As you drive into Rochester, one of the first things you notice is the veritable forest of cranes that dominate the skyline. Most of the construction activity is related to the Destination Medical Center (DMC), a 20-year, $5.6 billion project to position the city as a global destination for health and wellness. Now, five years since the project officially got underway, DMC is making headway, with its first approved building, a 20-story Hilton hotel, due to open next spring.
DMC is the largest public-private economic initiative in Minnesota’s history and one of the largest in the country. Mayo Clinic first proposed DMC in 2010. Three years later, the state agreed to allocate $585 million for public infrastructure projects once $200 million in private investments were raised. Last year, DMC exceeded that goal by nearly $100 million.
DMC is a big part of Rochester’s evolution, but it’s not the whole story. The city is easily Minnesota’s third-largest city, and the largest city outside the Twin Cities metro. From 2000 to 2010, Rochester’s population grew nearly 25 percent, from 85,806 to 106,769, and the U.S. Census Bureau estimates that in 2016, Rochester was home to 114,011 people—an increase of nearly one-third since 2000.
Between the city’s growth and abundance of construction, it might seem as though Rochester is building itself an entirely new city, but more accurately, it’s re-envisioning itself, building on its strengths in health care and technology. While DMC and Mayo Clinic are playing crucial roles in that renewal, so is the city’s
vigorous network of partnerships.
In short, there’s much more being built in Rochester than, well, new buildings.
There’s no doubt that DMC is the chief catalyst for Rochester’s recent growth, however. The project is projected to create more than 30,000 new jobs and generate approximately $270 million in new tax revenue for the city over the next 20 years. The DMC district takes up about 1 square mile in downtown Rochester, including Mayo’s Saint Marys campus. (See map below)
Though Mayo certainly will serve as the heart of the new center, Mayo Clinic and DMC are not one and the same. DMC has its own governing board, the Destination Medical Center Corp., which is led by former Minneapolis mayor R.T. Rybak. The public not-for-profit entity oversees the buildings and urban redesign projects associated with the DMC initiative.
When the state of Minnesota authorized DMC’s creation, it required the board to create an economic development plan. Overseeing the execution of that plan is Lisa Clarke, a Mayo Clinic veteran who is the executive director of the Destination Medical Center Economic Development Authority (DMC EDA).
“My job is really to realize the DMC vision,” Clarke says. “We need to make sure we stay on track with the plan, follow markets, and garner investment and development interest from all over the world in order to realize this plan of $5 billion to $6 billion in private investment over the next 20 years.” As of June, “we have about 22 projects in the pipeline or active right now in the DMC zone.
The heart of the Destination Medical Center is the partnership between the city, Olmsted County, the DMC board, DMC EDA, Mayo, and other private investors. “It takes all the different partners working together to achieve the common vision of DMC,” says city administrator Steve Rymer.
The City Council wants to ensure that DMC’s plan adds vibrancy and a higher quality of life for the entire community, not just downtown. And since most of the public money is intended to build public infrastructure, Rymer and city leaders are looking at the best ways to make infrastructure improvements work for all of Rochester. “We’re making sure how we put together the agreements meets the expectations of both the council and the DMC board,” Rymer says.
Putting the DMC EDA plan into action falls mainly on Patrick Seeb, the authority’s director of economic development and placemaking. Seeb served for many years as CEO of the St. Paul Riverfront Corp., the public-private partnership that drove conversion of the Mississippi River from industrial sites to urban amenity. At DMC EDA, he has two roles: Help new commercial and residential development projects go from blueprint to groundbreaking, and redesign Rochester’s public spaces or design new ones as needed. He’s also working to diversify the economy and business environment so that the city isn’t solely reliant on Mayo’s success.
“I like to tell people that there are two types of cities,” Seeb says. “There are those that are going to change, they know it, and they want to control it. Then there are cities that are going to become victims of change. The DMC initiative represents the former.
While Mayo Clinic has facilities in Arizona and Florida, DMC represents its commitment to remain centered in its hometown and to grow its presence there. “With that understanding, there is a recognition that the city needs to grow around it to reflect Mayo Clinic’s international brand,” Seeb says. “By being intentional about our future, we can be thoughtful about what we are doing to create an environment to attract talent from around the country and around the world.”
Seeb says there is more than a half-billion dollars’ worth of construction underway right now, and that the DMC initiative has given the market confidence in Rochester and its ongoing growth, strong employment, and stable business conditions. As a result, “we have a lot of capital flowing into this community.”
Some examples include the Hilton Downtown Rochester, the offspring of a partnership between Chicago-based Harbor Bay Real Estate Advisors and Rochester-based Titan Development & Investments. Titan also is working with Minneapolis-based Opus Group to build a 154-unit apartment and retail complex that has attracted investment capital from Boston. And Minneapolis-based developer Alatus LLC is building a $125 million, 350-unit apartment complex with ground-floor retail.
Seeb’s office is also busy developing plans for green spaces, bike trails, and other amenities that help create a vital community. The DMC urban design plan breaks the district into six subdistricts. In each of these, DMC EDA is creating a public space along the lines of Rice Park in St. Paul or the Stone Arch Bridge in Minneapolis, Seeb says.
A theme of the Heart of the City subdistrict in downtown, Seeb says, is the intersection between health care and hospitality. Heart of the City’s real estate now includes shops, hotels, restaurants, and Mayo Clinic facilities. It will be anchored by a public space called Peace Plaza, which already exists but “needs a major refresh,” he adds. The redesign will include a water feature and public art. Peace Plaza connects with the Chateau Theatre, a historic vaudeville house that has stood empty since 2015. This year, DMC Corp. granted up to $1 million for the theater’s renovation, expected to begin later this year.
A graduate of the Mayo Clinic’s business accelerator, Vyriad develops genetically engineered viruses designed to destroy cancer cells. “Viruses naturally cause infections and they damage tissue when they do so,” explains Vyriad co-founder and CEO Stephen Russell, who is also a professor of molecular medicine at Mayo Clinic. “So we’ve been engineering viruses specifically to damage cancer.”
The biotech startup was formed in 2016 with the merger of two Rochester startups, Magnis Therapeutics and Omnis Pharma. Last year, Vyriad completed $10 million in Series A financing to fund ongoing clinical trials. More recently, it raised $9 million in convertible debt to build a new facility on IBM’s Rochester campus, where it’s leasing 25,000 square feet of space. The building will include offices, a laboratory, and a manufacturing facility. Russell estimates that about 30 employees will work in the new building, which should be ready for occupancy in October.
Another subdistrict is Discovery Square, 16 square blocks in central Rochester. This area is being re-envisioned as a health care technology park, with the goal of growing companies and keeping them in Rochester. The first major construction in the subdistrict is One Discovery Square, a 90,000-square-foot building designed by St. Louis-based HOK and Minneapolis-based RSP Architects Inc. that will become home to a variety of life sciences companies. The University of Minnesota Rochester will join Mayo Clinic as an anchor tenant in the building, utilizing its space for labs and a collaborative area for faculty, students, and other tenants. Golden Valley-based M. A. Mortenson Co. will manage the building next year when it is ready for occupancy.
Within the district are residential buildings, including new apartment complexes, a hotel, and retail. Discovery Square’s director of development Chris Schad expects more bars and restaurants to spring up, although he expects the subdistrict will be occupied primarily by medical-related companies, given the dominance of health care in Rochester.
Building a diverse economic base
Many businesses moving into the Discovery Square subdistrict will be licensing Mayo Clinic technology and research. “Five years ago, Mayo changed some of their policies to make it easier for Mayo employees to become founders of companies around the technologies they’ve invented or identified,” Schad says. Before then, there were strict conflict-of-interest concerns. “They wanted to make sure that their employees were not directing business or patients to the companies they were running.”
Now employees can continue to work for Mayo Clinic while running companies based on Mayo technology.
With the advent of DMC, Mayo Clinic Ventures, which oversees commercialization and licensing of the clinic-driven technology and research, began looking at ways to stimulate new business opportunities locally and regionally. One of its tools is the Venture Innovation Program. “That comes out of our royalty stream,” says James Rogers, chair of Mayo Clinic’s department of business development. “It allows us to put up to $200,000 into a technology.” It can be invested in an idea that came out of Mayo or an idea that Mayo wants to explore by involving researchers or physicians. Mayo Clinic Ventures then converts that investment into equity at the next funding round.
Another program, Discovery Translation, focuses on Mayo technologies that Mayo Clinic Ventures believes have particularly strong commercial potential. It invests up to $350,000 into a technology. “We always have an equity position based on the money that we’re putting in,” Rogers says.
Mayo Clinic Ventures also operates the Benefactor Innovation Fund, which supports companies that typically have more risk—“maybe too much risk for venture funds or strategic investors,” Rogers says. This approach allows Mayo to test an idea and determine whether to keep investing.
“If we don’t have an innovative workforce for the future, we’re in trouble. Especially in a community that is growing.”
–Erin Sexton, director for community engagement, Mayo Clinic
Mayo Clinic Ventures also has a $100 million Venture and Growth Fund, through which the clinic invests in companies alongside venture and private equity funds.
Mayo Clinic Ventures combines its funding and other support efforts with a variety of partners, including Rochester Area Economic Development Inc. (RAEDI), which helps new and longstanding businesses in the Rochester area secure private and public resources. One of the most notable fruits of that partnership is Mayo’s business accelerator, which it opened in 2013 in a city-owned space that RAEDI manages. The accelerator is now home to 23 companies. “We essentially opened full,” Rogers says. “There was a lot of pent-up demand that we didn’t realize was there.”
The accelerator provides low-cost space and conference rooms for its startup tenants. It also sponsors a variety of events and educational programming for entrepreneurs, including presentations by venture capitalists, CPAs, and business attorneys. Accelerator companies have raised around $66 million, according to Rogers. Discovery Square will be home to a second business accelerator, which will be open to both local entrepreneurs and to outside businesses that want to make Rochester their new home.
One of the newer funding sources for startups is a new Rochester-based angel fund, which has raised $1.4 million in about seven months. Startups can also seek investment from funds that RAEDI runs.
Five years ago, RAEDI began conducting meetings with regional businesses, chambers of commerce, and economic development agencies. Out of those discussions came Journey to Growth, a strategic plan to diversify Rochester’s economy. RAEDI would like to see more manufacturing, medical, and technology firms that aren’t reliant on Mayo for their livelihood. One of the results of the Journey to Growth plan is RAEDI’s new $2 million Southeast Minnesota Capital Fund, which has invested in four area businesses thus far.
RAEDI also operates the $5 million Rochester Economic Development Fund, established six years ago to invest in local businesses and provide office space. A typical startup investment is between $70,000 and $100,000; the fund also invests additional money in companies once they’re up and running. In total, RAEDI has $1.8 million invested in 15 different companies, which have received an additional $72 million from other sources, and generated 90 new jobs.
With a variety of capital and other support, Rogers believes that Rochester’s entrepreneurial ecosystem is starting to take off. That support includes what Rogers terms “enablers”—people who are willing to help clear the hurdles so that companies can succeed, even though they may not have a personal stake in the company.
Hospitality is key
With Mayo Clinic’s expansion expected to bring more patients, families, and business travelers from outside of Minnesota, providing a warm, hospitable welcome is essential. According to Experience Rochester, 70 to 80 percent of patients’ and their families’ time in Rochester is spent outside Mayo’s facilities.
To ensure that visitors enjoy a positive experience, Experience Rochester, the city’s convention and visitors bureau, and Mayo Clinic created an accreditation program as part of the DMC initiative. Rochester hotels, restaurants, transportation, and retail businesses earn accreditation by demonstrating that they meet high standards of quality and service, and a willingness to improve if needed. For instance, businesses need to be wheelchair accessible and have CPR-trained staff members. In return, accredited businesses receive referrals from Mayo.
“I like to tell people there are two types of cities. There are those that are going to change, they know it, and they want to control it. Then there are cities that are going to become victims of change. The DMC initiative represents the former.”
–Patrick Seeb, director of economic development and placemaking, DMC EDA
The Experience Accreditation program also includes Certified Tourism Ambassador (CTA) training, a national program that Experience Rochester adopted to educate its front-line hospitality employees about how they can provide an exceptional experience for visitors. For example, CTAs help Mayo Clinic patients and other visitors get to where they need to go by providing directions and guidance to services. CTAs also provide visitors with things to do, places to shop and dine, and places to see while they’re in town. Rochester citizens who work outside the hospitality industry also can apply to become CTAs.
Attracting and developing talent
Nearly every city in Minnesota is faced with the challenge of attracting a new generation of employees. There seem to be two necessary elements: a lively downtown and good craft beer. Rochester has both, but that wasn’t always the case.
When a group of property owners, business leaders, and other supporters of downtown development formed the Rochester Downtown Alliance in 2005, “you could roll a bowling ball down Broadway and not hit anybody,” says Jenna Bowman, the Alliance’s executive director. These days, you see a very active downtown with small-scale retailers and service providers that make the area distinctive, she says.
Founded in 2014, GoRout produces on-field wearable technology and real-time software that allows football teams to practice plays quicker. Today’s young football players grew up in a digital world; “for them, standing around looking at a paper is an archaic process,” says founder Mike Rolih, who was an all-state three-sport athlete in high school.
More than 200 high schools and colleges across the country now use GoRout’s technology, and the company is working on prototypes for the NFL. Rolih has four full-time, one part-time, and 11 seasonal employees. Even though the city provided economic development funds to help get GoRout going, he says, Rochester’s tech community is not robust enough yet for the talent he needs.
The Downtown Alliance contributes to that liveliness by hosting several events. Its signature event is Thursdays on First & 3rd, an outdoor market that takes place weekly June through August. It features more than 100 food, retail, and craft vendors, along with two performance stages. “We have 16,000 to 20,000 people in attendance every single week,” Bowman says. “It truly is a community gathering,” she says, and one that also attracts many out-of-towners.
As for the beer, ever since Kinney Creek, the city’s first craft brewery, opened for business six years ago, the scene has been effervescent, with Grand Rounds, Forager, LTS, and Little Thistle all providing distinctive brews. At the moment, Rochester is going through a bit of a “restaurant renaissance,” says Mary Gastner, director of marketing and communications at Experience Rochester. Several local owners and chefs have been opening distinctive dining destinations. Downtown’s historic South Broadway, a few blocks away from Mayo’s main campus, has become notably lively. Grand Rounds Brewing’s restaurant is here, as are a number of new concepts, such as Terza, a highly regarded Italian spot recently opened by Rochester’s Nova Restaurant Group.
While amenities like these can help attract talent, new residents need much more than good beer and a lively scene to stay. Like most cities in Minnesota, Rochester needs more skilled workers, and demand will increase as DMC developments open for business.
Several organizations are addressing this challenge, including the Rochester Area Chamber of Commerce. The chamber, along with the help of several partners in the education and business community, developed Hubsource, a new website designed to connect local employers with job seekers who fit the company’s culture and values. The chamber is also searching for ways to pursue talent outside of Minnesota by focusing on areas with higher unemployment rates. While Rochester is growing fast, “it has all the benefits of being a midsize city,” says chamber president Kathleen Harrington.
Experience Rochester wants to add to those benefits. To boost resident and visitor experiences, Gastner is helping develop new or improved destinations in the city and encouraging more general-interest attractions with broad public appeal, such as the Mayo Civic Center’s arena, which now seats up to 7,000 people. Experience Rochester and others would like to redevelop and enlarge the arena to attract the next level of entertainment and potentially house a professional sports team.
Last year, the Mayo Civic Center underwent an $84 million expansion that nearly doubled its size. The center now has more than 200,000 square feet of meeting and exhibit space, and a 40,000-square-foot ballroom, making it the largest in the state. That growth “is a pretty big leap for us,” Gastner notes.
Twelve years ago, Jamie Sundsbak came to Rochester with a business idea: a LinkedIn for the life sciences industry. “I thought Mayo would be a great first client, and maybe IBM,” he recalls. With big companies like these, he assumed Rochester already had a flourishing support network for entrepreneurs. As it turned out, “I couldn’t have been more wrong about the entrepreneurial ecosystem,” he says.
A few years ago, Sundsbak was talking to friends who’d bought a historic building in downtown Rochester when they proposed using some of the building’s empty space for a co-working operation, where entrepreneurs could work, meet, and share ideas.
Collider now has about 50 tenants, which include freelancers, health care startups, social media experts, video game designers, and a group of high school students starting an app development company. Those students, “are getting people right here in this room to mentor them,” Sundsbak says.
Collider has become a full-time job for Sundsbak. As for the name, it echoes the “co-” in “co-working” and the fortuitous collision of ideas across different disciplines. “We wanted that to happen every day in our space,” he says. “And so far, in the last two years, we’ve been able to do that.”
To fill the pool of open hospitality jobs, Experience Rochester helped launch a hospitality development initiative last fall to interest students. One program in that initiative is offered by the Career and Technical Education Center at Heintz (CTECH), located on the Rochester Community and Technical College’s (RCTC) campus. CTECH provides Rochester high school students opportunities to take courses in various “pathways,” such as construction and information technology, to explore possible career options. CTECH now offers a pathway in hospitality and tourism, giving students the opportunity to work in RCTC’s professional-grade kitchens and learn about the food service sector and careers in the hospitality industry. For college students, RCTC recently introduced a two-year hospitality degree, which includes a management track.
Workforce development is also on Mayo’s list of community engagement activities. As the largest employer in the region by a wide margin, it will continue to need more medical researchers and technologists, not to mention nurses, nurse-practitioners, and physician’s assistants. “If we don’t have an innovative workforce for the future, we’re in trouble,” says Erin Sexton, Mayo’s director for community engagement. “Especially in a community that is growing.”
Last year, Guy Finne, who has worked in Mayo’s human resources department since 2001, became the clinic’s first director of workforce development. Since 2001, “we have had a robust career awareness program that we provide to regional high schools to help students explore careers,” Finne says. The program includes classroom presentations, a website, and a one-day career festival where regional high schools students can spend the day with Mayo employees. It’s now developing a program called the Virtual Career Tour that will link Mayo and its employees to high schools around the country; the “tours” will include live Q&A sessions with various Mayo employees.
Finne and his department are now working to develop talent pipelines with regional colleges. He’s also working to tap local sources among people who have typically struggled in Mayo’s and other companies’ applicant pools, such as first-generation immigrants and college students, ESL learners, students who have struggled in traditional education, and those who have faced other personal challenges. Working with regional education institutions and other employers, Mayo created the Bridges to Healthcare program to provide these residents with a fresh start. The program provides career counselors who meet one-on-one with participants to uncover their strengths and weaknesses. “We can deal with the weaknesses and we can build upon their strengths,” Finne says. Since 2013, the program has placed 152 people on Mayo’s payroll.
A program Mayo operates specifically for students with disabilities is Project Search, which provides education and internships at Mayo for high school seniors. Project Search builds not only job skills, but also confidence. In the last two years, 100 percent of the program’s graduates were offered positions at Mayo or other partnering businesses. “And we’re looking forward to a third this year,” Finne says.
Mayo Clinic also is one of 30 organizations, businesses, and schools in Rochester that created Cradle to Career, an initiative that seeks to improve education outcomes for the city’s students. Launched in March, Cradle to Career coordinates several local programs designed to boost student achievement, from infancy through workforce entry. These programs address infant health and development, kindergarten readiness, high school completion, and postsecondary training.
With DMC’s arrival, the city of Rochester has been studying what transit and transportation is going to look like. One of the themes is getting people out of their cars, city administrator Steve Rymer says. Rochester is growing fast, and the city wants to make sure that both visitors and residents can get around as quickly and easily as possible, which will require developing a multi-modal transit plan. Also on the drawing board is City Loop, a proposed bicycle route that would tie into the existing trail network and other proposed bicycle routes, and offer connections to each DMC subdistrict.
In June 2017, Chicago-based United Airlines began offering flights between the Windy City and Rochester International Airport based on the community’s economic growth, says John Reed, the airport’s executive director. In May, Maine-based Elite Airways announced that it would offer two weekly nonstop flights from Rochester to Phoenix and St. Augustine, Fla.
Last year, the airport posted a 27 percent increase in the number of passenger boardings, with even larger percentage increases month over month starting June 2017. It’s a trend that Reed says has been continuing this year, due in part to the airport’s Fly Local campaign, which encourages local businesses to fly out of Rochester rather than the Twin Cities. Last year, Mayo announced a new policy requiring most of its employees to fly out of Rochester International.
The passenger breakdown, Reed says, is divided fairly evenly between patients, businesspeople, and local residents. To accommodate the additional traffic, Rochester International has been making $12 million worth of upgrades and improvements to its main terminal, including consolidating ticket space and adding amenities. The airport also expanded its customs facility to 20,000 square feet, a necessary addition given the numerous overseas patients who come to Mayo Clinic for treatment.
While the DMC initiative requires a lot of thoughtful planning, DMC EDA executive director Lisa Clarke sees a city united in helping Rochester grow. “We want to grow it right,” she says. “People here are locking arms, and they want to make this work.”
Gene Rebeck is TCB’s greater Minnesota correspondent.
Providing a Home
Nearly three years ago, with the city’s population surging and DMC expected to bring more growth, the Rochester Area Foundation began to hear more from employers, nonprofits, and individuals that affordable workforce housing was becoming a big issue. It’s not the first time the foundation has addressed the challenge. About 20 years ago, it helped create the First Homes Initiative with the help of a $7 million grant from Mayo Clinic. At the same time, the city of Rochester established its Community Land Trust, which now owns and maintains 210 affordable homes.
While the land trust’s work has helped meet demand for such housing, the need has grown in recent years. “If you’re at 50 to 80 percent of the median income, finding a place to live that’s affordable is going to be a challenge,” foundation president Jennifer Woodford says.
In December, the foundation launched the Coalition for Rochester Area Housing, partnering with the city of Rochester and Olmsted County. In May, the coalition voted to support its first project: 40 housing units, which will be developed by the Jeremiah Program, a Minneapolis-based nonprofit that provides services to help people lift themselves out of poverty. The $320,000 forgivable loan, Woodford says, is specifically for construction of houses, not to support the additional services that many affordable-housing residents receive.
Mayo Clinic, which provided the lead grant for the coalition’s founding, is another partner. The coalition’s holistic approach attracted Mayo Clinic, says Erin Sexton, Mayo’s director for community engagement. The partners are working together on the challenge of affordable housing, rather than each following its own strategy.