Crain's Cleveland Business

VOL. 38, NO. 2

JANUARY 9 - 15, 2017

Source Lunch

Akron City hopes Trump keeps infrastructure campaign promises. Page 16

The List

CLEVELAND BUSINESS

Nurete Brenner, director of business programs at Ursuline College Page 15

Northeast Ohio’s top SBA lenders Page 19

REAL ESTATE

Survey: Rent rates are on rise downtown

By STAN BULLARD sbullard@crain.com @CrainRltywriter

Slowly, almost imperceptibly, the downtown Cleveland office market is undergoing one of its biggest changes in more than two decade: Rents are inching up.

Taking a new spin on the traditional year-end office market survey, Andrew Batson, director of research in the Great Lakes Region of the JLL realty brokerage, reported average asking rents in the city center climbed 2.5% this past year and promise to keep climbing through 2020 if no new office buildings go up.

Look for Class A asking rents downtown, which currently average $24.69 per square foot, to rise $1 per square foot by 2020 if rents appreciate as expected for the next few years.

Older, less well-located office buildings downtown, known as Class B, could benefit from rents rising to $18.81 a square foot by 2020 from $18.07 now.

“Landlords are going to have some additional leverage going into this year,” Batson said in an interview.

Scott Pick, JLL Cleveland managing director, said, “The fact we’re speaking about rents increasing speaks to the overall tightening of the market. We’re already seeing office tenants start looking earlier for new offices than in the past.”

A few years ago, office tenants tended to look for offices a year in advance, but he estimates they now begin looking 18 to 24 months ahead of their lease expiration. That’s the result of little construction in the office market generally during and after the Great Recession, which means tenants did not have new places to consider like they did in the 1980s and 1990s. A new group of downtown office owners from SEE SURVEY, PAGE 18

OUTLOOK

Will Trump’s policies help manufacturing gears turn?

By RACHEL ABBEY McCAFFERTY rmccafferty@crain.com @ramccafferty

One of the most significant players in manufacturing this year isn’t actually in the industry: He’ll be in the White House.

Manufacturers are waiting to see what impact President-elect Donald Trump will have on their businesses.

Particular factors to watch include the implementation — or not — of new tax policies and federal regulations. It’s tough to say just what Trump will aim to enact, but according to a fact sheet on his economic

Crain’s photo illustration by David Kordalski, iStock

policy, he wants to reduce significantly the tax rate on businesses, tax repatriation and eliminate “needless job-killing regulations.”

But what companies are expecting and what’s actually occurring haven’t matched up yet, said Joseph M. Gingo, chairman, president and CEO of plastic compounds and resins supplier A.

Schulman Inc. in Fairlawn. There’s optimism surrounding the year, especially regarding the changes that could come to the tax system for corporations and individuals, he said, but he hasn’t seen it lead to a surge in orders.

“The optimism has not turned into results,” Gingo said.

SEE OUTLOOK, PAGE 17

DEVELOPMENT

Campus District is getting at-home feel

By JAY MILLER jmiller@crain.com @millerjh

It’s been a while coming for Karen Perkowski, but it’s looking like big things will be happening in the Campus District, the area east of downtown Cleveland.

Entire contents © 2017 by Crain Communications Inc.

It’s gotten to the point where community development planners have set in motion a plan to create a business improvement district to turn an area once home mostly to machine shops, electrical supply firms and the like into a real residential neighborhood.

“We’re very excited to see the changes,” said Perkowski, who with her husband Doug and their firm Tower Press Development, developed the Tower Press building at 1900 Superior Ave. 15 years ago and have added several additional buildings along Superior to their portfolio more recently.

The building, like others along Euclid, was a part of a turn-of-the-20thcentury garment district. In 1911, more than 2,000 members of the International Ladies’ Garment Workers’ Union staged a strike here, seek-

Global X purchased the building at 2101 Superior from Daffy Dan’s owner Daniel Gray. (David Kordalski)

ing to improve working conditions by demanding things such as a 50-hour work week.

Now, the demand for downtown living is spurring the activity. Developers see the Campus District as an opportunity to meet some of that demand at a lower rent level than downtown. At the same time, the successful conversion of older office buildings downtown to apartments and condominiums has created a class of office tenants expelled from those downtown buildings who want affordable office space.

Campus District Inc., the nonprofit community development corporation, has tallied a list of in progress development that totals $249.8 million, with additional properties either currently on the market or with development potential.

SEE DISTRICT, PAGE 9

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CRAIN’S CLEVELAND BUSINESS

Fusion will put best foot forward in 2017

By KEVIN KLEPS kkleps@crain.com @KevinKleps

When T.J. Monachino, the new owner of the Cleveland Fusion, wanted to get the “best times” he could for three recent tryouts the women’s professional football team held, he wound up with a trio of 9 p.m. slots at MultiPlex, an indoor facility in Warrensville Heights.

Welcome to the not-so-glamorous world of the Women’s Football Alliance, a 65-team, full-contact league in which the players pay to participate, their health care isn’t covered and games are usually hosted at local high schools.

Monachino, a 28-year-old who also owns the rapidly growing Speedy Office Supply in Warrensville Heights, hopes to change some of that — though he admits his pro sports experience is a bit lacking.

“I have zero background in any of this and I’m younger than most of the players,” said Monachino, who purchased the Fusion in October.

“The first team meeting was definitely an event. They were probably thinking, ‘Who is this kid standing in front of us?’ ” Valerie Riley, a tight end and fouryear Women’s Football Alliance veteran, said she was just happy that the organization seems to have an owner who is able and willing to invest time and resources into a team that she said drew about 100 to 200 fans per game in 2016.

Riley said the Fusion’s former owner, because of an illness in his family, told the team prior to the start of the 2016 season that the Fusion were for sale and the club wouldn’t play that year unless he found a buyer. The players had a different idea.

“We said, ‘If you don’t have a sea-

The Cleveland Fusion were 4-4 in the 2016 regular season and lost to Boston in the first round of the Women’s Football Alliance playoffs. (Contributed photo)

son, you don’t have a product to sell,’ ” Riley said.

The owner agreed to let the team keep the name and logo, and the players formed a nonprofit to run the franchise during a season in which the Fusion finished 4-4 before losing to Boston in the first round of the playoffs.

“We were spread pretty thin,” Riley said. “To get the word out, get sales, get it out to the media — we were all kind of going at it for the first time.”

A time crunch is something with which the players are accustomed.

Each member of the Fusion pays $500 to compete in the league — a “necessary evil,” Riley calls it — and the players squeeze in practices, workouts and games while juggling full-time jobs and family commitments.

Riley, an assistant product manager at Sherwin-Williams who played two seasons for the WFA’s Pittsburgh Passion before moving to Northeast

Ohio in 2014, estimates that almost half of the Fusion’s players have children, and some even have grandkids.

“It’s definitely a challenge,” she said of a weekly in-season schedule in which players often have “some sort of team commitment” on five of the seven days.

Riley insists, however, that the players don’t expect to be compensated, but it would be nice if at some point the team generated enough money to at least waive or reduce the $500 fee.

Monachino has looked into cutting that cost, which Riley says will help the team in its recruiting efforts.

Low costs, large upside Monachino might not know how to run a football team, but he does seem to be beyond his years when it comes to growing a business.

He’s served as Speedy Office Supply’s president since February 2012, and he’s said the company has grown “like crazy” in the last two years.

Speedy has made five acquisitions in the last 18 months, and its owner said the company’s revenue has increased by “hundreds of percent” in the last three years.

His simple formula for the Fusion: Invest in the staff and organization, and promote the team as much as possible.

Monachino will pay the Fusion’s coaches in 2017 — an unusual practice for the WFA — and he’ll have two full-time employees (a general manager and a director of marketing and community outreach), plus three part-time volunteers.

“The reason we think this will make sense is because our costs are so low,” he said. “We don’t have the overhead.”

The players’ fees take some of the burden off trips the Fusion take to such cities as Boston, Columbus, Pittsburgh and Detroit. The players also help with fundraising, participating in such events as guest bartending and selling squares for big sporting events. Riley and her teammates also appear at schools and boys and girls clubs to raise some much-needed awareness.

The WFA plays an April-to-June schedule, and the Fusion sells tickets that cost $5 for students and seniors, and $15 for adults.

“If we fill the stands (at Maple Heights High School, where the Fusion play), the upside is huge. Eight thousand at 15 bucks a ticket — you do the math,” Monachino said. “But the chance of that happening immediately in three months is pretty low.

In anything I do, making money isn’t my highest reason for doing it.”

But he guarantees he won’t lose money on the Fusion, whose players have told him the 15-year-old franchise would draw 2,500 fans a game during really productive seasons.

In a 2015 story by The Nation, the WFA estimated the annual per-player cost at $2,200 to $2,500, which accounted for such expenses as field rentals, equipment, uniforms, marketing and travel. Riley said the Fusion will have “a minimum” of 35 to 40 players, and the ideal range is 45 to 60.

The WFA veteran is also hoping to get young girls more interested in a sport they might not think they have a chance of playing. And the more who are aware of the Fusion, the better the chance the team’s games are more than friends-and-family gatherings.

“Whatever we do this year, it will be tenfold next year because of the energy and commitment we’re putting into it,” Riley said.

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PA G E 3

Surgical startup poised to enter market

By LYDIA COUTRE

Key components of the IOPS

lcoutre@crain.com @LydiaCoutre

Centerline’s Intra-Operative Positioning System (IOPS) combines its device and software analytics to allow surgeons to navigate a patient’s arteries.

Cleveland-based surgical navigation startup Centerline Biomedical Inc. is gearing up to enter the market in 2017 with its GPS-like system that provides 3-D guidance during endovascular surgery.

Centerline closed a Series A funding round in December, a milestone following several pre-clinical trials and building upon other financing and outreach.

The company’s Intra-Operative Positioning System (IOPS) combines its device and software analytics to allow surgeons in real time to navigate a patient’s arteries.

Centerline is a joint venture of the Cleveland Clinic, where the technology was originally developed, and G2 Group Ventures, a private investment group in the Washington, D.C., area.

Since beginning operations in November 2014, the company has raised $6.7 million. About $200,000 from state grants and $500,000 from the Clinic provided a foundation for fundraising once G2 got involved in August 2015 and accelerated that pace, said Jai Gupta, Centerline chairman and CEO. In 2016 alone, Centerline garnered $4.3 million in investor support, he said.

Gupta, who came to the startup through G2, said he was looking to invest in innovative technologies that improve lives. With a background in imaging processing, IOPS quickly

1 Consumable tracking pad is placed on patient at beginning of procedure

2 Consumable sensor-equipped guidewires and catheters are used to navigate during surgery.

1

3

3 Computerized cart is placed next to OR table

5

4

4 Electromagnetic field generator clips to underside of OR table

5 Interface unit attaches to rail on side of OR table

Source: Centerline Biomedical Inc.

grabbed his attention.

Centerline’s software supports its physical device, which is transported on a cart with a computer screen.

IOPS has catheters and guide wires that operate just as those surgeons already use, but Centerline’s are augmented with tracking technology.

IOPS brings better visualization and limits radiation exposure for surgeons and patients. Currently, endovascular surgery uses X-ray fluoroscopy, which delivers a 2-D image, which is a “really limited way to visualize

what a surgeon is trying to do,” when navigating the complexity of arteries, said Vikash Goel, Centerline’s chief technology officer and one of the inventors of the IOPS technology.

“But it also gives this hugely better visualization, which is actually where we think our customers will see the bigger value first, because immediately they’ll start doing these procedures faster and saving money,” Goel said.

Although he expects the primary selling point to be the cost savings

through efficiency, Goel said reduced radiation is certainly important.

For Goel, the research has been personal. His mentor of more than 10 years, Cleveland Clinic innovator and endovascular surgeon Roy Greenberg, died in 2013 following a battle with cancer. Goel said the field is seeing many of its pioneers develop cancer or health conditions likely connected to their work.

“So I have a really strong personal motivation to try to develop our technology that protects people,” Goel said.

His research with this technology began about 12 years ago out of his graduate thesis work at the program of computer graphics at Cornell University.

Goel initially thought it would be used to have a computer design implants. During the process of developing the idea, he realized that the bigger problem was in navigating and implanting devices.

Dr. Matthew Eagleton, chair of Centerline’s scientific advisory board and associate professor of surgery at Cleveland Clinic, got involved with the work shortly after Greenberg’s death. Eagleton performs much of the same procedures that Greenberg had and was asked to get more involved in the research.

IOPS has the potential to help treat disease more precisely, replace devices more accurately, and, though it’s not the primary goal, do so with less radiation exposure, he said.

“I think the bigger part is to pro-

vide the physician with an improved image quality that they can manipulate during the procedure to see exactly what they’re treating, where they are within that treatment field and to replace devices ... more accurately, which will allow for better long-term outcomes,” said Eagleton, who has also been involved in pre-clinical studies.

Once able to demonstrate the technology’s effectiveness and potential, Goel said the team worked with Cleveland Clinic Innovations to find a path forward. A spinoff company became the best approach.

When G2 group invested in Centerline, it brought new leadership, at which point the employment agreement for former CEO William Fuller was not renewed. This prompted a civil suit in December 2015 from Fuller and a counter suit in April 2016 from Centerline. The dispute is ongoing, but Gupta said even if the court were to rule against Centerline, “the liability to the company is immaterial.”

Gupta said Centerline’s plan is to file for FDA approval in early summer.

“At that time we basically think that it will be ready for commercialization, selling our product to various hospitals and medical facilities,” he said.

The fundraising goal for next year is between $5 million and $7 million, which Goel said will hopefully be all the funding Centerline needs to raise.

After that, he expects the company to be operating on its own revenue.

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Continuing to demonstrate a renewed appetite for expanding its Nautica Waterfront District in Cleveland’s Flats, the Nautica Entertainment LLC of Jeff Jacobs has bought the four-story Downtown Self Storage building.

Nautica Entertainment on Dec. 19 paid $1.15 million for the structure at 2320 Center Street, according to Cuyahoga County land records. The brick-and-timber building dates from 1910, according to county tax records.

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tiple multistory apartment buildings to its holdings on the west bank of the Cuyahoga River.

Jacobs said he is reviewing concepts for the first additional structure in that master plan, a small hotel that would border the FirstEnergy Powerhouse, which contains the Greater Cleveland Aquarium.

Jacobs said he is negotiating with five brands of boutique hotel chains interested in the site.

Downtown Self Storage had room to accommodate most of its customers at Cleveland Self Storage at another building he owns nearby, said John Deluca, the owner of both operations, in a voicemail last Friday Jan. 6.

Edwins buys former butcher shop

By STAN BULLARD sbullard@crain.com @CrainRltywriter

To add more culinary training and a shop to its agenda, Edwins restaurant has acquired a former butcher shop building next to its Cleveland campus.

The nonprofit that operates a French restaurant at Shaker Square that helps formerly incarcerated people gain job skills and re-enter society, just shelled out $50,000 to acquire a one-time butcher shop building at 13024 Buckeye Road.

Empty since 2000, the shop adjoins its just-completed Edwins Second Chance Life Skills Center, which provides housing and added services for its students.

Brandon Chrostowski, founder of the Edwins Leadership & Restaurant Institute, said the nonprofit plans to invest more than $800,000 improving and outfitting the property to this fall

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In a Jan. 5 telephone interview, Jacobs said his company bought the structure so it could, at an undetermined time, demolish the building to provide more surface parking to accommodate visitors to summer concerts at the entertainment complex.

“With the kind of development we’re planning, we’ll have to replace the parking they currently use,” Jacobs said.

The building covers about onethird of an acre and is a block south of another, larger parcel Nautica owns. Jacobs was referring to a master plan Nautica shared publicly in May 2016 that envisions adding mul-

700 W. St. Clair Ave., Suite 310, Cleveland, OH 44113 Phone: 216-522-1383 www.crainscleveland.com Customer service and subscriptions: 877-824-9373

open the butcher shop and deli. Offering 25 seats, carryout and delivery services, the deli at Edwins Butcher Shop will also sell barbecue, sandwiches and prepared foods, as well as healthy meats to the surrounding community.

About 40% of the meats processed at the shop will be sold to the group’s restaurant at lower cost than its vendors can provide, Chrostowski said.

“To learn the ins and outs of butchering,” he said, “you have to have product moving in and out so students can practice on it. Margins on butchering are so slim it would require too much volume to run a shop alone, so we have the deli to serve the community.”

Men and women going through the restaurant training program will cycle through the shop so they have a hyper focus on butchering.

They will learn meat cutting from making chops to smoking meats and similar skills valuable to restaurants.

“Working in France, I learned butchery is something you have to have in a restaurant. Life skills of (chefs) in our restaurant means they also have the background,” Chrostowski said. “We can sharpen our knives and our skills — pun intended — with this program.”

By sourcing some such provisions itself, the restaurant can lower costs to improve its margins to help operate the program, which does not charge its participants. The participants gain skills to feed the labor needs of the region’s growing food scene.

Edwins serves 48 men and women at a time.

“We have a list of 40 jobs that (restaurants) are waiting to hire,” Chrostowski said.

So, what’s next?

“I can look through a stack of invoices (at the restaurant) to see what’s next,” Chrostowski said. “Fish, then breads and pastries. All the things that make you a stronger chef.”

Volume 38, Number 2 Crain’s Cleveland Business (ISSN 0197-2375) is published weekly at 700 West St. Clair Ave., Suite 310, Cleveland, OH 441131230. Copyright © 2017 by Crain Communications Inc. Periodicals postage paid at Cleveland, Ohio, and at additional mailing offices. Price per copy: $2.00.

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CRAIN’S CLEVELAND BUSINESS

High deductibles cause headaches for some

By LYDIA COUTRÉ lcoutre@crain.com @LydiaCoutre

For the past several years, high-deductible health plans have forced insured patients to dig deeper into their pockets for health care expenses.

The plans can be cheaper for employers — and initially, for patients through lower premiums. But they carry high deductibles that force consumers to pay thousands of dollars out of pocket before insurance plans start picking up the remaining

costs. The idea is to minimize overuse of health care by driving consumers to make more informed, cost conscious decisions. But finding the sweet spot between encouraging behavior and remaining affordable is a balancing act the industry is still working to figure out. “You don’t want to have it tip to the other (side) where patients aren’t coming in for the things that they should quickly see a health care provider for,� Cleveland Clinic CFO Steve Glass said.

Because these high-deductible plans have left many patients with hefty medical bills, Cleveland-area

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hospitals have seen a slight hit to their finances, but the impact hasn’t been quite as dramatic as what was expected. Cost-sharing subsidies, for example, helped blunt some of the impact, according to J.B. Silvers, a health care finance professor at Case Western Reserve University. Also helping those numbers, he said, is the fact that many formerly uninsured patients now have coverage for care that had been uncompensated.

Still, the increasing emphasis on having patients be more financially responsible for their care is a trend that is likely to continue regardless of the political headwinds in Washington, D.C., and the likely repeal or overhaul of the Affordable Care Act. “Regardless of what the government does, the economic forces driving the growth in high-deductible plans are still there,� Silvers said. “I think what we’ve seen now is what we’re going to get and probably more of it.�

In 2010, about 25% of individuals under the age of 65 with private health insurance were enrolled in a high-deductible health plan. Between January and June 2016, nearly 39% were, according to the latest available National Health Interview Survey from the Centers for Disease Control and Prevention.

Ohio is among the top five states with the largest reported health savings account/high-deductible health plan enrollment levels in January 2015, according to the most recent data available from a census from America’s Health Insurance Plans’ Center for Policy And Research.

Since the passage of the Affordable Care Act, high-deductible plans have been growing on the individual marketplace, following the already growing popularity of the plans among employers, said Norman Steiner, Medical Mutual of Ohio’s vice presi-

dent of business development.

Medical Mutual’s membership enrolled in qualified high-deductible health plans has been growing at an annual rate of about 10% for the past several years. Patients are strongly encouraged to combine high-deductible plans with health savings accounts, tax-advantaged funds that can be used to pay medical expenses.

Initially, high-deductible plans were most popular among those in higher tax brackets, who stood to save more by contributing to their HSAs, Silvers said. But now that the majority of companies in the United States offer a high-deductible plan, the growth in recent years has been with those in more moderate or lower income brackets, for whom the incentive of tax-free contributions is less of a subsidy.

It’s hard to argue with the logic that making people pay will make them more conscious of costs, he said. “I think we don’t know how low on the income scale that can go before it gets to be damaging, and we don’t know how high deductibles can be before they can’t be taken care of,�

Silvers said.

As growth in these plans has accelerated, the concern has been that people don’t understand their benefits, said Kathy (Euthemy) LeBrew, University Hospitals’ vice president of revenue cycle. Then, by the time they need services during the year, they’ve lost track of what they’re financially responsible for until they get a bill.

That can leave patients with crippling bills they can’t pay, and in turn, leave hospitals with growing bad debt.

The bottom line Though hospitals have largely been adjusting or course correcting in response to the financial implications of high-deductible plans, officials know that patients insured by such plans are feeling the pinch.

For instance, 6.3% of Cleveland Clinic’s total revenue year to date in December were dollars that patients were responsible for, up from around 4.5% just a few years ago, Glass said.

Though seemingly a small shift, it shows a significant responsibility that patients face. It’s becoming more common for a patient seeking care to have a required $2,000 out-of-pocket

cost, he said, noting that the Clinic works to set up ways it can get paid and patients can manage that cost. “As you can imagine, there’s a high number of our patients that don’t have $2,000 in discretionary cash in their bank account,� Glass said.

Southwest General has seen a year-over-year increase in its bad debt expense of about 17%, said CFO Mary Ann Freas. And as a percent of its net revenue, bad debt grew from 5% to 6%.

While the number of uninsured has changed significantly in recent years, UH is also seeing higher outof-pocket balances due by patients, LeBrew said. About 40% of balances due by patients were for more than $5,000 in 2015. Another 40% of the balances contributing to bad debt were between $1,000 and $5,000. The remainder fell below that.

Hospital officials say they have programs to educate patients, help them understand their financial responsibility ahead of time, find payment plans or financial assistance and get insured if they’re not already.

At the Clinic, Glass said they’ve seen enough growth in patient responsibility that they’ve had to dedicate more resources to existing financial counseling programs, including having more people able to interact with patients on the front end.

The plan design of high deductibles and HSAs is not the ultimate way for anybody to look at controlling costs, Steiner said. Simply passing higher costs along through plan design doesn’t address the problem.

Carriers and providers need to work closely in disease management programs, population health management and prevention efforts, he said.

Cost-estimation tools, prescription drug comparisons and employee wellness programs can all help with these efforts and, Steiner said, need to work in tandem with plan designs to help control costs.

At some point, cost sharing could become a barrier. “If my barrier before the insurance company pays anything is $50,000, of what value is this to me?� he said. “We as an industry have to be very aware of when do you cross over and make it to the point where health care is not affordable to that individual?�

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PA G E 7

Huntington has gigantic lead in SBA loans JEREMY NOBILE

Huntington is NEO leader in small-biz loans

jnobile@crain.com @JeremyNobile

HUNTINGTON SBA LOANS IN NORTHEAST OHIO

In the field of government-backed small business loans, Huntington Bank is leaps and bounds ahead of competitors in the Cleveland market.

And with plans to expand that business even more, it’s a position Huntington could retain a tight grip on, even as other banks ramp up efforts on that front.

But it's not just Northeast Ohio where Huntington is crushing the scene for U.S. Small Business Administration 7(a) loans, the SBA’s flagship and largest program.

The Columbus-based regional bank, with just about $100 billion in total assets and a nine-state footprint, is the second-largest provider of SBA 7(a) loans in the country in terms of loans made (3,905) and fifth in terms of dollars lent out ($633.5 million), according to SBA data for the 2016 fiscal year.

That puts it in the company of some of America’s largest national banks.

Comparatively, Wells Fargo Bank N.A., the most active SBA lender in the country at 8,737 loans made (totaling nearly $2 billion), has more than $1.8 trillion in total assets and offices in more than 40 states.

In the SBA’s Cleveland district, Huntington made 1,091 7(a) loans in the past year, or about $134 million worth, according to data from the SBA’s Cleveland district.

That means more than 20% of its total SBA 7(a) dollars was lent in this district, which covers 28 Northern Ohio counties between the Pennsylvania and Indiana borders and is anchored by the Cleveland market. “Everything with us is growing right now, really,� said Margaret Fer-

Year FY2016

Value of approved loans $134,278,100

FY2015

$136,272,400

FY2014

$141,264,400

FY2013

EVERYONE ELSE — SBA LOANS IN NORTHEAST OHIO Number of loans 1,091

Year FY2016

Value of approved loans $233,565,600

Number of loans 679

1,201

FY2015

$204,123,100

621

1,275

FY2014

$196,383,200

560

$91,987,400

844

FY2013

$204,989,600

517

FY2012

$101,713,800

735

FY2012

$185,049,400

564

FY2011

$82,357,400

681

FY2011

$216,424,400

638

FY2010

$54,599,300

352

FY2010

$119,593,803

579

FY2009

$24,282,600

195

FY2009

$102,401,300

566

SOURCE: Cleveland District office of the U.S. Small Business Administration

ence, senior vice president and SBA group manager for Huntington. “And we are willing to lend to these businesses when no one else is,� she said. “We have tried to build a sustainable, scalable model, keeping in mind that it still needs to make sense for us as well to make something like a $50,000 loan. Some banks won’t go that low.�

Loans between $25,000 and $50,000 fall into the lower end of the SBA 7(a) spectrum. The upper end is between $1 million and $5 million.

While it’s a bit of a generalization to say no other banks are participating, the SBA figures show that Huntington is taking on a larger number of the smaller loans.

Demand for smaller loans Through the last five years, Huntington has provided somewhere between 60% and 70% of all SBA 7(a) loans in the Cleveland district, said Gil Goldberg, director of the Cleveland SBA district. The figure peaked

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in 2014 with 71% of loans, but dropped to 64% in 2016.

There was actually a small dip in overall SBA lending for Huntington between 2015 and 2016. The recent figures show a drop of about $1.9 million in total dollars and 110 fewer loans made compared with the prior year.

In the Cleveland district specifically, SBA lending grew by 8% to top $367.8 million in 2016. But that was on 1,770 loans, which is 52 fewer than 2015. “For Huntington, this still signifies a huge commitment,� Goldberg said. “But the figures show that other banks are really participating in the SBA market. They want to make a mark and have been chipping away at Huntington’s dominance.�

Some of the overall increases in SBA lending are coming from more community bank participation.

While some smaller banks might make a couple SBA loans in a year, as a group, those smaller banks are “playing a more significant role,�

Goldberg said.

When comparing individual banks, SBA growth for Huntington does show a greater propensity to support smaller loans. But in general, the bank lends across the spectrum better than others, Goldberg noted, as they still make large loans.

Nonetheless, nearly 80% of all SBA loans at or less than $25,000 in the Cleveland district — 375, to be exact, out of 473 — came from Huntington in 2016. “If you look at loans $1 million and over in 2016, we did 81,� Goldberg said (Huntington did 37 of those). “That shows the market here is really for those smaller loans.�

Expect more in 2017 Huntington's 2016 activity marks an increase of more than 450% in both loans made and dollars lent since 2009, a period when the bank began investing in the business, which included accelerated support of SBA loans. “We wanted to invest here,� Ference said. “We believed the economy would recover faster than even some of the experts put out there. So we ramped up staff and took time to prepare, expecting an increase in demand.�

Granted, the SBA program has grown consistently since then as well, with demand gradually increasing as businesses sought growth in the wake of the economic downturn.

As a whole, the SBA 7(a) program hit record levels in 2016, supporting $24.1 billion across 64,073 loans.

And other banks have certainly participated in that, including KeyBank N.A. The Cleveland-based bank ranked third in the Cleveland district in 2016, making 54 loans for a total of $14.6 million, a 34% increase over 2015 de-

spite fewer loans made. They were bested in that business in the local district by U.S. Bank N.A., which made 87 loans for a total of $21 million.

Nationally, Key, which has $135 billion in total assets, ranked 14th in terms of total SBA 7(a) loans, making 538 of them for a total of $222.2 million.

That’s an increase of 44%, the largest gain among the top-20 SBA lenders with $15 billion or more in assets.

The bank, like others, has been a long-active player in the SBA space.

But that’s still a significant increase.

Jim Fliss, senior vice president and national SBA manager for Key, said the bank intends to do even more in the coming year. Part of that will surely come from the expanded footprint provided to them through its recent acquisition of Buffalo’s First Niagara Financial Group.

Similarly, Huntington intends to grow its SBA lending. Besides an ongoing commitment to the program, new markets courtesy of the acquisition of Akron's FirstMerit Corp. inherently grows lending prospects. “In lock step with the FirstMerit merger, we are growing dramatically in Akron and Canton and Cleveland.

We have increased salespeople and credit and operational staff here as a result,� Ference said. “We do certainly see demand on the rise.�

One line of thinking is that the need for SBA loans might dwindle as the economy continues to improve, businesses do better and banks feel more comfortable making loans without that government support. “But we believe there’s still a lot of demand for these products,� Fliss said. “Regardless of the economy, what never goes out of style is that many business experience cash crunches. These products help companies conserve cash and cash flow.�

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CRAIN’S CLEVELAND BUSINESS

Opinion Web Talk Re: Browns’ sad season Good for ESPN Cleveland analyst Tony Grossi for his highly critical analysis of the 2016 Browns. It’s about time someone stood up and told the Browns to get their (act) together! The front office can talk all they want, but the bottom line in the NFL is “results!” — John Rawl I’m a Browns fan to the bitter end (irrationally so), but calling out the local sports media, as some fans have done, for simply doing their job of exposing the ineptitude in Berea is a bit much. Like Bill Belichick used to say, they (and we) can only go by what they see. — Scott Tennant I, too, am a diehard Browns fan and agree that consistency of leadership leads to success. We cannot and will not be successful unless the front office and coaching staff are allowed to build a team. I fully expected the Browns to have a very poor season this year and I was not surprised at a 1-15 season. But I am surprised that some people actually believed they would be better than 1-15 and then bitter when they weren’t. Give this coaching staff TIME to build a team! We will never be successful if we continue to change coaches every other year and expect to have a winning season. — Donna Flynt The most overwhelming piece of data that came across the television broadcast of the Steelers-Browns game on Jan. 1 was the fact that the (hated) Steelers have had three head coaches since 1969 and the Browns have had 18 in the same period — nine since coming back in 1999.

There cannot be any coincidence that consistency of leadership leads to success. ... Fans have it right on this one. Hold our breath and let the coaches do what they need to do. — Boro Rules

Editorial

Up to standard If Ohio goes on to develop a vibrant clean-energy industry, Dec. 27, 2016, will go down as a landmark date.

That was the day Gov. John Kasich vetoed House Bill 554, which would have weakened the state’s clean-energy standards. The bill had passed the Republican-controlled state House and Senate in December, but its majorities were not large enough to override the governor’s veto.

In essence, the veto puts Ohio back on a path requiring electric utilities to meet annual portfolio standards for investing in renewable energy, as well as helping their customers reduce energy use. Such standards were enacted in 2008, although a freeze (signed by Kasich) has been in place for the past two years. HB 554 would have made the standards optional for two more years, which essentially would have frozen further renewable energy development in Ohio.

Utilities in the state will be required to procure 12.5% of their energy from renewable sources by 2025. That doesn’t sound like much, but it would represent a big jump, as data from the U.S. Energy Information Administration show renewable energy supplies only around 2% of Ohio’s net electricity generation at present. (Indeed, supporters of the bill opposed the standards, citing high compliance costs.)

As important as the veto itself were the words Kasich used to explain his action. He said, for instance, that the bill amounted to “self-inflicted damage to both our state’s near- and long-term economic competitiveness.” The governor added that the bill would take away energy options “most prized by the companies poised to create many jobs in Ohio in the coming years, such as high-technology firms.”

Although Kasich did not identify any companies by name, it’s not hard to see that as a reference to outfits such as Amazon, the web retail giant that has built three large data centers in Ohio that are powered by wind. Forward-thinking companies want to do business in forward-thinking states. Kasich’s action keeps Ohio on the right side of progress.

Not surprisingly, not everyone agrees.

Greg Lawson, a senior policy analyst at the free market-oriented Buckeye Institute in Columbus, said in a statement that the organization “ultimately want(s) an outright elimination of these burdensome energy mandates that are of dubious environmental value.”

Bill Seitz, a Cincinnati Republican and a leading supporter of the bill who has moved to the House from the Senate due to term limits, wants to pass a bill in 2017 that would fully repeal the energy standards.

“We will do our part by launching a full-scale effort next session to totally repeal these Strickland-era mandates,” Seitz said in a statement issued after the Kasich veto.

That could be easier to do, as Republicans have added to their majorities in both chambers of the state Legislature.

The onus, then, will be on supporters of renewable-energy standards to make the case that building ever-stronger wind and solar industries in Ohio makes good economic sense via the promise of opening new avenues for manufacturing jobs in the state.

“The potential for growth in wind energy is significant, and we see the demands of the industry as a natural fit with our core skills and capabilities,” said Joe Starck, president of Great Lakes Towing Co., in a Personal View column we ran last week that was written by John Colm, the president and executive director of WIRE-Net, an economic development organization serving manufacturing businesses on Cleveland’s West Side.

Great Lakes Towing operates a fleet of tugboats and a full-service shipyard. It has been pursuing multiple market opportunities in offshore wind.

“We look at Europe, with its 4,000 offshore turbines, being serviced by a large number of shipyards with great success and impressive results,” Starck added. “The support we can provide in Lake Erie is a natural extension of our existing business.”

We look forward to an era in Ohio that offers such hope for new and existing businesses as a result of more fully embracing renewable energy.

Publisher and Editor: Elizabeth McIntyre (emcintyre@crain.com)

CLEVELAND BUSINESS

CLEVELAND BUSINESS

Managing Editor:

Scott Suttell (ssuttell@crain.com)

Sections Editor:

Timothy Magaw (tmagaw@crain.com)

Contact Crain’s:

216-522-1383

The Steelers have had only three coaches because they have had a front office that can judge talent. When a Steeler leaves or retires, they plug in another talented player. The most important people in any sports organization are the talent evaluators, and the Browns have been terrible at it. — Donald Sinko

Re: Trump’s threat of a ‘border tax’ If we make it more expensive for companies to make their products, won’t the cost we will pay for the products also go up? — William Thompson Yes, the costs to us consumers will go up. But the man on the street wants a paycheck, notices if he doesn’t get one, and doesn’t notice if the prices of goods go up.

— James Anderson

Re: Future of GE Lighting here Keep your eyes on GE Lighting in 2017. It might not abandon consumer lighting, but it is putting more emphasis on commercial and municipal. And not just lighting. It plans entire communication and safety networks installed with street lights, traffic lights and other technologies — a complete makeover and redefinition of lighting as one element of a communications network. The company wants to participate in the smart-city evolution. — Robert E. Chalfant

Re: David Gilbert, a Crain’s newsmaker of 2016 Who could deny that this humble and hardworking guy, president and CEO of the Cleveland 2016 Host Committee, is deserving of every bit of recognition? Yes, there were hundreds, and even thousands of people involved in our spectacular civic success from the Republican National Convention and other events, but Gilbert has definitely been one of the main flagbearers. Well done, sir! — Peter Corrigan

Write us: Crain’s welcomes responses from readers. Letters should be as brief as possible and may be edited. Send letters to Crain’s Cleveland Business, 700 West St. Clair Ave., Suite 310, Cleveland, OH 44113, or by emailing letters@crain.com. Please include your complete name and city from which you are writing, and a telephone number for fact-checking purposes.

Sound off: Send a Personal View for the opinion page to emcintyre@crain.com.

Please include a telephone number for verification purposes.

CRAIN’S CLEVELAND BUSINESS

Cleveland will offer the former Third District police station on Payne Avenue for redevelopment. (Jay Miller)

DISTRICT CONTINUED FROM PAGE 1 Bobbi Reichtell, the group’s executive director, said her group is forecasting that the resident population in the neighborhood, now about 5,200, will grow by 1,000, or 19%, in three years.

“Five years ago, no one could have predicted the demand that exists now,” Reichtell said. “It’s the success of downtown that has driven us and given developers the confidence to sink money into a neighborhood that was on the edge.”

A trigger for Perkowski’s and Reichtell’s optimism is the commitment of a local investment firm that is assembling a handful of properties along Superior Avenue. The firm, global X, has been investing for the long term, with the intent of developing its properties as both residential and commercial space. Global X is a 16-year-old investment firm and tax credit adviser specializing in historic preservation.

It first invested in the Superior Avenue corridor in 2013, when it bought the building at 2498 Superior. It added five more the next year.

State and federal tax credits that encourage the preservation of significant older buildings are a key to the renaissance of the area.

Late last year, global X was awarded tax abatement by the city of Cleveland and historic tax credits by the state of Ohio to assist in the $10.5 million purchase and redevelopment of 2101 Superior into the firm’s headquarters.

Two years ago, the firm entered a joint venture to rehabilitate the ArtCraft Building at 2530 Superior with longtime building owner Roy Group.

At the time, Crain’s Cleveland Business reported global X was considering moving its office from 1301 Prospect Ave. to the ArtCraft Building.

Regina Baker, the firm’s associate vice president of marketing and business development, said it’s too early to get into specifics of redevelopment of the ArtCraft or other properties.

She offered Crain’s a statement from the firm’s CEO and founder, who was traveling at the time of the interview, that said global X sees its properties developing as a mix of residential and commercial space.

“We are delighted to play a role in the redevelopment of the Superior corridor and our employees are excited to be part of this revitalized area,” global X CEO Drew Sparacia said in the statement. “Our goal is to

transform this corridor into a jewel in the crown on Cleveland’s East Side with upscale loft-style apartments, student housing, retail businesses, office and commercial space, restaurants and entertainment.”

Baker also said that global X will continue to support the artistic community that has thrived in the wideopen, and low-cost, spaces in the outmoded multi-story clothing factories along Superior that will likely see rent increases as spaces are renovated.

“We highly value the strong Cleveland arts community,” Baker said.

Out of the shadows Reichtell said that with support from developers like the Perkowskis and global X, her organization is

“It’s the success of downtown that has driven us and given developers the confidence to sink money into a neighborhood that was on the edge.”

— Bobbi Reichtell, Campus District Inc. executive director

working to create a business improvement district in the northern part of the area her group serves.

The Campus District umbrella covers Cuyahoga Community College’s Metro Campus, public housing and St. Vincent Charity Medical Center on its southern end; Cleveland State University in the middle and a mixed bag of low-rise office/warehouse buildings and former multi-story clothing and printing plants to the north reaching to the Shoreway.

In a business improvement district property, owners agree to tax themselves to improve the services in their neighborhood beyond what the city provides. Downtown Cleveland property owners created a so-called BID in 2005 and property owners in neighborhoods including Ohio City and Detroit-Shoreway approved BIDs since then.

As large institutions, the hospital, Tri-C and CSU already provide upgraded services — security and cleanup — on their own. It’s to the north, where no property owner or institution covers a lot of ground, where a joint effort is needed.

“We as an organization are convinced that what needs to happen is

that, in addition to creating a park and improved lighting, this neighborhood really needs to have a business improvement district,” Reichtell said.

The concern about a lack of street lighting and open space is a consequence of the area’s industrial past and the presence in the neighborhood of three homeless shelters. Employers and their employees were only around during the daylight, working, making it easy for the city to bypass it when other nearby lighting was upgraded.

It’s Reichtell’s hope that the street lighting can be upgraded and that, as Cleveland empties out the former Third District police station on Payne Avenue in the coming months and offers it for redevelopment, the city will hold on to part of that land for a public park.

Since the homeless shelters are there to stay — moving them would require another neighborhood accepting them — Reichtell is buoyed by the results of several focus groups with residents of 2320 Lofts, a Tower Press-owned residential building on Superior.

“It wasn’t surprising that they said the neighborhood needs green space, but they also said they wouldn’t mind sharing it with homeless folks as long as it was a safe space,” she said. “That was surprising to me and encouraging.”

Reichtell believes the diversity of the residents of 2320 Lofts — the kinds of residents she believes will continue to be interested in the Superior corridor — was a factor in the acceptance. She said many said they were from parts of the country where the homeless lived in larger numbers than in Cleveland. Perkowski said 70% of the residents of 2320 Lofts are Cleveland State students and 30% are young professionals.

Campus District is also hoping a plan being developed by the three institutions in the southern end of the neighborhood will spur even more residential development.

Wendy Hoke, St. Vincent’s vice president for marketing and communications, said Cleveland State, Tri-C and St. Vincent are looking at ways to both hire more neighborhood residents and encourage employees to live nearby. Hoke said the plan is to offer employees assistance on the order of providing a security deposit or first month’s rent on an apartment.

“We’re in a position where each of the anchor institutions will be happy to welcome new neighbors into the neighborhood,” she said.

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CRAIN’S CLEVELAND BUSINESS

Focus SMALL BUSINESS

Allison Tinerello and Nick Sword founded Cleveland in a Box as an online-only enterprise but recently opened a storefront at the 5th Street Arcades. (Contributed photos)

Success doesn’t always end in dot com Despite consumer trends, some former online-only shops find value from investing in bricks and mortar

By DOUGLAS J. GUTH clbfreelancer@crain.com

E-commerce has changed the way we shop, giving consumers the comfortable option of purchasing products from their smartphone or computer. Cleveland’s small retailers are fighting this development by offering patrons a personalized brand experience they can’t find on Amazon or other online resource.

While an online component is still a facet of the independent business model, shop owners interviewed by Crain’s said a specialized level of customization is needed to attract the all-important brick-and-mortar customer.

Cleveland in a Box, which sells a variety of city-made food items and sports memorabilia from its new 5th Street Arcades storefront, was launched by founders Allison Tinerello and Nick Sword as an online-only enterprise. Today, the gift box company aims for a higher level of in-store service that Tinerello said is vital to the business’s overall longevity.

Having walk-ins handle a bottle of Pope’s Kitchen Burning River hot sauce or a guitar pick from The Rock & Roll Hall of Fame provides an interactive experience that can’t be duplicated when browsing online, said Ti-

nerello, who doubled her holiday sales over this time last year.

“I would say the store is the reason for our drastic increase in sales during the holidays,” Tinerello said.

“We wanted to have a footprint downtown to introduce people to what we offer. They’re seeing all these Cleveland products they never would have found out about otherwise. It’s been a big marketing tool for us.”

Battling the big boys Online sales in the United States were expected to reach about $394 billion in 2016, a figure representing less than 12% of total retail revenue, reported research firm Forrester Re-

“I would say the store is the reason for our drastic increase in sales during the holidays. ... It’s been a big marketing tool for us.”

— Allison Tinerello, founder of Cleveland in a Box

search in a January 2016 study.

A gap exists for smaller stores to fill, but independent entities still face the digital dominance of Amazon. com, which is expected to capture two-thirds of the U.S. online retail market within the next five years, according to a report from the nonprofit Institute for Local Self-Reliance.

Gordon Gough, president and CEO of advocacy organization The Ohio Council of Retail Merchants, said physical stores remain fundamental to a community’s financial fortunes.

However, battling the Amazon behemoth requires retailers to underline the social and even educational component of in-person shopping.

“It depends on the item the retailer is providing,” Gough said. “Buying toothpaste doesn’t require a brickand-mortar store. But if you’re picking up a big-screen TV, you’re relying on the expertise of an owner who’s done it for years. People like forming those relationships and getting a fair deal. You may not get that type of institutional knowledge online.”

Direct-to-consumer boutique shops selling locally manufactured clothes, jewelry or furniture are seeking to grab attention beyond the basic transaction by highlighting the “touchable” nature of their unique products.

SEE STORE, PAGE 13

Fount Leather’s physical sales have significantly outpaced its digital sales thanks to its Detroit Avenue studio.

CRAIN’S CLEVELAND BUSINESS

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SMALL BUSINESS Adviser: Tod Wagner

High valuations don’t always mean it’s a good time to sell Company valuations today are at the highest levels we’ve seen in years.

So if you’re a business owner thinking about a liquidity event, now would be a good time, right?

Not so fast.

Even though the value of their companies is at historically high levels, many business owners have suddenly become reluctant to pull the trigger on a sale. What’s happening to cause a pause in their thinking?

On a macro scale, there has indeed been a slowdown in merger and acquisition activity. Thomson Reuters reported that as of the third quarter of 2016, announced M&A values worldwide fell 27% compared to the prior year. There are a lot of theories as to why this slowdown, from Brexit to political volatility in the US, but no one determining factor tips the scale Let’s peel that back a bit to see how this is affecting the small business owner.

On the one hand, there are a variety of factors that are leading many owners to conclude that now is the right time to sell or transition the business to the next generation: J Baby boomer business owners are at retirement age or giving serious thought to a second “encore career.”

Many are truly grappling with the question of how they want to define their legacies.

J The introduction of new technology and overall pace of change is leading many owners to conclude that it is a good time for a new, perhaps more adaptable generation of leaders to take their companies further.

Or they often conclude they no longer have the appetite to invest new levels of risk capital — or personal energy — needed to remain competitive.

J The low unemployment rate is creating a war for truly outstanding talent which is becoming more and more difficult to manage.

Some proposed regulations coming down from the IRS may also be creating a sense of urgency behind owners’ thinking. In early August the IRS issued proposed regulations for Section 2704 of the tax code that, if enacted, would significantly limit some estate planning techniques and increase tax costs of intra-family transfers. In brief, the change would reduce discounts that are considered when valuing the transfer of a business interest to a family member.

Some industry watchers feel the IRS has overstepped its bounds with these proposals, and given the outcome of the recent election, they may be altered significantly or even shelved. However the regulations eventually are finalized, the fact that they were introduced created some impetus among many business owners to get their succession plans moving forward.

Coupled with the high valuations many have for their companies, and perhaps even these IRS proposals, many factors are coming together to create a peak moment when the closely held business owner is stepping back to consider long term family, financial and philanthropic objectives. They’ve worked their entire lives with a simple plan in mind – grow the business, build long-term value in the enterprise, and sell at some point to create a nest egg that will continue to support their lifestyle at the same level as when the busi-

Tod Wagner is a certified public accountant and managing partner of Bober Markey Fedorovich’s Cleveland office.

“The greater hesitation we’re seeing today underscores the need to plan for liquidity events in decades, not a few years.”

ness provided their incomes.

These historically low interest rates we’re seeing and recent post-election run-up in public equity markets are

giving many second thoughts with their succession planning, even in the face of currently high valuations.

Here, the owner is on the cusp of re-

tirement at 50-70 years old and wants to take some risk off the table or perhaps build a portfolio that’s more diversified than being tied just to one business.

But when that owner meets to plan his or her future with a financial adviser, it becomes clear that it will be a struggle to generate the same amount of cash flow and match pre-sale income levels by investing the after-tax proceeds of sale. Today’s low yields from fixed-income investments are making it harder for that portfolio to generate a sufficient return post-liquidity event without taking more risk

than is desired with alternative equity investments. Back to work for another 10 years? Regardless of what action you decide is best, the greater hesitation we’re seeing today underscores the need to plan for liquidity events in decades, not a few years.

Business owners who have been following a plan for some time are nearly always better insulated from the short-term impact of any current market conditions. It’s a common, even tired piece of advice: true financial freedom and lasting legacies require long-term planning, not shortterm quick steps.

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CRAIN’S CLEVELAND BUSINESS

SMALL BUSINESS

Cooling off isn’t part of Chill Pop’s plans

By DOUGLAS J. GUTH clbfreelancer@crain.com

Cleveland’s long winter has just begun, but Elizabeth and Maggie Pryor are busy expanding a flavorful line of artisanal popsicles that may have their customer base dreaming toward summer.

Chill Pop Shop, a Cleveland-based business producing frozen fruit pops made with real fruit and fresh ingredients, has grown from selling single pops from a push cart to 65 retail stores across the Mid-Atlantic and Eastern regions. Whole Foods and Mom’s Organic Market are among the outlets where the guilt-free treats are now available.

The co-owners, who sell their tasty wares in six flavors, operate out of a 3,500-square-foot manufacturing and office space in the Tyler Village redevelopment project downtown.

Wholesale distribution makes up the majority of sales, but the icy fruit pops are also obtainable through mobile and catering means.

“We’ve had compounded growth of 50% the last few summers through mobile sales and catering, but we’ve scaled that back some,” Elizabeth said. “Wholesale is our main area of growth now, and will continue to be over the next couple of years.”

While winter is technically Chill Pop’s off-season, the Pryors are using the cold months to increase their product’s retail footprint. Their creative twist on popsicles is currently found in seven states and regions — Kentucky, Maryland, New Jersey, Ohio, Pennsylvania, Virginia and the District of Columbia.

Chill Pops are prepared with fresh fruit only — there are no syrups, ad-

Chill Pops are prepared with fresh fruit only — no syrups or additives.

Elizabeth and Maggie Pryor operate Chill Pop Shop out of a 3,500-square-foot space in Tyler Village. (Contributed photo)

ditives or preservatives to be found. A four-pack of Coco Mocha Fudge or Cucumber-Kiwi pops can be had at a retail price of $7.49 to $7.99 per box.

“Sourcing ingredients with integrity is pivotal to our foundation,” Maggie said. “That’s why our tagline is ‘Made With Meaning.’ There’s a meaning behind why we make what we make.”

The Pryors’ “dessert without guilt” was shaped by a love for local foods the pair nurtured while living in Columbus. The Cleveland natives returned to their hometown in spring 2013, with Elizabeth carrying an en-

trepreneurial background in holistic health and Maggie working in traditional health care after earning her master’s in health education from Ohio State University.

As fans of locally produced Jeni’s Ice Cream, the Pryors saw an untapped market for gourmet popsicles — a kind of “Jeni’s on a stick,” in Elizabeth’s words.

“That was our inspiration,” she said.

“We did additional research and saw this ice pop trend hadn’t hit Cleveland.”

After concocting a few test recipes, the partners joined Cleveland Culi-

nary Launch & Kitchen (CCLK), using knowledge gleaned from the food business incubator to manage a cart at local farmers markets and The Cleveland Flea. The Pryors landed a production space on East 185th Street in 2014, moving to their larger location at Tyler Village after their pops hit Whole Foods’ freezer case in September 2015.

The Whole Foods coup scaled up Chill Pop’s infrastructure and set the owners’ sights on wide-range distribution. The complex minutiae of the grocery industry, including finding the proper temperature to ship their product by refrigeration truck, is an ongoing process, they said.

“We put ourselves through grad school learning about the grocery industry,” Elizabeth said. “It was like learning Chinese at first, then we made some critical contacts in the industry. For both of us it’s more of a food education that’s translated into creating a food product.”

Eric Diamond, a partner with CCLK, is confident the Pryors’ tireless dedication to customer service and marketing will lead to continued triumphs even in an ultra-competitive food industry.

“Anytime you have a healthy, locally sourced treat, you separate yourself from national competitors,” Diamond said. “The other thing is Maggie and Elizabeth have spent a lot of time building their brand, which has helped them be successful.”

If all goes well, 2017 will find Chill Pop in at least 500 additional stores with two new flavors. Some of those stores may be in warmer climates, which would only boost next year’s sales figures.

“It goes back to a passion for food,” Elizabeth said. “Maggie and I are total grocery nerds. We love the stores, seeing new brands and trying new products. It’s amazing to have a regional presence, but we want to grow into a national brand.”

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SMALL BUSINESS

Q&A: Melanie Hershberger Owner, Music Saves

CONTINUED FROM PAGE 10

Though it may be seen by some mainstreamers as more of a fashion statement than a musical resurgence, purchasing vinyl is a verified trend that doesn’t appear to be scrapped anytime soon.

According to the Recording Industry Association of America, vinyl sales were up 32% by the start of 2016, amounting to $416 million, the highest percentages since George Michael’s Faith topped charts in 1988.

Nowadays, as CD sales drop nationally by the millions, and users of streaming services like Spotify and Apple Music contemplate starting a record collection, Crain’s turned to Melanie Hershberger, the owner of one of Cleveland’s beloved indie go-tos, to provide context on vinyl’s life in 2017, and what this exactly has to do with ad-supported music streaming. — Mark Oprea A 2016 poll of vinyl buyers in the UK reported that 45% of them first heard an album they bought via avenues like YouTube or SoundCloud. Do people buy more records when they stream more?

Is it sort of a gateway drug?

I definitely see a relationship. I know I do have quite a few customers who have subscriptions to Spotify especially. It’s very different from before I had Music Saves. Most of the time when you went to the record store and bought music, you actually hadn’t heard the record yet. With Spotify, it eliminates the unknown in deciding between purchasing and spending money on physical copies — CD or vinyl — and actually taking the initiative to do it. I have customers that will tell me that they’ll wait until the vinyl comes out, and will say, ‘Oh, this record is so good. I’ve been listening to it nonstop for the past whatever weeks.’

I bought Sharon Van Etten’s Tramp (2012) after listening to her entire discography over and over on Spotify. I bought the record despite having it right there online for free. What propels folks like me to go out and own a physical piece of art?

I think it’s different reasons for certain people. I still have customers that exclusively buy CDs. They’re not interested in the cost, or the space, or the investment involved in buying vinyl. The collectibility is definitely a part of it, and record labels are certainly making a solid effort nowadays to enhance that experience. A lot of records are on 180 gram vinyl. A record may have bonus tracks if the CD doesn’t. Quite a few come with expanded booklets, posters or stickers. The big reason that vinyl is as popular as it is now — and continues to grow in popularity — has to do with the primarily visual world we live in now. That can’t be denied.

But how many of those buyers actually sit down to listen a record? Is that still a practice?

Uh, yeah! People surely still get together in pairs or groups to listen to records. It provides a really human contrast to, like, the distance and coldness of technology. Just to pull out a record from its sleeve, and put it on a turntable, and see it spin. It’s a total visceral, intimate experience.

STORE

Even in Cleveland we see companies like Wax Mage Records (of Gotta Groove) manufacturing custom vinyl for local bands to sell at shows, on their Bandcamps, and so on. I mean, wouldn’t be kind of odd for a band to hand just out a link to stream their EP? Of course. Because a lot of fans expect it. Even with us local bands. I still have people come in occasionally, hear that so-and-so has put out a new album and ask me if I have it in stock. When they find out it’s only a CD, they inevitably ask me, ‘Do you know if they have plans to put out vinyl?’ Unfortunately it’s really cost-prohibitive for some musicians, so they’re not always able to do it.

You guys seem to stock as many CDs as records. Do you sell them equally?

We definitely sell more vinyl — I would say about 70% to 80% more.

But we still have people who’ve been shopping since they opened, as well as new customers who prefer CDs. For whatever reason. For some, it’s easier to just pop a CD in in the car, and go. I do think that CDs are slowly being phased out. We did cut back dramatically on them five years ago.

Since then, the prices of vinyl have gone up, and places like Best Buy cut back, and some like Barnes & Noble have stopped carrying CDs altogether.

Could you see Music Saves following the same suit, and being CD-less and selling only vinyl?

It’s kind of hard to say. Because what people do in the mainstream does not always line up with what they do on the fringes.

The genre always seems to fit the format.

Hmm. You could say that.

Music Saves had a good year in 2016, and is planning to open its web store in January. Should we expect more vinyl addicts in 2017?

Definitely. I have friends in their 50s that come here and say, ‘You know what? I’ve been thinking about bringing out my old turntable, because I still have one!’ They’ve been thinking about transitioning — or buying certain bands on vinyl.

Really? I think this whole thing is just going to continue.

Fount Leather deals in handmade leather purses and accessories designed in Cleveland. From its permanent showroom in the Gordon Square Arts District, the store carries bags, totes and clutches as well as a line of candles and luxurious soaps.

Fount’s Detroit Avenue studio has far exceeded the expectations of owners Jackie and Phillip Wachter.

The couple’s wares are available online at fountleather.com, but physical sales have outpaced digital buys significantly, noted Jackie Wachter.

About two-thirds of Fount’s buys are made in person, either at the store or via venues like The Cleveland Flea.

The business’s successful transition to Gordon Square from a tiny studio in the Artcraft Building on Superior Avenue can be attributed in part to visitors experiencing the shop’s lovingly produced goods for themselves, Wachter said. Fount was recently featured on “Cleveland Hustles,” a CNBC reality show created by LeBron James and Maverick Carter’s SpringHill Entertainment company “People can touch, feel and smell our bags in person,” she said. “They’re excited about every bag being American-made. It’s amazing how many customers have shared our brand with others.”

The Wachters’ strategy emphasizes designing the “ultimate storefront,” one that serves as a compelling hangout for shoppers. Handcrafted black wooden shelving, chandeliers and furnishings provided through a partnership with Arhaus Furniture create expectations of an upscale retail showroom.

“People believe we’re carrying a high-quality bag, because they can see it in the presentation,” Wachter said.

Cleveland in a Box owners say their specialized product offerings have made competition with digital competitors moot. (Contributed photo)

Making it their own Cleveland’s independent market is showing signs of health, said Gough of the retail merchants group. His organization expected a 2.1% uptick in holiday sales for a region including Cuyahoga, Lake, Geauga, Medina and Lorain counties.

Continued vitality means promotion of what makes a small business’s goods unique, said Tony Madalone, owner of Cleveland-centric apparel company Fresh Brewed Tees. While Madalone conducts most of his sales online, fresh merchandise is always available between the company’s mobile t-shirt trucks and an outlet at Cleveland Hopkins International Airport.

“Whatever brand you have needs to be your own, especially in a digital age where everyone is bombard-

ed by content that goes viral and then disappears,” Madalone said.

“Stay fresh and be true to what your brand represents. That’s what customers are drawn to. Otherwise, it’s just noise.”

Cleveland in a Box co-founder Tinerello said being a niche company with a specialized product lineup has made competition with Amazon or other digital competitor moot. Keeping her physical shelves stocked with cool local merchandise will always be a priority, considering how well it’s worked out so far.

“We’ve had a bigger response because of the store than we ever would have had without it,” Tinerello said. “It’s easy to come in and take your time putting a box together.

People want to see what they’re getting.”

PA G E 14

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CRAIN’S CLEVELAND BUSINESS

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A recent Ohio Supreme Court decision gives small business owners yet another reason to be cautious in their compliance with state tax rules, both inside and outside of Ohio.

There’s a long line of legal precedents that has established that a state can only impose its taxes on entities that do business within its borders, typically with some kind of physical presence there. Maybe the company manufactures goods or provides services inside the state, or maybe they only have a branch office. Legally, the concept is known as “nexus.”

The internet era has put some strain on defining when and where nexus applies. If a company only ships a product into a given state as a result of an internet sale, even if it has no other physical presence in the state, can that state impose a sales tax or income tax on that sale? Courts in recent years have generally found that’s not an adequate establishment of nexus to impose taxes on such transactions.

But how does nexus apply to other types of taxes, like a gross receipts tax? Not many states charge such a tax, but Ohio does. The tax is called a “commercial-activity tax,” calculated based on the gross business activity that occurs inside Ohio.

The Ohio Supreme Court found recently the state can indeed impose its commercial-activity tax on out-ofstate companies that sell products and services to Ohioans, even if the business has no physical presence here. The court found the CAT represents a tax on the privilege to do business within the state, so even online retailers who have no physical facilities in Ohio can be subject to it.

The CAT is not like a sales tax, which is usually imposed where a company has some physical presence. The CAT is an annual tax imposed on the gross receipts of business activities in Ohio. Any business with taxable gross receipts sourced to Ohio of $150,000 or more is subject to the tax, which has been in place since 2005.

The Supreme Court issued a 5-2

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decision that said the physical presence criteria does not apply to the CAT. That means a company selling over the internet to individuals or other businesses in Ohio, even when it has no physical presence in Ohio, is subject to the tax.

Ohio companies have been complying with CAT filings and submissions for more than a decade now, so this particular Ohio court finding doesn’t change their tax obligation or their need to continue to comply with it.

The implication instead is for business owners to consider how they do business in other states and how that activity might now be subject to new tax compliance scrutiny. Other states may well look to Ohio as a precedent.

Even if a particular business sells into a state via internet activity with no other physical presence in the state, does that state impose a “privilege to do business” tax of some kind?

The state of Washington, for example, collects a “business and occupation” tax, which is another form of gross receipts tax. It is calculated based on the gross proceeds of business activity that occurs within the state.

Texas and Delaware are additional states that charge a tax on gross receipts. In Texas, it is called a franchise tax or a margin tax, based on a taxable entity’s total revenue after certain allowable deductions. The tax is particularly controversial in Texas, where it has been the subject of litigation.

As the complexity of state tax rules only continues to grow, the recent Ohio case should serve as a reminder to all business owners to give careful consideration to the many ways their business activity could cross state lines and assure tax compliance is in order.

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PA G E 15

BUSINESS OF LIFE

Source Lunch Nurete Brenner wants to teach aspiring businessmen and women to put society first.

As executive director of the business programs at Ursuline College, Brenner oversees the Pepper Pikebased school’s socially conscious MBA program.

Brenner takes the “four pillars” approach to a socially conscious economy. The first pillar is treating individuals like whole people, instead of just focusing on their function in a company. The second is community and the importance of investing locally. The third is the planet and sustainability. It’s not about companies mitigating harm, Brenner said, but about leaving society better off. And the fourth pillar focuses on the effect business has on future generations.

Tangibly, this means that students may end up discussing the role that intuition plays in leadership, the balance of so-called feminine and masculine values and the importance of media literacy.

“To attempt to put it in a nutshell: a traditional MBA emphasizes profit, growth, shareholder value. We emphasize purpose, enoughness and stakeholder value,” Brenner said. — Rachel Abbey McCafferty

Tell me about your career. What brought you to Ursuline?

After I graduated with a PhD from Case, I returned to Israel, which is where I grew up. But a friend from Cleveland told me that there was a job opening at Ursuline for a director of the business school and that it was a great fit for my skill set. I was skeptical at first because it meant another overseas move. But then I had a conversation with the dean of the graduate studies and I realized that Ursuline’s mission of social justice was so well aligned with my own vision of socially conscious management education. It’s not every day that you are offered a job that will allow you and even encourage you to implement a vision. So, here I am.

Why do you think this is a valuable approach for students?

I think this is a valuable approach for students because business school is ground zero for preparing future leaders of society. The students who come through our program will be leaders in the organizations they work at. Businesses themselves are changing and aligning with social consciousness. Through business, we can address some of the most pressing world problems. ... A socially conscious MBA is not just educating the future leaders but also creating the future. And our alums will be much in demand in organizations that are now seeking out this kind of thinking.

Do you think the way business is done has changed in recent years?

Why is that? What changes in business do you see on the horizon?

I think business is moving toward a socially conscious approach. In recent years, we have seen the advent of corporate social responsibility and the awareness of impact investing, and a nod to sustainability, but business is beginning to go beyond this to a full-spectrum-flourishing approach.

David Cooperrider and Chris Laszlo of CWRU are some of the thought leaders in this area, so we in Northeast Ohio are on the forefront of disseminating the awareness of these changes. It is no longer

“Net positive impact means putting more into society and the environment than [businesses] are taking out.” enough just for a business to try to do no harm or mitigate the harm it does, but the businesses are embedding sustainability on every level of the organization, they are striving for net positive impact — in other words, businesses may be filling the gap left by political leadership in contributing to the benefit of society. Net positive impact means putting more into society and the environment than they are taking out.

Nurete Brenner

What do you think is the role between higher education and the business community? Have you seen changes there throughout your career?

With regard to management education and the business community, I feel there should always be open channels of communication. Education is the intersection of a wide array of interlocking forces: government, corporate, community, families and students — multiple stakeholders and generations collide in the educational system. But all these various stakeholders have something in common: Everyone — from governments to bureaucrats to corporations looking to hire and graduates looking to be hired — wants the education system to be preparing students to function successfully in society. However, this doesn’t mean the same thing to all stakeholders. And one of the conversations that needs to be had between management education and the business community is: Does MBA preparation mean simply giving students specific skills that meet the demands of the current market? Do we prioritize preparing students to succeed economically in the current marketplace? Or does this preparation mean giving students specific skills that identify them to prospective employers as change agents ready to reshape the future? Do we develop visionaries for the future or talent-for-hire for local businesses?

I would like to see a conversation like this develop between schools and industry.

HIGHER EDUCATION

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HOBBIES Her son got her into running, and she recently finished a 5K.

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WHAT INSPIRES HER “Learning new ideas about how we can create a society that has respect for and lives in harmony with the earth,” Brenner said.

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PA G E 16

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CRAIN’S CLEVELAND BUSINESS

AKRON

City hopes Trump keeps infrastructure promises

By DAN SHINGLER dshingler@crain.com @DanShingler

In at least one regard, Akron could find it’s getting the right president at the right time in 2017 — if, that is, Donald Trump follows through on one of his biggest campaign promises.

Specifically, Akron officials and area manufacturing companies hope Trump will make good on his promise to fill what the president elect says is a $1 trillion gap in U.S. infrastructure spending over the next 10 years.

Akron could benefit even more than most cities if the spending is on real infrastructure, such as streets and sewers, and not just pipelines, toll bridges and other for-profit ventures.

“It’s long been on a lot of people’s wish list — for 10 years, maybe even longer,” said Akron Mayor Dan Horrigan, when asked if he was pleased that the incoming president planned to dramatically increase infrastructure spending. For the record, the mayor says he’s “hopeful” but not yet counting on any new federal funds, which have not been budgeted by Congress.

While every American city has infrastructure challenges, Akron is confronting a slew of expensive projects at once.

It’s tackling a massive, federally mandated $1.6 billion sewer improvement project, for one thing. It’s by far the most expensive single item ever to land on the city’s financial plate.

Akron also is preparing to dismantle its downtown Innerbelt highway (state Route 59) and clean up the 30 acres of land the highway occupies.

The project is expected to cost another $12.5 million. While that seems like nothing compared to the sewer price tag, it’s about the same amount of money that Cleveland is fretting about with regard to the closing of streets in its Public Square.

And on top of that, Akron has millions of dollars’ worth of regular road improvements it wants to make, including plans to make the city’s streets safer for bicyclists and pedestrians to promote urban living.

“We would welcome any infrastructure spending that helps move people around and makes for a smart city,” Horrigan said.

The mayor and city planners are not alone in the hope, either. Manufacturers in the Akron-Canton area say infrastructure spending is one of the things they want to see most out of Washington under Trump.

One of the infrastructure projects on Akron’s plate is dismantling its Innerbelt (state Route 59). (Dan Shingler photos)

Akron Mayor Dan Horrigan stands near a worksite in Merriman Valley for the Akron Waterways Renewed Project, a $1.6 billion sewer overhaul.

Manufacturers want to see increased infrastructure investment because they need safe and reliable roads, bridges, electrical grids and other things to sustain and grow their businesses.

“When I hear ‘infrastructure,’ a couple of things come to mind. No. 1 is roads,” said Bradley Belden, director of support services for Canton-based Belden Brick, which manufactures decorative brick and paving stones at five plants in the region.

“A lot of our product used to go out by rail, but that’s dwindled over time.

It’s less than 10% now,” said Belden, who said roads are the lifeline to some rural communities where his company operates and have become more important to Belden Brick’s success than ever over the years.

Next on Belden’s wish list is more investment in the electrical system and in

pipelines, especially ones that would bring more Utica shale gas to Canton manufacturers like his company, which is in an energy-intensive business.

“All our kilns run on natural gas,” Belden explained.

Ryan Augsburger, managing director for public policy at the Ohio Manufacturers’ Association, is hoping for even more. In addition to pipeline work, he’d like to see investment to support the development of ethane crackers in eastern Ohio and western Pennsylvania that would convert ethane from Utica shale into ethylene, polyethylene and other feedstocks to support existing and new manufacturing facilities.

Augsburger said he’d also like to see increased investment in the electrical system, a move that could help spur the construction of more power plants to convert Utica shale gas into low-cost

electricity for area manufacturers.

Increased federal infrastructure spending would help manufacturers in another way, too, he said. After all, someone has to make the materials used in the improvements.

“Infrastructure investment also has a benefit because it requires a lot of material for construction, and those materials are made by manufacturers,” Augsburger said. “So, you have steel pipe that is made in Lorain, Ohio, or Shelby, Ohio, that’s used in oil and gas production. The crackers, these are installations that are going to have billions of dollars of hardware in them … We make a lot of that stuff here, too.”

Of course, not everyone is going to get what they want. Trump has not given a specific plan for infrastructure investments or how to pay for them.

One proposed plan is to use federal tax credits to spur increased infrastructure investment from the private sector into revenue-producing projects. Those are things like toll roads and pipelines — stuff that is privately owned but used by the public for a fee.

Critics say, however, that for-profit projects should be financed on their merits, and that the government risks financing projects that would be built anyway, just with lower profit margins. That would mean the government is spending money but not really creating new jobs.

Such investments would do little, if anything, for projects like Akron’s sewer project, unless, possibly, the city sold its sewer system to a private entity that could recoup its investment with sewer fees.

But Horrigan said there are other ways the federal government could help, some of which would not cost federal taxpayers a dime. For example, he said, one thing Akron desperately wants is for the federal government to change the rules on how the city can finance its sewer improvements. Under current rules, Akron can only finance the project over a 30-year period. Horrigan would like longer.

That would be a significant savings in terms of the annual debt costs, he said.

“The life of this asset is probably 100 years. All we’re asking for is the ability to take a 50-year loan,” Horrigan said.

Another way the city might benefit under Trump would be if federal regulators let Akron partially off the hook and not require as much investment as demanded by current officials.

Trump, of course, is unpredictable, so it’s not out of the question that he would push for direct federal spending on infrastructure, which could be a godsend to Akron. Steve Bannon, seen by many as Trump’s top adviser, has said that with interest rates low, or even negative, around the world, now is the time to ignore the deficit and borrow big for things like infrastructure.

In other words, Horrigan and others have reason to be hopeful, even while they work hard to temper any optimism.

“Obviously, more funding for (the sewer project) would be tops on our list,” the mayor said. “But providing some regulatory relief on the ideas and some interest-rate help … There is a multiple of ways they can attack this and help.”

Developer plans senior apartments for Mull Avenue

By DAN SHINGLER dshingler@crain.com @DanShingler

If you Google “senior living investments,” you’ll get back a whopping 7.21 million results, perhaps more by the time this article goes to print.

There’s a reason for that: Americans are aging and retiring at a record rate. And a Pittsburgh development firm is following that reason right into Northeast Ohio and, if the city approves, probably Akron.

FFC Capital Corp. has asked the city to approve a zoning change for an 8.8-acre parcel of now-vacant land on Mull Avenue, near White

The Mull Avenue development will feature the same type of units as those at the Harbor Woods Living Center in Brunswick. (Dan Shingler)

Pond Drive, for a senior living development the company proposes to build. In order to do so, FFC needs a zoning change to permit multi-unit residential development. That will be discussed at a planning commission, probably next month, said city officials, who have received an application, including a full site plan, for the development.

If the company goes ahead with its plans, the development would be nearly identical to FFC’s Harbor Woods Living Center in Brunswick, which opened in mid-December, said FFC president Fred Branovan.

That development is planning its first open house event on Jan. 19.

“If we were to get approval and de-

cide to move forward, the concept and design will be just like Brunswick and Niles,” Branovan said.

That would mean Mull Avenue would see a 127-unit facility, which is what FFC has built in Brunswick and is constructing in Niles this year. FFC declined to disclose what it is investing in each development.

The Brunswick facility has just started leasing but already has taken in about half a dozen tenants, said Diane Allison, FFC’s vice president of operations and development for senior housing.

The centers have been specifically tailored to the needs and wants of area seniors, based largely on focus-group research that the firm con-

ducted, Allison said.

“The floors aren’t carpeted, because carpets are tougher for walkers or chairs. All the doors are wider, too,” she said, noting just a few of the details that differentiate the units from traditional developments.

The concept is simple: Give seniors an alternative to maintaining large homes and properties they no longer need, while still enabling them to live completely independently.

That means the individual apartments in the centers are relatively small — a bit over 800 square feet for most of the units, which have two bedrooms, and a little over 700 square feet for a few one-bedroom units.

SEE MULL, PAGE 17

CRAIN’S CLEVELAND BUSINESS

AKRON

OUTLOOK

MULL

CONTINUED FROM PAGE 1

CONTINUED FROM PAGE 16 Rents are $1,025 for the two-bedroom units and $965 for the smaller residences.

Things like formal living rooms and dining rooms have been eliminated and replaced with common dining areas, recreation rooms, fitness centers and other common areas, Allison said.

If the firm does move ahead with the Akron development, it may pursue the development of more senior living centers.

“We’re not sure how many of these we want to do yet,” Branovan said. “It depends on the success of these projects.”

If FFC fills its developments, it might not surprise some who have been watching the demographics driving the development of senior housing in the U.S. Kansas-based Senior Living Fund, just one of many firms raising money and investing it in senior housing, says that 10,000 Americans turn 65 every day and 60,000 new specialized housing units are required each year to meet their needs.

Faith in such trends is also driving other investments here as well.

For example, in Stow, city officials are considering a zoning change that would allow an assisted-living facility to be built near the Akron General Medical Center on Allen Road.

That project, proposed by Beachwood-based Omni Senior Living, reportedly would have up to 132 beds.

FFC’s developments are not assisted-living centers, but designed for independent living, complete with on-site parking for tenants, Allison said.

But, she said, she may hire a wellness nurse, not to provide medical services but to consult with residents on exercise, diet and other aspects of maintaining a healthy lifestyle.

PAGE 18

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JANUARY 9, 2017

μ

But there are signs that manufacturing is strengthening, or at least that confidence in the sector is.

The Manufacturing ISM report for December 2016 did show expansion in the industry, with a sizable increase in the “new orders index.” Independence-based Precision Metalforming Association’s most recent survey on business conditions indicates that companies in that sector expect a “spike” in the next three months. According to the report, 43% of respondents are expecting business conditions to improve and 7% expect them to decline, compared with 21% and 25%, respectively, in November.

T.J. Monico, who works in industrial investment banking at KeyBanc Capital Markets, said he saw some restocking of inventory, which usually indicates near-term demand growth, late in the third quarter and fourth quarter of last year. Monico said he’s not expecting big changes in company performance in the first quarter, but does expect to see some positive momentum.

Overall, the results of the election have given a “boost” to trends already in place, he said. There have been strong gains in the stock market, and an interest rate increase is expected. And Monico said confidence is up in the industrial markets he covers. The president-elect’s effect on trade policy is an area with some concerns, but his policies on taxes, regulation and infrastructure could be possible stimulants, Monico said.

But it all comes down to whether policies change and, if they do, how quickly those changes are enacted.

Confidence could dissipate if those proposed changes don’t come through.

“Nothing’s really happened yet,” Monico said.

And that uncertainty is not great for investments.

Matthew Nipper, commercial team lead for Northeast Ohio at KeyBank, said local companies usually decide where to invest in new plants based on what their customers are

CRAIN'S CLEVELAND BUSINESS

President-elect Donald Trump’s economic policy indicates that he wants to significantly reduce the tax rate on businesses and eliminate “needless job-killing regulations.” (Daniel Acker/Bloomberg)

doing. But recent, well-publicized decisions by Ford Motor Co. and Carrier to keep work in the United States instead of Mexico, at a time when Trump is heavily Goncalves encouraging that, could lead to a wait-and-see approach.

Lourenco Goncalves, chairman, president and CEO at Cliffs Natural Resources Inc. in Cleveland, thinks manufacturing will have a strong 2017 if Trump enacts “at least a portion” of what he’s been saying, particularly when it comes to keeping production in the United States. Cliffs supplies iron ore to the steel industry and could directly benefit if more of the metal was made domestically.

Richard Hipple, CEO of advanced materials company Materion Corp. in Mayfield Heights, said his biggest concern is the strong dollar and the dampening effect it can have on

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J A N U A RY 9 - 15 , 2 017

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businesses. But he said he’s bullish on 2017, pointing to robust auto sales in December, stabilizing oil prices and strong consumer confidence.

And the new administration’s talk about lower taxes and regulations could lead to a better environment for business, he said.

But 2017 won’t be all about Trump, and not everyone’s sold on the success of 2017. The economy is never just in the hands of the president, regardless of what he says or does.

Edward “Ned” Hill, a professor of public affairs at Ohio State University who formerly taught at Cleveland State University, thinks fluctuations in currency, not Trump’s promises, will be one of the biggest issues facing local manufacturers in 2017.

Ohio gets “pummeled” when the dollar is strong, he said, both because of the impact to exports and because foreign competitors can then sell their goods for less. But also, the peso is in trouble, and a cheap peso can be enticing for manufacturers.

Overall, Hill said he believes uncertainty around federal policy and

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PA G E 17

currency will cause manufacturers to put big investments on hold this year.

At Moody’s Investors Service Inc., the credit ratings firm is expecting more of the same for 2017, said vice president and senior analyst Paul Aran. That means continued weakness in the sector, but not necessarily a contraction. That’s due to a variety of factors, including the strong U.S. dollar, Aran said. The oil and gas sector hasn’t recovered yet, he said, and mining and agricultural aren’t as strong as he would like.

Overall, the firm is expecting EBITDA growth of less than 2%. In December, Moody’s issued a negative outlook for North American manufacturing in 2017.

The MAPI Foundation December economic report tells a similar story, predicting that growth in U.S. manufacturing output would be less than 1% in 2017 and then at or a little more than 1% through 2020. While the U.S. economy has grown, industrial manufacturers have not seen many benefits, the report stated.

All in all, it’s a “bleak forecast,” said MAPI’s chief economist, Cliff Waldman. Manufacturing since the Great Recession has been “stressed, struggling and slow,” Waldman said, noting that the global recovery overall has been historically slow. And that’s tough on manufacturing, which is exposed to international forces. Outside of the United States, there has been a slowdown in China, Waldman said, as well as declines in Brazil and Russia. And Europe is an area that has consistently seen slow growth.

Additionally, the strong dollar has been a drag on manufacturing, and there’s been a long capital spending lag, Waldman said, both of which affect demand for U.S. manufacturers.

He thinks the sector could be reaching a turning point, as the overseas markets seem to be stabilizing.

As always, outlook does vary by industry. Nipper said 2016 was challenging for companies in the metals or mining/extracting industries — as well as those supplying those industries — but those companies are more optimistic now. Automotive and building products companies had a strong 2016, but there’s a sense of cautiousness now because it’s not clear how long that strength can last.

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PA G E 18

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J A N U A RY 9 - 15 , 2 017 |

SURVEY CONTINUED FROM PAGE 1 out of town also are starting to push rents more than local owners in the past.

While some expansions by corporate tenants account for the decline in vacancy, the biggest factor is that the volume of office space downtown is declining as older office buildings get converted to apartments in historic restoration projects.

Batson said that conversion of portions of the Standard and Leader Buildings to apartments is underway, so it has removed the office space from his survey. That, along with two years since the Ernst & Young office building came on line, have stabilized the vacancy outlook.

Moreover, several businesses have

CRAIN’S CLEVELAND BUSINESS

moved downtown the past few years, which provides real growth in an office market that has had little for years. The prime example of that is New York Life, which took 107,000 square feet at 200 Public Square in moving 350 workers last year from downtown Lakewood.

JLL is not alone in remarking on the prospect for landlords finally being able to charge increasing rents across the board as well as at individual buildings.

Myrna Previte, the broker for the Oswald Centre, 1100 Superior Ave., and the 1111 Superior Building across the street, said economic growth, tenant expansions and lack of quality inventory in 2016 produced rent and occupancy growth marketwide.

“I expect 2017 to see additional rental growth,” Previte wrote in an email, “especially for top-tier Class A properties.”

She anticipates a 5% to 10% increase in anticipated first-year rents at the two skyscrapers, a different measure of office rents than the asking rents in the JLL survey.

Brian Hurtuk, managing director and principal of the Colliers International Cleveland office, said the increases in rents by individual buildings have been the largest he has seen since 2000, when he moved into downtown office brokerage from industrial and investment properties.

The increases are the largest in JLL's records, which date back to 2000.

“We’ve had good winds downtown,” Hurtuk said. “There’s not a lot of quality space left.”

The New York Life lease took 200 Public Square to 90% occupancy. As a result, the range of asking rents has climbed to $27 to $29 a square foot from $25 to $27, depending on the size of the space and location in the building.

The 200 Public Square building is a bellwether for the market.

Hurtuk said 200 Public Square owner Harbor Group International of Norfolk, Va., still wants to make deals, so its asking rents have been kept in check.

Likewise, JLL’s Pick said landlords remain competitive in order to fill vacancies. Tenants have absorbed the rent increases because downtown is a better place to do business with its growth as a restaurant, entertainment and residential venue. He said tenants also are coping with rent increases by reducing the size of their offices as staffers seek flexible and mobile working arrangements.

As with any forecast, Batson had to make some assumptions, such as that Forest City Realty Trust Inc. will remain downtown after it concludes its space search. He also assumed Millennia Cos. will conclude its pur-

chase of the 57-story Key Center and move its staff downtown from Valley View.

By the numbers, downtown Cleveland, the region’s largest office market, saw average office vacancy fell to 20.5% at the end of 2016 from 22.2% the same time last year. Vacancy among top-tier Class A properties fell to 13.5% at the end of 2016 from 17.9% in the last year’s like period.

Among buildings more than 30 years old or in a less central location, vacancy declined to 24.6% from 24.8%.

JLL’s survey also covers the suburban Cleveland office markets as of the end of last year.

The south suburban office market, which includes the Rockside Road office market near Interstate 77, has 16.4% vacancy. The eastern suburban vacancy rate is 13%. The west suburbs had 13.8% vacancy. Overall, vacancy is 15.9% for Cleveland suburbs.

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J A N U A RY 9 - 15 , 2 017

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PA G E 19

The List THE LIST

OHIO'S TOP SBA LENDERS Northeast Ohio’s top SBA NORTHEAST lenders Ranked by dollar value of 7(a) loans in fiscal 2016 Ranked by dollar value of 7(a) loans in fiscal 2016

THIS COMPANY NAME YEAR HEADQUARTERS

VALUE OF APPROVED LOANS FISCAL 2016

VALUE OF APPROVED LOANS FISCAL 2015

% CHANGE

NUMBER OF LOANS FISCAL 2016

NUMBER OF LOANS FISCAL 2015

1

Huntington National Bank (1) Columbus

$134,278,100

$136,272,400

-1.5%

1,091

1,201

-9.2%

2

U.S. Bank Minneapolis, Minn.

$21,068,600

$12,763,100

65.1%

87

71

22.5%

3

KeyBank NA Cleveland

$14,693,900

$11,001,800

33.6%

54

62

-12.9%

4

RidgeStone Bank Brookfield, Wis.

$14,322,000

$11,796,000

21.4%

10

7

42.9%

5

Newtek Small Business Finance Inc. New York

$13,855,000

$2,778,300

398.7%

12

6

100.0%

6

Live Oak Banking Co. Wilmington, N.C.

$12,219,000

$6,645,000

83.9%

14

11

27.3%

7

Home Savings & Loan Co. Youngstown

$10,273,000

$2,007,000

411.9%

3

2

50.0%

8

FirstMerit Bank (1) Akron

$9,538,400

$8,181,900

16.6%

49

33

48.5%

9

United Midwest Savings Bank De Graff

$9,077,000

ÑÑÑÑ

ÑÑÑÑ

6

ÑÑÑÑ

10

Fifth Third Bank Cincinnati

$8,293,100

$17,494,000

-52.6%

40

27

11

The Bancorp Bank Wilmington, Del.

$7,455,000

ÑÑÑÑ

ÑÑÑÑ

2

ÑÑÑÑ

ÑÑÑÑ

12

First Western SBLC Inc. Dallas

$6,958,000

$2,176,000

219.8%

4

2

100.0%

13

West Town Bank & Trust North Riverside, Ill.

$4,731,000

$4,405,000

7.4%

5

2

150.0%

14

Consumers National Bank Minerva

$4,569,700

$5,228,700

-12.6%

19

17

11.8%

15

Citizens Bank Providence, R.I.

$4,493,100

$3,814,300

17.8%

54

38

42.1%

16

Growth Capital Corp.

Cleveland

$4,273,000

$4,882,200

-12.5%

49

36

36.1%

17

State Bank and Trust Co. Defiance

$3,858,900

$5,669,000

-31.9%

10

13

-23.1%

18

Stearns Bank NA St. Cloud, Minn.

$3,740,200

$6,150,500

-39.2%

17

11

54.5%

19

JPMorgan Chase & Co. New York

$3,702,600

$5,600,000

-33.9%

25

36

-30.6%

20

First Savings Bank Clarksville, Ind.

$3,702,000

ÑÑÑÑ

ÑÑÑÑ

4

ÑÑÑÑ

ÑÑÑÑ

21

PNC Bank Pittsburgh

$3,369,000

$6,931,200

-51.4%

24

35

-31.4%

22

Compass Bank Birmingham, Ala.

$3,280,000

ÑÑÑÑ

ÑÑÑÑ

2

ÑÑÑÑ

ÑÑÑÑ

23

Liberty Bank NA Beachwood

$3,126,000

$2,105,000

48.5%

10

5

100.0%

24

Celtic Bank Corp.

Salt Lake City

$2,886,800

$2,592,000

11.4%

14

16

-12.5%

25

CFBank NA Worthington (2)

$2,794,000

$3,150,000

-11.3%

ÑÑÑÑ

1

26

Wells Fargo Bank NA Sioux Falls, S.D.

$2,730,400

$4,679,500

-41.7%

8

14

-42.9%

27

Commercial & Savings Bank Millersburg

$2,711,700

$80,000

3,289.6%

8

1

700.0%

28

Home Loan Investment Bank FSB Warwick, R.I.

$2,580,000

ÑÑÑÑ

ÑÑÑÑ

2

ÑÑÑÑ

ÑÑÑÑ

29

Westfield Bank FSB Westfield Center

$2,567,200

$2,848,700

-9.9%

11

9

22.2%

30

Civista Bank Sandusky

$2,507,500

$75,000

3,243.3%

2

1

100.0%

31

First Federal Lakewood Lakewood

$2,439,000

$1,286,000

89.7%

3

1

200.0%

32

First Financial Bank El Dorado, Ark.

$2,150,000

$41,000

5,143.9%

3

1

200.0%

33

American Business Lending Inc. Dallas

$2,125,800

ÑÑÑÑ

ÑÑÑÑ

1

ÑÑÑÑ

ÑÑÑÑ

34

Yadkin Bank Statesville, N.C.

$2,121,000

ÑÑÑÑ

ÑÑÑÑ

2

ÑÑÑÑ

ÑÑÑÑ

35

First Home Bank Seminole, Fla.

$1,950,000

$250,000

680.0%

9

1

800.0%

36

The First National Bank of Bellevue Bellevue

$1,741,300

$1,102,600

57.9%

8

5

60.0%

37

First Niagra Bank NA Buffalo, N.Y.

$1,664,000

$350,000

375.4%

3

1

200.0%

% CHANGE

ÑÑÑÑ 48.1%

-100.0%

RESEARCHED BY CHUCK SODER Source: Cleveland District office of the U.S. Small Business Administration. Numbers are for fiscal years ended 9/30/2016 and 9/30/2015. The Cleveland District covers 28 northern Ohio counties. Crain's does not independently verify the information and there is no guarantee these listings are complete or accurate. Individual lists and The Book of Lists are available for purchase at www.crainscleveland.com.

(1) Huntington National Bank acquired FirstMerit in August 2016. (2) Headquarters moved from Fairlawn to Worthington, near Columbus, in mid 2016.