CORPORATE LOCATION DECISION MAKING TRENDS: IMPLICATIONS FOR ECONOMIC DEVELOPMENT COMPETITIVENESS Presented To: October 1

1. CORPORATE LOCATION DECISION MAKING TRENDS: IMPLICATIONS FOR ECONOMIC DEVELOPMENT COMPETITIVENESS Presented To: October 17, 2013

2. Strategic Consulting Services – What Do We Do?

3. Most Active Industries and Asset Types • Small and Medium Sized Manufacturers • Large Data Centers and Call Centers • Financial Services, Healthcare, Oil & Gas/Energy and Technology Sectors • Business Climate Dynamics (the 3rd Civil War – more on this later) • Foreign Direct Investment (from EU Countries)

4. TRENDS IMPACTING CORPORATE LOCATION DECISION MAKING

5. Trends – Capacity Utilization Marked Improvement Industrial Capacity Utilization – Impacts Expansion and Relocation Activity Hasn’t Quite Recovered to Previous Peak • Growth is back; we are in year 4 of recovery, our pipeline is pretty good. • But collapse was so deep that excess capacity remains across most sectors of U.S. economy: factories, mines, labor, housing, commercial real estate • Excess capacity keeps inflation low despite massive public debt and elevated levels of liquidity in financial system (Fed’s balance sheet) • Corporate balance sheets are pristine, and household balance sheets are improving. • Public balance sheets – not so much Source: Federal Reserve, NGKF

6. Trends – GDP Headed in Right Direction (Suspect ) GDP Versus Employment – Impacts Confidence and Certainty Around Investments Secular Trend Toward Increasing Productivity • GDP hit new peak in 2011-Q4 but employment still 2.9M jobs shy of prior peak • Means that businesses have increased productivity (output per hour) – not only manufacturing but virtually all industries • Businesses hiring and spending cautiously with an eye toward maintaining healthy balance sheets and filling key positions with the “right” hires. • Fewer people doing more work….education levels rising…..boomers not retiring Source: Bureau of Economic Analysis, Bureau of Labor Statistics, NGKF

7. Trends – Workplace Efficiency and Lean Optimization Greater collaboration, innovation, real estate occupancy efficiency and structural cost reduction all asset types – no new investment without lean efforts! Work Venue Models and Space Standards Process Improvement and Six Sigma Methods

8. Trends – Companies Hoarding Cash, Time To Invest? Cash & Liquid Assets on Corporate Balance Sheets – Impacts Working Capital Balance Sheets Are Pristine; When Does This Cash Go to Work! • Record low interest rates and easy monetary policy engineered by the Fed has allowed businesses to clean up their debt. • Cash & liquid assets are at record highs for nonfarm, nonfinancial corporations. • Corporations have built reserves against possibility of financial uncertainty and risk. • Businesses are very cautious in hiring and spending. • Why – uncertainty, political gridlock, lack of confidence….no predictability Source: Federal Reserve, NGKF

9. Trends – Second Civil War Returns (Has It Ever Ended?) • States have become more aggressive toward recruiting in neighboring states. • California, NY and Illinois have especially large bull’s-eyes on their backs. • Low taxes and low business and living costs are part of the allure. • But businesses need to consider their relationships with their customers, suppliers, talent pools and CAPX changes before they jump. • Is the Grass Really Greener?

10. Trends – Global Supply Chain Optimization/Backshoring Risk Minimization in Shorter Supply Chains • Companies continue to look closely at their supply chain in an effort to reduce transportation cost, delivery risk and disruptions in the supply chain. • Some shippers have adopted a network of smaller, more numerous distribution centers closer to customer locations in an effort to minimize over the road distance. • Fuel cost rising; rail is increasingly important in decision making, as companies want more control over uncertain (and fluctuating) transportation costs. • Most backshoring/nearshoring is based on more efficient servicing of the North American market and “cost of quality” dynamics that are closing “payback” scenarios Source: Establish, Inc./Herbert W. Davis & Company Cost of Quality Making Backshoring Plausible

11. Trends – Quality of Place, Not Quality of Life Tell me one community in the U.S. that does not proclaim to have outstanding quality of life. What really matters in location and real estate decisions these days is quality of place! Practical • Jobs • Schools • Home Prices • Commute Time • Amenities • Accessibility • Crime Visceral • Defined Lifestyle • Urban • Suburban/Edge Cities • Nature and Green Space • Sociability/Gathering Places • Culture • Climate

12. Trends – Energy Revolution Employment Change Since Start of Recession Mining & Logging Sector Leading Economy – These Are the Energy Jobs Mining & Logging • Mining & logging is small sector, accounting for less than 1% of total nonfarm payroll employment. • But it drives growth in manufacturing, transportation, utilities, and some white collar sectors (e.g. Houston office market). • Natural gas and shale oil discoveries in U.S. are game changers for global energy landscape. Will drive growth in U.S. for years to come. • Regions and cities in the path of growth – Texas, Pittsburgh, North Dakota, parts of WV/OH/PA will be transformed…among others. Construction Source: Bureau of Labor Statistics, NGKF

13. PERSPECTIVES ON ECONOMIC DEVELOPMENT COMPETITIVENESS

14. Location Selection Process – Who Wants It! • Location selection is not about inclusion, ultimately its about process of elimination. • What is out of your control? • What can you influence? Filter 1: Fatal Flaws Screen out locations with fatal flaws e.g. Locations with insufficient connectivity Filter 2: Serious Flaws Rule out Locations with serious flaws e.g. Locations with key attributes but inadequate infrastructure Filter 3: Controllable Flaws Consider Locations that meet all critical criteria but have manageable issues – flaws that can be remedied or mitigated through negotiations with government officials Preferred and back-up Locations

15. Evolving Decision Making Methods – More Analytical • Corporate occupiers are making more rational decisions today. Investment is being led by strategic and operational need rather than available real estate or legacy investments. • Operational efficiency and how properties impact both cost and revenue is of paramount importance; all of our clients want to know how the top line is impacted with expansions, relocations, etc. • Companies are asking the CFO, COO, SVPs to risk adjust all decisions; risk management and scenario analysis more prevalent in the Board Room as well as supporting analytics • The critical path of projects has continued to shorten, requires readiness, solid understanding of region and assets at an industry level of granularity • Expectation that best locations will have aligned public/private partnership, know thyself and also the ability to secure creative real estate and incentives solutions.

16. What Will Never Change – Business Case Rationale The ultimate location decision is supported by a comprehensive and objective rating of the finalist location performance against Critical Success Factors as well as implementation risk and operating costs. Site 1 Site 2 Comprehensive comparison results identify preferred site Weighted factors related to operating conditions, risks, timing, and costs, etc. Decision support modeling and stress/sensitivity tested solutions

17. Measure Your Area In Terms of Business Drivers… Constantly Score Thyself By Key Success Factors Operating Costs Desired total variable operating costs to achieve corporate cost objectives (e.g., labor, facilities, utilities, supply chain, taxes). Infrastructure Reliable physical support infrastructure (e.g., real estate, power, fuel, telecom, water, public transportation, airport, road, rail, seaport). Business Environment Flexible regulatory conditions, acceptable protections, fast approval processes, and sufficient business services to sustain and grow operations. Tax Strategy Alignment with corporate global tax structuring objectives, clear tax rules/ regulations, and provide overall moderate to low tax exposure. Scalability Capable of appropriate scale for all planned processes and operations (e.g., labor, real estate, utilities). Sustainability Able to sustain operations over the long term (e.g., cost structure, talent pool, supply chain, infrastructure support). Pioneering Alignment with company tolerance for pioneering new products or services – risk taking Risk Achieve risk tolerance thresholds and pass on measures of corporate investment risk (e.g., political, economic, social, natural disaster, access). Implementation Relative ease in establishing and expanding a new business (e.g., registration, licenses, permits, approvals, etc.).

18. Be Open To New Measures of Yourself – We Will If You Don’t! Quality of Place  Human Capital  Differentiation  Infrastructure Leverage  Globalization 

19. What Does Competitiveness Mean in 2013 and Beyond? • More global competition is inevitable, not less (e.g. Canada about to conclude new free trade agreement with the EU.  The U.S. has just started the same process.) • The competitive climate – and potential of winning global investment – must be kept in perspective.  Even great growth in the U.S. (3-4% p.a.) will be slow growth compared to other emerging and developing economies (7-10%) • The definition of “competitive” is more diverse, less obvious, than ever because it can mean so many things.  Yes, affordable.  Yes, good infrastructure.  Yes, accessible.  And so on.  But also consider: “culture”; “sustainability”; “regional clusters”; “knowledge-led economies”; “quality of place”; “inter-modal” transportation options, “can do attitudes and stellar responsiveness”; etc.    • State and regional economies should compete on value and they need to understand what there comparative (not competitive) advantage is.  They should do more of what they do best and diversify accordingly. • EDC agencies have to do much better at communicating their value proposition in the form of financial models and comparative indices with their nearest competition; advertise business wins and reasons why the company chose Columbus • Expectations are high that EDCs will be more consultative and know target industries at a intimate level, and therefore provide solutions upstream and downstream the value chain for new and expanding industry • Better custom business intelligence about their community that site selectors and occupiers can’t find in 3rd party databases.  Tell us some real intelligence, have relationships so you can setup employer interviews and business tours.  • Regional cooperation – shared risk and reward! The data shows regions with strong public/private partnerships have weathered recessions and disruptive events better than most!

20. How Can Economic Developers Best Sell Their Community?

21. Economic Developer Checklist • Checklist for an Economic Developer • Request for Information • Only have one chance to make a first impression • Make sure all the information is completed and it is organized for the consultant to read so they can evaluate your community. • Deal Killers • Incomplete RFIs – Always complete the RFI • Provide the information asked • Leaving blanks is a negative score – if you can’t get the accurate information provide a reasoning and follow-up to get the information

22. Economic Developer Checklist • Field/Site Due Diligence • Did I have the right people there? • Utilities; Elected officials; Zoning/Building/Planning Department People • Did I perform a site SWOT analysis? • Did I sell the workforce and quality of life? • If the weather is inclement do I have a contingency plan? • Have I engaged the owner and broker to see if there are any outstanding issues?

23. Economic Developer Checklist • Incentive Negotiations • Did I utilize all the tools in my tool kit? • Did I provide incentives for the company that help the company? • Did I engage the local elected officials? • Did I reach out to the developer/landlord/broker to see if there is anything they can do? • Financing; Letter of Credits; Co-Signing of Lease

24. Questions? Bradley Migdal Managing Director, Consulting Newmark Grubb Knight Frank 500 West Monroe St., Suite 2900 Chicago, IL 60661 312-775-2679 bmigdal@ngkf.com