Crain's Cleveland Business

VOL. 37, NO. 50

DECEMBER 12 - 18, 2016

Business of Life

Source Lunch

Publications’ news is a big deal in a few local neighborhoods. Page 19

Andrew Brickman discusses real estate, Tinseltown. Page 20

Beach Cliff BEACON A social magazine for the residents of Beach Cliff

Docket’s future

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CLEVELAND BUSINESS

Specialty court isn’t dead yet. Page 7

REAL ESTATE

DEVELOPMENT

Forest City takes difficult, necessary step

‘Clawback’ is sought on several tax credits

A PHILLY NATIVE AND A CLEVELANDER DECIDE TO MAKE ROCKY RIVER THEIR HOME.

Get to know the Weinberger family better on pages 32-33.

By STAN BULLARD sbullard@crain.com @CrainRltywriter

Liken Ratner family consideration of giving up its minority shareholder control of Forest City Realty Trust to a yardswide crack erupting across dozens of floors on the outside of Terminal Tower.

That is how epic undertakings are at Forest City Realty Trust as the Ratner family agreed Tuesday, Dec. 6, to ask shareholders to collapse the dual-share structure the Ratners and other found-

ing families the Millers and Shafrans have used to control the company since it went public in 1961. Moreover, the national mega-developer of today is descended from a 96-year-old local company that is older than the iconic symbol of the city which, at least for now, holds its headquarters.

Although Scopia Capital Management LP of New York, which holds 17.9 million shares, some 7% of the company’s shares outstanding, took the push publicly to update the company’s governance to one share, one vote in August, it’s been a sore

point with investors for at least five years. It was an issue even before 2015 when Michael Bilerman, Citi REIT analyst, asked at the company’s annual REIT conference about the dual share structure and called it “a distraction” from the rest of the company’s story. And in the end, the founding families acceded to the weight of Wall Street. The Class B shares held by members of the founding families have 10 votes for each director compared to one for each Class A shareholder.

SEE RATNER, PAGE 22

By JAY MILLER

Forest City leadership after Charles Ratner Who will take over when longtime head Charles Ratner retires? We chart the succession plan. Page 23

HEALTH CARE

UH and Metro feel effects of trauma center Impact has been significant since UH added Level 1 unit iStock

By LYDIA COUTRÉ lcoutre@crain.com @LydiaCoutre

About a year after University Hospitals opened the region’s second Level 1 adult trauma center, the initial effects on both UH and MetroHealth — previously the only such trauma location — have been greater than expected.

UH was surprised by how many patients it saw, while MetroHealth took a greater hit to its finances than expected.

The true test of the success of hav-

ing two Level 1 centers will be measuring outcomes. Data for that won’t be available until early next year.

“My concern — and this needs to be seen — is what is the trauma mortality rate?” MetroHealth president and CEO Dr. Akram Boutros said.

“What’s happened to it in our region.

Did it get better? That’s what the promise was.”

For a Level 1 designation, UH’s trauma center needs to see a minimum of 1,200 patients, which the system was confident it could reach, said Dr. Michael R. Anderson, UH chief medical officer. But he said they were pleasant-

Entire contents © 2016 by Crain Communications Inc.

ly surprised that the center, which opened Dec. 1, 2015, will far surpass that, having admitted nearly 1,500 patients through October.

MetroHealth saw a 27% drop in trauma activations, which Boutros said translated to a $35 million loss in revenue, much higher than the $20 million it predicted. But he is quick to note that the system has grown in other ways so the loss won’t hurt the organization. Though it’s not without its issues, the system can handle the loss, he said.

“We as a hospital can deal with the dollars — clearly we can,” Boutros

said, referencing MetroHealth’s recently announced plan to replace its aging patient towers with a new hospital and move forward with its campus transformation on its own credit.

The trauma numbers have reached a plateau and have been stable for the past six months, Boutros said.

In January through October of this year, MetroHealth had 4,188 trauma activations — meaning people it saw and discharged from the emergency department, or admitted — compared to 5,737 for the same time span in 2015.

SEE TRAUMA, PAGE 21

jmiller@crain.com @millerjh

While most Northeast Ohio companies are meeting their commitments under financial incentive agreements with state and local agencies, a handful are failing to achieve the capital investment or job creation goals they agreed to, according to recently released reports.

Government economic development agencies annually review the performance of their grantees and may reduce or rescind a tax credit or raise the interest rate on a loan if a company falls short of its commitments.

The most comprehensive report is one issued late last month by the office of Mike DeWine, the Ohio attorney general. That report, the “2016 Report to the General Assembly on Compliance with State Awards for Economic Development,” reviewed 329 awards made by the Ohio Development Services Agency (ODSA) and found that companies were meeting their commitments in 84.8% of the awards.

That report found that 11 Northeast Ohio companies receiving incentive agreements were not meeting the goals of those agreements.

For example, AlSher Titania LLC, a Cleveland maker of titanium pigments, received a $150,000 infrastructure grant from ODSA in 2011.

In accepting the grant, the company committed to hiring 201 people.

According to the attorney general’s report, the company created only one job. As a result, the state agency is seeking the return of the grant, called a “clawback” in the economic development world. The report notes that the repayment is due Dec. 15.

SEE TAX, PAGE 22

Middle Market report Assistance funds aid workers during trying times. Page 15 Adviser, Tax Tips Page 16 Third Federal really buys into the act of giving back. Page 18

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PA G E 3

UH uses crowdfunding for hydration device

By LYDIA COUTRÉ

How the device works

lcoutre@crain.com @LydiaCoutre

People in need of non-oral hydration currently are given an IV, which requires a trained medical professional. An individual with little to no medical training would be able to use this device and help rehydrate children or adults.

Dr. Johnie Rose, assistant professor at Case Western Reserve University, believes the technology he’s developed could help people save the lives of thousands of children around the world — once he can get it into their hands.

“Right now, we’re in a holding pattern because there’s not the financing to do those trials,” said Rose, who’s also the director of the Preventive Medicine Residency at CWRU and University Hospitals Cleveland Medical Center.

So for the past few months, UH has turned to the community in its first attempt at crowdfunding to support research.

Though the effort has been underway since September, the team just recently renewed its push with a more targeted effort to raise dollars to support Rose’s device, which individuals with little or no clinical training could use to rehydrate sick children.

If the crowdfunding is successful, UH plans to roll out the strategy more broadly to support other researchers and investigators, said Marla Schmidt, a grant and contract specialist for UH. In her primary role, she handles agreements with pharmaceutical companies and industry-funded clinical trials, but she does see some investigator-initiated studies like Rose’s.

These researchers have great ideas they want to develop, she said, but they spend a lot of time writing grants and searching for funds.

She’d see them get small funds and pots of money, and began thinking of alternative means to help them

1. The device is placed on the back or abdomen and a siliconelike material (A) covering the base is adhered to the skin with an adhesive.

A

2. When the wings are pinched together, the devices pinches the skin and sticks the patient with a needle (B) to be able to begin administering fluids.

B

through the long process of grant-writing that could delay their work.

People turn to crowdfunding for independent movie projects, music careers or charitable efforts. Why not research?

Rose initially got his idea while researching vaccination programs for Rotavirus, a diarrhea-causing pathogen.

“It occurred to me that you’re vaccinating a very large number of people to prevent death in a small number of people who really get serious Rotavirus,” he said.

That’s not to say the vaccines aren’t worth it, Rose said. He just wanted to find a solution to the subset of the sickest children who ultimately die from a virus that doesn’t have to be fatal. Children in the United States

get it at the same rate as those in the developing world, but kids here have access to health care to get an IV to rehydrate.

An increase in oral rehydration solution in the world’s poorest settings has helped to decrease diarrhea-related mortality in children under 5 from 4.6 million deaths in 1980 to 760,000 now, according to 2013 data from the World Health Organization.

The subset of the sickest children for various reasons aren’t helped by oral rehydration, but need parenteral or non-oral hydration, such as an IV. The problem with that, of course, becomes finding someone who can place an IV — especially in very remote locations.

Rose turned to subcutaneous rehydration, which means giving fluids through the skin.

Through that, the individuals administering it can’t give fluids as fast, but they don’t have to hit a vein.

Therefore, they don’t need to be a highly trained medical professional in order to help rehydrate these sick children.

Besides, a lot of people don’t need a large amount of fluids really quickly. They just need to get fluids to relieve and sustain them.

“So the idea then became, well, can we go a step further and make this something that’s extremely easy to use for people who are very minimally trained, if at all,” Rose said.

He has developed a small device that will come with easy-to-use instructions and pictures. An individual can place the device on the abdomen or back of a child and simply press the release. It will simultaneously pinch up the skin and stick in a needle to begin delivering fluids.

The prototype is developed and should be receiving a patent within a

couple of weeks, Rose expects. But it still needs clinical trials, further market research and a commercial partner.

“We’re trying to identify the correct commercial partner, because there’s some different applications besides the Third World,” said Stephen Behm, UH’s director of technology management. “We’re trying to identify and get a better understanding of the markets to identify.”

That could include first responders, military, the elderly or even for use within hospitals.

There are a lot of situations with both kids and adults in the developing or developed world in which the need for an IV requires a higher level of and more expensive care, Rose said. This device could help address that.

For some of the domestic applications, the device would probably have more features, such as anesthetic on the adhesive. But the most basic design of the device for the developing world would cost just $10 to $15 to make.

If crowdfunding brought in about $50,000, Rose could start on some of the trials. Behm estimates they’d need a couple hundred thousand to get it to market.

In the first few months, the campaign hasn’t raised much, Schmidt admits. But they’re learning. They’re working to revamp the effort with more social media approaches and a more targeted strategy.

Schmidt said she doesn’t yet know what this could mean for getting other devices to market.

“We just are kind of figuring it out as we go along,” she said. “We’re hoping it will be a great success. ... We really feel like it could be very successful as long as we get the right strategy.”

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NEO groups are strongly against tool steel tariff

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It may feel counterintuitive for domestic industry to lobby against government tariffs on imported goods.

But that’s exactly what’s happening now in the trade case on carbon and alloy steel cut-to length plate from a variety of countries. It’s not that the Precision Metalforming Association and the National Tooling and Machining Association are anti-tariff. They just want what they refer to as “tool steel” to be exempt from this particular case.

Tool steel, they say, is highly specialized and low volume, and U.S. producers don’t make enough to meet their needs. A tariff would just make the steel and, in turn, the tooling more expensive, which could harm the companies making it.

If that is indeed the case — though the number of tool and die makers in the U.S. has fallen — there are still a lot of employees who would stand to be affected, especially in Northeast Ohio. As of May 2015, the last available data from the U.S. Bureau of Labor Statistics, there were almost 75,000 tool and die makers in the country. Ohio has the second-highest number of tool and die makers employed, falling only behind Michigan, and the Cleveland-Elyria region is the third-highest-ranked metropolitan area in terms of employment for these workers.

The U.S. Department of Commerce has made affirmative preliminary determinations in most of the antidumping (when a company is selling a product at less than fair value) and countervailing (when it’s receiving financial assistance from a foreign government) portions of the case.

On the countervailing side, the commerce department preliminary determined China was subsidizing these products, while Korea was not.

Commerce preliminarily determined companies from Austria, Belgium, China, France, Germany, Italy, Japan, Korea, Taiwan, Brazil, South Africa and Turkey were all dumping goods in the U.S. Final determinations from both the commerce department and the International Trade Commission, which determines whether there is injury to U.S. industry, for most are expected in 2017, with dates for the final determinations starting in January and running through May, according to the commerce department. (The department was expected to make final determinations in the cases against Brazil, South Africa and Turkey at the end of November, according to a fact sheet. The commission was expected to rule on those countries in January.)

The cases were brought by ArcelorMittal USA LLC, Nucor Corp. and SSAB Enterprises LLC. ArcelorMittal, which has a substantial plant in Cleveland, testified at the International Trade Commission’s final

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hearing on this case on Nov. 30. Daniel Mull, executive vice president for sales and marketing of ArcelorMittal USA, spoke to the broader need for these tariffs.

“While my company, and other U.S. producers, manufacture tool steel, X-70 and other specialized types of plate products, please recognize that the bulk of subject imports are not these specialized products,” Mull said in the testimony as written.

“ArcelorMittal USA faces intense competition every day in the U.S. market from all of the subject countries in basic types of cut plate, like carbon structural steel plate. We also face intense import competition in

A tariff would just make the steel and, in turn, the tooling more expensive, which could harm the companies making it. some of the lower-volume specialized grades, where we used to be able to count on better profits. We have been losing sales to lower-priced subject imports across all types of cut plate.”

Bob Insetta, director of specialty plate for ArcelorMittal USA, said in the testimony the company makes almost every type of cut-to-length plate the market needs, including tool steel, and that they’re all “part of a broad continuum of the same product.”

Plenty to go around?

But the Precision Metalforming Association of Independence and the National Tooling and Machining Association of Cleveland don’t seem to believe it’s enough.

William Gaskin, president of the Precision Metalforming Association, said tool steel is getting caught up in this case because it has a similar chemistry to the other metals involved.

“But tool steel is not being dumped in the U.S. in the same way,” Gaskin said.

In fact, he said, there’s a shortage of tool steel in the U.S. Since it’s a low-volume product, domestic producers aren’t making a lot of it, and the industry needs imports to supplement their supply.

Tool steel is already expensive, said Dave Tilstone, president of the National Tooling and Machining Association, and increased costs are only going to get passed along to the tool and die makers. And because it’s not a commodity, it’s not easy to substitute one material for another. The steel in this case is specifically used for dies and molds, he said.

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In a letter to the trade commission, the two associations ask it to continue to treat tool steel and the tool steel industry as separate from steel at large — as it has for more than 35 years, the letter contends.

It goes on to note that tool steel’s composition gives it “high wear resistance, toughness, and hot/red hardness” and “relatively low ductility and weldability” compared to other steel plates, which is necessary for its end use of cutting and shaping other metals. And it’s already more expensive than the other kinds of plate steel.

The tooling industry knows that when the cost of raw materials go up, it makes U.S.-made tooling and dies less competitive, Gaskin said. A lot of tooling is already being imported, and he fears that this could lead to more imports.

Gaskin said this trade case is an example of how trade laws, while useful, can cast too wide a net. The current implementation doesn’t allow small segments of business to be protected in these extensive cases.

“We’re the drive-by shooting,” he said.

Gaskin isn’t optimistic that the groups’ efforts to stop a tariff on tool steel will be successful. If it’s not, Tilstone said companies’ profitability would be significantly affected, and that some of the smaller ones would close altogether. Those companies don’t have a lot of room for price increases, he said.

Steve Peplin, CEO of metal stamping company Talan Products Inc. in Cleveland, said these tariffs could increase the cost of doing business in the U.S. beyond just the tool and die makers. While he’s not in the business of making tooling, he has to buy it for jobs. And if the cost of the tools increases, he said he has less of a chance of getting the job. That’s because the tool cost is the first factor in determining a customer’s startup cost, and more expensive tooling makes domestic production less competitive, Peplin said. And, if the tariffs raise the cost of imported tool steel, but not the cost of imported tooling, it could make foreign producers of tooling more competitive overall.

These kinds of tariffs could lead to some pain in the near-term, but there needs to be a level playing field, said Joe Tenebria Sr., president and owner of Myers Precision Grinding Inc. in Cleveland. Myers Precision serves a wide variety of industries and makes products ranging from tooling to fasteners to medical parts, so it doesn’t use much tool steel.

Tenebria Sr. doesn’t want to see his peer companies harmed, but these kinds of measures could have been helpful decades ago when the U.S. was making more tool steel, he said.

He expects to see more tariffs implemented with the transition to a Republican president.

“Protectionism isn’t the best, but there needs to be some kind of blend,” Tenebria said.

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PA G E 5

Huge 3D printer is big get for Akron firm Additive Engineering Solutions is switching gears by buying machine that can print large parts

By RACHEL ABBEY McCAFFERTY

manufacturing at Caterpillar, and Bader invited him to do a presentation at OGS Industries, his family’s rmccafferty@crain.com Akron-based metal stamping and @ramccafferty fabrication company. OGS immediA new company in Akron wants to ately found an application for 3D bring 3D printing to the region in a printing in its shop, and Bader thought similar companies in the rebig way. gion could use the same kind of inLiterally.

Additive Engineering Solutions formation. The two filed the paperhas been operating as a consulting work to start Additive Engineering firm since August 2015 but is getting Solutions as a consulting business in ready to switch gears to production August 2015. But when Schmidt with the addition of a Big Area Addi- learned about the BAAM printer, the tive Manufacturing machine from two decided to look into it.

That wasn’t always the goal for AdCincinnati Inc. The machine is probably best known for printing a driv- ditive Engineering Solutions. In fact, able car at the International Manu- when the company got started, the facturing Technology Show back in goal was explicitly “to not buy a 2014, said Austin Schmidt, partner printer,” Schmidt said. Additive manand president of Additive Engineer- ufacturing is a competitive market, he said, and it’s difficult to stand out. ing Solutions.

It’s much larger, and faster, than But the opportunity to have “first any 3D printers on the market, mover advantage” was very attracSchmidt said. And since most of the tive, Bader said.

The two pitched the idea to Tom, BAAM machines on the market aren’t easily accessible to companies, Bader’s uncle, and John, his father, Schmidt said he saw an opportunity who are, along with Bader and for a contract manufacturer. The fo- Schmidt, partners in the business. cus at Additive Engineering Solu- After Schmidt, Bader and his uncle tions will be 3D printing tools and visited Cincinnati Inc., the manufacmolds for different industries, said turer of the machine, and Oak Ridge Andrew Bader, one of the partners National Laboratory, which develwho’s overseeing business develop- oped the technology, in May, the decision was basically made. ment.

The company placed the order for Additive Engineering Solutions really got its start in the summer of the machine in early July. In Septem2015, when Schmidt and Bader met ber, Schmidt began working at Addiat a young professionals event. tive Engineering Solutions full-time Leonard was HPMstill Final_Layout 12/5/2016 and 9:52started AM Page 1 up the company’s setting Schmidt working in1 additive

Schmidt

Bader

“Our goal is when it drops, we’re ready to go.”

at a company like Additive Engineering Solutions will be a good thing for Cincinnati, Neff said. The company gets “lots and lots of people” calling it to print parts, he said, a service it will perform but not its main purpose.

That interest demonstrated a need to Bader.

“We kind of had these pre-established sales pipelines,” he said.

Bader said there are already a few jobs lined up, though the company declined to name any specific customers. Additive Engineering Solutions has also been busy setting up its new facility at 990 Evans Ave. in Akron, which it is renting from OGS. Total startup costs, including the BAAM machine and supporting equipment like a 5-axis CNC router, are about $1.5 million, Schmidt said.

Additive Engineering Solutions is a spinoff of OGS, but the new company is using the more established one for functions like human resources and

— Austin Schmidt, Additive Engineering Solutions president

supply chain, customers and jobs.

Additive Engineering Solutions’ BAAM machine is the 11th one the company has sold, and the first at a service bureau, said Rick Neff, BAAM sales manager for Cincinnati Inc. The others are in universities, labs or large companies, he said, with the latter using the machines for their own purposes.

Neff said typical 3D printers can print parts that fit in a shoebox.

BAAM can print parts that are 5 1/2 feet wide, 13 feet long and 6 feet tall.

And having one of their machines

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facility maintenance, Bader said.

That’s allowing Additive Engineering Solutions to run very lean. Officially, the only employee outside of Bader (who is also still working at OGS) and Schmidt is senior process engineer Clark Patterson. Tom Bader is serving as chief financial officer when needed.

The BAAM machine is expected to arrive near the end of December.

Schmidt and Patterson have been traveling to Cincinnati Inc. and Oak Ridge National Laboratory to make sure they’re comfortable running the machine.

“Our goal is when it drops, we’re ready to go,” Schmidt said.

Tim Fahey, vice president of industry and innovation at Team NEO, said Additive Engineering Solutions’ addition of the BAAM machine will give the company a “unique ability,” as 3D printed parts are usually limited in size. It also adds another additive manufacturing capability to Northeast Ohio and enhances the region’s reputation as a 3D printing hub.

Richard Lonardo, advanced manufacturing program manager at the Youngstown Business Incubator, said the company’s focus on large-format tooling in particular will give it a unique asset. There’s a lot of tool manufacturing in the state, and people are looking for ways to make those tools faster and more complex.

“We think they’re going to be a big hit,” Lonardo said.

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Northeast Ohio, private equity key to growth plans Risk International Benefits Advisors’ ambitious goals include doubling revenues in 2017, and again in 2019

By JEREMY NOBILE jnobile@crain.com @JeremyNobile

The relatively young benefits consulting practice of Risk International Services Inc., one of the largest risk management consulting businesses in the country, has found its footing in the Fairlawn-based company’s business model.

And with auspicious plans for Risk International Benefits Advisors to double its own revenues in the coming year alone, particularly by leveraging some untapped opportunities in the private equity sector — and some business in its native Northeast Ohio — the greater Risk International umbrella is well-poised to see a continuation of its already consistently strong performance.

Eric Krieg, a former senior vice president at Oswald Cos., established the business commonly known internally as RIBA in 2014.

While executives wouldn’t disclose actual revenues, Krieg said that as RIBA closes out its flagship threeyear plan, the business is exceeding its revenue targets by 75%, well outperforming initial expectations.

The goal to double revenues in 2017, and again in 2019, partly comes from that energy carrying through into the coming years. “(Those projections) come from the momentum of a growing business and the ability to take all the seeds that have been planted and see them come to fruition,” Krieg said.

RIBA currently comprises seven people, but Krieg expects to add four more people in 2017 as the business expands.

Risk International itself has grown about 300% in the past five years, a period that has seen Dave O’Brien join in 2012 as chairman with the goal of growing the brand. A couple years after O’Brien joined, the company made its first two acquisitions

“We are going to make more effort to market ourselves in both Ohio and Northeast Ohio in 2017.”

— Eric Krieg, RIBA founder

of risk management businesses, which helped lift overall revenues and support companywide growth as the business bolstered its two international offices.

About 35% of Risk International’s overall growth this past year came from RIBA, Krieg said.

Private equity has been a major source of business for the overall Risk International operation — and the consulting industry in general — as firms look to consulting businesses of its sort to cut costs of portfolio companies without adding headcount.

Having an independent structure has been quite useful in establishing business early on, Krieg said, and seems to be helping their services resonate in the marketplace. Private equity has helped source some work as well.

Nonetheless, Krieg expects private equity will play an even greater role in their model moving forward, likely sourcing at least half the work in RIBA’s mix. This is partly because of what’s happening in the private equity market right now, which has been drawing increased investor interest as returns remain strong. As dry powder builds and more dollars chase fewer deals, Krieg anticipates a growing appetite for benefits consulting work.

“The deals are becoming more competitive,” Krieg said.

“You have these compass sourcing groups that are charged with looking at how they can improve the financial operations of the business. With that, whether through sourcing groups or overall interest within the deal teams bringing better outcomes to major spends,” benefits will be a high priority for most employers, Krieg said. He likened their work to that of forensic accountants digging through balance sheets looking for fat to trim.

Hiring consultants like RIBA is no new strategy in the for-profit investment sector.

What’s emboldening RIBA’s outlook more is the fact that this threeyear-old company hasn’t connected with as many firms as it would like.

Risk International is a large U.S. business with global connectivity through its offices in England and Vietnam. Yet, surprisingly, Krieg said the Northeast Ohio native business currently has no relationships with private equity firms in this region.

That’s why there’s a major focus for the business to capitalize on untapped opportunities in this region, which has quite a strong private presence of its own.

“Our business has grown significantly outside this area. Many of the large firms we are doing business with are in places like Washington D.C., New York City and Boston,” Krieg said.

“We are going to make more effort to market ourselves in both Ohio and Northeast Ohio in 2017.”

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PA G E 7

Local commercial docket could have life Attorneys are encouraged the Ohio Supreme Court is reviewing the specialty court’s process

By JEREMY NOBILE jnobile@crain.com @JeremyNobile

Cuyahoga County’s commercial docket may be dead, but it won’t lie down.

Nearly two years have passed since Cuyahoga County Common Pleas Court judges disbanded the commercial docket, yet it remains unclear whether the tool universally appreciated by commercial litigators, and their business clients, could be restored in some form.

More developments could come in early 2017, though.

The review process is in the hands of the Ohio Supreme Court, which oversees the state’s specialty courts.

Any changes would affect how the court operates in any Ohio common pleas court that wants one.

The fate of the docket in Cleveland has been in question since it was eliminated in January 2015.

The most recent developments transpired over the summer, when the Ohio Supreme Court, which oversees the state’s specialty dockets, requested public commentary on some proposed rule changes, many of which were posited by a team of Cleveland attorneys and judges.

Some of those proposals include changes in how judges are selected.

Other give more discretion to local judges on how and what commercial cases are assigned to the specialty court, which is designed to expedite complex business-to-business cases such as liquidations, trade-secret disputes, noncompete contracts and shareholder disagreements.

A tool like that makes the court and the region it serves seem more

business-friendly by giving those cases priority.

A special docket also would help build experience for sitting judges and foster more predictability for attorneys working cases.

In general, judges seem to want more autonomy over how the docket operates, including the selection of judges. Attorneys, meanwhile, just want what they saw as a useful tool back at their disposal.

The high court highlighted some of the proposed changes when it requested public commentary.

One key proposed amendment would give local judges more discretion over what actually constitutes an appropriate commercial case.

Another would shift the responsibility of appointing sitting judges at each common pleas court from the chief justice to the general division common pleas court judges.

That's significant considering the motivation for dissolving the docket in Cleveland came in January 2015 with the rejection of Judge Cassandra Collier-Williams from the specialty court by the Supreme Court’s Commercial Docket Subcommittee, whose chairman said Collier-Williams was not qualified for the position — a move that seemed to miff Cleveland judges.

Phillip Ciano, principal at Ciano & Goldwasser and a leader of that local team, said he’s heard of no updates from the Supreme Court since commentary on the changes was solicited this summer.

However, a spokesman for the Supreme Court told Crain’s last week the issue will be revisited after two new justices officially join the court in the new year.

That was welcomed news to Ciano.

“The judges on the local court are in a better position to assess the qualities and abilities of the judges to take on the challenge of the commercial docket.”

— Lucas County administrative judge Gary Cook

“It’s not surprising that the process, which is quasi-legislative, is going to take its due course to run,” Ciano said. “But I’m encouraged to know that at least it will be reviewed when the new term starts in January.”

He added that the subcommittee he leads is “ready and willing to provide whatever support and feedback we can provide to see if there’s a form

of the commercial docket, or commercial track as we suggested, that could be reinstated in Cuyahoga County.”

Those who commented on the proposed changes generally supported the bulk of them, including members of the Lucas County Common Pleas Court, which is one of the courts that participated in a pilot program for the docket (like Cuyahoga County) and continues to operate a commercial docket today.

“The proposal to allow the local court to make the selection of the commercial docket judges is the biggest, and most welcomed, change to the rules,” wrote Lucas County administrative judge Gary Cook. “The judges on the local court are in a better position to assess the qualities and abilities of the judges to take on the challenge of the commercial docket.”

Members of the Cincinnati law firm Keating Muething & Klekamp PLL, for example, wrote to oppose a change in how judges on a docket are considered that would limit candidates to judges with at least three consecutive years of service on a general division court in the past six

years, which would “unnecessarily (limit) a large pool of potentially qualified candidates,” they argued.

Paul Harris, co-chair of the business litigation practice group at Ulmer & Berne LLP, was among the many who voiced personal support for the changes, conveying a sentiment that attorneys simply want to see the docket restored in some form.

“My understanding is that the new proposed rules are meant, at least in part, to address some of the concerns that led to the suspension of the commercial docket in Cuyahoga County,” he wrote. “ … I’ve heard favorable opinions of and experiences with the commercial docket in Cuyahoga County, and I was personally disappointed to see it go.”

Ciano said it’s hard to say whether fewer cases have actually been filed since the local docket dissolved.

“And I wouldn’t say it’s more difficult to practice without more predictability of a commercial docket,” he said. “But I would say that having a commercial docket makes for a more predictable and effective litigation process for businesses. That’s the primary reason we’d like to see it back in some form or fashion.”

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The head of Cleveland-based Cliffs Natural Resources Inc. was preparing for a “worst-case scenario” next year.

Instead, he got Donald Trump.

Cliffs, the world’s best-performing raw materials producer this year, will probably generate “a lot” of cash, with which it will pay down debt, CEO Lourenco Goncalves said. He assigned President-elect Trump’s focus on infrastructure building and a crackdown on unfair trade as reasons his company and the steel industry are poised for more good times.

Shares of the company almost quadrupled this year through early November amid signs of improving demand and successful U.S. trade cases against steel imports, which helped boost domestic steel prices.

With Trump pledging to spend $1 trillion on infrastructure and to further clamp down on trade cases against countries including China, the shares have surged an additional 69% since the election.

“If Mr. Trump implements a portion — he doesn’t need to implement everything — of what he is promising, not only will the country be a lot better after these things are implemented, but businesses like Cliffs and all steel mills in the United States will benefit very much,” Goncalves said in an interview Thursday, Dec. 8.

The stock fell 0.2% to $10.37 in New York on Thursday. Shares have surged 556% this year, the best performance on the Bloomberg World Iron/Steel Index of 75 companies and the 455-member Bloomberg World Basic Materials Index.

Cliffs is also the biggest gainer among major mining and metal

“If Mr. Trump implements a portion of what he is promising ... businesses like Cliffs and all steel mills in the United States will benefit very much.”

— Lourenco Goncalves, Cliffs CEO

companies in the bond market this year, with a return of 153%. That’s almost five times the average gain. The yield on its notes due 2040, which began the year at about 35%, is now down to 8.4%.

Domestic steel producers, which are Cliffs’ customers, have benefited over the past year from anti-dumping and countervailing duties that have

curtailed shipments from China and other countries. Goncalves said the Obama administration’s efforts on imports cases resulted in a “very well-rounded situation.”

“Everything that came since Mr. Trump became president-elect is all good, and adds to what we had before,” Goncalves said. “So, even though I was not planning for that, I was planning for what I believe at this point was a worst-case scenario. So Trump is the best-case scenario.”

Iron ore delivered to Qingdao China is up 87% this year, surprising analysts who repeatedly forecast a pullback amid the expectation of rising global supply and dwindling demand in China, the world’s biggest consumer.

“The commodities desks of the big financial institutions have been beating the drum that iron ore prices would go down, would collapse, would go down to numbers that are totally crazy,” Goncalves said.

He said where prices go from here all depends on the three biggest iron ore producers — Rio Tinto Group, BHP Billiton Ltd. and Vale SA. He said the market is watching whether Rio and Vale stick to plans to step back from the industry’s decade-long strategy to keep pumping ever-expanding supply onto the global market.

Paying down debt will continue to be the most important use of proceeds of any cash that they generate, Goncalves said. He said he has no plans to raise equity at this point because he doesn’t want to dilute the shares.

“We are going to generate a lot of profits. We are going to generate a lot of jobs,” Goncalves said. “And we are going to generate a much better infrastructure that is very, very much needed in this country.”

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PA G E 9

Five-team Arena league says it’s in good place

By KEVIN KLEPS

‘A huge problem’

kkleps@crain.com @KevinKleps

Robert Licopoli — who ran the North American Football League, a 100-plus-team semipro circuit, from 1999 to 2008 — said he was part of a group that twice looked into buying the Orlando Predators. But that was before Butera’s arrival, a time in which Licopoli said the “state of the league was so bad.”

The biggest problems Licopoli, now the founder and CEO of New York-based 360 Sports Agency, and his partners had with the AFL’s setup were the hefty league dues, high facility rental fees and a structure in which “owners start in a deep financial hole from Day 1.” When the Jacksonville Sharks folded in October, owner Jeff Bouchy complained about “constantly growing league expenses and the lack of league revenue,” which he said “led to crippling operational costs.”

Under the AFL’s single-entity model, when owners don’t or can’t pay their bills, the costs are passed on to the remaining owners.

“That’s a huge problem,” Butera said. “You gotta support the league. If somebody bails on you, you gotta pick up the tab. That’s a hard pill to swallow.”

All of which is why the AFL commissioner believes the addition of Leonsis is vital. The founder of the Baltimore and Washington franchises owns the NBA’s Washington Wizards, the NHL’s Washington Capitals, the WNBA’s Washington Mystics and the Verizon Center. Leonsis’ Monumental Sports & Entertainment also

Since the Arena Football League season concluded with the Philadelphia Soul winning their second championship on Aug. 26, the 29-year-old indoor football circuit has had five of its eight teams fold operations or move to a rival league.

The AFL — which includes the Cleveland Gladiators and had 14 teams as recently as 2014 — rebounded some with the addition of two franchises, Baltimore and Washington, that are backed by billionaire Ted Leonsis. But if no other teams are added before the start of the 2017 season in April, the AFL’s current five-club setup would be its lowest franchise count since 1989, when the league dropped from six to five teams for its third season.

Franchise turnover is nothing new for the topsy-turvy league, which skipped the 2009 season after filing for bankruptcy.

The changes this time are by design, however, AFL commissioner Scott Butera told Crain’s.

“We and the better owners always wanted this to be a really well-run, excellent sports league,” said Butera, who became the league’s seventh commissioner in September 2014.

“We had a number of owners, and obviously we’re fortunate in Cleveland to have a really strong one (in Dan Gilbert), who can make that happen and share that vision. And we had others that didn’t.”

The vision, Butera said, is to have a

The Cleveland Gladiators averaged 11,046 fans for their eight home games in 2016. (Contributed photo)

league built around experienced, wealthy owners whose AFL team can play in an arena in which another major sports team already resides.

The Gladiators, who were purchased

by Gilbert in 2012, are the league’s model franchise.

In October — when the AFL’s future was in question because of the departures of the Jacksonville Sharks (who joined the fledging National Arena League) and Arizona Rattlers (now part of the Indoor Football League), and the shutdowns of the Orlando Predators, Portland Steel and Los Angeles Kiss — a Cavs source told Crain’s that it was “business as usual” for the Gladiators. The organization hasn’t said much of anything

on the topic since, though it does remain committed to the AFL. Butera, the CEO of Foxwoods Resort Casino in Connecticut prior to his AFL appointment, is gambling that the league can survive with fewer owners, provided they fit the Gilbert-Leonsis model. And yes, the league will play a five-team season if it’s determined that is best for the long haul.

“If we just had to go with what we have, we’d be OK with that,” Butera said. “We are completely out of the mode of what do we have to do to be OK tomorrow? We don’t want to sit here and say we have to add two teams to have a better process in 2017. We’re going to get the right people, no matter how long it takes.”

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has a subscription-based network that will broadcast his AFL teams’ games.

Finding more owners with similar clout and assets — i.e., arenas and management teams already in place — will be key, and likely difficult.

“This league has suffered in the past from starts and stops,” Butera said. “We’d get an owner, and the next year he’s done. That doesn’t help the league. You can’t develop your league that way. We need people 100% committed to the long term.

We don’t want them to fail.”

The Gladiators ranked third in the AFL with an average attendance of 11,046 for their eight home games in 2016. With three consecutive years in the top three in attendance, Cleveland is a rare AFL success story.

The Gladiators are proceeding as they would under normal conditions, with three-game holiday packages available on the franchise’s website.

Butera said the AFL is “working furiously” toward its goal of having “12 to 16 teams in the next few years.”

But quality will always come before quantity, the commissioner stressed.

“We essentially turned around years and years of mismanagement,” Butera said. “Major restructurings take a great deal of time. A lot of damage was done that had to be unwound. We thought it was important to keep the product showing well while we fixed the other issues. We always had excellent football. We just have not had excellent management.”

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CRAIN’S CLEVELAND BUSINESS

Opinion Personal View

Five areas for entrepreneurs to evaluate post-election

By TOM SUDOW

Admittedly, most of the crystal balls used to prognosticate the 2016 election are sadly in need of repair or replacement. So attempts to dust off those crystal balls to peer into the future, as it relates to the next few years, have an analogous chance of accuracy. So what signs should entrepreneurs and innovators be looking for with the change in administrations?

The five areas that will have the greatest impact are as follows:

Taxes

Editorial

Metro’s big bite At last, MetroHealth recently announced more details of its ambitious and long-talked-about plan to overhaul its deteriorating main campus off West 25th Street in Cleveland. In short, system officials say the $855 million overhaul calls for a new nine-story hospital that will offer numerous opportunities for added efficiency and improved outcomes.

From what we’ve seen of the plans so far coupled with MetroHealth’s recent track record building stunning new outpatient health centers, Cuyahoga County taxpayers have all the reason to be thrilled about the future of the hospital system they’ve subsidized, albeit marginally in relation to its overall budget, for so many years.

What’s most impressive at this stage, however, isn’t the renderings of the buildings poised to rise, but MetroHealth’s decision to finance the entire project on its own credit. The move to go to the bond market, officials say, provides MetroHealth an opportunity to be more cost effective and faster than if it had sought out other sources of funding.

It’s worth noting this is the same health system that five years ago laid off several hundred employees just to climb out of the red and even recently has faced financial pressures due to University Hospitals’ efforts to capture some of the region’s lucrative trauma business. We expect the bond market will be receptive to MetroHealth’s plans, given the system’s impressive financial turnaround over the last five years under the leadership of CEO Dr. Akram Boutros.

That said, the project certainly carries risk. One is the $855 million price tag. By comparison, the Cleveland Clinic’s Sydell and Arnold Miller Family Pavilion and Glickman Tower — a project that opened in 2008 and transformed the main campus’ entry point for many patients — cost just north of $500 million.

University Hospitals’ state-of-the-art Ahuja Medical Center and Seidman Cancer Center cost $298 million and $260 million, respectively.

MetroHealth’s project dwarfs all of those. After all, this is a complete rebuild of the health system’s core infrastructure. The

new hospital is expected to go live in 2022.

It’s no secret that a major reason for MetroHealth’s financial turnaround was the Medicaid expansion made possible first through an experimental waiver program and ultimately the Affordable Care Act. And while Medicaid hardly covers the cost of care, it brought in new revenue to offset the millions dollars worth of charity care the hospital system provided.

But with Donald Trump in the Oval Office and a Republican Congress gnawing to undo the ACA, the uncertainty blanketing the health care industry is as suffocating as ever. Still, in a meeting with Crain’s editors, Boutros wasn’t fazed by the prospect of an ACA pullback and vowed to press forward with the project.

Given these challenges and the sheer size of the project, it’d be easy to characterize Boutros as naive when it comes to his vision of reinventing MetroHealth. This too, after all, is an enterprise that before his arrival couldn’t keep its books straight and its administrators from piquing the interest of the FBI. However, Boutros has proven to be a leader who can be trusted by county taxpayers. He stresses that he isn’t using this project as a resume builder. And frankly, he told us that he plans to see the project to completion and one day retire from MetroHealth.

Over the last few years, MetroHealth hasn’t given us any reason to doubt the direction in which it’s headed. Its new outpatient health centers, particularly the one in Middleburg Heights, and its transformation of former HealthSpot urgent care centers into Metro emergency departments have shown the system can expand its mission and reach on time and cost effectively.

This $855 buildout is the final piece of the transformational journey MetroHealth has undertaken during Boutros’ tenure. This part of the journey most certainly will have its twists and turns. But if the health system can pull it off, Cuyahoga County and the health of its residents will be better off.

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

CLEVELAND BUSINESS

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Scott Suttell (ssuttell@crain.com)

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Timothy Magaw (tmagaw@crain.com)

Contact Crain’s :

(216) 522-1383

It appears that attempts will be made to simplify the tax code.

This could include reductions in the numbers of individual tax brackets; the lowering of rates across all brackets; increases in standard deductions; lowering of the corporate tax rate to 15%; and a 10% rate on repatriation of foreign profits with the goal of bringing corporate “headquarters” back to the United States.

This lowering of taxes has the challenge of increasing the federal deficit, unless cuts in expenses can be found and/or there's an increase in tax collections from more sources, like repatriated corporations and increases in wealth.

For the entrepreneur, will these tax breaks and simplification of the tax code allow for individuals and corporations to invest more money on innovation or with entrepreneurs? Will tax breaks continue for investors? And what, if anything, will happen to the capital gains tax? The theory remains that a lower capital gains tax promotes investment. Further, if more money is available, will that encourage more investment?

Immigration Immigrants have contributed significantly to the knowledge-based economy.

Many immigrants also are entrepreneurs; what is more entrepreneurial than taking the risk to leaving your home and resettle in a new country?

Will a new immigration plan have exceptions for high-skilled immigration? Will that new plan have any provisions for immigrants who invest in the United States and can help grow the economy? What impact could new immigration legislation have on the importing of innovation that has helped to stimulate the U.S. economy? What effect could it have on investment from international sources into U.S. entrepreneurs?

Affordable Care Act The repeal of the Affordable Care Act had been at the forefront of the campaign. If it is repealed (or changed), what replaces it?

Donald Trump, during the campaign, called for a more free-market system. How will this impact businesses and their employees?

Further, for those in biomedical innovations, will that add money to health systems, or restrict it even more? This could encourage or discourage the adoption of new innovations and new products. If fewer people have access to health insurance, will that mean less revenue for the health care organizations and thus a further tightening of their budgets, and what effect SEE SUDOW, PAGE 12

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

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

Please include a telephone number for verification purposes.

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PA G E 11

Personal View

President-elect is trumpeting growth, but can he deliver?

By DAVID McCLOUGH

Lost in the blusterous personal attacks and foreign policy and immigration rhetoric of the 2016 presidential election is a fairly familiar economic plan touted to create 25 million jobs in the next decade.

President-elect Donald Trump’s economic plan is quintessential supply-side economics built on the expectation that tax cuts and deregulation stimulate production that creates employment with the income used for consumption needed to perpetuate the virtuous cycle.

Trump’s plan includes stalwarts like tax cuts for households and firms as part of broader tax reform, deregulation, infrastructure spending, cuts to discretionary spending, renegotiating trade deals, and tax relief intended to encourage repatriation of foreign earnings.

Trump predicts that economic growth will double and create 25 million jobs. Opponents claim the tax cuts will contribute to a larger national debt.

Theoretically and intuitively, what Trump claims is possible. Growth rates have been anemic, so doubling growth is not prohibitive, and the administra-

tion can count up 25 million jobs many ways.

With a Republican-controlled House and Senate and Trump presumably beholden to few interest groups, I hope to witness one of the few laboratory-type experiments of economic policy. The fate of supply-side advocates and the ideology may hang in the balance.

Doubling growth is the more intriguing claim.

Growth has stalled in recent decades, with some arguing that the immensity of the U.S. economy necessarily limits faster growth.

If Congress enacts the plan quickly, and Trump makes it clear that the government is no longer the trough from which firms feed, we may see an allocation of resources away from lobbying seeking privilege and toward innovation and production.

Investment in research and development leads to new products, services and technology that defuse through the economy fairly quickly, generating growth and the accompanying employment.

Welcoming repatriated profits, estimated at more than $2 trillion, represents an enormous source of capital to expand production and fund research and development. Lower business taxes represent an SEE MCCLOUGH, PAGE 12

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Web Talk Re: Democrats opposing Trump The Democrat vermin have no teeth now. The Republicans have the Harry Reid nuclear option now!

The election of Donald Trump wasn't just a victory for a political party; this is a revolution.

We have the power to wipe out all the evil the Democrats have done since Woodrow Wilson.

These Democrat vermin can't stop us.

— John Jett Sherrod Brown, you are now irrelevant! Thank Harry Reid and his nuclear option!

You have earned it. You are an obstructionist to liberty serving as a progressive communist in the Obama Democratic Party of jihad deplorables.

— 216265 The liberals (progressives) hate the wealthy and successful people in general. It's possibly why they lost the election. The American people are tired of the do-nothing politicians like Sen. Sherrod Brown.

He hopes Trump will fail, even at the expense of the country. Shameful. — Allan Wood

Re: Fake news It is refreshing to see news editors tackling this topic, as Crain's publisher/editor Elizabeth McIntyre did in her Dec. 5 column.

Fake media and biased spinning on actual stories frustrates me, because instead of getting closer to resolutions, there are just more angles to look at until it spirals so far out of control that no one can tackle the original issue.

Education needs to include subjective and objective thinking classes again instead of just standardized testing on school subjects. It is great if students can ace classes, but if they can't form an opinion on what is in the world around them, they are not being fully educated.

— Wendy Fitos

Actually, education of individuals is not enough.

That's not how basic social influence works, and social media users like the man who runs the disinformation site DenverGuardian.com know that.

So do the other young men like him operating out of their bedrooms in Eastern Europe, and so do Putin and his surrogates.

We are all naturally susceptible to believing only information that confirms our belief systems.

These “entrepreneurs” understand that people with a particular worldview are susceptible to these kinds of stories and prey on them. Media and government will have to do more than educate our population.

We know that lies repeated over and over again seep into our beliefs, even for those of us who know they are lies. We as a society need to find ways to make it unprofitable for these people to engage in their businesses. — Lisa P. Ganyier I agree that educating our youth is important in separating electronic fact from fiction, but am concerned by the clearly liberal bias of our educators.

Will they be truly focusing on “facts” or will it be facts through a liberal lens? One only needs to look at Plain Dealer headlines and New York Times stories to see that the line between reporting and editorializing have been banished from the front pages. — James Wert

575 JOBS. THAT’S WHY. WE ARE ECONOMIC DEVELOPMENT EXPERTS. A recent inSITE project preserved 450 jobs and created 125 more for the City of Cleveland.

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MCCLOUGH CONTINUED FROM PAGE 11 incentive for firms that retain more of the reward associated with investment of all kinds. Lower personal income taxes create disposable income to buy goods and services. The increase in economic

CRAIN’S CLEVELAND BUSINESS

activity creates more employment opportunities that fuel expansion of the process. Ideally or idealistically, the expansion of the economy will generate more tax revenue despite lower marginal tax rates, which can contribute to a budget surplus that reduces the national debt.

What Trump proposes is possible, but so is communism, on pa-

per. Reality — and politics — tend to interfere.

The principle threats to economic success are almost entirely political.

First, the Affordable Care Act along with entitlements will continue to demand the lion’s share of the federal budget. Deficit reduction can only occur with entitlement reform. The president-elect will have to work with Congress to affect

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Trump predicts that economic growth will double and create 25 million jobs. Opponents claim the tax cuts will contribute to a larger national debt.

Theoretically and intuitively, what Trump claims is possible.

SUDOW CONTINUED FROM PAGE 10

WINE

will that have on the adoption of new products? Would new legislation include wellness and remote digital health care? If yes, this could open up opportunities for innovation?

DOWN

Trade

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The trade issue reverberated in the Midwest and may have been a catalyst for the election result.

How will restrictions on trade impact U.S. products in the global marketplace? And how will it restrict high-quality innovation from entering this country? Could there be a backlash against U.S. companies trying to achieve a global market? Could a new trade policy restrict innovation from entering the United States? What impact could it have on collaboration between U.S. entrepreneurs and their counterparts around the globe?

Regulation

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The new administration has made a point during the campaign of suggesting the streamlining of federal regulations on business.

This could open up opportunities for innovations, and it makes bringing innovation to the market simpler and less costly, depending on what areas the regulation reform is targeted. It will be important to track these changes and to understand how they impact, if at all, your business.

Being a few weeks removed from the election leaves us with many questions that during the next months

meaningful entitlement reform.

Unfortunately, there is no one in Congress who is not beholden to some special interest that will fight reform at all cost. Entitlement reform likely demands that all lose in order to win, which is a tough sell to the American electorate, but then again maybe this electorate is different?

Second, the United States is in a state of perpetual war that reportedly adds more than $1 billion each day to the national debt. While a total withdraw of troops from around the world is nearly impossible and irresponsible, a Trump administration may be well-suited to insist that beneficiaries incur a greater proportion of the burden.

Recall that the collapse of the Soviet Union was, in part, due to Moscow’s inability to subsidize the inefficiencies inherent in the system while fighting Afghan warlords for a decade. Sound familiar?

What Trump proposes is possible, but neither the president-elect nor the U.S. government or military will have anywhere near the control over political events at home or abroad that is needed to usher a successful implementation of the entire economic plan.

We will have to wait to see what happens.

McClough is an associate professor of economics at Ohio Northern University.

What signs should entrepreneurs and innovators be looking for with the change in administrations?

The five areas that will have the greatest impact are as follows: n Taxes n Immigration n Affordable Care Act n Trade n Regulation and years will begin to be answered.

As entrepreneurs and innovators, it is incumbent to stay on top of these issues and to understand how change affects your business. Additionally, staying agile will be an important quality to have as you work to understand and adapt to change.

A change in administration brings uncertain and opportunity — two words that true entrepreneurs thrive on.

Sudow is the director of the Burton D. Morgan Center for Entrepreneurial Studies at Ashland University and an adviser to eHealth Ventures and to SCI, a Chinese investment group.

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ANALYSIS

Parker Hannifin is hot in Cleveland with smart deal BLOOMBERG GADFLY

Rare M&A participant Parker Hannifin Corp. is striking while the iron’s hot.

The Mayfield Heights-based manufacturer of motion-control technology announced Dec. 1 that it’s acquiring Franklin, Tenn.-based Clarcor Inc., which makes air and liquid filtration products used in everything from bus engines to oil drills as well as at manufacturing plants. At a total value of $4.3 billion, including net debt, this is by far 99-year-old Parker Hannifin’s largest acquisition.

Despite its own $19 billion market cap, Parker Hannifin has stuck with

mostly tiny deals over the past decade. But back in October during the company’s first-quarter earnings call, CEO Thomas Williams hinted that something was brewing.

“What historically the last couple of years has slowed us down as far as converting more acquisitions has been the price/valuation gap,” he said. “And what we’re seeing now — and I would hope over the next couple of years we’ll continue to see this even more — is I think sellers’ expectations coming closer to reality.”

This is evident in Clarcor’s share price and valuation over the past two years. Clarcor had sold off to as low as $44.29 a share in January, giving it an enterprise value equal to 10 times trailing 12-month EBITDA (earnings

before interest, taxes, depreciation and amortization). That was way down from more than $65 a share, or 15 times EBITDA, in late 2014.

While Clarcor had bounced back in recent months, Parker Hannifin’s $83-a-share offer still looks pretty good. It’s a decent 24% premium to Clarcor’s average closing price over the past 20 days, but also 42% higher than its average price this year.

The all-cash transaction also values Clarcor at 18 times trailing 12-month EBITDA, notably higher than a couple other recent deals for U.S. industrial manufacturers of similar size. Berkshire Hathaway Inc.’s $37 billion acquisition of Precision Castparts valued the aerospace-components maker at about 14 times

EBITDA, while Rockwell Collins Inc.’s $8.3 billion offer for B/E Aerospace Inc. implies a similar multiple.

However, unlike some other deals that came about in the M&A boom of the past couple years, Parker Hannifin’s bid price looks to be sound and strategically, it’s a sensible move.

Parker Hannifin says Clarcor complements its own filtration offerings and bolsters its presence in a “growing and resilient business.” Pollution control and air purification seem like industrial needs that probably aren’t going away. The company projects annual cost savings of about $140 million starting from three years after the deal closes and the businesses consolidate their supply chains.

Parker Hannifin also has been

generating a ton of cash and its $1.1 billion of net debt as of the latest quarter was less than its trailing 12-month EBITDA. Since the post-election rally in industrial stocks in particular, Parker Hannifin shares have blown past analysts’ estimates. It also recently gave updated sales and earnings guidance for the year that was better than expected. And on Dec. 1, following the deal announcement, Parker Hannifin traded at a record high.

Its careful growth planning and balance sheet discipline is turning this longtime Northeast Ohio manufacturer into a new investor favorite.

In a time of otherwise rash M&A decision-making, Parker Hannifin stands out.

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CRAIN’S CLEVELAND BUSINESS

The Dish: Susan Condon Love

Local brewers ensure holiday gifts aren’t returned Beer drinkers’ love of holiday brews, a market pioneered locally by Great Lakes Brewing Co. in 1992 with its Christmas Ale, is in its full glory this month as consumers happily clear shelves of their favorite winter beers.

But as they enjoy such offerings as the 12 Dogs of Christmas and Festivus Holiday Ale, consumers may vaguely remember their annoyance as “seasonal creep” brought some fall brews to stores as early as August.

With the holiday sales window so small and the craft beer market so lucrative — 2015 saw a 12.8% increase in production nationally — is it smart for companies to roll out seasonals early to take advantage of consumer interest? But if they do, by the time December rolls around, have the beers passed their peak?

“Last year, I think there was a problem with … overproduction, introducing seasonal too early and leftovers,” said Bart Watson, chief economist with the Brewers Association. “We have seen an adjustment this year to avoid those problems.

Brewers are talking more to their distributors and paying attention to the numbers.”

Northeast Ohio brewers did, indeed, feel pressure to provide the holiday beers early, but some only pushed the schedules up slightly.

Others, including Great Lakes Brewery and Market Brewery, did not move up production of their holiday offerings at all.

The temptation to roll out earlier is understandable. Nationally, the craft beer market’s sales were $22.3 billion in 2015. On average, seasonals account for about 20% of all craft beers in Ohio, Watson said.

“We’ve seen season creep in nearly every aspect of retail, but season

Susan Condon Love is a freelance writer who was an editor and writer at The Plain Dealer, The Las Vegas Review-Journal, the Savannah (Ga.) Morning News and The Annapolis Capital.

creep in beer is very much missing the point,” said Sam McNulty, co-founder of Market Garden Brewery and Bier Markt, among others.

Market Garden produces Franklin Caste Pumpkin Spiced Ale and Festivus Holiday Ale in fall and near the holidays.

“When pumpkin ales are out in June, it really misses the mark on true seasonality of ingredients,” McNulty said. “Fresh craft beer always tastes best, and if a pumpkin ale hits retail shelves in the middle of summer and is still around in the fall, it is not going to be fresh.”

Market Garden introduced this year’s seasonals on the same schedule as 2015: September for its Franklin Caste Pumpkin Spiced Ale and October for its Festivus Holiday Ale. “Happily, we’re faced with the good problem of not having enough capacity to keep up with demand for our seasonal beers,” McNulty said.

“In fact, at some point this week (week of Dec. 5), we’re going to run out of Festivus Holiday Ale despite having brewed what we thought would take us through the holidays and into late January.”

The overflowing craft beer market has forced brewers to be strategic about seasonals, which have seen some market saturation and some-

Seasonal beers account for 30% of the Thirsty Dog Brewing Company’s production. (Contributed photo)

what of a sales growth slowdown the past two years, according to the Brewers Association.

“We (worked) with distributors to see their projected numbers for (holiday) brews, as well as our projected numbers,” said John Najeway, co-owner of the Thirsty Dog Brewing Co., where seasonals represent 30% of its production. “This year, we went with less than the distributor’s numbers and more than our number — somewhere in the middle.”

Najeway said the brewery, which makes the 12 Dogs of Christmas Ale, doesn’t want a holiday glut.

“The good and bad news is that we

are now pretty much sold out,” he said. “We’ve gotten some new orders and we cannot fill them.”

Great Lakes, which distributes its beers in 13 states and brews more than 160,000 barrels annually, uses a similar strategy in that it works with distributors to forecast demand.

“The goal is to meet consumer demand without having a seasonal lingering in the market beyond its time,” said Bill Boor, Great Lakes’ CEO, who added that there is pressure to come out early to grab premium placement in stores and on tap handles. “Finding the sweet spot can be tricky, but ultimately our decision on how much

to produce is informed by past sales, industry trends and consumer confidence.”

But Great Lakes officials aren’t worried about having Christmas Ale on shelves past Christmas.

“We’re more concerned with making sure beer within the freshness date printed on the side of the bottle is being sold above anything else,” said Boor, who added that some batches have dates going well into February.

Matt Cole, co-owner of Fat Head’s Brewery and Saloon, agreed that the pressure to “be the first” and stand out from the other seasonal brews can be intense.

“We would rather be short than long,” said Cole, who estimates that seasonals comprise about 25% of Fat Head’s current production of 28,000 barrels a year.

Fat Head’s, too, consulted with its distributors and studied last year’s sales to decide the timing and quantity of its holiday releases. The release date of its Holly Jolly Spiced Ale was at the start of November, and if all goes as planned, the brewery expects to be sold out by January.

“Their sales really help our thirdand fourth-quarter earnings,” he said. “It forces us to be strategic, without sacrificing our core beers (production).”

Great Lakes stands by its historical release schedule.

“We have our first pour tradition at the pub, which we typically celebrate in late October, then release Christmas Ale in our markets within a week or so,” Boor said.

He added, “It’s tempting to chase the sales, particularly when we know others are competing with us ... but we stayed the course this year. Christmas Ale, after, is all about tradition.”

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Focus MIDDLE MARKET

ADVISER - Page 16 | BREAKFAST WARS - Page 17 | GIVING BACK - Page 18

When making sure they swim is the only option iStock

Assistance funds ease worker worries amid personal hardships

By DOUGLAS J. GUTH clbfreelancer@crain.com

When it comes to hardship, Hyland Software employee Nick Holmes’ family has endured its share.

Holmes, a professional development specialist with the Westlake-based company known for its OnBase product, has two young sons diagnosed with autism spectrum disorder, requiring expensive services and therapy not covered by Hyland’s insurance. A clinically proven treatment for his 7-year-old son, Andrew, costs upwards of $30,000 outof-pocket annually.

Thanks to an employee-funded emergency assistance program created by Hyland, Holmes was able to defray part of the cost for the pricey therapy, getting Andrew ten weeks of much-needed treatment that would have been financially unsustainable otherwise.

“My son is doing so much better,” said Holmes, 31. “He used to be aggressive at school, and this therapy has really helped him.”

Holmes’ story is not uncommon as more companies nationwide use employee assistance funds to ease some of the burden of those undergoing emergencies. The Emergency Assis-

Averaging more than two mergers and acquisitions a week

…for the last 15 years

tance Foundation, or EAF, which helps corporations in creating crisis grants for employees, onboards six to eight new companies each month.

The EAF has fostered 52 funds for 167 companies worldwide, covering about 1 million workers, with another 600,000 scheduled to plug into the system in January.

“These funds are hugely increasing in popularity,” said Doug Stockham, the foundation’s executive vice president. “Four or five years ago they were big with large companies, but after Hurricane Sandy and other disasters, more companies wanted to jump on the bandwagon.”

An emergency response While there are numerous employee hardship programs, most are designed as nonprofit entities that receive contributions and disburse grants to impacted staff members.

Contributions are tax deductible, and employees are not subject to a tax hit on the money they acquire. Typically, a fund’s coffers are filled by the employees themselves, Stockham said.

Once established, programs respond to emergencies of all types, from tornadoes to unforeseen sicknesses that cause unusual medical expenses.

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PA G E 16

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CRAIN’S CLEVELAND BUSINESS

MIDDLE MARKET Adviser: Brendan J. McCarthy

Tax Tips: Carl Grassi

Four unexpected ways Tax benefits to charitable giving you might feel the heat could change in coming years after closing an M&A deal As a potential buyer of a target company in an M&A transaction, it can sometimes be easy to “over promise� on a timeline to closing in your indication of interest or letter of intent, especially in an auction process with possibly many bidders. You want the deal, and you are willing to move quickly in order to secure exclusivity.

However, moving too quickly in conducting due diligence and negotiating the transaction documents could result in granular due diligence points being overlooked or glossed over or provisions in the purchase agreement being accepted “out of hand� with little to no negotiation.

M&A transactions can and should move swiftly and efficiently, but do not let the haste to sign the purchase agreement result in you getting burned following closing. The following describes four unexpected ways you might feel the heat after closing the transaction to acquire your target.

Retroactive insurance premium adjustments In a stock deal, the buyer takes the target with all of its liabilities, subject to claims based on breaches of representations made by the seller and line item indemnities. There is the potential for retroactive insurance premium adjustments with respect to periods during which you did not

Brendan J. McCarthy is a Cleveland-based partner in Thompson Hine’s Corporate Transactions & Securities practice group. He focuses his practice on mergers and acquisitions and commercial transactions.

own the business. If this is a real possibility, consider negotiating with the seller for a representation or a line item indemnity to cover it. Keep in mind that representations are highly likely to be subject to survival periods as well as baskets and caps, so a line item indemnity may be the preferred method to deal with this type of potential loss.

Scrapes You will no doubt accept some sort of basket on your ability to recover for breaches of representations and warranties. You should consider reading out or “scraping� the materiality qualifiers from the seller’s representations and warranties for indemnification purposes so your ability to recover is not subject to two SEE ADVISER, PAGE 18

Standard year-end tax advice along the lines of “be sure to make your charitable contributions before year-end� has been a staple of basic tax planning for decades. Given the results of the presidential election and proposals for tax reforms from other legislators, this advice may be particularly appropriate this year.

The first reason why a charitable contribution in 2016 may provide a bigger benefit than in future years is the possibility of a reduction in overall tax rates. Unlike a tax credit, which is a dollar-for-dollar reduction of the amount of tax owed regardless of a taxpayer’s marginal tax rate, a tax deduction, such as a charitable deduction, reduces taxable income. The value of the benefit of a deduction therefore depends on the taxpayer’s tax bracket.

For example, for a taxpayer in the 25% tax bracket, a $1,000 tax deduction reduces taxes by $250. But if a taxpayer is in the 35% tax bracket, the same $1,000 tax deduction would reduce taxes by $350. The value of a deduction therefore decreases as tax rates decrease.

Under President-elect Donald Trump’s tax plan, the highest individual tax rate would be reduced from 39.6% to 33%, a reduction of almost 17%. If this reduction comes to pass, the benefit of a charitable contribution will be decreased by this same percentage for those in the top tax bracket. Trump’s plan is not the only

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plan for reductions in tax rates. Other tax reform plans from Republican legislators, such as House Speaker Paul Ryan, have also called for a simplification of tax rates, including an overall reduction in the highest rates.

The second reason to consider a charitable contribution this year is that the itemized deduction for charitable contributions may be reduced or eliminated next year.

Trump’s proposal includes limiting itemized deductions to $200,000 for married couples filing joint returns.

Currently, the cap on chartable contributions is 50% of adjusted gross income for contributions to most charities, and 30% of adjusted gross income for contributions to private foundations. A taxpayer with an adjusted gross income of $1 million would therefore be able to contribute $500,000 to most charities this year, but (under the proposed plan) would be limited to $200,000 for all deductions including charitable contributions, interest, medical expenses and taxes. The limits under the Trump proposal would therefore significantly impair the ability of high-income taxpayers to take advantage of the tax savings that incentivize charitable giving.

Another part of Trump’s proposal would limit a very effective tax planning technique: contributing appreciated property (usually stock) to charitable organizations.

Although subject to myriad rules, securities with long-term unrealized gains may be donated to charity without paying capital gains tax on the unrealized gain. In addition,

the taxpayer can generally take the fair market value of the securities as a charitable deduction. So a contribution of stock with a basis of $10 and a value of $1,000 can give you a $1,000 charitable contribution deduction without having to recognize the $990 gain. This very beneficial rule has been the target of tax reform advocates over the years.

While short on details, Trump’s tax plan includes a proposal to limit the benefit of this planning technique for contributions made to a private foundation.

While many taxpayers might be reluctant to make a significant contribution this year and reduce or eliminate contributions in later years, one solution is a contribution to a donor-advised fund. A donor-advised fund is a separate account or fund that is maintained by a public charity. Often described as a “charitable savings account,� a donor-advised fund allows a taxpayer to contribute cash or appreciated assets in the current year to receive a tax benefit in that year and then advise the fund on grants to be made to specific charities in later years.

As with any tax strategy, it is important to consult with qualified professionals and consider the impact of the strategy on other aspects of your tax planning. This could be an interesting opportunity for many charitably-inclined taxpayers because the Trump and the Ryan proposals both provide income tax rate decreases and restrictions on the ability to take a deduction for charitable contributions in future years.

It is difficult to predict whether and when the proposed changes will occur, but in light of these proposals, taxpayers who give to charity, particularly those who are considering substantial charitable contributions, should factor the possibility of these changes into their planning for contributions in 2016.

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CRAIN’S CLEVELAND BUSINESS

Fast food breakfast war?

Julius Dorsey was lovin’ it

By MARK OPREA clbfreelancer@crain.com

In The Art of War, the military strategist Sun Tzu wrote that, “If you know your enemy and know yourself, you need not fear the result of a hundred battles.” From his role as hobbyist hunter, gridiron star, or marketer, Julius Dorsey’s life seems to be comprised of many battles, those often won with the right knowledge. At least that’s how he may see it.

At 64, Dorsey is one of Cleveland’s top competitive strategists with his own firm, Dorsey & Co., which has an impeccable resume — from consulting KeyBank to Case Western Reserve University — and a pinpoint methodology that revolves mostly, for his clients, around a carefully wrought takedown of competitors via a bullet-point list of maneuvers, from budgeting to research.

This is not just drafting a mission statement or taking out space on a billboard. No, Dorsey said, “you must think of this as warfare.”

Fresh out of college at Michigan State University, where he was quarterback for the Spartans, Dorsey was drafted by the star ad firms of 1970s-era Chicago, including J. Walter Thompson. But it was after working for Burell, where Dorsey was developing strategy for McDonald’s expanding the black consumer market when the precocious marketer’s career began to really pick up.

In 1976, he was recruited by McDonald’s advertising department and moved enthusiastically to its headquarters in Oak Brook, Ill. It’s there, over roughly eight years, that Dorsey would help create, market and sell some of the fast food chain’s most iconic products— the McRib, Egg McMuffin, Filet-O-Fish — with the help of, on average, about a dozen market researchers. He took on nearly hundreds of commercials, made McDonald’s USDA-friendly, and one time saved the Chicken McNugget from near extinction.

Roy Bergold, who spent 32 years in

McDonald’s ad department, remembered Dorsey’s hire when the company itself was changing, as Bergold said, “beyond just that of a cheeseburger.”

Dorsey “If you were good, you got a raise. Bad, you were fired,” he said. “A bright guy like Julius, back in 1976? He was young, but he was smart. And that’s exactly what McDonald’s was looking for.”

Dorsey’s genius couldn’t have arrived at the Golden Arches at a more bustling time in fast food history. Just as Bergold, Dorsey and crew were figuring out how to sell their new McMuffin, Americans were beginning to spend upward of $7 billion dollars on fast food annually. Fast food was beginning to shape social trends en masse — and breakfast had yet to catch on.

It’s around this fact where the team persuaded then-McDonald’s head Ed Ramsey to create a full-out breakfast menu, open at 6:30 a.m. instead of 11 a.m., as to subtly create an alternative to the slowly fading American diner, or as Dorsey saw them, another potential competitor.

Yet, they weren’t alone in the market. Hence, the so-called Breakfast Wars of the 1980s, when the top ad reps at McDonald’s, like Dorsey, were competing against other fast fooders like Burger King and Wendy’s. It’s where one’s competitive strategy is weighing the outcome of millions of dollars.

In the early 1980s, Wendy’s began to create the roots of their own breakfast campaign. In 1982, Dorsey and his team examined closely each of the test markets that, for example, Wendy’s was using to try out what would be their contender (mostly their omelet), and see how it appeased franchisees.

Noticing that Dave Thomas, Wendy’s CEO, was testing breakfast solely in its Columbus headquarters, Dors-

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HELP CONTINUED FROM PAGE 15

ey pulled what may have been his greatest trick to date: deceiving testers into believing that Wendy’s breakfast had national potential. An early-on ad, with a doo-wop quartet of cartoon eggs singing “Wendy’s!

Only you!” showed promise for McDonald’s rival. But Dorsey’s strategy worked. Wendy’s was doomed before yolks even touched grill.

“We thought that if we fooled Wendy’s into thinking that their breakfast is a smash hit, when they roll it out to other markets, we could crush them,” Dorsey said. “Instead of cutting marketing back, we heavied it up. We went way ahead what we’d been doing. And their product never took hold. They had to try and fight through all this advertising.”

Dorsey was right. In 1985, Thomas release a statement to the public, mentioning that after a year of testing and consumer surveys, Wendy’s wouldn’t then be joining the breakfast wars. Why? “A service problem.”

Nowadays, at Dorsey’s own firm, he works alongside 56 consultants with universities, banks and even finds inventors the sure path to patenting — all with a highly refined Dorsey-esque view on competition One that deals with, as he said, a “series of factors that give businesses the upper advantage,” and leaving others “confused, and in a state of limbo.”

“I think I just like to compete,” he said, laughing. “Although I can’t play football anymore, I suppose that’s sort of my job now. But in reality the quarterback is not the player who makes the play work. No, it’s actually the effort of the whole team.”

Hyland partnered with EAF on “Hylanders for Hylanders,” a worker-paid endeavor launched in April that provides financial relief to colleagues in need.

Full-time employees who meet program criteria apply on an internal website, with requests reviewed by EAF officials. Eligible events the fund covers include results from military actions and funeral expenses for a family member.

“The goal is to approve 100% of grants,” said Lisa Jackman, Hyland’s team lead of employee engagement.

About 250 Hyland workers donate to the effort via payroll deductions, money bolstered by outside dollars and seed funding from the firm’s executive team. Individual grants cannot exceed $5,000.

“People feel like they’re caring for their fellow employees in need when they wouldn’t have been able to previously,” Jackman said.

Holmes, who works out of Hyland’s Lincoln, Neb., office, paid $8,000 to provide his son with a shortened version of the costly behavior analysis treatment. Using positive reinforcement to improve behaviors of those diagnosed with autism, the 10 weeks of therapy cost $13,000 prior to Holmes applying for the fund.

“Without this I don’t know what we would have done,” Holmes said.

“Through the program I’m making a deal with my fellow Hylanders: Even if I don’t know you, I want to help if I can. I’m just thankful to work for a company able to help out my family and make our quality of life better.”

Cleveland Clinic’s employee hardship program is fully funded by the hospital system, offering relief for im-

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mediate needs like tardy utility service bills or a stolen car. Launched in 2009 in response to an unstable economy, the fund was initially realized as a one-time campaign, giving $491,000 in assistance to more than 700 company “caregivers.”

The venture returned on an annual basis in 2011 for all staff regardless of length of service or employment status, said Christine Bessmer, a total rewards benefit administrator at the Clinic.

Awards top out at $300 in response to any number of scenarios: For example, when an employee had a vehicle stolen on Clinic property, that individual received assistance after producing a police report documenting the theft. Another caregiver missed work to care for a sick loved one, a situation already covered by the Family and Medical Leave Act. At the insistence of the caregiver’s department, the employee garnered additional aid from the fund.

Roughly 6,000 Clinic employees have used the fund since its inception. While peak usage was in 2011, workers are currently able to reach out to the program through a partnering employee assistance service.

“Although the economy has improved over the last few years, there’s still a lot going on for our caregivers at a personal level,” Bessmer said.

Employee hardship funds are expensive to run — the average company spends $600,000 to $700,000 on grant applications alone — but benefits like reducing worker turnover and increasing a workplace’s familial atmosphere outweigh the costs, said Stockham of EAF. “When a company starts a fund, are they doing it to help employees in need or to make themselves look better?”

Stockham said. “It’s not just about checking a box. Tell your employees why they should donate, and have the program grow and be successful.”

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CRAIN’S CLEVELAND BUSINESS

MIDDLE MARKET

Giving back is part of Third Federal’s mission

By JEREMY NOBILE jnobile@crain.com @JeremyNobile

Many corporate foundations focus attention to their local school systems, but the charitable arm of Cleveland’s Third Federal Savings & Loan is setting a standard for others to follow.

It’s certainly a sign of the midsize bank’s commitment to its native Slavic Village, where the institution was founded by president and CEO Marc Stefanski’s grandparents in the late-1930s.

The bank has been quite active in the restoration of Slavic Village over the years through loans and grants supporting real estate development in one of Cleveland’s poorest neighborhoods — and a community devastated by the last housing crisis. The $12.6 billion asset bank’s own headquarters, a $30 million campus built on the site of the original building, is a testament to that all its own.

But the Third Federal Foundation was established to invest in people and programs, particularly those promoting childhood literacy, in a wider effort to fight systemic issues contributing to neighborhood blight and poverty.

The starting capital establishing the foundation came from proceeds of an initial public offering by TFS Financial Corp., Third Federal’s parent company, in 2006. A combined $5 million in cash and $50 million in TFS stock from that brought the foundation to reality in 2007.

“The idea of the foundation was to invest in human capital because if you’re going to invest in a community, you can’t do it through just bricks and mortar,” said Kurt Karakul, executive director of the Third Federal

Third Federal CEO Marc Stefanski and his children get ready to serve Christmas Eve meals to residents of Slavic Village. (Contributed photo)

Foundation. “You have to do it through education and through people. And that’s our mission.”

Nearly $24 million in grants have been made through the foundation in the past decade. Karakul says an average of about $3.5 million is given away through it nearly every year (some of it goes toward programs in communities where the bank does business in Florida).

But about $1.5 million annually has been supporting one of the foundation’s most innovative programs: its Broadway P-16 initiative (referencing pre-birth through college education, or 16 years), a public-private partnership with the Cleveland Metropolitan School District designed to take a birth-to-career vision for promoting success in young people.

A major tenet of that program is the promotion of literacy. Karakul, who sits on the nonprofit Literacy

Cooperative of Greater Cleveland, said 47% of adults in the region read at a 7th grade level or less. That’s a “literacy emergency” he said.

“That’s like half of the working population who don’t have skills to do the jobs that are required right now,” he said. “If you’re in manufacturing, you operated a computer that operates three or four machines. If you have a 7th grade reading level, you simply can’t operate that computer.”

Besides helping children pass their third-grade reading exams, promoting education should help fill local jobs. People will earn more. And an educated population should see a decrease in crime.

“That’s why we’re trying to make a long-term impact on education,” Karakul said. “It’s critical to keeping the economy competitive. We have thousands of jobs in this region that we can’t fill because people don’t

have the skills to do it.”

One of many innovative programs spun out of the foundation involves The MetroHealth System’s Broadway Health Center.

Well visits at the office — which often lead to a shortened school day for kids and their siblings as working parents shuttle their kids to appointment — were a target for reading programs. With support from the foundation and other partners, like ideastream, the lobby of that office has been converted into a reading room. During average 40-minute waits, volunteers cart in books and offer to read to kids while talking with parents about neighborhood reading programs and the importance of reading within the family.

“In an urban community, it can be hard to engage the parents because they’re working all the time. They’re busy,” Karakul said. “This was one

ADVISER CONTINUED FROM PAGE 16 threshold limitations: the level of materiality included in the representation or warranty itself and the version of the basket you accepted. As a buyer, you’ll want to “scrape” materiality qualifiers for both the determination of whether there has been a breach and the calculation of the amount of losses resulting from the breach. Otherwise, you might not recover as often or as much as you might expect to from the seller.

Sandbagging Your ability to recover for breaches of representations made by the seller that you knew about or, perhaps more accurately, that can be proven you knew about prior to closing often depends on the law the parties choose to govern the purchase agreement. Not surprisingly, the parties often choose to be silent on the issue of sandbagging in the purchase agreement, thereby subjecting the buyer’s ability to recover from the seller to the makeup of a breach of contract claim under state law, and, in particular, whether reliance is a component of such a claim. Some jurisdictions view it from a “contract” perspective — the parties negotiated the representations, and the seller must stand behind them.

Others require the buyer to demonstrate that it relied on the representations. And some take a hybrid approach. As a buyer, whether you can

way for us to engage them. And it seems to be working pretty well.”

Derrick Fulton, executive director of nonprofit University Settlement, a neighborhood center that provides social services to residents in the Broadway-Slavic Village neighborhood, applauded the efforts of the bank and its Foundation, saying they set an example for others to follow.

“A lot of employees come from suburbs like these and in work in our communities. I think we need more commitment like this,” Fulton said.

“They didn’t even have to build their headquarters here. We need to reinvest in the city and not leave it behind. That’s what they’re doing.”

The foundation is serving as a connector of other organizations to bring those programs to reality, too. And while there’s been movement in recent years with more groups joining forces, it’s that role which helps serve as a catalyst to neighborhood revitalization.

With the foundation marking its 10year anniversary next year, the goal is to continue much of the same work the group has been engaged with and, it’s hoped, those efforts will lead to long-term impact in the community.

After all, it’s an area this bank is clearly devoted to seeing thrive. Stefanski’s grandfather, in fact, was a teamster who would put homes on Fleet Avenue on stilts and hand dig the basements to drop them on a new foundation.

But investing in the local community is also simply the right thing to do, Stefanski said.

“We don’t always measure things in terms of return. We don’t exist just for the sake of being profitable,” he said. “It’s like breathing air. We, as humans, breathe air, but it’s not our sole purpose in life to breathe air.

There’s more to it.” recover for breaches you knew about may boil down to the governing law, so do your due diligence when it is being selected.

Control of third-party claims The customers of the business are an immensely important part of why you are making the acquisition. If a customer makes a claim or files a lawsuit against the business you acquired with respect to the pre-closing period, you may very well have a claim against the seller for indemnification under the purchase agreement. As is often the case, the seller retains the ability to assume control of the defense of third-party claims, putting the seller in the position of negotiating or litigating with what may be one of your best customers.

The seller is motivated to minimize its exposure to you under the purchase agreement and is not necessarily concerned with the ongoing business relationship. Therefore, you should consider carving out certain third-party claims, such as claims by major customers, from provisions in the purchase agreement related to assuming control of the defense of third-party claims.

These are just a few of the many ways your transaction can go sideways following the closing. Keep them in mind as you hurtle through the due diligence and negotiation phases of the transaction toward the signing of the purchase agreement — otherwise, you might find yourself burned.

CRAIN’S CLEVELAND BUSINESS

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Business of Life

A mix of pictures from the Beach Cliff Beacon, East Hudson Living and Living (from Kingsbury Trace in Copley). (Barb Stitzer Photography, top and bottom right, and contributed photos)

Neighborhood news: Social magazines help readers get to know the people down the street

By CHUCK SODER ccoder@crain.com @ChuckSoder

Jason Pattee feels like he knows the people who live in Rocky River’s Beach Cliff One neighborhood. Even though he lives in Avon.

How? Three years ago, he founded the Beach Cliff Beacon — a glossy monthly magazine that focuses 100% on the residents of Beach Cliff One. So he has spent the past three years reading about their kids, their vacations, their pets and their homes.

Thus, he gets it when readers tell him that the magazine helps them build relationships with their neighbors.

“I hear stories all the time of residents, they’re walking their dogs out in the neighborhood and they see someone and say ‘Oh, I saw you on the front of the Beacon,’ ” said Pattee, who runs the publication with the help of Christine Bowen, a parttime editor who lives in the neighborhood.

Over the past six years, Pattee and other entrepreneurs affiliated with N2 Publishing have launched a total of 22

neighborhood magazines in this region. The North Carolina-based company helps independent publishers produce more than a thousand similar magazines nationwide.

There is significant demand for these types of publications from both advertisers and readers, said Pattee, who in February 2015 launched a second magazine called Straight to the Pointe in Avon Lake’s Legacy Pointe neighborhood.

Flip through one of his magazines and you’ll see ads on roughly every other page. Ads for plumbers, hair salons, home remodeling companies and local stores — companies interested in reaching people in nearby, affluent neighborhoods, said Pattee, who also serves as N2’s sales director for the state of Michigan.

living Decemb er 2016

of Kingsbu ry Trace ely for the Residen ts A Social Magazin e Exclusiv

As for readers, the magazines give them a window into the lives of their neighbors. Most stories are written about residents, by residents. A typical issue might include a feature on a family who just moved to the neighborhood, a Q&A with a high-achieving student athlete and a story about a resident giving their time to a charity. The magazines also organize neighborhood events, which often are hosted by sponsors.

The magazines and events help readers get to know their neighbors on a deeper level, according to both Pattee and Brian Schuller, who publishes three N2 magazines: East Hudson Living, North Hudson Living and

Monticello Living, which focuses on the Monticello neighborhood in North Canton.

As an example, Schuller described a feature story about a man whose family recently moved to Hudson from China.

“After we ran a story about what it’s like living in China versus what it’s like living in Hudson, Ohio, people now come up to him and engage him in conversation. They feel like they have a sense of ... who he is,” Schuller said.

Jerry Emich Jr. said he has readers “who have filed away every single publication.”

In January 2011, Emich launched the first local N2

Beach Cliff BEACON A social magazine for the residents of Beach Cliff

| J U LY 2 0 1 6

magazine, Living, which has focused on Copley’s Kingsbury Trace neighborhood. He also has published Forest Living in Richfield’s Glencairn Forest neighborhood since July 2014.

Notice that the neighborhoods have specific names. The best communities for N2 publications tend to be recognizable, which makes it easier to get the attention of advertisers, he noted.

It also helps if a neighborhood has a welcoming home owners association, Pattee noted. He added that the residents of Beach Cliff and Legacy Pointe have been extremely welcoming.

“People in both neighborhoods have been trying to recruit me for years,” he said with a laugh.

Beach Cliff BEACON A social magazine for the residents of Beach Cliff

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CRAIN’S CLEVELAND BUSINESS

BUSINESS OF LIFE

Source Lunch With edgy, modern designs, Andrew Brickman of Cleveland-based Brickhaus Partners has put a distinctive, risky imprint on the region’s for-sale residential market. Brickman has built and is pursuing a total of $100 million in real estate projects on sites ranging from Cleveland Heights and Little Italy to western suburbs ringing the Rocky River valley.

However, there’s another side to Brickman: the insatiable world traveler. He just got back from a 10-day trip with his two brothers originally designed to reach the base camp of Mt. Everest.

Since one brother was delayed, they changed their plans to hike through four mountains of the Annapurna circuit in Nepal. “We had three Sherpas. We saw no other Western tourists,” Brickman said. “We ate rice and lentils the entire time, which is what the locals eat. We are so spoiled here in America compared to other parts of the world.” All told, Brickman has visited 49 countries to “see new places, experience new cultures and learn new ideas.” This year he’s also been to Prague, Abu Dhabi. Why consider Mt. Everest? He’d seen it on an earlier trip to a Buddhist monastery in Bhutan. — Stan Bullard

You’re listed as executive producer on four independent films. How did that happen?

I’m friends with author Scott Lax and got to know a lot of talented people while living in Los Angeles with a girlfriend who wanted to be an actress. When I see a script I like, I get behind it and help raise money.

The films include “Kings of Summer,” and, most recently, “My Blind Brother,” which had theatrical release in 21 cities. I was surprised it didn’t do better.

Make any money in the movies?

You don’t do it expecting to get rich.

I’ve been lucky to be successful in my business. I like film and I like to support new talent. If you buy an Andy Warhol painting, you know what you have. Finding a new artist is much more interesting.

Why did you move into home building from office leasing?

I still do real estate (office) consulting with existing clients. I wanted to do housing styles that will keep the best and the brightest in Cleveland and attract them here, especially in the city and inner-ring suburbs. They’re walkable, have more character and you have more impact.

Plus, at the time, no one was doing it. Now a lot of people are.

What’s the hardest thing about developing real estate in Northeast Ohio?

Existing suburban homes are so inexpensive here. You can find a house for $75 a square foot. In Washington, D.C., it costs $1,000 a square foot. Construction here costs

“Existing suburban homes are so inexpensive here. You can find a house for $75 a square foot. In Washington, D.C., it costs $1,000 a square foot.” what it does everywhere else, but it’s hard to get the price to support quality. We push it all the time.

What do you think of President-elect Donald Trump?

Well, I didn’t support him. But he’s going to be our president. I hope he can bring our country together. I’m sick of all the divisiveness. He’s also a real estate developer, so maybe he’ll be good for the development business.

Where did you grow up?

I lived in Warrensville Heights until I was 7. Then we moved to Shaker Heights.

Where did you go to college and what did you study?

I studied environmental design at the University of Colorado’s architecture program. However, I received a BS in finance.

You had to learn residential development somewhere. Where was that?

I worked with (real estate developer and owner) Ken Simon on converting

Andrew Brickman

two office buildings to apartments downtown that became 1020 Huron and The Osborne. I don’t have an ownership interest in either one, but I learned a lot. Ken was a great mentor for me.

What’s next on the project front?

Is there anything we’ve not covered?

I’m about to do a townhouse development in Beachwood I’ve been working on for three years. I’m also trying to do a lakefront development in Rocky River. I own two houses across the street from The Normandy. It’s designed as singlestory living, which is what aging baby boomers want. It’s four stories tall but only looks like it’s two stories tall from Lake Road. There will be 30 units of 1,500 to 3,000 square feet.

They’ll start at $500,000. There are two dilapidated houses on it that are going down. I need support from four council people to get the zoning for it. There’s some opposition. But if it doesn’t pass, I won’t quit. I’ll keep talking to people until I find a way to do it.

Where do you live now?

I live in Hunting Valley. I rent a house.

I want to live at the project in Rocky River. All the units will have views of Lake Erie.

How do you spend your free time besides traveling?

I love to read. I’m reading a couple business books. One is "Good to Great." I’m also reading "The Snow Leopard." I also do power yoga. I don’t have the knees anymore for basketball and tennis.

REAL ESTATE

Five Things: SINGER JIM BRICKMAN? He’s my cousin. I get asked that question five times a month.

FIRST JOB, AND FIRST REAL ESTATE JOB? Right out of college I worked, or maybe I interned, with the Council of Smaller Enterprises.

I’d majored in architecture and real estate but wanted to know what different businesses are like. That showed me. I started my brokerage career with King Group in Beachwood.

WANT TO DO A DOWNTOWN CLEVELAND DEAL? I’m always looking for opportunities. We’ve demolished 30 homes to start One Seventeen in Ohio City on the west end of Hope Memorial Bridge.

WHAT’S YOUR FAVORITE MUSIC IN THE CAR? I talk on the phone in the car.

DO ANY PROJECTS OUTSIDE NORTHEAST OHIO? I have some things in Florida and Kiela Villas in Mexico. I looked for something in Tulum because it’s the most beautiful beach in the world.

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CRAIN’S CLEVELAND BUSINESS

TRAUMA CONTINUED FROM PAGE 1 Also within those months, UH admitted 1,450 patients with a trauma diagnosis and treated and discharged or transferred 604 patients with a trauma diagnosis.

The American College of Surgeons will visit UH in February to review its first year and determine whether the center will become a fully designated Level 1 adult trauma center. This would be an addition to its Level 1 Pediatric Trauma Center, which admitted 669 patients from January through October this year.

Though the designation is an important milestone for UH and would shift the adult trauma center from provisional to full status, it doesn’t change capability or operations, Anderson said.

UH’s announcement in May 2015 that it planned to open its own Level 1 trauma center stirred community-wide debate. The plan was embraced by public officials, particularly those on the East Side who felt there had been a void in the area for such care since the Cleveland Clinic shuttered Huron Hospital in East Cleveland. Opponents, including MetroHealth and the Northern Ohio Trauma System, argued that the move was financially driven and that a competing center could negatively affect care.

The Northern Ohio Trauma System, or NOTS, is a regional trauma network that brings together various entities involved in trauma work — be it at Level 1, 2 or 3 centers — to share data and protocols and review outcomes and processes.

As of now, UH is not a member, which Anderson said was a sore spot for many.

There have been some meetings to outline a new regional trauma organization, Anderson said. He declined to provide detail other than to say, “I think as 2017 begins we’re going to have some pretty good news.”

Edward Eckart, assistant director of public safety for the city of Cleveland and member of the NOTS Advisory board, would like to see UH at the NOTS table, which he said is a necessity in order for the group to reach its full potential. For EMS work, the addition of a second Level 1 center has meant revamping protocols to accommodate the decision-making process that now takes place on a scene to choose the appropriate hospital, said Eckart, who oversees EMS and fire for the city.

They’ve also had to make some operational adjustments, he said. Previously, when an ambulance was transporting a patient to MetroHealth from

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the East Side, it would be out of service and another would have to cover the area where it had been stationed.

When UH came online, it lessened the out-of-service times for EMS. There wasn’t much of an effect on response time, Eckart said, because trauma accounts for only a couple thousand of the roughly 75,000 people transported in a year.

If UH were to become a member of NOTS, he said the shared data would help give a full picture of what the East Side Level 1 trauma center has meant.

“It’s a big piece of the pie that’s missing from the overall picture of trauma within Northeast Ohio,” Eckart said. “It would be nice to see this loop finally closed so that we’re all functioning under the same guidelines, same protocols.”

Eckart commends the hospitals for their collaboration in the past several

D E C E M B E R 12 - 18 , 2 016

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PA G E 21

years in overall health care delivery in the community. The most recent visible effort being coordinating preparation for the Republican National Convention over the summer.

Anderson said the ultimate measure of the success of two Level 1 trauma centers will be improved outcomes.

“That same collaborative spirit that we felt preparing for and then being a part of the RNC, how do we continue to move that forward?” said Anderson, who is leaving UH at the end of the year to become president of the University of California San Francisco Benioff Children’s Hospital. “How do people get rapid access to trauma care? How does that trauma care continue to decrease mortality?

Quite frankly, how do we continue to improve trauma prevention?”

If trauma outcomes are positive, then great, Boutros said. But if not, “We’ve gotta fix it, because that’s lives.”

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CRAIN’S CLEVELAND BUSINESS

states,” according to the organization’s Accountable USA report.

ODSA, Goodman said, does not expect to reach 100% compliance.

“We realize we’re taking risks when we invest state dollars in job creation and the capital investment plans of these companies,” he said. “But we’re doing a better job of identifying good investments.”

Goodman credited JobsOhio, the state business attraction nonprofit, and its network of regional economic development agencies with providing ODSA good projects to invest in.

He also said that while some companies didn’t deliver on their job creation promises, overall, businesses in ODSA programs in 2015 actually added 119% of the jobs agreed to in their incentive agreements.

Leon Polott, president of AlSher Titania and its Cleveland-based parent, 5iTech LLC, said his company’s growths plans have stalled because it has been hit hard by the dip in the oil and gas industry. “The clawback is just a bump in the road,” he said of the loss of the state grant money.

That kind of swing and a miss is unusual. But it’s not uncommon for a company to achieve 90% of its target, or, for that matter to exceed the goal by 10% or more. So agencies give companies some leeway before canceling a tax credit or seeking a return of a grant.

“It’s not an exact science,” said Peggy Weil Dorfman, Solon’s eco- Staying in line nomic development manager.

ODSA director David Goodman, JobsOhio began offering incentold Crain’s compliance with the tives in 2014 and made its first pass at goals set in financial incentive evaluating its programs in its recently agreements is improving and the at- released “2015 Metric Evaluation.” torney general’s reporting, which JobsOhio found that the 31 compabegan in 2011, backs that up. In nies whose incentive programs were 2011, the compliance rate was 59.1% evaluated created 558 jobs and fixed and has been rising annually to this asset investments of $117 million. In year’s 84.8%. both cases, those achievements exTypically, a company is consid- ceeded the original commitments ered to be falling short if it creates the companies made, creating 117% less than 75% of the jobs promised or of the jobs expected and 133% of the the investment made. Depending on capital investment. the specifics of how a company is But JobsOhio, a private nonprofit falling short, ODSA or another agen- corporation that benefits from the cy may reduce a six-year tax credit to profits of the state’s liquor monopoly, perhaps three years or raise a loan does not disclose details about its ininterest rate one or two percentage ternal operations, so its evaluation points. report does not identify how individGood Jobs First, a nonprofit watch- ual companies performed. dog group based in Washington, The economic development agenD.C., that is generally critical of gov- cies of Northeast Ohio cities and ernment incentive programs and the counties have a longer history of way incentives are monitored, be- monitoring financial incentives. In lieves Ohio’s current disclosure prac- fact, all agencies contacted reported tices do not provide sufficiently de- 100% “substantial compliance” with tailed information, “but are useful financial incentive goals. That means tools nonetheless. Ohio’s economic that while some goals may not be fuldevelopment spending is substantial ly achieved because of changes in the PAGE 22 μ DECEMBER 12, 2016 μ CRAIN'S CLEVELAND BUSINESS but more transparent than in most business climate or the conditions in

a particular industry, only partial clawbacks or changes in agreement terms were sought, not a cancellation of the incentive.

In a presentation late last month to Cleveland City Council, Mayor Frank Jackson’s economic development director Tracey Nichols reported that 12 of 19 loans reviewed were in compliance and the seven that were not in full compliance were considered making significant enough progress to justify not canceling all or part of the financing extended.

One loan, to Arbor Park Place LLC, was continued even though it had created only 63% of the anticipated jobs. The developer made 100% of the agreed-upon financial investment and keeping the Arbor Park Place shopping center open, which is anchored by a Dave’s supermarket, is considered an important neighborhood asset.

Similarly, all 125 awards reviewed by 16 Cuyahoga communities, Summit County and the city of Akron were determined to be compliant with the terms of their awards.

One exception is Solon, which in September rescinded job creation grants to two companies, Techtron Systems and Valtronic Technologies, after they failed to meet job or payroll creations goals for three consecutive years.

“Most of the companies we work with are generally compliant,” said Dorfman. “We try to accommodate the fact that things can change and we try to give companies some leeway.”

Solon expects a company to meet 75% of its goal. If it misses that target in a single year, the tax credit will be lost for that year, but it would be reinstated for the following year. Meeting 85% of the goal would mean a reduction in the credit. But if the goal is missed for three consecutive years, the credit is withdrawn.

Executives from Techtron and Valtronic did not return email requests for comment by press time.

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RATNER CONTINUED FROM PAGE 1 The families manage the Class B shares as a group through RMS Ltd., a partnership that holds and administers Class B stock contributed to it by members of the founding families whose initials form RMS. Grappling with governance finally moved to the fore after a multitude of difficult moves since 2011. Exiting the land development business, selling its cash-rich military housing business and this year’s dramatic conversion to a real estate investment trust have not adequately boosted the firm’s languishing share price with respect to the value of its property holdings.

While the firm has some things left to do to improve its currency with Wall Street, the proposed pact to replace the founding families Class B shares with 1.31 shares of Class A shares is likely the biggest, or bitterest, step to take.

The market responds The stock market certainly liked the idea: Forest City stock climbed almost 9% between the opening price of $19.80 a share Tuesday, Dec. 6, when the pact was proposed and the close at $21.18 on Thursday, Dec. 8.

Paul Adornato, senior REIT analyst at BMO Capital Markets in New York City, said in a phone interview he had thought the stock would tank after the announcement in October by the independent directors that RMS could not strike a deal. Instead, it fell after Forest City announced Nov. 3 in its third-quarter financial results it was taking a $300 million impairment charge on its Pacific Park development in Brooklyn, a joint venture with The Greenland Group of China.

“Investors had, in my mind,” Ador-

nato said, “become very fed up with all the impairments. In my surmising, that is when the family called their advisers and said they would look closer at the proposal.” Even so, the gain in Forest City stock after the proposed pact went public allowed it to regain ground to where it was before the third-quarter financial results were released.

Although Scopia management, Forest City’s third-largest investor, jointly announced with the company support for the proposed plan, another long-term, major investor in Forest City played a behind-thescenes role in the events. Moreover, the change in Forest City holdings by Third Avenue Management, a multibillion-dollar investment fund, epitomize Forest City’s woes with investors.

On Oct. 4, 2011, Third Avenue suggested in an SEC filing that Forest City consider a long list of steps to improve operations and consider unfolding the dual share structure — at the time, almost 20 million shares of Forest City stock, or 13.3% of the shares. Now Third Avenue is Forest City’s 12th-largest shareholder, according to its most recent SEC filing on Sept. 30, with 5 million shares.

Moreover, Third Avenue sold 371,000 shares in the prior quarter, the filing said.

A Third Avenue Management media contact, Dan Gagnier, said its management declined to comment on its sentiment about the company accepting its long-ago dual share idea.

However, in an Oct. 30 report to investors, Third Avenue said it likes Forest City and two other property companies, Brookfield Asset Management of Toronto and Vornado Realty Trust of New York, because they have substantial holdings in major cities that can benefit from growing urbanization and the rising popularity of city apartments.

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Almost all in the Ratner family Charles Ratner, Forest City chairman of the board, former CEO At year’s end, will retire and leave the board after 50 years with the company. Credited with launching multiple measures to modernize Forest City operations.

James Ratner, executive vice president of development Will be appointed to the board as executive chairman.

When that occurs, he will relinquish management responsibilities at the company as executive vice president of development. He has been with the company for 40 years.

Brian Ratner, Forest City executive vice president, heads its Texas office He is a 20-year veteran of the company and board member since 2001. He is one of three Ratner family members able to continue to hold board seats if the share pact is approved.

Deborah Ratner Salzberg, president of Forest City Washington, D.C. A former justice department attorney, she has worked at Forest City since 1985 and has been a board member since 1995.

David LaRue, CEO and president Has worked at the company since 1986. He became a director when he was named CEO in 2011.

Ron Ratner, executive vice president of development Will become the executive vice president in charge of Forest City’s development unit when James Ratner, who shares the same job, leaves management. Ron Ratner has been a director since 1985.

Here to stay Even with the proposed changes, RMS will still play a big role at Forest City if shareholders approve the plan to give holders of Class B shares 1.31 shares of Class A shares. Between those and another 7.4 million Class A shares it already holds, RMS would own 30 million shares of Forest City, or 11% of the stock.

RMS would be the second-largest shareholder, only behind mutual fund powerhouse Vanguard, based on current SEC filings. In other words, it would be a major shareholder rather than a minority shareholder with voting control.

Moreover, under the agreement, Brian Ratner and Deborah Ratner Salzberg or other RMS appointees would remain board members through 2020 as long as RMS continues to hold a certain percentage of shares. Both are adult children of longtime former CEO Albert Ratner, now co-chairman emeritus. They run major out-of-town operations for Forest City in markets the company plans to continue focusing on. Brian Ratner runs Forest City’s Dallas office and Salzberg its Washington, D.C., office.

The proposed agreement also calls for James Ratner to become executive chairman. He replaces former CEO Charles Ratner as chairman after he retires at the end of this month. Charles Ratner’s director’s seat will be one of two held by new independent directors.

That shift also fits CEO David LaRue’s streamlined reorganization of the company. The move would leave Ronald Ratner as head of its development unit, a post originally shared with James Ratner. Board member Bruce Ratner will also step down from the board by year-end, though he will continue working at its New York op-

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eration, the largest concentration of Forest City properties.

Agreeing to give up the dual share structure is perhaps more significant for the company than another big move, the naming five years ago of LaRue as the first non-Ratner to serve as CEO. Charles Schulman, president of Beachwood-based Carlyle Management real estate firm, grew up knowing the Ratners because his father did business with Forest City, including heading the company that sold Terminal Tower to Forest City. He sees the founding families relaxing their grip on the company as a major move.

“It’s a courageous move on their part,” Schulman said in an interview Dec. 8. “It changes the way they (family members) are perceived around town.”

Schulman is certain the proposed change is yet another long-planned, much-studied move by RMS. “They’re not the kind of operators who ever jumped into anything,” Schulman said.

Until, in this case, when they were pushed after many other draconian steps failed to produce results.

Previously, LaRue and Robert O’Brien, chief financial officer, had said on conference calls the company would consider the dual-share structure after steps to improve its books and operations if the stock did not rise.

BMO’s Adornato estimates the company should be worth $31.40 a share if its underlying real estate portfolio is properly valued. That is a long way from the current share price.

“This opens up the situation so that investors, both current and future, can take a better look at Forest City operations,” Adornato said. “We don’t have to focus on this very big negative.”

In the news release announcing the agreements, Charles Ratner, Forest

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City chairman, stressed the decision advances the company’s evolution.

“After carefully reviewing the company’s options to further enhance value for shareholders, we determined that now is the right time to collapse the dual-class structure,” Charles Ratner said Dec. 7. “Today’s announcement will strengthen the Company’s corporate governance profile by aligning voting rights with the economic interests of all our shareholders. We are pleased to have reached an agreement and are confident that Forest City is well-positioned for the future.”

If adopted, the change also signals the end of the unique family atmosphere that surfaced at Forest City’s annual meetings.

When Charles Ratner began his 16-year tenure as president and CEO in 1995, Sam Miller, now co-chairman emeritus, remembered taking his nephew on a trip to downtown Cleveland as a lad dressed by his mother “in a sailor suit.”

The change also will turn the page on a generation that took Forest City from a big regional developer to a national one. The spirit of the change also follows the company’s sale of its most high-profile property here, with K&D Group of Willoughby buying Terminal Tower and affiliates of Cavaliers owner Dan Gilbert buying The Avenue.

The late Max Ratner, at an annual meeting of stockholders in the 1980s, remarked on the company’s growth by recalling how as a boy he helped unload lumber from rail cars for the family’s new garage-building business. And the company since went from garages to a lumber yard with a chain of do-it-yourself stores and, finally, to solely real estate, but with properties spanning the nation.

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