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Forecast: fluffy clouds

By late last year, Virginia Gov. Terry McAuliffe categorized Virginia’s economic outlook for 2015 as “very perilous.” Federal budget cuts and sequestration continue to cast an aura of uncertainty. Plus, the state closed out the third quarter of 2014 with fewer new jobs than the national average, a slowdown based in part on the slump in federal spending.

Yet despite the economic woes, the new year is shaping up as a good one for commercial real estate. Some sectors, such as retail and health care, are seeing lots of new development as the economy slowly shifts from the effects of the recession into a more normal trajectory.

“This is a state that has weathered the Great Recession quite well,” says Anirban Basu, chief economist for Associated Builders and Contractors Inc., a Washington, D.C.-based trade association.

Yet some areas of the state haven’t fared as well as others. Northern Virginia and Hampton Roads have been feeling pain from federal budget cuts since 2011 and especially since sequestration took effect in early 2013, says Basu. As a result, “Northern Virginia is now staring at more vacant office space than has been witnessed in a quarter century.”

The vacancy looms despite the fact that Northern Virginia has seen some growth in the technology sector among businesses that aren’t federal contractors, as well as lots of commercial development along the Dulles corridor driven by the construction of Metrorail’s new Silver Line.

Meanwhile, Roanoke’s economy is growing at its fastest rate since the recession, according to data from the U.S. Bureau of Economic Analysis.
And Richmond, which also is racking up numbers not seen since before the 2008 crash, has been rebounding strongest of all Virginia localities. Basu attributes the good showing to the region’s “shockingly diverse” economy and a major retail construction boom, being led by “a significant rebound in consumer confidence.”

During the past 18 months some secondary markets such as Richmond have picked up in terms of market fundamentals and investor interest, says Steve Sadler, CEO of Richmond-based Allegiancy, a commercial real estate management firm overseeing more than $300 million in assets stretching from Pennsylvania to Texas. “Of all the areas where we’re active, Richmond is one of the more interesting and upbeat,” he says.  Because the region isn’t dependent on any one industry,“that stability is attractive to investment capital,” he adds.

“We’re finally feeling very healthy,” says Brett McNamee, a senior vice president with Divaris Real Estate Inc. in Richmond.

Grocery store wars
McNamee says retail is leading Richmond’s commercial market, with vacancy rates down to 6.3 percent, the lowest since 2008. Much of the new retail development is being driven by what brokers are calling the “Grocery War.”

A slew of grocery-anchored projects are in the pipeline. Leading the way is the New York-based, family-owned supermarket chain Wegmans, which McNamee jokingly calls “the 500-pound gorilla.” Wegmans is entering the Richmond market with two 100,000-plus-square-foot stores in the Short

Pump area and Midlothian, which will begin construction this year and open by summer 2016.

Wegmans also will open its first Charlottesville location next year. All three stores will anchor shopping complexes.

Meanwhile Martin’s Food Markets already opened its own super-sized, 74,000-square-foot location in Midlothian in November and is said to be scouting other locations for expansion. Kroger also is adding new locations in the state, including a new Kroger Marketplace that opened in December in Suffolk.

North Carolina-based gourmet food store Southern Season opened in Henrico this past summer, and Whole Foods Market announced plans to build a second store in the Richmond area, anchoring Sauer Center, a planned mixed-use development on Broad Street near Richmond’s Fan District.

At the West Broad Marketplace complex in Henrico County’s affluent Short Pump area, Wegmans and Cabela’s, a retailer of upscale outdoor recreation gear, will be the anchor tenants.

Mixed-use, live-work-play developments that combine retail, residential and office are also a hot trend, as evidenced by several recent projects in Henrico County (Staples Mill Centre and West Broad Village) and Roanoke, where Richmond-based WVS Companies is developing The Bridges. The $150 million riverfront project will combine offices, apartments and retail with a kayak launch and promenade along the Roanoke River. The project is expected to be completed in the early 2020s.

Health care drives development
Health care is one of the drivers in mixed-use development around the state.Early this year Henrico-based developer Stanley Shield Partnership plans to open the first medical office buildings in its $50 million, 160,000-square-foot Short Pump Medical Center complex in Henrico County. Bon Secours is working with Henrico-based Atack Properties to build Bon Secours Short Pump, a $50 million, 115,000-square-foot “medical village,” and Henrico developer The Lingerfelt Cos. just completed the 6,000-square-foot Medarva Stony Point Surgery Center at the Notch at West Creek, a mixed-use development near the Henrico-Goochland line.

In Hampton Roads, Virginia Beach is looking to develop 1,100 acres of unused city land in Virginia Beach’s Princess Anne Commons into a medical park containing health-care providers and medical researchers.

“We continue to see an increase in patient demand for medical space and aging demographics support that. We see a demand from doctors … to participate in ownership of the real estate and we see a demand from investors wanting to invest in medical development particularly because the average medical tenant is a relatively loyal tenant,” says Brian Witthoefft, a principal with Lingerfelt.

The growing numbers of aging baby boomers also are driving construction of assisted-living communities and nursing homes. For example Friendship Retirement Community in Roanoke County is building a $13 million, 73,000-square-foot patient rehabilitation center that will open this fall. The retirement community has been expanding quickly, adding a new, independent living apartment building last summer.

In Virginia Beach, Roanoke-based Medical Facilities of America is building the $17 million, 69,883-square-foot, 120-bed Princess Anne Health and Rehabilitation Center, which will open this spring.

In the industrial sector, Virginia continues to draw distribution centers. The Richmond region is a hotspot for development because of its central shipping location on the Eastern seaboard.  During the past few years, centers have been built or announced by a number of major players, including Amazon, Medline, Philip Morris USA, Lumber Liquidators and The Vitamin Shoppe.

Data centers represent another sector expected to see continued rapid growth in 2015. The Ashburn area of Loudoun County is home to 56 data centers, totaling about 5.9 million square feet. Up to 70 percent of all Internet traffic flows through Loudoun’s “Data Center Alley,” which could become the world’s largest data center hub this year, possibly as soon as March, according to county economic development officials. Major players such as Digital Realty, RagingWire and DuPont Fabros all have expanded operations there in recent months.

Data centers, though, are the exception in Northern Virginia’s office market, which “is very slow right now,” says Scott Homa, a director of research with JLL. Northern Virginia’s economy is largely driven by federal spending and contract work. “We’ve had gridlocked government for a long period of time. We’ve had sequestration and cuts in defense spending.” The outlook for federal spending going into 2015 still is very uncertain, adds Homa. “The tenant base has been totally handcuffed due to the current political state.”

Demand for office space in Northern Virginia remains subdued, and rents are mostly stagnant. In the third quarter of 2014, vacancies increased to 19.7 percent, the highest point since 2003. Contractors such as McLean-based Booz Allen Hamilton and Falls Church-based Northrop Grumman have been reducing their workforces and their real estate portfolios in recent years. Even federal agencies are downsizing; the Fish and Wildlife Service moved from a 250,000 square-foot space in Arlington to an 182,721-square-foot space in Falls Church.

“There’s real stress in Northern Virginia,” agrees Sadler, adding that companies are now seeking one- and two-year leasing agreements, not decade-long deals as in the past. “That’s very difficult for the property owners,” he says. “You don’t have pricing power.”

The office story is brighter in Richmond where the overall vacancy rate stood at 10.1 percent at the end of the third quarter. There’s just over a million square feet of vacant space now, about two-thirds less than in 2011, says Mark Douglas, senior vice president with Cushman & Wakefield | Thalhimer. Tenants in need of a large footprint will find slim pickings since several recent transactions have gobbled up large, Class A spaces. 

One of the deals involved Henrico-based McKesson Medical-Surgical Inc. In November it announced plans for  a $10 million relocation and expansion in a 168,500-square-foot space that was formerly part of the corporate headquarters for the now-defunct electronics retailer Circuit City. 

Looking ahead, Basu notes that a rising tide lifts all boats. “The U.S. economy appears to be gaining momentum,” he says. “It certainly helps that gasoline prices have fallen, which further bolsters consumer and industry confidence. It’s also likely that federal government rightsizing won’t have quite as much as impact on the state in 2015 as it did in 2013 and 2014. 2015 should be a better economy in Virginia and that should spell better times for commercial real estate.”

‘Attacks are ubiquitous’

What do Home Depot, Target, the White House, the State Department and Sony Pictures have in common? They’ve all been the targets of high-profile cybersecurity attacks over the last year.

Nonetheless, while it makes headlines when the hackers hit big companies, the bad guys are far more likely to attack small businesses — and those businesses may not even be aware they’ve been hacked, experts say.

“Attacks are ubiquitous whether you’re big or small,” says Danyetta Fleming Magana, president of McLean-based Covenant Security Solutions, an information security and cyber solutions company.

Ted Brown, vice president of IT operations for Reston-based Network Alliance, an information technology consulting and management firm, says “Small businesses kind of feel that they’re too small to worry about, that they’re not really targets of these kind of attacks. … [They] seem to think that … they may not need the same kind of protection, or they’re not vulnerable, but it’s quite the opposite.”

In fact, according to Verizon’s annual Data Breach Investigations Report, in recent months as many as 71 percent of cyber attacks have been waged against small businesses with fewer than 100 employees.

“First and foremost, don’t be naïve,” says Harvey Johnson, a senior manager with Richmond-based accounting and business consulting firm PBMares. “All of the security experts say it’s not a matter of if you’ll be attacked; it’s when and by who.”

The first thing to understand is that hackers aren’t necessarily targeting specific businesses — they may be running automated attacks looking for Internet-connected networks that are easy to attack, experts say.

Small businesses often think they don’t have data worth stealing, but that’s not the case, he says. Hackers are seeking credit card data, Social Security numbers, user names, passwords — anything that can be used in identity theft. Small law firms, health clinics, accounting and financial firms, and other businesses may routinely keep such records on their clients and employees.

“This is going on the black market for anywhere from $25 to $125 per record depending on how much information you have,” Johnson says. “The more data a hacker gets on a single individual or business, the more valuable it is.”

It’s also likely that criminals may be hacking into a small business in order to strike at a bigger target, namely that small business’s clients, Magana says. In the Home Depot and Target cases, hackers used stolen credentials from small third-party vendors to access the big retailers’ networks.

Hacking is a low-risk, high-reward crime because most of the hackers are working overseas, and they rarely face prosecution. And because of a lack of resources, it can often take six months to a year before a small business even realizes they’ve had a security breach. During that time, identity thieves can take out lines of credit and establish aliases with the stolen data. “I’ve heard stories about people who have had entire homes purchased [using their stolen personal data], and they had no idea about it,” Magana says.

So what can businesses do to protect themselves?

One step is to conduct an information security risk assessment and establish data security policies such as requiring employees to regularly change passwords, Brown says.

Training employees in data security basics such as how to identify possible phishing attempts is also essential, Johnson says. Some hackers may employ fake email addresses to impersonate company officials, such as board members or CEOs, in order to request passwords or data from employees.

Johnson also suggests being prepared for the worst-case scenario and taking out additional insurance coverage against loss from data theft. Adding such coverage is relatively inexpensive for small businesses, he says, but it can be the difference between a small business staying in business or closing its doors, he says, as the financial fallout from a data breach can be ruinous.

Brown recommends that companies strengthen their network security by installing real-time intrusion prevention systems (IPS) and intrusion detection systems (IDS), which can range from roughly $8,000 to $20,000 for a small business. “You wouldn’t let a stranger walk past your front-desk person and start rummaging through peoples’ desks without raising an eyebrow, so why are you letting people do that on your network?” he asks.

“Having a firewall in place is no longer the maximum,” Brown adds. “A lot of people, when they get a new network, they get a firewall in place, and they put an antivirus program on their computer, and they wipe their hands and say, ‘We’re good,’ but that’s the bare minimum of what’s needed.”

Bringing in an IT person once in a while when something’s broken isn’t a good strategy, says Brown, who urges small businesses to instead invest in installing a 24/7 system that can monitor intrusions and send remote alerts such as hardware systems created by computer security firm Kansas-based RiskAnalytics. The systems are installed onto a business’s existing network.

Anti-virus and anti-spyware software are great, Brown says, but they have limitations. Intrusion prevention and detection systems are more robust than software and can better detect communications anomalies in your network and shut down the connection before data can be stolen, he says.

Because most attacks are coming from overseas, there is a good chance those attacks will happen after office hours when it’s daytime in Europe and Asia, he says. That’s why it’s important to have a 24/7 monitoring system that can send you alerts in real time.

Good cybersecurity systems can block network traffic from some or all foreign nations. “We have a litany of countries we block right off the bat” for clients, Brown says.

While hackers come from across the globe and can hide their locations or make it appear as if they are coming from somewhere else, most don’t bother. The hotspots for hackers tend to be Russia, China, Turkey, former Eastern Bloc republics and Saudi Arabia, but hackers also strike from the United States, France and Germany. “It’s not just one country, but you can really see who the big hitters are and isolate your network from them,” Brown says, and if you don’t need to do business with foreign companies, you may want to completely cut off network access to all foreign IP addresses.

Other good tips, Johnson says, include restricting employees’ abilities to download programs and files onto their computers and keeping sensitive data such as payroll information on an internal network that isn’t connected to the Internet if possible. It’s also critical to change default passwords on routers and servers; keeping default passwords is like leaving one’s door unlocked, he says.

If you do all this, you may avoid data breaches, but it’s not a given. A determined hacker may succeed no matter what, experts say.

However, hackers are “going to look for the path of least resistance,” Johnson says. “If you’ve got your guard up, they’ll probably move on from you and go on to the next small business.”

The next frontier

A 90-year-old man swallows a pill. It includes a sophisticated sensor that sends data to his smartphone and his doctor, who can use the information to monitor the man’s vitals and check to see if he’s taking his medication as prescribed.

A car tells a network about a pothole, and other cars automatically adjust their driving patterns or even raise their suspensions to compensate.

A coffee shop monitors the average temperature of coffee its customers are drinking, surveying live data as its patrons sip away.

A mother of three checks her smartphone and finds out that her kids left the lights on and forgot to lock the front door, so she does it for them — remotely.

These are all examples of how the Internet of Things will — or already is — changing our daily lives.

Until recently, computers were pretty much the only “things” connected to the Internet. That was followed by a wave of additional devices ranging from tablets and smartphones to TVs and game consoles. Now we’re experiencing a third wave of connected devices that are unlike what has come before — ranging from home thermostats to car sensors, industrial controls, medical devices and wearable technology.

“The Internet of Things really expands the device universe. … [It’s] a fairly recent development, but its potential is obviously very large,” says Ferhan Hamid, CEO of McLean-based INADEV Corp.

By 2020 the Internet of Things will include more than 26 billion connected objects, according to projections by Gartner, a Connecticut-based information technology research and advisory firm. Nearly 70 percent of U.S. consumers will own at least one in-home Internet-connected device by 2019, such as a thermostat or home security camera, according to a study by Acquity Group, a Chicago-based digital marketing agency.

“Definitionally, it’s when ordinary items have [an Internet] connection that they didn’t have before,” says David Rose, an instructor at the MIT Media Lab and author of “Enchanted Objects: Design, Human Desire, & the Internet of Things.”

“Where it gets interesting and surprising is when those things are the things that we already surround ourselves with, like clothing or jewelry or desks or curtains or furniture,” says Rose, who explained the concept of the Internet of Things to a baffled Jon Stewart in an August interview on “The Daily Show.”

The Internet of Things also opens up a wide array of new business options for manufacturers and retailers, says Rose: “It changes anything that was a product into a service immediately.”

Take for example, he says, a luggage manufacturer. “Samsonite has been struggling with how to differentiate its product for decades,” Rose says. The company added wheels, a bevy of new colors and hard shell versions. “But then you sort of run out of ideas, right?” he asks.

What if you add a Bluetooth chip that can send alerts to your smartphone when your bag enters the baggage carousel or if someone mistakenly grabs your luggage? Then it becomes a service, he says — one that could even be supported with subscription or usage fees. Similarly, he points out that Yale Lock is coming out with a line of Internet-connected house door locks that will allow users to lock or unlock doors remotely.

Adding new functionality to old products such as luggage or door locks creates new customer demands and revenue streams, Rose says.

Along with this proliferation of new Internet-connected devices comes the problem of needing to analyze the reams of data being collected. Businesses “struggle with the challenge of how they can manage, control and act upon the anticipated tsunami of data and events that [the Internet of Things] will undoubtedly create,” says John Crupi, vice president of visual analytics for German enterprise software firm Software AG, which has its North American headquarters in Reston.

Software AG has developed a software package called the Internet of Things Solutions Accelerator to display real-time analytics from Internet-connected devices.

The Internet of Things isn’t a new concept, Crupi says. Once known as machine to machine, the idea of a wider network of Internet-connected devices communicating with each other and their users first took hold back in the early 1990s and 2000s.

The surge of new connected devices is being driven by falling prices for hardware sensors, some of which are so cheap and small that they can be placed on disposable products designed for one-time uses so that companies can determine how, when or where their products are being used.
Devices to assist with home automation, health care and fitness are especially fast-growing sectors of the Internet of Things, Crupi says.

However, security concerns also come with the increasing number of connected devices in our lives.

“Anything on your network, if it’s not protected, somebody will hack into it,” says Ted Brown, vice president of IT operations for Reston-based Network Alliance. Any devices that are connected to a network should be integrated into a company’s overall IT security strategy, Brown says, or hackers could find a back door to commit corporate sabotage or access sensitive data.

The federal government, in particular, is concerned about the vulnerabilities created by connected devices, and many Northern Virginia and D.C.-area contractors are working on this issue for the Department of Homeland Security, says Hamid with INADEV.

“There’s obviously a significant national security risk if these Internet-connected devices get hacked or compromised,” Hamid says, adding that the U.S. government is also able to take advantage of such connected devices for offensive espionage and cyber war.

Because of the vast number of government technology contractors in the Washington, D.C., region, Northern Virginia companies are especially well positioned to be leaders in the analytics field associated with the Internet of Things, industry professionals say.

Says Crupi: “I know a lot of people think about Silicon Valley as the epicenter of innovation but when it comes to processing data and the Internet of Things, the No. 1 producer of Internet of Things data is the government. … and the D.C. … Northern Virginia area … is a hotbed for engineers both on the hardware side … and the software side.”

Under scrutiny

What a difference a year makes.

Last December, Tonya Mallory, the co-founder, president and CEO of Health Diagnostic Laboratory Inc. (HDL), was named Virginia Business magazine’s 2013 Virginia Business Person of the Year. Her drive to create a new model for treating chronic disease and HDL’s impressive ramp up  — one of the biggest expansions ever in Richmond’s biotechnology park — made her stand out.

Less than 11 months later, Mallory has stepped down as CEO, citing family reasons. HDL is under scrutiny as part of a federal investigation into reimbursement practices in the clinical laboratory industry. The company also is being sued by Connecticut-based health insurer Cigna, which seeks to recover $84 million in insurance claims paid to HDL.

At issue in the Department of Justice investigation is HDL’s former practice of paying doctors for blood samples sent to its labs for testing.  Federal regulators have warned that such remittances posed a risk of amounting to kickbacks. 

In early September, The Wall Street Journal ran an unflattering front-page story on HDL and the investigation.  About two weeks later, Mallory announced in a letter to employees that she was resigning as CEO to help her widowed brother start a business. Mallory remains on HDL’s board and serves as an adviser to the new CEO. The company has said her departure was not related to the federal probe.

In mid-October, Cigna filed suit in U.S. Federal District Court in Connecticut, accusing HDL of a “fraudulent fee-forgiving scheme.” Cigna’s suit alleges that HDL entices Cigna plan members into using its blood-testing services by not charging patients for their share of the cost. The result, the suit says, are “exorbitant and unjustified charges” for these tests.

Fast-track growth
The company’s new leader is Joe McConnell, HDL’s chief laboratory officer and the former director of cardiovascular laboratory medicine for the Mayo Clinic. 

Mallory co-founded HDL with McConnell and the company’s Chief Scientific Officer G. Russell Warnick in 2009. Under Mallory’s leadership, HDL saw phenomenal growth, swiftly becoming one of the fastest-growing companies in the region with more than $400 million in annual revenue and a local staff of more than 750 workers (about 30 of whom have recently been laid off).  In 2012 Mallory received Ernst & Young’s National Entrepreneur of the Year award in the Emerging Company category, one of the country’s most prestigious business awards.

This spring HDL opened an expanded 283,000-square-foot, $100 million headquarters and laboratory in downtown Richmond. HDL’s buildings are owned by a public/private joint venture.  The Virginia BioTechnology Research Park owns 11 percent of Biotech 8 LLC, with HDL and Lingerfelt Development in Richmond being the other partners.

One of the largest cardiovascular and diabetes testing labs of its type in the world, HDL can process as many as 60,000 lab tests a day. The company says its panel of advanced biomarker tests helps physicians more accurately predict and prevent cardiovascular disease.

Change in practices
In June the Office of the Inspector General for the Department of Health and Human Services issued a special fraud alert, warning that the practice of paying physicians for blood tests represented “a substantial risk of fraud and abuse under the anti-kickback statute.” HDL had reimbursed most physicians $20 per blood sample for processing and handling the samples, a fee slightly higher than what some other labs paid but $17 more than the $3 reimbursement paid by Medicare, according to The Wall Street Journal.

The Journal raised the question of whether the reimbursements improperly incentivized doctors to order tests. It noted that HDL collected hundreds of millions of dollars from Medicare while using this payment model. According to the newspaper, $157 million, or 41 percent of HDL’s 2013 revenues of $383 million, came from Medicare reimbursements, with the company’s billings for some procedures far exceeding Medicare payments to other labs. 

HDL stopped physician reimbursements, which it said was an industry-wide practice, as soon as it received guidance from the federal government in June, says company spokesman Jeff Kelley. The company has shifted its operations since then, using a variety of means to obtain blood samples. HDL now provides free testing materials to physicians, is opening its own blood labs and is placing HDL-employed, blood-draw technicians in some doctor’s offices. The company also is contracting with independent lab testing sites across the U.S. to draw blood for its tests.

“The last few months have included significant changes at our company. Like all young, innovative companies in the health-care and biotechnology arena, we are constantly evolving to respond to the needs of physicians and their patients. Looking to the future, our mission and focus is clear — bringing physicians valuable testing tools and providing state-of-the-art disease prevention information for millions of people,” says Kelley.

Physician defends company
One of those physicians is Dr. Sam Fillingane, who specializes in treating patients at high risk for cardiovascular disease. The Flowood, Miss., doctor was singled out in the Journal article for the high volume of tests he sends to HDL. Fillingane serves on the company’s medical advisory board and receives payments from HDL for delivering medical lectures about the company’s biomarker testing. According to the WSJ story, he stood to earn more than $23,000 in reimbursements from HDL for blood testing in the first half of 2010, after sending in 1,179 blood samples.

Fillingane says that, by using HDL’s tests, he’s able to help patients prevent heart attacks, strokes and a host of other health problems that are more costly to insurers. Speaking to HDL’s former reimbursement practice, Fillingane says “doctors don’t order these tests because they’re going to get reimbursed. … But I will tell you there’s a lot of work to be done to draw seven tubes of blood: process, spin, separate, label, put in plastic bags, put in ice appropriately and get it to Fed Ex … by a certain time of day … because it’s a time-sensitive blood test. So there is work to be done for all of that, and I really feel like the medical profession is treated wrongly. We’re treated like criminals for getting paid for doing a service.”

In a statement released to the WSJ, Mallory said HDL “rejects any assertion that we have grown and succeeded as a result of anything other than proper business practices,” adding that HDL “has consistently complied with all applicable laws.” The company has launched a website, hdlinckeyfacts.com, to address the controversy and refers all media questions about the investigation to the website.

Despite the timing of her resignation, Fillingane says it’s nonsense to think that Mallory resigned from HDL for any other reason than to help her family. “Tonya Mallory’s one of the finest people you’ll ever meet,” he says. “She has done more good for cardiovascular disease in America than any one single individual. … If anyone ever disrespected her, they would have to do it over my cold, dead body because that lady has stepped up and taken risks personally and financially to make these biomarker tests more accessible” to a wider variety of patients, including those with lower incomes.

The Cigna suit
Cigna’s 28-page lawsuit against HDL stems from insurers’ use of health-care networks in which providers agree to accept fixed rates. Health-plan members are allowed to use providers outside the network, but they are required to bear a portion of the cost of that treatment because out-of-network providers generally charge higher rates.

“Without this obligation, out-of-network providers could demand prices from health-care plans which have no relation either to their actual costs or to the actual market for medical services, and members would have no incentive to avoid these providers,” the suit says.

HDL undermines this system, the suit says, by “misrepresenting those responsibilities under the plans by promising not to collect a co-payment, co-insurance or deductible obligation, and further promising not to seek reimbursement for any portion of its bill the plan does not cover. HDL then misleadingly bills the plans themselves at exorbitant and unjustified ‘phantom’ rates — rates that misrepresent what HDL actually intended to collect.”

Because patients don’t pay any portion of the charges, Cigna contends, they have no incentive to control their demand for HDL services, leading to increased cost to the plan.
The insurer also mentions in its lawsuit the fraud alert issued by the federal government, saying fees paid to physicians and other health-care providers encourage them to order a “litany” of tests that may not be necessary.

HDL’s business model “is designed to game” the health-care system, the suit charges. Kelley, the HDL spokesman, said the company does not comment on pending litigation.

Mallory’s successor
In a statement released by HDL when Mallory resigned, her successor,  McConnell, said he looked forward to leading HDL “as it continues its critically important advanced testing that provides actionable information that can lead to early detection of diseases … improved treatment and even disease reversal.”

McConnell declined to be interviewed for this story. However, in an interview with Virginia Business last December McConnell, 50, recounted that he was motivated to go into cardiovascular medicine and research because of a lengthy family history for cardiovascular disease.

“My grandparents died in their late 50s and early 60s of heart attacks and strokes. My dad had his first heart attack when he was 61. … He had a second heart attack when he was 62 and died … Nobody in my family had ever lived past 63 years of age. That really hit home.”

In a statement provided to Virginia Business, Mallory endorsed McConnell’s leadership. “Joe McConnell succeeding me as president and CEO of HDL Inc. is a natural progression of the business we co-founded together…. Preventative medicine is in Joe McConnell’s DNA, and he will serve HDL well.”

Location, location, location

Virginia isn’t just for lovers or political scandals — it’s also for distribution centers.

In the past few years, the state has seen a plethora of companies locating distribution centers and warehouses here, including Amazon, Medline and Philip Morris USA in Chesterfield County, Lumber Liquidators in Henrico County, The Vitamin Shoppe in Hanover County and outdoor gear retailer Backcountry.com in Montgomery County.

The industrial real estate market is particularly hot statewide because Internet retailers are attracted by Virginia’s central location on the East Coast and its proximity to the key transportation arteries of interstates 81 and 95, not to mention the Port of Virginia in Norfolk and its intermodal center in Front Royal.

“As online shopping and online sales increase, there’s less of a need for bricks-and-mortar locations and more of a need for distribution and logistics locations. It’s all about speed for the customer. It’s all about building distribution networks where people can be reached quickly with their products,” says Matthew Huff, an associate broker with Roanoke-based Poe & Cronk Real Estate Group. 
Poe & Cronk assisted Backcountry.com in opening a distribution center in Montgomery County’s Falling Branch Corporate Park in 2012.

About 70 percent of Backcountry.com’s customers are on the East Coast, says Brian Hamilton, Montgomery County’s economic development director. That drove its decision to locate in Virginia, just off Interstate 81. “Our site is an eight-hour drive to New York and in eight hours you can also get to Atlanta,” Hamilton says.

Backcountry.com invested $20 million and built a 315,000-square-foot East Coast fulfillment center, creating 200 jobs in the New River Valley area.

That’s a typical scenario for a larger distribution center.

In Hanover County, The Vitamin Shoppe built a 300,000-square-foot, $39.4 million distribution center last year alongside Interstate 95 in Ashland. Republic National Distributing Co., the second-largest wine and spirits wholesaler in the U.S., is building a 260,000-sqare-foot, $17 million distribution center next door.

According to Edwin Gaskin, Hanover’s economic development director, distribution centers “represent a healthy percentage” of the county’s current economic development prospects, and every company is interested in new construction. “They want to design their facility for maximum efficiency,” he says. “If your staff has to take 20 more steps to do the same task because of poor design, that’s not efficient.”

Distribution centers require a big footprint and possess unique architectural needs, says Lang Williams, a senior vice president in the Norfolk office of CBRE, which assisted with The Vitamin Shoppe deal. High ceilings, for instance, are required to stack inventory, and companies need powerful fire suppression systems.

“There is very little, if any, quality available space with the design features that these users need,” Williams says. Because of the specialized equipment designed to handle each company’s product distribution, “you pretty much have to build it new,” he says. “In The Vitamin Shoppe’s case, the material-handling system they have is almost as expensive to design and install and invest in as the building itself.”

Distribution and logistics centers also require large areas for loading trucks as well as plenty of parking. Distribution centers, like the one Amazon opened in Chesterfield, also tend to require a lot of manual labor. An e-commerce business “may have 2,000 employees at a large distribution center,” Williams says. “That’s a lot more land you also need to support parking.”

The area of the state that has probably benefited the most from the influx of distribution centers is the metro Richmond area. Their massive size and economic impact was heralded by the arrival of Amazon, which in 2012 opened a 1-million-square-foot, $85 million fulfillment center at Chesterfield County’s Meadowville Technology Park off Interstate 295.

The company employs about 1,100 workers at the facility and hires an additional 2,000 workers seasonally. Amazon simultaneously opened another 1 million-square-foot, $50 million fulfilment center in Dinwiddie County.

“When Amazon entered Richmond … that really established Richmond all of a sudden on [other distribution companies’] radar,” says Williams. “They look at the sophisticated supply team of an Amazon and they think, ‘Gosh, they must know something.’ … That seemed to make Richmond a popular place to be.”

The vacancy rate for industrial properties in Richmond reached 7.3 percent in the second quarter of this year, a five-year low, according to CBRE Global Research and Consulting. The average rental rate in the market was $4.07 per square foot.  The Richmond market had just over 1 million square feet of existing stock available for lease. 

Other major projects under construction in the Richmond area include one for Lumber Liquidators. The retail flooring company is opening a new, 1-million-square-foot distribution center this fall in Henrico’s White Oak Technology Park. “They’re a very fast-growing company with a number of retail stores, and their growth has demanded that they have their own distribution facility,” says Gary McLaren, executive director of the Henrico Economic Development Authority.

In Chesterfield County, Chicago-based Medline, a medical supply company, built a 404,000-square-foot, $20 million distribution center in the county’s Meadowville Technology Park this year. In the same industrial park, Philip Morris USA is spending $50 million on a complex of four tobacco-storage warehouses totaling 1 million square feet, which will open next year.

“With our success with Amazon, Medline and others, we are experiencing an increase in direct inquiries from interested firms,” says Will Davis, Chesterfield’s economic development director. The infrastructure required by the large industrial fulfillment centers is not only attracting other logistics centers but also call centers, back-office finance centers and associated third-party logistics firms, Davis says.

Because of that explosion of interest, real estate investment trusts are starting to build distribution center space on spec for the first time in several years, says Matt Braun, senior associate with Cushman & Wakefield|Thalhimer Commercial Real Estate in Richmond.

Pennsylvania-based Liberty Property Trust is building a 129,000-square-foot space in Henrico County near Richmond International Airport. Brandywine Realty Trust, also based in Pennsylvania, is building three industrial warehouses with higher ceilings and large bays in that area as well.

Says Braun: “We’ve seen more people looking at big tracts in the last 12 months than in probably the last six years combined.”

Point to point

When you’re using binoculars to scout sites from the top of buildings in Washington, D.C., it’s probably no surprise when you get a visit from men in dark glasses.

“I remember being up there, and Homeland Security wanted to know what we were doing on the rooftops. We were about 27, 30 stories up. … You could see the high-rises, the monuments, going to D.C. We were just tickled they were paying attention,” recalls Rowland George, vice president of Henrico County-based telecommunications engineering and installation firm NDEC.

A network design and engineering firm, NDEC specializes in telecommunications work such as engineering and design plans for fiber-cable installations to cell phone towers. The company also installed fiber-optic cable infrastructure and SMART Boards for Henrico County Public Schools.

But among its lesser-known services is the installation of laser bridges, a nifty, optical data-transfer system that can deliver a constant data stream of up to10 gigabytes between two points as far as five miles away, via invisible, pencil-thin lasers. 

A pair of laser transceivers, which somewhat resemble tourist viewfinders, must be mounted within an uninterrupted line of sight, usually on rooftops. Companies typically use the technology to connect internal computer systems or intranets between buildings.

The laser-bridge technology is about 15 years old, but it’s improved drastically since it first came on the market, George says.

Systems range from about $30,000 to $75,000 depending on how large a data stream a company requires. The system is often used in historic districts and areas where it is cost prohibitive to install fiber-optic cable, either because there’s no existing infrastructure or the property between the two points to be connected is owned by other interests. It’s especially popular in Europe, George says.

“We’ve got over 16,000 [laser bridge] links around the world. … We’ve got quite a lot of product out there,” says John Taylor, vice president of sales for San Diego-based LightPointe, which manufactures the laser bridge hardware.

NDEC has installed laser bridges on the East Coast from Pennsylvania to North Carolina.

In the Richmond area, NDEC clients using the laser bridge include ad firm The Martin Agency and auto dealership Richmond Ford. In Northern Virginia, the authorized installers for the system are NDEC and Maryland-based firm American Telecom Solutions, whose laser-bridge clients include Fairfax County-based defense contractor General Dynamics and the Alexandria-based nonprofit National Center for Missing & Exploited Children.

One of the laser bridge’s advantages, Taylor says, is that “it’s highly secure, and it has very high bandwidth you can’t get from Wi-Fi bridges.”

A typical Wi-Fi system is protected only by software encryption. Radio frequency waves radiate from the point of broadcast and can be detected and intercepted by anyone in range. The laser bridge system is pencil-thin, invisible and virtually undetectable. The data already are encrypted, and to hack into it from outside a building, you’d have to install another compatible transceiver in the same narrow, physical line of sight that the laser is traversing, George says.

The latest systems come equipped with eight lasers and are equipped with auto-tracking technology to compensate for the swaying of tall rooftops. Because the systems are usually high in the air, they’re really interrupted only by severe weather. “Birds flying through it doesn’t affect it, but if they build a nest on [the transceiver], then that’s an issue,” George says, laughing.

The Martin Agency installed its system in 2010 to connect employees in a building about a block and a half away from its headquarters to its company intranet, says John Cartier, a vice president and network operations manager for the ad firm. The system is robust, he says, and can support voiceover IP phone service in addition to the company’s intranet.

The cost of the laser-bridge system was about the same as it would have been to subscribe for a few months to a 1 GB-per-second connection from a telecommunications provider and connect to the intranet via a virtual private network (VPN), Cartier says. Unlike a connection from an Internet provider, the laser bridge requires only a one-time capital outlay with no subscriptions or ongoing fees.

For The Martin Agency, the laser bridge also made sense because NDEC could install it and get it up and running in six hours, whereas it would have taken many months to get permits and permissions to install physical cable over a two-block distance in a crowded, historic, downtown district.

NDEC also installed a laser bridge for Old Dominion University. It used the system from roughly 2003 to 2009 to connect its campus intranet to ODU’s Frank Reidy Research Center for Bioelectrics, which was then housed about 1.25 miles away in the Norfolk Health Department’s building. Installing fiber-optic cable over that distance on property that the university didn’t own was too expensive a proposition, so ODU installed the laser bridge, says Wayne C. Jones, the university’s director of information technology infrastructure. ODU stopped using the laser bridge after the bioelectrics center moved into ODU’s Innovation Research Park on the university campus.

ODU’s laser bridge worked pretty reliably during the years it was operational, but there were a few snags, Jones says. For one, a few years after ODU installed the laser bridge, Sentara Healthcare built Virginia Heart Hospital nearby and the construction disrupted the lasers’ line-of-sight connection, so one of the laser transceivers had to be moved, and a cable had to be run a short distance from the relocated transceiver to the ODU researchers’ office. Additionally, Norfolk is prone to heavy fog and that took the system down about four or five times, sometimes for several hours, Jones recalls.

“If you have a very hard downpour of rain or snow or fog, your signal is going to be affected,” Jones says. “It would not work for anyone in emergency management or banking or any [industry] in which … the loss of a data packet would spell financial doom or life or death.”

Summing up the laser bridges, George says, “A lot of people don’t know about it, and as we tell everybody, your No. 1 choice would be hardwired. That takes fog and snow and things you don’t have control of out of the equation. This is more of a niche product where you need a connection between points A and B and … [laying cable is] either cost-prohibitive, or you’ve got real estate or infrastructure issues.”

Data mining

When Hurricane Sandy struck the East Coast in 2012, outraged cell-phone customers took to social media and corporate forums, complaining that they were being billed while they were without cell service, and many also were without homes.

However, using a powerful cloud-based analytics software platform developed by Reston-based Clarabridge, one leading telecom carrier was able to respond to the potential public relations crisis.
“After seeing the high emotional content of a lot of the messages, they made the decision to pre-emptively not charge customers that were in the areas hardest hit by the hurricane,” says Clarabridge CEO and co-founder Sid Bannerjee. “Basically, you put people’s hearts and minds at rest, you limit their need to call you and you build customer loyalty.”

Clarabridge is a pioneer in the burgeoning field of customer experience management. Utilizing Clarabridge’s data-mining tools, executives from companies such as Best Buy, United Airlines, Dell and PetSmart are able to sift through the detritus of social media and many other sources of customer reactions to determine in real time whether a customer problem is developing.

For instance, during the peak holiday shopping months, Best Buy operates a war room to ensure maximum customer satisfaction. Using Clarabridge’s software, the company was able to respond quickly to customer concerns such as staffing or product inventory.

Customer experience management is a fairly new field of marketing that goes beyond customer surveys to better understand customers and what makes them continue to be loyal to a brand, company or product. The emerging marketing sector is being driven by the explosion of social media, review sites and other channels for customer interactions, along with new technologies for mining big data and sorting through unstructured records such as tweets and Facebook posts.

“Twenty years ago [customers] would have called the 800 number or complained to the store manager. Today they’re as likely to post a bad review on Yelp or leave a tweet than they are to speak to your store manager,” Bannerjee says. “The challenge is to collect all that data and make sense of it.”

Chris Little, CEO and founder of Richmond-based SingleStone Consulting, agrees. SingleStone changed its name from Dominion Digital this year to better reflect its new focus on customer experience management. The firm’s clients include Genworth Financial, Allianz, New York Life Insurance Co., MeadWestvaco and even the Virginia Department of Transportation, which has hired SingleStone to improve its customer service center interactions.

During the past three to five years, because of social media, review sites and mobile apps, “the power has shifted from corporations to customers,” Little says. “Consequently corporations are paying a whole lot more attention to customer experience.”

Previously, “if you were dissatisfied with a product, you might tell a few of your friends and your family, and that was the extent of it, but with social media, you can tell the world, and you can write reviews that influence people’s purchasing decisions, and things can go viral that can have a huge impact on a company.”

In recognition of this changing model, Bannerjee says, large companies such as The Walt Disney Co. and United Airlines have begun in recent years adding chief customer officers to ensure that “sales and support are all working towards a common goal of creating loyal customers.”

Little adds, “Customer expectations and their standards have grown considerably, and their options for switching between providers have increased. … Consequently corporations are paying a whole lot more attention to customer experience. Some companies are struggling just to meet expectations, but we believe in exceeding expectations and delighting customers. That should be the standard. If you’re not prepared to delight your customer, somebody else will. It’s just a matter of time before your customer makes the switch.”

Clarabridge’s customers track customer input through website dashboards, mobile apps and software solutions that integrate with their existing platforms such as customer interaction tracking systems or market research software.

For instance, one client, a national cellular provider, was concerned about the impact of service outages on customer retention. Clarabridge’s platform was able to determine that dissatisfaction over outages was short-lived but higher pricing packages were much more likely to cause a customer to jump ship.

“We have several hundred customers with big-brand names that use us to understand what their customers are saying, or to understand … the voice of the customer and then interpret that in a business-specific way,” says Susan Ganeshan, Clarabridge’s chief marketing officer.

For example, she says, “the voice of the customer for a high-tech firm is very different from the voice of the customer for a CPG [consumer packaged goods] products company. We interpret that data and push it out through the people in the organization who can do something useful with it. They may change a product, or they may decide to develop new products. They may decide to market the product differently or through different channels.”

With the advent of social media and mobile apps, the number of sources of customer interactions has grown dramatically in addition to traditional sources, such as call centers, and in-store feedback and bottom-of-the-receipt surveys. Clarabridge’s average customer tracks at least 25 sources of customer interactions that can yield thousands upon thousands of customer comments. Using advanced analytics tools, Clarabridge’s software platform is able to cull the most important information and identify trends from these disparate sources.

Some international corporations can log hundreds of millions of instances of customer feedback in a single year. That requires sophisticated data-mining technology that can recognize positive and negative comments, interpret Internet and cultural slang, and separate the wheat from the chaff, Ganeshan says.

Another important factor with customer experience management is brand consistency. “There are so many channels through which companies interact with their customers, so there’s a tremendous importance for consistency across those channels … and taking the full customer lifecycle into consideration.” For instance, Bannerjee cites Apple as an example of a company that offers a successful and consistent customer experience across its website, retail stores and marketing efforts.

As with the example of the Best Buy war room, it’s also more important than ever for companies to be responsive to customers. They need the technology to help them extinguish small fires before they turn into conflagrations. A corporation “might receive 500,000 tweets a day, and there might be five to 10 you have to react to immediately and the rest all have operational details that you want to be able to use to understand the trends over time,” Bannerjee says. “What we can do is give you a real quantitative proof point and identify problems that will have a real impact on whether the customer will be loyal or keep doing business with you.”

Numbers game

When Americans change phone providers, we don’t give a second’s thought as to how — or even if  — we’ll be able to transfer our old phone numbers to the new provider. We just take for granted that it will happen — instantaneously.

Since 1997 that technical feat has been the product of the Number Portability Administration Center (NPAC), which was established and is managed by Sterling-based Neustar, a corporation with about half of its 1,600 global employees located in Washington, D.C., and Northern Virginia. (The Washington Post ranked Neustar No. 18 in its 2014 list of 150 Top Workplaces employing more than 500 people in the D.C. area.)

In early June, however, the Federal Communications Commission accidently leaked documents showing that Neustar is in danger of losing the $450 million annual number portability contract to Telcordia, a division of Swedish telecommunications giant Ericsson, which provides number portability services for India. The contract makes up about half of Neustar’s annual revenues.

Neustar and Telcordia have levied accusations against each other about improprieties in the bidding process for the contract. (Neustar’s current contract is set to expire at the end of June 2015.)

Financial and technology analysts have said they’re worried about the possibility of a “Big Bang Implementation” scenario in which Telcordia would have to build a new system from scratch, which they say could result in service headaches for consumers and major problems for smaller telecommunications carriers.

A report prepared in January by information technology analysis firm The Standish Group predicted that a transition from Neustar to Telcordia would almost definitely not be implemented in time and that “over 60 percent of the customers will have service delays and struggle with the migration and integration. … It is highly likely a new vendor would need to cut out steps and efforts, such as comprehensive testing, to reduce cost and time. In essence, to be successful, a new vendor would need to re-create 17 years of systems development and services within 15 months.”

Standish wrote that “Over the last 17 years Neustar has not only delivered new functionality but also optimized both the new functionality and the level of service to meet the needs of the industry. By Neustar adopting a more iterative style of development and delivery, the telecom industry has increased the value of their investment.”

The D.C.-based Competitive Carriers Association, which represents smaller telecom providers across the nation, wrote a letter to the FCC in March, expressing concerns about the possible transition and its impact on smaller carriers in particular.

“Competition in the telecommunications marketplace depends on consumer confidence in the ability to seamlessly move between carriers — and among wireline, wireless and VoIP [Voice over Internet Protocol] carriers — without changing telephone numbers,” wrote Rebecca Murphy Thompson, the association’s general counsel. “Absent that assurance, consumers will hesitate to switch carriers, even when an alternative carrier offers lower prices and better services.

A spinoff of Lockheed Martin Corp., Neustar was established to create and run the NPAC and has been awarded the contract four previous times without any competition. When it was publicly announced in January that Telcordia was competing for the contract, financial analysts were caught by surprise, says John F. Bright, director and senior research analyst with Avondale Partners LLC.

Moving to Telcordia could open up the United States’ telecommunications network to security concerns, Bright postulates, given the fact that “a foreign entity [Ericsson] will control all the phone numbers in the United States.” 

There also are questions about neutrality. Ericsson manufactures telecommunications equipment and Bright ponders whether Telcordia would be in the position to offer better number portability service to companies that purchase from Ericsson.

It would be in the best interest of consumers, national security and U.S. telecommunications companies if the FCC allowed Neustar to submit a lower bid than Telcordia, Bright says.

Speaking on behalf of Neustar, John Buckley with The Harbour Group based in Washington, D.C., says “Neustar has built the global standard in local number portability and number management. There is no country on Earth that has a system as robust and as beneficial to consumers and small carriers as the U.S. system. Ericsson has managed significantly less sophisticated number portability [in India] … There is no comparing their performance with what Neustar has done over 17 years of flawless service.”

The transition process “is fraught with uncertainty,” Buckley says, and it will have more of an impact on smaller carriers because “the NPAC does much more than the simple porting of telephone numbers. It is actually the single database that is used by thousands and thousands of telephone carriers around the country not just to manage number porting but to manage their database of telephone numbers. All of their information is coordinated and communicated through the NPAC.”

Larger carriers such as AT&T and Verizon maintain their own networks and databases based on data from NPAC, but smaller carriers often rely heavily on Neustar’s suite of services for managing networks and phone number databases, Buckley says.

The drama over the NPAC contract started last year. The contract process is overseen by the North American Portability Management LLC and the North American Numbering Council, groups made up largely of representatives from major telecom corporations such as Verizon, T-Mobile and AT&T. The final contract goes to the FCC for approval. In June, the FCC announced that the North American Numbering Council unanimously recommended that the contract be awarded to Telcordia. Neustar stock fell 8.4 percent the day of the announcement.

Neustar submitted its bid by the April 5, 2013, deadline, but Buckley says that on April 17 the deadline was “mysteriously” extended until April 22, to allow Telcordia to finish its proposal. (An argument bolstered by the fact that Neustar dug up information from a Telcordia employee’s Facebook status showing that the employee was still working on the contract bid on April 5 and had been working for “66 straight hours” on the proposal.)
Additionally, Buckley says, Neustar expected to be able to submit revised lower bids during the contract selection process, but the North American Portability Management  rejected a revised bid from Neustar last October.

An attorney for Telcordia alleged in a letter to the FCC this February that Neustar had submitted the revised bid based on illegal insider information. The FCC has said it was looking into the complaints, which Buckley has dismissed as “mudslinging” by Telcordia. (Representatives for Telcordia could not be reached for comment for this story.)

The FCC ended a comment process for the NPAC contract in July, and it’s unclear when the actual contract may be awarded, since the FCC has delayed or missed several dates, Buckley says. It could be well into 2015 before the situation is resolved, as Neustar vows to continue fighting for the contract.

The digital divide

Want to take a trip back through time? Try getting on the Internet in a rural county.

In King and Queen County, where the county government installed a fixed, wireless broadband network last year, County Administrator Tom Swartzwelder says, “This county was dial-up before we put [the county wireless broadband] in, basically. You’re taking people from the cart and horse to a Porsche. You’re skipping the Model A and everything in between. If you lived in a dial-up world, how little would you use the Internet? … They still think of the Internet as the inconvenience of dialup, sitting and waiting for pages to load.”

In rural areas where high-speed Internet availability is spotty at best and may not even be easily available via cellular networks or satellite dishes, there is a growing digital divide. Low-income, disabled, elderly or less educated residents frequently don’t understand what broadband is or that it can be used for more than just Facebook and Netflix.

“A lot of folks don’t know all the things they can do with broadband, especially as you move into the rural areas,” says Sandie Terry, broadband program manager for Virginia’s Center for Innovative Technology (CIT). “In these rural areas … people say, ‘I have dialup; it takes care of my email, and that’s all I need.’”

A nonprofit corporation based in Herndon, CIT supports economic development of technology-based endeavors in Virginia. CIT partnered with King and Queen County earlier this year to launch a federally funded pilot study aimed at increasing broadband adoption and awareness of the benefits of high-speed Internet among rural residents.

In April CIT conducted a direct-mail survey of 534 King and Queen households (out of the 2,900 total in the county), collecting information about residents’ computer use, digital literacy and awareness of broadband.

According to preliminary data from the survey, just 68 percent of parents of elementary school students surveyed reported having home Internet access. Furthermore, 17 percent of respondents said they didn’t own a home computer. The top reasons cited for not having a computer were expense (47 percent) and not knowing how to use one (29 percent).

King and Queen’s 6,945 residents are widely dispersed throughout the 72-mile-long, 15-mile wide county, which is largely made up of farmland and timberland. King and Queen had tried for some time to entice a telecommunications company to bring high-speed Internet to the county, but companies said the market wasn’t big enough and installing a network would be cost-prohibitive. Federal grants for rural broadband were a no-go because the county was considered too close to a metro area, being about 60 miles from Richmond.

Creating its own system
Eventually the county decided to form a wireless service authority and install its own high-speed wireless broadband network, piggybacking onto towers being built to upgrade the county’s emergency communications system network.

“No free-market provider was willing to come in and build the infrastructure here,” says Swartzwelder. “The Board of Supervisors felt they had to step in and provide this service to citizens and businesses and school-age children.”

The school system already has benefited from the new county broadband system in multiple ways, including being able to conduct more online Standards of Learning tests simultaneously. “The Internet speeds are more robust, so we’re able to leverage the accessibility of information in ways we weren’t always able to do,” says Superintendent Stanley Jones.

The county broadband network covers about 75 percent of the county, and officials hope to have the rest of the county covered by 2015. However, only a few hundred homes out of a total of 2,900 are taking advantage of the county broadband so far, and the adoption rate has stalled.

In King and Queen, where the population is aging, digital infrastructure can be crucial to a community’s long-term survival and to its residents’ quality of life, Terry says.

“When we’re talking about the digital divide, it is real, and it’s going to grow exponentially,” she says. Communities with high-speed Internet and more access to technology will succeed educationally and economically, in addition to being able to provide better health-care and government services.

Lack of broadband and lack of technologically savvy workers also harms the real estate market and economic development, Terry adds: “They’re going to lose the tax base; they’re going to become older. All of their community assets are going to suffer.”

Managing illness
Additionally, being tech literate can save money. Studies have found that savvy shoppers can save as much as $10,000 a year by comparing prices and shopping online, Terry says. “We’ve got to push out digital literacy training to more of our senior organizations. … Seniors are going to be a key focus of the programs we put in place in King and Queen.”

Bay Aging President and CEO Kathy Vesley-Massey participates in King and Queen County’s broadband work group and agrees that more education is needed. Her Urbanna-based nonprofit provides services to senior citizens in the Northern Neck and Middle Peninsula that include free computer literacy classes at its 10 senior centers.

In addition to helping seniors combat social isolation by connecting with friends and family via Facebook or Skype, broadband can be even more important for seniors by helping them manage chronic illnesses. “Most of the health-care systems now have some form of patient navigator. You can go online and get all your health records … access what the doctor’s discharge plan was for you, access when your follow-ups are,” Vesley-Massey says. “The tools that are available online are just really, really important to these senior populations.”

“From a social services perspective, so much of our business is going online as well … SNAP benefits, Medicaid,” says King and Queen Department of Social Services Director Betty Dougherty. She also chairs the King and Queen Resource Council and is part of the broadband work group. “With our county being so geographically spread out, they don’t have to drive into social services and fill out a paper application. They can go online and put in their information … and even do a pre-application screening before they submit for benefits.”

CIT plans to submit its full report and recommendations to the volunteer King and Queen County broadband work group by July. Some of those recommendations could include programs to refurbish old computers and distribute them to the elderly and needy, Terry says. Other initiatives could include more digital literacy training and also working with the county government to ensure it’s making the best use of its online assets, such as posting relevant information on its municipal website and providing online payments for tax bills and county fees.

“People say, ‘Well how much broadband do we really need?’ but … we’re going to have more and more devices in our homes connecting to the Internet, so the bandwidth has to come up,” Terry says. “If you consider rural areas where someone’s depending on satellite or 4G mi-fi, that’s not going to sustain those people long. They’re going to end up wanting and needing more bandwidth and if they can’t get it in those areas, they’re going to move out.”

Can baseball boost the Bottom?

Could a new baseball stadium plopped down on a flood plain in Richmond’s Shockoe Bottom revitalize the capital city’s downtown?

Known primarily for its iconic train station, farmers’ market and busy nightlife, Shockoe Bottom has long drawn a younger crowd who flock to its restaurants and nightclubs. Recently, developers have been capitalizing on this appeal by renovating older buildings into apartments.

One drawback for commercial development is the Bottom’s location; much of the area sits in a 100-year flood plain. Richmond Mayor Dwight C. Jones, who has proposed a $200 million baseball stadium and mixed-use development, says the flood plain is what makes the project work. During a recent appearance before the Richmond chapter of Commercial Real Estate Women, Jones explained, “The ballpark allows us to mitigate some of the flooding conditions.” 

Besides moving the minor league Richmond Flying Squirrels from its home on the Boulevard — a move Jones says would free up a well-located site for new development — the public/private stadium project calls for new commercial development in the form of apartments, (as many as 750), office space, a 120-room Hyatt hotel, a 65,000-square-foot Kroger grocery store, and $30 million for a museum and historical site commemorating the area’s dark past as a slave trading center.

Since introducing his proposal last November, the mayor’s plan has encountered many delays. The latest is a city-backed archeological initiative favored by history advocates that could take up to two years and slow  Jones’ plans to have the Squirrels playing in a new stadium by 2016.  The move, however, could help blunt opposition that seemed to be gathering steam in March. That’s when opponents launched an organized ballot initiative for the November general election. It calls for the city to create a historic review commission and lower the number of council members — from five to three — needed to seek a nonbinding advisory referendum on stadium and arena projects.

Even the descendants of Solomon Northup, whose autobiographical account of being kidnapped as a freeman and sold into slavery was adapted into the 2014 Oscar-winning film “12 Years a Slave,” have jumped into the fray. They oppose a stadium being built in the area where Northup was believed to have been held in a slave jail.   

If the project is approved despite concerns about mixing baseball with a slave trade heritage site, the question becomes: What impact would it have on Shockoe Bottom and the region as a whole?  

Developers like the Midlothian-based Rebkee Co. already have scooped up four parcels near the stadium’s proposed location at 17th and East Franklin St.  The company closed on four parcels for $1 million shortly before Jones announced his plans.

City officials hope the ballpark development would jumpstart retail, which is sorely lacking downtown. “We have a very successful downtown with office and law firm space,” says Lee Downey, the city’s economic and community development director. “But over the years we’ve lost our retail and manufacturing. We see the Shockoe plan as really impacting our ability to diversify, to bring meaningful retail back into the city.”

Unlike many stadium projects, predicated on the hope that development will grow around a ballpark, he notes that this stadium is the anchor of a larger mixed-use complex. 

Developers including Raleigh, N.C.-based Highwoods Properties and Richmond-based Historic Historic Housing LLC have committed tentatively to the project.
Paul Kreckman, who heads up Richmond-area operations for Highwoods — the largest property owner in Henrico County’s Innsbrook Corporate Center — says the company is in discussions to develop an office complex north of the ballpark on East Broad Street but only if the city builds the ballpark, commits to offices being part of the development and an appropriate tenant or tenants commit to a lease.

“The ballpark to the south has to occur at the same time as the private development,” Kreckman says. “The one requires the other and vice versa, because the private development is the genesis of the taxes in the various forms that support the debt service, along with rent from the Squirrels.”

The project’s public costs are expected to be $80 million. They include  the baseball stadium and infrastructure improvements, including upgraded flood control, along with $5 million in public money for the slave history sites. The costs would be funded initially through public debt service incurred by the city economic development authority. Of that amount, the stadium itself would take $56 million. The debt, Downey says, would be repaid via a combination of tax revenue from the new developments and $1.7 million in annual rent from the Squirrels (roughly 20 times the amount of the team’s current rent).

The city isn’t offering incentives or tax abatements. Estimates of about $125 million in private investment would cover apartments on both sides of East Broad Street, the hotel, office space, grocery store and a parking deck.

As a general rule, minor-league baseball stadiums aren’t winning economic development propositions, says Andrew Zimbalist, an economist who’s studied the issue at Smith College in Massachusetts. “If the finance deal is relatively equitable, the best you can expect is to break even economically,” he says.

“The main benefit would be cultural and social. You’ve got wholesome summertime entertainment for your population, and perhaps it creates some basis for socializing and unity and identity within your community.”

That seems to be the case in Virginia Beach where city officials hope a privately financed $40 million, 5,000-seat stadium scheduled to open in 2015 for the city’s as-yet-unnamed Atlantic League team will both improve the region’s quality of life and spark tourism.

As part of a deal reached with the city, Virginia Beach Professional Baseball LLC will add four softball fields and 13 youth sports fields to the city’s Princess Anne Athletic Complex. Virginia Beach will accelerate plans for upgrading road infrastructure to the site and will offer some tax abatements.

With the addition of the new fields, “we’ll be able to attract much larger national tournaments. … That’s going to be a fantastic opportunity to host youth and adult tournaments, which will generate heads and beds: hotel taxes, restaurant taxes and bring more people into the resort city for vacations,” says Michael Kalvort, the city’s parks and recreation director.

Another concern Zimbalist raises is the fact that baseball stadiums usually hold games for only about 70 days a year. If the ballpark’s dark for the rest of that time, that creates a problem for surrounding businesses that depend on the foot traffic.

Todd “Parney” Parnell, chief operating officer for the Flying Squirrels, says he’s confident the team could keep a new stadium hopping year-round with festivals, concerts and other community events that are more difficult to stage at the team’s current home, The Diamond.

After all, the Squirrels, the Double-A affiliate of the San Francisco Giants, have consistently exceeded the attendance figures of the city’s previous team, the Triple-A Richmond Braves, by creating a family-fun, party atmosphere with live music and fireworks displays. 

The Squirrels have drawn an annual average of about 446,000 fans to the Diamond for the last four years. In the Richmond Brave’s final four seasons, they averaged about 328,000 attendees per game. After moving to Georgia, the new Gwinnett Braves have drawn around the same numbers, fewer than expected by Gwinnett County officials who built a $64 million stadium to attract the team.

“We’re a whole lot more than a baseball team to the Richmond community,” Parnell says, noting that his team is based on a model of community involvement and family-friendly experiences. The Squirrels sponsor food, clothing and baseball equipment drives for the needy and host youth sports camps among other charitable activities. “We’re an event that surrounds a baseball game. … People come to us to have a good time.”

There’s been talk about building a stadium in Shockoe Bottom since at least 1975. The Braves left in 2008 when plans for replacing the aging Diamond stalled. The city has discussed demolishing the ballpark and opening the site up to proposals for mixed-use development.

If the mayor’s plan comes to fruition, the Shockoe and Boulevard developments could be transformative. “To me, this really isn’t about baseball; it’s about economic development,” Kreckman says. “It’s about smart land use.”