansion of its facility.

The major metro area that Priority One represents has a population of approximately 230,000 people. In addition, the University of Iowa is located in Iowa City about 25 minutes south of Cedar Rapids, increasing the population base to about 350,000. “We work very closely with the Iowa City Economic Development Group that is a partner in the marketing of the Cedar Rapids/Iowa City Technology Corridor,” Seckman says. “Generally, we are not focused on attracting high-tech companies to this corridor. Instead, we want to bring in companies that utilize the highest technology available in their particular industries. Because these companies are highly automated, they require higher skill sets, which means higher paying jobs for our workers.”

Several retail projects are also under development. Marketplace on 1st LLC, in which Byers is the principal, is developing a 200,000-square-foot power/lifestyle center, which will be anchored by Dick’s Clothing & Sporting Goods and Gordman’s. The center will also feature two or three restaurants. The first stores will open this spring and the project should be completed before the end of the year.

Hy-Vee Grocery Stores opened the largest store in its system in February on Edgewood Road NE and Highway 100. The 85,000-square-foot store is located on 10 acres that is part of a 40-acre site that was developed by AEGON. “The store cost about $17.5 million, including the cost of the land,” says Byers. AEGON plans to sell the remaining 30 acres to developers.

In other retail news, Wal-Mart opened its third Supercenter in the market in February. The 175,000-square-foot store is located in Marion, Iowa, a bedroom community on the northeast side of Cedar Rapids. A new 100,000-square-foot Lowe’s Home Improvement Warehouse will be opening in the Sam’s Club /Wal-Mart complex in northeast Cedar Rapids during the third quarter.

According to Byers, the retail market has been active during the last 5 years and office is going through a nice upswing at this time. “In 2005, we saw three times the number of new construction permits in terms of dollars than we saw in each of the years from 2002 to 2004,” he says. “Because the 3 previous years were less than robust, we were catching up in 2005. We were going through somewhat of a trough, from which we have now emerged.” Byers is guardedly optimistic that this trend will continue throughout 2006 and into 2007.

Seckman explains why growth has been so vibrant the past 2 years. “In 2001, we did an industry cluster analysis of our current companies. Since that time, we have been laser-focused in our recruitment efforts, primarily targeting insurance and financial services, bio processing and food ingredient manufacturers, food processing companies, distribution and logistics operations and software development companies. As you can see from the projects that were completed over the past 2 years, and the ones that we will be announcing in the very near future, we have hit almost every single one of our targets.”

“For example, all Quaker Oats oatmeal products are made in Cedar Rapids,” continues Seckman. We sat down with Quaker and asked them what they needed that would make their operations more profitable. They told us they needed someone to use their oat hulls. So, we went out and found Rettenmaier.”

Seckman believes Cedar Rapids has positioned itself to have a very bright future, in both the short term and the long term. “Our efforts are gaining momentum,” he says. “In fact, we will be announcing several new major developments in the very near future.”

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