Crain's Detroit Business June 28, 2021, issue by Crain's Detroit Business

BHARGAVA: 5-Hour Energy founder gets into family office game. PAGE 3

NOT DEAD YET: How these record, video stores are still going amid decline. PAGE 8

CRAINSDETROIT.COM I JUNE 28, 2021

CHILD CARE

THE CHILD CARE CONUNDRUM NIC ANTAYA/SPECIAL TO CRAIN’S DETROIT BUSINESS

How an expansion of state-funded preschool wound up crimping Michigan’s child care industry FORUM SECTION BEGINS ON PAGE 10

Investors compete with homebuyers in tight market Big money intensifies the frenzy around residential real estate BY KIRK PINHO

A Crain’s special report: Looking ahead industry by industry as we emerge from the pandemic. PAGE 18-21

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THE WAY FORWARD

Homebuyers looking for a new spot to lay their head at night in Metro Detroit are competing for one of the limited number of houses for sale. But added to the mix: investors, who are also vying to buy homes from the same historically low pot. Their inverse goal: a spot for others to lay their heads at night.

In fact, Metro Detroit experienced the third-highest increase in the nation, by percentage points, in the number of investor-purchased homes year over year, according to data compiled by Seattle-based online real estate company Redfin. That adds more fish to the pond’s competition, in some cases, for the same worm. And those new fish can have much bigger mouths.

“For buyers, they bring not just more competition, they are cash buyers who can close quickly, making it even tougher on buyers getting a mortgage,” said Frank Tarala Jr., broker and owner of SIRE Realty Services in Rochester and a past president of Greater Metropolitan Association of Realtors, a Southfield-based industry See INVESTORS on Page 24

NEWSPAPER

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NEED TO KNOW

REAL ESTATE

THE WEEK IN REVIEW, WITH AN EYE ON WHAT’S NEXT turer, is one step closer to achieving public company status. Shareholders of Forum Merger III Corp., a Delray, Fla.-based special purpose acquisition corporation, or SPAC, on Thursday approved its merger with the EV company, and the stock is expected to begin trading on the Nasdaq under the symbol ELMS on Monday.

` EASTLAND CENTER HEADED FOR WRECKING BALL THE NEWS: Demolition of the Eastland Center shopping mall in Harper Woods is expected to begin early next year as a developer embarks on a $94.2 million project to replace the struggling property. Mayor Valerie Kindle and Riverside, Mo.-based NorthPoint Development LLC formally announced the 1.03 millionsquare-foot, three-building Eastland Commerce Center project. WHY IT MATTERS: The plans would replace the mall with space that’s in demand in the delivery-oriented retail world of today.

` ELECTRIC LAST MILE HEADED TO NASDAQ THE NEWS: Electric Last Mile Inc., a Troy-based electric vehicle manufac-

WHY IT MATTERS: Electric Last Mile is getting in on demand among investors for electric-vehicle stocks. It’s expected that the company will net about $345 million in fresh capital as part of the merger.

` MOROUN FAMILY FINISHES MCLOUTH DEMOLITION THE NEWS: A real estate development company owned by the Moroun family has completed a massive twoyear-long demolition of the once sprawling McLouth Steel plant complex along the Detroit River in Trenton. Crown Enterprises Inc., the Warren-based real estate development arm of the Moroun family’s business interests, is now looking to market the 260-acre piece of riverfront property for an intermodal use in logistics, warehousing or possibly even a new manufacturing plant, said Michael Samhat, president of Crown. WHY IT MATTERS: The demolition clears out and cleans up what has been an eyesore and one of the region’s most prominent environmental hazards.

` WAYNE PEDIATRICS GETS A HOSPITAL PARTNER THE NEWS: After a lengthy and contentious battle with the Detroit Medical Center, Wayne Pediatrics has a new home. Ascension St. John Children’s Hospital on Detroit’s east side is now the inpatient site for pediatric patients of the Wayne State University pediatrics faculty physicians practice. WHY IT MATTERS: Wayne Pediatrics patients have been without a formal hospital system since July, when the DMC terminated its relationship with the group at its Children’s Hospital of Michigan site in Detroit.

` SKILLMAN FOUNDATION NAMES NEW LEADER THE NEWS: After a six-month search that drew 100 candidates from across the country, the Skillman Foundation has named Chicago foundation executive Angelique Power as its new president and CEO. Power, 50, who has led the Field Foundation of Illinois for the past five years, officially joins the Detroit foundation Sept. 13.

Stephen Ross company gets in on District Detroit ` Billionaire real estate developer Stephen Ross and Detroit-based The Platform LLC are planning a new housing development in the Ilitch family’s District Detroit area. The Detroit City Council is considering the $500,000 sale of about 1.08 acres of property at the northeast corner of Charlotte and Third streets to Third and Charlotte Limited Dividend Housing Association LLC, an entity that lists Jennifer McCool, chief legal officer for Ross’ New York City-based Related Cos., in its incorporation documents. Richard O’Toole, another Related executive, is also named on business filings for Third and Charlotte Managing Member LLC. Platform Third and Charlotte LLC was registered in June 2020, around the same time as the two Related LLCs. A spokesperson for Related said they had no comment, as did a spokesperson for The Platform. Messages were sent to spokespeople for the Ilitch family’s Olympia Development of Michigan real estate company. The Third and Charlotte development, though comparatively small, would be a symbolic victory for the District Detroit area, which the Ilitch family in 2014 proposed as a a sprawling, lively entertainment district anchored by its Little Caesars Arena.

WHY IT MATTERS: Power succeeds Tonya Allen, who left in February to lead the McKnight Foundation in Minneapolis, at the Detroit foundation focused on children’s philanthropy.

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An entity tied to Stephen Ross’ New York City-based development firm Related Cos. is lining up to buy property from the city for $500,000. | KIRK PINHO/CRAIN’S DETROIT BUSINESS

REAL ESTATE

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REDEVELOPMENT TIMES TWO

General Motors Co.’s transmission plant in Warren closed in 2019.

Eastland developer also aims to develop GM’s Warren Transmission Plant site BY KIRK PINHO

The developer who last week confirmed its plans to tear down the Eastland Center mall in Harper Woods is also attempting to buy and redevelop General Motors Co.’s idled Warren Transmission Plant. Riverside, Mo.-based developer NorthPoint Development LLC has the 123-acre site at 23500 Mound Road under contract to purchase, with the deal expected to close in the third quarter. Warren Mayor Jim Fouts in a Thursday afternoon interview with Crain’s said it will be a $230 million investment that will create hundreds of new jobs. Fouts said three buildings are planned for the site: one at 250,000 square feet, another at 838,000 square feet and the third at 771,000 square feet, for a total of 1.86 million square feet — about the size of the transmission plant there

now. Marketing materials from JLL confirm the total building space. In April, an entity tied to NorthPoint, NP Mound Road Industrial LLC, was registered with the state at its Missouri corporate address. The property is being marketed for sale by JLL. Representatives for the Chicago-based brokerage firm, which has a Royal Oak office, as well as NorthPoint, declined to comment last week. “After a thorough marketing and bidding process, (a) prospective buyer is under contract to purchase GM’s former Warren Transmission plant,” GM spokesperson Dan Flores said in an email. “The prospective buyer is completing their due diligence prior to closing on the property. We anticipate a closing sometime in Q3 2021.” The Detroit News first reported that a developer is lined up for the property, citing Fouts’

State of the City speech Thursday and confirmed by GM later, but it did not identify the buyer. The GM plant closed two years ago. NorthPoint has a long history with former GM properties, including the 2016 purchase of 260 acres of property in and around Lansing, plus others in Kansas City, Kan., and Lordstown, Ohio. The company is also working with Farmington Hills-based LoPatin & Co. on the Eastland Center redevelopment, which would bring 1.03 million square feet of industrial and warehouse space in a $94.2 million project to the site, as well as another 682,000 square feet of space in a $49 million project to the site of the former Cadillac Stamping Plant in Detroit across from the Coleman A. Young Municipal Airport. Contact: kpinho@crain.com; (313) 446-0412; @kirkpinhoCDB

NORTHPOINT HAS A LONG HISTORY WITH FORMER GM PROPERTIES, INCLUDING THE 2016 PURCHASE OF 260 ACRES OF PROPERTY IN AND AROUND LANSING, PLUS OTHERS IN KANSAS CITY, KAN., AND LORDSTOWN, OHIO.

PEOPLE

“I DON’T CARE ABOUT ‘COOL.’ I DON’T WANT ‘COOL.’ I WANT USEFUL.” — Manoj Bhargava, businessman, philanthropist

Manoj Bhargava, founder of the company that makes 5-Hour Energy drinks.

New project for 5-Hour Energy founder: A family-office firm, among many others BY NICK MANES

The latest venture from Farmington Hills-based billionaire businessman and philanthropist Manoj Bhargava seeks to be the “anti-Goldman Sachs.” That’s according to James Housler, the founder and managing partner of Cypress Capital Family Office & Wealth Management LLC, who Bhargava has tapped to head up the endeavor. Cypress Capital seeks to be a “multifamily office” and offer a wide range of consulting services for high net worth families. Bhargava also has his own family office, SI Capital LLC. Bhargava, the founder of the 5-Hour Energy caffeine and vitamin drinks through his company Living Essentials LLC, is also the man be-

hind a slew of other projects. Those include a water purification system he plans to deploy in areas negatively impacted by climate change, and a stated plan to invest $1 billion in health startups. Bhargava — a monk turned entrepreneur and philanthropist who keeps a low profile but who talks big — in an interview with Crain’s earlier this month said that ultimately he has a fairly simple mission statement when it comes to his business and philanthropic ventures. “I don’t care about ‘cool.’ I don’t want ‘cool,’ ” he said. “I want useful.” Sales of 5-Hour Energy have been somewhat flat in recent years, and have been totaling just more than $1 billion per year in annual revenue, according to Bhargava. He said that with the introduction of new 5-Hour

Energy products in the near future, he expects that number to reach about $2.5 billion. With Cypress Capital, Bhargava and Housler say they see opportunity to bring a boutique-style level of service to wealthy clients in Southeast Michigan and around the globe. Formed in early 2021, the firm has only just started going to market and pitching its services, Housler said. Services being offered to family offices include a wide range of investment consulting, estate and tax planning, philanthropy and more, according to Housler, who has previously worked in wealth management at Telemus Capital based in Southfield, at J.P. Morgan Private Bank and others. See 5-HOUR on Page 22 JUNE 28, 2021 | CRAIN’S DETROIT BUSINESS | 3

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Brand new office space is being proposed in Detroit’s Eastern Market area. The funky food-centric area east of downtown known for its SatKirk urday (and don’t PINHO forget Tuesday) produce/flower shopping and restaurants plus other food-related businesses is the target of a $24 million office redevelopment plan by developer Christos Moisides. As part of his vision for a former cold storage building at 2529 Orleans St., Moisides, through 2529 Orleans Holdings LLC, the 63,400-squarefoot building would include 55,000 square feet of office space with the remainder being commercial space, which would feature a brewery and a restaurant. Moisides, executive member of Detroit-based 400 Monroe Associates LLC, paid $4.1 million for the building and expects to spend $17.4 million on construction and another $2.6 million in soft costs, according to a Detroit City Council briefing document. Moisides is seeking approval of a 12-year tax abatement from the city valued around $1.08 million. He said that the office market is “in transition” due to fallout from the COVID-19 pandemic, but there is room for new space. “Low-rise buildings in mixed-use areas like Eastern Market, Corktown and New Center are getting a lot of attention,” he said. “I am also seeing a lot of interest in former industrial and light manufacturing for office and flex space.” In the last three years, Eastern Market has been the center of a debate over rising rents fueled by new investment in the area. In particular, investors and developers have purchased old buildings and started fixing long-deferred maintenance issues, although that has led to concern about the new owners jacking up rents to cover their expenses in an area that has tradi-

This Eastern Market building on Riopelle Street is newly for sale for $5 million. | COSTAR GROUP INC.

“LOW-RISE BUILDINGS IN MIXED-USE AREAS LIKE EASTERN MARKET, CORKTOWN AND NEW CENTER ARE GETTING A LOT OF ATTENTION.” — Christos Moisides, developer

tionally seen rents below market rate. There has also been a bevy of buildings in the area to hit the market for sale as owners seek to cash out. In recent weeks, the building at 24622468 Riopelle St. hit the market for $5 million for its roughly 15,000 square feet. It houses Henry the Hatter and the Midnight Temple restaurant, among others. The building at 1343-1347 Fisher Freeway is also newly for sale for $1.9 million for its approximately 9,600 square feet that is home to the Plant Life CBD store. In addition, when you think of Eastern Market, you don’t often think of offices (even though, ahem, Crain Communications Inc. is right at the corner of Gratiot Avenue and Russell Street). But lo and behold, there are plans in the works for office space in a handful of projects in the area. For example, Moisides’ effort also

comes on the heels of a plan by Sanford Nelson, the developer who heads up Firm Real Estate, to build a new 40,000-square-foot, four-story building on Russell Street with the top three floors reserved for office space and the bottom floor for retail. The development would replace the now-demolished building at 2701 Russell St. That building’s mural by artist DENIAL that prominently spelled “DOOM” is expected to be re-created and enlarged on the new building’s glass facade — wrapping around the entire building, replacing the ominous word with the upbeat “DO!” The old building came down last year, although construction has not yet started on the new one. In 2018, ASH NYC, the New York City-based developer behind the $22 million rehab of the former Wurlitzer Building downtown into the Siren Hotel, purchased the 2529 Orleans building plus several others for a 110,000-square-foot mixed-use redevelopment. ASH NYC ultimately sold the building to Moisides. The other properties ASH NYC bought were at 2531 Riopelle, 2534 Riopelle, 1514 Adelaide, 1516 Adelaide and 1532 Adelaide. Contact: kpinho@crain.com; (313) 446-0412; @kirkpinhoCDB

stories of

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COMMENTARY

ike everyone who started a new job during the pandemic, Maureen Donohue Krauss spent much of her first year improvising. When the job is convincing companies from around the world to locate in Southeast Michigan, that meant showcasing the region’s assets online — and capitalizing on the ease of remote communication. “Nothing beats bringing people to our region and having them experience it for themselves,” Krauss, president and CEO of the Detroit Regional Partnership, told me during a recent conversation. “But a lot of times, the key decision-maker doesn’t come on that trip. … (Online), they can look at a building, be a part of the initial conversations and initial impressions. We can incorporate key decision-makers earlier — that’s a win.” On July 1, Krauss marks her one-year anniversary leading the Partnership, a Detroit-based public-private economic development organization that covers 11 counties in Southeast Michigan. Founded in 2019, its goal is to serve as a one-stop, confidential point of contact for businesses seeking to locate here. The Partnership began as a series of conversations between the Detroit Regional Chamber and a loosely organized group of business executives in the wake of the (unsuccessful) frenzy to lure Amazon’s second headquarters here. It has since evolved into a formal nonprofit with an 18-member board chaired by DTE Executive Chairman Gerry Anderson and jointly funded by county governments, businesses and the cities of Detroit, Novi and Southfield. Not everyone saw the need for a regional approach. The late Oakland County Executive L. Brooks Patterson, in particular, saw the nascent organization as a competitor.

GETTY IMAGES/ISTOCKPHOTO

Partnership starts to notch some wins L ROOT Kelley

Executive Editor

Clair County); FCR (professional services, home-based); XL Fleet (auto/mobility, Oakland County); Intercells LLC (smart manufacturing, Oakland County); Motiv Power Systems (auto/mobility, Oakland County); Remora Carbon, (auto/mobility, Wayne County) and Connexion Telematics (auto/ mobility, home-based.) This week, she’s celebrating news that Pace Industries, a die-casting manufacturer, is relocating its headquarters from Arkansas to Novi, along with more than 70 jobs. The dominance of mobility and smart manufacturing on the projects list is no surprise to Krauss, who considers those sectors key to future growth. “One of the stories we really need to focus on in this region is how well manufacturing has done through the pandemic,” she says. “It speaks to one of our strengths as a region.” The Partnership job was a homecoming of sorts for Krauss, a graduate of Albion College and the University of Michigan. She spent 13 years directing economic development in Oakland County and five years at the Detroit Regional Chamber before departing to Indianapolis, where she led a top-20 proposal to land the Amazon headquarters that ultimately went to northern Virginia. She returned to metro Detroit to take what she calls her “dream job” — telling the story of Southeast Michigan. Now, with the pandemic waning and the state finally opening up, she’s excited about hosting “OUR FOCUS IS ON THE MORE LONGin-person visits TERM, EXPENSIVE MARKETING AND from two national selection STORYTELLING — PROACTIVELY GOING site groups this sumOUT AND SEEKING THE RIGHT mer. Site selectors are hired by major COMPANIES FOR OUR REGION.” companies to —Maureen Donohue Krauss, president , scout out locations CEO, Detroit Regional Partnership for new or expandBut to Krauss, the mission — and the bene- ed facilities, so their interest in the region is a fit — is clear: to offer an easy entry point into big deal. The first group, Area Development, hosts a the myriad economic development efforts alworkshop here July 12-14, with guests staying ready underway in Southeast Michigan. “All of our partners work on business attrac- at the Westin Book Cadillac downtown. Then, tion,” she says. “Our focus is on the more long- on Aug. 2-4, members of the Site Selectors term, expensive marketing and storytelling — Guild will be in town at the Shinola Hotel. The 30-plus site selection consultants will proactively going out and seeking the right scope out successful local projects, hear from companies for our region.” The efforts have paid off, she says: Krauss presenters who put those deals together, meet counts eight “won” projects through May, for with local business leaders and enjoy a recepa total investment of $172 million and 1,104 tion at the Michigan Central Station in Corknew jobs. The projects are sourced through town, among other activities. “I can’t emphasize enough what an amazthe Partnership, local governments and the Michigan Economic Development Corpora- ing opportunity this is for us,” Krauss says. As the world reopens, so does the chance tion. They include Mayville Engineering (smart for metro Detroit to show itself off again. manufacturing, Oakland County); Magna Krauss and her team is making sure the red Electric Vehicle Structures (auto/mobility, St. carpet is ready.

COMMENTARY

How to make a good energy program make even more cents BY LAURA SHERMAN

President Joe Biden’s plan for cutting emissions from the U.S. building sector — responsible for almost 30 percent of total U.S. carbon emissions — includes upgrading and retrofitting 4 million commercial buildings. It won’t be cheap, at least at first, to Laura Sherman do this work, which inis president of cludes replacing heating the Michigan and cooling systems and Energy adding lighting controls Innovation and automated systems. Business The administration’s Council. American Jobs Plan proposal, for example, would steer $213 billion toward commercial and residential building efficiency. But the long-term savings justify the price tag many times over. Mountains of research have indicated that each dollar spent on energy efficiency returns $2 or more in savings. But the upfront costs are indeed a hurdle. The long-term savings dwarf the short-term costs, but people live in the short term, while the long-term picture is foggy and uncertain. Fortunately we have a proven method for reducing uncertainty and getting over that initial hump. In roughly the last decade, over 2,500 commercial projects representing over $2 billion invested have financed their upfront costs and then slowly paid back that borrowing over time through property-tax assessments. This approach, known as commercial property assessed clean energy or C-PACE financing, has had many success stories. In Michigan, a church in Detroit’s Palmer Park neighborhood recently used C-PACE to finance building improvements expected to yield over half a million dollars in savings from lower energy bills over 20 years, and a ski resort in Northern Michigan used it for a project expected to save $3.3 million in energy waste reduction over 25 years. In Michigan, this track record was made possible by dozens of county and township governments adopting ordinances that allow for C-PACE. While Lean & Green Michigan, the state’s PACE administrator, has seen 45 projects with over $89 million invested, many projects are still sitting on the sideline. C-PACE has proven to be a successful tool, but here in

Write us: Crain’s welcomes responses from readers. Letters should be as brief as possible and may be edited for length or clarity. Send letters to Crain’s Detroit Business, 1155 Gratiot Ave, Detroit, MI 48207, or email crainsdetroit@crain.com. Please include your complete name, city from which you are writing and a phone number for fact-checking purposes. 6 | CRAIN’S DETROIT BUSINESS | JUNE 28, 2021

Michigan, we need to make it easier to use so that we can go faster to meet the challenge of the moment. That is why sponsors Reps. Yousef Rabhi and Felicia Brabec have just introduced legislation to reform C-PACE in several ways. In Michigan, there currently is a requirement that C-PACE financing can only be used for projects guaranteed by a contractor to save more money from energy upgrades than it costs to pay the financing back over the life of the project. At first glance that sounds sensible. But in practice, this requirement actually makes it harder for businesses to save energy. For example: Say a commercial building needs a new HVAC system. Installing a new system similar to the previous one might cost $800,000. Or, the company could buy a more efficient system for $1 million. If the energy saved from the more efficient system would cover the $200,000 price difference, then the project makes economic sense — yet it would not be able to receive C-PACE financing under the energy savings guarantee requirement. It could only receive C-PACE financing if the energy savings covered the total $1.2 million price tag. The result is that the property owner goes with the less-efficient option and loses out on the overall savings that could come by financing the more efficient HVAC system. What’s more, the energy savings guarantee requirement is a risky commitment for small businesses and many can’t afford to make such guarantees. So the guarantee limits the projects that qualify and discourages small companies from using C-PACE. The legislation would allow property owners to waive the energy savings guarantee. It would also expand C-PACE to more types of projects. Finally, the legislation clarifies the treatment of how C-PACE is used for new construction projects. Previously, the process was complicated and prone to inaccuracies. The legislation scraps that process and simply requires that any new construction project using C-PACE financing must exceed the Michigan uniform energy code. Above all, Michigan could meet its emissions reductions goals at a reasonable cost while still growing its economy. Don’t let the upfront price tag deter you: Energy efficiency is a massive investment that pays off. With C-PACE taken to the next level, we can get these projects going using private funds that are paid back over time. It is a winwin all around.

Sound off: Crain’s considers longer opinion pieces from guest writers on issues of interest to business readers. Email ideas to Managing Editor Michael Lee at malee@crain.com.

CRAIN’S VIDEO SERIES

Jodie Kaufman Davis: On leadership and resilience Jodie Kaufman Davis was practicing law in Toronto when her dad, Alan Jay Kaufman, came for a visit. He wanted to show her the new Canada office of Burns & Wilcox, part of the global network of insurance companies built by her family’s business, H.W. Kaufman Group. “I thought: OK, great — I’m happy for you,” she said. “But this isn’t for me; I’m on a completely different path.” That path circled back around. Inspired by the company’s growth in the U.S., Davis took on the challenge of leading and growing its Canada division. Under her leadership, it has grown to be a “viable competitor with anyone in our space” in the country, she said. Today, Davis is senior vice president and board member of Farmington Hills-based H.W. Kaufman Group and managing director of Burns & Wilcox Canada. Davis recently talked with Crain’s Detroit Business Publisher KC Crain about her recent move back home to Michigan, the company’s purchase of a new satellite office in Detroit and overcoming some of the challenges she faced when she switched careers and joined the family business. The interview has been edited for length and clarity. | BY KC CRAIN ` KC: So Kaufman had its first presence in Toronto and started growing the business. What was it like when you took over and started getting to know the business? Davis: I had done a few summer internships in the business, but I wasn’t really intimately familiar with what exactly we did. And so I came back to the Detroit area, I went to our corporate headquarters, I interviewed and met with a number of our corporate executives to really get an understanding of what we were doing and how I could leverage everything that had been done in the U.S. and bring it to Canada. When I went back to Canada, I spent time interviewing all of our associates to understand their perspective and to see where they thought we had an opportunity to really build something in Canada, how they enjoyed working for us, where they saw challenges and just to learn about them. ` Once you did your due diligence, how did you put your strategy together for growth? We were an unprofitable enterprise that had only up to go. I looked at what we had done in the U.S. so successfully and how we had built long-term partnerships, and I started taking a really long-term view about who I was hiring, and also who we were partnering with. ` You make it sound simple: you take the best practices from the U.S. and apply them to Canada. But Canada’s rules and regulations are so different. What was that learning curve like? Well, there was definitely a big one. But I at least had the law firm background where I worked at a U.S. law firm, and I was operating in Canada. So I started to understand and appreciate some of the nuances there in the business community. But I was reminded all of the time, this isn’t the U.S., you can’t just put in place what was successful in the U.S. here, I mean, nonstop. ... But you take things that have been successful, and then you adapt them to the local area in which you’re working. And you can really make a powerful impact doing that. ` And what does the Kaufman landscape look like in Canada now? We have about 100 associates .... from about 25 when we started, and we grew from one operation to four, we’ve made a number of acquisitions that really expanded our expertise, our branding, our footprints, much more significant or a viable competitor with anyone in our space. ` So everything’s going well, you’re growing in Canada, and you decided to make another change, a move back to Michigan. How much of that is wanting to be closer to the world headquarters? How much is it want-

areas like IT and marketing, which we’re really expanding in. We also see it as an opportunity to have more of a presence in the city and more partners and open up the building for some leases as well.

Jodie Kaufman Davis, senior vice president and board member of H.W. Kaufman Group and managing director of Burns & Wilcox Canada | CONTRIBUTED PHOTO

ing to be back closer to the family? It’s really a combination of all of these things. I have three kids, and we’re very close to my family. We were spending all of our holidays with my family, vacations and so forth. But they didn’t have that day-to-day experience. They didn’t have their grandparents coming to their school events or their cousins nearby. So it was an opportunity to be closer to home ... and there’s just so much opportunity here. I wanted to work with my brother and my father, while we’re all able to do so together, and to really continue to build our organization for the future. ` So obviously, so many great things happening in the city now. You know, everything that Dan Gilbert and his team have done with Bedrock, tons of momentum. I’m not sure if the pandemic is the right time to come back and buy a building and try and create a Detroit footprint. What was that conversation like? We had been looking at Detroit for quite some time, since it’s really had this revitalization. We’ve wanted to be a part of it. And we’ve supported it by participating in arts and culture and other philanthropy. But we didn’t have that presence on the ground in Detroit. And this opportunity came up, and it was a great one to be in Capitol Park to take a building that has the history and also can be innovative and really bring it forward to build the future was really an exciting opportunity. And we were all for it. ` (Former Lear Corp. CEO) Matt Simoncini was the guy behind the original vision for that building. How do you guys see that building playing into your other footprints you have in Southeastern Michigan. We see it as an opportunity to recruit great talent who want to have more of an urban lifestyle, particularly in

` Now we’re all feeling like we’re pretty much out of this pandemic, we can see the light for sure. When you look back and you think about the things that your teams had to do, what was that like? It was all so fast that we didn’t really have an opportunity to think about whether we could do it, we just put one foot in front of the other. When the pandemic started, we felt confident that we had the infrastructure from an IT perspective to handle 300 people working remotely. Well, we have 2,000 employees across the world, and they all had to be able to work at home. And it was overnight. I think our collaboration and communication has never been better. We’ve all been operating from, let’s say, 2,000 offices — everyone in their own unique home, and we’ve really had to work even harder to stay together. But it’s made us a lot stronger and brought a lot of opportunity.

THIS IS PART OF A SERIES OF INTERVIEWS BY CRAIN COMMUNICATIONS CEO KC CRAIN WITH PROMINENT BUSINESSPEOPLE. TO WATCH THIS INTERVIEW, GO TO CRAINSDETROIT.COM/ ONEONONE.

` Throughout this series, we’re going to talk a lot about resolve and resiliency. When you look forward and you’re thinking back, how would you explain to somebody the resilience that your team showed, and how would you talk about that as you move forward? I think our business model is resilient. We are an independent, family-owned business that has been around for over 50 years, and we’ve faced a lot of challenges. We were public, we went back private, and all of these different risks have taken a lot of resiliency. So, it’s just really indoctrinated within our culture, to take challenges to overcome them and to keep on going.

member. I came into this business in Canada, where I had all of those marks on me, and no one was trying to help me out. In fact, we had one meeting with a business partner early on before I was even officially in my managing director role, and the individual who set up the meeting was supposed to be there as an introduction and he failed to show up. It was just me with this business partner of ours, and they spent the entire meeting grilling me on my insurance expertise. Now, I just told you: I didn’t really know much about what we were doing. And I was very new in the role — I was just kind of exploring the business and interviewing our associates and trying to build a strategy. I did the best that I could in ` This situation has put a lot of stress that setting. But I learned from it. I on leaders. When you think about started building a strong team around resiliency, from a personal standme, which I continue to do, making sure point, how do you kind of deal with it? I find experts in all the areas that I think are really critical to the success of our You know, I’m always someone who business. Each time there’s a challenge really focuses on moving ahead, and in front of me — it may be difficult takes challenges as opportunities to learn more and to develop myself. When while I’m in it; it may be very upsetting, almost debilitating — I try to use the I started in our business, I really had resources that I have available, and then three things going against me: I was young, I was a woman and I was a family learn from it.

Resiliency starts with understanding Resiliency combats uncertainty, and it starts where experience and perspective meet. That’s why Deloitte oﬀers informed articles and webinars on economic factors, sector impacts, government funding, talent implications, responsive leadership and more, all from sector and business subject matter specialists. Stay informed at deloitte.com/us Copyright © 2021 Deloitte Development LLC. All rights reserved.

JUNE 28, 2021 | CRAIN’S DETROIT BUSINESS | 7

SMALL BUSINESS SPOTLIGHT

Independent businesses hang on as their industries decline

From

LAST OF A DYING BREED

Co-owner Rick LeAnnais at Dearborn Music in Dearborn. LeAnnais and his brother, Kevin, own the business, which was established by their father, Phil, in 1956. | NIC ANTAYA FOR CRAIN’S DETROIT BUSINESS

`BY JAY DAVIS | If you’re driving down Telegraph Road in northeast Dearborn Heights, you might see a business that could cause you to do a double take.

At 6609 N. Telegraph Road sits Video Exclusive — the lone video rental store in metro Detroit. Walk inside and you’ll spot posters for the latest movie releases. Nostalgia kicks in as you browse the wide variety of titles on the numerous shelves. While other movie rental businesses including Blockbuster Video and Family Video, the latter of which announced in January that it would close its remaining stores, have fallen by the wayside, Video Exclusive has endured. and Monroe Street in Dearborn. Phil LeAnnais ran the business until his sons, Rick and Kevin, bought him out in 2001. The store in 2012 moved a little farther west, to its current location at 22501 Michigan Ave. Like movies, how music is consumed changes frequently. A renewed interest in vinyl albums has helped Dearborn Music’s bottom line. Vinyl now accounts for 40 percent to 45 percent of its sales, said 54-year-old Rick LeAnnais, who has worked in the family business since 1988. He said 2020 marked the first time since 1986 that vinyl sales outpaced that of CDs, which account for 30 percent to 35 percent of Dearborn Music’s revenue. Despite the rise of streaming services, Dearborn Music remains profitable, LeAnnais said. It earned about $2.5 million in 2019, and LeAnnais believes it did even better in the midst of the COVID-19 pandemic. See HANGING ON on Page 9

“WITH A STORE LIKE FAMILY VIDEO, THERE WAS NO VARIATION IN TITLES AT ANY STORE. ALL THE STORES HAD ALL THE SAME TITLES. WE STILL HAVE THOUSANDS OF TITLES AND WE ADD NEW MOVIES ALL THE TIME.” — CJ Patterson, manager, Video Exclusive

READ ALL OF CRAIN’S SBS PROFILES AT CRAINSDETROIT.COM/SMALLBUSINESSSPOTLIGHT 8 | CRAIN’S DETROIT BUSINESS | JUNE 28, 2021

STAYING ALIVE Tips for businesses to thrive in industries that aren’t:

Be proactive You don’t have to be an innovator, but aim to be an early adopter or at least part of the early majority. Once a change is established, or once a new technology is tested, find a way to jump in. Laggards risk ending up as the first victims of an industry disruption.

Be flexible JAY DAVIS/CRAIN’S DETROIT BUSINESS

Many small independent businesses like Video Exclusive — those whose industries have twisted, turned and sometimes become obsolete thanks to changing technology or consumer tastes — have fought to remain viable or simply tread water. Those that have stayed alive learned to adapt, leverage their experience and build social capital. CJ Patterson, a 32-year-old Redford Township resident, manages the video store and has worked at Video Exclusive for more than a decade. The movie enthusiast said variety helps keep the store open. “With a store like Family Video, there was no variation in titles at any store. All the stores had all the same titles,” he said. “We still have thousands of titles and we add new movies all the time.” Dearborn Music also fits that model. The second-generation family-owned business opened in 1959 on the corner of Michigan Avenue

Established processes can stymie innovation and creative thought, so there need to be opportunities to discuss changes at all levels of the organization.

Invest in cutting edge Commit resources, including money and labor, to staying at the forefront. Let employees have time to think and do, not fill up their time with meetings.

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FOCUS | SMALL BUSINESS SPOTLIGHT

HANGING ON

From Page 8

The industry as a whole was up 9.2 percent from 2019, according to a report from the Recording Industry Association of America. People were looking for new, and old, music to listen to while they were stuck at home, LeAnnais said. “You can’t find the titles we have anywhere else,” he said. “You can’t go to a mass merchant to find them. We carry almost everything. That’s why we have the base we have, and why we can bring in new customers.” In fact, Dearborn Music plans to invest about $400,000 into a second location in Farmington Hills later this year. LeAnnais said his family’s business has always rolled with the punches technology has thrown at it. “You have to be in touch with the consumer,” he said. “When my father first started the business, he offered instruments, lessons and sheet music. Then it was vinyl. In the ’70s, he no longer offered instruments or lessons.” Later the store added CDs and bounced back to vinyl. “We’ve always been able to adapt to what people are looking for,” LeAnnais said. Patterson, who said 60 percent of Video Exclusive’s sales come from the store’s adult entertainment section, has had to adapt with the times, too. Twenty years ago, Video Exclusive would order 48-64 copies of a new title. Now it’s down to 16. “We’re still staying afloat,” said Patterson, who declined to give specific revenue figures. “If you look at video stores 20 years ago, it was a huge business. The addition of Netflix and the other streaming services have hurt, but the streaming services aren’t going to be able to offer every title we offer.” A Digital Entertainment Group study found that video rentals, excluding digital video on-demand services, fell by more than 27 percent in the first quarter of 2021 from the previous year, bringing in a shade under $236 million for the quarter.

Economics and loyalty For music lovers, buying a record can be a less expensive option than a streaming service, LeAnnais said. CDs remain a big seller at Dearborn Music because many of its customers drive older cars with CD players, he said. Most newer-model vehicles are not equipped with CD players. Revenue from the sale of CDs declined in 2020, according to the RIAA report, but still brought in $483 million. “A lot of people still listen to CDs,” LeAnnais said. “People like coming in to pick up the CD, look at the art and the track listing.” Income plays a role, too, according to Anne Choike, an assistant clinical professor at the Wayne State University Mike Ilitch School of Business and director of Wayne State’s Business and Community Law Clinic. Some consumers can’t afford streaming services like Netflix, Choike said, which charges from $8.99 to $17.99 per month. For music, Spotify has monthly plans at $9.99 and $14.99, with a $4.99 option for students. “When Family Video was open, they offered kids’ videos for free,” said Choike, who is working with a group on the Detroit Community Technology Project, whose goals include advancing equitable internet access and service. “A rental from a video store, or buying an album from a record store, is

Tim Johnson of Detroit flips through CDs at Dearborn Music in Dearborn. “I’m a music connoisseur. This is my home away from home,” Johnson said. | NIC ANTAYA FOR CRAIN’S DETROIT BUSINESS

Expect digital change Find a list of trendsetters you trust and follow them closely. Talk about change. Make sure a key group of employees regularly discusses upcoming changes and what they do for your business. Lean into change. When you see a trend coming, do something about it: a new product, initiative, project, etc.

Marty Babynov, owner of The Suit Depot in Oak Park, keeps his business viable by offering 40-80 percent off each day. | MARTY BABYNOV

Anne Choike, assistant clinical professor, Wayne State University

If you don’t have in-house resources, find a trusted digital partner and start the conversation now so when it’s time for your business to move, you will have the right people already on your side. SOURCE: WORTHWHILE.COM

still a much cheaper option than watching something streaming on Amazon.” Choike talked fondly of past trips to Harmony House, the Hazel Park-based music retailer that saw its last store close in 2002. LeAnnais believes nostalgia plays a role in keeping Dearborn Music afloat. “At Christmas time, we usually hear from people (saying) ‘this is where my father brought me to buy my first record’.” he said. “We’ve got that name recognition because we’ve been around. We’ve got customers who travel an hour and a half after they’ve moved away to come back and shop here. We know what to bring in. We know our customer base. We’ve learned a lot along the way.” Taylor resident James Perkins, 40, grew up in Dearborn and said Dearborn Music has done a good job keeping up with changes in the music industry. “I’ve gone from buying CDs there back to buying vinyl,” Perkins said. “... they have a really good selection. I also like that it’s a local store, and that I can just go in, browse and buy something if I want. I can look at the records, hold them, verify the quality. I can’t do that by buying them online.”

‘Businesses that survive adapt’ Marty Babynov knows his customer base well.

The 29-year-old owner of The Suit Depot in Oak Park began selling suits online in 2008, right before the recession hit. Babynov, who operates out of an 11,000-square-foot space at 26150 Greenfield Road, buys overstock items in bulk from department stores and sells them at a discount. “Starting online allowed us some flexibility. When we opened the pilot store, it was for an underserved demographic,” the Southfield resident said. “There are suit stores, but not that many. Men don’t have the options women have. ... We give men a onestop shop for all their formal needs.” Babynov, who opened his location in 2015, now operates the largest suit store in Michigan based on square footage. Revenue for The Suit Depot was down about 60 percent in 2020, Babynov said, as the pandemic forced professionals to work from home and took away the need for new suits. The store shut down for five months last year, while online sales helped reduce losses. Babynov declined to give specific revenue figures. Babynov has added a line of stretchwear to appeal to workers returning to the office. “The businesses that survive adapt,” said Babynov, whose staff has grown from 10 to 23 since opening the store. “If you notice things are going casual, you adjust and add more jeans and the stretchwear. Sales of clothes for white-collar workers are down, but ca-

sual wear is up. We’re seeing a decline in suit sales in the U.S., as more jobs become more flexible in what they allow their employees to wear. We’re changing along with them.” Like Patterson and LeAnnais, Babynov believes he’s built a wealth of social capital — relationships with consumers that allow the businesses to stick around — with his clientele. That’s vital, Choike said. It’s paid off for Babynov, who is planning to open another location later this year in New Jersey. Plans are in the works for a second metro Detroit location, too, in either Birmingham or Detroit.

Sticking it out Since Family Video stores closed earlier this year, Patterson has seen new customers at Video Exclusive, adding at least five new account holders each week. There is no cost to open an account. “They’re surprised we’re here. They’re happy we’re here,” he said. “They come in and see what we offer. The selection is great. We’re really knowledgeable here and able to point people in the direction of something they may have not thought about.” At Dearborn Music, LeAnnais said there were many occasions during 2003-09 when he thought the business could go under. A Canton Township location closed in 2008 after nearly 20 years. LeAnnais, whose business employs 17 people, thought closing would

spoil the legacy the family built. Instead, Dearborn Music added five more years onto a lease that has three years remaining. “We had to make sure we continued on with the name,” he said. Babynov’s business continues to change. He’s trying to wholesale The Suit Depot line to other retailers, working with overseas factories to manufacture products at a lower cost than what he would spend working with U.S. factories. Babynov said menswear and style are changing, and suppliers can’t keep up. “Men will never go fully online,” he said. “They need advice and service. There’s been a downturn, sure. I think sales of suits have gone down 10 percent, but at the end of the day, retail and menswear in America aren’t going anywhere, so we’ll continue to invest in that.” For the small businesses, their success and ability to outlast the storms that have rained down on their respective industries goes back to relationships and service. “I think it’s amazing to have a store that lasts 65 years,” LeAnnais said. “You can’t do 65 years in any business without the people who work with you. You have to have a customer base and be well respected. How you treat people and interact with people is paramount.” Contact: jason.davis@crain.com (313) 446-1612; @JayDavis_1981 JUNE 28, 2021 | CRAIN’S DETROIT BUSINESS | 9

INSIDE: Ann Arbor’s elimination of school-based care throws parents’ lives further out of balance. PAGE 12 TALES FROM THE FRONT: Parents, advocates offer their prescriptions for fixing child care in Michigan.

CHILD CARE

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Cassidy plays with Legos at Gilden Woods Early Care and Preschool in Troy on June 8. | NIC ANTAYA, SPECIAL TO CRAIN’S DETROIT

CHILD CARE CONUNDRUM

How an expansion of state-funded preschool wound up crimping Michigan's child care industry | BY CHAD LIVENGOOD

hen the state of Michigan added 21,000 4-year-olds to a taxpayer-paid preschool program in 2015, Carrie Mason watched the enrollment at the school she runs on the campus of Olivet College immediately nosedive. Wee Ones Preschool, the only privately run preschool in the south-central Michigan town of Olivet, went from three half-day preschool classes of 20 3- and 4-year-olds to two classes.

The not-for-profit preschool subsequently had to raise tuition after losing a third of its customer base to the Great Start Readiness Program, a full-day preschool program run four days a week by Olivet Community Schools. “How do you compete with free and with transportation provided at least one way? And often wraparound day care?” asked Mason, who has run the Wee Ones Preschool for 27 years in a church on Olivet College’s campus. “We don’t have the building or the means to offer day care. We’re in the basement of a 10 | CRAIN’S DETROIT BUSINESS | JUNE 28, 2021

church. We have a room and a bathroom.” As Gov. Gretchen Whitmer pursues a $405 million plan to add about 20,000 more 4-year-olds to Great Start over the next three years, there’s resistance among Michigan’s for-profit and not-for-profit preschool operators to maintaining the same program they believe gives public schools an unfair advantage. Private child care providers say past expansions of Great Start — while good for lower-income families struggling to shoulder the cost of early childhood education — have de-

stabilized the business of child care as there are fewer 4-year-olds who cost less to care for in their customer base than babies and toddlers, who require more adults per child. “I can only take so many infants because I have to balance that cost with 4-year-olds,” said Bridgett VanDerhoff, owner of Gilden Woods Early Care & Preschool Inc., a Grand Rapids-based child care chain that has 28 for-profit schools across the state. “Then they want to cry foul because there’s no care for infants and See CHILD CARE on Page 14

Counties with the largest change in day care facilities Thirty-eight Michigan counties lost 10 percent or more of their child care facilities in Michigan between May 2019 and June 2021. Macomb, Oakland and Wayne counties experienced more modest losses in the percentage of fewer child care providers. -20% decline or more -10% to -19.9% decline -9.9% decline or less

NOTE: DATA IS COUNTYWIDE, CHANGE IN JUNE 2021 VS. MAY 2019 AND INCLUDES LICENSED CHILD CARE CENTERS AND HOME-BASED PROVIDERS. SOURCE: MICHIGAN DEPARTMENT OF LICENSING AND REGULATORY AFFAIRS

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in automation, and the Michigan Economic Development Corporation has the resources and services to help your manufacturing business prepare for the future. Find out how you can make business moves at michiganbusiness.org/Industry4-0

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CHILD CARE COMMENTARY

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Some school officials ndrea Pekarek has to suggested parents have their pull out of her kids bused to private child driveway in Ann care. But that, too, would Arbor just before 8 a.m. to still involve mixing kids make it to work at a medical from different pandemic practice in Brownstown bubbles. Township by 8:30 a.m. It also would require Her husband, Will, has a more movement of children 40-minute commute to his Chad desk job in finance for a food LIVENGOOD on buses as parents drop off their kids at a child care distributor in Detroit. He center early so they can wait needs to be on the road 15-20 minutes before riding a bus before 7 a.m. and back in Ann Arbor across town to their school. by midafternoon to pick up their Ann Arbor's schools chief has since children after school. said a shortage of child care workers is Assuming school is in person this the real culprit. After laying off fall, the Ann Arbor couple’s three part-time child care workers in March children are going into fourth grade, second grade and preschool. And they 2020, the school district found most have either moved on to other jobs or have no idea how it’s going to work. decided not to return to work, Swift That’s because Ann Arbor Public said. Schools has canceled before- and "What we're finding is a hestitancy after-school care for the 2021-2022 about returning to an environment school year, citing fears about where there may be some perceived COVID-19 spread and a shortage in risk —elementary students may not be child care workers. vaccinated," Swift said in an interview. “I don’t even know what we’re The end of school-based child care going to do,” said Andrea Pekarek, a in Ann Arbor is almost par for the nurse practitioner who has been on course these days in one of Michigan’s the front lines of the pandemic caring most educated and wealthiest for oncology patients. communities, which has been deeply Ann Arbor parents — be it single divided throughout the pandemic parents or two working adults — are about the school district’s extended justifiably incensed right now after the closure of in-person learning. school district abruptly canceled the Only in the final two months of the child care program that lets parents year did Ann Arbor schools start drop off children up to an hour before holding in-person instruction — two the school day begins and pick them days a week. up two hours after school lets out. That’s been stressful enough for For any working parent, beparents with jobs that simply can't be fore-and-after school child care — ofperformed at home forever. ten referred to as latchkey — is a Will Pekarek has repeatedly been lifesaver. It’s the difference between stuck in conference calls while picking keeping your head above water each up his children from school; Andrea day with work and figuratively sinking Pekarek has had to take one of her two to the bottom of the Huron River. boys to work and had him sit in her And the Ann Arbor school board office all day with a tablet “getting way just yanked away the life preserver for more screen time than is reasonable” hundreds of its taxpayers. while she works. “It just doesn’t make a whole lot of “We’re doing the best we can like sense to me,” Andrea Pekarek said. everyone else,” Andrea Pekarek said. Virtually no one in Ann Arbor For some parents, the morning understands the rationale, which seems to ignore the fact that this city of routine of getting kids off to school 120,000 residents with higher-than-av- and making it to work on time depends on everything going erage median household income is smoothly — right down to the The before-school care of “WE’RE DOING THE BEST WE minute. 15 minutes is sometimes all that’s needed to make the trains of a CAN, LIKE EVERYONE ELSE.” household run on time. — ANDREA PEKAREK Ann Arbor parent Emily Deedler has a 10-year-old son going into fifth grade who was diagnosed with built on a foundation of families with epilepsy last fall. two working parents. Deedler is a marketing brand AAPS Superintendent Jeanice Swift manager at UM’s Ross School of initially said the decision was driven Business and she has to start work at 9 by concerns that mixing kids from a.m., the same time her son’s school different classrooms at the end of the typically starts. day in a large group would spread In order to make it to work on time, COVID-19 inside schools. Deedler needs to leave at 8:30 a.m. The But state-mandated COVID bus doesn’t arrive until 8:45. So she restrictions inside Michigan schools would normally just drop off her son have all been lifted as cases plummet for before-school care. and vaccines do their job preventing “In a normal year, a fifth-grader, you death and disease in the more might be able to say, ‘Stay home, get vulnerable adult population. 12 | CRAIN’S DETROIT BUSINESS | JUNE 28, 2021

Jack Pekarek, 9, plays with his brother, Liam, in the backyard at their Ann Arbor home. | NIC ANTAYA/ SPECIAL TO CRAIN’S DETROIT BUSINESS

Emmie Pekarek, 3, Andrea Pekarek and Liam Pekarek, 7, play Jenga at their home in Ann Arbor. | NIC ANTAYA/ SPECIAL TO CRAIN’S DETROIT BUSINESS

on the bus yourself, I’m going to work, you can do this,’” Deedler said. Because of his epilepsy, “I can’t leave him alone for five minutes.” Deedler and Andrea Pekarek — both balancing motherhood with their careers — expressed hesitancy about asking their employers for more flexibility. “I feel like employers have been through so much during the pandemic that for Ann Arbor (schools) to say, ‘You know, go ask your employer for one more thing,’ it just feels like one more too many,” Deedler said. “You can’t abuse it,” Pekarek said. “You can only expect leniency for so long.” The Ann Arbor district’s decision to end before and after care also is confounding in that these are just the types of services people pay top dollar to live in Ann Arbor for. After weeks of backlash, AAPS said last week it will offer enrichment programs before and after school in five of its 19 elementary school buildings for just 180 children, MLive reported. District officials believe there's more a labor pool from UM's faculty, staff and students who may be interested in teaching an after-school course than what amounts to babysitting in the eyes of some hourly workers. "Our innovation to do a Rec & Ed model is around trying to match the workforce that we think we can scale

up," Swift told Crain's. "And I don't if that scaling up is a few month thing or if it's a couple of years thing." While the district may want to focus on the delivery of education during regular school hours, the underlying property tax base that supports the school district and its facilities very much depends on the higher household incomes of two working parents. In the case of Ann Arbor, the schedules of parents are not all 9-5. The University of Michigan attracts many graduate students in the humanities, law and medical schools who are balancing pursuit of advanced degrees with raising young families and making ends meet. David Suell is a fourth-year doctoral student in political science at UM and a graduate student instructor. His wife, Meg, is a nurse in pediatric oncology and works nights at UM Hospital. The couple also juggles the care of three children ages 2, 4 and 7. Before COVID, David Suell used morning care for their oldest daughter for 15 to 45 minutes each morning in order to teach a class on campus (in person) at 9 a.m. He would first drop off the younger children at day care. “In winter, you can’t just throw them out on the playground to wait out that morning part of the day,” Suell said.

David Suell, a fourth-year doctoral student at the University of Michigan, and his wife, Meg, pose for a photo with their son, Simeon, 4; daughter Penelope, 2; and daughter, Teresa, 7. The Ann Arbor couple is unsure how they will manage child care next school year without before and after school care for their oldest daughter. Ann Arbor Public School canceled the program, citing COVID-19 concerns and a staffing shortage.

But that’s essentially what the Ann Arbor school district is doing — leaving families like the Suells out in the cold. If AAPS needs to charge more for these care programs, parents like David Suell, Emily Deedler and Andrea Pekarek said they’re willing to pay more. It begs the question as to whether AAPS has looked to private child care centers to operate in-school programs. “You’ll pay a lot for stability,” Suell said. The Suells live in a two-bedroom apartment and are working class by Ann Arbor’s standards. Their options beyond paying the school district a few more bucks per day for in-school care are limited. “No, you can’t just take them to a different place. No, you can’t just get an au pair or a nanny or whatever,” Suell said. “Ann Arbor is a very wealthy town, but not all of us are. We make the town run.” The public upheaval in Ann Arbor over the cancellation of after-school child care may be a sign of trouble ahead for other school districts. If Ann Arbor can't make it work, one has to wonder how communities with fewer resources will keep these lifelines for working parents intact. Contact: clivengood@crain.com; (313) 446-1654; @ChadLivengood

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setting. It feels a bit like I s I look back on my am sitting in a glass house experiences with during a hurricane, Michigan Departwithout a roof. ment of Licensing and I believe all of the voices Regulatory Affairs, the state of child care support child department that regulates safety, child well-being the child care industry, I and the health of the child feel the weight of “compliin care homes and centers. ance” come over me. See, I have been in the Lindsey Potter is This support looks and feels like clear and day care field for 18 years the owner of well-communicated now, I have worked in so Bright Light regulations, guidance many settings — the Early Care and given in community center’s office, a public Education in settings, and sufficient school setting with a Battle Creek, a access to child care so that licensed classroom, new child care caregivers are able to carry teaching my own classcenter that’s out their personal/ room, and now I find opening in employment duties. myself opening a center of September. However, I see child care 94 children, and 20 staff. providers, of all types, Within my professional leaving the business in droves. They role, I am supposed to advocate for leave as teachers, they leave as staff, facilitate the growth and leaders, they leave over-stressed and development of children, seek underpaid — and many of them say, funding for a nonsustainable the stress of licensing is a major industry and be grateful to those at component to staff leaving the field. the table all while ensuring that the Licensing, at one time, functioned children are in a safe and enriching

as a partner in the work of child care. The licensing agent was on a first-name basis with staff, he/she visited the center to see children and staff enjoying the care setting with creative ideas and developmentally appropriate practice. Many licensing agents could be called with questions and inquiries — even if they seemed risky or wrong, according to the rules. During this time, the licensing department published a booklet that staff and center employees could hold, read and access for understanding. That version of licensing is now in the past. Licensing today, approximately 2015 to present, seems to be an enforcement of the rules of child care. These rules seem to come from two places, rules handed to the licensing agents and/or those created as a result of an interpretation by licensing agents. The stories from home-, group-, center- and school-based settings

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‘The rules’ in child care have gone off the rails would astonish readers. In reality, the stories are a result of the system of regulations on child care being broken. I will share one story to demonstrate the mental strength it now requires to deal with our current-day licensing agents. I was once told by a classroom consultant in my town, “It is good news if your consultant comes to the center for your annual visit and ends up staying for many hours, they were looking for enough evidence of wrong to put on the corrective action form and it took them a long time to find them since your center was so in order.”

I believe that licensing and licensed child care can, and should, go back to a relationship where the good guys (most of the industry) and the regulators work together to keep children safe, supported and learning in the care setting. From my perception, child care providers will need to develop a voice, speak it clearly and then require the respect of the licensing agents in the audience. In the event licensing agents are unable to be part of a respectful team, a safe and partnered pathway for child care providers to talk about this will need to be created in Michigan.

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Helping businesses attract employees to the workforce following the pandemic In a recent survey of the members of the Small Business Association of Michigan, 47% of respondents cited “difficulty finding and keeping employees” as their top concern. When asked what type of assistance would be most helpful, 58% of respondents answered “assistance finding employees.”

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By Brian Calley, President, Small Business Association of Michigan

Michigan’s workforce has shrunk. While the economy is improving, our recovery is being hindered by a lack of available employees — a complex problem with many challenges. The state is doing a good job of expanding access to post-secondary education and upskill opportunities for workers, but there are other immediate policy changes needed. While employers are substantially increasing wages and benefits to attract more employees, there are two actions our state could take that would improve our economic future, especially if taken in tandem: • Join the 26 other states in returning the unemployment system to pre-pandemic levels. • Dramatically increase the affordability of and access to high-quality child care.

While I have heard many people suggest that attracting workers is as simple as beating the $16.55 per hour equivalent unemployment benefit, even employers offering $20 per hour are reporting difficulty receiving applications. While employers can beat the unemployment benefit, they cannot compete with 100% time off. The incremental benefit of working is just too small when a $16.55 per hour equivalent wage is available without any work. However, simply terminating the participation in the federal payments will not maximize workforce participation. Parents of young children face particularly difficult choices, and the lack of affordable, high-quality child care is at the top of the list. Given the federal resources that have been provided, the state is in a good position to help. The ways the state can help are important, but they are not complicated. Here are some straight-forward places to start:

more parents will find their way back to the workforce. • For qualifying families, child care copays should be waived, but without asking providers to take on the cost of those waivers. • Reform and improve the way child care providers are reimbursed by paying them based on enrollment rather than attendance, and substantially increasing reimbursement rates to allow for providers to find more highlytrained staff members. Our biggest constraint is clear: lack of available employees. The unemployment system was never designed to allow people to remain on it when work was available. Work is clearly available now, but we must also recognize that some families face additional challenges such as lack of access to child care. Now is the time to capitalize on an economy with pent-up demand. Now is the time to act.

• Increase income thresholds to families for child care eligibility to 200% of the federal poverty level. This would extend that help to a family of four to above $50,000 in income. By easing the burden of the cost of child care,

JUNE 28, 2021 | CRAIN’S DETROIT BUSINESS | 13

CHILD CARE

From Page 10

toddlers. Well, you did it.” The “you” being the Michigan Legislature and former Gov. Rick Snyder, who oversaw the expansion of the Great Start preschool program in 2015, when the free preschool program became available to more children from families earning less than 250 percent of the federal poverty level, or $66,250 per year for a family of four. The Michigan Department of Education sets the regulations for Great Start — one of three state departments that regulate private child care providers. County-level intermediate school districts administer the program, allocating classrooms for public schools and community-based providers, which include both for-profit providers like Gilden Woods and notfor-profit organizations, such as community action agencies that run Head Start preschool programs for children from Michigan’s poorest families. It’s at the administration and oversight level where there’s simmering tension between the government and the child care industry. A state law requires a minimum of 30 percent of the Great Start funding be designated for private providers. VanDerhoff said the 30 percent threshold has been treated more like a cap, limiting the market share for private providers to compete for allocated Great Start funding. Statewide, about 31.5 percent of the 43,000 4-year-olds in Great Start programs are attending a privately run preschool, said Richard Lower, preschool director for the Michigan Department of Education. Whitmer’s proposed expansion of publicly funded preschool is coupled with a 20 percent increase in subsidies for providers who care for younger children from low-income families, a plan aimed at getting providers to address a shortage in available care for infants and toddlers. “There’s really a huge effort to get providers back into the system,” said Beth Bullion, director of the office of education in the State Budget Office.

Logan plays with other children outside at Gilden Woods Early Care and Preschool in Troy on June 8. | PHOTOS BY NIC ANTAYA, SPECIAL TO CRAIN’S DETROIT

‘Destabilized the industry’ The child care industry is still reeling from the coronavirus pandemic, which initially forced layoffs of thousands of child care workers in the spring of 2020 when only essential workers such as nurses, doctors, paramedics and police officers could send their children to day care. This month, there were 671 fewer licensed child care providers in Michigan than in May 2019, a Crain’s analysis of state data shows. Statewide, the child care industry’s net capacity has declined 816 seats. But gains of 2,505 seats among Oakland County child care providers were offset by a loss of 2,792 slots and 44 child care providers in Wayne County compared with two years ago, state data show. Like other service-sector industries, child care centers and homebased operators have slowly struggled to rebuild a low-paid workforce that was wiped out by white-collar parents working from home and families hunkered down in pandemic bubbles. The median hourly wage for a child care worker in Michigan is 14 | CRAIN’S DETROIT BUSINESS | JUNE 28, 2021

Teacher Ashlee Freeman of Macomb tends to a child at Gilden Woods.

“Some ISDs could do more,” Bul$11.61, according to U.S. Bureau of lion said. “It would be a local deciLabor Statistics. Private providers say changes to sion.” Whitmer’s Great Start expansion the Great Start program for 4-yearolds are key to fixing the economics proposal calls for the addition of of child care and boosting wages for 1,500 new preschool classrooms across the state, meaning a mix of workers in the sector. VanDerhoff also is founder and private providers and public schools CEO of the Childcare Providers Asso- will be needed to add some 20,000 ciation of Michigan, a new trade 4-year-olds to the program over the next three years, Lower said. group in Lansing. “We invite (private providers) to The group was formed, in part, beapply when there’s any excause the industry lacked a pansion and think creativevoice last year when Whitly about meeting the needs mer and her health departof the families of the state,” ment were imposing Lower said. COVID-related public To help lure private prohealth restrictions on every viders into preschool probusiness sector. grams, Whitmer is proposNow they’re seeking a ing increasing the per-child seat at the table as Lansing allocation by nearly $1,000 addresses long-standing to $8,692 annually. There’s problems with child care in VanDerhoff also $650 million in federal Michigan. VanDerhoff said the 30 percent stimulus funds available for child floor for private providers to run care centers to get grants to pay for Great Start classrooms really serves capital needs to add capacity for more children from babies to 5-yearas a cap in most counties. “It really has destabilized the in- olds, according to the governor’s ofdustry,” VanDerhoff said. “I think this fice. “The Great Start money is valuwas an unintended consequence of able,” said Lindsey Potter, a veteran the Great Start program.” Whitmer is not proposing any preschool director from Battle Creek change in the 30 percent share of the who previously ran the Great Start Great Start funding that private and program in Olivet. “It also comes not-for-profit providers can get, leav- with a lot of strings.” The strings include requirements ing that decision up to intermediate that all money designated for a Great school districts.

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“IT REALLY HAS DESTABILIZED THE INDUSTRY. I THINK THIS WAS AN UNINTENDED CONSEQUENCE OF THE GREAT START PROGRAM.” Yuni practices his writing skills at Gilden Woods.

— Bridgett VanDerhoff, owner of Gilden Woods Early Care & Preschool Inc.

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CHILD CARE

Lead teacher Chris Lee reads to her class at Gilden Woods Early Care and Preschool in Troy, Michigan on June 8.

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Start-funded child can be spent only in those designated classrooms, for staff, supplies and capital expenses. “You almost have to put up a sign that says 3-year-olds can’t touch this, it was paid for with Great Start money,” Potter said. In order to spend down the Great Start funds, the teachers in those classrooms are often paid disproportionately higher than the rest of a child care center’s staff, Potter said. “A lot of people pay their Great Start staff a really high rate in order to use up their budget,” said Potter, who previously consulted nonprofits on designing child care programs for the Battle Creek Community Foundation. Potter is now owner of Bright Light Early Care and Education, a new for-profit child care center and preschool that’s opening in downtown Battle Creek in September. She said she doesn’t plan to apply to become a Great Start provider, in part because there are “so many hoops to jump through.” Potter said she’s seen ISD-ordered audits of Great Start programs scrutinize whether a non-Great Start classroom in a private child center got recarpeted with funds from the public preschool program. Allowing private providers to use public funds to re-carpet an entire child care center when just one or two rooms are used for Great Start “would go against commonly accepted accounting principles,” MDE’s Lower said. “Regardless of whether they’re public districts or private providers, Great Start funding is public funding,” Lower said.

In-home providers left out

‘We took a hit’

Great Start preschool programs, which have classrooms of up to 16 children, can be run only by public schools or private providers that have a three-star or higher rating in Michigan’s Great Start to Quality five-star rating system, Lower said. Home-based day cares are ineligible for the program. That’s another issue private providers have with the program, especially in rural and urban areas of the state where there aren’t many large child care centers. “The in-home providers have truly been left out of the conversation and the picture,” VanDerhoff said. LaTonya Glover runs an in-home day care called Glover Bright Beginnings Childcare in a neighborhood on Detroit’s northeast side near Van Dyke and Eight Mile. She’s licensed for 12 children. She currently has four children who turn 4 before September that she’ll likely lose to a Great Start program at a public school or child care center. Glover said the constraints of Monday-Thursday Great Start programs that she competes with often put parents in a bind when juggling child care and work. “So now I have to choose to take advantage of this program that’s going to be of no cost to me, but I have to find alternate care for the morning or the evening or both — and on Fridays,” Glover said of the scenarios some parents face.

In Olivet, a city of 1,600 residents in Eaton County about 30 miles southwest of Lansing, Wee Ones Preschool operated as the only game in town for 3- and 4-year-old preschool since 1979. The introduction and gradual expansion of the Great Start program quickly cut into Wee Ones’ customer base. “I brought the money to town and they went down,” Potter said. Initially, Olivet’s Great Start program started with 32 seats for 4-year-olds. Then they quickly doubled their capacity, Potter said. At the same time, Mason was scaling back her programming at Wee Ones to adjust to the realities of competing with the public sector, which had the advantages of existing school facilities and economies of scale. “Very clearly the expansion of free programming directly affected their business model as well as the people — the actual people doing that work no longer had that job,” Potter said. One year after the 2015 expansion of Great Start, Mason recalls having 10 children drop out of her Wee Ones program at the beginning of the school year because their parents got recruited by the “free” program across town that Potter was running. “Every time they expand (Great Start), we took a hit — every single time,” Mason said. Contact: clivengood@crain.com; (313) 446-1654; @ChadLivengood JUNE 28, 2021 | CRAIN’S DETROIT BUSINESS | 15

CHILD CARE COMMENTARY

Child care leads directly to productivity L

Eboni Taylor (left) is the Michigan executive director for Mothering Justice. Tom Lenard is the Michigan state director for the State Innovation Exchange (SiX). Providing child care workers with a living wage is the right thing to do. It also goes a long way toward opening more facilities, especially in child care deserts that we know exist in some of our urban and rural communities. There is strong support for bold action. The Prosperity Michigan survey showed most respondents want more of the state budget used to support families gaining access to child care and for child care workers to make a living wage. This broad, bipartisan support and the urgent need is a large reason why child care is a pillar of Mothering Justice’s Mamas’ Agenda Policy priorities, which also includes earned paid sick time and Black

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et’s get Michigan residents back to work by giving them access to affordable, quality child care. Lack of that access has always made it challenging for Michigan parents to participate in the workforce. The COVID-19 pandemic has only exacerbated this tension. As we emerge from the pandemic, going back to business as usual is not an option. We must find a solution to child care access, affordability and quality as we move forward, because Michigan families are at a crossroads. According to a recent survey from Prosperity Michigan, two-thirds of Michigan parents say their child care is not at all affordable or only affordable if they cut back on food or health care for themselves. Other parents said they either had to work more hours to afford their child care or work fewer hours in order to care for their children because child care was simply too expensive. Throughout our history, child care has been considered women’s work, and more specifically work for women of color. Many women of color in Michigan have worked for low wages in the child care industry, while also struggling to find an affordable place to take their own children during the day.

maternal health. Workers and parents aren’t the only ones who benefit from improving our child care system. Data taken before the COVID-19 crisis showed businesses suffered more than $13 billion a year in lost productivity because child care options were insufficient. Companies can lower employee turnover if child care concerns are addressed. Businesses, workers and kids all win if we work together to solve this crisis. The moment to take action is right now. New funding is available for Michigan through both the federal stimulus programs and the unex-

pected increase in state resources. There is more than $1 billion for Michigan kids on the table. Gov. Gretchen Whitmer proposed $370 million to make child care more affordable, expanding eligibility for more than 150,000 Michigan families, and is poised to announce further solutions to questions of access, affordability and quality. Michigan should make the most of the opportunity provided by the federal support, as well as join a growing list of states that are prioritizing child care as the critical economic issue it is. From Maryland’s “Blueprint” that

expanded access and enhanced professional development for providers to the Illinois Legislative Black Caucus’ successful work to “help eliminate racial inequities and structural barriers that hold our learners back,” state lawmakers and advocates are leading the way in this important effort. As parents, we believe we have an unprecedented opportunity to make a once-in-a-lifetime investment in Michigan’s kids and their futures. Making this critical investment will help more parents get back to work, while providing the critical tools for Michigan children to be cared for and succeed.

COMMENTARY

Lack of after-school care will hinder career options

immigrants establishing a y parents life and a family in the U.S., emigrated from but they did not need to Taiwan in 1972. worry about where I would They met at Wayne State be after school or whether I University, got married and would get there safely. settled in Oakland County. Without the district’s They worked full time, after-school child care, the out of both desire and life of our immigrant family necessity. simply would not have They had no financial Liz Lin is a safety net and no relatives writer, educator, worked. Three decades have within a thousand miles, so nonprofit passed, and I am now an when I arrived in 1983 and director and elementary school parent. my brother five years later, parent of two Like many parents of they had few child care children in Ann young children, my spouse options. Arbor. and I have spent our kids’ How fortunate, then, entire lives coordinating that we lived in the work schedules and piecing together Birmingham school district, which child care so we can support our had a well-established before- and family. after-school child care program. The pandemic swiftly leveled the At the end of the day at Meadow precarious system we had estabLake Elementary, I shuffled down the hall to the appointed classroom, lished. The last year has been a where I did my homework and ate circus act without end: Taking turns snacks. Older kids taught me about watching our kids and supervising Nickelodeon TV shows and showed virtual kindergarten while squeezing me how to throw a football. work into naptimes, evenings, And between 5:30 and 6 p.m., one weekends. of my parents would pick me up on I’ve lost track of the professional their way home from work. opportunities I’ve missed — and the They had countless anxieties as money that accompanied them —

16 | CRAIN’S DETROIT BUSINESS | JUNE 28, 2021

because I needed to care for my children. And these losses are minor compared with what others have incurred; my spouse and I are among the lucky ones who are able to share parenting responsibilities, work from home and afford some part-time care. If there were any doubts before, the pandemic has made clear that child care is critical infrastructure for the labor force — especially for women, families of color, single parents, and immigrant families. Thus, when Ann Arbor Public Schools announced last month that they would not offer before- or after-school care next year, the community was stunned. Ann Arbor has long enjoyed a reputation as the most progressive city in the state, proudly extolling equity and inclusion. Its school district is no exception. This stated commitment to equity made their decision all the more shocking, as its consequences will be wildly inequitable. They will fall primarily on women, who bear the majority of child care responsibilities. Working mothers,

like me, will have to either work less pandemic. — and accept those financial and Instead of moving toward the professional penalties — or spend equity it claims to value, the more on private care to cover this district’s decision will only widen gap. the disparities that the pandemic The district’s decision will also has magnified. disproportionately impact families Following community backlash, of color, who are less likely than AAPS reversed course and anwhite families to have a stay-atnounced last week that it will offer home parent, flexible work schedbefore- and after-school care enrichment programs for 180 ules or work-from-home options students at five of its 19 elementary that make these changes easier to schools. absorb. It is a move in the right direction, It will profoundly impact single but AAPS’s refusal to commit to parents, who are most in need of affordable child care while they work; immigrant parents like I’VE LOST TRACK OF THE mine, who have PROFESSIONAL OPPORTUNITIES neither financial I’VE MISSED. reserves nor local relatives to provide care; and on and on. affordable before- and after-school All of these parents will have to care districtwide shows that it choose between working less, fundamentally misunderstands the spending more for private care importance of child care. — or, worst of all, leaving their It is not a privilege that the children unattended. district can revoke without conseIt is unconscionable that AAPS quence. It is a necessity without would force such a choice, especial- which the community, especially its most vulnerable members, cannot ly after the economic losses these function. families have suffered during the

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COMMENTARY

Flexible Spending Accounts for child care are an oxymoron

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COMMENTARY

The impossible child care reality for most parents T

know I was pregnant soon hey say it takes a after telling our families, village to raise a and even then we were child, but what told that they didn’t have a happens when that village spot for her until a month no longer exists? after my maternity leave Michigan parents faced ended. this reality as the bottom The hard truth is that in dropped out of their child many areas in Michigan, care support systems you need to have your plan during the pandemic. Andie Poole, for child care before you Schools were closed, day APR, is vice even conceive. It is an care centers shut down, president at impossible reality for families isolated from Martin working parents that no babysitters and family Waymire, a one seems to talk about members who previously public relations until it’s too late. helped fill in the gaps. and digital My husband and I are My husband and I marketing very fortunate that our navigated child care for our company based issue with child care is two daughters, 6-year-old in Lansing. mainly access, not cost. But Elliot and 2-year-old Mara, the cost is nothing to sniff the best that we could. at, either. The first two months were a blur In our area, we are paying — I was answering emails from my anywhere from $1,500 to $2,000 a kitchen counter while flipping month for child care, and that is with grilled cheese sandwiches and one daughter in public school — berestarting "Frozen 2" for the third time that day. fore- and after-school care costs can Elliot’s school was closed and the add up quickly, too. day care that they both attended also We both work for employers that was shut down. Since then, we’ve have been understanding and leaned on my parents, neighboraccommodating. I received 12 weeks of fully paid hood friends and babysitters for maternity leave, and my husband help. has been able to use an abundance Even before the pandemic, my of family sick leave to fill in any gaps husband and I were unprepared for in care when we’ve had a sick child, the constant challenges of finding school closures or during the first child care. few months of the pandemic, when We waited until I was about everything was chaos. halfway through my first pregnancy We both worked more at night, to start looking into day care options after the girls were in bed, to catch and found ourselves on multiple up on what we missed during the wait lists with no guarantee of a start date. Luckily, we were able to find an work day. Our managers and colleagues opening at a center not far from us. stepped up for us, but they couldn’t We didn’t make that mistake with alleviate the constant guilt we felt our second child. I let our day care

most days — the sense that we were failing as parents and as professionals. The pandemic exacerbated these pressures, but it didn’t create them. Parents have been drowning in a system that doesn’t work. But the solutions aren’t easy and will likely require some type of cost sharing between employees, employers and the state or federal government, such as Michigan’s Tri-Share pilot program that was launched in March. In my ideal world, child care support would begin with at least three months of paid maternity leave for women, and some paid leave for partners as well. It would involve more state and federal support for licensed child care facilities, with good salaries and benefits for employees to help reduce turnover. It would include more school- or community-based centers that would make it easier for parents with multiple children at different levels of schooling. All of this will take significant financial support that is not currently happening. Michigan and the rest of the country are losing out on a talented part of the workforce, mostly women. These workers have been dealt an impossible hand, and many are simply folding. Child care is an essential part of our economy — one that has been underfunded and ignored for far too long. It’s time to consider what’s really needed to make child care work for children, parents, child care workers, employers and society, and to craft the policies and budgets to make permanent changes.

employees to take hild care is a crisis advantage of the new in this country. File limits. that under things Second, the limits do that do not really need to not scale based on be said. number of children in While reforms to the child care. One child in system being proposed at day care for 9 months (the the national level are boys stay home with my flashy and intended to wife during the summer) help those who need it Scott costs us $10,800. Naturalmost desperately, it is Hendrickson, a easy to see how solutions father of two, is ly, it follows that two like Universal Child Care the chief deputy children are double that may leave a gap for many county clerk for cost. Yet the amount of middle class families who Ingham County. pretax money we can set fall in between qualifying aside does not change. for universal child care Lastly, the money that programs and being able to easily you set aside in the Dependent afford the cost of care. Care FSAs is use-it-or-lose-it by the With my family (two boys aged 3 end of the calendar year, with a years and 3 months), we face a very small rollover exception. looming situation this fall when Essentially, anything left over in they will need to be in day care, your account at the end of the year with a monthly bill that is more after the first $500 is forfeited. This than double the cost of our may not seem like a problem given mortgage. My wife and I both the fact that the limits are wholly work; she is a teacher and I work inadequate to cover the costs of for our county’s clerk. We are day care, but if the limits are raised fortunate to have good insurance to cover actual realistic costs, there and benefits. But the financial is a real benefit to allowing you to reality of the next few years is use the money when you need it, daunting. not based on the calendar. Doing the math, my wife’s entire There are no such penalties with take-home pay will be put toward Health Savings Accounts, so why day care. The only reasons that she have one here? would continue to work, beyond Fixing the problems I have her love of teaching children, are to stated here should not be instead maintain consistent insurance benefits and to continue to THERE ARE SIGNIFICANT gain step increases in pay so LIMITATIONS WITH FSAS. she is not behind when she returns. Both of our employers offer of continued progress toward Dependent Care Flexible Savings Universal Child Care, but rather in Account programs, which allow us parallel. to set aside pretax money out of Families like mine would likely our paychecks to spend on day be above any income thresholds care. However, we discovered that for those programs but still will there are significant limitations struggle with the costs associated with FSAs. with day care. That is OK; we First, until very recently, the simply want to maximize the limit on the amount you could set programs that are available to us. aside each year was $5,000 if you The taxes that are saved by were married and filed your taxes taking advantage of this program jointly. The limit was temporarily are a drop in the bucket for the increased by Congress to $10,500 federal government, but they make in the American Rescue Plan; a big difference for our personal however, many employers with finances. Congress can and should organized workforces are unable to make this program better for adapt quickly enough to allow families like mine.

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JUNE 28, 2021 | CRAIN’S DETROIT BUSINESS | 17

THE WAY FORWARD

LOOKING AHEAD AS BUSINESS FULLY REOPENS Last week Michigan fully reopened. But it’s not the same Michigan it was. COVID-19 and its fallout will be felt for years to come, and businesses of all kinds pivoted into new positions that left them stronger. On these pages, Crain’s takes an industry-by-industry look at the impact of the pandemic and its effects on the future as the virus itself (hopefully) fades from memory.

BANKING

REAL ESTATE

Unknowns still loom large on office space BY KIRK PINHO

Banks are struggling to balance out a desire by customers to have access to a branch. | CONTRIBUTED

How remote is the future for banks? BY NICK MANES

As the coronavirus pandemic took hold last spring, pushing everyone into their homes, banks — especially smaller community lenders — found themselves forced to push up timelines on technology efforts they figured would be years in the making. At the same time bankers adjusted to largely remote workforces and concerned customer bases, they were also tasked with implementing the Paycheck Protection Program. The nascent federal program sought to deploy potentially forgivable loans to businesses and focused heavily on those with existing banking relationships. The question going forward is just how remote banks and their customers actually want to be. Bankers, by and large, say they made the pivot to some remote work where possible, and got a new massive federal program up and running to the best of their ability, with a focus on the needs of business clients, who had serious concerns as mandated shutdowns were rampant. Banking executives largely say they felt prepared for the necessary changes that early COVID protocols necessitated. Rather, it was pivoting to meet customer need amid massive uncertainty that presented the largest challenges. The potential for a liquidity crisis sparked by nervous customers withdrawing funds made for the “number one fear” said Dave Lamb, president and CEO of Oxford-based community lender Oxford Bank. As the bank already had many 18 | CRAIN’S DETROIT BUSINESS | JUNE 28, 2021

workers working remote, Lamb said it was necessary to avoid a “crisis of confidence” and keep branches open. The focus, he said, was working to prop up ailing small business impacted by shutdowns. “So we were first worried about business customers, which is primarily our business,” said Lamb. “And then of course, you can’t help but think, ‘well if they can’t survive, can we?’” At JPMorgan Chase & Co., among the nation’s largest lenders, bankers there were ready for the pivot and able to work with struggling clients, according to Terrah Opferman, managing director and region manager for Michigan middle market banking at Chase. “So we were very prepared from a technology perspective, and really didn’t miss a beat,” said Opferman. “It was very much all-hands on deck, and to be there to support our clients, as our clients were transitioning and pivoting in trying to navigate the current environment.” Lamb echoed that, noting that like many banks, Oxford had pandemic contingency plans in place. While many Chase clients also expressed concern about liquidity and cash reserve issues early on, Opferman says they now face a whole different set of challenges. “I think that the part that was surprising to me was how quickly the demand snapped back,” said Opferman. “So now our clients are facing increased demand, and now that everybody is getting out and about, the common things that I’m hearing from our client base is supply chain challenges as a result of increased demand across every industry, as

BANKING ` COVID IMPACT: Banks had to adjust to fully remote workforces in many cases just as demand for their services spiked because of the Paycheck Protection Program. ` THE WAY FORWARD: The big question for banks going forward: Customers still want the convenience of a branch even if they’re not going to use it that often.

well as labor challenges.” Looking forward, banks increasingly must balance the need for some sort of physical presence, while acknowledging that a slew of physical branches may not be sustainable. “So I believe — and I think surveys support this — that people don’t really want to go ... to the branch, but they want to know there’s a branch around,” said Lamb, whose Oxford Bank has nine total locations in Oakland, Lapeer and Genesee counties. So now the focus becomes on having some physical presence to help give customers the comfort of knowing that there is someone to talk with when needed, but focused heavily on technology solutions. What exactly that looks like remains to be seen, said Lamb. “Like everything, how we think it might be might change as we do more and more,” said Lamb. “And so really, what we’re doing is really focusing on the digital side, because we do very well on the customer experience side — the in-person service. And so, how do you combine those?” Contact: nmanes@crain.com; (313) 446-1626; @nickrmanes

Metro Detroit’s commercial real estate industry has faced incoming arrows from all corners during the COVID-19 pandemic and continues to deal with wounds suffered. But the impact on the industry will be felt long into the future, and the unknowns still loom large. “There is no doubt that technology has rapidly enabled more workers to do their jobs from anywhere,” said Gary Goodman, senior managing director of brokerage and innovation for Farmington Hills-based Friedman Real Estate. “The book is not yet written on the ultimate impact and the changes that will impact" commercial real estate. Name a property asset class — minus perhaps warehouse/distribution space — and it likely experienced severe disruption during COVID-19. Office tenants were forced to work from home in many cases, leaving landlords with empty buildings in Detroit and its suburbs. Sublease space surged. Retailers and restaurants in large numbers were forced to close, creating revenue crunches for those businesses — and subsequently their building owners as their tenants struggled with rent. Some smaller strip center investors, for example, filed for bankruptcy. Lawsuits over unpaid rent were filed. Apartment building owners, with many of their own renters having lost their jobs, were worried about their monthly collections. Evictions for unpaid rent and foreclosures for unpaid mortgages were banned and, in many cases, still are Talley — at least until the end of June. With business and other travel constricted, hotel owners had far less room rental revenue, forcing many into special servicing on their loans. Some hotel owners saw fit to repurpose their properties entirely for new uses. Construction halted for weeks and projects that prominently featured one of the most heavily affected asset classes — office, retail and hotel — were thrown for a loop. But not all was gloom. If you own a warehouse or distribution center, you were doing well prior to the outbreak of COVID-19. The pandemic put demand for your property into overdrive as online shopping became even more prevalent. The U.S. Census Bureau said that in the second quarter last year, online shopping surged 31.8 percent from the previous quarter to $203.8 billion.

REAL ESTATE ` COVID IMPACT: The pandemic left many offices empty, or nearly so, and put a scare into commercial landlords about the future and value of their properties. ` THE WAY FORWARD: Much uncertainty remains, as the future of a flexible workforce has to play out, and nobody knows how it will work out.

It was $215 billion last quarter, representing 13.6 percent of all retail sales. That translates into a red-hot market for those uses. “It will be interesting to see how some of the last mile distribution issues are solved by some of the large players,” Goodman said. “We are already seeing vacant box retail locations being re-purposed for some of these uses.” In addition, retailers like Lowe’s and Home Depot flourished as homeowners sought to remodel and embark on other projects. One surprise along the way: News of the death of the office was greatly exaggerated. But it needed transfusions, a couple operations and some rehab along the way. “There is a desire to return to work but with more flexibility,” said Mark Talley, head of the Detroit office of Greenwood Commercial Real Estate, a brokerage firm. In addition, concerns about residential landlords being unable to collect rents from their tenants were assuaged by various federal stimulus packages, cash infusions to struggling workers and enhanced unemployment benefits. Although some large companies are taking steps toward resuming in-person office work, experts believe a level of flexibility for employees will remain. “The change in work trends will continue to shift with companies prioritizing a live/work balance,” said Krystol Rappuhn, principal of Detroit-based Beanstalk Real Estate Solutions. “In light of the transition to home offices and remote working schedules, home offices, large home work spaces, and access to outside recreation areas has become, and will remain, extremely important.” Talley agreed: “Talent can work from anywhere since we have learned to be effective via videoconferencing,” he said. “Companies will be more thoughtful in how space is used and will create environments that give workers a reason to come back to the office.” Contact: kpinho@crain.com; (313) 446-0412; @kirkpinhoCDB

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THE WAY FORWARD CANNABIS

‘Essential’ designation could pay benefits for cannabis business BY ANNALISE FRANK

Recreational cannabis became legal to sell in Michigan on Dec. 1, 2019. Fifteen weeks and two days later, the state shut down. The state deemed both adult-use and medical cannabis shops essential businesses, though for a time they were allowed only curbside sales and delivery and had to shut down their interiors, like restaurants. The weed kept moving, and the industry continued to grow. “The fact that they allowed curbside and deemed us essential was a saving grace for the cannabis industry at a time when it was just getting off the ground,” said John McLeod, co-founder of Troy-based Cloud Cannabis Co. The cannabis industry got support from the medical community in getting the designation as essential, said Robin Schneider, executive director of the 300-member Michigan Cannabis Industry Association. “Our members had to very swiftly pivot their operations to curbside service and delivery and, you know, they certainly rose to the challenges with that,” Schneider said. Looking at the raw numbers, recreational cannabis sales rose during the pandemic. Michigan sellers took in $14.8 million in recreational sales in February 2020 and nearly $22 million in March that year. The figure hit nearly

Though other supply chain issues reared their heads, the supply of marijuana flower generally stayed steady in the pandemic. | PRIMITIV

$60 million a month in September, according to state figures, and dipped slightly in the fall before rising again. In 2021, the industry is seeing yet more success: $98 million in sales in March and $105 million in April. The state is rapidly approaching $1 billion in sales since the recreational sector first opened. “Now our sales are skyrocketing to where they should have been,” Schneider said. That’s not to say the pandemic didn’t slow development of the business. Supply chain slowdowns during the pandemic affected construction of new facilities for recreational cannabis. That was evident for McLeod’s Cloud

CANNABIS ` COVID IMPACT: The freshly legal recreational cannabis business was hit very quickly by COVID and slowed expansions. ` THE WAY FORWARD: A designation as “essential” gave the business a shot of legitimacy. The industry is emerging from the pandemic with growth in certain types of businesses like social lounges still to come.

Cannabis, which opened its first store in Muskegon Township in June 2020. “So it’s been a struggle to hit timelines for retail store openings because of that process,” he said.

“We had a hard time getting drywall, hammer and nails but fortunately did not have a large disrupt in getting flower,” he said. In the thick of it, cannabis businesses also had to deal with delays in shipments of packaging, PPE and cleaning supplies, Schneider said. McLeod The association hired seamstresses to sew masks and helped members create alternative recipes for cleaning products. Cloud, now with four stores, has also been struggling to hire — a problem hitting the restaurant industry and others, too, said McLeod. “I would say like every other industry, we are certainly having to work harder to recruit new employment,” Schneider added. The pandemic may have helped spur increasing acceptance of legal cannabis. State governments across the country designating cannabis as “essential” during the lockdown became “one of the most momentous moments in the timeline of the nation’s legal marijuana industry,” national industry publication Marijuana Business Daily reports, because it “put the cannabis industry in the same category as pharmacies, hospitals and other sources of legitimate medicine.” It showed these products — still

seen as problematic by some — aren’t just for fun, they’re necessary, McLeod said. Many retailers, facing a shortage of product packaging they had been getting from abroad, moved to suppliers in Ohio and Michigan during the lockdown, Schneider said. She expects that pivot could last for many, since those shorter-distance relationships have already been formed. Contactless deliveries and curbside pickup are also likely permanent for some. Going forward, one big question for McLeod is how Michigan will solve the problems that result from how medical and adult-use marijuana businesses are regulated differently. Medical businesses have a hard time competitively if their city doesn’t allow recreational but the neighboring one does, for example. Schneider is also looking forward to license types that got put on hold during the pandemic moving forward: social consumption lounges, for example, and cannabis-based tourism. “We’re expecting to see several of those opening over the next year, as early as this summer,” she said. Contact: afrank@crain.com; (313) 446-0416; @annalise_frank

NONPROFITS

Nonprofits face long recovery, uncertainty BY SHERRI WELCH

There’s a lot of discussion about things getting back to normal, but that’s not yet the case for nonprofits and the people they serve. The issues nonprofits still face, led by access to health care and economic opportunity, were there before the pandemic and have worsened for some over the past year and a half, said Kyle Caldwell, president and CEO of the Council of Michigan Foundations. Opening up Michigan, removing the masks and other restrictions is actually making life harder for people in underrepresented communities, many of whom are not yet vaccinated and not seeing jobs coming back, Caldwell said. For many, “we’re not out of this yet,” he said. Kuhn There’s a little bit of irony in the fact that the nonprofits hit hardest during the pandemic were the same ones that heeded advice to diversify their funding. Nonprofits that relied on active participation — arts and culture organizations that sell tickets, human service agencies that rely on fee-for-service and charities that rely on in-person fundraising events — were hurt the most, leaders said. There’s no data yet to say how many nonprofits have closed because of the pandemic. But leaders aren’t ruling out collaborations, mergers and dissolutions.

“Nonprofits are working through those processes as a result of COVID. It could be that we begin to see some of that,” said Kelley Kuhn, vice president of the Michigan Nonprofit Association. Those conversations aren’t just focused on deconstructing a business structure, she said. They’re also about understanding the impact a closure would leave in the community served, and funders, donors and other nonprofits are part of the conversations. For some, a “comeback” will depend on how quickly they are able to resume operating as they did before the pandemic, Kuhn said. The new, virtual operations many nonprofits adopted during the pandemic could also produce efficiencies and even attract new funding in the future, Caldwell said. Some nonprofit sectors saw support rise during the pandemic. Increased money flowed to critical human services agencies providing food and shelter. Nonprofits involved in vaccine education, outreach and drives, and intermediary organizations providing pass-through grants, like community foundations and United Way agencies, also saw donations and grants rise, leaders said. If there’s any type of nonprofit that will see sustained support beyond an “immediate jolt of energy,” it’s mental health agencies, given the demand not only from traditional clients but also

Human service nonprofits like Forgotten Harvest saw an upswing of support during the pandemic. | CONTRIBUTED

NONPROFITS ` COVID IMPACT: Community needs were spiking, but finances became a struggle for charitable nonprofits as fundraisers ground to a halt and public venues were closed or limited. ` THE WAY FORWARD: A predicted surge in closures of nonprofits hasn’t happened yet, but might yet. Health and social services charities are emerging stronger.

staff, volunteers and others who have weathered the quarantines, Kuhn said. Pivoting to virtual programs allowed many nonprofits to continue operating during the pandemic. That could lead to permanent shifts to virtual or hybrid

models going forward and fewer nonprofits needing their own office space. One of the predictions during the early months of the pandemic was that there would be a reckoning in the field around closures and strategic alliances. That hasn’t happened as quickly as some thought it would. But leaders aren’t ruling it out. Another prediction was that there would be a shortage of capital to support the work of nonprofits and the people they serve. But efforts led by MNA and others to help nonprofits get access to PPP and other small business resources paid off, along with increased support from donors, corporations and foundations, Caldwell said. How quickly the markets turned

around was a nice surprise that has strengthened individual and philanthropic giving, said Kyla Carlsen, director of programs, Co.act Detroit, a nonprofit support center. A trend that leaders didn’t see coming was a significant increase in turnover among nonprofit leaders. “The pandemic, for many people, created an opportunity to pause to think about where do I go next? What do I do?” Kuhn said. “We’re watching major leadership transitions happen, leaders who have longstanding relationships and deep networks in the community.” Contact: swelch@crain.com; (313) 446-1694; @SherriWelch JUNE 28, 2021 | CRAIN’S DETROIT BUSINESS | 19

THE WAY FORWARD HEALTH CARE

GOVERNMENT

Telehealth, mergers and new business arrangements to dominate health care

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BY DUSTIN WALSH

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The COVID-19 pandemic caused the first contraction of the health care industry in the modern era, causing lucrative elective procedures to be sidelined as health systems wrangled with filled beds and spreading disease. Layoffs followed as 2020 dragged on and coronavirus surges relented. But relief came in the form of the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, which earmarked $180 billion in health care-related spending, buoying struggling providers, allowing many to finish the year on solid ground. The industry is now in recovery mode but still adjusting to a new way of doing business. Telehealth, once a novel concept with mild interest among providers, erupted to the forefront of preventative medicine. Less than 1 percent of Medicare primary doctor visits were telehealth in February 2020 but spiked to 43 percent of visits in April of last year, driven by the pandemic, according to the American Hospital Association. Between August 2019 and August 2020, insurance claims for telehealth services in the U.S. rose 3,552 percent, according to FAIR Health’s Telehealth Regional Tracker. Remote doctor visits are increasingly common in 2021 and experts believe they will become a staple moving forward. Telehealth is now the most attractive health investment

20 | CRAIN’S DETROIT BUSINESS | JUNE 28, 2021

segment over the next two years, according to KPMG’s 2021 Healthcare and Life Sciences Investment Outlook. Hospital mergers have been ramping up for years, and experts are predicting that the financial strains of the pandemic will push consolidation. Merger trends in the past were largely consolidation of smaller, rural hospitals but the trend appears to have moved to larger systems pairing up. This is evident in the recent merger talks between Grand Rapids’ Spectrum Health and Southfield-based Beaumont Health, who plan to create a $12 billion, 22-hospital system in West and Southeast Michigan by this fall. The new system would create the state’s largest provider and employer. The two health systems are promising improved care and lower costs. Whether they can deliver those is an open question. Antitrust scrutiny is expected to ramp up as regulators call into question the cost savings claims of merging health systems. It’s not yet clear how the Federal Trade Commission or state regulators will weigh in on the Spectrum, Beaumont merger. But eight large hospital mergers have been called off since May 2020, including two for Beaumont — a deal with Akron, Ohio-based Summa Health and the merger with Downers Grove, Ill.-based Advocate Aurora, which would have created a $17 billion, 36 hospital system. Beaumont had already cleared regulatory ap-

HEALTH CARE ` COVID IMPACT: Health care suffered severe disruption as COVID cases swamped hospitals but much other care, and the payment that went with it, ground to a halt. ` THE WAY FORWARD: Federal stimulus money helped health systems stay afloat financially. Mergers and other joint agreements are the wave of the future.

provals for the Summa Health deal which fell apart as the two systems battled a COVID-19 surge last year. To avoid regulatory scrutiny, KPMG predicts joint operating agreements will rise alongside mergers. “These arrangements are attractive because of lower capital requirements, less regulatory scrutiny, and faster implementation,” the KPMG report said. In April, Michigan Medicine announced a joint operating agreement with Mercy Health St. Mary’s in Grand Rapids and Mercy Health Muskegon to create the Cardiovascular Network of West Michigan, an open-heart surgery program that will share resources between the three entities. The new program now competes directly with Spectrum, which operates the only open-heart surgery center in West Michigan. Contact: dwalsh@crain.com; (313) 446-6042; @dustinpwalsh

Cadillac Place is about 64 percent occupied, according to the state Department of Technology, Management and Budget. | LARRY PEPLIN FOR CRAIN’S DETROIT BUSINESS

State government likely to take up less space BY CHAD LIVENGOOD

and whether it’s necessary to go back to business as usual. “There will be a shakeup over the Cadillac Place, the state of Michigan office building along West next six, 12, 18 months as agencies Grand Boulevard in Detroit’s New start to look at what their needs are,” Center, was already underutilized Stibitz said. Cadillac Place, which GM built office space before the pandemic hit from 1919-1922 at the end of the 15 months ago. Then the Albert Kahn-designed Spanish flu pandemic, is one such historic former headquarters of building the state owns. State agenGeneral Motors Co. was emptied out cies have occupied Cadillac Place almost overnight in mid-March since 1999, when GM moved its 2020 as most state employees as- headquarters to the Renaissance signed to Cadillac Place worked re- Center. Stibitz said the state plans to seek motely. With state agencies planning a “partners” with other government gradual hybrid return to the office agencies and nonprofits to help fill starting July 12, state officials are Cadillac Place’s empty floor space. once again setting their sights on fill- Two years before the coronavirus hit, the state was leasing Cadillac Place’s ground-floor retail and GOVERNMENT ing ground floor the 36 percent of office retail inside Caspace that’s unused in ` COVID IMPACT: State dillac Place for the 15-story, 1.4 million government swiftly shifted $17 per square square foot office tower. to delivering services foot, Crain’s re“I would say Cadillac remotely. ported at the Place is our big con- ` THE WAY FORWARD: The time. Depending on cern,” said Brom Stibitz, great remote-work the permanency director of the Michigan experiment is likely to lead of work-fromDepartment of Technol- to a push to further home options ogy, Management and decrease and consolidate within state govBudget. the amount of office space State government taken up by state workers. ernment departagencies are emerging ments, the agenfrom the pandemic with cies will have to nearly 414,000 square feet less of adjust their needs for office space in leased office space, according to Detroit at Cadillac Place and elselease cancellation data from DTMB. where in the suburbs, Stibitz said. Most of the downsizing in a variDTMB, which employs 3,000 ety of state office buildings across workers, is going to begin a six-month the state was already in the works pilot program after Labor Day where before the first pandemic in a centu- employees will be required to work ry sent a majority of the state’s 47,000 in the office twice a week. After six months, DTMB’s leaders workers home to work remotely. DTMB and the Labor and Eco- will assess whether the agency has nomic Opportunity and Treasury “figured out” employee managedepartments are among the state ment and how to make meetings inagencies that canceled three leases clusive for the employees working for office space in downtown Lan- remotely, Stibitz said. “The state of Michigan is certainly sing totaling 18,344 square feet, acnot the only organization that’s cording to state data. For the past decade, state agen- thinking real hard about what is the cies have been slowly reducing the new normal,” Stibitz said. “... It’s a footprint of rented space in Lansing big grand experiment that everyand satellite locations for years to body’s going through right now, and consolidate operations under the I think there will be a little bit of ‘let’s roofs of state-owned office buildings. see how it goes’ and ‘let’s see where Stibitz expects there will be more the data leads us.’” contraction of office space in the coming years as state departments Contact: clivengood@crain.com; re-assess how they deliver services (313) 446-1654; @ChadLivengood

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THE WAY FORWARD MANUFACTURING

Auto industry worries get flipped on their heads BY KURT NAGL

tions. “When you shut supply off comThe auto industry feared total col- pletely, and you have demand come lapse when the coronavirus pandem- back faster, the supply doesn’t come ic put a halt to production and tank- back as fast,” Wakefield said. “It takes ing vehicle sales brought on time, and you go into a scarcity enviflashbacks to the Great Recession. ronment.… Whenever you run things Over the course of just a year, though, as hard as you can, more problems the problem has reversed. Automak- come up than otherwise. Small probers cannot make new cars fast lems turn into more down time.” While the fractured supply chain enough. The reason why is that the industry poses daunting challenges to profitis now grappling with a $110 billion ability, the consensus is that it beats the alternative of a dilemma the size of a sustained economic fingernail. recession, which most That’s the estimat- MANUFACTURING experts now are not ed global revenue that ` COVID IMPACT: expecting. will be lost this year Manufacturing led the way “Despite all the dire due to the ongoing on returning to in-person predictions, there shortage of semicon- work safely. A predicted seem to be some signs ductors, according to drop in demand happened of improvement,” said a recent analysis by but was short-lived. John Taylor, chair of Southfield-based the department of AlixPartners. A single ` THE WAY FORWARD: A marketing and supply car part can use up to shortage of microchips has chain management at 1,000 of the tiny com- played havoc with the puter chips, which are automotive market and isn’t Wayne State University. also used in cell- close to being solved. This While Detroit rephones and other ev- is putting new emphasis on mains the “mecca of eryday electronics in flexibility. automotive,” local auhot demand during tomakers and suppliers would be the pandemic. As a result of the supply shortage, wise to sharpen their focus on the new car production is expected to be much larger, existential challenge cut by 4 million units this year, leav- looming ahead, Taylor said. That is ing automakers and suppliers reel- the race for dominance in the electric ing. Ford Motor Co., which has been and autonomous vehicle space, hit particularly hard, said it expects which many observers would argue to lose half of its production for the Silicon Valley is winning. In the past year, the amount of insecond quarter. There are signs that the chip issue vestment committed to electric vehiis subsiding, but other shortages, cles by automakers and suppliers has from steel and seat foam to labor, jumped 41 percent to $330 billion continue to be a drag on the industry, through 2025, according to the Alixsaid Mark Wakefield, managing di- Partners analysis. Ford announced in rector at AlixPartners, who specializ- May that it plans to boost EV investes in automotive strategy and opera- ment to $30 billion through 2025 and

A pandemic-fueled decline in demand resolved itself quickly for the automotive industry. | BLOOMBERG

that it anticipates 40 percent of global sales to be EVs by 2030. General Motors said it will invest $35 billion into that space in the next five years. Many large suppliers are following their lead, including BorgWarner, which laid out a plan in March to scale up EV revenue to 45 percent of total business by 2030. But the internal combustion engine is not going anywhere soon, because unlike EVs, it is profitable. The transition from ICE to EV looks to be at an inflection point in terms of promised investment, but how that

translates into sales, and exactly when, is a mystery, Wakefield said. The variable cost globally of building an EV is still $8,000 to $11,000 more than a traditional vehicle, according to the analysis. “When we say inflection point, we mean inflection in investment from automakers, which happens three to five years before production, and then of course the dog has to eat the dog food,” he said. ”You still need scale. It’s about the only way to make money on an electric vehicle. The math behind the billions invested

and getting the payoff this decade is really tough.” To remain competitive, Wakefield said, auto companies must strike a balance between the pursuit of profitability and positioning for the future, and they must adapt to “all-new ways of doing business at virtually every level.” “The old ways of working are really changing to a degree that’s never really happened,” he said. Contact: knagl@crain.com; (313) 446-0337; @kurt_nagl

SMALL BUSINESS

Michigan small business, retail look to innovation to rebound BY JAY DAVIS

Studies conducted by various groups have shown that small businesses have been disproportionately harmed during the coronavirus pandemic. Billions of dollars in aid has gone to thousands of small businesses, helping those businesses stay afloat. While the majority of Michigan small business owners believe they’ll rebound, questions remain as to what caused so many small businesses to be adversely affected during the pandemic. Brain Calley, president and CEO of the Small Business Association of Michigan, said businesses with a substantial online presence prior to the pandemic were at an advantage, along with those that could more easily shift to remote work. Some businesses, though, either by the nature of the virus or regulations associated with the virus response, continue to struggle as the state opens up. Businesses associated with entertainment, gatherings, conventions,

sit-down dining, downtown districts, office real estate, dry cleaners, and many more have just started to recover, Calley said. “The nature of the pandemic and its response accelerated trends toward remote fulfillment, pushing more business to giant retailers and remote work,” said Calley, long opposed to the shutdowns and capacity limits, “which dramatically shifted the physical location of customers virtually overnight.” Michigan retailers did their best to navigate rules put in place by the Michigan Occupational Safety and Health Administration, and emergency orders from the Michigan Department of Health and Human Services, according to Michigan Retailers Association President and CEO Bill Hallan. Hallan said businesses in his industry have done their best to manage challenges related to supply chain issues, and labor shortages. “One early prediction that did not occur was a food shortage. Although there were some brand shortages and limitations, the product catego-

SMALL BUSINESS ` COVID IMPACT: Small businesses took a huge hit, especially those that were slow to adapt to web-based services and delivery.

Calley

Hallan

ries remained stocked,” Hallan said. “According to our monthly Retail Indexes, retail sales across the state continued to be strong and consistent over the past five months. Based on our data, retailers are rebounding; however, labor shortages continue to impact operations. Retailers, regardless of size and category, are limiting store hours to manage labor issues.” Labor issues didn’t affect consumer spending, according to Calley. Various federal stimulus packages helped quickly restore consumer confidence, he said. Calley added that remote work is changing how companies operate. “The rate at which remote work

` THE WAY FORWARD: The pandemic increased customers’ appetites for convenience. Many of the physical changes in retail space — like Plexiglass — is likely to stick around for a while.

has taken hold and become a competitive issue among employers is breathtaking,” Calley said. “More remote work is clearly here to stay.” Remote shopping was big for consumers and retailers, Hallan said. Businesses that added online shopping options and curbside pickup have been the most successful during the pandemic, he said. He’s talked with several retailers who intend to keep those services in place. Plexiglass partitions separating customers and employees, and hand cleaning stations will stick around, too, Hallan believes. “Both workers and customers are

so used to them now that it doesn’t make sense to take them down,” Hallan said. Small business owners during the pandemic became more involved in policy and politics, Calley said. He believes that will continue. “We’re seeing engagement among (SBAM) members multiple times higher than we have ever seen,” Calley said. Retailers going forward are focused on adding more services to get goods to customers, Hallan said. Shoppers’ preference for convenience has only intensified, he said. “Customers have embraced home delivery. We do not see demand for that service slowing down,” Hallan said. “The big question mark at the moment is how to continue to operate with a labor shortage. That’s particularly concerning for smaller retailers who cannot afford to pay higher hourly wages. If larger retailers are having a hard time, you can imagine how the smaller ones feel.” Contact: jason.davis@crain.com (313) 446-1612; @JayDavis_1981 JUNE 28, 2021 | CRAIN’S DETROIT BUSINESS | 21

PEOPLE ON THE MOVE

Advertising Section

To place your listing, visit www.crainsdetroit.com/people-on-the-move or, for more information, contact Debora Stein at 917.226.5470 / dstein@crain.com

ACCOUNTING

INSURANCE / FINANCIAL

SUPPLIERS

BDO

OneAmerica

Cadillac Coffee Company

BDO today announced Kevin Patterson as Assurance Office Managing Partner for the Detroit market. Patterson will oversee the local assurance practice and provide audit services with a focus on publicly traded and privately held manufacturing, distribution, and insurance clients. With 15 years of experience, Patterson has worked extensively with both private equity owned and publicly traded automotive manufacturers and automotive suppliers from both an acquisition and divestiture perspective.

Michigan natives Dan Oprita (Regional Sales Manager) and Daryl Oliver (Senior Sales Representative) joined OneAmerica Financial Oprita Partners in June, offering group life and disability insurance and other comprehensive employee benefits in Michigan and northwest Ohio. OneAmerica designs solutions to help employers through brokers. Dan, of Washington Township, Oliver is an Oakland University graduate with 18 years’ experience, including Lincoln Financial Group. Reach out to Dan at http://bit.ly/EB-Dan. Daryl, of Grosse Pointe Farms, is a Western Michigan University graduate with 25 years’ experience, including Dearborn National, Unum and CNA. Reach out to Daryl at http://bit.ly/ EB-Daryl.

Cadillac Coffee Company has named 4th generation family member, Ken Gehlert, President and CEO. Mr. Gehlert brings to Cadillac over 50 years of sales and management leadership. Cadillac’s core business includes Foodservice, National Hotel brands, Convenience Stores, Offices, and Private Label packaging. Cadillac has recently partnered with Summits Edge Coffee Roasters to offer an exclusive line of small-batch roasted coffees for home use. Please visit cadillaccoffee.com for more information.

ENGINEERING / DESIGN

Somat Engineering, Inc. Somat Engineering, Inc. is pleased to announce that Kirit Ravani, PE has been promoted to Principal Engineer - Client Relations. With over 50 years of expansive experience in the consulting engineering sphere, Kirit brings a wealth of practical and institutional knowledge, and environmental engineering expertise, and is focused on both public and private clients to successfully plan, design, explain and execute project deliverables, including project presentations in public forums.

Kimberly Flowers, BSN, RN, MA, LPC, is the new Chief Clinical Officer at OCHN. In this role Ms. Flowers oversees initiatives to ensure the highest quality of clinical service delivery is employed and maintained throughout the Oakland County public mental health system. As a registered nurse and licensed professional counselor, she has the comprehensive experience leading clinical best practices that will continue to strengthen OCHN’s leadership position as an integrated, managed-care system. 22 | CRAIN’S DETROIT BUSINESS | JUNE 28, 2021

For listing opportunities, contact Debora Stein at dstein@crain.com or submit directly to CRAINSDETROIT.COM/POTM

HONORS / CERTIFICATIONS

FastTek Global Livonia, MI 734-744-9373 www.fasttek.com

First Tee – Greater Detroit, an initiative of The Children’s Foundation, announced that Mark Montgomery, Principal for MSM Networking Solutions, LLC joined the organization as a member of the Board of Directors. Montgomery manages all client relationships and strategic guidance to organizations with respect to technology, IT infrastructure and the development of business process through IT enhancements. Mark is an avid golfer and is involved in several communitybased initiatives in Detroit.

FastTek Global, a Livonia, Michigan-based, international staffing, managed services and executive search solutions provider, is proud to announce certification as a Women’s Business Enterprise (WBE) by the Great Lakes Women’s Business Council, a regional certifying partner of the Women’s Business Enterprise National Council (WBENC). The designation certifies that FastTek Global is womanowned, controlled, operated and managed. FastTek Global, originally founded in 2003 as the Michigan division of former parent company, Fast Switch, broke away as a separate business named Fast Switch Great Lakes in January 2020 before the assumed name change to FastTek Global. It has been led by Carey Pachla, since its beginning.

5-HOUR From Page 3

Cypress plans to take growth slowly and attract like-minded clients. Early discussions with some undisclosed families have commenced, said Housler, who notHousler ed that the firm will have a “global reach” with its expected client base. A recent report from FINTRX, a research company, shows that family offices are on the rise. In the first quarter of this year, the company tracked 55 new family offices, more than 2,000 new investments and the family offices added upward of $42 billion in assets. Cypress Capital will operate out of the business park the Bhargava owns in Farmington Hills.

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Among other businesses based at the Farmington Hills site is Hans Power and Water LLC, the water purification venture Bhargava launched in 2019. Bhargava described the venture as a 20-year project that so far has not caught on in any significant way. But he believes the technology will be in demand as climate change advances. He pointed to much of the developing world, including Indonesia and his native India, as countries that are already experiencing crises stemming from a lack of access to clean water. In September 2016, Crain’s reported that Bhargava was the anonymous investor behind a plan to invest $1 billion in health care-focused startups over a roughly five-year time frame. The entrepreneur said the specific results of that initiative are unclear. Bhargava said “it’s possible” that he’s put forward $1 billion, but noted that he hasn’t really kept track. “There’s so many companies, I don’t keep track of everything,” he said. A Bhargava spokesperson noted, the work with Hans Water and other initiatives would also be part of that umbrella. The spokesperson, Vince Bodiford, said he believes Bhargava’s water investments over the years have likely totaled around $200 million. Aside from business ventures, Bhargava — who said he does not know his net worth — has also been active in philanthropy. He was a signatory to The Giving Pledge, which was created by Bill and Melinda Gates and Warren Buffett, to encourage philanthropy among the ultra-wealthy. Bhargava has previously said he plans to give away 99 percent of his wealth. Bhargava, however, told Crain’s that he’s no longer doing his philanthropy as part of the Giving Pledge initiative, calling it “a bunch of hocus pocus.” Asked for clarification, Bhargava went back to his earlier investment mantra. “Most people there haven’t got a clue. And it’s not very useful,” he said. “I joined because I wanted to learn something ... If they come up with something great, I’ll be there. But I went there twice, and after the second time (I found) it’s not useful.” Contact: nmanes@crain.com; (313) 446-1626; @nickrmanes

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Crains Detroit Business 2x4, June 28

AUCTIONS

FORECLOSURE

NOTICE OF PUBLIC FORECLOSURE SALE - GATEWAY CENTER

NOTICE IS HEREBY GIVEN THAT ON JULY 12, 2021 AT 10:00 A.M. EASTERN TIME, Kore Fund Ltd., a company organized under the laws of the Cayman Islands (“Lender”), as secured creditor, will offer to sell, or cause to be sold, at a public sale conducted in accordance with the provisions of applicable law (the “Public Sale”), at the law offices of Bilzin Sumberg Baena Price & Axelrod LLP (“Bilzin Sumberg”), 1450 Brickell Avenue, Suite 2300, Miami, Florida 3313, (i) all of the right, title and interest of 14/ORCHARD PARTNERS MEZZANINE BORROWER, a Delaware limited liability company (“Mezzanine Borrower”), in (a) the 99% membership interests in Gateway Center, LLC, a Michigan limited liability company (“Mortgage Borrower”), and (b) 100% of the issued and outstanding shares of capital stock in 14/ORCHARD PARTNERS S.P.E., INC., a Michigan corporation (“SPE Party”, and together with Mezzanine Borrower, collectively “Pledgors”), and (ii) all of the right, title and interest of SPE Party in the 1% membership interests in Mortgage Borrower (collectively, the “Interests”). Interested parties who deliver an executed Investment Letter (as defined below) may participate in Public Sale via Zoom Communications, Inc. and such interested parties shall be provided the Zoom link in advance of the Public Sale. The Interests are pledged by Pledgors to Lender to secure the loan (the “Loan”) to Mezzanine Borrower from Lender evidenced by (a) the Mezzanine Promissory Note (the “Note”) executed by Mezzanine Borrower in favor of Argentic TRS I LLC, a Delaware limited liability company (“Original Lender”), dated June 6, 2019, in the original principal amount of $6,000,000.00 (the “Loan”) and (b) the Mezzanine Loan Agreement (the “Loan Agreement”) dated June 6, 2019, by and between Mezzanine Borrower and Original Lender, which Note and Loan Agreement are secured by that certain Pledge and Security Agreement, dated June 6, 2019 (the “Pledge Agreement”), executed by Mezzanine Borrower and SPE Party in favor of Lender (the Note, the Loan Agreement, and the Pledge Agreement, together with all other loan documents executed in connection with the Loan, are collectively referred to herein as the “Loan Documents”). Lender is the current holder of the Loan and the Loan Documents. Borrower has defaulted on its obligations under the Loan Documents. As of June 6, 2021, the amount of the outstanding principal and interest that Mezzanine Borrower owes under the Loan Documents (the “Indebtedness”) is at least $6,090,191.67, exclusive of fees (other than the Exit Fee), costs, third party expenses and other obligations owed under the Loan Documents. To the best of Lender’s knowledge, Mezzanine Borrower and SPE Party are the sole owners of the membership interests in Mortgage Borrower, and Mezzanine Borrower is the sole owner of the issued and outstanding shares of capital stock in SPE Party. Mortgage Borrower is the owner of that certain property known as “Gateway Center” in West Bloomfield, Michigan (the “Property”). LENDER MAKES NO REPRESENTATIONS OR WARRANTIES AS TO THE FINANCIAL OR OPERATING CONDITION OF THE MORTGAGE BORROWER OR THE PROPERTY. The Interests will be offered and sold, as is, where is, at the Public Sale pursuant to the appropriate provisions of applicable law. The Interests will be sold as a single block and will not be sold individually, subdivided or broken up. Only the following persons or entities may bid for the Interests at the Public Sale: (i) residents of states, or entities organized under the laws of states, that have enacted securities laws containing registration exemptions for foreclosure sales of securities and who agree, if they are the successful bidder, to give Lender the Investment Letter (as hereinafter defined), and (ii) Lender, its successors and assigns or an affiliate of Lender. Any party which meets these requirements and wishes to make an offer for the Interests at the Public Sale may do so; parties which do not meet these requirements will not be permitted to bid. With the exception of any credit bid by Lender, its successors and assigns or an affiliate of Lender, all offers must be for cash and contain no contingencies that are unsatisfactory to Lender, and must have a closing date of no later than 5:00 p.m. on July 14, 2021. As used herein, the term “Investment Letter” shall mean a letter from the purchaser of the Interests that acknowledges and represents to Lender (or Lender shall certify same if it is the purchaser) in writing that: (i) the purchaser (either alone or with such purchaser’s attorneys, accountants or other advisors) possesses the requisite business and investment knowledge and experience to effectively evaluate the potential risks and merits of the investment, (ii) the purchaser has sufficient financial ability and net worth to bear the economic risk of the investment, (iii) the purchaser is aware of the fact that the Interests have not been registered under the Securities Act of 1933 (the “Act”) or applicable state securities law, (iv) the Interests are being acquired as an investment for the purchaser’s own account and not with a view to the sale or distribution thereof, (v) the Interests will not be resold unless the Interests are registered under the Act and applicable state securities laws or there exist valid exemptions from such registration requirements, and (vi) certificates evidencing the Interests to be received by the purchaser will bear a legend to the effect that the Interests represented thereby are not registered under the Act or under any state securities laws and may not be sold or transferred without registration under the Act and applicable state securities laws or the availability of valid exemptions from such registration requirements. Any purchaser of the Interests at the Public Sale will be required to provide an Investment Letter to Lender. If the successful bidder refuses to provide an Investment Letter acceptable to Lender, in Lender’s sole discretion, such party’s bid will be rejected. Further, any party wishing to bid shall deliver a certified or cashier’s check, or wired funds, in the amount of $100,000 prior to the commencement of bidding to serve as a non-refundable earnest money deposit (as to the successful bidder only) with the closing to occur no later than 5:00 p.m. on July 14, 2021, at the offices of Bilzin Sumberg or such other location agreed upon by the parties. One or more certificates evidencing ownership of the Interests sold pursuant to the Public Sale will be issued to the purchaser of same. The Interests will bear a legend stating that the Interests are not registered under the Act or under any state securities laws and may not be sold or transferred without registration under the Act and applicable state securities laws or the availability of valid exemptions from such registration requirements. Prospective purchasers should be aware that various agreements may significantly limit or restrict the rights of a purchaser of the Interests, or create rights for Pledgors’ other creditors and/or parties who have relationships with Mortgage Borrower or Pledgors upon the sale of the Interests, including without limitation that certain Intercreditor Agreement between Original Lender and Lender dated June 6, 2019. Prospective purchasers should carefully review such documents and make any other investigation deemed necessary before purchasing the Interests at the Public Sale. As more fully set forth below, all such documents in the possession of Lender shall be made available for review and inspection by and through Lender’s counsel, Bilzin Sumberg. If the terms of one or more cash offers received at the Public Sale for the Interests are satisfactory to Lender, in Lender’s sole discretion, Lender will accept the highest and best cash offer for the Interests made at the Public Sale, apply any sale proceeds received for such Interests to the Indebtedness, in accordance with applicable law, and remit any surplus over the amount of the Indebtedness to the parties entitled thereto, in accordance with applicable law. If no cash offer satisfactory to Lender is received, Lender expressly reserves the right to (i) withdraw the Interests from the Public Sale, or (ii) credit or otherwise bid, with or without contingencies, for the Interests at the Public Sale or at any adjournments thereof. In any event, to the extent set forth in the Loan Documents, Pledgors will be liable for any deficiency in respect of the Indebtedness due Lender existing after the sale or disposition of the Interests. Lender may cancel or adjourn the Public Sale or cause the Public Sale to be canceled or adjourned from time to time, without written notice or further publication, by announcement at the time and place appointed for the Public Sale, or any adjournments thereof, and the Public Sale may be resumed without further notice or publication at the time and place to which the Public Sale may have been so adjourned. In the event that Lender is not the successful bidder, the Public Sale will be kept open after the successful bid for the Interests, if any, is accepted, until payment in full and an Investment Letter acceptable to Lender, in Lender’s sole discretion, have been received by Lender from the successful bidder. In the event of the failure to complete the Public Sale as provided herein, the Interests may be sold at a reconvened sale without further publication. ALL INFORMATION IN LENDER’S POSSESSION CONCERNING PLEDGORS, THE INTERESTS, MORTGAGE BORROWER, THE PROPERTY AND ALL AGREEMENTS INVOLVING LENDER RELATED THERETO WILL BE MADE AVAILABLE TO ELIGIBLE PURCHASERS UPON REQUEST, SUBJECT TO ENTRY INTO A NON-DISCLOSURE AGREEMENT. PERSONS INTERESTED IN OBTAINING SUCH INFORMATION OR MAKING AN OFFER TO PURCHASE THE INTERESTS SHOULD CONTACT ADAM D. LUSTIG, ESQ., IN CARE OF BILZIN SUMBERG BAENA PRICE & AXELROD LLP, 1450 BRICKELL AVENUE, SUITE 2300, MIAMI, FL 33131, PHONE: (305) 375-6143, FAX: (305) 351-2235, EMAIL: alustig@bilzin.com. Dated: June 22, 2021

INDUSTRIAL REAL ESTATE

AUCTION

Perfect opportunity for a user or investor to acquire a wellmaintained industrial/ manufacturing facility starting at only

2600 Nodular Drive | Saginaw, MI $1,295,000! ZONED M-1 INDUSTRIAL

Industrial manufacturing facility on 16.15± Ac. of fenced, gated land. The former aluminum recycling facility consists of roughly 3,500± sf of oﬃce space, remaining being manufacturing/ warehouse. 34’-44’ ceiling heights. 7 dock doors, 3 high dock doors & 4 exterior truck wells. 3,000A/277/480V/ 3-Phase power serves the bldg. Active 129,000± SF INDUSTRIAL BLDG. W/ Huron & Eastern Rail line runs into the TWO 30 TON CRANES ON 16.15± AC. bldg. Two (2) 30.5 Ton Bridge Cranes, one (1) Avery Weigh-Tronix Truck Scale. Published Reserve Price: $1,295,000 ($9.95/SF) Improvements include roof & HVAC. Auction: July 22, 2021 from 11 a.m. (reg. at 10 a.m.) Located oﬀ I-75, close to multiple major ON-SITE INSPECTION: Thursdays, July 1st, 8th & 15th cities such as Detroit, Grand Rapids, from 11 a.m.-12:30 p.m.| Once in a lifetime opportunity! Toledo, Fort Wayne and Cleveland. Colliers International, MI Broker Julie O’Brien MI RE Salesperson

www.colliers.com

517.662.3530

For Due Diligence Package & Full Terms:

Mark S. Abood: Auctioneer, 216.239.5121

8% Buyer’s Premium For more information regarding other auctions, contact Mark Abood at mark.abood@colliers.com

http://ColliersAuction.listinglab.com/SaginawIND

DISCLAIMER: The information contained herein is subject to independent inspection and veriﬁcation by all parties relying on it. No liability for its inaccuracy, errors or omissions is assumed by the sellers or broker/auctioneer. All acreage, square footage, and dimensions are approximate. This offering may be withdrawn, modiﬁed, or canceled without notice at any time. Each property is subject to prior sale. This is not a solicitation or offering to residents of any state or jurisdiction where prohibited by law.

JOB FRONT POSITION AVAILABLE Business & Integration Architecture Manager (Accenture LLP; Detroit, MI): Define, analyze, solve, and document the business requirements and processes for Accenture or our clients program/project specifications and objectives. Must have willingness and ability to travel domestically approximately 80% of the time to meet client needs. Multiple Positions Available. For complete job description, list of requirements, and to apply, go to: www.accenture.com/us-en/careers (Job# R00016713). Equal Opportunity Employer – Minorities/Women/Vets/Disabled.

POSITION AVAILABLE

Project Leader, Mold CAE - Molex, LLC,

in Rochester Hills, MI, seeks a Project Leader, Mold CAE to work with and provide leadership to a team of Mold CAE Engineers to effectively use plastic flow analysis to identify and resolve molding problems associated with connector products. Telecommuting permitted up to 2 days/wk. To apply, send resume to: mlxjobs@kochind.com. Please include Job Number 12475 in the subject line.

BUSINESS PLAN

Shark Tank of Michigan

3 great inventions, 2 for food industry, 1 for household, Patents are ready, so is business plan. Everything ready to go, return on the investment is triple your money in 3 years or less. For more Info Call Frank 248 763 0740

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VIRTUAL REVEAL | August 20 @ NOON

OHM Advisors searches for the right MARKETING DIRECTOR

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www.crainsdetroit.com/classifieds JUNE MAY 24, 28, 2021 | CRAIN’S DETROIT BUSINESS | 21 23

INVESTORS

From Page 1

association, as well as Realcomp II Ltd., based in Farmington Hills. “For sellers, it can mean a quick, easy sale allowing a seller to move on with their future,” Tarala said. According to Redfin, there were 1,018 investor-purchased homes in metro Detroit in the first quarter (16.2 percent of homes sold overall), compared to 761 in Q1 last year, marking a 33.8 percent increase year over year. That represents the second-largest jump in the country, behind San Jose, Calif. (44 percent year-over- This Pontiac house is one of of the 500-600 in the Detroit area owned by SK Investyear increase) and above Chicago ments Group, which has its headquarters in Florida. (27.2 percent increase year-overPrices have shot up 21.7 percent year), Riverside, Calif. (24.5 percent homes sold) in the first quarter of increase year-over-year), Oakland, 2018, 16.8 percent (728 of 4,330 to a median of $230,000, up from Calif. (24.4 percent increase year- 1,500 homes sold) in the first quarter of $189,000 in May 2020, when the over-year) and Seattle (23.3 percent 2019 and 16.8 percent (500 of 2,977 housing market was starting to reseveral1Qweeks increase year-over-year). homes sold) in the first quarter of open following1,018: 2021 of 1,200 stasis as the COVID-19 pandemic Investors spent a record $77 bil- 2015. lion on single-family homes in the When the economy collapsed in prompted public health orders curprevious six months nationwide, a 900 the aughts, investor activity came tailing the residential real estate industry. record, according to Redfin. Locally to a trickle. Darralyn Bowers, president of they plopped down some $104.7 600Fewer than 100 homes sold to inmillion, or $71,250 on average, on vestors in fourth quarter 2010 plus Southfield-based ERA Bowers and homes in metro Detroit last quar- the first two quarters of 2011, with Associates, which does a majority ter, up from $77.4 million in the 300 all three of those quarters seeing of its sales in Detroit, said media fourth quarter 2020. less than $10 million spent on portrayal of the city and region as Precisely what type of investors homes, the only time that has hap- being inexpensive investment op0 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14has ’15 fueled ’16 ’17 ’18 ’19 ’20 portunities much of the are lurking in the waters is a bit of pened. an unknown, said Sheharyar As the economy rebounded, in- interest the last several years. “Most real estate agents were Bokhari, senior economist for Red- vestor interest in the region’s housswamped by ‘investors’ of all varietfin. ing stock resumed. 16.2%: 1Q 2021 20% Whether they are the Gordon Hawkins has ies,” Bowers said. “(Recent media large, institutional invesseen that interest in De- coverage) was not the first time that tors like Blackrock Inc. troit, where he is broker/ Detroit was featured as an opportu15 and J.P. Morgan Asset owner of Hawkins Realty nity for small and large investors. Management that the Wall Group Inc. in the city’s Before the pandemic, various meStreet Journal detailed in West Village neighbor- dia outlets had characterized De10 troit as a cheap path to riches.” April as having large appehood. She also said she saw interest tites for single-family “We have been getting a homes, or smaller momlot of interest for sin- from residents of the Southwest 5 and-pop operators with a Koslowe gle-family residences and and Northwestern U.S., who began few houses to their name a lot of it in Detroit is for looking to the region for cheaper — or investors somewhere flipping because a lot of housing costs while being em0 in between — they are all in the these homes are over 100 years old, ployed elsewhere. ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 game here. particularly where our office is,” “They are all kind of mixed into Hawkins said. “They are rehabbing ‘Hard to find good deals’ this,” Bokhari said. and flipping, which actually works He said the data was compiled by out because a lot of first-time Tzvi Koslowe does not want to searching for business entities such homebuyers, it’s a big task to reno- buy the house you do, the one you as limited liability companies that vate these homes. You need a par- waived the inspection on, the one were recorded as home purchasers. ticular skillset as a contractor and a you went over asking price on. Yet the investor class presence in lot of the suburban contractors are He wants to buy 100 houses like Metro Detroit is nothing new. not used to these old homes with the one you want to buy, but all at In fact, at least one out of every the plaster and everything that goes once, from the same seller. 10 homes in the region has sold to along with it. We have people from His SK Investments Group, which an investor every quarter for four Israel, everywhere you can men- has its headquarters in Florida, is years straight, according to the tion. There’s been a lot of sin- one of the investors around Detroit Redfin analysis. gle-family interest, particularly purchasing single-family homes to Its heightened activity around within the last 4-5 years.” rent. town is just more pronounced now To date, the native of Israel and with fewer homes for sale. his investors have bought someBuyer competition where between 500 and 600 homes Growing investor interest But it still makes for an addition- in the region, with about half of the al challenge for buyers, who are portfolio in Pontiac and the reThe region’s height of investor grappling with near historically low mainder in other suburbs like Eastpointe, Warren and St. Clair Shores. activity was in the early 2000s, ac- inventory levels. He said he, too, is having difficul“We have to talk about investors cording to Redfin data. because there is a ty finding homes to buy. “It’s crazy what’s going on in the housing shortage,” “ONE DEAL WE BOUGHT ABOUT 200 Bokhari said. single-family market,” he said. “It’s PROPERTIES FROM A GUY I MET ON A “People are feel- so hard to find deals as an investor. ing they are being We look at cap rates and cash flow PLANE.” crowded out by and things like that, so it’s very hard — Tzvi Koslowe, SK Investments Group investors just to find good deals right now, espechasing yields, cially bulk.” His company’s investments come In the second quarter of 2002, and they are contributing to comthere were 1,291 investor-pur- petition. If we had more homes and in 50-200-home bundles, so he is chased homes, the most this centu- we built more homes, if we solve not competing with your average ry, while in the third quarter of this housing shortage, that would buyer. He scours county tax foreclogive everybody a bigger pie to eat sure auctions, bank sales and other 2001, there were 1,058. sometimes unexpected opportuniInvestors last quarter also pur- from.” RealComp said earlier this month ties. chased one of the biggest shares of “One deal we bought about 200 homes sold, Redfin said: 16.2 per- that in May, homes for sale plunged cent of all homes in the region sold. 51.2 percent from 26,720 to 13,041 properties from a guy I met on a That’s fifth-highest since 2000, year over year, leaving just 1.1 plane,” Koslowe said, adding that behind 18.8 percent (761 of 4,038 months supply of inventory avail- his firm has budgets for home renohomes sold) in the first quarter of able for sale — compared to 2.8 vations and repairs before renting them out to tenants. 2020, 17.7 percent (757 of 4,269 months a year earlier. 24 | CRAIN’S DETROIT BUSINESS | JUNE 28, 2021

Investors’ home purchases on the rise Investor activity in metro Detroit’s single-family housing market has been on the rise, creating additional competition for an already limited number of houses for sale. Number of homes purchased by quarter, Q2 2000 to Q1 2021 1,500

$120 million

1,018: 1Q 2021

1,200

100 80

900

60 600 40 300

’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20

’00 ’0

Aggregated value of purchases by quarter, Q2 2000 to Q1 2021 20% $120 million 1,500 100 15

16.2%: 1Q 2021 $104.7 million: 1Q 2021

$120 million

1,018: 1Q 2021

1,200 80

10 900 60

405 600 20 300 0 0 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 0 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20 ’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20

Percent of sales by quarter, Q2 2000 to Q1 2021 20%

16.2%: 1Q 2021

’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’20

SOURCE: REDFIN

“I can’t speak for other investors. Of course, there are people who would be considered slumlords,” Koslowe said. “As a big landlord in the area, it’s very easy for people to think badly of an organization such as my organization because a couple of bad apples. The bad properties could really give a bad name for a good organization, which in a whole is a positive organization.”

Renting more common The story of single-family investors in Detroit is complicated. In a city where home ownership was the norm, renting is now more common for reasons ranging from systemic racial issues like lending and appraisals to the economic collapse — foreclosure hit more than 100,000 Detroit homeowners, the Detroit Free Press reported in 2017 — that crippled the city and region for years. City residents were overtaxed to the tune of $600 million, the Detroit News reported, sending some into tax foreclosure and losing their homes — often to investors — at the Wayne County tax-foreclosure auction, a hotbed of sometimes-predatory investor activity. Job losses in the aughts sent homes into mortgage foreclosure, back to the banks, which let them rot. And all along the way, there have been slumlords and speculators,

100

those who took advantage of renters with precious few options for affordable housing. They bought housing on the cheap, did little or nothing to improve them and rented them out in substandard conditions. According to a recent report by Detroit Future City, there are about 238,000 housing units in the city, with two-thirds of those being single-family homes. Of those, 37 percent are occupied by renters and single-family homes make up 48 percent of the overall rental market. Tom Goddeeris, COO for Detroit Future City, said his impression has been that the bulk of investment in Detroit single-family housing has been from smaller operators. “In the city, they are generally small companies or using their own financing or high net-worth individuals — people who have money or someone at the local level buying the properties, and I’m not aware of large-scale institutional investor purchases in Detroit itself,” he said. “Institutional buyers are buying properties that are easily converted into rentals in places with a relatively stable market,” Goddeeris said. “In Detroit, they either take a big investment to make them livable — or the buyer doesn’t intend to invest in them.” Contact: kpinho@crain.com; (313) 446-0412; @kirkpinhoCDB

40 20 0

’00 ’01