GE Relocates to Boston and Collects Millions

By Jim Vaughan, Senior Fellow
 

Did Owen tip the scales for Boston in the competition for General Electric’s new headquarters?

Owen is the geeky young programmer featured in the self-deprecating advertising campaign promoting GE as a 21st century digital industrial company.

In the ads, when Owen says he will be “writing a new language for machines so trains, planes, even hospitals can work better together,” his classmates respond with condolences and baffled stares. Such is the challenge when you’re trying to transform a company that traces its history back to Thomas Edison and the first light bulb into a “digital industrial company.”

In reality, engineers, coders, programmers and designers are increasingly the jobs GE is trying to fill —“building the software and analytics to bring together the power of machines, big data and people”—and that makes Boston, with 55 colleges and universities, a preferred location.

Plus Massachusetts spends more on research & development than any other region in the world, and Boston attracts a diverse, technologically-fluent workforce focused on solving challenges for the world.

“We want to be at the center of an ecosystem that shares our aspirations,” said CEO Jeff Immelt. So the 123-year-old company is moving from its 1970s corporate campus in Fairfield, Conn. to “the dynamic and creative city of Boston.”

It’s a good bet that Owen and the millennials he represents are more likely to be found in or attracted to Boston’s Seaport District—a dense, vibrant, walkable city center—than to suburban Connecticut. So look for GE to be more competitive for top talent.

But in spite of all of the reasons that made Boston GE’s top choice, GE sought and will receive incentives and subsidies from Boston and the Commonwealth of Massachusetts to the tune of $145 million! This to a company that is valued at more than $250 billion.

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Boston recently landed another headquarters facility. Silicon Valley software design giant Autodesk is moving its architecture, engineering and construction division from Waltham, Mass. to a new location in the Seaport District. 

Autodesk is a smaller company—No. 862 on the Fortune 1000 while GE is No. 8—and it’s bringing 170 jobs against 800 for GE. But landing Autodesk was a good deal for Boston.

According to Boston officials, Autodesk is not receiving any incentives to move to the city.

 

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In a CityLab column from The Atlantic, Richard Florida concluded, “The reality is that these incentives are a drop in the bucket for a company like GE. In fact, GE turned down reportedly bigger incentive packages from states like New York. Ultimately, all these incentives really do is take money out of the pockets of Boston and Massachusetts taxpayers—money that could and should be used to reduce poverty and improve education in the city and state’s many disadvantaged neighborhoods.

“Perhaps it’s finally time for the federal government to step in and stop the incentive madness. In the meantime, GE could always do the right thing and give the taxpayers back their money. For a company that wants to be seen as both cutting-edge and a good corporate citizen, such a move would set an important precedent.”

I’m with Florida on this one.

Riding the Transit-Oriented, Mixed-Use Wave in the Suburbs

By Matt DeVeau, Senior Project Associate.

In October 2013, news began to emerge that insurance giant State Farm planned to locate a large operations center in Dunwoody, Georgia, a near north suburb of Atlanta. It was welcome news for the region and an especially big deal for Dunwoody, a city of about 48,000 where Market Street is currently engaged as part of a team of consultants working on a comprehensive plan update. State Farm and its development partner KDC Real Estate Development and Investments will build a 2.2-million-square-foot mixed-use project – by some estimates the largest such development in the region’s history – that could eventually be home to 8,000 company employees. The city provided no incentives to the project.

In addition to being an interesting local economic development story, the move also is part of a larger trend with broad implications for suburban communities. The Dunwoody project is part of State Farm’s move to consolidate its customer service operations into three large centers – the other two will be in Dallas suburb Richardson, Texas and Tempe, Arizona near Phoenix. These locations have many things in common: Sunbelt metros, great highway access, in areas with very high educational attainment rates.

But there is another common thread – all three sites are located in mixed-use, transit-accessible areas. The Dunwoody site is proximate to a MARTA light rail stop in Atlanta’s Central Perimeter – a formerly auto-oriented office and shopping mall complex that is rapidly urbanizing. In Arizona, State Farm’s offices will be at the mixed-use Tempe Town Lake development less than a half mile away from a Valley Metro light rail stop. And in Texas, the company will anchor KDC’s massive CityLine development that is just steps away from a DART light rail stop. This is no accident. In marketing materials KDC prepared for CityLine, State Farm Spokesman Gary Stephenson said:

“There’s a lot of competition for quality employees, not only within the insurance industry but across various sectors, and attracting and retaining those employees is critically important to the future success of State Farm. The physical environment is an important element of what a company has to offer.”

According to KDC, State Farm’s top factors in selecting the Richardson site were location and the quality of the facility. Access to transit and amenities such as restaurants, retail, and hotels were also priorities. Specifically, the hub was designed to recruit and retain Millennials, who prefer workplaces that are convenient, located near quality housing, and located in mixed use environments. Said KDC CEO Steve Van Ambaugh:

“Millennials prefer a live-work-play environment. They want to be in a work environment that is happy and energized. They don’t want to be in a remote location, disconnected from everything.”

Much has been made in economic development circles of firms abandoning suburban office parks to re-enter central business districts and other close-in office submarkets. But not all ongoing trends are bad news for suburban communities. According to the CoStar Group, insurers like State Farm are increasingly open to leaving high-rent districts for suburban markets. And State Farm’s big bet on its three operations centers suggests that the suburbs in the best position to capitalize on this phenomenon will be those that can complement their traditional advantages – workforce, housing stock, schools, highway access – with transit-oriented and mixed-use developments that appeal to the emerging Millennial workforce.

Suburbs without transit and mixed-use environments should work to develop these amenities, while communities that do have these assets can leverage them right away. Of course, not all communities with transit will have large, undeveloped sites adjacent to transit stops like those in Richardson or Tempe. But the area around the Dunwoody site is largely built out, and its initial design included large surface parking lots, superblocks, and wide, fast roads that are poorly suited for walking, biking, and transit use. These existing conditions were significant impediments to the area achieving its full potential in today’s market.

Local officials have therefor been hard at work to retrofit and re-cast the area as a more walkable, urban place. The Perimeter Community Improvement Districts (PCIDs), self-taxing districts of commercial property owners, developed a Commuter Trail System Master Plan and has installed wide sidewalks, and illuminated, landscaped medians and improved traffic signaling to allow for safer road crossings. For its efforts, PCIDs in 2014 received an award from a local pedestrian advocacy organization for the third consecutive year. These improvements have helped further tap into the Central Perimeter’s excellent transit and highway accessibility, and its 11.0 percent Class A direct vacancy rate as of the fourth quarter of 2014 was at least four percentage points lower than every other major office submarket in the region. Communities and districts around the country with similar assets can and should emulate its success.

Legally Beneficial

By Jonathan Miller, Project Associate. 

In a November 12 opinion piece in the New York Times, William Deresiewicz, argues that my generation, the “Millenials” (a term that resonates very little with me) are “polite, pleasant, moderate, earnest, friendly,” unlike generations such as the beatniks, punks, and “slackers of the late ’80s and early ’90s.” While I believe there were, in all likelihood, pleasant beatniks and friendly slackers, Mr. Deresiewicz says that such an attitude has made my generation apt to be salesmen (and saleswomen), the product of wanting to please others, while combining ambition, autonomy, and imagination. He dubs us Generation Sell.

One of the trends that Mr. Deresiewicz picks up on is that to us “what’s really hip is social entrepreneurship — companies that try to make money responsibly, then give it all away.” I think his observation is dead-on. One of the evolutions in entrepreneurship, one that can be seen as a bridge between Generation Sell and social entrepreneurship, is the formation of new corporate structures that are specifically designed to reflect a social purpose, while retaining the ability to raise capital and scale the company.

What little I know about starting a business primarily comes from LegalZoom.com commercials (my lawyer-to-be fiancé is giving me the “really?!” look right now). However, I do know that to start a business you must choose to structure as either a non-profit or for-profit entity. Entrepreneurs wishing to raise capital and grow their businesses have traditionally been limited to either a corporation or a limited liability company. The attractiveness of such structures to social entrepreneurs are limited by fiduciary duties (tradeoffs between social investment and foregone profits can be dicey) in the former, and a lack of confidence by capital markets in LLCs (stemming from tax burden issues) in the latter. To address such inadequacies, states across the nation have adopted new business forms and now offer social entrepreneurs new models for doing business.

The following three structures are indicative of the new wave of thinking about corporations and the overall purpose. The structure descriptions can be found in a December 11, 2011 Wall Street Journal guest column by Kyle Westaway entitled “New Legal Structures for 'Social Entrepreneurs'.”

Low Profit Limited Liability Company (L3C)

Available in VT, MI, WY, UT, NC, LA, ME, and coming soon to RI

The primary purpose of an L3C is charitable in nature, followed by profit. With the same liability and “pass through taxation as an LLC” this structure allows for entrepreneurs to raise both traditional capital and debt and equity capital called Program Related Investments (capital from foundations or regular companies that is intended to further the charitable purpose, and while the loan will be repaid, it is not a means of generating income). Also, profits may be distributed to owners.

Benefit Corporation

Available in MD, VT, VA, NJ, HI, CA, and soon CA

Benefit corporations must operate for the general public benefit, which is a “material positive impact on society and the environment.” Such impact must create value for shareholders, the community, the environment, employees, and suppliers. Further, every Benefit Corporation must use an independent third-part assessment tool to publicly chronicle its operating benefits. High transparency and increased accountability standards are key aspects of the benefit corporation.

Flexible Purpose Corporation

Available in CA

Very similar to a combination of an L3C and a Benefit Corporation, the Flexible-Purpose Corporation aims to balance a designated special purpose, such as promoting awareness of poverty or minimizing effects of pollution, and profit. The special purpose is written into the articles of incorporation. Accountability standards are not as rigorous as those of a Benefit Corporation, but annual public disclosure of the special purpose, metrics used to gauge success, resources devoted to the special purpose and whether goals and objectives have been met, is required. According to the California Working Group for New Corporate Forms, “the Special Purpose requirement is designed to put shareholders and potential shareholders on notice that the corporation will pursue agreed interests that may (or may not) align with profit maximization.”

While Generation Sell is certainly not the only generation backing these new forms of business, it is clear that the traditional roles of for-profit and non-profit that have developed through many generations are changing. Perhaps Mr. Deresiewicz could add a few more adjectives to describe our generation…I would be fine with “social,” “innovative,” and “aware.” 


More information can be found here:

http://businessforgood.blogspot.com/2011/03/frequently-asked-questions-proposed.html

http://www.bcorporation.net/

http://online.wsj.com/article/SB10001424052970203413304577088604063391944.html