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From Site Selection magazine, May 2012

The California Connection

Golden State companies find a lot to like in Arizona.

California-based Silicon Valley Bank selected the Hayden Ferry Building in Tempe for an IT and operations facility after considering sites in both Arizona and Texas.
Photo courtesy of Silicon Valley Bank

Maxwell Technologies Inc. selected an industrial building in Peoria following a search that considered locations in seven states. Peoria is a rapidly growing Phoenix suburb.
Maxwell Technologies Inc. selected an industrial building in Peoria following a search that considered locations in seven states. Peoria is a rapidly growing Phoenix suburb.
Photo courtesy of Maxwell Technologies Inc.

hen Silicon Valley Bank scoured the U.S. for an information-technology and operations location, it didn't take long for the Santa Clara, Calif.-based company to find what it needed in Tempe, Ariz.

"We looked at a few different places," says Carrie Merritt, spokesperson for the bank. "We had gone through a similar process a few years ago in Utah, so we knew what we were looking for. We revisited a lot of that data. We looked at commercial real estate costs, availability of banking and IT professionals, affordable housing for our employees, and proximity to our headquarters in Santa Clara."

SVB found all of that, and more, in the greater Phoenix area, says Merritt. "A flight to Phoenix is relatively close to our corporate headquarters, and over the next three years will have 200 to 250 employees in Tempe. Eventually, we will grow to 400 to 450."

How SVB selected Arizona is a microcosm of what's happening in corporate location decision-making in the Southwest. As taxes, regulations and other costs escalate in California, more companies seek greener pastures across the state line.

That site selection process, increasingly, leads to a windfall of projects for Arizona, Utah, New Mexico and Colorado. In 2011 and early 2012, Arizona landed more than its fair share of these migrating firms.

Barry Broome
Barry Broome, president and CEO, Greater Phoenix Economic Council

"We have a long history in attracting talent out of California," says Barry Broome, president and CEO of the Greater Phoenix Economic Council. "A lot of that talent is in information and communication technology. Cloud technology favors us. We were a center of excellence for the dot-com sector in the late 1990s. For data centers, we are perfectly positioned between California and Texas."

Merritt says SVB considered Arizona and Texas before selecting Tempe. "Austin is the biggest office that we have in Texas; the other city that was a finalist for this project was Dallas," she says. "There is a good concentration of banking and technology professionals in Phoenix. There are a lot of large financial firms in the area. We have a good pool of professionals to draw from."

SVB specializes in commercial banking for companies in the innovation sector. Some 70 percent of Businessweek's Top Entrepreneurs and 68 percent of the Wall Street Journal's top venture capital-based companies are SVB clients. The bank also runs a premium wine business in Northern California.

"We are a commercial bank, not a retail bank," Merritt says. "We have 27 offices in the U.S. and seven internationally. This project came down to Tempe and Dallas. Tempe proved to be the best location for this facility."

SVB leased 50,000 sq. ft. (4,645 sq. m.) in the Hayden Ferry Building in Tempe, the Phoenix suburb that is home to Arizona State University. The capital investment was not disclosed, but it is reported to be several million dollars.

"The Phoenix area is a great environment with talented financial candidates to fill our open positions," said Greg Becker, president and CEO of SVB. "It offers affordable living for our employees, proximity to our headquarters, and a growing number of technology and life-science businesses in the region."

Gov. Jan Brewer calls it the perfect fit for Arizona's economy. "The mission of Silicon Valley Bank to provide financial services to the technology, clean-tech, life-science and winery industries is in perfect harmony with Arizona's vision for the future of economic development," she said. "This is exactly the kind of company that Arizona is courting as we build an economy that is diversified and stable."

From San Diego to Peoria

Courting is the operative word. Arizona officials are not waiting for California companies to come calling.

"California firms have an interest in moving to Arizona," says David Bentler, manager of community and economic development for Arizona Public Service, the state's largest electric utility. "They are looking for less red tape and less costs of doing business. That interest has always been there. We are just tapping into it."

A case in point is Maxwell Technologies Inc., a San Diego-based clean technology company that manufactures ultracapacitors, or high-density energy storage devices. On Oct. 29, 2011, Maxwell announced that it would establish a new factory in the Phoenix suburb of Peoria.

The $26-million, 123,000-sq.-ft. (11,427-sq.-m.) plant will create 150 to 200 new jobs over the next three years in the Mack Arrowhead Commerce Park.

"Sales of our ultracapacitor products are growing by about 50 percent annually for the fourth straight year, so we need to create additional production capacity," said David Schramm, president and CEO of Maxwell. "Peoria has everything we were looking for in an expansion site."

Mike Sund, vice president of communications and investor relations for Maxwell, says that Peoria's selection was the result of a "fairly technical process" that included evaluations of sites in seven states: Arizona, California, Colorado, Nevada, New Mexico, Texas and Utah.

"One of our first criteria was that the site be remote from San Diego but not too far away," Sund says. "Easy access to the market was a must. Phoenix is probably as close as any major market. There are 20 flights a day from San Diego to Phoenix, and it is only a one-hour flight."

Sund notes that "we had to rule out places that were not somewhat dry. Phoenix stands out in that respect. Beyond that, it came down to the availability of a suitable industrial facility. We were able to acquire a brand new building that had never been occupied. We got some training support in the form of financial incentives, and we have found plenty of qualified applicants for our positions. Between Phoenix and Tucson, there is a large and growing technology corridor. ASU is very close by in Tempe, and the University of Arizona is not that far away in Tucson."

Sund says Maxwell selected the Mack Arrowhead Commerce Park because it had an existing building "that suited our needs very well. The lease rate was very attractive for us. It was quite a bit lower than anything we could find in California. The owner of the property in Peoria was very easy to work with. Allowances for tenant improvement were very good, and the site has very good freeway access and close proximity to good hotels and restaurants. There are very good support services here."

When asked if the move was made at least in part due to business climate issues in California, Sund said, "Honestly, yes. The utility rates in Southern California are about double what they are in the Phoenix area. The San Diego economic development people contacted us very early on. They were very responsive. But we needed to have this location be geographically separate from San Diego so that fires and earthquakes would not disrupt the making of this critical material. At the state level, we did not find very much interest in keeping this project in California."

Sund says the reception Maxwell received from the Arizona Commerce Authority was exactly the opposite. "They were very welcoming and they arranged for us to meet the elected officials in Arizona," he notes. "It was not the deciding factor, but we certainly felt welcomed. When we asked questions, we were able to get answers."

Since 2010, when the Renewable Energy Tax Incentive Program was enacted, Greater Phoenix has welcomed the relocation or expansion of about a dozen renewable energy firms, including First Solar, Abengoa, Suntech Power Holdings, Rioglass, Gestamp Solar Steel, Power-One and Saint Gobain. Altogether, the region has attracted nearly $2 billion in investment and more than 6,000 jobs in the alternative energy sector.

First Solar Tempe AZ
First Solar is one of the alternative energy projects in Greater Phoenix that took advantage of the new Renewable Energy Tax Incentive Program.
Photo courtesy of Greater Phoenix Economic Council

Scott Whyte, economic development director for Peoria, says that Maxwell could be the first of many alternative power companies to choose his city. "Maxwell has a supply chain that goes all the way into Japan," he says. "My whole approach is to get one, get two, start a cluster, and then bring the whole supply chain over."

Whyte, like many Arizona officials, has his sights set on the Golden State as fertile ground for recruiting. "We are going after companies in California that manufacture water purification systems and make personalized, high-performance aircraft," he says. "We don't just talk about economic development. We have a game plan."

A Huge Jump in Prospects

Sandra Watson, executive vice president and chief operating officer of the Arizona Commerce Authority, says that philosophy extends to the state as well. "I am extremely optimistic about Arizona's future," she says. "We have transitioned from a purely state agency to a public-private entity. That has provided Arizona with an opportunity to generate some real interest from the private sector."

Passage of the Arizona Competitiveness Package in February of 2011 set the state "on a path to recovery," Watson says. "Since that package became law, we have seen a 350-percent increase in projects that we are working on at the state level. We have seen increased activity from private industry."

The package, in addition to creating ACA, reduced businesses' tax burden and made new incentive tools available to expanding companies. It has already paid off in the form of big wins: Calgon Carbon in Gila Bend; Magna International in Phoenix; Clear Energy Systems in Tempe; Global Dental Science in Scottsdale; and Ulthera in Mesa.

Watson says ACA targets firms in renewable energy, aerospace and defense, life sciences and information technology — including, especially, companies in California.

"We are seeing an increase in California businesses interested in Arizona, and we are also seeing increased interest from international companies," says Watson. "About 30 percent of our prospects are coming from California, and about 20 percent are coming from international locations."

The migration of firms from the Golden State, in fact, is touching all parts of Arizona. Irvine, Calif.-based OptumRx, a leading pharmacy benefits management group, announced on March 22 that it will create at least 400 new jobs in Tucson over the next 12 to 18 months.

The $4-million investment into an 82,000-sq.-ft. (7,618-sq.-m.) facility in the University of Arizona Science and Technology Park will employ people in customer service at the subsidiary of UnitedHealth Group.

"We are strengthening the infrastructure of OptumRx in advance of a major expansion early next year, and we especially appreciate the help and support that comes from the outstanding workers and leaders of Arizona in that effort," said Larry Renfro, executive vice president of UnitedHealth Group and CEO of Optum, the parent of OptumRx.

Dirk McMahon, CEO of OptumRx, the fourth-largest pharmacy benefits manager in the U.S., noted that "the technology at this facility, along with the commitment and know-how of our employees here, will help us fulfill our mission of making the health-care system work better for everybody."

David Himmel, director of external communications for OptumRx, says that the firm chose Tucson for this facility project because "Arizona, under Gov. Jan Brewer's leadership, has created a positive economic environment. Arizona has a diverse labor market, a good business environment, a good geographic location, and an understanding of how to help businesses here thrive."

Other drivers of the site selection were "quality of life for employees and proximity to pharmacy schools, drug wholesalers and shipping services," notes Himmel. "And, of course, the weather. Arizona leads the nation in number of days of sunshine and we were looking for a location where business operations wouldn't be threatened by earthquakes, floods, wildfires, snowstorms or tornadoes."

eBay PayPal complex in AZ
PayPal and eBay share a complex in Chandler, one of the many fast-growing suburbs in the Greater Phoenix market.
Photo courtesy of Greater Phoenix Economic Council

Himmel would not say whether the company, which employs 30,000 people around the country, considered other locations for this project, but he did say: "OptumRx anticipates 1,500 to 1,700 more hires over the next two years at new and existing locations around the nation. We will be opening other new sites in 2012, which you will be hearing about soon."

Incentives helped seal the deal, he adds. Those include a $200,000 Quality Jobs cash grant from ACA that OptumRx will receive as long as it creates 400 jobs that pay an average annual wage of at least $37,000 and retains them for at least five years.

A highly trained work force proved to be a critical factor, Himmel says. "The University of Arizona is known far and wide for its commitment to innovative research in telemedicine, expertise in health and wellness and its Colleges of Medicine, Nursing, Public Health and Pharmacy. We have a longstanding relationship with the university's College of Pharmacy."

OptumRx processes more than 370 million prescriptions per year and manages about $26 billion a year in spending on drugs. The firm maintains a national network of nearly 66,000 retail pharmacies.

Regionalism Drives Recruitment

OptumRx is not alone in its fondness for Tucson. Joe Snell, president of Tucson Regional Economic Opportunities, says, "We have seen a lot of success stories since late 2005 in some key industries — solar, logistics, aerospace, defense and biotech. We have had a very good year. In fact, this is one of our strongest years since 2007."

The biggest draw for companies, says Snell, is the Tucson work force. "The overwhelming factor is our people," he says. "We have the fifth-highest concentration of aerospace workers in the U.S. The University of Arizona is a top-15 research school. We have highly technical workers. As a result, we still see a lot of in-migration to Arizona."

Snell doesn't wait for companies to call him, either. "Barry Broome of Greater Phoenix and I are doing some groundbreaking stuff," Snell says. "We are sharing people on the ground in California. We know that we have to sell you on Arizona first. Very few boards in Arizona look like mine. A third of my board are Phoenix executives. Michael Crow, the president of Arizona State University, sits on my board."

One of the main drivers of the Tucson economy is the airport. With a total economic impact of $3.25 billion and 34,573 jobs generated directly and indirectly, the Tucson International Airport remains a big reason why growing companies like the area.

"Bombardier is one of our major tenants and they have just announced a major expansion," says Mary Davis, senior director of business development and marketing for the Tucson Airport Authority. "They just added 100 employees. They have a new product line on their MRO side. They are also looking to bring some R&D projects back to Tucson. They are very happy here."

The inland Port of Tucson is engaged in a $20-million project that will improve its rail and storage facility, notes Davis. "We are working with Union Pacific to build our trade relationships with Mexico. The projects are designed to make crossing the border easier for truck traffic. And we are focused on restoring international air service to Mexico."

Julie Engel, president and CEO of the Greater Yuma Economic Development Corp., says that proximity to Mexico and California makes Yuma a hot spot for corporate relocation and expansion right now.

"We are an international port of entry," she says. "We are as close as you can get to California without being in California. We have several manufacturers who say that they have never encountered a work force like the one they have found in Yuma."

The Yuma Proving Ground (YPG) and Yuma Marine Corps Air Station are major employers for the region — and they are about to grow even larger. "Our area is going to experience a significant boost from the Department of Defense," says Engel. "The F-35 Joint Strike Fighter Program is being launched here. We already have the Harrier squadrons, and this expansion will bring six additional squadrons to our area."

Together, the YPG and the Marine base employ about 7,000 people. "We are experiencing a lot of positive growth," notes Engel. "General Motors has their hot-weather test track here. They test humvees and tanks here. GM has found it to be an excellent location."

The desert location also attracts plenty of solar firms. First Solar, NRG, Sun Edison and other solar energy companies are investing heavily in the Yuma area now. Green Volt, Sharp and other renewable energy firms are investing as well.

Logistics is a big selling point too, says Engel. "We are on Interstate 8 and State Road 195," she says. "We have direct access to I-10 and I-5. We reach Los Angeles within 280 miles (451 km.). Phoenix and Las Vegas and other key markets are all within a 300-mile (483-km.) radius. We touch many huge consumer markets."

Engel does not expect Yuma to slow down. "We expect our economic growth to continue," she says. "We were the last into the recession. We didn't feel it until 14 months after everyone else. We are now into a trend of resurgence that we project to last well into 2014 then level off. After that, we anticipate a period of sustainable.

First Solar, after opening a headquarters facility in Tempe, is constructing a new manufacturing complex in Mesa.
Photo courtesy of Greater Phoenix Economic Council

Story in Pictures

First Solar is an alternative energy project in Greater Phoenix that took advantage of the new Renewable Energy Tax Incentive Program.
Photo courtesy of Greater Phoenix Economic Council
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