Maybe or Maybe Not
Crossing Borders for Governmental Incentives
Corey B. Chase, Principal
As the economy continues to strengthen and business strives to carry on as usual, real estate professionals across the state are increasingly facing a dilemma.
What do you do when a client’s requirement may be better served by looking to the grass that may in fact be greener on the other side of the state line?
In reality, this predicament may be more hypothetical than anything else. Because, after all is said and done, our role as real estate advisors is to advocate for and protect the interests of our clients. Yet when you work and live in a marketplace, and have worked and lived in that marketplace for years, this can become a conundrum.
Consider the following scenario: You represent a manufacturing company in Cook County. The firm is experiencing explosive growth that mandates an expansion of space nearly doubling its current size, from 100,000 square feet to 200,000 square feet. Over the course of three to four years, the employee count can be expected to increase from 250 to 400 people, at a minimum.
With an inventory of approximately 1.3 billion square feet of space, the Chicago metropolitan area likely has ample inventory to accommodate this manufacturing firm. But for most businesses today, it’s about so much more than just finding the right building. Certainly, the building issues are important. Yet, there are other significant factors — many driven by financial matters — that play a role in a company’s decision concerning location.
In addition to rental rate, it’s also about real estate taxes, labor markets, workman’s compensation insurance and other state incentives such as EDGE Credits.
Here’s the comparison between Illinois and Indiana in various categories:
- Real Estate Taxes — The rates in Illinois, particularly in Cook County, are close to three times what they are in Indiana. A 100,000 square foot building in Cook County may have a tax rate in the mid to upper $2.00 per square foot range. In Indiana the rate would be less than $1.00 per square foot.
- Labor Costs — Illinois has one of the highest minimum wages in the country at $8.25 per hour. In Indiana the rate is $7.25. While not all jobs in a 400-employee company will be minimum wage, the ability to save more than 10 percent in hourly wages over the course of one year can be significant — and exponentially so over a 10- or 15-year lease.
- EDGE Credit — When a company creates new employment opportunities, it receives credit for 100 percent of the state tax paid per employee; if it retains employees it receives 50 percent. As a result, if a company moves from Illinois to Indiana, it can realize a significant tax credit because all of the employees would be new to the state.
- Workman’s Comp Insurance — The rates for this type of insurance, which is a mandatory expense, are approximately 40 percent higher in Illinois than in Indiana.
When reduced solely to financial considerations, Illinois continues to lose ground, making Indiana in particular look like a very attractive option — and a very real financial alternative.
Back to the conundrum: In addition to the above, there are other factors that must be taken into consideration. Depending on the type of business, the Cook County marketplace does offer some features that no surrounding state can. The area’s infrastructure — including O’Hare International Airport, rail systems and roads — and location are powerful draws. It is hard to match their prominence.
The fact remains, though, that with financial considerations being more and more impactful, increasing numbers of companies are looking across the border, in all areas of the state. According to the law of averages, as these numbers continue to increase, so will the number of companies that are making their decision to relocate their operations.
As a real estate advisor, my role — and my responsibility — are clear: To work toward the best interests of my clients. If the State of Illinois really wants to attract and retain business, it would be beneficial to all parties that it create a more level financial playing field.
Corey B. Chase is a principal with Podolsky|Circle CORFAC International and a past president of the Association of Industrial Real Estate Brokers. He primarily represents tenants in determining and satisfying their commercial real estate needs