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Investment Boom Turns Up The Heat For Economic Development Teams

June 22, 2023
Having prepared real estate has become the biggest driver of big-dollar site selection decisions; ‘Speed is the new incentive.’

The hockey-stick chart is stunning: The value of private manufacturing construction put in place in the United States reached nearly $15.3 billion in April, more than double the figure of a year earlier and pushing year-to-date gains to 84%. Another point of comparison: Until May of 2022, the record month for thus metric had been September 2015—when “just” $7.6 billion of projects were put in place.

“Firms [are] strongly expanding their capacity to meet their long-term objectives,” National Association of Manufacturers Chief Economist Chad Moutray wrote on LinkedIn June 1. Moutray and other manufacturing economists will discuss those trends in an IndustryWeek webinar on July 18. “This should bode well for future growth in manufacturing in the U.S. moving forward.”

Today, the work to tee up that growth has economic development teams and site selectors around the country scrambling. Between the upheaval of the COVID pandemic, recent geopolitical events and tensions and the passage of various landmark pieces of stimulus legislation, the spigots have opened on billions of dollars of spending and billions more in incentives. That has created something of a land rush—often anchored around megaprojects such as Intel Corp.’s $20 billion, 1,000-acre campus in Ohio or Ford Motor Co.’s Blue Oval campus in West Tennessee–that has turned up the wick on the engines of economic development.

“These are hard timelines to hit. If you’re applying for funds for a chips or batteries plant, you need real estate to move forward,” said Larry Gigerich, executive managing director at site selection firm Ginovus and a member of the Site Selectors Guild. “And ECD agencies are in a little more uncomfortable place in terms of the speed with which they have to move and the resources they have to commit.”

The corporate and government money to ramp up production of semiconductors, electric vehicles, batteries and more will be spent—on projects “mega” and more quotidian. Didi Caldwell, president and founding principal of Global Location Strategies and also a Site Selectors Guild member, said there’s no great second option after the United States and its closest neighbors and noted that this wave of investment in megaprojects and the sites to supply them can run another five to 10 years—which means states and cities need to have their ECD ducks in a row now.

“This is a once-in-a-century shift,” Caldwell said. “The post-Cold War period of stability was an aberration.”

It’s a shift that, in ECD terms, has happened very quickly and brought with it a new urgency. Indiana Secretary of Commerce Brad Chambers said businesses working on chips, EVs or the energy transition more broadly know they need to get to market quickly; today’s worries about inflation or other economic factors won’t derail their plans, he added. For economic development teams, it’s about enabling those ambitions with as little friction as possible.

“Speed is the new incentive,” said Chambers, who is part of the Indiana Economic Development Corp. team that this month got to announce that General Motors Corp. and Samsung SDI will invest more than $3 billion in a battery manufacturing plant near South Bend—just a few months after the two companies announced the launch of their joint venture. “We’ve got to work to meet that opportunity.”

Focus on the next project

A quick semantic note here: We haven’t yet used the (buzz)words “reshoring” or “nearshoring” to describe the wave of investments underway. Those words may apply in some cases but experts said they’re often a misnomer; companies are rarely expressly relocating production from sites they now see as too far down their supply chain or simply too risky. Instead, Caldwell said, the main strategic rationale behind new investments is to capitalize on new growth opportunities—building the next project rather than “fixing” a previous one—while along the way lowering the risks inherent in a continental or global business venture.

The core tenets of big ECD investment decisions haven’t changed: Location is still the No. 1 key, with access to water, rail, electricity and workers feeding into the equation. But with grants and subsidies often available to fuel today’s new opportunities, companies are moving more quickly than before the pandemic to find workable spots. And they’re not afraid to be more exacting or use that urgency as a bit of leverage over locales vying for their investments.

“The readiness of real estate is a much more important factor now,” Gigerich said. “In the past, requirements would be pretty high-level. Now, companies are being very specific: ‘This is the size we want, this is the infrastructure we need, these are the redundancies we need when it comes to utilities.’ They’re going a lot deeper into those questions.”

That has required a response from ECD pros long accustomed to longer timelines. Indiana is a case in point: Chambers has been the Hoosier State’s commerce secretary since mid-2021 and is founder of $3 billion real estate investment firm Buckingham Cos. He said that, after joining Gov. Eric Holcomb’s cabinet, he realized Indiana’s ECD toolkit of incentives and legislative levers needed a refresher to be a prime player in a changing market.

“We brought in fresh eyes,” he said. “Maybe we needed to look right instead of left in a few places.”

This year, that push has borne fruit via, among other things, a new $500 million fund to help close ECD deals and $150 million over two years to invest in large tracts of land such as the LEAP Lebanon Innovation District, which covers more than 9,000 acres northwest of Indianapolis and where hometown hero Eli Lilly & Co. already has committed to put to work $3.7 billion and hire 700 people at two plants.

Other states are making similar moves, placing bets that they, too, can draw more massive industrial investments between now and the early 2030s:

  • Texas lawmakers recently appropriated about $1.4 billion to subsidize semiconductor companies and fund chip research projects. The goal: To overtake California and become the country’s largest employer of semiconductor workers by 2030.
  • Tennessee, which in 2021 recruited Ford’s vehicles-and-batteries Blue Oval City megaproject to a site east of Memphis, this spring earmarked $65 million to help prepare the next large land parcels it can market.
  • Michigan leaders have created four megasites and South Carolina—which this year landed the first manufacturing plant for Volkswagen AG’s Scout EV brand—is among those also investing millions to add to their tally.

So which states stand to win more than their fair share? Caldwell said the Southeast has the advantages of more available land, cheaper electricity and fewer, if any, organized-labor hurdles to clear. Chambers and his peers in the Midwest, she added, can rely in part on being more business-friendly than parts of the Northeast. And when it comes to logistics, states in the Sunbelt and Midwest also have an edge.

Gigerich, meanwhile, said several parts of the Mountain West region are taking advantage of being close to the West Coast and its access to global markets without being as “challenging” on the regulatory and taxation fronts as, say, California. Similarly, he added that Southwestern states—Texas and Arizona foremost among them—have been able to recruit successfully for projects that in the past often went to areas closer to the West Coast.

The Midwest, Gigerich noted, can also sell itself on having a long history of being able to transition from one generation of manufacturing to another. In this fast-moving environment, a track record of that sort of innovation and an educated workforce able to keep up can be an ace in the hole.

In short, there are opportunities from coast to coast—as a quick glance at the news section of our Plant Services sister brand attests. It’s up to those in charge of economic development to be prepared to move as quickly as the dollars they are looking to land.

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