The call comes in on a Thursday in fall 2011.
“Matt” is on the line, telling Allen Williams, a veteran Iowa economic development manager, that he represents an Internet company looking to build a data center. It’s a $230 million project.
Matt offers no other details in the Oct. 6 call.
No last name. No phone number. No company name.
Later that day, “Matt Siculus” emails Williams from an anonymous Gmail account. He offers scarce more details: Iowa is one of 30 states, “from the Rockies to the Appalachian Mountains,” competing for the project.
From that tenuous beginning, Iowa embarks on an 18-month odyssey that will snare one of the most highly prized economic development deals in the nation.
Last month, local and state officials could finally trumpet the news: Facebook is coming. The social networking giant has chosen 200 acres in Altoona, east of Des Moines, as the spot to build only its fourth data center in the world.
The project will mean money and jobs for Iowa families. The deal is expected to grow to $1 billion over six years, pouring about $450 million into high-tech and construction salaries. It will mean at least 31 high-tech jobs paying a minimum of $41,800 annually, and will create up to 2,500 construction jobs.
But it means more than that, leaders say. Landing the Facebook project tumbles on its head the national perception that Iowa is mostly cornfields and hog confinements, or finance and insurance. It cements the state as a growing technology force.
Its buzz screams “there’s something happening in Iowa,” says Debi Durham, the state’s economic development leader, who spearheaded the effort to hook Facebook and reel it in to Iowa.
“It brings a whole new branding opportunity to Iowa,” she says. “We become the IT hub of the Midwest.”
But getting to that celebratory announcement isn’t easy.
Iowa leaders first must conduct exhausting negotiations, wrangle over minute details of a complicated contract, and withstand an aggressive bid by neighboring Nebraska, an examination of 330 emails related to the Facebook courtship shows. The Des Moines Register obtained the emails through the state’s open records law.
Matt VanderZanden, the Facebook leader who sent that first message, writes in a March 2012 email: “The deal is Iowa’s to lose.”
Yet it would be more than a year before the California company announces the project.
At one point, company negotiators lose patience with Altoona officials over delays, saying contract changes are “hostile to the deal.”
At another point, after Facebook’s high-profile fumbling of its initial stock offering, the project stalls. One of the few hints Iowa gleans about possible difficulties comes in an email saying the project is “stuck in corporate approval hell.”
Even Durham’s boss, Gov. Terry Branstad, has his doubts.
After her monthly updates, “he would say, ‘Debi, I’ll believe it when I show up for the groundbreaking,’ ” she says.
In interviews after the Facebook announcement, Durham tells the Register her feelings “run the gamut” – excitement, frustration, pure exhaustion – over the year and a half that state and local leaders negotiate to land the project.
“I’ve learned over the years that you can do everything right and still lose the deal,” she says. “This was one I didn’t want to lose.”
A project cloaked in mystery
Facebook is a global social media behemoth that encourages its 1 billion users to “like,” “comment” and “share” instantly with friends and family.
Each day, users post 2.7 billion “likes” and 2.4 billion photos, videos, posters and other content.
But the digital powerhouse practices old-school secrecy when it comes to finding a location for its latest data center project, observes David Maahs, the Greater Des Moines Partnership’s economic development leader.
“You still sign non-disclosure agreements. It’s still only first names. You still don’t get business cards,” he says.
Members of the corporate team, all using Gmail accounts to hide the company’s identity, call the data center Project Catapult. VanderZanden, a University of Pennsylvania-educated lawyer, uses the last name “Siculus,” the legal subsidiary for the project.
A month after that initial October 2011 email, four team members make their first visit to Iowa. They spend three days visiting six Iowa sites.
City and state officials have no idea how many states they’re competing against. They have no sense what company is involved.
The visitors ask a barrage of questions about water, power, fiber optics, soil conditions and road and air access, says Jeff Mark, Altoona’s city administrator.
The town of 15,000 is a Des Moines suburb known mostly as the home of Adventureland, the state’s largest amusement park, and Prairie Meadows, a thoroughbred racetrack and casino. One of its biggest commercial developments and employers is Bass Pro Shop.
As the questions fire at them, Altoona officials realize the potential prize is mammoth, and competition will be fierce.
“It was the first day that we really grasped the size,” Mark says.
“We figured it had to be a pretty big gun,” adds Altoona Mayor Skip Conkling, who was among those meeting the team on the day before Thanksgiving.
Iowa’s fickle weather even seems to give Altoona its blessing. Temperatures hit a balmy 49 degrees.
“We were joking about how beautiful it was,” Mark recalls. “We said, ‘There’s no way you’re not coming to Altoona. It’s so gorgeous.’ ”
Meeting with the governor
After visiting in November and again in January, the Catapult team whittles six Iowa sites to three – Waterloo, Waukee and Altoona.
On a second January trip, VanderZanden and two other team leaders meet with Gov. Terry Branstad, Lt. Gov. Kim Reynolds and Durham at the Capitol. Williams, the economic development project manager who received the initial contact, writes Branstad an email to prep him for the meeting.
The company is attracted to Iowa’s laws giving “sales tax and property tax exemptions for over 90 percent of the project’s estimated capital expenditures,” the email says.
The law also has benefited Google and Microsoft data centers in Iowa, Williams writes. He tells the governor the company wants “assurances Iowa can meet its aggressive time frame,” particularly in getting environmental permits and other approvals.
Catapult leaders plan to select finalist sites in two states by Jan. 31, Williams says. They will then proceed “on parallel tracks” with both states “as if the project were to occur at both.”
By mid-April, one state will land the project. The other will be dumped.
In Branstad’s 2010 campaign, he promised creation of 200,000 jobs in five years. He makes his opening pitch to Catapult leaders, touting Iowa’s business advantages.
He gives VanderZanden his business card, writing down his personal cellphone number.
“(It) says the state’s chief executive is interested, we’re responsive,” Branstad says. “If they have a problem, they won’t get a bureaucratic run-around.”
The governor later calls Facebook leaders “very tough negotiators. The company is meticulous. But it’s making a big investment, so it has to be.”
Nebraska raises the stakes
In March 2012, the company drops Waukee and Waterloo and picks Altoona as a finalist, Williams notifies Durham and others in an email.
Iowa officials still don’t know what state they’re competing against. But the company appears to be driving toward a June 2012 announcement.
Then Nebraska lobs a missile.
Lawmakers in Lincoln introduce and pass a broad set of data center incentives to match Iowa’s. The lawmakers tell reporters they’re racing with Iowa to land a gigantic prize, called Project Edge. They want it on their side of the Missouri River.
Kearney is the Nebraska finalist, the city manager there says.
Durham, mistakenly believing an Associated Press reporter is a legislative staffer, accidentally confirms to the media that Iowa is in the running.
She fears the disclosure could threaten any deal, and immediately apologizes to VanderZanden.
Her revelation increases the pressure on her to win the project. With a loss, the political fallout would be intense.
“There was so much anticipation around this project. Expectations were so high,” she says later. “Everyone wanted to know when the big data center was coming.”
Also in March, a roadblock suddenly emerges: VanderZanden emails Durham that state rules prohibit the company from fully benefiting from Altoona’s proposed 20-year tax abatement.
The rules specify that all phases must be built within a three-year project completion window. Facebook plans three phases over six years.
“Iowa should remove as many hurdles as it can to our building the third building in Altoona,” VanderZanden writes in an email.
But in the next sentence, he indicates Iowa is close to sealing the deal. “If we can come to a satisfactory outcome on this issue, then the deal will be Iowa’s to lose.”
State economic development leaders negotiate two waivers. One gives the company six years to fully build out the project. The other lets Facebook count stock, bonuses and other compensation toward the state’s wage requirements.
Durham says the wage waiver, which requires only her approval, doesn’t change the $41,800 worker pay thresholds the company must meet.
Economic development leaders are optimistic. An announcement seems near.
But in June, VanderZanden writes Williams to say he’s feeling “antsy” and wants to nail down the company’s agreements with the state.
State officials race to turn around a new contract draft within a week. Then the company asks for a meeting within two days to discuss a “high-level issues list” that will guide the next draft.
Internally, state lawyers grumble, questioning the rush.
“Much of this is due to their extensive changes to the standard contract, which don’t pertain to the $$$. A willingness on their part to recede from rewriting the usual agreement would help bring it to completion faster,” writes attorney Tim Whipple to Durham and others.
Durham, during a three-week trip in June to China, France, Germany, Spain and the Netherlands, pushes state lawyers to accommodate the company. She reminds them the project is a “priority for the governor, so I assume we can find a way to fast tract[sic] and work thru the issues.”
“Part of my role is to keep momentum going,” she says later about the weeks of negotiations. “I don’t want them to lose sight that this project will be good for Iowa.”
Durham plays diplomat. She emails VanderZanden in June to say she didn’t realize “we were holding up progress. We seem to be back on track.”
But it will be 10 months before the deal is done.
Project ‘just went dark’
About the time Facebook is turning up the heat on Iowa negotiators, the young tech company headed by billionaire wunderkind Mark Zuckerberg becomes publicly traded.
Its $16 billion IPO on May 18, 2012, sparks about 50 lawsuits and a federal investigation. Critics accuse Facebook of misleading investors about its financial condition before the IPO.
Durham emails or talks with VanderZanden at least monthly. Sometimes their chats unfold weekly or daily. But for six months, the project stutters.
“There were times the project just went dark,” Durham recalls.
Looking back, she speculates the company’s IPO plays a role. At the time, VanderZanden offers no hints.
“They always kept their cards very close to their chest,” she says.
Mike Kirkland, Facebook’s spokesman, says later that business needs – demand for services and products – drive the company’s data center development.
“IPO, no IPO, it’s really more how and when do we need to build out the infrastructure to serve users,” he says.
Durham says the process lengthens in part because Facebook wants to negotiate its contract with Iowa before the state economic development board considers incentives, a first in state history.
“They didn’t want any surprises,” Durham says. “We were literally on the phone for hours, going over the contract page by page, line by line.
“And we didn’t agree to everything. That’s one reason why it took so long.”
DELAYS, AND MORE MEETINGS
The long process isn’t all about Facebook’s internal difficulties. VanderZanden is frustrated by what he perceives as Altoona’s delays and changes to agreements.
In August 2012, Durham pushes Altoona city leaders to return comments on two draft agreements. VanderZanden says delays have approached two months and complains that Robert Josten, a well-known bond attorney working with Altoona, is a “bit of a stick in the mud.”
“I did explain the attorney works for them, not the other way around,” Durham writes VanderZanden.
Josten later declines to discuss the incident.
VanderZanden gets comments back from Altoona leaders on the development agreement, but not another pact.
He emails Mark, the Altoona administrator: “The comments modify wholesale many elements of the business deal that you and I already specifically agreed upon. … I don’t know what or who is the source of these attempts to revise the business deal, but we consider the time taken to deliver only one agreement and the nature of the comments received so far to be hostile to the deal.”
He also delays a trip to Iowa.
Seeking to work through difficult issues, Durham meets on Sept. 19, 2012, with VanderZanden and Maahs, the Greater Des Moines Partnership’s economic development leader, who’s helping facilitate the deal.
They discuss differences over dinner at Des Moines’ 801 Chophouse, a downtown haunt of the metro’s political and business power brokers.
The next day, VanderZanden and his team meet with city leaders. There seems to be a breakthrough. He emails Durham to say the meetings are productive.
Working on a project so big, over 18 months, creates tension and frustrations on all sides, leaders say later.
“We were all learning,” Mark says. “We obviously worked through the issues.”
“There were always so many moving parts, and to be honest, those moving parts seemed to change a lot,” Durham says.
NO SPECIAL DELIVERY BY SANTA
More weeks pass.
In November 2012, a year after his first trip to Iowa, VanderZanden concedes he’s “been stuck in corporate approval hell.”
A month later, Durham sends VanderZanden news that her agency ranks among the top five nationally for site selection, saying maybe it can help with “the sell internally.”
She follows with a chatty seasonal nudge: “The end of the year is approaching, so am I going to be having a very Merry Christmas? A very big announcement would ensure that.”
The reply is disappointing: The decision will stretch into January. “We’re still in our (arduous) final decision-making process,” he writes.
Despite the snags, Durham never believes Iowa will lose the project to another state, she says later. “I’m a hope junkie.”
What she does worry about: The corporation could change its priorities and eliminate the project – and with it the hope of new jobs and a more digital-friendly image for Iowa.
Quest for renewable power
Shortly after resolving concerns about Altoona’s agreements, Catapult leaders tell Durham they’re considering a “hydro location.”
That could be a game changer.
The Catapult team, as it wrangles development agreements with Altoona and the state, is also negotiating power agreements with MidAmerican Energy Co.
Iowa benefits from MidAmerican’s rates, which are the seventh-lowest in the nation. Even so, “there are some things we just can’t compete with,” Durham says about the low cost of locations with hydro-electricity.
Durham suggests she meet with VanderZanden during a trip to the West Coast. She considers asking Branstad and MidAmerican CEO Bill Fehrman to join them, but decides that a finalized deal is still too far off. “We were competing until the last day,” says Durham, who meets VanderZanden in San Francisco in January 2013 at an aptly named restaurant: Prospect, at the base of a luxury condo tower a block from San Francisco Bay.
Back in Iowa, a familiar topic resurfaces. From the beginning, Facebook often asks how it can increase the renewable energy it will tap for its power-hungry data center, emails show.
Durham says Facebook discusses a “wind farm totally dedicated to them” vs. investing in a portfolio of renewable energy.
It’s tricky territory for her. A wind farm would compete with energy Facebook gets from MidAmerican, a close partner with the state in encouraging economic development in Iowa.
Given the issue’s complexity, Durham worries it could become a deal-delaying land mine. She urges the company to set the topic aside.
“I said we all need to take a step back and talk about this in a bigger way, with all the stakeholders,” she says. “We didn’t want any unintended consequences.”
BRANSTAD COMES IN AS CLOSER
In February 2013, Catapult leaders meet with Durham and Branstad in the governor’s formal office at the Capitol. The Catapult team is in Des Moines to meet with engineers, builders and MidAmerican Energy leaders.
“Quite frankly, I had an ulterior motive. I wanted the governor to put some pressure” on VanderZanden, Durham says later.
As the state’s opener more than a year ago, Branstad pitched Iowa’s strong financial health and its track record of making the state attractive to expanding companies. That philosophy, he says, is rooted in the 1990s, when he worked with lawmakers to eliminate sales and property taxes on production machinery and equipment.
Lawmakers would later take the same action for data centers, eliminating sales and property taxes on computer servers, racks and other equipment.
Now as the closer, Branstad has one mission: Persuade Facebook to come to Iowa.
His priority is to ensure new companies know they’re wanted in the Hawkeye State.
Iowa, he says, is “very tenacious about these deals. We have a track record of following through and doing what we say.”
But VanderZanden is hard to pin down. By meeting’s end, Iowa’s top salesman remains empty-handed. VanderZanden makes no commitment.
A week passes.
March brings another curveball: The renewable energy issue rears its head again. Facebook hires lobbyist Jim Carney to explore possible renewable energy options with state lawmakers. The extended time without an agreement worries Iowa leaders.
“When a project goes quiet and time lapses, it can kill economic deals,” says Maahs, the Partnership’s economic development leader.
Durham’s conversations with VanderZanden typically end with him saying something like: “Assuming all these issues get worked out, Iowa is at the top of our list.”
In late March, days before Durham joins a Branstad-led trade mission to China, she talks with VanderZanden. This time, their conversation ends differently, with words she had waited so long to hear but could hardly believe. “He said, ‘Debi, we’re coming to Iowa.’ I said, ‘Really? Did I just hear that correctly?’ ”
The moment comes as she’s driving to Cedar Rapids for an economic development meeting. She calls Rita Grimm, her new chief operating officer, and Branstad’s chief of staff, Jeff Boeyink.
At some point later, she’s sure she hugged Branstad. But public celebrations will have to wait.
ANXIETY, THEN THE APPLAUSE
On Friday evening before the Tuesday, April 23, announcement, the Register and KCCI-TV report that Facebook is behind the data center.
Even at this 11th hour, Conkling, the Altoona mayor, worries that the leak might kill the deal. When he hears the news, “my heart fell to the floor,” he says later. “But even then, I thought, ‘Wow, I hope that’s really who it is.’ ”
Durham says she never said the word “Facebook” until the formal announcement, when the now-official Altoona data center gets its own Facebook page.
After the announcement, VanderZanden and his team celebrate with Branstad, Durham, Conkling, Mark and others at a luncheon the California team hosts at Jethro’s BBQ ’n Jakes Smokehouse Steaks in Altoona.
“I’m still grinning from ear to ear,” Conkling says about Facebook’s decision.
The Iowans and their new Facebook friends share applause, acknowledgments and cheers.
But there’s still paperwork to do.
Rick Tollakson, chief executive of Hubbell Realty, the company that owns the land, signs the contract to sell the property. Hubbell, which paid $2.5 million for the parcel in 2005, nearly doubles its investment, selling it to Facebook for $4.8 million. Hubbell will plow the money back into new commercial and residential developments, Tollakson says.
In the parking lot after the announcement, Durham signs the state’s finalized contract with Facebook. The state agrees to provide Facebook with $18 million in tax credits, based on job creation and capital investment.
Within days, Facebook begins filling key positions, says Kirkland, Facebook’s spokesman. State leaders believe permanent jobs will grow to about 100 when all three phases are built.
So what sealed the deal for Altoona to join Prineville, Ore., Forest City, N.C., and Lulea, Sweden, as the homes for Facebook’s only data centers around the globe?
Facebook says it weighs access to high-speed fiber, abundant and low-cost water and power – especially green wind energy – and absence of environmental threats like earthquakes.
Incentives are a bonus, a company leader says at a recent conference, but should never drive such a “mission-critical decision.”
During the company’s announcement, Facebook’s Jay Parikh also points to the lure of a talented workforce.
“We’re very excited about the talent pool in the surrounding area – the commitment, the skills set, both construction and operations staff, ” says Parikh, vice president of infrastructure engineering.
“Iowa is a value proposition,” says Durham, noting the state’s expansive tax breaks for data centers. “We’re very competitive.”
But Durham also believes a key to landing the project was Facebook team members’ relationships with leaders in Altoona and at MidAmerican Energy, the governor’s office and state and local economic development agencies.
“I really think they liked us better,” she says, citing deal-makers’ ability to work through tensions, differences and difficulties. They even manage to laugh occasionally.
“At the end of the day, it’s all about relationships. You don’t make deals sitting at a desk,” she says.
“You have to look people in the eye.”
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