With Elk Run, Pine Island bets big on biotech

  • Article by: WENDY LEE , Star Tribune
  • Updated: July 18, 2010 - 3:33 PM

The rural town of Pine Island has big plans for a biotech business park, but the concept is still getting off the ground.

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It has been nearly four years since a California developer bought a remote tract of grassy farmland north of Rochester with big plans to build.

The vision that gradually evolved was a sprawling center of biobusiness office space that would capitalize on the site's proximity to the Mayo Clinic.

Local officials in the rural town of Pine Island were ecstatic, embracing the planned Elk Run development as their community's best hope to become a booming economic center.

Today, construction on Elk Run's first building has yet to begin.

Officials at developer Tower Investments say they remain optimistic, with plans to break ground soon. But they've locked in only two biotech companies as future tenants and have delayed plans for a "wellness community" and an "accelerator" building with specialized labs.

The delays highlight the challenges inherent to bringing biotech to a bedroom community once known as the "cheese capital of Minnesota" -- challenges only heightened by the rough economy in which the developers have had to operate.

So far, Tower has poured $25 million into the project, which would include office space for biotech businesses, housing and other commercial space on land where hundreds of elk used to roam.

Tower plans to start construction on a 50,400-square-foot building by Sept. 2 and says it is in the process of lining up four biotech-related businesses, including a West Coast company that plans to move operations here. The total project, which spans 2,325 acres, would double Pine Island's size.

But several prominent observers of the life sciences space say bringing the project to success will be a challenge, due to Elk Run's rural location and the fact that the effort to bring biotech to the area is starting from scratch.

"It's innovative, but getting it off the ground will be a big leap of faith," said Jon Salveson, vice chairman of investment banking at Piper Jaffray & Co. Success will require buy-in from several groups, including the health science, finance, accounting and legal communities, he added.

Pine Island City Administrator Abraham Algadi says it's exciting to see the dream unfold after working for years with other Pine Island officials on the small city's comprehensive plan. In the next four years, Elk Run's initial buildings are estimated to generate 180 jobs.

"It's like watching paint dry, but the blueprint is already finished," Algadi said as he sipped his drink at Better Brew Coffee House, the only place in Pine Island that serves organic coffee.

A short drive away is the future site of Elk Run's first building. Karen Doll, the executive director of the Pine Island Economic Development Authority, drove through a quarter-mile dirt road called Bioscience Drive that leads to the site, right now an empty grassy field.

"It's not, not going to happen," Doll said, adding that she believes cities need to embrace change or face the risk of withering away. "By doing this, we can take charge and plan for it."

It has taken time to move the project forward. Pine Island officials said construction started in mid-2008 but was limited to the water and sewage lines that would extend to Elk Run.

Groundbreaking on the first building was expected to happen in April. Now, officials said it's likely to be next month.

"We haven't been just sitting and twiddling our thumbs," Algadi said. "It's really the battle modification along the way, but the war is still on."

Tower Investments said it has adjusted the timing of its plans to reflect a weaker economy. Plans to build a "wellness community," with walking trails and educational classes, were put off three to five years.

The 40,000-square-foot "accelerator" building, once envisioned as the first on the property, was changed earlier this year to instead house several offices for more mature biotech companies, said Elk Run's project manager, Geoff Griffin. The accelerator building is now scheduled go up in 2012.

Tower also stepped away from some parcels of land it had agreed to purchase for Elk Run, owned by Judy and Elmer Stock. The Stocks started foreclosure proceedings in April, claiming the developer missed mortgage payments. Tower said it has since terminated the sales agreement because the Stocks were not cooperating.

Officials say Elk Run has a unique business model because it is a collaboration between the city, Minnesota Department of Transportation and Tower, as well as San Francisco-based venture firm Burrill & Co.

MnDOT will build an interchange road that will help direct traffic through Elk Run. Meanwhile, biotech guru G. Steven Burrill of Burrill & Co. said last year he planned to raise $1 billion to help support biotech businesses and development at Elk Run.

Burrill said his team has a commitment for that fund and is working on getting it closed. The company is also working on funding potential Elk Run companies from his firm's other biotech funds, Burrill said.

Griffin said all four of the first office building's tenants will probably be "through their development stage and at the point of needing to commercialize and expand."

He said he believes the recession helped Elk Run recruit companies that may not have been interested in Pine Island at first, adding the project is offering companies capital, something that's not easy to come by nowadays.

"Our business plan actually thrives in this down economy," he added.

Still, the number of companies involved in Elk Run has evolved alongside the project. Last year, Tower said it had 10 companies committed to Elk Run. This week, Tower said it had secured at least two tenants of the four needed for the first building.

Two Minneapolis-area biotech companies, Kinexum and Exsulin, say they are considering sharing a space at Elk Run. But the decision will likely not be made until three years from now, said Paul Kralovec, chief operating officer at Kinexum.

Kralovec said Kinexum believes the cost of rent and labor at Elk Run could be cheaper than at the Twin Cities. In addition, Burrill & Co. has said Exsulin is "under serious consideration" to receive funding, once the firm finishes securing its Minnesota fund, Kralovec added.

Most Pine Island residents support the idea of growth and believe Elk Run will benefit the city, according to a Pine Island Economic Development Authority-requested survey conducted by Winona State University from September to February. Still, less than 30 percent of residents surveyed said they believe the Elk Run project will fail.

Pine Island has taken steps to preserve a historic Main Street decorated with colorful flowers, and a former mayor continues to manually wind a clock tower built in 1909 above City Hall. City officials say they have been working for years to diversify the city's economy.

"We are not just an empty cornfield waiting for God to descend upon us with bioscience," Algadi said. "We have been here a long time."

Tim Graham, pastor of Cornerstone Baptist Church next to Elk Run, said he believes the property could help extend his church's audience.

"It seems like a great project," Graham said, "if it actually happens."

Wendy Lee • 612-673-1712

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