Rochester's Destination Medical Center forges ahead, despite COVID-19

Steps away from the Mayo Clinic in Rochester, the steel framework of a new $45 million structure bearing big ambitions has taken shape in recent months — rising in determined fashion despite the spread of the deadly COVID-19 virus.

Once completed, Discovery Square 2 is expected to welcome innovative health care firms just like its glassy sister structure known as One Discovery Square, the cornerstone of the $5.6 billion Destination Medical Center (DMC) project.

Now in its sixth year, DMC is a public-private economic development effort unlike any other in Minnesota history. With the world-renowned Mayo Clinic leading the charge — along with the city, Olmsted County and the state — the ambitious project is intent on dramatically retooling Minnesota's third-largest city into a "premier destination for health and wellness."

At the same time, the pandemic and its economic fallout have changed the way people work, recreate and receive medical care — making it unclear how the services and amenities planned for Rochester will fare once the pandemic ebbs.

DMC's plan calls for new offices, housing, hotels, restaurants, schools, shops, public space and transportation over the next two decades to attract thousands of new residents and workers, as well as billions in additional tax revenue to what has been branded "America's City for Health."

But in post-pandemic Rochester, will telecommuting employees return downtown and opt to use a proposed bus-rapid transit line? Will restaurants, retail shops and hotels — all savaged by the economic downturn — come back?

DMC's leaders remain upbeat, saying that with some tweaking the original plan will stand the test of time.

"The tools of DMC are really designed for the long arc of time," said Patrick Seeb, DMC's executive director. Rochester went into the pandemic in a strong economic position, he said, which bodes well for recovery with "a strong industry like Mayo."

Early in the pandemic, Mayo cut pay and furloughed employees as patient volumes for elective procedures plunged. Both were restored last summer in a quicker-than-expected recovery.

But John Kruesel, a lifelong resident who owns General Merchandise and Auction Co. in downtown Rochester, said DMC-led efforts should be paused to see how the pandemic plays out.

"Life has changed forever," Kruesel said. "We might be embarking on projects that should be put on hold because they're no longer cost-effective and not moving the community forward. What we did pre-COVID is now obsolete during these COVID times."

Pandemics and disease long have shaped cities in meaningful ways.

Cholera outbreaks in the 19th century led to public sewage systems and indoor plumbing, while the 1918 flu pandemic prompted an early wave of suburbanization accelerated by the popularity of the automobile.

"Pandemics trigger big changes in how we live, get around and work. There's no question this one will have the same transformative effect," said Tom Fisher, director of the Minnesota Design Center at the University of Minnesota and a board member of DMC's Economic Development Agency.

"This pandemic is about digital [access], helping us realize we have greater choice in how we work, shop, learn and get entertainment," Fisher said. "It will have an effect on where people live. It could be a boon to small towns, particularly with good internet connections and cheaper housing."

The pandemic "has illustrated how important Mayo is to Rochester. Its prestige has only grown since COVID," said R.T. Rybak, the former Minneapolis mayor who now chairs the DMC board. "If people have a choice of where they want to live, why wouldn't they want to be near the best hospital in the world?"

Mayo employs 39,300 people in the Rochester area, with more than 20,000 of them still working downtown. The pandemic has led to some 1,500 employees working remotely, according to Mayo spokeswoman Kelley Luckstein.

A longstanding challenge for Mayo has been attracting employees with well-educated "trailing spouses" who want to work. As more people work remotely, Rochester stands out as an attractive choice, said Mayor Kim Norton.

"We're a midsize city that is a very livable, desirable place to live, with enough big-city amenities without big city problems," she said.

Luckstein said the transition to hybrid and remote work "helps Mayo Clinic continue to retain and attract the best talent in a competitive marketplace and provides for a greater level of diversity among [its] workforce."

Alex Krieger, a professor at Harvard University's Graduate School of Design, said the pandemic has shown that people don't have to live in big cities when smaller ones might work just as well.

"The optimist in me says that the future of America may lie in paying a lot more attention to places like Rochester, not necessarily big cities like New York, Boston or Chicago," said Krieger, also a principal at NBBJ, a global design firm. "The digital revolution allows us to live outside major cities and still participate in global economy and culture."

But some say DMC leaders are trying too hard to lure outsiders to Rochester at the expense of residents already there.

Barry Skolnick, a New Yorker who retired to Rochester 11 years ago because of the Mayo Clinic's proximity, said more attention should be paid to supporting local businesses downtown, as opposed to developing additional hotels and high-end apartments.

"There are fewer people walking around downtown. The businesses are hurting," he said.

When the pandemic struck, DMC's leaders hired HR&A Advisors, a New York-based consulting firm, to assess how it would affect the project. The firm predicted a gradual economic recovery over 2021-22.

The report, which doesn't provide specifics, said Rochester will likely have excess office space due to job losses and the rise of remote work, disproportionately affecting downtown retail shops and restaurants dependent on employees and visitors for business. And hotels, which have "experienced a precipitous" drop in occupancy rates, will continue to lag.

A bright spot is the relatively strong demand for housing in Rochester, which the report concludes will help bolster downtown businesses.

The consultants encouraged support for local businesses, prioritizing public infrastructure, reusing excess real estate capacity in a creative (albeit unspecified) manner, and diversifying the economy.

DMC notes in its own five-year update that private investment so far has totaled $963 million, leveraging $98 million of public investment including about $40 million in tax-increment financing for private development projects.

The report also notes that "COVID may likely affect private investment over the next four years." Initial predictions that DMC projects would spur $7.5 billion to $8 billion in additional tax revenue over a 20-year period will be further analyzed.

In coming years DMC will focus on a number of projects, including the Heart of the City effort to restore Peace Plaza, the Hyatt House extended stay hotel and a $114 million bus-rapid transit project serving downtown.

Mayo said in a statement that it still backs DMC's vision, remaining "confident that we'll come out of this pandemic experience strong as a result of staying true to our mission, values and by continuing to invest in our practice, research and education despite the challenges during this past year."

The pandemic has focused attention on the importance of medical research and the life sciences, and in that vein Discovery Square 2 is "more than just a building, it helps foster an ecosystem that will facilitate new technologies that will change peoples' lives," said Brent Webb, development executive with Mortenson Co., which is building Discovery Square 2 after completing One Discovery Square. Maybe, he mused, researchers and students meeting informally at One Discovery Square's coffee shop can collaborate and cure the next coronavirus.