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Rental housing considered a challenge for IBM's new service centers

Wednesday, June 2, 2010 | 12:01 a.m. CDT
IBM opened a service center in downtown Dubuque, Iowa, in January 2009 and currently occupies floors 5-9 in the Roshek Building, once a department store, as seen on May 26. While many of the employees work standard business hours, the call center is staffed 24 hours a day.

  It is easy to pick out the IBM employees gathered at Dubuque, Iowa's Town Clock Plaza by the identical, white security access badges that hang around their necks.

At midmorning Thursday, about 18 of the workers were engaged in cigarette break conversations in the park outside the Roshek Brothers Building, an old, refurbished department store that houses Dubuque’s newest corporate guest.

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Others with blue and black IBM backpacks on their shoulders streamed in and out of the building, exchanging work shifts at the Big Blue's service center that operates around the clock.

It's been almost a year since IBM opened a customer service center in Dubuque on the edge of the Mississippi River, and the story continues making local headlines.

The city’s main newspaper, Telegraph Herald, featured a front-page article on Thursday under the headline “What IS Sustainable Dubuque?” about a new public-private partnership between IBM and the city.

The Smarter Sustainable Dubuque Initiative, according to the article, is a pilot project that seeks to develop a blueprint for sustainable development by use of technologies such as automated meters that can measure and regulate household and industrial usage of resources such as water, electricity and fuel.

It has generated publicity, and the gradual influx of hundreds of new faces coming to work for IBM has kept the buzz going about Big Blue’s entry into this city of 60,000.

IBM's service center in Dubuque is one of about 80 such facilities around the world and is similar to the one that is set to open this November in Columbia with the promise of creating 800 new jobs.

IBM sparks industry growth in Dubuque

Almost everyone on the streets of Dubuque seems at least aware that Big Blue has arrived. Small- and medium-sized business owners, city officials and even street vendors cited ways IBM had affected the Dubuque community.

The technology company has so far tapped about 866 workers for the Dubuque center, according to a company e-mail statement that said it is about two-thirds of the way to meeting its commitment to hire 1,300 workers by end of this year.

Dubuque City Manager Mike Milligen said there are no firm projections on economic benefits that are likely to spin off from IBM's presence, but he's certain the city will have an additional $60 million in payroll dollars by the time Big Blue hits its promised full employment level.

Mark Burns, the Dubuque Rescue Mission Thrift Store manager about four blocks from the IBM service center, said business has picked up since IBM workers started flocking into the town.

With every new wave of workers arriving, Burns said he notices a rise in demand for second-hand furniture and other household goods.

Burns said the "IBMers" have told him they prefer to buy second-hand goods as they are not certain how long they will be stationed in Dubuque.

"Our business has always been good, but it's been a noticeable difference," Burns said.

About seven blocks from the IBM service center, Santosh Khamal, the manager of Cafe Mana Java, said he is opening a new branch on the ground floor of Roshek Building that will be mostly dedicated to Big Blue employees. He estimates the new cafe will employ about 14 people.

Business has also been good for Doug Nielson, a sidewalk vendor who sells hot dogs, soft drinks and candies on the street right across the Dubuque IBM center.

He particularly remembers one recent day when a group of construction workers who are renovating the Roshek Building bought all the hotdogs he had for the day, and he had to close earlier than normal .

"Not everyone eats hot dogs every day, though," Nielson said. "I have to contend with competition from the pizza deliveries and others."

Parking in the downtown area is stretched to the limit, Milligen said, and the city has been forced to provide additional trolley service at a cost of about $13,000 per year to ferry workers who cannot find parking spots in the central business district.

The city is also fast-tracking a $15 million parking garage that Milligen said will be completed in about a year.

Finding space to rent is the biggest challenge

But it's the housing market that's been most affected by Big Blue's entry into Dubuque.

Milligen said the influx of IBM employees created an unforeseen demand for rental housing and pushed some to seek temporary shelter in hotels, bed and breakfasts and even at a senior residents’ home on the city outskirts.

Before IBM, Dubuque had about an 11 percent vacancy rate for the rental housing, Milligen said. "Now, we are down to about 2 percent.”

When Big Blue came knocking in July 2008, the U.S. housing market had still not imploded. Dubuque and IBM officials, therefore, assumed that a majority of the workers expected to immigrate from other areas would find it relatively easy to sell their old homes, move and buy houses in Dubuque.

But with the ensuing mortgage crisis, so many of the new IBM employees opted to rent that it created a rental housing shortage in Dubuque.

Rick Dickinson, executive director and chief operating officer of Greater Dubuque Development, said up to 80 percent of the new employees are from neighboring states and beyond, adding that most opted to go for rental units as they settled into their new jobs.

A housing update chart provided by the Greater Dubuque Development Corporation -- a private, nonprofit group that partners with the city on employment and job creation projects and was instrumental in luring IBM to Dubuque -- showed there were only 41 rental units available in the city as of May 21.

Dickinson said information gathered from real estate management companies, landlords, rental information signs and even Craigslist showed that only 2 percent, or 41 out of the 2,025 apartments and single-family units that were listed as being on the market, remained vacant.

He said some of the vacant houses are probably too old and unattractive.

The victim in the unfolding rental housing boom, he added, will be “the last, worst unit existing.”

“It is the dump that will suffer,” Dickinson said.

Aiman Al-Qady, a real estate agent with the Judge Real Estate Co. situated on Bluff Street almost opposite the Roshek Building, said his office is often the first stop for new IBM employees looking for housing.

Al-Qady’s office is on the first floor of what used to be a convent run by the Catholic Church until it was sold to developers in the early 1990s.

The four-story building, which still has two crosses on its roof, Al-Qady said, had 107 single rooms, shared bathroom and kitchen areas and was primarily used to house young women who came to look for work in the city.

Though the process of upgrading the building into housing apartments was under way before IBM came to town, the shortage of rental housing has made the renovation project more viable.

“The cost of converting the rooms into apartments is so high that you cannot do it if there was no guaranteed demand like the one we are getting from IBM employees,” Al-Qady said.

He estimated that almost a third of his new tenants in the past year have been IBM workers.

At the Redstone Inn & Suites, a bed and breakfast just across from Al-Qady’s offices, owner Jerry Lazore said his 15-unit lodge could have closed had it not been for IBM. He said all of the current occupants, about eight of them, work at IBM.

Lazore called one of his tenants to see whether she'd agree to an interview. She declined, just as numerous other IBM workers had, saying all communication with media representatives must be authorized by the IBM's public relations office.

Bruce McConnel, an IBM external relations officer, turned down requests for interviews with IBM officials at the Dubuque center and a tour of the facility, saying it would be "disruptive" to the sensitive client-support work that is done in the centers.

Dan Blake, who owns the Tredway House Bed & Breakfast about a mile from downtown, also is an IBM employee.

Blake said he used to work as an information technology expert for Pilgrim’s Pride in Pittsburg, Texas before he was laid off when the economy tanked last year.

He landed an IBM job in Dubuque, and decided to move there.

Blake already had experience running a bed and breakfast in North Carolina and counts himself lucky to have bought the Tredway House B&B as it affords him the opportunity to continue running a business he enjoys as a side job.

All three of his current tenants are IBM workers who continue to have difficulty finding rental apartments.

Blake prefers the routine of two of his IBM tenants who rent during the week and move out during the weekends when they go to visit their families. This is because over weekends there is likely to be more guests in the city looking for places to stay and he gets to charge them a higher price than the rate he has negotiated with his colleagues.

The usual price to stay at the Tredway House is about $150 per night, but Blake has entered into special arrangements with his co-workers and charges them “between $300 to $500” for one month of lodging.

Comparative figures provided by the Greater Dubuque Development Corp. indicated that a one-bedroom apartment in Dubuque rents for an average of about $750 per month, and two-bedroom rentals go for $850 to $1,300.

At the Oak Park Place senior residents home, about 13 IBM workers have occupied the entire second floor since late last year.

Tracy Connolly, the sales and marketing director, said most of them moved in after staying in hotels while looking for rental apartments.

Their ages range from early 20s to mid-50s, but Connolly said they get along quite well with the older residents in the housing complex.

“They enjoy the quiet environment,” she quipped.

Connolly did not disclose how much rent they are paying, but said they negotiated a month-to-month rate.

Oak Place resident Marc Solomon, 54, whose wife works at IBM, said the couple opted to move in after failing to find a rental apartment.

“Our house is in Detroit, and we just could not sell it as the mortgage market there is still badly depressed,” Solomon said. “Our children, my family and my wife’s family are all in Michigan and so we do not really have plans to move here permanently as of now.”

Solomon is also an information technology consultant and has converted one room of his two-bedroom apartment into a home office.

He said the rent is comparable to Dubuque’s market rates, but he enjoys the advantage of free maintenance offered at the home.

Greg Adams, the owner of Remax Advantage Realty, said rental rates and property values in Dubuque are on an upward curve compared to the average national trend of a flat mortgage market.

Adams, who is also a landlord, said rent for one-bedroom apartments has increased in some areas from $700 to $900 -- nearly a 29 percent jump.

“Every time a house falls vacant, the rent goes up,” Adams said.

Dickinson said some landlords were hiking rent prices to “rates that are relatively higher than the average rates in Dubuque,” but said some of the new developments are also built to higher standards that tenants are willing to pay for. 

To counter the rental housing crunch, Milligen said, the city has set aside up to $10 million as tax incentives for developers who wish to refurbish or upgrade housing apartments within the downtown area.

Dubuque city government has approved the construction of 526 new rental housing units, of which 236 are under construction and 33 were complete as of May 21, when the last count was done.

“They are leasing out before they are finished,” Dickinson said.

Columbia's rental situation

Mike Brooks, president of the Columbia Regional Economic Development Inc., a nonprofit that was involved in bringing IBM to Columbia, said the city appears better prepared to handle the expected influx of people coming to working for Big Blue.

Brooks said an August survey of the housing market in Columbia found about about 376 vacant rental apartments and 949 single family-homes on the market.

The timing of the survey, Brooks said, reflects the "near-optimum rental occupancy" in the local market, whose lowest occupancy level is during the summer school break.

Most single-bedroom rental apartments surveyed in Columbia -- about 21 percent -- had a monthly rental price of between $700 to $749, while the average sale price of the single-family homes was $167,661.

Books said projections show there will likely be 300 new houses coming to the local market spurred by new demand from IBM workers, who are expected to number 800 by 2012.

The question of whether Columbia will experience a housing shortage similar to the one in Dubuque is one that will be answered in time, Brooks said.

"But based on figures available," he said, "we believe the market will accommodate the anticipated growth."


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Comments

Ellis Smith June 2, 2010 | 7:18 a.m.

So we have the prospect of university students wanting off-campus housing needing to compete with IBM employees for rental accommodations. This should boon for anyone in Columbia with property to rent, but will it saturate the market to the point of becoming a serious problem?

A similar situation already exists at the location of another UM System campus. There the "employer" is not IBM but DOD (Department of Defense): a combination of civilian employees working at Fort Leonard Wood and dependents of military personnel at Fort Leonard Wood. Those folks find Rolla a better place to live than locations in Pulaski County, where the fort is located. There's even scheduled shuttle bus service between Rolla and the fort.

Missouri University of Science & Technology, with the fastest growing campus enrollment in the system on a percentage basis, is considering capping enrollment, in part due to lack of student housing.

Could a similar situation eventually occur in Columbia? The amount of rental housing is certainly greater in Columbia, but then so is the number of students (about 5 times the number at MS&T).

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