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Assessing potential incubator facilities: What to look for and when to say, ‘No thanks’

by Linda Knopp

August 2005

Renovating an existing structure for use as a business incubator can be a cost-effective alternative to new construction. But selecting an appropriate facility in which to operate is not as simple as finding an empty building to move into. Although a business incubation program is much more than a building, an inappropriate facility can put an otherwise well-planned program in jeopardy.

Incubator developers (or managers planning to move into different facilities) must assess potential sites carefully, keeping in mind the specific needs of the businesses they will assist. Does the building offer all of the amenities your clients will need? If not, will it be possible and affordable to upgrade the facility to meet those needs? Is it in a good location? Is it big enough? Is it too big? Is there adequate off-street parking? If the answers are no, the facility likely isn’t a good candidate – even if a local organization or government agency offers it to you at low or no cost.

But many successful incubation programs operate in facilities that originally were designed and built for other purposes – including a former buggy factory, a shopping mall, an airport hangar and a powerhouse. What’s their secret? They recognized the importance of thoroughly evaluating the sites. They asked questions, did their homework and planned for the unexpected. (No matter how much research you do, unanticipated crises will pop up.)

Read on for advice about assessing facilities for potential use as incubators from incubator managers and consultants who have scoped out their share of old buildings in recent years.

Structurally sound

At first glance, a historic structure in the center of town might seem an ideal location for a business incubator. But that turn-of-the-century building might not be such a deal if its foundation is cracked or if it’s infested with termites. If you’re considering a building that’s more than 20 years old, having a structural engineer assess the facility is one of the best investments you can make, says Russell Combs, executive director of the Business Incubation Group of the Shenandoah Valley in Winchester, Va., and a senior consultant with Business Incubation Support Services International.

These assessments measure the building’s overall condition and can identify major structural flaws – such as problems with the foundation, roof or walls – that could cause problems down the road. “It’s an expensive process, but it’s well worth the cost to discover that the building is sinking or the foundation is cracking before you invest $3 million to renovate the structure,” Combs says.

And if you’re lucky, you might be able to line up professional assistance at little or no cost to your organization. With laudable goals of promoting business development and creating jobs, business incubation programs often are an easy sell to business and community leaders, says Lawrence Albertson, president of LPA Associates, a consulting firm in Gainesville, Fla.

He recommends recruiting 12 to 15 key community leaders (including representatives from local government, business and economic development groups, major utilities, insurance agencies, banks, and engineering and architectural firms) for advice during the feasibility study process. Established programs can call on many of these same professionals to help with site assessments when considering a move to a different facility. Additionally, representatives of your state fire marshal’s office, local code enforcement and zoning offices, and the federal Occupational Safety and Health Administration usually are willing to conduct walk-throughs of prospective incubator sites to help you identify potential problems early on.

But even then, you should prepare for the unexpected, says Lisa Ison, president of The New Century Venture Center in Roanoke, Va., and a senior consultant with Business Incubation Support Services International. She recommends budgeting between 35 percent and 50 percent above expected costs for items that could be discovered after demolition begins. Unexpected expenses might include removing or entombing asbestos in an old boiler system, rewiring or upgrading electrical systems, or discovering that walls slated for demolition are load bearing or firewalls.

“It’s always better to estimate high than to be shocked when the costs start increasing,” Ison says. “Often, the time from when the estimate is prepared until actual construction or renovation begins can be as long as two years, especially when outside funding or grants are being requested to cover the costs.” During this time, she adds, construction costs typically rise, increasing overall project costs.

Although old facilities can be difficult and expensive to renovate, sometimes a historical structure can provide a suitable home for an incubator. Earlier this year, the Franklin Business Incubator welcomed its first clients into its 40,000-square-foot building in Franklin, Va. The facility, built in 1907, was once home to the Virginia Buggy Co. (which purportedly built the first surrey with fringe on top).

Using state and federal grants, the city of Franklin undertook a $2.3 million renovation project to transform the landmark facility into a mixed-use incubator, with both office and industrial space. The renovation did not come without challenges, says Cathy Davison, incubator manager.

Each day of the renovation process brought new discoveries about the old building. For example, existing columns and supports caused problems for the contractor charged with running ductwork between floors – and around the columns and supports. Each discovery, in turn, required a decision about how to move forward with the project, often causing delays.

Davison didn’t join the incubator staff until renovations were well under way, and the city didn’t have an on-site representative overseeing the project during its earliest days. Having a project manager on site would have helped ensure contractors and subcontractors followed plans and identified potential problems before the renovations had gone too far, she says.

Although the incubator has overcome many of its renovation challenges, Davison says she strongly recommends that developers hire an experienced contractor and project manager. “Many of the issues we encountered could have been taken care of well before the end of construction, if the project manager had been on site every day and managing the subcontractors, instead of just telling them to do the work as it was shown on the plans,” she says. “In the renovation of an older building, there needs to be flexibility because there are always issues or concerns that arise that could not have been anticipated in a drawing.”

Location, location, location

Even a well-appointed facility might struggle as an incubator if it’s in the wrong part of town. “You need to put the incubator where people want to start and run their businesses,” Albertson says. In most cases, that means locating a program away from high-crime areas, close to major transportation routes and near similar businesses.

The key to selecting an appropriate location is assessing the business and research activities occurring in various parts of town, Albertson says. If the community has a college or university, it often makes sense to select a facility near campus – even if the incubation program isn’t formally affiliated with the school – to give clients easy access to student workers and other resources. Similarly, because industrial parks are often magnets for new businesses, a location adjacent to the city’s industrial base might be worth consideration. “The real key is to see where the business activity is locally,” Albertson says. “That’s where you want to be.”

But sometimes it makes sense to create your own path rather than to follow the crowd, as the University of Texas at Brownsville/Texas Southmost College discovered. When retailers and other businesses began migrating to the business district north of town, the Amigoland Mall in downtown Brownsville, Texas, lost its anchor tenants. Its loss was UTB/TSC’s gain, however.

In 2002, UTB/TSC purchased the 647,000-square-foot shopping mall – which includes 40 acres of property and 3,200 lighted parking spaces – to refurbish as its International Technology, Education and Commerce campus. Because the building was located in a low-income neighborhood with a large minority population, the project qualified for a number of redevelopment grants. This ITEC campus now houses international trade-related offices (including the Mexican Consulate), a 100,000-square-foot technical training center for industrial clients, and several UTB/TSC offices.

UTB/TSC also has renovated 16,000 square feet of the building into the International Innovation Center, a mixed-use incubator, leaving ample room for expansion as client needs dictate. John Sossi, program director for incubator services, says the incubator offers clients high-end space, featuring flexible office configurations, access to a loading dock, and proximity to outside business assistance providers.

“It’s important to ask yourself, ‘Who are the incubator’s neighbors?’ when trying to select a location,” Sossi says. “Having the local economic development people and a trade export assistance center in the same building is a real asset. That gives us an edge.”

The facility’s security system also has proven to be a selling point to prospective incubator clients. UTB/TSC security officials monitor images from a security camera in the incubator’s main reception area, and UTB/TSC police include the incubator on their regular patrols, which provides a heightened level of comfort to entrepreneurs who often work late at night, Sossi says.

Another unconventional location proved feasible for a Connecticut incubator that opened in late 2004. The Oxford Economic Development Corp., Post University and Naugatuck Valley Community College had few existing buildings to choose from when developing an incubator in Oxford, Conn. But the incubator’s sponsors weren’t ready to take on a new construction project in the former farming community in the southwestern part of the state. Their solution? The mixed-use Oxford Regional Innovation Center set up shop in offices inside an aircraft hangar facility at the Oxford-Waterbury Airport, Connecticut’s second largest airport.

The airport, which serves many corporate aircraft, had several floors of office suites not in use by companies basing their planes there. (Aircraft hangars are stacked contiguously like large garages, with three floors of sound-proofed offices between each garage. From the outside, it appears to be one long building, with hangar doors facing the airfield and office entrances facing a parking area.)

With the help of an OEDC board member who also serves as president of the airport’s fixed-base operator (the company that provides fueling, repairs and other services to the aircraft housed there), the airport leased office space to the incubator at favorable rates (free for the first year with modest rate increases in subsequent years).

“The airport is a great location – very inspirational – even though our clients aren’t focused on aircraft,” says John Keegan, executive director of the Oxford Regional Innovation Center. “We are in a very well-maintained, secure facility just one mile from Route 84 [the region’s major expressway] and centrally located near the largest industrial zoned acreage in Connecticut.”

The downside, Keegan says, is that the incubator now has only 4,000 square feet of operating space, with minimal room for expansion. In the coming years, the incubator plans to build its own facility with more office space and sufficient conference facilities to make the incubator the hub of activity for the local business community. But when the incubator does expand, Keegan says, it will look at sites on Airport Road.

Sufficient and appropriate space

As Keegan has discovered, it’s difficult to cover a program’s operating costs through rent and service fees alone when a building doesn’t have enough leasable space. In those cases, incubators often are forced to rely on grants to subsidize their operations – which isn’t a good long-term plan. (The Oxford Regional Innovation Center hopes to build a larger facility in the next one to two years that will provide enough space to make the program financially self-sustainable.)

The amount of leasable space needed to make an incubator financially self-sustainable can vary, depending on the community’s economic circumstances and its entrepreneurial pool, but many incubation professionals consider 30,000 square feet a good rule of thumb.

That space doesn’t always have to be in the same building – or even the same community – to work, however. The Michigan Tech Enterprise Corp., which manages the Michigan Tech Enterprise SmartZone, operates its incubation program from two facilities in adjoining towns (with more new construction in the works). Together, the three sites will give entrepreneurs access to approximately 26,000 square feet of incubator space that includes office suites, high-bay manufacturing space and wet laboratories. All of the facilities are located within a mile of each other.

MTEC CEO Alan West says the three sites will allow his organization to offer noncompeting space to technology entrepreneurs in a variety of sectors, which its feasibility study revealed was important. “Collectively, these three facilities are very synergistic,” he says. “We weren’t able to find all of the accommodations we needed in one building, so this arrangement works well for us.”

MTEC assists several Internet-related businesses within 7,500 square feet of office space in a former powerhouse in Houghton, Mich. In nearby Hancock, Mich., MTEC operates an 11,250-square-foot incubator on the fourth floor of a former hospital. That space, in what used to be the maternity ward, contains two wet labs with stainless steel sinks and fume hoods, and several private office suites.

The cities of Houghton and Hancock have established a local development finance authority, which owns the MTEC incubator space in both facilities; the remaining floors of the former hospital are owned and operated by Finlandia University. MTEC also will lease 7,300 square feet of high-bay manufacturing and office space in the new Advanced Technology Development Complex, which is being built by Michigan Technological University in Houghton.

Incubator clients pay the same rent at each MTEC facility and have access to resources at any of its locations, so start-up businesses can select the space that best suits their needs, West says. Although operating three separate sites might cost more – and present more management headaches – than operating one location, West says the added value of incorporating other stakeholders is worth it. “The added value of actively involving the two cities and the two universities is extremely valuable in engaging more of the community and fostering a more entrepreneurial culture,” he says.

Adequate infrastructure

Determining whether a particular facility will meet the needs of potential incubator clients – or can be retrofitted easily to meet those needs – requires looking beyond the building’s overall structure to its infrastructure. For example, for a high-tech incubator serving a number of software clients, wireless Internet capabilities are a must. Is the facility set up to meet these needs? Can it be easily adapted and expanded to do so? If not, that’s an extra expense to consider.

The Mississippi Technology Alliance Innovation Center in Jackson, Miss., was lucky in this regard. The technology incubator moved into a state-of-the-art facility when it opened approximately two years ago, says executive director DeAnna Adams. The Jackson State University Foundation purchased the former Allstate Corp. call center in downtown Jackson as part of a project to encourage technology usage as a way to create jobs and spark economic renewal in the city’s downtown district. The university leases 30,000 square feet of the building to MTA as part of this effort.

As a former call center, the facility offers technical infrastructure that many incubator managers only dream of. Amenities include redundant electrical power sources, which provide a back-up system if one power source fails; a tier-one data center; and underground wiring for power, telephone and data transmission.

Of course, telecommunications isn’t the only infrastructure you need to consider when examining potential incubator sites. At the International Innovation Center, Sossi discovered that his biggest infrastructure problem (and expense) was upgrading the air conditioning system of the 30-year-old shopping mall. The mall’s interior and most of its stores were on one central system; the sites formerly leased by the mall’s three anchor stores were each on different systems.

UTB/TSC used a $1 million grant from the U.S. Department of Commerce Economic Development Administration for building renovations, including an environmental abatement of adjoining space for future expansion and an air conditioning system upgrade.

The International Innovation Center is served by the facility’s new main system, but the incubator also has its own automated air handling system, which helps keep client offices cooler. Each office has its own thermostat, giving clients some degree of independence in controlling temperature, but all thermostats are connected to a computer that examines settings throughout the facility and reacts accordingly, Sossi says.

At the Franklin Business Incubator, the building’s layout has presented some interesting challenges, Davison says. The facility’s loading dock is located near the building’s front entrance, but the incubator’s industrial area (which features durable flooring and double doors to accommodate heavy machinery and large equipment) is not. To work around this, the incubator has added rear-access capability to an elevator near the loading dock and replaced tile with laminate flooring in the lobby. “So far, it seems to be working with tenants,” Davison says, “but in hindsight, the loading dock should have been on the industrial side of the building instead of right off the lobby and on the office side.”

Contingency planning

Like Davison’s problem with the misplaced loading dock, many of the challenges associated with assessing and retrofitting an existing structure into a business incubator can be overcome with research and planning, Combs says. “Plan for the what-ifs,” he says. “That way, if those things end up being real issues down the road, you don’t have to fear them.”

For example, zoning ordinances change over time, so learn whether the city grandfathers in existing facilities under current codes. Check with city, county and state officials about future development plans to avoid purchasing a building that is set to be demolished for a new interstate highway 10 years down the road. Research whether you can get adequate insurance for a particular facility if your program takes on a more high-tech focus than you had originally anticipated.

“The most important thing is to think, plan and question,” Combs says. “Make sure you get the right answers to your questions – answers that fit. But don’t try to make them fit if they don’t. It’s like trying to put a square peg in a round hole. You can’t force it.”

Even when a government agency or community organization offers a facility, free of charge, for use as an incubator, you need to do a cost-benefit analysis to determine whether the building is worth the cost to retrofit, upgrade and operate. Sometimes, it’s not.

In those cases, it can be hard to decline an offer from local economic developers or government officials who believe they’re being generous. This is when a consultant or local construction expert can validate a site assessment and help explain to community leaders why a particular site is (or is not) a good location for an incubator. “Sometimes, there’s pressure from the political side to build an incubator in a certain facility or location,” Ison says. “But you need not succumb to this pressure. Sometimes, you just have to have to guts to say, ‘No.’”

Tips for Scoping Out Old Buildings

Most communities have several vacant buildings that could house business incubators, and in many instances, any of these facilities would work well. “It’s almost more important to avoid putting it into a place that doesn’t work than to worry about finding the perfect facility,” says Lawrence Albertson, president of LPA Associates in Gainesville, Fla.

That’s not to say you shouldn’t practice due diligence, however. Albertson advises bringing in professional assistance to help assess potential sites before buying or leasing. The following list provides some important questions to consider as you check out existing structures.

Ceilings and corridors: Are the ceilings high enough and the corridors wide enough to accommodate potential clients (particularly if manufacturers are in your client mix)?

Elevators and loading docks: Does the facility have a sufficient number of elevators? Do they provide sufficient capacity for the number of businesses and employees you expect to serve? Is there a freight elevator? Does the building have a loading dock (if needed)? Is the loading dock easily accessible (both internally and externally)?

HVAC: How old is the facility’s HVAC system? Can the system handle the expected heating/cooling needs of your clients? Does the system have individual thermostats in each office, or are the controls centrally located? Does the building offer adequate ventilation?

Utilities: Is the existing power supply and amperage adequate to meet the needs of the clients you’ll be serving? Does the electrical system allow for individual metering (especially if you expect to house companies that use a lot of power)? How is the water pressure? How old are the hot water tank, sump pump and water softening systems?

Fire codes: Does the facility meet current fire codes? Are there dead-end corridors? Does it have exit lighting systems, a sufficient number of exits and a working sprinkler system?

Environmental hazards: What types of businesses have been housed in the facility previously? What types of businesses operate in neighboring buildings? Is there lead in the paint, or asbestos in the ceiling tiles or walls? Are there chemical hazards nearby?

ADA compliance: Does the facility comply with the Americans with Disabilities Act? Are all sections of the building (e.g., restrooms, water fountains, elevators, client offices, shared facilities, etc.) accessible to people with disabilities?

Other site considerations: Does the site have adequate drainage? Is the facility in a flood plain? Does the site have adequate parking facilities? Is there room for expansion?

Keywords: facility management, facility renovation/expansion, facility selection/construction/renovation, specialized equipment/facilities

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