How the Yahoo! deal got done
Teamwork, hospitality helped win project
It was three simple words, but they practically took David Kinyon’s breath away when Sylvia Kang said them.
“We are Yahoo!.” For the previous few months, regional economic development officials had been working quietly to win a big project, code-named Project Pilgrim.
But that statement, back in April during a visit by Kang and her site selection team, was the first time Kinyon knew who he was dealing with and just how big a deal he was looking at.
“We were very surprised, and very impressed that Lockport would be considered for a Yahoo! data center location,” said Kinyon, the CEO of the Town of Lockport Industrial Development Agency. “We never imagined that it was Yahoo!.”
What ensued over the next eight weeks was an aggressive collaborative campaign by a host of state and local leaders — up to and including the governor — in a bid to sell Western New York to Yahoo! and seal the deal.
Two months later, a Yahoo! executive stood with a cadre of politicians in a packed room at Empire State Development Corp.’s downtown Buffalo office, and announced that the Internet search giant would build a $150 million East Coast regional data center on 30 acres in the Town of Lockport Industrial Park. In exchange, Yahoo! will receive 15 megawatts of low-cost hydropower from the New York Power Authority, plus local tax breaks from the town.
The project is expected to bring up to 125 jobs to the site, but officials hope Yahoo!’s reputation will also draw other technology companies to the region.
And they say the successful effort showed what the region can do through cooperation. “If we’ve accomplished anything over the past 10 years, it’s that people work well together,” said Thomas Kucharski, president of Buffalo Niagara Enterprise, which led the effort locally.
“I think that this deal confirms the importance of sharing information and resources,” said Rick Updegrove, chairman of the Economic Development Committee of the Niagara County Legislature. “This should serve as a model for cooperation among economic development partners.”
Interviews with key parties involved demonstrates the degree of collaboration and cooperation that was required, the level of sophistication and intricacy involved, and the demands placed on all parties.
It required juggling schedules, coordinating appointments, chauffeuring people, and balancing other priorities. At one point, for example, BNE had representatives from both Yahoo! and another company, code-named Project Barracuda, in its office to look at the same property on the same day.
In all, more than 100 people from 31 different entities in Western New York took part, sometimes with just a few days or even hours notice. “In the end, it was a real team approach. This very rarely happens in New York,” said Richard Kessel, president and CEO of the power authority. “The governor said get it done. We got it done.”
It was Nov. 4, 2008 when the first inkling of a major project came to the attention of officials at Buffalo Niagara Enterprise, the region’s nonprofit economic development agency.
BNE director of business development David Griggs got an email from the Western New York office of Empire State Development. A big company was seeking a data center, and was interested in Western New York, so the state sent it to BNE.
The company was not named, but the proposal was called Project Pilgrim, because one of the Yahoo! site selectors — who is from Mexico but got a PhD from Stanford University— thought the Pilgrims had settled all of the Northeast.
The proposal asked for sites that would fit a set of narrow criteria, and included a “request for information” with about 50 questions that had to be answered, in detail, for each site. BNE knew only the general size of the data center, and had five business days to respond.
Its goal in such a process is to be able to present at least enough sites to stay in the running long enough to find more or outlast the competition. “It’s not a process of inclusion but a process of elimination. You try not to be eliminated,” Kucharski said. “Once you’ve been eliminated, it’s pretty hard to get back in.”
Officials came up with just two locations based on the limiting factors: Colvin Woods Business Park in the Town of Tonawanda, and Grand Island Gateway Center. “We struggled to even find a site,” Griggs said.
But Yahoo! realized it needed to modify its request, so it changed the criteria and resubmitted it a few weeks later.
Now, BNE could propose six sites, and Yahoo! requested a seventh because it had read news stories about HSBC Bank USA’s now-abandoned data center project in Cambria. Besides that property, BNE offered up Buffalo Lakeside Commerce Park, Eastport Commerce Park at Walden Avenue and Pavement Road in Lancaster, Riverview Commerce Park in Tonawanda, Buffalo East Technology Park in Pembroke, Medina Business Park, and Lockport Industrial Park.
And all were certified by the state as “shovel-ready,” which means much of the preparatory work — soil boring, utility work, environmental reviews and other steps — had been done.
That was a requirement that Yahoo! had set, because they “had a very aggressive timetable,” Griggs said. “We were fortunate,” said BNE spokesman Paul Pfeiffer. “Not everybody can put forward six to seven certified shovel-ready sites.”
Questions and answers
From December through March, BNE answered questions and verified information back and forth with Yahoo!. On March 23, the state sent BNE another email from the Yahoo! team, using a “ymail.com” address, for Yahoo! Mail.
The email said three members of the team would come to town March 30 for a five-day visit and tour of the sites—the first of five visits. They wanted to meet with all the “stakeholders” for the sites, and had different questions for each property.
So it fell to Lorrie Abounader, business development manager at BNE and the point-person for the Yahoo! project, to schedule meetings with different property owners, developers, municipal officials and utilities.
The team flew in on a Monday night and stayed at the Doubletree Hotel on High Street. Kang, who was BNE’s primary Yahoo! contact, was on the first three visits. They met Tuesday with state, BNE, IDA and city officials, developers and utilities to discuss the sites before the tour.
“It was constantly going back and forth, picking them up at the airport, picking them up at the hotel. We tried to keep them on a tight schedule,” she said. “We didn’t anticipate so many questions on their part.”
The Yahoo! team toured all seven sites, sometimes walking the entire property. They carried laptops with spreadsheets and models based on rating criteria and data they entered.
They peppered BNE and others with technical queries, especially about electricity. “When we’re driving around, all they see is power,” Abounader said.
If the BNE staff couldn’t answer, they reached out to appropriate officials, often asking them to meet the team at the site that afternoon or evening.
High on hospitality
The Lockport site was actually the last on the tour, which is usually an insurmountable hurdle since a site team is exhausted. What helped was goodwill from another business located in the industrial park, Exel Logistics of Ohio, which welcomed the group into its conference room for refreshments.
“It was a terrible day. It was raining, and cold. It was midafternoon, and they went into this conference room, and there were snacks and coffee and soft drinks,” Kenyon recalled. “That extension of hospitality, at that point in their visit to Western New York, made a real strong impression on them.”
The BNE also tried to leave the Yahoo! team with a lasting impression of Buffalo, beyond industrial sites. “If you take them to a good restaurant, that can be the thing they remember,” Griggs said.
So Abounader brought the Yahoo! team to Left Bank, Ambrosia and Tempo, as well as to Shanghai Red’s, Mother’s, City Grille, Bijou Grille and Pearl Street Brewery on subsequent visits. She also took them down Mansion Row on Delaware Avenue, and through numerous Buffalo streets and neighborhoods, where the visitors noted the intricate architecture — and the front porches.
“They were really impressed with Buffalo. They didn’t now what to expect, but it wasn’t this,” Abounader said. “They couldn’t believe Buffalo had that history of architecture.”
And, of course, she took them to Niagara Falls at the end of the third day, after visiting the farthest site. The trio walked the park, read about the volume of water going over, and took lots of photos — including of the ice in the river and snow on the ground.
“They didn’t realize the state park is so big. They thought you just pull up,” Abounader said. “They were tourists. They liked it.”
Mystery begins to lift
Local officials still didn’t know who they were dealing with, but by this time, state leaders did.
In March, Gov. David A. Paterson took a call from someone representing Yahoo!. The company had been looking at New York for a while on its own, but “it wasn’t coming together,” and they wanted help from Paterson to “put together support,” said Larry Schwartz, secretary to the governor.
Paterson felt it was important to get Yahoo!, not only because of jobs, but “it would be a huge psychological boost to the area” and fit his goal of a new economy company. At the governor’s behest, Schwartz reached out to Yahoo!, learned of the need for power, and called Kessel.
“There’s an opportunity here. The governor wants to seize on that opportunity,” Schwartz recalled telling Kessel.
Almost at the same time, U. S. Sen. Charles E. Schumer, D-N. Y., learned from a Yahoo! official about the company’s search, and that Yahoo! was “negotiating with a lot of different states, not in a very strenuous way.” He would not identify the official, but his former chief of staff, David Hantman, works at Yahoo!.
Schumer had previously upbraided the Power Authority for failing to capture earlier bids by Google and a steel company to set up in Western New York. So he called the Power Authority and Paterson, telling the governor, “Let’s not lose this one.”
Kessel agreed to meet with Yahoo! co-founder David Filo at the authority’s White Plains headquarters a week later, in the middle of the site team’s first visit to Buffalo. Kang flew down midway during her visit to join the meeting with Filo before returning to Buffalo.
Kessel pledged to do “what it takes” to make the venture work. He sent his staff to Buffalo the next day to join the tours.
Yahoo! wanted a lot of power, but for fewer than 125 jobs, Kessel said. It wouldn’t work using the formula of jobs-for-megawatts, but “those ratios just don’t hold in this economy.”
So, he “put that to the side.” He credits the Power Authority staff for getting Yahoo! to increase its jobs projection, but admits that “I would have done anything to get this deal done.”
Both Paterson and Schumer subsequently contacted Yahoo! CEO Carol Bartz, by letter and phone respectively, urging her to choose Western New York. They cited the region’s advantages, and promised to do whatever they could to help.
“You get somebody like that making calls for you at the high level, that’s pretty cool,” Kucharski said.
A return trip
Back in Buffalo, the team left April 3, but notified BNE seven days later they would return on April 20 for another five days. This time, it was Kang, a colleague, and a three-person construction management team.
That signaled Western New York “was under serious consideration,” Abounader said, though Yahoo! never indicated who the competition was.
Six sites remained on the list, after Lakeside Commerce Park was eliminated. The group visited all properties, and asked more technical questions, including about telecommunications. BNE signed a non-disclosure agreement, and the visitors disclosed their identity.
Meanwhile, industrial development agencies had been told to submit written offers of financing and tax breaks. Initially, Lockport offered sales tax breaks during construction, but Yahoo! wanted a longer term for continual replacement and upgrading of equipment. Still, “it met some of their threshold criteria,” Kenyon said.
Kang returned May 6-8 with the construction crew to look at four remaining sites, plus Genesee County’s Western New York Science Technology and Advanced Manufacturing Project (STAMP). They focused on electrical capacity and reliability, and narrowed the options to Lockport and STAMP.
A whirlwind visit
Less than a week later, Yahoo! Vice President Kevin Timmons stopped in Buffalo for a few hours. Arriving at 9:30 a. m., he wanted to see the two sites and be back at the airport by 12:30 p. m. “That was a logistics nightmare,” Abounader said.
Finally, two operations engineers returned for a fifth visit May 18-19. “When they’re here and they’re back four days later, they’re getting closer to making a decision,” Pfeiffer said. “We certainly were . . . in play.”
What remained was to focus on final incentive packages, the timelines for government approvals and permitting. Ongoing discussions were held with New York State Gas & Electric Corp., which is paying $400,000 to fund infrastructure improvements for the Lockport site, and with National Grid for Genesee County. And Yahoo! had to get its application to the Power Authority by the end of April for the May board meeting.
So far, officials had managed to keep the project out of the press, but that changed in early May, as word of Yahoo!’s outreach to Paterson leaked out.
“You always get nervous when people are talking about it,” Kessel said. “I was confident that if we put the right deal together, they would come.”
Still, the deal nearly unraveled. About two weeks before the deal ultimately was signed, Schumer said he got “an emergency call” from Hantman, his former chief of staff. Yahoo! was going to a different state because of telecommunications.
Yahoo! wanted a lower rate, but Verizon Communications demanded a longer contract in exchange, citing upfront costs it would incur to lay an extra mile of broadband cable. Schumer called Verizon CEO Ivan Seidenberg, and then got Yahoo! to yield. It eventually agreed to a six-year deal, instead of two.
Local and regional officials say they were never told for certain what states they were competing against, but concluded that Virginia, Nebraska, North Carolina, Ohio, Pennsylvania and Illinois were all in the mix, based on who had power and benefits.
Just in case, state, regional and local officials kept up the campaign with repeated letters, emails and phone calls.
“Everybody had to rely on each other to keep it in the forefront, keep up the urgency, address the company’s needs and push it through approval,” Kucharski said. “You had to keep bird-dogging it on a daily basis.”
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