Developer Model Puts Innovation Campus Risk on Tetrad
Lincoln Journal Star
Chris Dunker
October 15, 2015
Grow lights in the greenhouse illuminate the entrance to Innovation campus. Nebraska Innovation Campus uses a “developer-at-risk” model to build the research park, a model experts say is favorable but tough to secure after the recession. These are high dynamic images created by combining seven exposures.
As state lawmakers wrestle with how to help grow Nebraska Innovation Campus, the University of Nebraska-Lincoln is benefiting from a developer-at-risk model that asks Tetrad Property Group to bear “considerable financial risk” to develop the site.
The costs of construction, the responsibility for paying tax-increment financing bonds purchased to improve the infrastructure of the site, and leasing space not rented by UNL all fall to the private developer, according to documents submitted to the Legislature’s Appropriations Committee.
That responsibility, though rare, is important as the Legislature hesitates to create an “evergreen fund” with a one-time $25 million investment to be used to pay half the cost, the other half to be paid by a developer.
Under the proposal, once half of the new building was leased, the private developer would buy out UNL’s half to replenish the fund to be put toward additional speculative space at Innovation Campus.
Chancellor Harvey Perlman said the measure would help spark more construction on the campus at the former State Fair Park, making it more attractive to private companies while keeping the significant financial burden of the park largely on the developer's shoulders.
“(Tetrad) had to help us financially do this, because I knew the university didn’t have the resources to do it,” Perlman said. “There was no water, no sewer, there was no fiber, no building we could really use without significant cost of renovation, and that would be a big hit.”
To date, roughly $94 million in private financing has helped pay for Innovation Campus, with $34 million in university funds, $25 million in additional state funding, and $5 million in donations helping round out the research park’s development, including Innovation Commons, the Food Innovation Center and Greenhouse Innovation Center.
UNL's financial commitments to Innovation Campus total $9.2 million a year, mostly in lease payments to Tetrad and the cost of operating an academic department there.
Bruce Wright, the associate vice president of the University of Arizona Tech Parks, has reviewed more than 70 research parks across the U.S. and said securing a developer-at-risk model after the Great Recession is rare.
“The developer at risk comes in and assumes all of the risks of putting up a building, financing it, constructing and operating it and then they have to wait to see if the market will respond to that building,” he said. “There aren’t many developers coming out of the recession willing to take that risk nowadays.”
Commercial and industrial real estate developers found it difficult to lease specialized space during the economic downturn, said Wright, a past president of the Association of University Research Parks. Developers generally became more risk averse and cautious as the economy recovered.
Wright said finding a developer willing to take on those risks has been one of the biggest challenges universities across the nation have had in launching research parks in the aftermath of the recession, but it’s still the dominant model used in the research park world.
“It’s a model that answers one of the challenges we have in the tech world -- companies don’t want to wait for you to build the next building,” Wright said. “A research park needs to have speculative space available for lease.”
Tetrad has no hesitation about working with UNL as the developer at risk for the Innovation Campus project, said the company’s chief communications officer, Jennifer Brinkman.
The Omaha-based developer came to the project after the original developer, Woodbury Corp. of Utah, withdrew. Working with Nebraska Nova LLC, Brinkman said Innovation Campus remains a priority of the Tetrad Property Group.
“We’re not looking for a quick turnaround,” Brinkman said. “The opportunity to work with the university, who is a valuable partner, gives us a long runway -- this is a project that will lead us 20 years into the future.”
Tetrad is already undertaking a speculative building at Innovation Campus, a project triggered by UNL moving its Department of Food Science and Technology into the Food Innovation Center.
With more than half of the renovated Industrial Arts Building leased, Tetrad agreed to build the next 80,000 square feet of space north of the Greenhouse Innovation Center.
Innovation Campus Executive Director Dan Duncan told the Appropriations Committee that the next building may tie into the greenhouse space through a skywalk, but Brinkman said the building has not yet been designated for any specific use.
Programming and design can be expected to take six months each, with construction expected to extend 12 to 14 months after that -- meaning a new building wouldn't come online before 2018.
Whatever the next building’s focus, Wright said, UNL needs to play to its strengths to avoid some vulnerabilities presented by the developer-at-risk model.
“The value proposition for a university research park is the university,” he said. “The best representative of the university is itself -- it needs to play a strong, if not lead role in setting up objectives and marketing the park to the private sector.”
Nebraska Innovation Campus Development Corp., the nonprofit created by the NU Board of Regents to work with private developers, created a director of strategic alliances for food, fuel and water position to lead recruitment of businesses central to the research park’s focus, Duncan said. Ann Willet was hired to fill that role.
“She spends 100 percent of her time doing nothing but thinking about how to get businesses here, connect faculty and businesses and move the enterprise forward,” Duncan said.
As the developer at risk, Tetrad also allocates resources to support recruiting efforts and communicates and strategizes with the research campus staff, Brinkman said.
“We have a significant, vested interest in this campus,” she said. “It has always been a high priority, if not the No. 1 priority, of our company, and I think we have demonstrated that.”
