Corridor Looking at Consolidation, European and Energy Projects

Recession may lead to more consolidation

George C. Ford Edge Business Magazine

As companies look for efficiencies to prepare for a recovering economy, the Corridor will face renewed competition this year to retain existing industry and jobs.

Mark Seckman, president of Priority One in Cedar Rapids, said corporations are looking at their “footprint” with an eye toward consolidation.

“They’re deciding where can they make cost-saving maneuvers,” Seckman said. “We’re going to be competing for existing business consolidation projects. Companies will either consolidate in their Corridor location or another location.”

Seckman noted that Cedar Rapids experienced corporate consolidation in 2009 when Cryovac/Sealed Air, Midland Forge and Terex transferred production to other states and GE Financial Services and Iowa Precision Industries consolidated operations in Cedar Rapids.

Seckman said Europe will continue to be a strong market for Cedar Rapids and the Corridor in food ingredients, bioprocessing and food processing.

“Our focus in Europe is on companies that have sales in the United States, but have not established production or distribution outlets to support those sales,” Seckman said. “With the current exchange rate between the dollar and euro, now is a very favorable time for European companies to expand into the United States.”

At the southern end of the Corridor, Joe Raso, president of the Iowa City Area Development Group, says there is strong activity among companies that provide software and information technology integration services to larger firms.

“We’ve been working recently with three separate projects across a number of industries,” Raso said. “All three will be in the 25-to-50-person staff, which is really excellent for our market. Those types of operations have customer service and technical components to them.”

Seckman said the “jury is still out” with regard to attracting wind turbine component manufacturers.

“I think it’s an area where we still have opportunities, but the financial crisis has really hit that industry,” he said. “Some wind farm developers have not been able to get the financing that they need to keep projects moving forward. That has had a ripple effect on wind turbine manufacturers and their component suppliers.”

Seckman believes the wind energy business will start to move forward in the second half of this year.

“There are companies that we’re working with right now that plan to move forward because they have contracts in place,” Seckman said. “Those companies do repair and servicing of existing wind farms.”

Raso also hopes that 2010 will be a strong year for wind energy suppliers, particularly those involved in servicing existing wind farms.

“I hope that will lead to some opportunities for the wind energy campus that we have in Iowa City,” he said. “We will have our first ’shovel ready’ sites certified within the next 30 to 60 days and that should help us with marketing as we come out of this funk.”

Raso said lack of financing in the wind industry has held up projects that were expected to commit to Iowa City eight or nine months ago.

“The hope is that 2010 will bring some kind of announcements on these projects,” he said. “Many of these companies feel they have to be up and running to provide products and services to their customers in 2011. They have to get busy constructing new facilities or building out existing structures to be ready for business next year.

“The comment that we’ve heard from two companies is they’re going to go from zero to 60 miles per hour.”

The sluggish economy and other factors also have put some projects announced in recent years for Cedar Rapids and Amana on hold.

Seckman said Hamlet Protein A/S of Horsens, Denmark, expects to break ground this year for its plant in southwest Cedar Rapids. The company, which originally expected to start construction in the spring of 2009, produces a variety of enhanced soy proteins for pet foods, fish farms and young animals that it exports to 50 countries.

Seckman said Bionade and Alb-Gold Teigwaren of Germany will likely push back construction of their beverage and pasta plants in Amana until 2011 due to Bionade being acquired by a large German brewery and the costs of significant expansion in Europe.

“We met with Alb-Gold and Bionade executives in November and they renewed their commitment to Amana and the United States market,” Seckman said. “The acquisition of Bionade provided a much needed cash infusion after their aggressive expansion in Europe.”

Alb-Gold Teigwaren and Bionade in 2007 signed a letter of intent with the Amana Society to build a 121,500-square-foot production facility on 65 acres near the corner of Highways 151 and 220.

The plants will produce organic egg-based pastas and the organically-fermented Bionade beverage, a new soft drink for the North American market.

Seckman said there may be “niche” corporate projects in the Corridor this year, but no major expansions or construction of new facilities. He said the Corridor is facing strong competition when it competes for projects requiring office space.

“Fortunately, this area did not get out ahead of itself in the last decade in terms of building speculative office space,” he said. “Unfortunately, there are communities like Atlanta where a client we’re talking with can get office space for $8 a square foot with a long-term lease.

“We will continue to work with projects like this because we think there is more to offer than just cheap office space.”

Raso expects the glut of office space in larger markets to continue for several years until demand catches up with supply and rents start to rise.

A recent survey of ICAD members found concern among businesses dependent on state and federal contracts due to projected budget cuts, Raso said. Those dependent on private sector contracts felt more confident about the economy improving.

Raso and Seckman said the sluggish national economy will continue to be a major factor in business decisions. They plan to continue calling on headquarters executives of existing employers, offering assistance and information to those making decisions about potential consolidations or expansions.