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Cottage Grove BEC falls short of first-year goals

Cottage Grove City Administrator Ryan Schroeder (center) leads a tour of the city's Business Enterprise Center during an open house earlier this year. Some space in the former City Hall building has been rented by starter businesses, but leasing so far is behind the city's first-year projections. (Bulletin file photo)

The city of Cottage Grove repurposed its former City Hall in an effort to attract starter business, but after more than a year in operation the Business Enterprise Center (BEC) is behind first-year projections.

The BEC’s first tenant, GopherMods, has vacated its first-floor space and relocated to Woodbury. And with no new tenants signing leases since Renew Solar last November, City Finance Director Robin Roland said 2014 rental revenues are expected to be about half of the budgeted $96,660.

“The BEC operates as its own entity,” City Administrator Ryan Schroeder said. “So (the city) isn’t really making the money, our goal is to break even. So we’re a little short of the break-even point.”

Schroeder added that because the city is in the first phase of setting up the coming year’s budgets, all revenues and expenses have not been accounted for. With a new two-year rental agreement signed with a cellphone company to rent out tower space on the BEC grounds, Schroeder said total tower rental revenues would be around $60,000 a year.

“Those (tower rental) leases by themselves will carry the building,” he said. “So what we need to do is carry individual leases outside of that.”

The revenues from the individual rental leases pay for the building’s utilities.

When the city first launched the BEC, the entrepreneurial incubator was given a loose five- to seven-year performance probation period, during which the Economic Development Authority and city officials would evaluate if it was a worthy venture. With one full year gone, Mayor Myron Bailey said he is still confident the BEC will work.

“It’s still very new and we’re still figuring it out,” he said.

Schroeder said if the occupancy is at or near 85 percent rented by the end of the five-year mark, “then I think we’re doing good.”

About one-third of the BEC is occupied; the Cottage Grove Area Chamber of Commerce, Renew Solar and Conexspace are located in single suites, and Premier Biotech occupies much of the first floor, and now a space in the basement, following several expansions.

“I do know that our Economic Development Department is talking with various users to figure out where they could go in the BEC,” Bailey said.

‘Very large new tenant’ interested in city

A potential new operation has begun talking to the city of Cottage Grove, Bailey said last week. And if a deal is struck, most of the BEC’s available square footage would be used.

The “very large new tenant,” he said, is in the medical marijuana business.

“There is an interested party looking at Cottage Grove as a place to start this business,” Bailey said. “We have talked about it and we gave them a tour of the BEC.”

In May, Minnesota became the 22nd state to legalize medical cannabis, allowing those with certain serious illnesses to use marijuana in a pill or oil form. The law restricts patients from smoking it or obtaining it in leaf form.

Bailey said if the operation were to move into the BEC, it might not be for several months as the state nails down manufacturer registration deadlines. And once fully operational, the business is expected to grow and manufacture the medical marijuana.

“The idea would be to start the initial grow process in the BEC and then move them long-term into the Business Park,” Bailey said. “One concern is that the operation would be so large. So in talking we thought they could lease a spot in the BEC while we get a spot ready for them in the Business Park.”

With all of the current tenants in either the technology or chemical business, Bailey said a medical cannabis operation would fit in with the business model.

“I don’t know how much the grow process would fit in but obviously the medical creation of the pill and dispensing would,” he said. “But it’s very early in the game and we won’t know more until a decision is made by the state.”