Mitchell moving on from Verifications disappointment
As one company prepares to leave Mitchell later this year, others have expressed interest in the building and workforce becoming available, a city development official said.
Verifications Inc., a Minneapolis-based human resources services company, announced April 26 it will close its locations in Mitchell and Aberdeen before the end of 2012. The closures will affect approximately 140 employees in South Dakota, including 79 in Mitchell. The company's Watertown location will remain open.
At least two companies have approached Mitchell Area Development Corp. Executive Director Bryan Hisel and asked about the area's workforce and soon-to-be-vacated office building, he said.
"The bad news also stimulates interest," Hisel said.
He declined to name the companies, but said each had been more interested in the area's workforce than the facility itself.
"People, that's what is valuable here," he said.
If a replacement company is found before the lease with Verifications expires in March 2018, Hisel said Verifications could sublease the building or attempt to come to another agreement with MADC.
"If there is an opportunity to get a company in there and keep that building productive, we would love to do that," said Verifications Executive Vice President of Operations Bill Wilder.
The jobs leaving Verifications in Mitchell and Aberdeen will be redistributed to a newly opened location in Tempe, Ariz., and locations opening in India and the Philippines. The opening of these locations was announced to employees in January, Wilder said.
Wilder declined to reveal how much money the company will save by moving the jobs.
"These are people that we love and care about," Wilder said of the employees affected by the closures. "It's heart-wrenching that you have to come to this decision."
According to Wilder, the decision was finally made after no other options could be found to expand the company's "global footprint," which he said is critical to the future of Verifications.
"We have had very, very large customers who have walked away from us because we didn't have this capability," he said.
Wilder said South Dakota's severe winter weather also factored into the decision, as all three of the company's locations in the state were shut down simultaneously multiple times during the winter of 2010. Verifications leases its Mitchell and Aberdeen facilities, but owns its facility in Watertown, which Wilder said was also a factor in the decision to close the other two locations.
When the decision was made to bring the company to Mitchell in 2005, Verifications President and CEO Curt Marks said the company chose to open a facility in Mitchell due in large part to the package put together by the Mitchell Area Development Corp., which included financing for the new office building and funds for employee training.
MADC began construction of the 18,400-square-foot office building in October 2005. It was financed using approximately $1.5 million in loans plus $500,000 of MADC funds.
The building is located at 1308 W. 15th Ave., just off the state Highway 37 bypass.
The source of the $1.5 million in loans was $700,000 from the state Revolving Economic Development Initiative (REDI) Fund, $500,000 from the city of Mitchell, $200,000 from Area Wide Business Council Inc. and $100,000 from First National Bank.
A 10-year lease agreement between MADC and Verifications became effective in September 2006 after the company took possession of the building. In addition to yearly rent, the lease made Verifications responsible for the taxes, insurance and maintenance related to the building.
"We couldn't build a building without having a long-term lease," Hisel said, who called the agreement with Verifications a "long-run approach."
The lease was altered in December 2008 to accommodate Verifications after the onset of the recession led to a decline in business. As a result, the company is required to make annual rent payments of about $152,000 through March 2018, according to Hisel.
As MADC was required to repay the REDI Fund loan after five years, it restructured the entire loan pool in November 2011. MADC borrowed $800,000 from CorTrust Bank at 5 percent interest to repay the REDI Fund, the Area Wide Business Council and First National Bank.
Hisel said Thursday about $750,000 of the CorTrust loan is payable in the next 10 years. MADC will also pay an interest-free $500,000 lump sum in 2015 to the city of Mitchell to repay the city's loan.
If Verifications continues to make its annual rent payments, Hisel said the finances will be "as solid as a rock."
"I'm less concerned about the building than about finding good opportunities for the people that are working there," he said. "The building is an asset."
Wilder said the company will fulfill its lease obligations.
The company was also provided with $75,000 from the city of Mitchell and $150,000 from the state to recruit and train its staff before moving into its Mitchell facility.
Hisel said it's possible a portion of those funds could be returned, and MADC will work with Verifications on that.
The effort and financing used to build a new office building and train employees for Verifications fits with MADC's long-term goal of bringing office-based industries to Mitchell, Hisel said.
"If I'm investing in training, I feel like I'm investing more in the people than in the company," he said.