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Posted on Sun, Aug 29, 2010 : 6:02 a.m.

Michigan Information Technology Center dissolving after Ann Arbor nonprofit lost $4.6M over 3 years

By Nathan Bomey

MITC.JPG

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.

MITC in 2005.JPG

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.

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