Michigan Information Technology Center dissolving after Ann Arbor nonprofit lost $4.6M over 3 years
The MITC building near South State and Eisenhower was named after and housed conferencing space for the Michigan Information Technology Center Foundation, which is dissolving after years of financial losses.
Melanie Maxwell | AnnArbor.com
The Michigan Information Technology Center Foundation, an Ann Arbor nonprofit formed in 2002 with a $10 million grant from the Michigan Economic Development Corp., is set to dissolve.
Tax documents show that the MITC Foundation lost about $4.6 million from 2006 to 2008, the only years in which records were available.
MITC board members confirmed that they are nearing the end of the process of unwinding the foundation. The nonprofit was created to entice two major local not-for-profit networking technology companies to stay in Ann Arbor and to offer high-tech conferencing space and networking capabilities to outside organizations.
The MITC Foundation is exiting its 15,000-square-foot presence in the 130,000-square-foot South State Street complex that bears its name.
That deal is possible in part because the University of Michigan last month agreed to pay $1.25 million to acquire a ground-floor data center MITC was operating and sharing with U-M. The university, which also waived $740,000 in funds MITC owed, plans to continue operating the data center for its own purposes.
The building, built and owned by Ann Arbor-based real estate firm MAVDevelopment, will be otherwise unaffected.
MITC Foundation's dissolution
The nonprofit's disbanding affects:
- Michigan Information Technology Center (MITC), a 130,000-square-foot building off of South State Street near Eisenhower Parkway. The MITC Foundation was leasing 15,000 square feet in the building that bore its name. The building will be known as South State Commons 2.
- MAVDevelopment, an Ann Arbor-based developer that owns the MITC Center building. MAVD is seeking new tenants for space occupied by the MITC Foundation.
- University of Michigan, which shared a 16,000-square-foot data center with MITC. U-M agreed to pay $1.25 million for MITC networking equipment it was using. U-M also agreed to waive $740,000 in funds owed to the university by MITC.
- Merit Network, a not-for-profit, which has about 71 full-time employees at its office in the MITC Center. Merit is a 44-year-old nonprofit whose primary purpose is to broaden high-speed Internet access and connect educators, researchers and community members.
- Internet2, a not-for-profit networking consortium with about 45 employees at its MITC office. The group was leasing equipment in the data center and U-M has agreed to take on Internet2 as a client to ensure uninterrupted data service. Internet2 is a national organization that provides networking capabilities and partnership opportunities to promote Internet technology development at 200 universities, companies and governmental organizations.
The not-for-profit networking companies that MITC was formed to convince to stay in Ann Arbor were Merit Network and Internet2. They ultimately decided to maintain their Ann Arbor offices and moved into the MITC building, which officials regard as a success.
But the conferencing space operated by MITC turned out to be unsustainable as demand for the space collapsed in recent years, said Doug Van Houweling, chairman of the MITC Foundation board and former CEO of Internet2.
“In most ways it was successful,” Van Houweling said. “I think the only thing that didn’t go as expected was demand for the conference center. And that’s primarily the result of the economy in Michigan right now.”
Van Houweling argued that the MEDC money was well spent.
“I think the MEDC has achieved the objectives they had in mind,” he said.
Changes for MITC Center
As part of the foundation’s dissolution, the group negotiated a lease settlement with MAVDevelopment and U-M to allow the nonprofit to exit its lease for 15,000 square feet of space in the high-tech building just off of South State Street.
That facility, known as the MITC building since it opened in 2005, was built to house the MITC Foundation, Merit Network, Internet2 and other tenants not known to MAVD when construction started in October 2002.
The MITC’s formation was hailed by then-Gov. John Engler as a way to “make Ann Arbor, Mich., the home for the next generation of the Internet.”
Van Houweling said the MITC Foundation used the MEDC grant to pay MAVD to rent conferencing and networking space in the building. It was not used to finance the construction itself.
MAVD is now seeking new tenants for the first-floor conferencing space at the facility, which will be known as South State Commons 2, said Jeff Harshe, MAVD vice president. Merit Network occupies most of the second floor, Internet2 uses the third floor and Plante Moran rents the fourth floor.
“The space has some really special technological features to it,” Harshe said, adding that educational organizations or corporate training could be a good fit for the space. “It’s got excellent connectivity, it’s got excellent videoconferencing capabilities.”
The MITC Foundation’s demise is unlikely to cause a problem for the existing tenants, including Merit Network, which has received $111 million in federal stimulus funds this year to build fiber-optic networks throughout Michigan.
Merit Network CEO Don Welch, a member of MITC’s board of directors, said Merit expects to maintain its 71-person office in the MITC building.
“You never know what’s going to happen, but we certainly have no plans and we’re in negotiations with MAVD right now,” he said.
On the ground floor of the facility, MITC was operating a data center called the Michigan Academic Computing Center, which it shared with the University of Michigan’s information and technology services department. MITC owned the 16,000-square-foot data center’s networking equipment and was leasing 6,000 square feet of the floor space. U-M was leasing 10,000 square feet of the space and sharing the networking equipment.
But U-M’s Board of Regents voted July 15 to pay $1.25 million to purchase the data center’s assets from MITC. U-M also negotiated a deal with MAVD to lease the entire space at the same rate it originally negotiated when it agreed to share space with MITC in 2006.
Van Houweling said the MITC’s efforts were worthwhile.
The MITC building was built in 2005, when this picture was taken.
File photo | AnnArbor.com
“There are two very significant organizations that play a very large role in Michigan’s future and the nation’s future that are housed in Ann Arbor. They might have gone someplace else if not for the state’s grant. And the university has an absolute first-rate computing facility in the ground floor of that facility, which is very important to the university,” he said.
“It would have been icing on the cake if we could have also had a very successful conferencing operation down there.”
MITC’s financial problems
The MITC Foundation was focused mostly on offering high-speed networking and videoconferencing space to outside organizations. The foundation leased conferencing space at the MITC Center to external organizations on a short-term basis.
Harshe said, though, that MITC was essentially charging a “pass through” rate and not profiting off the arrangement.
Meanwhile, demand for high-tech conferencing space slowed as technology advancements reduced the need for rented conferencing space, and the economy prompted some companies to slash outside meetings.
In 2006, the year after the MITC Center opened, the foundation reported $2.03 million in revenue and $3.85 million in expenses. In 2007, the foundation reported $2.46 million in revenue and $3.75 million in expenses.Then, in 2008, the MITC Foundation took in $2.65 million in revenue but its expenses grew to $4.09 million.
Van Houweling, who served as CEO of Internet2 since 1996, resigned from Internet2 in July to become associate dean for research and innovation at U-M’s School of Information. He had been serving as a faculty member at U-M since the 1980s.
Van Houweling said his departure was part of a transition process Internet2 had been planning for two years. He described the timing of his resignation and MITC’s unwinding as coincidental.
“It’s been a very carefully planned transition,” he said. “I always intended to return to the university at the end of my time as CEO of Internet2.”
Contact AnnArbor.com's Nathan Bomey at (734) 623-2587 or nathanbomey@annarbor.com. You can also follow him on Twitter or subscribe to AnnArbor.com's newsletters.
Comments
pag
Wed, Sep 1, 2010 : 10:51 a.m.
This comment is to Craig. You might want to go and look at Merit Network history. Merit managed NSFnet which later became the commercial internet. The very thing that allows you to go online and write your comments. So just because they only have 71 employees doesn't mean that they don't play an important role in the IT world.
ShadowManager
Mon, Aug 30, 2010 : 11:27 a.m.
Most of the posters don't know much about MITC, "internet2", or the conference space at the MITC facility because, well, MITC obviously wasn't doing a very good job at promoting itself in the community and thus, probably deserved to close.
Rob Pollard
Sun, Aug 29, 2010 : 10 p.m.
...and quick follow-up. If someone says, "Well, if they can't fill one 200 people room at MITC, how will they fill ~1500 people worth of meeting rooms at a conference center?" The point is many conference needs a) adjacent sleeping rooms and b) much more space than this MITC provides. You need one big room (e.g., for 250-400 people) and multiple breakout rooms for 20-40 at a time. Now, you can argue that Ann Arbor will not get these kind of conferences that require multiple breakout rooms, 100+ sleeping rooms, walkable to local restaurants, etc, but this MITC doesn't prove/disprove anything, b/c it wouldn't have attracted these conferences. Different target audiences.
Rob Pollard
Sun, Aug 29, 2010 : 9:51 p.m.
@Craig Lounsbury. Sure. This "high-tech conferencing space" is quite different than what has been proposed downtown. Those proposals focus on hotels with ~175 sleeping rooms and also 30-40000 square feet of meeting space. As a point of comparison, the Ypsi Marriott has 27,000 square feet, and can accommodate well over 1,000 people in meetings at the same time. If the commenter's stats of the MITC room that can fit "up to 200" people is correct, that's much, much smaller than the downtown proposals. It's apples and oranges.
Craig Lounsbury
Sun, Aug 29, 2010 : 6:58 p.m.
@Julie Martin, Most of the poster are responding to the article written by Mr. Bomey. Are suggesting his article is inaccurate or that most of the posters here are misreading the article?
a2badger
Sun, Aug 29, 2010 : 6:34 p.m.
The term "Boondoggle" may also be used to refer to protracted government or corporate projects involving large numbers of people and usually heavy expenditure, where at some point, the key operators, having realized that the project will never work, are still reluctant to bring this to the attention of their superiors. Generally there is an aspect of "going through the motions" for example, continuing research and development as long as funds are available to keep paying the researchers' and executives' salaries. The situation can be allowed to continue for what seems like unreasonably long periods, as senior management are often reluctant to admit that they allowed a failed project to go on for so long. In many cases, the actual device itself may eventually work, but not well enough to ever recoup its development costs
Julie Martin
Sun, Aug 29, 2010 : 6:21 p.m.
Most of the posters here have no clue about what the MITC facilities are, what a data center is, and it's probably the first time they've even heard of Internet2. But lots of stuff to say about it! My my!
stillatownie
Sun, Aug 29, 2010 : 6:04 p.m.
EBL: you're comparing apples and oranges. the conference rooms at the MITC are much different than whats being proposed for the downtown conference center. it more closely resembles a lecture hall and ann arbor has many, many of those.
ShadowManager
Sun, Aug 29, 2010 : 4:03 p.m.
Judging by the pictures and what they say in the article, this looks like a classic case of a start-up sinking all their money into making their conference rooms look spiffy, their office furniture top of the line, their computers and projectors all top of the line...and then forgot to do any promotion or actual real work to scare up actual clients. I bet most of the employees surfed Facebook all day as tumbleweeds blew through their empty...yet stylish!...conference rooms. What waste of grant money!
Tom Joad
Sun, Aug 29, 2010 : 4:01 p.m.
Too many words MITC...meant to sound impressive and important. It wasn't
CynicA2
Sun, Aug 29, 2010 : 3:14 p.m.
It never ceases to amaze me how much wishful thinking plays a role in the "vision" thing around here. From bad German art, to conference centers for no one, and choo-choos to nowhere - someone should print-up some "Wishful Thinker" tee shirts for the mayor and council and some of those rosie scenario deep-thinkers at Big U Inc., as well. It borders on the delusional. And taxpayers are the ones paying the piper. Marvelous... just marvelous.
Jay Thomas
Sun, Aug 29, 2010 : 3:11 p.m.
So that's ten million dollars taken from the people of Michigan to keep this losing center open... whose purpose was to subsidize a company that would eventually be around to collect "stimulus" dollars (or it might have gone out of business too). Hurray for the government! I'm sure Mr. Van Houweling always did plan to return to the ivory tower; it's scary out there in the private sector.;)
JMA2Y
Sun, Aug 29, 2010 : 12:37 p.m.
And EBL: good point about the city not really needing conference space but MITC was not owned by UM. It was never a "UM conference center" that failed. UM only rented and used the data center and now has purchased it.
JMA2Y
Sun, Aug 29, 2010 : 12:35 p.m.
One thing not mentioned that is very interesting is that the conference center manager, when designing the conference space, worked with the furniture company (Steelcase or like it) to design forward thinking furniture: modular, mobile, tables on wheels, adjustable heights, chairs on wheels, speacial and comfortable seats-specifically designed to be easy to move around and adjust by one or two people even while setting up a conference room for 200. Sounds simple but at the time was a unique design (and there are specifics I cannot fully recall.) The furniture company added it to their catalogue and now that concept of office/conference furniture can be found in many places. The entire conference/data center was forward thinking. They even built in more physical space to house more data lines and equipment if in the future should the need arise instead of someone needing to install/dig/build on in the future. My group had a tour in '05 and the place is amazing.
AlphaAlpha
Sun, Aug 29, 2010 : 10:25 a.m.
EBL is quite correct. It would be a huge financial blunder to build a new conference center downtown.
xmo
Sun, Aug 29, 2010 : 10:08 a.m.
I guess the problem was that it was run as a "NON-PROFIT". They should have had a real business person management it so that it would still be around. The only difference between a non-profit and a for profit business is that the non-profit does NOT pay taxes!
ChrisW
Sun, Aug 29, 2010 : 9:23 a.m.
It is a beautiful space. It was never heavily promoted, though, and was expensive for Ann Arbor. (As much as we like to think we're a big city, in reality Ann Arbor is still a small town in a lot of ways).
Craig Lounsbury
Sun, Aug 29, 2010 : 7:35 a.m.
"The Michigan Information Technology Center Foundation, an Ann Arbor nonprofit formed in 2002 with a $10 million grant..." "In 2006, the year after the MITC Center opened..." what happened between getting 10 million bucks in 2002 and opening its doors in 2005. That 3 years if my fuzzy math is close. "The nonprofit was created to entice two major local not-for-profit networking technology companies to stay in Ann Arbor..." One of those companies appears have 71 employees and the other 45. I gotta think most supermarkets in town employ at least that many people. Where is their 10 million dollar MITC? In the big scheme of life I need my morning pancakes before I need the Internet.
kay
Sun, Aug 29, 2010 : 7:20 a.m.
"Van Houweling said his departure was part of a transition process Internet2 had been planning for two years. He described the timing of his resignation and MITCs unwinding as coincident" Yes, and pull my other leg and I'll fart "jingle bells" Another academic who thought he could run a (non-profit) business. Once he saw how his mismanagement had ruined the center he began the "planned transition" real fast. Good luck
EBL
Sun, Aug 29, 2010 : 5:37 a.m.
So this U of M conference center fails for lack of business and the City of Ann Arbor is still thinking about going into the conference center business at the Library lot. When will the city come to its senses about the lack of a market in AnnArbor for more conference center space. The last thing the City of Ann Arbor needs is to subsidize a money-losing conference center.