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Vol. 31, No. 32
INSIDE A SCHOOL’S FALL FROM GRACE
For-profit Chancellor in hot water Accrediting body watching closely amid questions over leadership, recruiting practices By SHANNON MORTLAND smortland@crain.com
“(Losing accreditation) ... might make problems for investors because (Chancellor) couldn’t attract students.”
C
– Robert Appleson, vice president of accreditation relations, Higher Learning Commission
hancellor University has existed quietly at Chester Avenue and East 40th Street since it transformed from financially downtrodden Myers University two years ago. But behind the blue and silver façade, the for-profit school has been plagued by a revolving door of executives, has resorted to unconventional recruiting practices such as hitting up homeless shelters to build enrollment and is fighting to maintain its accreditation. It’s a far cry from the high hopes once touted by Chancellor’s new owners. Significant Partners LLC of Solana Beach,
Calif., bought Chancellor in September 2008 for $5.25 million. The purchase followed years of financial struggles for Myers University, which had failed to close deals with multiple buyers. Initially, Significant Partners, headed by Michael Clifford, had grand plans to build Chancellor into a sizable school that offered classes in person and online. And, by all measures, Chancellor seemed to be off to a good start. Significant Partners reduced undergraduate tuition by 30% and lowered graduate tuition by
14%, increased full-time faculty to 26 from 16 and created 30 online courses. Mr. Clifford also convinced former General Electric Co. CEO Jack Welch to invest $2 million into what is now the Jack Welch Management Institute, the online MBA program launched this year at Chancellor. Shaun Redgate, Chancellor’s chief operating officer, told Crain’s for a story that ran in May 2009 that the goal was to reach 1,050 students by fall 2010, which would allow Chancellor to break even.
Foundation gift allows Rock Hall to establish its first endowment
See CHANCELLOR Page 16
By DAN SHINGLER dshingler@crain.com
New York private equity firm American Securities Capital Partners has taken control of Chardon-based Fairmount Minerals in a leveraged buyout financed largely with $700 million in debt that likely could not have been raised last year. “Fairmount was at a point in our history where, for several reasons, we thought it was time to bring an investor into the company,” Fairmount chief financial officer Jenniffer Deckard said. “We started talking to Am Securities last year. … We felt they were a great cultural fit.”
H 32
Mr. Clifford declined to speak to Crain’s for this story, as did several other Chancellor employees. Mr. Clifford’s public relations representative, Holt Hackney, confirmed that “Michael is no longer on the board” at Chancellor, “opting instead to focus on some of his philanthropic ventures.”
Buyout of Chardon outfit made possible by loosened credit market
By SCOTT SUTTELL ssuttell@crain.com
See ENDOWMENT Page 17
Who’s at the helm?
Private equity firm takes control of Fairmount Minerals
$5M from N.Y. anniversary concerts helps solidify future in Cleveland ere’s something you probably didn’t get for your birthday: $5 million. And your party almost certainly didn’t feature music legends such as U2, Mick Jagger and Bruce Springsteen. But the Rock and Roll Hall of Fame and Museum Inc., which on Sept. 2 celebrates 15 years in business along Cleveland’s lakefront, finds itself in something of a privileged position as a teenager. The New York-based Rock and Roll Hall of Fame Foundation, formed 10 years prior to the museum’s opening, is making a $5 million gift to the Rock Hall to establish the institution’s first significant endowment. The money comes from proceeds from the Rock Hall’s 25th anniversary
Instead, Chancellor reported only 422 students as of April 2010, prior to spring commencement, according to the Higher Learning Commission in Chicago, which accredits Chancellor. Catherine Nita, Chancellor’s executive director of human resources, would not disclose current enrollment.
See FAIRMOUNT Page 17
INSIDE Colleges unveil posh new athletic digs KEVIN MAZUR/WIREIMAGE.COM
Last fall’s concerts at Madison Square Garden (featuring Aretha Franklin and Annie Lennox) will help establish a new endowment for the Rock and Roll Hall of Fame and Museum.
The facilities, including at Akron and Kent State (right), help schools generate excitement among alumni — and help recruiting. Page 3
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NEWSPAPER
71486 01032
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SPECIAL SECTION
FINANCE Small banks expect a major impact from reform legislation ■ Page 11 PLUS: HOLDING COMPANIES’ WORTH ■ ADVISER ■ & MORE
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COMING NEXT WEEK Cooking for (hundreds of) your closest friends How do caterers at large events develop a diverse, delicious menu while also making it relatively easy to produce? How do they have it all ready at the same time? In our meeting and event planner section, we ask some area chefs and caterers for their secrets.
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TAKE A NUMBER Claim denials were by far the most common complaint of Ohio insurance consumers in 2009, according to statistics from the Ohio Department of Insurance. Nearly one-third of 5,453 complaints to the department last year related to claim denials. The health insurance category drew the most complaints.
Most frequent complaints Claim denials
List: Downtown office buildings ..............14-15 Personal View ................8 Reporters’ Notebook ....19 Tax Liens .....................18
30.9% 17.5
Unsatisfactory settlement/offer
13.0
Policy cancellation/non-renewal
5.3
Health/accident
Best of the Blogs ..........19 Big Issue ........................9 Classified .....................18 Editorial .........................8 Going Places..................7
Percentage
Claim settlement/payment delays
Complaints by coverage
REGULAR FEATURES
AUGUST 16-22, 2010
Percentage 40.5%
Auto
23.9
Homeowner/renter
16.0
Life and annuity
14.1
Other
5.5
700 W. St. Clair Ave., Suite 310, Cleveland, OH 44113-1230 Phone: (216) 522-1383 Fax: (216) 694-4264 www.crainscleveland.com Publisher/editorial director: Brian D. Tucker (btucker@crain.com) Editor: Mark Dodosh (mdodosh@crain.com) Managing editor: Scott Suttell (ssuttell@crain.com) Sections editor: Amy Ann Stoessel (astoessel@crain.com) Assistant editors: Joel Hammond (jmhammond@crain.com) Sports Kathy Carr (kcarr@crain.com) Marketing and food Senior reporter: Stan Bullard (sbullard@crain.com) Real estate and construction Reporters: Shannon Mortland (smortland@crain.com) Health care and education Jay Miller (jmiller@crain.com) Government Chuck Soder (csoder@crain.com) Technology Dan Shingler (dshingler@crain.com) Manufacturing Research editor: Deborah W. Hillyer (dhillyer@crain.com) Cartoonist/illustrator: Rich Williams Marketing/Events manager: Christian Hendricks (chendricks@crain.com) Advertising sales director: Mike Malley (mmalley@crain.com) Account executives: Adam Mandell (amandell@crain.com) Dirk Kruger (dkruger@crain.com) Nicole Mastrangelo (nmastrangelo@crain.com) Dawn Donegan (ddonegan@crain.com) Business development manager & classified advertising: Genny Donley (gdonley@crain.com) Office coordinator: Toni Coleman (tcoleman@crain.com) Production manager: Craig L. Mackey (cmackey@crain.com) Production assistant/video editor: Steven Bennett (sbennett@crain.com) Graphic designer: Kristen Wilson (klwilson@crain.com) Billing: Susan Jaranowski, 313-446-6024 (sjaranowski@crain.com) Credit: Todd Masura, 313-446-6097 (tmasura@crain.com) Circulation manager: Erin Miller (emiller@crain.com) Customer service manager: Brenda Johnson-Brantley (bjohnson-brantley@ crain.com) 1-877-824-9373
Crain Communications Inc. Keith E. Crain: Chairman Rance Crain: President Merrilee Crain: Secretary Mary Kay Crain: Treasurer William A. Morrow: Executive vice president/operations Brian D. Tucker: Vice president Robert C. Adams: Group vice president technology, circulation, manufacturing Paul Dalpiaz: Chief Information Officer Dave Kamis: Vice president/production & manufacturing Kathy Henry: Corporate circulation/audience development director G.D. Crain Jr. Founder (1885-1973) Mrs. G.D. Crain Jr. Chairman (1911-1996) Subscriptions: In Ohio: 1 year - $64, 2 year - $110. Outside Ohio: 1 year - $110, 2 year - $195. Single copy, $1.50. Allow 4 weeks for change of address. Send all subscription correspondence to Circulation Department, Crain’s Cleveland Business, 1155 Gratiot Avenue, Detroit, Michigan 48207-2912. 1-877-824-9373 or FAX (313) 446-6777. Reprints: Call 1-800-290-5460 Ext. 136 Audit Bureau of Circulation
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THE WEEK IN QUOTES
Arcade readied for sheriff’s sale
“If (the Rock Hall) is going to be on the level of a significant cultural organization, an endowment is critical. It’s something that hopefully can be added to over time to help keep the museum at the top of its game.”
Heavy interest possible as other downtown projects take root and Hyatt brand remains
— Joel Peresman, president and CEO, Rock and Roll Hall of Fame Foundation. Page One
By STAN BULLARD sbullard@crain.com
The Hyatt Regency Cleveland at the Arcade, a premier downtown landmark, stands to undergo a sheriff’s foreclosure sale that will put its ownership in play just as the promise of a planned medical mart, convention center and casino hikes interest in the city’s long-languishing
hotel market. Cuyahoga County Common Pleas Judge Nancy Margaret Russo on July 27 issued a foreclosure decree in a case filed by Bank of America after property owner Arcade LLC — a joint venture of real estate developer Related Midwest Co. and Hyatt Hotels Corp, both of Chicago — defaulted on a loan in April 2009. “Reasonable minds can come to
but one conclusion, being that (the) plaintiff is entitled to judgment,” Judge Russo wrote. Bank of America holds a $14 million mortgage on the building, which has a 293-room hotel and two floors of retail space. The bank’s loan originally was for $33 million but was reduced through payments and modifications over the years. Judge Russo ordered the parties to provide documentation to the sheriff by Sept. 27 to ready the property at 401 Euclid Ave. for a later foreclosure sale. However, one big issue remains
See ARCADE Page 17
INSIGHT
AN ATHLETIC ‘ARMS RACE’
“We could lose half of the funding for the community in one year. We’ll be faced with serious consequences. People could die if we make those cuts.”
MAC schools see posh new, upgraded facilities as ticket to growth By JOEL HAMMOND jmhammond@crain.com
— William Denihan, CEO, Alcohol, Drug Addiction and Mental Health Services Board of Cuyahoga County. Page 4
“I think there is a perception that community banks, or smaller banks, were largely exempt from the bill. … We believe that’s absolutely untrue.”
unresolved. Minneapolis-based US Bank, as the trustee of a $6 million bond issue that is supported by tax-increment financing and helped finance improvements to the Arcade by Related Midwest and Hyatt, has asked the court to order the property’s next owners to continue to make service payments on the bonds. Local governments aid real estate projects with tax-increment financing (TIF) by allowing developers to use a portion of future tax proceeds from those projects to cover payments on
W
PHOTOS COURTESY OF KENT STATE UNIVERSITY/UNIVERSITY OF TOLEDO ATHLETIC COMMUNICATIONS
Upgrades at Kent State’s Dix Stadium included aesthetic improvements, such as a new entryway, and a new scoreboard. The University of Toledo, meanwhile, in February opened the doors to its $9 million Fetterman Training Center.
— Michael Van Buskirk, president, Ohio Bankers League. Page 11
“A holding company is just an extra expense unless you need it. … We figure it would be $600,000 to $800,000 in additional annual expenses.” — Bill Valerian, chairman and CEO, Liberty Bank in Beachwood. Page 11
hether it was before the crippling recession hit or during the worst of it, well-heeled alumni have continued donating to their alma maters’ athletic departments — and those schools are taking advantage. Sparkling new athletic facilities and multimillion-dollar renovations have popped up across the country, including on the campuses of INSIDE: Photos of other several members of the new athletic projects at Mid-American Conference Cleveland-based Midcampuses. Page 10 American Conference, Akron and Kent State among them. Akron opened InfoCision Stadium last September, while Kent State two years ago completed a $10 million renovation to Dix Stadium that included a new scoreboard and aesthetic improvements throughout the 41-year-old stadium. And it appears, despite calls for reducing often-outlandish spending in college athletics, that a majority of these projects are being paid for without dipping into See RACE Page 10
Cleveland music exec who beat Sony still tangled in litigation By JAY MILLER jmiller@crain.com
Claims lawyer in Meat Loaf album case failed to protect him from partners
Steve Popovich won the admiration of many in the music industry in 2005 when he and his Cleveland International Records won a $5.1 million verdict in federal district court in Cleveland against industry giant Sony Music Entertainment Inc. Sony had failed to credit Mr. Popovich’s record label when it issued compact discs by Meat Loaf, a recording artist who had signed with
Cleveland International back in the days of vinyl but whose recordings continue to sell to this day. Now Mr. Popovich, who’s living in Murfreesboro, Tenn., is contending in court that a mishandling of the legal action against Sony will cost him more than $2 million because of a judgment awarded to his former business partners in Cleveland Entertainment Inc., which was the
parent of Cleveland International. Mr. Popovich’s latest lawsuit, filed July 22 in Cuyahoga County Common Pleas Court, charges the late David Webster and the firm now called Webster Dubyak & Weyls Co. LPA with negligence in their conduct of Mr. Popovich’s litigation against Sony. In his complaint, Mr. Popovich argues his former lawyers failed to protect him from claims
from his minority business partners in Cleveland Entertainment Inc., in which Mr. Popovich was majority shareholder and president. The lawsuit contends that if Mr. Webster and his firm had handled the case against Sony properly, Mr. Popovich could have avoided a $1.8 million payout and $500,000 in legal fees for an upfront cost of as little as $100.
Mr. Webster died from cancer in March 2009; at the time, he was president-elect of the Cleveland Metropolitan Bar Association. Robert Dubyak, a partner in the current firm, told Crain’s that the present firm and its lawyers have no liability for what transpired. He said the Sony case was tried before he or any of the practice’s current lawyers came to the firm. But Mr. Dubyak still came to Mr. Webster’s defense. See SONY Page 6
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AUGUST 16-22, 2010
Mental health agencies fear ’11 cuts New formula used to divvy up funds could hurt Cuyahoga County By SHANNON MORTLAND smortland@crain.com
NORTHEAST OHIO REGIONAL SEWER DISTRICT
SMALL BUSINESS ENTERPRISE PROGRAM
William Denihan feels as if local mental health care providers dodged a nuclear bomb, but fears another is on the way. Though the state chose not to alter the way it allocates money for mental health services in the fiscal year that began July 1, it is considering big changes for the fiscal year beginning July 1, 2011, which also marks the start of the state’s biennium budget, said Mr. Denihan, CEO of the Alcohol, Drug Addiction and Mental Health Services Board of Cuyahoga County, or ADAMHS. “We could lose half of the funding for the community in one year. We’ll be faced with serious consequences,” he said. “People could die if we make those cuts.” The state could cut its support for mental health services by as much as 40%, which would affect people without private insurance or Medicaid coverage, said Lovell Custard, president and CEO of Murtis Taylor Human Services System, which provides mental health services to about 6,000 people in Cuyahoga County. Although the Ohio Department of Mental Health can’t say how much the budget for mental health services may be reduced, Mr. Denihan said it’s a foregone conclusion cuts will be made because the state is staring at a budget hole of an estimated $5 billion to $8 billion in the next biennium. At issue is the formula used to provide state support for mental health services. If overhauled, the formula likely would hinge largely on population, Mr. Denihan said, which means
Cuyahoga County would receive less state money because its population has declined. The U.S. Census Bureau estimated Cuyahoga County’s population at 1.2 million in April 2009, down 8.5% from 1.39 million in 2000. Meanwhile, the ADAMHS board served 48,449 people in Cuyahoga County with a mental illness or addiction in the fiscal year that ended June 30, 2009, which is 5.7% higher than the 45,816 served in the fiscal 2008. To prepare for what Mr. Denihan believes is an inevitable state budget hit, he has begun reducing the ADAMHS board’s budget and is advising the nonprofit agencies his office works with to do the same. In July 2009, the Cuyahoga County Mental Health Board and the Alcohol and Drug Addiction Services Board of Cuyahoga County merged to create the ADAMHS board. That union resulted in the elimination of 30 positions and a savings of $2.5 million. In addition, the ADAMHS board moved into the United Bank Building at 2012 W. 25th St. in Cleveland, which saved $400,000 a year in rent. Mr. Denihan said he’ll continue to reduce his budget and not all programs will survive the process. “We have to continue to reprioritize to become far more cost-effective at what we do,” he said.
Shared sacrifice Local nonprofits that provide mental health and addiction services also will need to make changes if they want to continue to receive county support, Mr. Denihan said. “There are still a high number of (nonprofit) agencies out there,” he said. “Many programs will have to consider consolidation and merging.” Mr. Custard said Murtis Taylor currently partners with other agencies to refer patients, and he hopes to find more such partners. Its budget already is constricted, so partnering
is about the only option Murtis Taylor has to stretch its resources further. “It’s getting tight,” he said. “For the last 10 years, everybody has been moving to be as efficient as possible.” Murtis Taylor received $2 million from the ADAMHS board in the fiscal year that began July 1, down from $2.8 million in the fiscal year that began a year earlier, Mr. Custard said. In response, he is hiring only those who directly serve patients and is implementing new technology to save money in the long run. “We recognize we have got to survive in the immediate time, but we’re trying to figure out how to become more efficient,” Mr. Custard said. “It’s going to be through computer technology and we’re trying to implement that in record speeds.”
Systemic problems In the meantime, the mental health system is failing, Mr. Denihan said. The county’s 34 intake offices for new patients were closed more than they were open last year, so patients have nowhere to go but hospital emergency rooms, he said. With state support down and local support flat at best, the ADAMHS board has no money to treat those with mild and moderate mental illnesses, so those people will sink into a more dire mental state and will remain there longer than others who receive treatment, he said. That trend became evident as accessibility to services declined while foreclosures soared, credit was hard to get, money was tight and jobs were lost — all of which led to higher depression and suicide rates, Mr. Denihan said. He is using such statistics to urge legislators to retain mental health support as they try to plug the hole in the state budget. He hopes legislators eventually will hear his pleas because the mental health safety net is tattered. ■
Avon trash hauler adds East 37th space By DAN SHINGLER dshingler@crain.com
Here’s the sign you’re looking for. We’re expanding our small-business opportunities to provide economic benefits for the region and help local companies grow! If your company is a small construction or engineering company or a provider of goods or professional services, we invite you to apply for our SBE program. Learn more about the program:
SBE Certification Workshop—Lorain County Thursday, Aug 26 | 3-5 p.m. Spitzer Conference Center, Room 118 Lorain County Community College 1005 Abbe Road North, Elyria, OH 44035
Between Cuyahoga County’s plans to build a medical merchandise mart and ongoing demolition and rehab work, Mike Cooper figures it’s time to bring his trash-hauling company to the big city. Cooper Disposal, of Avon, plans to expand into new digs on East 37th Street and will begin operations there in November, Mr. Cooper said. The company bought the land and will begin construction in September, he said. Mr. Cooper has been building his business in Avon since he quit a sixfigure job at a large waste management company in 2006, cashed in his 401(k) and bought a huge Volvo garbage truck that he didn’t know how to drive, but somehow got to his driveway alone. “My neighbors thought I was nuts,” Mr. Cooper said. He now has 12 employees, six trucks, 180 commercial trash con-
tainers and revenue that Mr. Cooper expects will grow to $3 million this year from $2 million in 2009. He manages it all like an air traffic controller, with each day’s pickup and delivery requests spread out on his desk, schedules on his computer and a phone constantly to his ear so that he can talk to both customers and on-the-road drivers. Cooper Disposal doesn’t take cans from in front of houses and does little work with the kinds of dumpsters people see behind restaurants and other small establishments. Its bread and butter is hauling boxes that are from 10 cubic yards to 40 cubic yards in size — the kind that can be left at a construction or demolition site, filled with materials by builders and then hauled away and replaced on demand. About 75% of Mr. Cooper’s business comes from the construction market, which he said he’s penetrated in spite of a general slowdown in that sector. He has picked up work
at the Cleveland Clinic and at various rehabs around Cleveland, where he sees his business growing fastest. “And that cycle is going to really hit in about two years now, with the medical mart and all the other development,” he predicts. Rick Josie, Mr. Cooper’s old boss at both Karas Trucking and BFI, said he’s not surprised to see his former top sales rep do well. “I had 12 reps, and I wished every one of them was Mike Cooper,” Mr. Josie said. Mr. Cooper said he’ll keep the Avon facility open in order to have two hubs from which to operate. In the meantime, he said, he’s thinking up new sources of revenue. A trash sorting facility at the new operation will be one, because it will generate recyclable materials he can sell. Another might be to sell advertising space on his trash containers, which often sit in high-traffic areas alongside big projects. “They’re huge. It would be like a giant billboard. Why not?” he said. ■
Volume 31, Number 32 Crain’s Cleveland Business (ISSN 0197-2375) is published weekly, except for combined issues on the fourth week of May and fifth week of
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CRAIN’S CLEVELAND BUSINESS
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Nonprofit expands offerings for disabled
Mission Soar!
By SHANNON MORTLAND smortland@crain.com
Insightful legal solutions that help your business soar.
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After nearly four decades of quietly providing services for the developmentally disabled, Koinonia Homes Inc. is expanding its operations in a big way. In the last two years, the nonprofit has acquired nine existing group homes and opened one and has doubled its employee roster to more than 500, said Diane Beastrom, president and CEO of Koinonia, which is based in Independence. Koinonia also expects its revenue to climb to a projected $23.6 million this year from $13.6 million in 2008. Last summer, Koinonia hired Cleveland operations management firm Applied Technology Systems Inc. to further develop its leadership team — from employees to board members, Ms. Beastrom said. Koinonia leaders then worked with the nonprofit’s employees and the Cuyahoga County Board of Developmental Disabilities to determine the county’s needs, she said.
As a result, Koinonia expanded the offerings of its adult day support and vocational services center in Brooklyn Heights. It added autism services and personalized vocational programs, as well as services to care for people in small settings. The vocational programs focus on what Koinonia’s clients can do well, such as make jewelry, answer phones or do janitorial work, and help those people enhance their skills so they can get jobs, Ms. Beastrom said. “Our hope is that a number of folks will get experience and create a résumé and then become employed by one of the companies in our area,” she said. The changes have been fruitful. The center in Brooklyn Heights now serves 130 people, up from 35 two years ago, Ms. Beastrom said. Koinonia also has been reaching out to more businesses in the area to create partnerships in which they could volunteer or help provide special programming for the nonprofit’s clients.
As the population ages and the prevalence of autism increases, the county’s Board of Developmental Disabilities has seen an increased need for various services, said Lula Holt Robertson, a spokeswoman for the county board. Specifically, as people with developmental disabilities get older, their parents no longer can care for them, so they need places to live. The county board contracts with Koinonia to run some of the county’s group homes and to provide residential services, Ms. Holt Robertson said. In all, Koinonia now operates 21 group homes — including one that opened in July in Strongsville — and provides services at 43 other locations throughout Cuyahoga County. Koinonia will continue to explore the needs of Cuyahoga County’s developmentally disabled and will consider expanding to meet them, she said. The organization hopes to raise more private funds through increased marketing and expansion of its board, Ms. Beastrom said. ■
TM
600 Superior Avenue, East, Suite 2100, Cleveland, OH 44114 216.348.5400 Carl J. Grassi Shawn M. Riley President
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Sony: Suit stems from royalties continued from PAGE 3
“It is unfortunate that the legacy of a great lawyer like David Webster is so casually tarnished after his death by a former client for whom Dave achieved nothing less than an extraordinary result,” Mr. Dubyak said in an e-mailed statement. Mr. Dubyak’s statement added that those named in the suit “plan to pursue claims against Mr. Popovich for bringing the suit and for fees owed to Mr. Webster’s estate.” Mr. Popovich’s attorney in the current case took issue with that
view of the matter. “He feels severely wronged, is all I can say,” said G. Timothy Marshall.
Singing a different tune Mr. Popovich, who grew up in Lake County, has had a long career in the music business in Cleveland, New York and eventually Nashville. He had his first success at divisions of CBS Records, which later was bought by Sony, and later for Polygram Records in Nashville. When he wasn’t working in those two music capitals, Mr. Popovich would return to Cleveland to run various iterations of Cleveland International. The current legal battle traces back to 1977 and the release of Meat Loaf’s first album, “Bat Out of Hell,” by Cleveland International through Epic Records, which would become a Sony subsidiary. That vinyl record, No. 343 on Rolling Stone magazine’s top 500 albums of all time, became a surprise hit. Mr. Popovich has been at odds with Sony since the mid-1990s over royalties owed him from the Meat Loaf recordings. In 1998 Sony settled the royalty lawsuit by paying Mr. Popovich $6.7 million in back royalties and advances on future royalties. A second lawsuit over royalties was filed in 2006 by Mr. Popovich and dismissed in 2009. The most recent lawsuit is the direct result of a 2005 verdict against Sony in a lawsuit Mr. Popovich brought against the recording giant because it had left Cleveland International’s logo off a number of Meat Loaf CDs. In settling the earlier royalty lawsuit, Mr. Popovich and Sony agreed to include a Cleveland International Records logo on CDs derived from four Meat Loaf master recordings, according to some of the lawsuits. Sony didn’t add the logo for more than a year and later said the absence of the Cleveland International logo was inadvertent. However, a jury awarded Mr. Popovich $5.1 million because of the omission; the amount grew to $5.8 million when interest was added in 2008 after a Sony appeal was rejected by the U.S. Sixth Circuit in Cincinnati. But the lawsuits didn’t end there. In 2006, after the district court
victory, Samuel Lederman and Stanford Snyder, two New York-area men, sued Mr. Popovich for a share of the Sony money. Messrs. Lederman and Snyder had invested in Cleveland Entertainment in 1977, with Mr. Popovich owning a 51% interest, Mr. Lederman 20% and Mr. Snyder 29%. The company stopped doing business in 1983 and formally was dissolved in 1991, according to court filings. Mr. Popovich, through Mr. Webster, argued in the case filed by the two men that he alone retained the rights to the Cleveland International name and record label. Mr. Popovich’s motion also argued that Messrs. Lederman and Snyder never sought to intervene in the logo suit and never claimed any interest in Mr. Popovich’s lawsuit. (The pair had been involved in the earlier suit over royalties.) Messrs. Lederman and Snyder argued that as shareholders of Cleveland Entertainment, they were entitled to part of the Sony money and that Mr. Popovich had abandoned his fiduciary responsibilities to Cleveland Entertainment shareholders. A jury found in favor of Messrs. Lederman and Snyder and awarded the pair $1.81 million.
$100 vs. $1.8 million In his current lawsuit against the late Mr. Webster and his law firm, Mr. Popovich said the Lederman/ Snyder lawsuit also cost him $500,000 in legal fees. His complaint contends that the lawyers never advised Mr. Popovich that he might have a fiduciary responsibility to his former partners. It also says that “the gravest act of negligence exhibited by the (Webster lawyers) was that none of (the lawyers) approached Lederman and/or Snyder to obtain a release of their rights in regard to the Logo Litigation.” Worse, Mr. Popovich’s lawsuit states, lawyers for Messrs. Lederman and Snyder had told Mr. Popovich’s new lawyer that had the Webster lawyers asked the New York men whether they wanted to participate in the lawsuit or instead would sign releases giving Mr. Popovich the right to pursue a claim for himself, “their legal counsel informed Popovich’s legal counsel in the Lederman Lawsuit that they would have signed any release for about Fifty Dollars!” ■
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GOING PLACES JOB CHANGES ARCHITECTURE DOMOKUR ARCHITECTS: Lucas W. Kraft to project architect.
EDUCATION SAINT IGNATIUS HIGH SCHOOL: Gerald Skoch to vice president and chief mission officer; Keith Mokris to alumni director; Lisa Metro to director of communications; Rory Hennessy to dean of students; Ryan Franzinger to assistant to the dean of students.
FINANCIAL SERVICE PLANTE & MORAN PLLC: Matt Nobles to associate. SS&G: Scott McRill to director, transaction advisory services group. WALTHALL, DRAKE & WALLACE: Janice Canfield, Judy Mondry and Paul Weisinger to senior managers; Lauren Van Camp to in charge; Eric Schmidt and Brian Ditz to level II.
LEGAL BUCKINGHAM, DOOLITTLE & BURROUGHS LLP: Barry Y. Freeman to partner.
to vice president of sales, engineered products group; David Marlar to general manager, Truseal.
MARKETING SOOY+CO: Bob Slatt to multimedia and web designer.
NORTHCOAST CONFLICT SOLUTIONS: Joyce A. Banjac to vice president, chief strategist for organizational markets.
BRENNAN INDUSTRIES: Ted Moyer to vice president, national and international sales; Bill Jarrell to vice president, marketing and procurement; Jeff Worobel to director of finance. DIEBOLD INC.: David J. Kennedy to director, regional security. EATON CORP.: Gareth Webley to vice president, IT security and chief information security officer. GOLDSMITH & EGGLETON INC.: Jeff Brabham to director, global sales; Eric Davies to director, manufacturing operations. QUANEX BUILDING PRODUCTS CORP.: August J. Coppola to senior vice president; Pete Donoghue
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OHIO SOCIETY OF PROFESSIONAL ENGINEERS: Thomas E. Mosure (MS Consultants Inc.) received the 2010 President’s Award.
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We understand that one size does not ¿t all. We know this much is true: small clients become big clients and big clients still have small needs.
LAKEWOOD SENIOR CITIZENS INC.: Curt Brosky to president, CEO.
KOHRMAN JACKSON & KRANTZ PLL: Susan O. Scheutzow to partner and chair, health care practice group.
TAFT STETTINIUS & HOLLISTER LLP: Joshua M. Ryland to partner.
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CONSTRUCTION EMPLOYERS ASSOCIATION: Tim Linville to executive vice president.
ATNETPLUS INC.: Antony Cannon and Dave Bullard to IT specialists; Angela Provencal to administrative assistant.
OTT & ASSOCIATES CO. LPA: Justin M. Ritch to associate.
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MEYERS, ROMAN, FRIEDBERG & LEWIS: Rachel L. Steinlage to associate.
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CLEVELAND PLAY HOUSE: Sandra Kiely Kolb to chair; Walter Kalberer and Alec Pendleton to vice chairs. NATIONAL ASSOCIATION OF WOMEN BUSINESS OWNERS: Marguerite I. Harkness to president; Barbara Blake to immediate past president; Mary Cilia to president elect; Jennifer Corso, Elaine Deiderich, Liz Radivoyevitch and Pam Ryan to vice presidents. NORTHERN OHIO SOCIETY FOR HEALTHCARE ENGINEERING: John D’Angelo (Cleveland Clinic) to president; Jeff Disrud to program vice chair; Ron Snodgrass to treasurer; Bill Rundle, Jennifer Stull and Angela Timperio to committee chairs.
AWARDS LAKEWOOD CHAMBER OF COMMERCE: Scott Duennes (Cornucopia Inc./Nature’s Bin) received the 2010 Business Person of the Year Award; Diane Helbig (Seize This Day Coaching) received the 2010
Timken to invest $50M in steel unit Timken Co. plans investments in ON THE WEB Story from to invest about $50 Canton “have www.CrainsCleveland.com. million in its steel the goal of operations in Canton. both meeting demand and continuing Slated to begin this year, the to improve the long-term competiinvestment covers the installation of tiveness of our operations.” a new intermediate finishing line at The company did not say how the Timken’s Gambrinus Steel Plant and investments would affect employment expansion of the steel lay-down levels at the two operations. yard at the Harrison Steel Plant’s Timken’s utilization capacity fell small-bar mill. to an all-time low of 25% in 2009, Timken said its Steel Group has the company previously said, and it had a “significant increase in has been working to increase that demand across all markets, and number and cut lead times for cus2010 sales are expected to tomers. Timken had increased its increase by 70% to 80% compared utilization to 75% of capacity as of to 2009.” Sal Miraglia, presidentearly August and was still ramping steel for Timken, said the planned up further, it said. — Dan Shingler
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PUBLISHER/EDITORIAL DIRECTOR:
Brian D. Tucker (btucker@crain.com) EDITOR:
Mark Dodosh (mdodosh@crain.com) MANAGING EDITOR:
Scott Suttell (ssuttell@crain.com)
OPINION
Not likely
S
tuart Garson, chairman of Cuyahoga County’s Democratic Party, is wasting his breath in calling for county commissioner Jimmy Dimora and county auditor Frank Russo to resign. They haven’t put the public first for the last two years, so why should they do so now with only five months to go in their jobs? It’s not as though Messrs. Dimora and Russo haven’t heard this plea before in the two years since their homes and county offices were raided as part of a federal public corruption investigation in Cuyahoga County. Heck, we used this space 14 months ago to urge Mr. Dimora to resign because of the cloud his presence was casting over the operations of county government. No dice. Now comes Mr. Garson, who last week said the ongoing investigation centering on his two fellow Democrats “compromised the public’s trust in these officeholders and their effectiveness to carry out the duties of these offices.” Of course, Mr. Garson as party chairman also would like to see the duo disappear from their public roles because of the stigma they could attach to Democrats who are running for county offices this fall. We doubt Mr. Garson will get his wish. The change in the form of county government that voters enacted last November will put an end to the jobs of Messrs. Dimora and Russo shortly after the elections this fall. Why should they quit cashing their county paychecks and building their pension benefits now with the finish line so near? Besides, it doesn’t seem to be in the makeup of either man to take the honorable course of stepping aside so they no longer taint the public’s perception of how the business of government is done in Cuyahoga County. If anything, Mr. Dimora has been defiant in his insistence that he has no intention of leaving his job one day sooner than he must. So, Mr. Garson, hang in there. And let’s all hope that voters choose candidates for county executive and county council based on qualifications and not party affiliation so that Cuyahoga County can get past this ugly period of corruption and self-serving leadership in the halls of government.
FROM THE PUBLISHER
The president reaps what he’s sown
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against “fat-cat bankers” and the “reckless” ords can be powerful, as actions of, first, Wall Street, and more President Barack Obama recently, BP, after its disastrous oil spill. showed in his campaign for A recent Associated Press story quoted the White House. Trouble is, Verizon CEO Ivan Seidenberg, who’s as another eloquent Democrat learned in chairman of the Business Roundtable, the Oval Office, they also can come back saying the president has created “an to haunt you. increasingly hostile environment for Ah, who could forget Bill Clinton’s investment and job creation.” memorable line, “It depends on The head of the U.S. Chamber what your definition of ‘is’ is.” BRIAN of Commerce decried a “cumuSo now we have Mr. Obama TUCKER lative job-killing impact of over— staring at a potential slew of regulation” from the adminislosses in the coming midterm tration. And Forbes publisher elections — scrambling to win Steve Forbes said: “The truth back support from business is that not even the Franklin leaders. Many, including former Roosevelt administration was donors, aren’t inclined to help. as hostile and ignorant about Instead, some are just plain free enterprise as this adminisangry. Angry about health care tration is.” “reform” that was shoved down The president has worsened his situaAmerican voters’ throats. Angry about tion by his appointments. Not a single the massive deficit we’re piling on top of former corporate executive is among the troubling deficits left behind by his Cabinet members. This is not President Bush and his wars. what America needs at a time of grave But what business leaders might be economic challenges. most angry about are the tirades Mr. Obama launched while wooing the left**** CLEVELAND SCHOOLS CEO EUGENE most bloc of his party. The president railed
Sanders, who’s working overtime to remake the troubled district, recently took a nearly unprecedented step when he yanked the principal and entire teaching staff from the woefully underperforming Andrew J. Rickoff Elementary School. The only problem is that the school’s staff — protected by its union — has been scattered around the district to spread its members’ underperformance to other buildings. What a shame. Across Cleveland there are examples of schools run by devoted administrators and teachers who are proving they can take average (and often challenged) students and help them progress academically. But they’re not doing it in union-dominated public school buildings. They’re doing it in schools in which the staffs care more about academic progress than how many days off they get in their next contract or how soon they can get out and into the comfortable world of retirement. In a perfect world, Dr. Sanders could implement his entire turnaround plan, but that would require a cooperative union rather than one dominated by an “us-versus-them” mentality. ■
PERSONAL VIEW
Be first
Region ahead of tech race; keep up pace
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e’re still not sold on casinos as economic development tools. However, Ohio voters decided otherwise last fall when they approved the creation of casinos in Cleveland, Cincinnati, Columbus and Toledo. So, if we’re going to do it, let’s do it right — and let’s do it first to gain an edge on those other towns. The local powers that be apparently are of the same mind, based on last Thursday’s announcement by Harrah’s Entertainment Inc. and Dan Gilbert’s Rock Gaming that they’re exploring the opening as early as next year of a temporary casino in the Higbee Building downtown. The two companies said they’re considering that possibility in response “to the encouragement of city and regional leadership.” To which we say, “Go for it.”
By SCOT ROURKE
ack in the days when change could take generations and geographic location and natural resources largely determined a community’s economic potential, Cleveland was among the wealthiest and most entrepreneurial communities in the world. Needless to say, we have lost that edge. But even in an era when technology facilitates change seemingly overnight, Northeast Ohio has tremendous resources and a terrific opportunity to reinvent itself as a leader in the 21st-century knowledge economy. To compete in an economy powered by high-speed Internet, known as broadband, we have to migrate our systems
Mr. Rourke is president and CEO of OneCommunity, a nonprofit organization dedicated to accelerating the region’s use of information technology. away from the notion that physical assets and blue-collar skill sets will fuel our competitiveness. We need to align our resources around the skills that lend to the manufacture and distribution of very different products — information and knowledge. It is these new skills, and the ability of business and government to adapt and innovate with the latest technology tools, that will drive job creation. The good news is that Northeast Ohio has a key advantage. In fact, the region is many years ahead of its U.S. peers and much of the world. Since 2003, we have been quietly building one of the largest
and fastest private communications networks in the world, to serve as the foundation for Cleveland’s potential resurgence for innovation and transformation — a high-speed, regional, fiberoptic broadband array run by nonprofit OneCommunity. In February, we launched a $13 million construction project that creates 200 jobs and expands connection to 22 counties across Northeast Ohio as part of a national pilot project that will link more than 100 hospitals on a single, high-capacity, community network. This enables the sharing of electronic medical records and images across health systems to improve health care services and reduce costs. That means specialists from the Cleveland Clinic or Summa Health will See VIEW Page 9
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CRAIN’S CLEVELAND BUSINESS
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THE BIG ISSUE Are there days when you would like to emulate Steven Slater, the JetBlue flight attendant who cursed a passenger and fled the plane by going down the emergency slide?
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“ Everybody here deals with customers at some level. So everybody gets training.” Mark Trushel President Mantaline Corp 135 employees
ROBERT BLOMQUIST
ANNE MCCAFFERTY
LINDA HENNESSY
TRAVIS EVANS
Mayor, Olmsted Falls
Cleveland
Westlake
Cleveland
No, I can’t say I would. At the end of your career, it’s more a summary of what you’ve done throughout the years. I can’t say I would make a statement like that.
I can’t say I (would). I don’t have that kind of stressful career, but I can understand (Slater’s actions) working in that line of business.
Of course; who wouldn’t? Everybody has frustrations.
No, I’m just not that type of person. I’m pretty reserved and I keep everything to myself.
~OR~ FOR MORE FROM OTHER COMPANIES VISIT W W W . S A L E S C O N C E P T S I N C .C O M
SELL MORE.
➤➤ Watch more people weigh in by visiting the Multimedia section at www.CrainsCleveland.com.
FDA clears Thermedx’s surgical fluid By SHANNON MORTLAND smortland@crain.com
Solon medical device maker Thermedx LLC has received U.S. Food and Drug Administration clearance for its fluid warming machine and has begun marketing the device in the United States and Europe. The 37-5 Fluid Management System warms fluids that go into the body during surgery in about 15 seconds, said John Kurowski, a registered nurse and vice president of sales and marketing for Thermedx. Previous methods of warming fluids such as saline included putting them in a blanket warmer for up to 30 minutes, he said. The 3-year-old, 12-employee company has hired a sales rep in Atlanta and will hire salespeople in Cleveland, Dallas and Tampa — all of which have track records of
welcoming new health care devices, Mr. Kurowksi said — in the coming weeks. Thermedx also has contracted with distributors on the East and West coasts, as well as in Europe, he said. The Fluid Management System will be launched at the Association for Perioperative Practice conference in England in October, Mr. Kurowski said. Thermedx will begin marketing the device in Denmark, Holland, Norway and Sweden in the first quarter of next year and in Germany next summer, he said. The Fluid Management System has been received well by local hospitals, Mr. Kurowski said. “I haven’t had a door closed on me yet,” he said. “There is a lot of focus on temperature management as it relates to patient outcomes.” Cleveland Clinic’s Hillcrest Hospital is among those medical centers that will participate in a
pilot program in which they will get the Fluid Management System for free and will report their experiences back to Thermedx, Mr. Kurowski said. Dr. Marcus Tower, chairman of obstetrics and gynecology at Hillcrest and a member of the Thermedx medical advisory board, said Hillcrest will begin testing the Fluid Management System over the next three to four months. He has high expectations for the machine because, in the past, fluids could be too hot or too cold for patients, and there was not a good way to monitor constantly temperatures of the fluids. “This provides us with the capability of monitoring the temperature of fluids we irrigate the patient with,” Dr. Tower said. “If the fluids are not right, the patient can become hypothermic very quickly” and could go into heart failure. ■
View: Cleveland can be world tech leader continued from PAGE 8
be able to see rural patients via two-way video, while wireless devices instantly send readings and images for diagnosis and treatment. We’re poised to lead the world in adapting to and adopting “telemedicine.” In March, a coalition led by OneCommunity was awarded $18.7 million over two years for a national pilot project aimed at reducing the “digital divide.” The grant creates more than 100 direct jobs and will build capacity to train and equip citizens in Cleveland, Akron, 10 rural counties in Ohio and cities in three other states. This will enable 26,000 households that successfully complete the program to access better jobs, education, health care and government services. Leaders from dozens of countries have visited Cleveland to learn more about our collaborative and innovative approach. In turn, we’ve visited and advised numerous U.S. cities, not to mention governments worldwide, including China, South
Korea and Australia. As a primer on the urgency of our opportunity, we recently spoke with Mayor Maeng of Seoul, South Korea, considered the world’s most digital city. Citizens can access literally hundreds of government services for their families or businesses online, with just a TV remote control (no computer needed). With this incredible digital infrastructure in place, Seoul is now aligning its educational and innovation systems to leverage this platform so it can become a leader in a global, knowledge-based economy. They’re not there yet, but we should be very afraid. Our kids are going to compete for jobs with kids from South Korea and other digitally advanced regions. Their collective tools and skills are bringing talents and innovations here to compete in our very own marketplace. The United States — widely regarded as having one of the slowest and most expensive broadband infrastructures of the industrialized world — is at a great disadvantage.
INTERESTED? CALL TODAY, 440 575-7000
Fortunately, we in Northeast Ohio have a digital platform for collaboration and innovation that is almost unparalleled. We have an amazing leapfrog opportunity in front of us. We need to rally, to embrace our leadership position in this arena and launch an offensive. It’s essential that we work together to further develop a regional vision for collaboration and sharing of resources leveraging our platform to make the Cleveland area a world leader, as we were a century ago during the second Industrial Revolution. But the question remains, can we adapt our culture and skills, align our resources, and apply our unparalleled work ethic to lead the information revolution? Time will tell, but we have no excuses. Unlike our peers across the country, we have nothing for which to wait. Our moment is here. Let’s take the lead on broadband as a community imperative and make the choice to compete and become a global leader again. ■
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Cleveland plans to market big Flats parcel Continuity of After cleanup, site could solve city’s lack of industrial space to lure potential employers By JAY MILLER jmiller@crain.com
The city of Cleveland for years has struggled to compete for new plants and warehouses because it didn’t have a big, ready-to-use industrial site to offer new or expanding businesses. It has taken a step to change that situation. The city last month won control of a 54-acre site in the Flats that it plans to clean up environmentally and make available to show developers, real estate brokers and site selectors. The acreage on the east side of the Cuyahoga River once had a coke oven on it that fed the ArcelorMittal steel mill, but could be home to a large plant or warehouse or could be broken up into parcels for an industrial park. The plan for the cleanup also should help the Cleveland-Cuya-
hoga County Port Authority find a place for river dredgings, a problem that has become a heavy burden for the port operator. “We’re excited to get started,” said Tracey Nichols, the city’s director of economic development. “We’re expecting to be able to put 300,000 square feet of commercial/industrial property onto the market.” Ms. Nichols said it will take a year for contractors to clean up environmental hazards and fill the site. She said such a large piece of land will help keep companies already in Cleveland that need to expand from fleeing for distant suburbs. Joseph Martanovic, an industrial real estate broker with the Colliers Ostendorf Morris real estate brokerage, agreed. “This is great for the city,” Mr. Martanovic said. “There’s a dearth of industrial sites in Cuyahoga County and less in Cleveland.”
The lower Flats in the last several years have attracted two steel warehouses that wanted to be near the steel mill. In 2005 Heidtman Steel Products Inc. of Toledo built a 270,000-square-foot service center on what is now Heidtman Parkway near the ArcelorMittal plant. Then in 2009, Steel Warehouse Inc., a steel distributor based in South Bend,
Ind., opened an 86,000-square-foot warehouse nearby on 17 acres on Independence Avenue. The city has secured a $5 million Job Ready Sites grant from the state to clean up the property, which ArcelorMittal is donating after the city reimburses the company $1 million for some cleanup costs already undertaken. Acquiring the property has the added benefit of taking pressure off the Port Authority to find a dump site for material that is dredged from the Cuyahoga River bottom to keep the shipping channel clear. The city will need at least 300,000 cubic yards of material to fill and cover the Flats property. That’s at least a year of river dredging material. The city has three other properties it is redeveloping for its industrial land bank. Two are on the West Side. One is the 22-acre former Midland Steel plant, and the other, called the Trinity site after a building that had been on the property, is 5.6 acres. The city also is marketing three acres in the Flats that once housed a cityowned asphalt plant. ■
Race: Coaches rave about facilities’ impact in recruiting continued from PAGE 3
general funds or asking students to bear more of the cost. Kent’s upgrades were paid for by private support and did not impact the university’s budget, while Akron benefited from a combined $15 million from Akron-based InfoCision and Summa Health System and has no immediate plans to charge students an additional fee. “Our members are being financially prudent in doing these upgrades. They’re raising dollars and investing them back into programs,” said MAC commissioner Jon Steinbrecher. “There’s no doubt they’re coming to the realization that you have to make your program attractive to prospective student athletes, to the fans.” Other MAC schools have joined or are joining the parade: ■ Toledo in February opened its new Fetterman Training Center, a $9 million indoor facility used by its football, track, basketball and golf teams; ■ Bowling Green’s $36 million Stroh Center, a new home for its basketball and volleyball teams and other general uses, will open next fall, four years after the school opened its Sebo Center, an $11.6 million facility in its football stadium’s north end zone that serves strength and conditioning, treatment and rehab, and academic training needs; and ■ Ball State, in Muncie, Ind., and Northern Illinois, in De Kalb, Ill., in 2007 completed $13 million and $14 million projects, respectively. Toledo paid for its new facility through private donations and kicked in some money from its capital projects budget; BG’s Sebo Center was funded fully through private donations, though the Stroh Center — after $14 million in private donations — will need $16 million in student fees once it opens.
One thing leads to another Coaches polled July 30 at the MAC’s annual media day at Ford Field in Detroit sang the facilities’ praises. Rob Ianello, Akron’s firstyear head coach, and Tim Beckman,
PHOTOS COURTESY BOWLING GREEN/AKRON ATHLETIC COMMUNICATIONS
ABOVE: Bowling Green’s Sebo Center closed off the north end zone at Doyt L. Perry Stadium. BELOW: Akron played its first game in InfoCision Stadium in September. Both facilities have been credited in assisting recruiting at the respective schools.
in his second year at Toledo after a spell on Ohio State’s staff, each said the respective universities’ plans played major roles in their decisions to accept positions at those schools. “I talk to friends in college football and they tell me you can drop (InfoCision Stadium) in a (Southeastern Conference) city and it would fit right in,” said Mr. Ianello, a former assistant at Notre Dame. “It’s a lot different than the Rubber Bowl, for sure.” Many of the schools with new digs have seen jumps in recruiting. According to leading evaluator Rivals, Kent has ranked third, first
and third in MAC recruiting over the last three years; Akron was second in 2009, and Toledo has ranked first, fourth and second. “It’s an arms race,” said Rick Chryst, the former commissioner of the MAC and now of counsel in Walter & Haverfield’s sports law practice group. “(Recruits) can tell pretty quickly if something is tired or fresh.” Better facilities mean better recruits, and better recruits often lead to a better team, more exposure for the school and more enthusiasm from alumni — and potentially more donations, which got this whole
thing started. Mark Rosentraub, who chairs the sport management department at the University of Michigan said athletic revenues are tertiary when it comes to projects such as these; instead, it’s philanthropic commitments, and student attraction and retention that truly make investments worthwhile. Kent State coach Doug Martin, entering his seventh year at the helm, said he’s already seen the former affected by Dix Stadium’s facelift. “We notice a difference in recruiting, but we have to catch up to others still,” Mr. Martin said. “But it’s been very obvious to the administration the effects the upgrades have had, and former players and other alumni see what’s there now and are pleased.” And though those athletic revenues aren’t always goal No. 1, those better players attracted by updated facilities every so often can lead the little guy to the promised land. Look no further than Boise State, which reportedly took home about $3.5 million — after splitting with five other nonautomatic-qualifying conferences and its own conference members — by advancing to the 2007 Fiesta Bowl. The Broncos, after another solid season last year in which they again played in the Fiesta Bowl, likely will be in the top five in preseason polls, setting them up for another big-money run. By comparison, Northern Illinois reportedly lost $740,000 total on its last three bowl trips, to San Diego; Shreveport, La.; and Toronto, respectively. The losses stem from travel costs and ticket guarantees; the latter is required by bowls, as schools must buy a certain amount of tickets, then take a loss on whatever portion of them they don’t sell. “That’s speculative, but certainly plays a part in the decisions,” Mr. Rosentraub said. “But generally, these facility decisions are made in the school’s best interest; these institutions are not run by people who got there by making huge mistakes.” ■
care at heart of doctor’s at-home plan By SHANNON MORTLAND smortland@crain.com
Psychiatry patients often fall through the health care cracks and fail to follow up with their physicians, but a local doctor is launching a home health care company that will bring psychiatry and health care services to the patient. Dr. Rakesh Ranjan Ranjan, who owns a psychiatry practice and a drugtesting firm called Charak Clinical Research Center in Garfield Heights, has launched Spectrum Home Health Care. The company provides in-home health care and psychiatric services in Cuyahoga, Lake, Medina and Summit counties. Dr. Ranjan already has hired 15 nurses, home health aides, social workers, and physical, occupational and speech therapists to take care of existing clients who are on a waiting list to receive in-home services. He said he expects to hire up to 30 more home health aides, nurses and salespeople by the end of the year as the new business ramps up. According to Dr. Ranjan, the Visiting Nurse Association of Ohio currently is the only organization that provides home health and psychiatry services in Greater Cleveland. Because some patients who receive health or psychiatric care in a hospital but don’t receive in-home follow up care fail to adhere to their doctors’ orders, their condition worsens once at home and they wind up back in the hospital, Dr. Ranjan said. “There is no continuity of care and that’s where most patients fall through the cracks,” he said. Indeed, there is more need for joint home health and psychiatry services than currently can be handled in Northeast Ohio, said John Nisky, a clinical supervisor for Cenpatico, the behavioral health arm of the Buckeye Community Health Plan, which coordinates care for Ohio’s Medicaid enrollees and others who are on similar government-sponsored health plans. Cenpatico serves the aged, blind and disabled in eight Northeast Ohio counties, Mr. Nisky said. About a third of his clients have mental health issues and many lack the ability to have someone work with them after they leave the hospital to make sure they follow the doctor’s orders so they can better control their symptoms. Mr. Nisky said Cenpatico will continue to work with the Visiting Nurse Association for home health and psychiatry services. It also will start referring patients to Spectrum. “We hope to maintain an individual within the community, keep them living in their homes, keep them living with their families,” he said. Dr. Ranjan said he is in talks with other health care providers, nursing homes and insurers to refer patients to Spectrum and to his clinical practice, which opened an office in Mentor on Aug. 2. ■
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FINANCE
13 ADVISER: PROPOSED RULE FOR REPORTING REVENUE OPENS EYES.
SMALLBANKS, BIGBURDENS Despite perceptions, little guys are expecting impact from banking reform By JAY MILLER jmiller@crain.com
A
ccording to Michael Van Buskirk, president of the Ohio Bankers League, the recently passed banking reform legislation will generate 100 pages of new regulations for each worker of the average community bank in Ohio. He said the average small bank in this state has 40 employees, and he expects the new Dodd-Frank Wall Street Reform and Consumer Protection Act, passed last month by Congress and signed into law by President Barack Obama, to generate at least 4,000 pages of new regulations. So, not surprisingly, he scoffs at the notion by some that the new law won’t affect the average small bank. “I think there is a perception that community banks, or smaller banks, were largely exempt from the bill,” he said. “We believe that’s absolutely untrue.” He’s especially bugged because, he said, “When you consider these guys had no role in causing the problem, this is a huge burden they are going to be addressing.” Mr. Van Buskirk also complained that the bill created some loopholes that will allow some small bank competitors, such as auto dealers who make car loans, to avoid the same level of regulation as the banks face. The community banks are exempt from See SMALL Page 13
“When you consider (small banks) had no role in causing the problem, this is a huge burden they are going to be addressing.” – Michael Van Buskirk president, Ohio Bankers League
Bank holding companies sometimes seen as not worth trouble Additional opportunities afforded by parent don’t always outweigh another regulator, costs By DAN SHINGLER dshingler@crain.com
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ank holding companies used to be the norm when structuring even a small regional bank, but in light of recent regulations — and the fortunes of some holding companies and their directors — they’re often becoming seen more as an unnecessary burden than a shield against liabilities or the key to growth and
expansion. “A holding company is just an extra expense unless you need it,” said Bill Valerian, chairman and CEO of Liberty Bank in Beachwood. “We figure it would be $600,000 to $800,000 in additional annual expenses.” Mr. Valerian said his bank is doing very well as a stand-alone nationally chartered commercial bank — no holding company, thank you very much — and he
doesn’t have any desire to bring in the extra regulator that would come with a holding company. Nor does he see a need to keep the extra set of books, to track two sets of earnings and to maintain two boards that would almost certainly have the same people on them — all of which cost money. That’s because Liberty just wants to do traditional banking and has no plans to get into sidelines such as insurance or to embark on an aggressive acquisition strategy. A holding company, which can own more than just banks, would afford such opportunities, but Liberty is not pursuing
those ends, Mr. Valerian said. Traditionally, holding companies have been seen as vehicles that were useful in buying, starting up or capitalizing banks and other financial subsidiaries. Investors buy stock in the holding company, which uses at least some of that money to serve as capital for the bank or thrift subsidiary. Unlike a stand-alone bank, a holding company can buy its own stock, so investors can turn to it as a buyer if they need to liquidate their holdings. And that’s still a good reason to form a holding company, said Rocky River attorney Francis X.
Grady, a regulatory specialist who advises small banks across the country on such matters.
Strong points The thing investors must remember, especially today, Mr. Grady warns, is that regulators will expect the holding company to serve as an ongoing “source of strength” to the bank or banks that it owns. Banks can still upstream their excess earnings to the holding company — but the holding company’s obligation does not end there or with its initial capitalization of the bank it owns. See HOLDING Page 13
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12 CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
AUGUST 16-22, 2010
FINANCE
Credit mismatch hurts spending Hometown boy leads Akron FICO scores over the past 2½ years indicate an increase in consumer credit risk, according to an analysis of data from Equifax.
By CHUCK SODER csoder@crain.com
I
bank’s charge into Chicago
GOING DOWN
Consumer scores are down, while lenders’ standards are higher f consumer spending is considered a weapon in the battle against recession, then Northeast Ohio and the rest of the country are fighting with some wounded soldiers. Consumers’ credit scores have dropped during each of the past two years, a trend that could limit consumer spending and, therefore, slow the economy’s recovery. Several financial experts in Northeast Ohio say they are seeing more people with reduced credit scores, referred to as “the credit-score wounded” by Jay Seaton, area president for the nonprofit Consumer Credit Counseling Service. For Mr. Seaton’s part, he’s seeing an increase in the number of people who show up to the financial education seminars he hosts locally, saying their credit scores have been hurt by the economic downturn. At the same time, lenders are requiring higher credit scores to get loans, said Mr. Seaton, whose organization is part of the Columbus-based Apprisen family of financial companies. That mismatch is driving consumers to put off big purchases so they can repair their credit first. “The words that are most common right now: ‘I’m waiting,’” Mr. Seaton said. In April, 17.9% of the U.S. population had FICO credit scores above 800, down from 18.2% in 2009 and 18.7% in 2008, according to statistics from Fair Isaac Corp. of Minneapolis, which issues the scores. Conversely, the number of people with bad scores is up: 25.5% of the population in April had scores below 600, compared to 25.2% in 2009 and 24.1% in 2008. Generally, scores above 720 are considered good, according to San Francisco-based Credit.com, which provides financial information to
Score
April 2010
April 2009
April 2008
300-499
6.9%
7.4%
7.2%
500-549
9.0
8.7
8.2
550-599
9.6
9.1
8.7
600-649
9.5
9.5
9.6
650-699
11.9
12.0
12.0
700-749
15.7
15.9
16.0
750-799
19.5
19.4
19.6
800-850
17.9
18.2
18.7
SOURCE: WWW.BANKINGANALYTICSBLOG.FICO.COM
consumers. The changes amount to “the first meaningful decrease in distribution in about 20 years,” said John Ulzheimer, president of consumer education for Credit.com. Reduced scores and increased lending standards already are resulting in fewer large purchases and increased interest rates for consumers who do get loans. He doesn’t expect scores to swing back up anytime soon because it can take time for people to rebuild them. And they’ll need jobs to do that. “You can’t pay your way out of debt if you’re not employed or you’re underemployed,” Mr. Ulzheimer said.
Ripple effect Low scores reduce people’s ability to buy homes and cars or to get money to start or expand a business, said Lisa Oliver, president of KeyBank’s Cleveland District. She added that banks also consider other factors before lending money, such as a person’s income and whether the loan is backed by adequate collateral. In response to the recession, KeyBank over the last two years has “made the appropriate adjustments” in terms of how strict the bank is when evaluating credit scores, Ms. Oliver said. However, she expects more people will be able to meet increased standards over time: She thinks credit scores are inching up. That would be good news for the economy. Credit can fuel purchases, which can help create jobs. As
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people make more money, they should be able to raise their credit scores further, Ms. Oliver said. John Martin would go only so far as to say he thinks credit scores are stabilizing. The CEO of Emerald Group Credit Union Inc. in Garfield Heights said his organization over the past few years has been seeing reduced credit scores among its members, who all live, work, study or worship in Cuyahoga County. In rare cases, the credit union has had to reduce or even cancel lines of credit, he said. Reduced lending hurts the nonprofit credit union’s income, Mr. Martin said. He added that lower scores hurt the economy as a whole not only because some borrowers can’t get loans, but also because others wind up with higher interest rates — and less money in their wallets. “It’s going to reduce the disposable income people have,” Mr. Martin said. Jim Axner, director of mortgage lending for Howard Hanna, said the residential real estate services company hasn’t felt a big impact because of the drop in credit scores. However, he noted that Howard Hanna, which is based in Pittsburgh and has offices in Cleveland, follows lending guidelines set by Freddie Mac and Fannie Mae. Those standards have risen to the point where someone with a FICO score of 620 might have a hard time getting a home loan. “A few years ago we had a home for that score. Today we do not,” Mr. Axner said. Northeast Ohio’s car dealers aren’t feeling much impact from the drop in credit scores either, said Lou Vitantonio, president of the Greater Cleveland Automobile Dealers’ Association. Dealers are sheltered somewhat because cars cost less than homes and because consumers can opt for less expensive cars if they can’t get a loan or a good interest rate for more expensive models. “It’s just affecting the ability of the consumer to get the absolute highest-tier rate,” Mr. Vitantonio said.
The upside So who might benefit from reduced credit scores? Maybe so-called payday lenders, who lend freely but charge particularly high interest rates, said Mr. Ulzheimer of Credit.com. But the real beneficiaries might be the people who need to learn a few hard lessons. “The silver lining of the credit crunch is people will start realizing, ‘I messed up, and I messed up big. I’m the one that they’re talking about on the news every night,’” he said. ■
FirstMerit’s Greig cut his teeth in Windy City By STEVE DANIELS Crain’s Chicago Business
P
aul Greig is elbowing back into the Chicago banking market, by way of Northeast Ohio. Four years after leaving Greig town to become CEO of Akron-based FirstMerit Corp., the longtime Chicago banker outbid a host of far larger banks and private equity investors in May for Midwest Bank & Trust Co., a failed lender in the Chicago suburb of Melrose Park. Midwest’s 26 local branches, along with two smaller acquisitions, made FirstMerit the Chicago area’s 14th-biggest bank by deposits. Now the former college basketball player must prove he can compete in his hometown. Chicago is the nation’s most fragmented and hotly contested banking market. Nobody knows this better than Mr. Greig, 54, a veteran of Chicago’s American National Bank, the training ground for many bank CEOs. Before taking over FirstMerit, he ran the Chicago-area operations of Charter One, a unit of Royal Bank of Scotland PLC. Mr. Greig grew up in Chicago’s Montclare neighborhood, attending Luther North High School on the city’s Northwest Side. His father was a shoe buyer for Sears Roebuck & Co., and he describes his upbringing as middle class. “Just like every other kid, I played a lot of sandlot baseball,” he said. At Wheaton College, he played two years of basketball. The hoops bug bit the 6-foot-6inch Mr. Greig hard. Until three years ago, he says, he played pickup and league basketball four times a week, only giving it up after “too many charley horses.” “I was afraid that worse was to come,” he said.
‘Never been shy’ After college he joined American National in 1978 and stayed as the bank was acquired by First Chicago Corp., then by Bank One Corp. and by JPMorgan Chase & Co. Those who know Mr. Greig describe him as intense and tenacious. “He’s never been shy about pushing people on the basketball court,” said longtime friend Ted Koenig, who runs Chicago-based non-bank lender Monroe Capital LLC. Whether it’s in the gym or in business, winning “matters to him,” Mr. Koenig said. The Midwest Bank deal was a classic example. With more than $3 billion in assets and a solid deposit franchise, Midwest was the most highly coveted of the more than 20 Chicago-area banks that have failed in the last 18 months. In the Federal Deposit Insurance Corp.’s auction, Mr. Greig left nothing to chance, stomping seven other contenders by offering a 2.7% premium to the bank’s assets. Unlike Chicago banking deans John McKinnon of Wintrust Financial Corp. and Norman Bobins of PrivateBank, both of whom
mentored Mr. Greig in his early days at American National, Mr. Greig isn’t a consummate networker and charmer. He can be blunt and irascible. “He’s classic Midwest, no pretense,” said Stanley Calderon, one of Mr. Greig’s former bosses at Bank One and the man who assigned Mr. Greig the job of turning around Bank One’s underperforming Wisconsin franchise in 1999. Mr. Greig improved results, Mr. Calderon says, not through a brilliant strategy but by setting and enforcing higher standards. At FirstMerit, Mr. Greig is turning the financial crisis to his advantage by snapping up distressed Chicago-area banks. In less than a year, FirstMerit has amassed $4 billion in Chicago-area assets, more than one-quarter of its $14.5 billion total. With 54 Chicago-area branches, Mr. Greig’s challenge is to recruit a local lending team and build from the base he’s bought. And unlike in Northeast Ohio, where FirstMerit has touted its hometown roots to pry business from rivals such as the former National City Corp., which was gobbled up by Pittsburgh-based PNC Financial Services Group Inc. — Mr. Greig’s bank is the outsider in a market flush with local competitors.
Another bank? “Does Chicago really need another bank? I certainly don’t think so,” said John Rodis, an analyst at Howe Barnes Hoefer & Arnett Inc. in St. Louis. But, like others, Mr. Rodis said Mr. Greig’s familiarity with Chicago helps put investors’ minds at ease. FirstMerit’s stock is trading at more than twice its tangible book value, giving it a clear advantage over its Chicago peers, which trade at no more than 1.3 times tangible book value. Unlike most Chicago banks, FirstMerit stayed profitable through the crisis, taking advantage of a loan cleanup Mr. Greig oversaw just before the housing collapse. Also, FirstMerit repaid its federal bailout funds within months, while all of Chicago’s midsize banks continue to hold theirs. With Chicago the growth engine for FirstMerit and Mr. Greig’s personal connections to the city, many wonder whether he will move the 165-year-old bank to his hometown. But “as you drive into Akron, the FirstMerit name is everywhere,” said Terry McEvoy, an analyst at Oppenheimer & Co. in New York. “It would be very difficult for them to really pick up and move.” For his part, Mr. Greig said: “It would be unlikely in the immediate future to move the headquarters to Chicago.” What about the intermediate or longer-term future? “I couldn’t comment.” ■ Steve Daniels is a senior reporter with Crain’s Chicago Business, a sister publication of Crain’s Cleveland Business.
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FINANCE
Small: Compliance costs surely will rise Construction industry watches potential impact of revenue reporting rule continued from PAGE 11
C
onstruction contractors soon could face a dramatic change in how they are allowed to book revenue in their financial statements. The proposed accounting rule would affect many industries, but perhaps none more so than the construction industry that has used the current method for decades. The rule could have implications for how contracts are written and priced, how banking and bonding credit decisions are made, and how performance is measured. The change — proposed by the Financial Accounting Standards Board and the International Accounting Standards Board — has drawn plenty of criticism from the construction industry. Among the criticism is that the proposal is too broad and does not adequately address the unique aspects of the construction industry. Some argue that the costs simply outweigh any benefits from the proposed rule. Others fear that the new rule could lead to manipulation of revenue and less consistency in financial statements. Currently, contractors utilize the percentage-of-completion method of revenue recognition. This method recognizes revenue based on a percentage of the contract price. Generally, the percentage is calculated based on the contract costs incurred to date as a proportion of the estimated total contract cost. This is commonly known as the cost-to-cost method of calculating percent complete. The current rule is simple, cost-effective and well understood by the industry and its stakeholders. Although the proposed rule continues to allow the cost-to-cost method, it suggests that other methods more accurately depict contract performance. One such method calculates the percentage of completion based on the contractor’s survey of the goods and services installed to date. By using this method, a contractor would need to estimate the value of the goods and services transferred to the customer and record this amount as revenue. Whereas the cost-to-cost method is relatively easy to recalculate and corroborate, the revenue recognized under this method would be difficult to challenge by auditors and users of the financial statements. In fact, under this method, it would not be uncommon for two similar contractors to draw different conclusions as to the percentage of completion. This could result in less consistency and comparability of financial statements throughout the industry. In addition, under the proposed rule, contractors have more flexibility in determining a profit center. Under the current rule, the entire contract is generally accounted for as a single profit center. This includes any change orders that modify the original contract. The proposed rule allows for distinct contract performance obligations to
AARONCOOK
ADVISER be accounted for as separate profit centers. A performance obligation is considered distinct if it can be sold separately, or if it has a distinct function and profit margin. For example, a contractor might determine that site preparation and site finishing are distinct performance obligations separate from other construction services. The contractor would need to allocate to each performance obligation its standalone selling price. However, in the absence of a stand-alone selling price, a contractor must estimate the value of each performance obligation. In doing so, the contractor would assign profit to each performance obligation, which may or may not be representative of the economic reality. This could result in revenue recognition that differs significantly from the current rule. It would be difficult for auditors and users of financial statements to challenge the contractor’s estimate. Furthermore, because most projects extend beyond one accounting period, this creates an opportunity to move profit from one period to another. For instance, a contractor could allocate more profit to performance obligations that are satisfied in a particular accounting period. Consequently, this might entice a contractor to manage contract profit in such a way to comply with bank and bonding credit requirements. To the extent that contractors continue to utilize the cost-to-cost method and account for contracts as a single profit center, the proposed rule might not have a significant impact on revenue recognition. However, the proposed rule provides much more latitude to contractors who choose the new method of accounting. Again, this could lead to less consistency and comparability of financial information and could provide a vehicle for contractors to manage earnings. The accounting boards have not yet announced when the proposed rule will take effect. There may be further revisions based on public comments, which are being taken until Oct. 22. At this juncture, it is difficult to determine if contractors will choose to change their accounting method. One thing that appears certain is change is coming soon, as the final standard is scheduled to be issued in 2011. ■ Mr. Cook is a senior manager with the regional accounting and business consulting firm Meaden & Moore, headquartered in Cleveland.
some of the act’s more stringent requirements on calculating invested capital. However, they still will have to contend with the regulations created by the new Bureau of Consumer Financial Protection, such as potential new limits on debit card fees. At least those new rules, though, will be enforced on the smaller banks by their current regulators, such as the Federal Deposit Insurance Corp., not the new consumer bureau. The larger banks will have a new set of consumer bureau regulators going over their books as well as the usual bank examiners.
Wait and see Still, small banks may be overwhelmed by the new consumer finance rules and could be forced to merge. Mr. Van Buskirk said he knows of one bank in Eastern Ohio that has six employees and now will have to pour over and comply with the same thousands of pages of new regulations that larger, well-staffed banks do. “Bigger banks have the scale to have specialists, (regulatory) compliance departments, internally,” he said, while small banks, which have survived and avoided the problems of larger banks because of their intimate knowledge of their home communities, may be overwhelmed and could lose their autonomy. “It’s hard to believe that by forcing (smaller banks) to sell to somebody bigger because they can’t cope with the regulatory tidal wave,
anybody’s interest has been served,” he said. First Federal of Lakewood is taking a wait-and-see approach, since the legislation is new and enabling regulations have yet to be written. But it expects higher costs. “We’re not certain exactly how (the legislation) is going to play out — it’s 2,000 pages — but we anticipate increased compliance and administrative costs,” said Thomas Fraser, the bank’s executive vice president and chief lending officer. “We haven’t reacted yet, and we’re going to watch the rulemaking process. “The issues and consequences will be worked out over the next six to 18 months,” he said. Eloise L. Mackus, interim CEO of CFBank of Fairlawn, which has four banking offices, said she, too, worries about added costs of regulation. “Our greatest concern, as it was with TARP and Sarbanes-Oxley, is that there is a disproportionate negative impact on smaller institutions,” she said. “There may be unintended consequences for small institutions that cannot afford the regulatory burden.” She said the regulations that came with the Troubled Asset Relief Program, or TARP, turned out to be much more onerous than anyone expected and probably would have affected how financial institutions would have viewed participating in the program. Central Federal Corp., CFBank’s holding company, took a $7 million loan from TARP, which was enacted in 2008 to help
Holding: Strength may disappear continued from PAGE 11
If the holding company fails to support its bank, the holding company itself can become liable — as witnessed just this summer when regulators went after bankrupt AmTrust Financial Corp., the former parent of AmTrust Bank. Regulators seized the bank at the end of 2009 and this summer took action to collect more than $500 million from the holding company, outside of its bankruptcy proceedings, claiming that the holding company failed to serve as a “source of strength” for the bank it owned. “You’ll see that on every enforcement action or written agreement between a bank and its regulators today,” Mr. Grady said. “Every single one says, ‘The holding company shall serve as a source of strength to the subsidiary bank.’” Some banks are even trying to get out from beneath holding company parents when those arrangements no longer provide the bank with the required source of strength. For instance, Ohio Commerce Bank in Beachwood bought out its holding company, Capital Bancorp, last December. What had been a source of strength became a parent company that itself was struggling — with bad loans from some of its other more than 50 bank subsidiaries, Mr. Duncan said. “They were just the opposite when we started,” he said, noting that when Ohio Commerce began operations in 2006, Capital Bancorp had $5
billion in assets, a strong capital base and was in fact a source of strength — as well as a willing buyer for minority shareholders in the bank’s first few years of operation. “Unfortunately, their (banking and loan) concentrations were in places like Michigan and Las Vegas, which were not good places to be,” Mr. Duncan said.
Holding companies on hold Now, Ohio Commerce is a standalone state-chartered bank, with no plans of forming a holding company as it sticks to its basic business of taking deposits and working hard to make good loans, said Mr. Duncan.
strengthen financial institutions. The Sarbanes-Oxley Act of 2002 created tighter financial and reporting controls on all public companies and accounting firms. “We constantly have to address the regulations to make sure everything we’re doing is compliant,” she said.
Cost of doing business Daniel E. Klimas, president and chief executive officer of LNB Bancorp Inc. and Lorain National Bank, also is concerned about higher compliance costs, and he expects the new law to affect his bank’s debit card fees income. “The one that will have the most immediate impact is the charges on fees for debit cards,” he said. “That’s certainly a source of income for us.” Mr. Klimas said fees are a larger part of the revenue of many smaller banks and that debit card fee income accounts for between 5% and 10% of his bank’s fee income. “We’re evaluating all consumer products to make up lost revenue,” he said, though he added that Lorain National hasn’t yet decided on any changes in fees, such as eliminating or reducing free checking accounts. He also is concerned that figuring out how new regulations will affect the bank’s operation and making sure that the bank properly complies will be expensive. “We have a relatively small staff, and we don’t have a large compliance group,” he said. “So we may have to outsource (some of the work) or hire some more folks.” ■
Might it some day form a holding company? Perhaps, but it would probably require something like a very attractive acquisition of another bank that required it to raise more capital, Mr. Duncan said. Right now, things are relatively quiet in the banking arena. Mergers and acquisitions don’t happen as often as they used to. The Internet has made it more difficult for banks to get into insurance or other financial products with the assurance their customers will buy them. And, as Mr. Duncan pointed out, there are a slew of new regulations most bankers have yet to understand. “I think holding company arrangements, like a lot of things in our industry, are just on hold right now,” Mr. Duncan said. ■
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Middleburg Heights 440.886.6141 Woodmere Village 216.360.9099
Independently Owned and Operated
Rentable building area: 900,000
6
Landmark Office Towers
Rentable building area: 932,000 sq. ft.
5
Public Square Tech Center Rentable building area: 872,000 sq. ft.
7
Higbee Building Rentable building area: 585,000 sq. ft.
13
Terminal Tower
●
●
Rentable building area: 1,322,917 sq. ft.
7
Rentable building area: 1,462,628 sq. ft.
Federal Building
●
6
●
Rentable building area: 820,795 sq. ft.
8
North Point Tower and Office Complex
200 Public
●
Rentable building area: 1,270,204 sq. ft.
4 Square
●
5
Rentable building area: 575,000 sq. ft.
15
Penton Media Building
●
Rentable building area: 703,205 sq. ft.
Tower at
11 Erieview
1100
●
●
●
Rentable building area: 789,491 sq. ft.
PNC
10 Center
Rentable building area: 1,292,748 sq. ft.
1:30 PM
Rentable building area: 576,086 sq. ft.
(not pictured)
14 Superior Ave.
Rentable building area: 614,850 sq. ft.
Eaton
12 Center
Huntington
3 Building
8/12/2010
CRAIN’S CLEVELAND BUSINESS
9
Rentable building area: 800,000 sq. ft.
9
Carl B. Stokes U.S. Courthouse
The recession and big moves by some of downtown Cleveland’s largest tenants have changed the real estate landscape. Here, a closer look at the largest buildings, ranked by rentable building area. For full details on each building, and the full list, see Page 15.
A CLOSER LOOK AT DOWNTOWN REAL ESTATE
Anthony J.
1 Celebrezze
14
2 Key Tower
20100816-NEWS--14-NAT-CCI-CL_-Page 1
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AERIAL PHOTO BY FOCAL PLANE PHOTOGRAPHY, LLC
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CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
15
DOWNTOWN CLEVELAND OFFICE BUILDINGS RANKED BY RENTABLE BUILDING AREA
Name Rank Address
Rentable building area
Square feet available
% leased
Rent per square foot ($)
Tenants
Year built Building height
Owner
Primary leasing company
1
Anthony J. Celebrezze Federal Building 1240 E. Ninth St. , Cleveland 44114
1,462,628
0
100.0
NA
The Defense Finance and Accounting Service, Cleveland Site, federal offices
1966 NA
U.S. Government
U.S. General Services Administration
2
Key Tower 127 Public Square, Cleveland 44115
1,322,917
99,231
95.3
27.00-29.00
KeyCorp, Thompson Hine LLP, Deloitte LLP
1991 947
Wells Real Estate Funds Norcross, Ga.
Jacobs Real Estate Services LLC (440) 808-7492 Cleveland
3
Huntington Building 925 Euclid Ave., Cleveland 44115
1,292,748
335,049
85.7
12.00-16.00
Huntington National Bank, Ernst & Young, Porter, Wright, Morris & Arthur, Tucker Ellis & West LLP
1924 289
Optima International LLC Miami Beach
Hines Interests Houston
4
200 Public Square 200 Public Square, Cleveland 44114
1,270,204
220,376
90.7
23.00-25.00
Cliffs Natural Resources, McKinsey & Co., PricewaterhouseCoopers LLP, Management Recruiters International
1985 658
Harbor Group International LLC Norfolk, Va.
Grubb & Ellis Co. (216) 861-3040 Cleveland
5
Public Square Tech Center 158-218 Euclid Ave., Cleveland 44114
932,000
441,000
52.7
18.00-21.00
Cadillac Ranch
1931 NA
Morgan Reed Group Miami
Grubb & Ellis Co. (216) 861-3040 Cleveland
6
Landmark Office Towers 101 W. Prospect Ave., Cleveland 44115
900,000
0
100.0
NA
Sherwin-Williams Co.
1931 NA
Sherwin-Williams Development Cleveland
Breen & Co. (216) 902-8150 Cleveland
7
Higbee Building 100 Public Square, Cleveland 44113
872,000
435,273
50.1
18.00-21.00
Key Bank, Greater Cleveland Partnership, Positively Cleveland
1931 195
Forest Bay Tower City LLC Cleveland
CB Richard Ellis Inc. (216) 687-1800 Cleveland
8
NorthPoint Tower and Office Complex(1) 901-1001 Lakeside Ave. E., Cleveland 44114
820,795
109,530
87.1
18.50-24.00
Jones Day, Oglebay Norton, Kaiser Permanente, Towers Watson
9
Carl B. Stokes U.S. Courthouse 801 Superior Ave., Cleveland 44113
800,000
0
100.0
NA
Federal and district courts, Clerk of the U. S. District Court, U. S. Attorney, Probation Services
2002 430
U.S. General Services Administration
U.S. General Services Administration
10
PNC Center 1900 E. Ninth St., Cleveland 44114
789,491
0
100.0
NA
PNC, Baker & Hostetler LLP
1980 410
PNC Realty Services Pittsburgh
NA
11
Tower at Erieview 1301 E. Ninth St., Cleveland 44114
703,205
253,052
72.3
13.50-22.50
Dollar Bank, Barnes Group, Walter & Haverfield LLP, Weston, Hurd LLP
1964 529
Minshall Development Co. Bethesda, Md.
Chartwell Group LLC (216) 360-0009 Cleveland
12
Eaton Center 1111 Superior Ave., Cleveland 44114
614,850
131,883
94.0
13.50-17.50
Eaton Corp., Hyatt Legal Plans Inc., Brown Gibbons Lang & Co.
1983 356
Sovereign Group LLC New York
CB Richard Ellis Inc. (216) 687-1800 Cleveland
13
Terminal Tower 50 Public Square, Cleveland 44113
585,000
97,631
83.3
15.00-22.00
Forest City Enterprises Inc., Morgenthaler Ventures, Riverside, Falls Communications
1930 708
Forest City Enterprises Inc. Cleveland
CB Richard Ellis Inc. (216) 687-1800 Cleveland
14
1100 Superior Ave. 1100 Superior Ave. E., Cleveland 44114
576,086
133,583
79.3
11.00-19.95
First American Title Insurance Co., Littler Mendelson PC
1972 280
American Landmark Properties Ltd. Skokie, Ill.
CB Richard Ellis Inc. (216) 687-1800 Cleveland
15
Penton Media Building 1300 E. Ninth St., Cleveland 44114
575,000
52,891
93.8
15.50-19.00
Penton Media, Chartis
1972 270
KBS Realty Advisors Newport Beach, Calif.
CB Richard Ellis Inc. (216) 687-1800 Cleveland
16
One Cleveland Center 1375 E. Ninth St., Cleveland 44114
541,505
144,089
79.0
8.00-22.00
Sammy's Catering, Internal Revenue Service, Kohrman, Jackson Krantz PLL, KPMG
1983 450
Optima Management Group LLC Miami Beach
Optima Management Group LLC Miami Beach
17
Fifth Third Center 600 Superior Ave. E., Cleveland 44114
508,397
86,169
88.2
19.00-22.00
Fifth Third Bank, McDonald Hopkins LLC, UBS Financial Services, Brouse McDowell, Buckley King
1992 446
Behringer Harvard Addison, Texas
CB Richard Ellis Inc. (216) 687-1800 Cleveland
18
IMG Center 1360 E. Ninth St., Cleveland 44114
506,656
26,919
94.7
12.00-17.00
IMG Worldwide Inc., MAI Wealth Advisors LLC, Oswald Cos., Chicago Title
1965 NA
Manchester Realty LLC Cleveland
Breen & Co. (216) 902-8150 Cleveland
19
Key Bank Center 800 Superior Ave., Cleveland 44114
475,600
139,204
84.7
18.00
KeyCorp, Calfee Halter & Griswold
1969 305
LNR Partners LLC Miami Beach
Grubb & Ellis Co. (216) 861-3040 Cleveland
20
45 Erieview Plaza 45 Erieview Plaza, Cleveland 44114
463,992
213,943
NA
17.00-19.00
AT&T
1983 253
Inland American Real Estate Trust Oak Brook, Ill.
Jones Lang LaSalle Americas Inc. (216) 861-7171 Cleveland
21
Frank J. Lausche State Office Building 615 W. Superior Ave, Cleveland 44113
456,610
0
100.0
NA
Ohio Lottery Commission, Adult Parole Authority, Bureau of Workers' Compensation
1979 204
Ohio Building Authority Columbus
Jones Lang LaSalle Americas Inc. (216) 861-7171 Cleveland
22
Hanna Building 1400-1422 Euclid Ave., Cleveland 44115
437,060
145,396
77.9
13.00-15.50
Turner Construction, The Cleveland Foundation, Great Lakes Publishing, Moscarino & Treu, United Agencies
1921 194
PSC Hanna Building Cleveland
PlayhouseSquare Real Estate Service Cleveland
23
M.K. Ferguson Building - Tower City Center 1500 W. Third St., Cleveland 44115
434,491
69,637
84.0
15.50-18.00
JPMorgan Chase & Co., Quicken Loans Inc., Squire Sanders & Dempsey LLP
1934 NA
Forest City Enterprises Inc. Cleveland
CB Richard Ellis Inc. (216) 687-1800 Cleveland
24
Ameritrust Tower 900 Euclid Ave., Cleveland 44115
428,400
428,400
0.0
NA
NA
1971 383
Cuyahoga County Cleveland
Cuyahoga County Cleveland
25
55 Public Square 55 Public Square, Cleveland 44113
423,821
107,576
82.0
16.00-18.00
Computer Task Group, Climaco, Mansour, Gavin, Gerlack & Manos, Polytech Inc., Zashin and Rich LPA
1958 300
Optima 55 Public Square LLC Miami Beach
Optima Management Group LLC Miami Beach
26
Halle Building 1228 Euclid Ave., Cleveland 44115
383,000
196,545
65.0
15.50-18.00
Grant Thornton LLP, Council for Economic Opportunities in Greater Cleveland, Michael Baker Jr. Inc.,
1910 NA
Forest City Enterprises Inc. Cleveland
CB Richard Ellis Inc. (216) 687-1800 Cleveland
27
Medical Mutual Building 2060 E. Ninth St., Cleveland 44115
381,000
0
100.0
NA
Medical Mutual
1910 NA
BentleyForbes Los Angeles
NA
28
Standard Building 1370 Ontario St., Cleveland 44113
350,000
111,387
69.8
10.50-14.50
NA
1925 NA
Brotherhood of Locomotive Engineers and Trainmen Cleveland
Chartwell Group LLC (216) 360-0009 Cleveland
29
1717 E. Ninth St. Building 1717 E. Ninth St., Cleveland 44114
346,500
266,666
23.0
23.00
NA
1958 275
Sovereign Partners LLC New York City
Grubb & Ellis Co. (216) 861-3040 Cleveland
30
Ohio Savings Bank 1801 E. Ninth St., Cleveland 44114
333,592
39,405
88.2
17.50
Ohio Savings Bank, Boyd Watterson, Gries Financial, Pearne & Gordon LLP, Northwestern Mutual Financial Network
1975 250
AmTrust Bank Federal Deposit Insurance Corp. Washington D.C.
NA
31
Skylight Office Tower 1660 W. Second St., Cleveland 44113
314,899
77,256
76.4
19.00-23.00
Ulmer & Berne LLP, Capgemini, Skylight Financial Group, Hard Rock Cafe
1991 NA
Forest City Enterprises Inc. Cleveland
CB Richard Ellis Inc. (216) 687-1800 Cleveland
1980; 1990 CommonWealth REIT 285 Newton, Mass.
Source: CoStar Property, www.costar.com. Additional information from web sources and leasing companies. Crain's Cleveland Business 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 to purchase at www.crainscleveland.com. (1) 901 Lakeside is 100% leased. Square feet available and % leased is for 1001 Lakeside.
REIT Management & Research
RESEARCHED BY Deborah W. Hillyer
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Chancellor: Progress report due Dec. 1 continued from PAGE 1
In addition, George Kidd is no longer Chancellor’s president, Mr. Redgate resigned last March and is now vice president of Light University in Forest, Va., and former Chancellor CEO Ronald Kennedy resigned in May 2009 after six months on the job. Last November, Chancellor hired a new CEO, Bob Barker, who was founder of EDU Interactive in San Diego, Calif., and Barker Educational Services of Scottsdale, Ariz., both of which are education marketing firms. He also is no longer with Chancellor, as confirmed by a woman who answered the main switchboard at Chancellor. Robert Daugherty, who is listed as Chancellor’s interim president on the Higher Learning Commission’s web site, last week declined comment about the school except to refer to himself as a consultant to Chancellor. Mr. Daugherty is chairman and managing partner of Knowledge Investment Partners in Cleveland, which describes itself on its web site as an investment management firm for institutional investors and high net worth individuals. Other members of the administrative team also were let go in recent months, though Ms. Nita would not comment on those departures, saying the board of directors would issue a statement when any changes in leadership are made. Chancellor board member Gavin Gray, an executive at investment firm Selected Interests in Austin, Texas, did not return two phone calls from Crain’s. His secretary said he is on vacation and could not return calls until Aug. 23. The question remains as to who is steering the ship at Chancellor.
Accreditation at risk The Higher Learning Commission has questions about leadership as well. The commission last Feb. 25 issued to Chancellor a “ShowCause Order,” which means Chancellor might not meet criteria for accreditation — a critical stamp of approval if schools expect to attract the tuition dollars of students who rely on financial aid from the government. Specifically, the commission questioned whether Chancellor meets accreditation criteria related to board governance, finances and assessment of student learning. The show-cause order stated Chancellor’s “governance and administrative structures (must) promote effective leadership and support collaborative processes that enable the organization to fulfill its mission.” The order also challenged Chancellor on whether its financial resources were sufficient to support its programs and “for maintaining and strengthening their quality in the future.” Finally, the commission said Chancellor must demonstrate student learning and teaching effectiveness, clearly outline its goals for student achievement and must be able to assess educational programs effectively. Chancellor must submit a showcause report to the commission by Dec. 1. The commission then will send a team to the university to investigate and will decide by February if Chancellor is worthy of accreditation. If Chancellor does not submit a show-cause report by Dec. 1, its accreditation will be
revoked, the commission stated. A show-cause order is more serious than a probation order, which Chancellor was placed on last year, said Robert Appleson, vice president of accreditation relations at the Higher Learning Commission. “With probation, they’re really finding the institution in danger of not meeting criteria of accreditation,” Mr. Appleson said. “With a show-cause order, the finding is the institution may not now be meeting criteria. “It’s a very difficult situation,” Mr. Appleson added. “Show-cause has very definite issues … than had been raised with probation.”
Big money in the balance Without accreditation, students would not be eligible for federal student aid. That development could be devastating for Chancellor because 71% of its students received federal grants and 71% secured federal loans in the 2008-2009 school year, which is the most recent information available from the National Center for Education Statistics in the U.S. Department of Education. A loss of accreditation also would mean many college credits earned by Chancellor students wouldn’t transfer to other universities. In addition, employers are less likely to hire graduates of an unaccredited college, Mr. Appleson said. Losing accreditation “wouldn’t cause the school to close, but it might make problems for investors because (Chancellor) couldn’t attract students,” Mr. Appleson said. Accreditation isn’t easy to attain, said Kevin Kinser, an associate professor of educational administration and policy studies who also studies for-profit universities at the University at Albany, State Universities of New York. “They can’t simply move over to another accrediting agency because they’ve been determined ineligible by one agency,” Mr. Kinser said, who added, “That could really put a crimp on the business plan.” Last October, the Ohio Board of Regents told Chancellor to comply with state standards such as demonstrating faculty credentials, using standardized placement tests and developing a capital equipment replacement and financing plan. The regents ruled that Chancellor met all state standards and the school was granted provisional authorization for its degree programs. However, Chancellor must submit progress reports to the regents in September 2010, 2011 and 2012 to sustain its program authorization.
Hitting up the homeless Accreditation issues haven’t stopped Chancellor from recruiting students, sometimes in unconventional ways. In September 2009, Chancellor approached local homeless shelters to recruit the homeless, who are eligible for federal student loans and grants. Chip Joseph, executive director of Y-Haven homeless shelter, said Chancellor officials came to Y-Haven last fall and promised to provide free group workshops to the homeless in exchange for being able to talk to them about enrolling in classes at Chancellor. “They came and spoke to a large meeting of our residents. A couple were interested in what they had to offer, (but) I don’t think they actually took the bait,” Mr. Joseph said. At Chancellor’s request, Lutheran
Metropolitan Ministry president and CEO Carol Fredrich attended an informational meeting last fall at Chancellor, which was interested in recruiting the homeless, said Megan Billow, director of communications at the ministry. However, Ms. Fredrick had a bad feeling about the effort and asked Chancellor not to contact her again, Ms. Billow said. “We advocate for people who are repressed and hurting,” but do not condone “any behavior that perpetuates unemployment, homelessness and poverty,” Ms. Billow said. Brian Davis, executive director of the Northeast Ohio Coalition for the Homeless, said he had similar experiences with the University of Phoenix, the most recent of which was last March. The University of Phoenix, which also is a for-profit school with locations in Northeast Ohio, “claimed they were going to set up computer classes for the general population if they were allowed to come in and make a pitch for the University of Phoenix,” Mr. Davis said. The University of Phoenix was permitted to talk to the coalition’s clients, but the computer classes never materialized, Mr. Davis said. “They definitely recruited people, unfortunately, but those guys never completed one semester and they’ve still got the loans,” Mr. Davis said. In its defense, the University of Phoenix responded with an e-mailed statement that read: “University of Phoenix does not condone the recruitment of residents from homeless shelters or transitional housing, which would violate multiple provisions of our code of business conduct and ethics as well as enrollment policies, resulting in disciplinary action up to and including termination. University of Phoenix is committed to providing access to a quality education, while better identifying and enrolling only those students who have a reasonable chance of success in our rigorous degree programs.”
Suitor in the wings? Mr. Joseph said he will not allow Chancellor officials to speak to his residents in the future. He relies on Cuyahoga Community College, which he said comes in each week to help the homeless overcome previous, unpaid college loans, apply for grants and enroll in nonprofit colleges or vocational schools. Despite its problems, Chancellor might live on. David Lee, chancellor at the forprofit University of Northern Virginia, said he and his partners would entertain taking Chancellor off the hands of its investors if the school maintained its accreditation. UNVA Properties Inc., an investment group associated with the University of Northern Virginia, entered into an agreement in 2007 to buy Myers University, but the deal fell through. While Mr. Lee said he and his partners at UNVA lost about $2.5 million in that deal, Chancellor still is an attractive option. “Sure, we’re interested, but how interested depends on what’s going on,” Mr. Lee said. “UNVA is profitable, and we do have resources.” As for Mr. Welch, the iconic former head of General Electric, it isn’t known what he thinks of the goings on at Chancellor. Mr. Welch’s secretary said last week he is on vacation and could not be reached for comment. ■
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Endowment: Foundation backing ‘a huge difference’ continued from PAGE 1
concerts last fall at Madison Square Garden in New York, which featured rock ’n’ roll royalty — U2 and Messrs. Jagger and Springsteen only were some of the big names on the program — performing over two nights. Terry Stewart, president and CEO of the Rock Hall, said the endowment gives the museum the ability to focus on raising long-term funds that will secure the institution’s future in Cleveland. “It’s another layer of financial security, a tranche of dollars … to help us get things done here,” he said. Indeed, “getting things done” at the Rock Hall these days encompasses many elements. Chief among them, Mr. Stewart said, are: ■ opening to the public (in May 2011) its library and archives on the campus of Cuyahoga Community College; ■ completing a major redesign of the museum to improve signage and to guide visitors in a more chronological fashion through the history of rock music; ■ expanding distance-learning and other educational programs; and ■ staging a 15th anniversary celebration Sept. 2-5 that will include a tribute to U.S. Sen. George Voinovich, who as mayor of Cleveland and governor of Ohio was
instrumental in helping the Rock Hall secure funds to guarantee the museum would be built in Cleveland. “People are united by the love of this music,” Mr. Stewart said. “We have honed a business model that enables us to fulfill the mission of educating fans and scholars about the history of the music.”
Game-changer An important part of making the museum’s business model sustainable is the creation of the endowment. Joel Peresman, president and CEO of the Rock Hall Foundation, said 100% of the net proceeds from the Madison Square Garden shows were set aside to create the endowment. The $5 million contribution could rise, he said, as the foundation reaps additional revenue from international broadcast license fees from the shows and from sales of a DVD that will be released in late September. That DVD will include the four-hour HBO broadcast plus 90 minutes of bonus material, Mr. Peresman said. The shows were a high-profile marketing event for the Rock Hall that will have an impact on the museum for years to come, Mr. Peresman said. “If (the Rock Hall) is going to be on the level of a significant cultural organization, an endowment is critical,” Mr. Peresman said. “It’s
something that hopefully can be added to over time to help keep the museum at the top of its game.” Endowments, on the most basic level, protect institutions because they provide a cushion for the proverbial rainy day when revenues fall sharply. (And you might have noticed that in the last couple years, it has been pretty rainy.) David C. Hammack, the Hiram C. Haydn professor of history at Case Western Reserve University who has written extensively about foundations and the U.S. nonprofit sector, said an endowment provides “a degree of stability” for institutions such as the Rock Hall. Assuming annual investment gains of 5%, a $5 million endowment would provide the Rock Hall with an additional $250,000 a year, Prof. Hammack said. The Rock Hall in 2009 had operating expenses of $21.9 million, so $250,000 is a fairly modest amount, though Prof. Hammack said it would enable Rock Hall officials to be “more strategic in thinking about the type of exhibits they do and the types of educational programs they offer.” In addition to providing the funds for the endowment, the foundation in the past five years has contributed more than $13 million to the museum in Cleveland, Mr. Peresman said. Included in that money is annual support for capital
Fairmount: Investments now diversified
needs, an $8 million gift toward a $35 million capital campaign, and $1 million to develop a long-term digital strategy and to redesign the Rock Hall’s web site, RockHall.com. “It has just made a huge difference here,” Mr. Stewart said of the stepped-up financial backing for the museum from the foundation. Brian Kenyon, chief financial officer at the Rock Hall, said the three-year, $35 million capital campaign is about $1.5 million from completion. It’s that campaign that is paying for the library and archives at Tri-C and the museum redesign. Mr. Kenyon said the redesign, which begins this fall, will be structured in such a way that the museum remains open throughout the project.
Foot in the door The museum’s business model is based on what Rock Hall officials call “door, store and more” revenues that fund operations. Mr. Kenyon said 70% to 80% of Rock Hall revenues come in the form of earned income from the “door” — admissions to the museum — and the “store” — sales at the museum store. The rest falls in the “more” category of contributed income such as grants, sponsorships and memberships. It’s an unusual mix in the museum world, where institutions typically don’t generate such a high percentage of revenue
Arcade: Lender may hold property continued from PAGE 3
continued from PAGE 1
Ms. Deckard said American Securities paid an undisclosed amount for its equity stake in Fairmount. To make the deal work, Fairmount borrowed $700 million that was used primarily to buy shares from existing shareholders, leaving American Securities with a controlling 51% stake in the company. Fairmount has fewer than 200 shareholders, and many of them have been invested in the company for 30 years, she said. The transaction was the talk of investment banking circles after it closed Aug. 5. The deal happened with the help of 13 banks and “dozens” of private investors — and probably could not have been put together last year, when financing for buyers such as American Securities was nonexistent, Ms. Deckard told Crain’s. In addition to the $700 million, Fairmount obtained a new $75 million line of credit simultaneously, Ms. Decker said. Moody’s Investors Service gave Fairmount a B1 credit rating and a stable rating outlook before the deal closed. Ms. Deckard said the company’s debt level as a portion of its balance sheet has been higher in the past and that Fairmount was “very comfortable” with the new debt taken on. Fairmount provides specialized sand to oil and gas producers, foundries and other industrial users. It had 2009 revenues of $400 million in a “down” year, and has always been profitable, Ms. Deckard said.
Three birds with one stone The deal with American Securities gives Fairmount a new partner and source of additional capital if it needs it for its ongoing capital expansion plans, Ms. Deckard said.
In the meantime, the transaction accomplishes two other goals. It allows the company to diversify the holdings of its employee pension plan and to provide some liquidity for its long-term investors. The pension plan holds Fairmount stock as well as other investments. As the value of Fairmount stock went up, it came to represent a greater percentage of the plan’s holdings, according to Fairmount CEO Chuck Fowler. The new cash will allow Fairmount to liquidate some of that stock and diversify the plan’s investments. Fairmount could have cashed out some of its longtime investors on its own, but that would have meant using debt and other financial resources that would be better put toward its ongoing expansion, Ms. Deckard said. Some of the company’s chief markets, in particular the oil and gas exploration market, its largest, have been growing rapidly this year. As a result, Fairmount has been investing heavily in the United States, Mexico and China to take advantage of higher demand for its sand, which is used in fracturing techniques that help extract hydrocarbons from oil and gas wells. When the company saw a chance to better its existing shareholders, its employee stock plan and its capital expansion strategies all at once, it took advantage of it. “Those three significant capital needs, all coming at the same time, combined with what we felt was a lot of available money in the investment arena looking for good assets,” made the transaction compelling, Ms. Deckard said.
In its comfort zone This is not the first time Fairmount has had a private equity firm as a
majority shareholder. Beachwoodbased Kirtland Capital Corp. held a 51% stake in Fairmount from 1996 to 2003, said Kirtland CEO John Nestor. Mr Nestor said Fairmount was a great investment for Kirtland, and Ms. Deckard said the experience helped give Fairmount the confidence to work with another wellrespected private equity firm such as American Securities. Mr. Nestor said he was happy to see some of Fairmount’s other shareholders benefit from the deal. American Securities did not comment on the reasons for its investment. However, in an e-mailed statement, American Securities managing director Matthew LeBaron said his firm “is pleased to have acquired a majority interest in Fairmount Minerals, and to partner with the company’s management team to support the continued growth of the business.” Ms. Deckard said Fairmount likewise is pleased that American Securities makes investments for as long as 25 years instead of the five- to seven-year investment cycles of most private equity firms and that it’s fully supportive of Fairmount continuing its contributions to organizations in Northeast Ohio. Fairmount runs a foundation through which it funnels several million dollars each year to various nonprofits, Ms. Deckard said. “Supporting the local community, especially in Geauga County, is very important to us,” Ms. Deckard said. The deal will have no effect on Fairmount’s more than 500 employees, including the approximately 100 who work in Chardon. “We will not expect any changes as a result of this transaction, other than some augmented capabilities,” Ms. Deckard said. ■
from admissions and store sales. “Our earned revenues are first in class,” Mr. Kenyon said. Nonetheless, he said the museum’s long-term goal is to reduce gradually the earned income percentage and to increase the percentage from the contributed side, while at the same time pushing total revenues higher. That’s a worthwhile goal, Prof. Hammack said, so the museum isn’t living “hand to mouth” in relying quite as heavily on admissions. But he said the popular nature of the art form the Rock Hall celebrates makes it easier to sustain a model that leans on earned income. The Rock Hall reported 2009 attendance hit 477,800, an increase of 8.5% from 2008. Mr. Stewart attributed the rise in part to a down economy that kept people close to home, but also to improved marketing efforts that drew visitors from outside the region and to interest stoked by the 2009 Rock Hall induction in Cleveland. Mr. Peresman said the museum is in “a strong position” as it turns 15 years old but needs to keep innovating to fulfill its mission. “Even in good economic times, people think carefully about how to spend their money,” he said. “We have a rare asset here and need to keep giving them a good experience so they continue to find value in what we do.” ■
TIF-related debt. Judge Russo told Crain’s she intends to decide the TIF issue prior to the still-unscheduled sheriff’s sale. A court-approved preliminary judgment indicates US Bank would recoup missed TIF payments, but doesn’t speak to future payments. A US Bank filing in the case argues that the judge must require the future owner of the property to continue TIF payments or it would damage the ability of local governments in Ohio to use TIF in the future. “This will have serious economic repercussions beyond this case,” Cleveland attorney James Grove wrote in a court filing for US Bank.
Check’s not coming The TIF issue notwithstanding, Judge Russo’s partial disposition of the case indicates the prized Hyatt Regency will remain in place. Hyatt Hotels spokeswoman Laurie Cole said Hyatt intends to continue operating the hotel under its long-term management agreement. She said the court decision on the ownership would make no change in its day-to-day operations for guest and employees. She declined to comment on the company standing to lose its 50% stake in the real estate when a sheriff’s sale occurs. Curt Bailey, president of Related Midwest, a unit of Related Cos. in New York, did not return three calls by Crain’s deadline last week. Given the severity of the recession and the weakness of the national and local hotel industry, it is unlikely the property would sell for enough money to cover all the parties that hold debt against the $50 million project. That debt includes a $2 million Cuyahoga County loan and a $1 million city of Cleveland loan. “I’m not waiting for our $2 million
to come in the mail,” said James Herron, deputy director of Cuyahoga County’s economic development office. “We are so subordinate it’s unlikely there will be anything left.” Bond insurance would protect investors who bought the TIF bonds, Mr. Herron said.
Asset management Michael Sturges, owner of Sturges Advisors, a real estate consultancy in Rocky River, said financial haircuts for lenders are likely in the foreclosure sale because bidders figure to be bottom fishers interested in the hotel only if they can buy it at a substantial discount. However, Mr. Sturges said Bank of America has shown a tendency to retain ownership of properties it recoups if offers do not meet its desires. He said many veterans of prior downturns do not want to sell at a discount today to see the properties gain in value later. The Hyatt will be attractive because of its luxury brand, Mr. Sturges said. The Arcade’s location will become more valuable if the medical mart, convention center and casino become realities at nearby sites, he said. The makeover of the Arcade a decade ago from stores and offices to the hotel-retail complex made much-needed structural repairs to the 120-year-old indoor shopping center, which was called “a crystal palace” when it opened in 1890. Observers maintain it was a worthy deal despite the problems today. “I’m not happy to lose $2 million of the taxpayer’s money, but you have to go back and remember this was a civic project,” Cuyahoga County’s Mr. Herron said. Judge Russo added, “Everyone working on this case agrees it is one of the city’s greatest assets.” ■
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CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
Type: Employer’s withholding, unemployment Amount: $122,561
TAX LIENS The Internal Revenue Service filed tax liens against the following businesses in the Cuyahoga County Recorder’s Office. The IRS files a tax lien to protect the interests of the federal government. The lien is a public notice to creditors that the government has a claim against a company’s property. Liens reported here are $5,000 and higher. Dates listed are the dates the documents were filed in the Recorder’s Office.
Contact: Phone: Fax: E-mail:
AUGUST 16-22, 2010
LIENS FILED Automatic Stamp Products Inc. 1822 Columbus Road, Cleveland ID: 34-0665901 Date filed: July 9, 2010 Type: Employer’s withholding Amount: $327,117 PJO Inc. 20800 Center Ridge Road, Rocky River ID: 34-1923810 Date filed: July 7, 2010
Little Miracles Child Care and Learning Center Inc. 22683 Euclid Ave., Euclid ID: 34-1691019 Date filed: July 9, 2010 Type: Employer’s withholding, unemployment Amount: $110,541
Great Lakes Welding & Boiler Co. 5716 Brookpark Road, Cleveland ID: 34-1244690 Date filed: July 1, 2010 Type: Employer’s withholding, failure to file complete return Amount: $86,813
Lassiter Corp. Financial Bookkeeping Services 3700 Kelley Ave., Cleveland
Menber Corp., Pizza Pan 15240 Trails Landing, Strongsville
REAL ESTATE
Genny Donley (216) 771-5172 (216) 694-4264 gdonley@crain.com
ID/file date: 20-3870400/July 13, 2010 Type: Employer’s withholding, unemployment Amount: $61,209
ID: 34-1271717 Date filed: July 7, 2010 Type: Employer’s withholding, unemployment Amount: $89,027
AUCTIONS
Viatical Escrow Services LLC 1300 E. Ninth St., No. 1400, Cleveland ID/file date: 31-1522795/July 7, 2010 Type: Employer’s withholding Amount: $49,696 Medical Care Center LLC 1250 Superior Ave. E., Cleveland ID/file date: 34-1905631/July 7, 2010 Type: Employer’s withholding Amount: $49,522
Copy Deadline: Wednesdays @ 2:00 p.m. All Ads Pre-Paid: Check or Credit Card
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(800) 690-9409
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RETIRED CEO
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Would assist a few companies in maximizing their profits or installing their financial statements on a computer. Harvard Business School Graduate.
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FOR SALE Ohio Desk Showroom Clearance Sale 1122 Prospect Avenue 8 to 5 Mon-Fri. Call Charlene Joyce, Showroom Manager for details
216-623-0600 Must sell two showroom floors of workstations, files, and seating to make room for new product.
Crain’s Executive Recruiter FINANCIAL ADVISOR TRAINEE Are you looking for a career change? Are you an educator, accountant, attorney, or banking professional with an entrepreneurial spirit? Do you enjoy working with customers? Do you have a knack with numbers? If so, please submit your resume for an invitation to attend an information session and learn about a career as a Merrill Lynch Financial Advisor Trainee.
Solar Outside Salesperson Third Sun Solar is a 10 year old market leading solar energy firm experiencing rapid growth. Full time sales position, based in greater Cleveland. Activities include: developing existing leads, prospecting for new opportunities and creating and delivering customized, financially based, proposals to close sales. You must possess successful sales experience, college degree, excellent writing, presenting and computer skills.
Please submit resumes to James.H.Byrd@bankofamerica.com for immediate consideration.
To apply, please see the About Us: Job Opportunities section of our website: www.third-sun.com.
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Dates: 6/24, 7/29, 8/26 Time: 6:30 pm (estimated duration: 1hr) Location: Downtown Office, 14th Floor Conference Room
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THEINSIDER
THEWEEK AUGUST 9 – 15 The big story: Rock Gaming LLC, a company headed by Cleveland Cavaliers owner Dan Gilbert, selected Harrah’s Entertainment Inc. as its partner in a joint venture that would develop and operate planned downtown casinos in Cleveland and Cincinnati. And the two revealed that a temporary casino in Cleveland could be in place by as early as next year in the former Higbee Gilbert Building, which is close to the planned development site of a permanent casino near the Cuyahoga River. The two companies said proposed terms of their non-binding joint venture agreement “contemplate Harrah’s making a significant minority investment in the projects and serving as the day-to-day casino manager in both cities.”
Powering down: FirstEnergy Corp. plans to reduce operations at some of its smaller power plants in a move that could result in a writeoff of up to $287 million, or as much as 59 cents a share, in the third quarter. The Akron-based electric company said the reductions will take place at three Northeast Ohio plants and one in Northwest Ohio due to lower demand for electricity in the sluggish economy. FirstEnergy said coal-fired plants in Ashtabula, Cleveland and Eastlake, and three of four units at a plant in Oregon, Ohio, near Toledo, will operate only on a limited basis.
A call for change: Investor Umberto Fedeli has acquired a 5.2% stake in LNB Bancorp Inc., the parent of Lorain National Bank, where he hopes to bring change to a company he says is at a “critical crossroads.” Among the possible changes envisioned by Mr. Fedeli: reducing the size of the company’s board and exploring a merger with another Northeast Ohio bank. Mr. Fedeli, president and CEO of The Fedeli Group, an insurance brokerage and consulting firm in Independence, and a longtime investor in local banks, disclosed his ownership of 383,500 shares of LNB stock in a Securities and Exchange Commission filing. He acquired the shares for an aggregate purchase price of $1.35 million.
Public plans:
Trucking company Panther Expedited Services Inc. in Seville filed paperwork with the Securities and Exchange Commission for a proposed initial public offering of its common stock. Panther said it hasn’t determined the number of shares it plans to offer or the price range at which the stock would be sold. The stock would be sold by Panther, and if the underwriters exercise their over-allotment option, by certain selling stockholders. Panther only would receive proceeds from stock sold by the company.
Cleaning up: Primus Capital Funds of Mayfield Heights and Great Hill Partners LLC of Boston acquired SterilMed Inc., a Minnesota company that cleans what otherwise would be single-use medical devices. The two private equity firms said they invested in SterilMed because of its growth trajectory and because its services help hospitals cut costs. SterilMed provides reprocessed devices and small equipment repair services to more than 1,700 health care facilities in North America.
Here to stay: The Mid-American Conference announced an extension of its contract with Quicken Loans Arena and will hold its men’s and women’s basketball tournaments at The Q through 2017. The men’s tournament has been held at The Q/Gund Arena since 2000, the winner receiving an automatic bid into the NCAA tournament. There was some doubt about the future of the women’s tournament, but it too will continue in Cleveland.
REPORTERS’ NOTEBOOK BEHIND THE NEWS WITH CRAIN’S WRITERS
Forest City? Green space? It makes perfect sense ■ Forest City Enterprises Inc. is planning a planet-friendly experiment with the old J Crew store in Tower City Center. The Cleveland-based real estate developer before the holiday season aims to turn the two-story retail space into a sustainability hub tentatively called the Green Exchange. Forest City is just starting to recruit tenants, which could include retailers selling recycled and environmentally friendly goods, farmers peddling fresh produce or even nonprofits spreading the FILE PHOTO/ word about sustainability MARC GOLUB issues. Among those Forest City is trying to lure are large retailers opening smaller versions of their stores focused solely on “green” products, said Jill Ziegler, program manager for sustainability initiatives with Forest City. “We’ve envisioned all sorts of possibilities,” Ms. Ziegler said. Though the location could change, Forest City prefers the J Crew space, which consists of 8,000 square feet on two floors overlooking the food court and could accommodate a street entrance. Forest City has created sketches showing what the Green Exchange might look like: A long sign made of recycled wood hangs over the entrance, and more used wood beams line the ceiling. Recycled chain link fences separate each store.
WHAT’S NEW
COMPANY: Duck-brand Duct Tape, Avon PRODUCT: Zig-Zag Zebra, Spotted Leopard and other new tape patterns You’re not still using silver duct tape, are you? If so, there’s a colorful new world out there, and the people who make Duck-brand duct tape are making it brighter. The company says its new designer tapes offer a dash of inspiration for creative craft projects or some pizzazz to household repairs. Making their debuts as the first animal prints in the Duck tape line are Zig-Zag Zebra and Spotted Leopard. If you want to channel your inner flower child, check out Cosmic TieDye, a bright mix of pink, orange and yellow. It joins the previously released Totally TieDye, a meshing of cool blue, purple and pink tones. There are two other new color patterns. The flame-inspired Hot Rod Duck tape crackles with bursts of yellow and orange fire. And the Digital Camo Duck tape offers a pixelated blend of neutral earth tone colors. These new patterns join more than 20 Duck brand colors and patterns. For information, visit www.DuckBrand.com. Send new product information to managing editor Scott Suttell at ssuttell@crain.com.
The character of the space largely will be determined by what tenants sign on, Ms. Ziegler said. The company surveyed more than 40 relevant companies and organizations, and 80% expressed interest, she said. Various shops that sell green products have popped up throughout the region over the past two years, partly driven by growing environmental awareness. Tower City would be a great spot for such stores, Ms. Ziegler said, because it is easy to get to by bus, rapid train or foot. “It really makes sense to have something like this down here,” she said. — Chuck Soder
about the Inquisition, a tribunal that killed thousands of non-Christians starting in the 1490s. Mr. Cardoza, as you might guess, argues on the side of tolerance. Mr. Levin founded both Think-A-Move and Milicom, sister companies in Beachwood designing equipment for the military, medical and telecommunications sectors. He heads Levin & Associates law firm in downtown Cleveland, holds a professorship at Case Western Reserve University and has written three books on law. And a play. “You can be a lot of things,” he said. — Chuck Soder
For this renaissance man, the play’s now the thing
Lakewood seeks helping hand for entrepreneurs
■ Joel Levin isn’t just an entrepreneur, a lawyer, an academic or an author. Like his hero, former Supreme Court Justice Benjamin Cardoza, Mr. Levin doesn’t think people should be characterized so simply. After all, what’s to stop him from becoming, say, a playwright? A play written by the Cleveland Heights resident will debut at a small theater in Sedona, Ariz., this September. The play, “Marrano Justice,” focuses on the professional and personal life of Mr. Cardoza, a massively influential judge who was both Hispanic and Jewish. However, Mr. Levin does take a few artistic liberties: During the play, set in the 1920s and 1930s, Mr. Cardoza is visited by the long-dead Tomás de Torquemada, a leader of the Spanish Inquisition. The two men argue
■ The city of Lakewood is looking for some help for its small businesses, so it is creating an Entrepreneur-in-Residence program. Nathan Kelly, Lakewood’s director of planning and development, said the city wants someone who can offer advice and help Lakewood’s small and home-based businesses find the financial resources to grow. The city’s request for proposals says it will provide flexible hours, office space and a “modest stipend” for the part-time position. The western suburb is partnering with the Lakewood Chamber of Commerce, Pillars of Lakewood and Lakewood Alive to sponsor the program. Interested candidates should submit their résumés and proposals to the city by noon on Friday, Aug. 27. The RFP is available online at www.onelakewood.com. — Jay Miller
BEST OF THE BLOGS Excerpts from blog entries on CrainsCleveland.com.
Taxpayers see red over traffic cameras
Kennedy Center president is at their Beck and call
■ Red-light traffic cameras are becoming a hot political topic in Cleveland and elsewhere, according to an Aug. 8 story in The New York Times. Matt Brakey, a 29-year-old Republican businessman seeking a spot on the Cuyahoga County Council, was among the politicians cited in the piece. He proclaimed his opposition to the cameras at a recent rally. “There were lots of honks” at the intersection where the rally was held, said Mr. Brakey, a first-time candidate for office. “This issue really taps into the general dissatisfaction with government.” The Times said outrage over the cameras “echoes the general concerns about government that have fueled protest movements like the Tea Party. But the protests also underscore the sting many Americans feel in these economic times at having to pay fines of $25, $50 or $100 for traffic infractions that, in some cases, they had no idea they committed.” Mr. Brakey told the newspaper, “It’s a huge pocketbook issue. I’ve talked to people who can’t renew their driver’s license because they have all these tickets.” Nearly 550 local governments nationwide use traffic cameras, which aren’t very good at doing what they’re supposed to do. “A study of seven communities by the Federal Highway Administration found that while broadside collisions were reduced by 25% at intersections with traffic lights that had a camera, there was also a 15% increase in rear-end collisions, possibly caused by drivers slamming on their brakes at the sight of the devices,” The Times reported.
■ The Beck Center for the Arts in Lakewood was one of the institutions mentioned in a Washington Post story about the efforts of Kennedy Center president Michael M. Kaiser to help arts organizations nationwide. Mr. Kaiser recently completed a 15month, 50-state “Arts in Crisis” tour in which he participated in forums with 11,000 artists, arts administrators and board members. Some were at the Beck Center, which in spring 2009 was in danger of not making its payroll and was facing weak ticket sales for shows such as “Ma Rainey’s Black Bottom” and “The Farnsworth Invention.” Lucinda Einhouse, president of the Beck Center, told The Post, “Everyone in the region was uneasy about the economy. Our organization had no cash reserves.” Ms. Einhouse “sent out an appeal for $150,000, saying if the money wasn’t raised, the doors would close. It worked,” the newspaper reported. In a meeting in April 2009 with Mr. Kaiser and the Kennedy Center staff, she said, “They commended us for our honesty and transparency. One of the things that Michael Kaiser told us was the importance of the visibility of the institution during a ... crisis.” So when Mr. Kaiser stopped in Cleveland again during his tour, The Post said, Ms. Einhouse was there, ready to heed other dictates, such as: If you have to make reductions, start in the back office, and promote what you do best. “Right now we are doing ‘The Producers’ and it is selling gangbusters,” Ms. Einhouse said.
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