An Industry Watch + features a collection of stories, Q+A's, How-To's and more to give readers a 360 degree look at one topic. This month's topic is Commercial Real Estate — below you will find pieces on the med tech companies flocking to Plymouth, trends in retail space design and a crash course on the building intelligence solution you should know about.
Is Plymouth a Med Tech Mecca?
Nobody really planned it, but med tech companies keep flocking to this Minneapolis suburb
In a state renowned for its homegrown medical technology industry, the west metro city of Plymouth stands out. According to Plymouth News, a municipal organ, the city has at least two dozen med tech companies within its borders. Including suppliers, more than 100 Plymouth companies serve the med tech sector, accounting for a big chunk of the city’s 50,000-plus jobs.
“Plymouth really punches above its weight in terms of the number of companies located within the city limits,” says former Plymouth mayor Judy Johnson, now director of investor relations for Greater MSP.
So, how did Plymouth become a med tech Mecca? Let us count the ways.
Location, Location, Location
It’s the golden rule of real estate, and Plymouth has followed it to the letter.
Back in the 1970s and 1980s, the city’s speedy highways (I-494, U.S. 12/I-394, U.S. 169) provided easy access to other key metro hubs: the U of M, where much of the region’s medical research took place; downtown Minneapolis, where countless support businesses were and still are located; and MSP International Airport, the state’s primary gateway for business travelers.
Plymouth’s first major commercial development wave saw large, relatively affordable lots built out around major highway interchanges, when “much of the city was gravel roads and farms,” says current Plymouth mayor Kelli Slavik.
Plymouth’s location was people-friendly, too. Lots of cities position themselves as places suitable for working and living; Plymouth actually delivers. Executives from St. Jude Medical and other early arrivals cottoned to the city’s lakes, open spaces, quiet nights and large residential lots — those “quality of life” factors for which the west metro is so well known. Over time, many execs traded closer quarters in the core cities and inner suburbs for estate-like spreads in northwest Plymouth, which remains semi-rural today.
Bring on the buzzwords
Plymouth’s med tech sector grew through the 1990s and 2000s. At some point, momentum took hold. Smaller suppliers and nascent startups launched or relocated to the city, reckoning they’d benefit by association.
Entellus Medical, whose products treat sinusitis, nearly doubled its workforce since moving to Plymouth in 2008. Many new hires came from across the street or down the road.
“Plymouth has an amazing workforce,” says Bob White, Entellus CEO. “We know we can find great people here.”
Also great: proximity to suppliers and sub-suppliers. “When your suppliers are located across town, rather than across the country, you can pick up the phone and get what you need within minutes,” says White. Entellus doesn’t exclusively work with in-town suppliers, but “we value or local partners greatly,” White adds.
For a generation or more, Plymouth’s infrastructure, quality of life, and existing employment base have been its best ambassadors. Local authorities did little, if any, intentional outreach to outside med tech companies.
It wasn’t until late 2014, when a weekly business newspaper published a story about the city’s med tech cluster, that Mayor Slavik and her team began actively courting new arrivals. Slavik hired an economic development manager whose duties included outreach and assistance to companies considering moves.
“For a long time, our strategy was basically reactive,” says Slavik. “We asked ourselves what would happen were we more proactive, and began strategically reaching out to med tech companies and suppliers.”
That outreach and accommodation includes working with commercial real estate brokers to provide “sneak peaks” of available spaces to companies considering relocation or expansion, and expediting permitting and zoning variances for new or renovated facilities.
Plymouth stops short of offering direct financial incentives to relocating companies; those generally come from regional authorities, such as Greater MSP, or the feds.
Plymouth’s newly intentional approach has seen some early successes. Smiths Medical, a diversified multinational known for airway and drainage products, invested some $10 million to upgrade its new, 180,000-square-foot U.S. headquarters facility near U.S. 169 and Bass Lake Road. On the heels of a multi-year expansion that’s roughly doubled its workforce, Entellus Medical is in the process of integrating a recently acquired California company into its new space — a former check-cashing business, notes White.
“Plymouth was fortunate that much of its med tech base grew organically,” says Johnson, “but you don’t want to take that for granted in the future.”
Recognized at last
Another recent development: the 16-county Minnesota Medical Manufacturing Partnership region’s designation as one of the U.S. Commerce Department’s 12 Investing in Manufacturing Communities Partnership regions. The designation can speed up federal grant application processes for medical manufacturers and life sciences companies within the MMMP’s trade area, which stretches from Mankato and Rochester to St. Cloud and includes Plymouth.
“The [IMCP] designation is an important milestone for our region,” says Johnson. “These designations are hard to get, and the Commerce Department’s recognition really underscores the vibrancy of Minnesota’s med tech and life sciences industries.”
Johnson and Slavik both stress that, at least within the IMCP designation area, corporate attraction is not a zero-sum game. When a new employer relocates in St. Cloud, or Rochester, or Plymouth, the entire 16-county Greater MSP region benefits indirectly. (The direct benefits are distributed much more narrowly in clusters like Plymouth, of course, but let’s be Minnesota nice about it.)
Still, Plymouth is first among peers. And, with a newly proactive approach to recruitment and a string of high-profile feathers in its cap, the rest of us had better get used to it.
Leadership: Bob White, CEO
Revenue: $61.6M (2015)
Description: A medical device manufacturer specializing in “products designed for the minimally invasive treatment of chronic and recurrent sinusitis in both adult and pediatric patients.”
Trends in Retail Space Design
Here’s a brain teaser: When disruption is the status quo, is it really disruptive any longer?
American retailers have grappled with this question for the past two decades. Facing a litany of challenges, retailers are throwing out everything they thought they knew about their trade. And, because the United States has about 13 billion retail square feet (per Cushman & Wakefield), that has huge implications for the commercial real estate market’s overall health.
It’s no longer enough for retailers to know what their customers buy. They need to know how and where they buy, too — and, irrespective of the answer, what it’ll take for them to buy more.
Anatomy of a memorable retail experience
For a peek behind the retail curtain, we reached out to Adam Jarvi, senior associate at White Bear Lake-based NewStudio Architecture. NewStudio is one of two architecture firms of record for URBN, the parent company of Urban Outfitters and several other well-known retail brands. The 23-person firm has completed projects in 35 states and five Canadian provinces, gaining a wide breadth of experience not typical in small outfits.
Jarvi and NewStudio see several trends shaping commercial real estate’s retail subsector today:
“Copy-pasted” retail spaces, as Jarvi calls them, are dead. These days, it’s all about special stores that capture not just the essence of the tenant’s brand, but the flavor of the context.
URBN is farther down this path than most. No two URBN stores are alike; all incorporate bespoke contextual elements. Jarvi’s firm just wrapped up work on an Anthropologie store in a converted Toronto church, for instance. The place still looks like a church inside and out, but visitors only kneel for a better look at the price tags.
“[URBN] sees the store experience as its primary advertising channel,” says Jarvi. “And a big part of the experience is the space itself.”
Consumers can buy pretty much anything without getting in the car. To make the trip worthwhile, retailers are investing in complete — or, at least, multi-faceted — shopping experiences.
“Retailers are looking at the overall shopping experience: what consumers do before, during and after they’re in the store,” says Jarvi.
New (and newly renovated) shopping malls’ floorplans encourage complementary businesses to cluster, improving convenience and choice. For instance, the MOA expansion’s new Anthropologie store will live in a “high-end cluster” at the complex’s north end as one of several upmarket options for choosy fashion bugs.
Retailers are seeking complementary functions too. URBN recently bought a Philadelphia-based hospitality company that specializes in mid- and upscale Italian restaurant concepts. Devon Yard, an ambitious URBN-owned “lifestyle center” in suburban Philly, will incorporate two of the company’s concepts, plus an oversized Anthropologie store, a public courtyard and a 150-unit luxury apartment building.
Even as URBN invests in distinctive brick-and-mortar properties oriented around the retail experience, it recognizes that it’s not immune to the disruptive forces buffeting its industry.
NewStudio recently completed work on a gleaming new fulfillment center for URBN. The 1.2 million square foot space is intentionally oversized, built on the assumption that the company will do far more business online in five years’ time.
Bespoke retail outlets notwithstanding, URBN’s fulfillment center investment “is recognition that its business is multifaceted,” says Jarvi, “and that online sales need to drive and support the other things it does.”
For evidence of fulfillment’s impact on local commercial real estate markets, and local economies writ large, one need only look to Amazon’s gigantic distribution center in Shakopee. The online mega-retailer’s Upper Midwest hub, which employs 1,000 full-timers, is creating its own retail tech ecosystem: In June, Amazon announced plans for a new, 100-person software development center in downtown Minneapolis.
How 75F Helps Commercial Tenants
What does one of Minnesota’s hottest tech startups have to do with the commercial real estate market?
In a word, everything. 75F’s “building intelligence” solution is busily enhancing the indoor experience for small and midsize commercial tenants and their customers. Though it hasn’t directly challenged the handful of multinational building intelligence players (Honeywell, et al) in the upper echelons of the American market, it’s testing the waters overseas — a promising sign for the ambitious Minnesota-made company.
Here’s a crash course on 75F, courtesy of founder and CEO Deepinder Singh.
Why 75F exists
Frustrated by a fickle home thermostat that kept his infant daughter awake at night, Singh “quit his job [as a successful telecom engineer] to fix the darn problem.”
He realized that the typical building’s thermal load changes constantly during the day, as the sun moves from east to west. Problem is, traditional thermostats — even automated, programmable systems now common in commercial buildings — are set up for static sets of conditions that don’t account for outdoor weather or indoor temperature changes.
“By the time [those systems] react, it’s already too late,” says Singh. “You’re playing Whac-a-Mole at that point.”
So Singh set about working on a system that relied on sensors in every room to collect and proactively respond to a wealth of real-time data.
According to Singh, large buildings are like Lego castles: Every room or climate zone is its own piece. Traditional automation systems rely on Lego masters — expert technicians — to fit the pieces together in the right order. Those masters act as gatekeepers. They’re also really expensive. And the quality of their solutions largely depends on their knowledge and skill. In other words, they’re human.
“We extract the Lego masters’ knowledge and inject it into a software solution that’s as easy to use as your iPhone,” says Singh.
Who 75F serves
75F’s target market is light commercial: under 50,000 square feet. Restaurants and retail account for much of its business, though that’s likely to change soon.
Smaller tenants and owners can’t afford their own Lego masters, and 75F’s wireless solution is usually better for their needs anyway. Singh brags that 75F can outfit a typical restaurant overnight, greatly reducing or eliminating downtime. Buildout is eight times faster, on average.
75F’s principal benefits for building owners, tenants and customers
According to Singh, 75F offers three principal benefits for building owners, tenants and their customers: enhanced comfort, less wasted energy and better air quality.
75F’s solution is smart enough not to blast the office AC on a chilly April day (we’ve all been there) or turn on the heat when kitchen fires are keeping a restaurant nice and toasty. It also adjusts indoor pressure to clients’ needs. That’s especially important in restaurants, which require positive pressure to improve air hood operation and avoid exposing diners to trash odors.
Plus, 75F is cost-effective. The average 75F client reduces energy consumption by at least 40%, says Singh. A recent case study at a Chicago-area Longhorn Steakhouse found 40% savings — a veritable bounty in a low-margin industry.
What 75F is up to in India
In March of this year, 75F opened a sales and support office in India. Singh’s team initially assumed they’d be targeting the same market as in the U.S., but quickly learned that it wasn’t to be.
“Under 20,000 square feet, the market simply isn’t interested,” says Singh. “They use window ACs and they’re fine.”
By contrast, the high-end Indian market is far less mature. Major automation companies haven’t really made inroads. Installation quality is uneven at best. (“Five guys with a wrench,” says Singh.) And local Lego masters’ methods are equal parts quaint and inefficient.
“We talked to a technician who checks system performance by placing his hand directly on piping,” recalls Singh. “He told us, ‘If the pipe feels warm, I open the valve more.’”
Needless to say, 75F saw an opportunity to serve larger Indian clients. For instance, they’re outfitting buildings for Infosys, a huge Indian multinational — far bigger than anyone they’ve worked with in the U.S. to date.
“They don’t have access to that expertise currently, so they’re looking to us to provide it,” says Singh.
What’s next for 75F and building intelligence
Long-term, 75F would like to bring its expertise into the much more competitive U.S. large commercial market, which is dominated by Fortune 500 companies.
That might not be as tough as it sounds. Rather than invest in R&D, old-line automation companies spend ghastly sums supporting legacy systems. 75F’s solution has 1.8 million lines of backend code. It took years to create and deploy. Even Honeywell can’t replicate that kind of project overnight, assuming its shareholders would let it.
So, when the time comes, 75F may have room to run.
“In 10 years, we believe that all building automation will be predictive,” says Singh. “This is the way to go in the future — it’s just a matter of getting the technology out there and getting users comfortable with it.”