Crain's Detroit Business, Jan. 14, 2019 issue by Crain's Detroit Business

Big challenges ahead for new Delphi CEO Dauch

Lipari Foods aims to keep expanding Page 9

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JANUARY 14 - 20, 2019 | crainsdetroit.com

ENTREPRENEURSHIP

Techstars Mobility to revamp with Lear New partner means new location and name for mobility accelerator

By Dustin Walsh dwalsh@crain.com

Detroit’s startup accelerator Techstars Mobility is getting a new partner, resulting in new digs and a new name. Techstars Mobility is now known as Techstars Detroit and will move its operations from WeWork Merchant’s Row on Woodward Avenue in Detroit to Lear Corp.’s Lear Innovation Center at 119 State Street in Capitol Park as

part of partnership with the supplier. Techstars has been at WeWork since May 2018. It moved there after three years in office space at Ford Field. Ted Serbinski, Techstars Detroit managing director, said the new space offers an open floor plan more conducive to its programs than the WeWork space. Lear is providing TechStars Detroit

with approximately 4,573 square feet of space on the third floor of its Innovation Center as part of the partnership. Lear joins Ford Motor Co., Honda North America Inc., AAA, USAA, Nationwide Mutual Insurance Co. and the state of Michigan’s PlanetM as corporate sponsors of the Techstars program. The partnership is the first from Lear Innovation Ventures Possibilities, which the company unveiled

last week. LIV Possibilities will operate as a startup investment division for the Southfield-based supplier, led by John Absmeier, its chief technology officer. The division is expected to work with incubators and accelerators like Techstars and venture capital venture firms to invest in startups and internal company initiatives, Lear said in a press release last week. SEE TECHSTARS, PAGE 19

REAL ESTATE

KICKSTARTING BIG PLANS City works to spur action on long-stalled development projects

Stone Soap Building

 Groundbreaking is expected in the spring on the $27 million Stone Soap Building redevelopment on the east Detroit riverfront, which is a year behind schedule.

By Kirk Pinho kpinho@crain.com

It’s been more than 2,100 days since plans were announced for what was then going to be a medical office building at Woodward Avenue and Stimson Street on a key plot of land to the north of what became Little Caesars Arena. Today the developer’s plans are wildly different, but the city-owned land at 3439 Woodward is not. It con-

Need to know

 City reviewing delayed projects awarded through request for proposals process or using publicly owned property  Plans to target those where construction isn't starting in next 3-6 months

Woodward @ Midtown  The Woodward @ Midtown project, the former medical office building which most recently was expected to have 134 apartments, 15,000 square feet of retail space and a 150-space parking deck, was announced in April 2013.

 Of 19 major development RFPs, 14 have been awarded, with just three under way

tinues to sit vacant, a fence around its nearly 2 acres, a sign saying “Coming Soon! New Luxury Apartments and Retail” trumpeting a day that will have taken the better part of a decade to arrive — if it ever does. The city is now undertaking a comprehensive review of delayed development projects awarded through the request for proposals process or using publicly owned property to try to get shovels in the ground on them if construction has not already started in the next 3-6 months. SEE PROJECTS, PAGE 22

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NEWSPAPER

Shutdown effects start to emerge for business, nonprofits

Crain’s Detroit Business The federal government shutdown — which dragged into record territory on Friday — started to cause increasingly noticeable ripple effects for Southeast Michigan businesses and nonprofits last week. On Friday, many federal workers missed their first paychecks of the shutdown, even if they were required for work. But the effects of the shutdown, rooted in President Donald Trump’s

Need to know

TSA agents overseeing airport security required to work without pay 

 Medicare evades hit as it has been funded through Sept. 30  Food needs are expected to grow as shutdown grinds through third week

demands for $5 billion to put toward border security and a wall on the U.S.-Mexico border, stretched from food banks to beer labels. At press time, there was little sign that the impasse would be resolved soon. The partial shutdown affects nine departments: Treasury, Agriculture, Homeland Security, Interior, Department of State, Housing and Urban Development, Transportation, Commerce and Justice. Southeast Michigan had nearly 19,000 federal workers as of last July, according to Crain’s Book of Lists. It’s unclear what share of them are working in unfunded departments. Crain’s takes a look at some of the ripple effects reverberating through metro Detroit.

Air travel ‘normal’ as TSA goes without paychecks Business travelers will be happy to know that the partial federal government shutdown has not yet significantly affected air travel at Detroit Metropolitan Airport, officials said. SEE SHUTDOWN, PAGE 18

PHOTOGRAPHS BY KIRK PINHO/CRAIN’S DETROIT BUSINESS

METRO DETROIT SHUTDOWN IMPACT

INSIDE

Crain’s Michigan Business: Focus on Kalamazoo << Kalamazoo’s entrepreneurs find success through Western Michigan University, angel investors. Page 10 Micro-LAM’s laser-based tools find market. Page 11

C R A I N ’ S D E T R O I T B U S I N E S S // J A N U A R Y 1 4 , 2 0 1 9

MICHIGAN BRIEFS

INSIDE

From staff and wire reports. Find the full stories at crainsdetroit.com

Whitmer issues directives on employment, equal pay Gov. Gretchen Whitmer spent last week issuing more executive directives, including one that seeks to ensure equal pay for female state employees and one that bars LGBT discrimination, the Associated Press reported. The anti-discrimination order, which does not include an exemption for religious organizations that receive state money, goes a step further than the one signed by former Gov. Rick Snyder in his last days in office. “If we’re going to attract the talented workforce our businesses need to create jobs and grow our economy, then we’ve got to get on the right side of history,” Whitmer said in a statement. She signed the directive at Affirmations, an LGBT community center in Ferndale, a hub of metropolitan Detroit’s LGBT community. State government was already barred from discriminating in employment, including on the basis of a person’s sexual orientation and gender identity. Whitmer’s order also bans such discrimination in the provision of state services to the public and directs department and agency

leaders to designate an individual as an equity and inclusion officer. The equal pay order prohibits state departments and agencies from inquiring about a job applicant’s current or previous salaries until making a conditional offer of employment, including proposed compensation. The state also cannot retrieve the same information by searching public records or databases.

Michigan economy, tax revenues expected to remain stable

LANSING — Michigan’s economy will keep growing but at a slower rate, resulting in stable tax revenue growth at a time new Gov. Gretchen Whitmer begins working to put her imprint on state spending, The Associated Press reported last week. That is among the takeaways from Friday’s semiannual meeting where the state treasurer and legislative fiscal experts agreed to consensus economic and tax projections. The Democratic governor will use the numbers when drafting her first budget proposal, due to the Republican-led Legislature in March. Economists gave a largely positive update to state officials but also warned of risks. U.S. auto sales are expected to dip, impacting a state that is bracing for job cuts at General Motors. Economists said Michigan’s strong labor market should help

LARRY PEPLIN FOR CRAIN’S

Michigan Gov. Gretchen Whitmer.

some workers who lose their jobs find work more quickly.

Former regulator pleads no contest in Flint case

Michigan’s former drinking water regulator has pleaded no contest to a misdemeanor in the Flint water investigation, the Associated Press reported. It’s a break for Liane Shekter Smith, who was facing felony charges, including involuntary manslaughter, in an investigation of Flint’s lead-tainted water and a Legionnaires’ disease outbreak. Smith pleaded no contest last Monday to disturbance of a lawful meeting and agreed to testify against others, if necessary. Special prosecu-

tor Todd Flood praised her “candor and truthfulness.” A message seeking comment was left for Smith’s attorney. Flint’s water was contaminated with lead when the city switched sources in 2014 and didn’t treat water to reduce corrosion. A former state health director and a state doctor are awaiting trial on involuntary manslaughter charges related to a Legionnaires’ outbreak that was blamed on the water.

Michigan approves EV charging program

Michigan’s Public Service Commission has approved Jackson-based Consumers Energy’s PowerMIDrive electric vehicle charging program.

CALENDAR

CLASSIFIEDS

DEALS & DETAILS

KC CRAIN

OPINION

PEOPLE

RUMBLINGS

WEEK ON THE WEB

The three-year, $10 million pilot program supports the state’s growing electric vehicle market through new rates, rebates and customer education. The program includes a Nighttime Savers Rate to encourage drivers to charge their electric vehicles between 7 p.m. and 6 a.m. Residential drivers who sign up for the nighttime rate will be offered a $500 rebate for each electric vehicle. Consumers Energy also will offer $5,000 rebates for chargers installed in public areas such as workplaces and multi-unit dwellings. Natural Resources Defense Council senior attorney Mark Nabong says the “program can help more people access electric cars as a clean, cheaper alternative to gasoline cars.”

CLARIFICATION A story on a benefit performance of “Hamilton” supporting L!FE Leaders Inc. should have made clear that the organization’s focus is career development and education.

Crain’s Newsmakers of the Year dominated headlines in 2018 and are fixtures in the business community and beyond. Join us along with 400 other leaders from the region as we recognize them at our annual luncheon.

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Learn how they made news and kickoff your New Year by networking with an affluent audience. You’ll also hear from Bill Ford Jr., executive chairman of Ford Motor Co. and 2018 Newsmaker of the Year, as he has a fireside conversation with KC Crain, publisher of Crain’s Detroit Business and president of Crain Communications.

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NONPROFITS

Lighthouse, South Oakland Shelter to merge By Sherri Welch swelch@crain.com

Need to know

Merged nonprofit will have a combined budget of about $7.5 million and 45 employees. 

Lighthouse of Oakland County and South Oakland Shelter have entered into an agreement to merge. The deal will bring together SOS’s rotating shelter and affordable housing with the transitional housing, food, emergency services and stabilization services Lighthouse offers at a combined four sites in the county. The merged nonprofit, which has yet to be named, will have a combined budget of about $7.5 million and 45 employees.

The move is timed with the departure of Lighthouse CEO Rick David, 73, a United Way veteran who came

MANUFACTURING

INVESTMENT

New Delphi CEO Dauch faces big challenges

 Merger will provide array of services for homeless and impoverished from ‘one-stop shops’  Comes as Lighthouse CEO steps down and SOS CEO takes helm of both nonprofits

John Townsend: Competition for funds.

Ryan Hertz: Named acting president.

out of retirement in July 2015 to lead Lighthouse.

Late last week, following David’s planned departure, the Lighthouse Board of Directors named South Oakland Shelter’s president and CEO, Ryan Hertz, as acting president. He will serve in that role as the two nonprofits make the merger, which was approved by both boards in December, legal. The goal is to complete it by July 1, the beginning of both organizations’ fiscal years, Hertz said. The agencies’ complementary services and programs will enable it

to better move people from emergency to self-sufficiency and from homeless to permanently housed. “There are a lot of people receiving services from both of us. They will be able to access all services through one-stop shops,” Hertz said. South Oakland Shelter has a single location in Lathrup Village. Lighthouse has two sites in Pontiac and one in Clarkston. There are no plans to close any of those locations or lay off any employees, Hertz said. SEE MERGE, PAGE 20

FUEL-CELL MAKER GETS NEW CHARGE

By Dustin Walsh dwalsh@crain.com

Delphi Technologies plc’s new CEO, Richard Dauch, will face a big challenge taking on a powertrain company in an industry moving away from the internal combustion engine, all while trying to turn around a falling stock price. Dauch, 57, was named to the role last week. He replaces Liam Butterworth, who stepped down from the role in October after 10 months. Board director Hari Nair has served as the Troybased supplier’s Richard Dauch: interim CEO Faces challenge since. at Delphi. The son of the late American Axle & Manufacturing Inc. founder Dick Dauch joins Delphi from wheel-systems supplier Accuride Corp., where he has served as president and CEO since 2011. Before Accuride, he worked at his father’s supplier for 13 years, most recently as American Axle’s executive vice president of worldwide manufacturing. The elder Dauch died in 2013 and was succeeded by his other son, David Dauch, as the company’s top executive. “(Dauch) is a strong executive with more than 25 years of industry experience including 10 years serving in CEO roles with private and publicly traded companies,” Timothy Manganello, nonexecutive chairman of the company’s board of directors, said in a news release. “Rick’s deep industry expertise, leadership qualities and track record of driving operational excellence and profitable growth make him an outstanding choice to lead Delphi Technologies during a time of dynamic industry change.” Dauch will earn a base salary of $1.1 million with a target annual bonus in 2019 of nearly $1.4 million, among other compensation such as stock awards and options. SEE DAUCH, PAGE 20

Tom Westrich, chief technology officer for Adaptive Energy LLC, shows how the company’s electricity-generated fuel cells are stored in steel cabinets with two propane tanks that fuel them. The cabinets are attached to railroad crossings to serve as a backup energy source in the event of power outages. CHAD LIVENGOOD/CRAIN’S DETROIT BUSINESS

Sleeping Bear Capital acquires Ann Arbor-based Adaptive Energy By Chad Livengood clivengood@crain.com

A new technology-focused private equity firm founded by a metro Detroit expatriate has acquired Ann Arbor-based Adaptive Energy LLC, a fuel-cell subsidiary of the British defense conglomerate Ultra Electronics Holdings plc. Sleeping Bear Capital acquired the company formerly known as Adaptive Materials Inc., a company that produces propane-powered fuel cells for the railroad infrastructure firm RedHawk Energy System LLC and a fuel cell for military-grade drones built by defense contractor Lockheed Martin. The San Francisco-based private equity firm with a Lake Michigan dune-themed name is headed by

Need to know

Private equity firm founded by a metro Detroit expatriate has acquired Adaptive Energy LLC 

 Was fuel-cell subsidiary of the British defense conglomerate Ultra Electronics Holdings plc  Firm headed by Ranvir Gujral who graduated from Detroit Country Day in 1996 and University of Michigan in 2000

Ranvir Gujral, 40, who graduated from Detroit Country Day in 1996 and University of Michigan in 2000. Ultra Electronics acquired Adaptive Materials in 2011 for $23 million and put it under another U.S. subsidiary, Fort Wayne-based USSI Inc., which makes sonobuoys for the military.

“In many ways, this business was orphaned — it didn’t get necessarily the attention it deserved or the resources or the ability to make its way autonomously either,” Gujral said. “Those businesses were really not very related.” Terms of the sale were not disclosed. But as part of transaction, Lockheed Martin and RedHawk entered into new supply orders totaling $5.5 million, Gujral said. “It has all of the hallmarks of a great private equity opportunity — an orphaned business that has great potential, has a really strong set of customers,” said Gujral, who sold a San Francisco software firm called Chute in June before forging into the venture capital business. Before Ultra Electronics taking

over, AMI was a company spun off from the University of Michigan that had been largely operating off a series of grants from the U.S. Department of Defense and other government research agencies. The company’s patented solid-oxide fuel cell technology allows for the power-generating cell to be portable. The fuel cells Adaptive Energy builds for RedHawk for backup power at railroad crossings in remote parts of Alaska and the hurricane-prone Gulf Coast are the size of a desktop computer and can be placed inside a steel cabinet that gets bolted to existing infrastructure to withstand severe weather. Each steel cabinet contains two ordinary propane tanks. SEE ADAPTIVE, PAGE 20

C R A I N ’ S D E T R O I T B U S I N E S S // J A N U A R Y 1 4 , 2 0 1 9

Nonprofit for regional economic development group gets name By Sherri Welch swelch@crain.com

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The economic development nonprofit created by the “no-name” regional CEO group has a new name and has launched a monthlong “listening tour.” Led by CEO Barry Matherly, the newly named Detroit Regional Partnership is meeting with stakeholders across 11 counties in Southeast Michigan to learn more about economic-development programs and priorities in each. Matherly has started out talking with community leaders in Washtenaw, Monroe and Lenawee counties and plans to meet over Barry Matherly: Plans meetings in the next few weeks with their coming weeks. peers in eight other Southeast Michigan counties that mirror the Detroit Regional Chamber’s territory. Among them is Oakland County, which is set to meet with Matherly and the Detroit Regional Partnership in two weeks. Oakland County Executive L. Brooks Patterson will not participate in any initial meetings, said Bill Mullan, spokesman for the Oakland County executive. But other county representatives will, including Deputy County Executive/Chief Information Officer Phil Bertolini, Chief Deputy County Executive Gerald Poisson, Deputy County Executive Tim Meyer and the county’s new director of economic development and community affairs, Michael McCread. Patterson in August publicly criticized the no-name CEO group that formed the Detroit Regional Partnership, saying he’d “rather join the Klan”

Need to know JJ Detroit Regional Partnership will focus on attracting companies to region JJNew CEO is meeting with leaders in 11 counties JJOakland County is among them

than pay dues to the business attraction group. Within hours, he apologized for his “poor choice of words” but not for his statements that downtown leaders are trying to “poach” suburban businesses. Patterson had lashed out after business leaders began trying to raise $4 million to $6 million from chamber members to stand up the new business attraction nonprofit. Patterson told Crain’s at the time that his ire with the no-name CEO group began when it came out in support of a mass transit proposal last April, just as Patterson and Macomb County Executive Mark Hackel were resisting a push from Wayne County Executive Warren Evans and Detroit Mayor Mike Duggan to put a transit millage on the ballot. The county’s willingness to meet doesn’t indicate a shift in opinion, Mullan said. “We’re going to examine if this group adds value to what we do in economic development for the county,” he said. Matherly, who led similar business attraction efforts in Virginia before coming to Southeast Michigan, is focused on the region’s potential rather than its political tensions. “This region has so much potential, and I’m excited to build on progress to date and help take it to the next level,” he said in a release. The Detroit Regional Partnership organization will build upon the people and assets of the business attraction group that was formerly part of the De-

troit Regional Chamber. Operating autonomously from rented space in the chamber’s offices, it will focus on marketing the region to out-ofstate and international companies to attract investment and jobs, with a team of eight employees, including five who came from the chamber. The new nonprofit’s name is similar to the chamber’s former business attraction effort called Detroit Regional Economic Partnership, which evolved into Destination Detroit. That entity’s team is now folding into the new partnership, Carly Weedgetz, chief of staff, corporate communications for DTE Energy Co., said in an email, speaking on behalf of the partnership. “Under Barry Matherly’s leadership of the Detroit Regional Partnership, the award-winning chamber program, Destination Detroit, will be taken to a new level of results with even more resources and a laser focus on growing jobs and investment that will enhance the economic outlook for all of Southeast Michigan,” said Sandy Baruah, president and CEO of the Detroit Regional Chamber, in an emailed statement. Baruah will be among the new partnership’s board members, a spokesman for the chamber said. The board will not mirror the “noname” CEO group, Weedgetz said, noting board members will be announced when fully seated. “Having an organization dedicated to marketing our region and attracting investment is such an important step forward in our region’s momentum and recovery,” Gerry Anderson, DTE Energy Chairman and CEO and chair of the Detroit Regional Partnership, said in the release. Sherri Welch: (313) 446-1694 Twitter: @SherriWelch

Media agency Universal McCann, affiliates to cut 213 jobs in Birmingham By Kurt Nagl knagl@crain.com

Universal McCann and affiliated agencies are laying off 213 employees in Birmingham, including dozens of senior managers and vice presidents, after losing its account with Fiat Chrysler Automobiles. Universal McCann is eliminating 116 jobs — “the majority of its staff” at its 205 Hamilton Row office, according to a notice filed with the state. Reprise Media Inc. is cutting an additional 92 jobs at the same office and Mediabrands Worldwide Inc. is cutting five. All three brands are subsidiaries of New York City-based advertising conglomerate Interpublic Group of Cos. All layoffs are expected to take place March 8, according to the Worker Adjustment and Retraining Notification notice posted by the state Thursday. None of the affected employees have bumping rights or union representation, the notice said. Layoffs at Universal McCann include 90 senior-level positions, as well as portfolio managers, media researchers and finance personnel. Job cuts at Reprise, which also include dozens of senior-level positions, are a result of the company moving to

Need to know JJ Job cuts come after agency lost its account with Fiat Chrysler JJLayoffs include dozens of senior-level positions JJUniversal McCann was named agency of record for Quicken Loans in September

“eliminate the majority of its Search, Social and Mobile Media practice,” the notice said. The five layoffs at Mediabrands represent the elimination of its IT department. Notice of the layoffs comes just a few months after Universal McCann signed a deal to become the official agency of record for Detroit-based Quicken Loans Inc. and announced it would open an office in Detroit with 150 employees. Universal McCann handles media buying and strategy. It operates separately from creative agencies Commonwealth//Detroit and MRM//McCann Detroit, though they are all owned by the IPG holding company. PG Mediabrands confirmed that the planned layoffs are due to loss of the FCA business. "We are working to find positions

for these employees at other agencies within our network, and remain committed to an increased footprint in downtown Detroit," the company said Friday in a statement sent to Crain's. "We continue to serve a number of key clients out of our Detroit locations.” Zinnia Gill, associate director of communications for the company, said in an email that there are no plans to close the Birmingham office. A message was also left with Scott Russell, president of the company’s central region. Russell told Crain’s in September that some of the 150 employees moving to downtown Detroit would be relocated from Birmingham. He said he was looking at the move as an “expansion.” Russell said Universal McCann's Detroit operation was to start as a 40-person team in the 1001 Woodward building owned by Dan Gilbert’s Bedrock LLC before moving into a permanent office at the First National Building, also owned by Bedrock. Quicken Loans spokesman John Perich said nothing has changed regarding the deal between Quicken Loans and Universal McCann. Kurt Nagl: (313) 446-0337 Twitter: @kurt_nagl

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DMC to add 79 Medicare-funded medical residency slots Need to know

By Jay Greene jgreene@crain.com

Another 79 medical residents will be headed toward Detroit Medical Center over the next two years to join about 1,100 residents and fellows already working and training at one of the largest academic medical centers in Michigan. In a move most hospitals don't take all at once because of financial costs, DMC decided to make plans to hire the additional residents to address urgent primary care needs of the paPatricia Wilkerson-Uddy- tients it serves in Detroit and Comback: Huge gap merce Township, for primary care. said Patricia Wilkerson-Uddyback, M.D., DMC's vice president of graduate medical education and community affairs. But unlike other major hospitals in Southeast Michigan that self-fund dozens of medical residents and fellows, all 79 residents are expected to be funded by the Centers for Medicare and Medicaid Services because the seven-hospi-

JJDMC plans to add 79 residency slots,

mostly in primary care, over the next two years JJOfficials say the residents will help fill primary care needs of patients in Detroit along with helping to address future physician shortage problem JJAll positions expected to be paid for by Medicare because DMC is under the federal funding cap on residents

tal system has room under its federal resident reimbursement cap number, Wilkerson-Uddyback said. Medicare funds the bulk of graduate medical education, but since 1996 has imposed a cap on numbers of residents it pays for at hospitals. While each hospital like DMC has a unique reimbursement cap on the number of residents that Medicare pays for, they can add residents using their own funding sources. DMC has at least 81 unfilled and unfunded residency positions, more than enough to cover the 79 it plans to add, according to an analysis by Crain’s based on data provided by the Accreditation Council for Graduate Medical Education in Chicago. DMC verified

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the numbers were accurate. For example, DMC’s largest residency program, internal medicine, has 248 approved resident slots and 64 unfilled and unfunded positions at DMC Sinai-Grace Hospital, DMC Huron Valley Medical Center and other DMC teaching hospitals downtown, said the ACGME. DMC also has eight open psychiatry residency positions, seven open internal medicine-pediatrics slots and four available emergency medicine residency positions, said ACGME. “We are expanding most of the programs and taking existing programs and combining them,' said Wilkerson-Uddyback, adding that the numbers of residents hired and the programs may change over the next year based on demand. “Some (residency) programs were not full and (under) the caps, and we had an opportunity to fill them.” The overwhelming majority of DMC's new residents — some of whom will be accepted in this year's residency match in March — will be accepted into DMC’s internal medicine program and other primary care programs that include internal medicine-pediatrics and critical care, Wilkerson-Uddyback said. A small number will go into neurology programs. Most will go to DMC’s Harper University Hospital, Sinai-Grace and Huron Valley, she said. “We have a huge gap for primary care. It has been building for some time and became a focus for some years,” said Wilkerson-Uddyback. She said DMC took a close look at patient needs based on specific zip codes it services to come up with the staffing decisions. On Dec. 31, DMC also discontinued a one-year externship program it funded for 12 medical school graduates that was aligned with its cardiology program. Elimination of the program, which was designed to give unmatched students experience in cardiology training, will allow DMC to hire more internal medicine residents, she said. DMC officials confirmed that the elimination of the cardiology externship program saved DMC about $600,000 annually that will be used to expand care to primary care patients. The externship program was started by a half-dozen cardiologists, some of whom who have left DMC, said two sources who asked for anonymity. Tom Gentile, a residency program consultant and former hospital GME executive in Southeast Michigan, said some hospital residency programs receive more funding from Medicare, Medicaid and other payers for residents than the costs of their residency programs. Gentile told Crain’s on average hospitals receive about $140,000, on average, per resident from Medicare and other funders to pay for resident training costs. Costs to train residents also vary, but internal medicine residents cost hospitals about $125,000 to $140,000 per resident while family medicine residents, because of more ambulatory care duties, may cost a hospital $140,000 to $150,000 per resident annually, he said. Based on a previous analysis Gentile conducted on DMC several years ago, DMC received about $180,000 per resident from Medicare and other funders. Based on those averages, DMC is expected to receive about $14.2 million in revenue for the 79 residents and pay out about $11.8 million in salaries, benefits and other training costs. Residents generally are more expensive than attending physicians because they often

order more tests and conduct extra procedures for training purposes. “Some hospitals receive a positive cash flow for the residency programs,” said Gentile, adding that hospitals can also further reduce patient care expenses by hiring more residents instead of paying advanced-practice nurses for similar duties. The average first-year resident salary is about $50,000 per year, although it can vary based on hospital, region and specialty. In comparison, a physician assistant or nurse practitioner salary ranges averages about $100,000 per year. “It is a good strategy to hire residents instead of nurse practitioners and physician assistants,” he said. “Residents add great value to hospitals to provide care. you get more direct benefits to patients because residents are as much by the bedside” as patient care nurses. Wilkerson-Uddyback said DMC will spend some additional money on the GME programs because it also has approved a 12 percent raise for its residents this year to bring salaries up to market averages. She said residents’ average salary had dipped below the market in previous years. The salary boost will increase first-year resident salaries above $50,000 per year, she said.

Funding residency training Under the Balanced Budget Amendment of 1997, Medicare capped the number of residents it pays for at teaching hospitals to hold down costs. Efforts are underway in Congress to lift the cap because of the need to train more physicians to address the large number of doctors who are expected to retire in the next decade, to care for an aging population and those requiring more primary care services. Crain’s has previously reported that several large teaching hospitals in Southeast Michigan are above the Medicare cap. For example, the University of Michigan Health System, which has 1,269 residents and fellows in 106 programs, pays for 272 of those residents out of its own operations because it is above the Medicare GME reimbursement cap. Beaumont Hospital in Royal Oak, Ascension St. John Hospital and Medical Center and Henry Ford Health System in Detroit also pay for more than 200 residents out of their operations because they are over their Medicare resident cap. Each year, Michigan’s 50 teaching hospitals are paid more than $1 billion annually in graduate medical education funds from federal, state and managed care funding sources for their residency programs. Medicare is the main source of health care GME funding, accounting for about 85 percent of funding in Michigan. Medicaid and private payers account for the remaining 15 percent. Medicare funding comes in two pots. The first is in direct payments to cover residents' salaries, benefits, medical malpractice premiums, administrative costs and stipends for supervising physicians. The rest consists of indirect payments to cover teaching hospitals’ higher costs to treat the sicker patients they typically have. DMC has one of the largest physician training programs in Michigan, generating millions of dollars in payments, and it does so through close academic affiliations with Michigan State University’s College of Osteopathic Medicine

and Wayne State University’s School of Medicine. Over the past several decades, DMC has trained about 70 percent of the state’s trauma surgeons and 60 percent of its emergency physicians. DMC sponsors more than 100 residency and fellowship programs that include such specialties as emergency medicine, surgery, family practice, cardiology, neurosurgery, obstetrics and gynecology, neurology, internal medicine, pathology, pediatrics and radiology. At teaching hospitals, graduate medical education traditionally has fulfilled two goals: training thousands of young doctors and providing lower-cost, front-line daily patient care as part of a medical team that also includes higher-paid practicing physicians and nurses.

Physician shortage projected Wilkerson-Uddyback said other reasons to add the residents is to address the expected physician shortage looming over Michigan and the nation and to give more medical students trained at Wayne State and other Michigan-based medical schools more local training opportunities. Over the next decade, she said DMC also will have a large number of primary care physicians retiring. “We have looked at a lot of different ways of approaching it,” said Wilkerson-Uddyback, who is still a practicing emergency physician. “I am coming at this from the hospital side of things. We have got to do this.” Last fall, Wilkerson-Uddyback said she presented DMC CEO Tony Tedeschi, M.D., and Tenet Healthcare Corp., the owners of DMC based in Dallas, with the resident hiring plan and they were totally supportive. “When Tony put me in this position, he really made a commitment to do this. We presented a really good case to Tenet and they supported the funding. Our goal is to have one of the best GME programs in the country.” In 2018, a study sponsored by the Association of American Medical Colleges found that the U.S. could face a shortage of between 42,600 and 121,300 physicians by 2030. AAMC warned the projected shortages could pose a real risk to patients because it takes up to 10 years to train a doctor. “There is a tremendous need right here in the city of Detroit with a deficit of more than 400 physicians,” said Tedeschi in a statement. “And with these new slots for residents, we can continue to impact the underserved needs of our community while providing world class health care.” An AAMC official told Crain’s that the proposed act could gradually work to reduce the physician shortage problem by adding about 15,000 Medicare-supported GME residency positions over a five-year period. Over the last several years, the AAMC has been lobbying for a federal bill that would remove the Medicare-funded reimbursement cap on hospital graduate medical education residents. The Resident Physician Shortage Reduction Act, which received bipartisan support, expired last December. AAMC is hoping it will be reintroduced in the 116th Congress this year. Jay Greene: (313) 446-0325 Twitter: @jaybgreene

C R A I N ’ S D E T R O I T B U S I N E S S // J A N U A R Y 1 4 , 2 0 1 9

Pontiac General faces surprise Medicare quality inspection visit soon, possible decertification By Jay Greene

Past problems

Financial turnaround

Pontiac General Hospital, a for-profit family-owned health care facility, faces an unannounced inspection in the next three weeks for problems with its heating and cooling system that were cited in a quality inspection last year by the Michigan Department of Licensing and Regulatory Affairs and in 2017 by the Joint Commission, which accredits hospitals. CEO and Chairman Sanyam Sharma told Crain’s Thursday that all repairs have been made on the hospital's heating, cooling and ventilation system. “All of the repairs required to comply with (Centers for Medicare and Medicaid Services) were completed on time,” Sharma said in an email to Crain’s. “Our HVAC systems meet all of the CMS requirements.” Sharma said most of the work was completed by summer 2018, but some smaller repairs took until December. He said the total cost was $2.25 million. In a Feb. 6, 2018, letter to Pontiac General, CMS, which regulates hospital quality and authorizes Medicare and Medicaid reimbursement, gave the hospital until Dec. 31 to comply with violations in CMS’ life safety codes related to its physical environment and HVAC system. By Jan. 31, 2019, the CMS letter said, an unannounced inspection will be conducted. Failure of that inspection could result in termination from the Medicare program. If terminated, Pontiac General could lose millions of dollars in state and federal revenue. LARA spokesman Pardeep Toor confirmed that the agency will make an unannounced visit to Pontiac General this month. In a May 30, 2018, follow-up survey, LARA inspectors found that the hospital failed to “maintain a safe and proper functioning physical environment” for patients. LARA’s findings included: J Failure to provide proper ventila-

Last August, Crain’s conducted an extensive review of state and federal inspection reports obtained through the Freedom of Information Act going back six years regarding Pontiac General. Crain's found that owners before the Sharmas were cited for failure to meet various standards, but most have been fixed and the outstanding problem is with its HVAC system. Previous inspections by LARA found severe roof damage and inadequate maintenance, water damage in ceilings, stained carpet, lack of proper door seals in the event of a fire and substandard ventilation to prevent infection from spreading. In 2017, LARA conducted an inspection and found the hospital had “failed to develop and maintain an active hospital wide infection control program for the prevention, control and investigation of infections.” LARA concluded lack of training for an infection control officer could increase the chances of infections for patients treated at the hospital. In January and March, state inspectors were at the hospital to follow up on new complaints from employees and patients. LARA spent three days at Pontiac General in January 2018 to investigate complaints about burst water pipes and a loss of heat in some patient care areas. Hospital employees told Crain’s patients complained, but hospital officials said few patients were affected. LARA said one patient was moved because loss of heat in a unit that dropped the temperature to 62 degrees. The inspection also found pipes in the ceiling above the cafeteria leaking raw sewage. Hospital officials told Crain’s in September that all violations have been fixed except for the HVAC system and they have spent more than $2 million to upgrade its heating and cooling systems along with improving infection control.

Pontiac General Hospital, legally known as Oakland Physicians Medical Center LLC, has had more than its share of problems — and names — over the years as a community hospital. Last fall, Pontiac General lost a breach of contract lawsuit against it by a family who said they paid $400,000 to gain admittance of their son to the hospital’s family medicine residency program. The resident was fired during his first month. The hospital has gone through bankruptcy at least four times since it was established in 1910 and twice since 2008 as a city-owned hospital. It has gone through such name changes as Oakland Physicians Medical Center, North Oakland Medical Centers, Doctors Hospital of Michigan, Physicians Medical Center and since 2016 has again been called Pontiac General. In early 2016, Pontiac General emerged from bankruptcy after the Sharmas — CEO Sanyam, COO Priyam and Sanjay, its chief information officer — acquired a 60 percent interest in the hospital and began making repairs and turning it around. Neurosurgeon Jawad Shah owns 25 percent, and Surindar Jolly owns 15 percent. From 2009 to 2015, Pontiac General lost more than $90 million and had gone through several owners. But in 2016 and 2017 under the Sharmas, the hospital has earned net income of $35.3 million on annual revenue that totaled $182 million in 2017, according to Medicare cost reports provided by American Hospital Directory of Louisville. While Pontiac General is licensed for 306 beds, only 36 are staffed in a medical-surgical unit that averages less than 50 percent occupancy. Two of nine operating rooms are functioning. The hospital also operates a 24/7 urgent care center and a 30-bed adult psychiatric unit that averages more than a 90 percent occupancy.

jgreene@crain.com

KIRK PINHO/CRAIN’S DETROIT BUSINESS

The owners of Pontiac General Hospital say they have invested millions in fixing the hospital’s physical problems that resulted in failed inspections.

Need to know JJHospital owners say all repairs have been completed and they welcome state quality inspection JJCitations focused on malfunctioning heating, cooling and ventilation system at for-profit hospital JJState inspectors plan to make unannounced inspection before Jan. 31

tion, light, temperature controls in patient areas, pharmaceutical and food preparation areas J Malfunctions in some areas of the hospital where air handlers were not able to be controlled for proper temperature and ventilation. Contractors were working on repairs during the visit. Areas included surgery, ICU, laboratory, urgent care, radiology, physical therapy and radiology LARA did note that on the plus side, the hospital had installed digital thermostats in the ICU, surgical pre-op and post-op areas. “We expect that when CMS follows up, they will find us in full compliance,” Sharma said.

Since Pontiac General emerged from bankruptcy in 2016, the hospital has undergone millions of dollars of renovations and improvements on its aging physical infrastructure to meet conditions of participation under the Medicare program and accreditation rules set by the Joint Commission. Sharma said the HVAC repairs included fixing the chillers that supply air flow to the main hospital; and finding, repairing or replacing hundreds of variable air volume (VAV) units throughout the building. “Each VAV also needed to be wired to a new central control system as well as a new local thermostat,” he said. Over the past two years, the Sharmas have spent about $9 million on improvements, he said. “(There was) deferred maintenance inherited from previous owners’ neglect and to improve the infrastructure to deliver the better care to our patients,” Sharma said. “We’ve invested in remodels, refurbishment of space, maintenance and other construction and improvements.”

PwC adding 125 jobs in Detroit By Chad Livengood clivengood@crain.com

PricewaterhouseCoopers LLP is adding 125 information-technology workers over three years to its downtown Detroit office for a new internal cyber security team the global accounting firm began building last year. PwC chose Detroit for a new Network Information Security office and Security Operations Center because of the region’s lower cost of living, access to IT talent and its geographic location in the Eastern Time Zone, said Ray Telang, managing partner of PricewaterhouseCoopers LLP’s Michigan operations. The security center is set up to operate two shifts monitoring and responding to cyber security threats and attacks to PwC’s information technology systems, Telang said. “Their whole lot in life is to make sure that our information systems, from the firm’s perspective on a glob-

al basis, are safe and secure,” he said. The 6,200-square-foot security center was added in 2018 to PwC's existing 70,000-square-foot office in the One Detroit Center as the new unit was established. PwC occupies the entire 33rd and 32nd floors of the skyscraper and three-quarters of the 31st floor, Telang said. As of late December, 16 of the 125 positions had been filled. PwC will fill the 125 jobs over 24 to 30 months, Telang said. PwC’s Detroit office employs 675 workers who work in the firm’s audit and assurance, tax and management consulting practices. The new office will bring its downtown workforce to nearly 800. Senior-level leadership positions in the security center have attracted interest from within the company, Telang said. “The amount of interest from our internal IT network has been extraor-

dinary,” he said. “There’s more than a handful of folks who have raised their hand and said, 'You know what, based on what I'm hearing and based on my tour of the new center, I’m going to put my hat in the ring to move to Detroit.’” Most of the new employees in Detroit will be entry-level positions for recent college graduates, he said. “It’s going to be a bottoms-up kind of build,” Telang said. “We’re going to have the folks that are transferring here provide the leadership and oversight and most of the other folks will be coming to us from (college) campuses.” PwC will be recruiting from colleges and universities with cyber security programs accredited by the National Centers of Academic Excellence in Cyber Defense, Telang said. Chad Livengood: (313) 446-1654 Twitter: @ChadLivengood

Jay Greene: (313) 446-0325 Twitter: @jaybgreene

Investor & Shareholder Litigation Michigan Morganti & Co., P.L.C. (Litigation in the United States) 1001 Woodward Avenue, Suite 500, Detroit, Michigan 48226

Contact Andrew Morganti: amorganti@morgantilegal.com www.morgantico.com

C R A I N ’ S D E T R O I T B U S I N E S S // J A N U A R Y 1 4 , 2 0 1 9

OPINION COMMENTARY

Use tax incentives to pay for workers, not jobs

.S. population growth in the 1950s reached almost 2 percent yearover-year. Unchecked growth sparked concern over depletion of food supply, destruction of natural resources and political instability. The debate, led by philanthropist John D. Rockefeller III, infiltrated the White House under President Lyndon B. Johnson in the late 1960s, ending with the establishment of the controversial Commission on Population Growth and the American Future. Rockefeller, naturally, chaired the committee. Rockefeller believed “the population problem must be recognized by government as a principal element in long-range planning.” Rockefeller was correct that population is a problem, but the crisis Michigan faces today is the opposite. Population stagnation is the real economic boogeyman — not globalization, rapid technological advancement and regulatory policy, though those play a role. Michigan’s long-term economic growth is in peril unless Michigan legislators address the population issue with smart policy. In short, Michigan should pay for population now — or we’ll all pay for the lack of it later. It’s a simple math equation. Between July 2010 and July 2017, Michigan lost nearly 75,000 residents. The state’s population grew by a paltry 0.2 percent in 2018. Meanwhile, available jobs keep growing. The state projects an estimated 811,000 open high-demand, high-wage career openings to fill through 2024. Some of that will be filled by the natural cycle of industries and jobs being destroyed, leaving workers open to fill newly created jobs. But even if Michigan businesses hired every available

DUSTIN WALSH dwalsh@crain.com

GETTY IMAGES/ISTOCKPHOTO

worker willing to work and every person completing a post-secondary education program, including certificates, they would come up short. There were 137,982 certificates and degrees awarded in Michigan during the 20152016 school year. Luckily, there are potential solutions. Michigan must flip economic development on its head to solve population stagnation by transitioning from tax incentives to create jobs to tax incentives to fill jobs. To rectify the wreckage of the Great Recession, Michigan turned to its Michigan Economic Development Corp. to get more businesses in the state so Michigan residents could keep working, keep paying taxes. The result is in the war for talent, tax incentives became the ammunition. Since 2012, the Michigan Strategic Fund has dis-

tributed $181.1 million in tax incentives for businesses to create 22,618 jobs. We could have a heated debate about the effectiveness of these incentives, but that’s not going to happen here. Instead, I’m suggesting a new approach, at least in concert with current incentives, to lure workers with the skills businesses demand. The prescription: Offering tax incentives to workers, rather than to businesses, to come to Michigan. It’s not a new idea. In 2008, Maine launched the Opportunity Maine tax credit, which offered students who graduated from a Maine college or university an income tax credit to remain and work in the state. The process worked by subtracting the amount an individual pays in student loans from their state income tax. For example, if a recent working graduate owes $3,000 in state taxes and pays $2,000 in student loans in a year, the income tax credit will reduce those taxes owed to $1,000. The program was capped at $4,000 annually per recent graduate. But fewer than 1,000 graduates applied for the program during its first three years, so the state expanded the program in 2016 to cover graduates from anywhere in the country. In 2017, more than 9,000 recent graduates received $17 million in tax credits through the program to offset their student loan debt, the Bangor Daily News reported in November. Maine forwent $1,888 per person in tax revenue to keep those educated graduates working in its borders. For context, the Michigan Strategic Fund averaged about $8,000 in lost revenue per job since 2012, according to Michigan Economic Development Corp. data. Meanwhile, 28,057 of the total 50,675 jobs promised by companies

during that time were never created. St. Clair County is even trying this method, but without government assistance. The nonprofit Community Foundation of St. Clair County launched in 2016 the Come Home reverse scholarship program. The program is designed to lure recent college graduates to live and work in the county after graduation. Since its inception, the foundation has received 57 applications with an average student debt load of more than $74,000, Randy Maiers, president of the foundation, told Crain’s. Only 11 applicants have been approved — five were married couples — with an average award of $8,625. While initially designed for those born and raised in St. Clair County, Maiers said applications are beginning to roll in from around the state and outside the state from those “looking for new opportunities in regions like ours with good quality of life and close proximity to the big city — Detroit.” The program was started because St. Clair’s hospitals and schools struggle with attracting educated talent. In Maine, it was about talent, but also about population — particularly an aging population. Maine is the oldest state in the nation with a median age of nearly 45 years old. In 2020, Maine is projected to have more residents 65 years or older than under 18 years old — a full 15 years earlier than the nation is projected to cross that threshold. Michigan isn’t far behind. It’s the 11th-oldest state in the country, with a median age of 39.6 years old in 2017 and getting older. In 2010, the median age was 38.1. Older populations retire, leaving voids in the workforce, and put pressure on health systems, pension funds and the economy.

A program to create workers instead of jobs can help alleviate this building pressure. Otherwise, Michigan becomes less important in the country and eventually the world. The state is likely to lose another seat in the U.S. House of Representatives, taking it to 13 after the next census, according to the University of Michigan’s Population Studies Center. The state has lost 5 congressional seats since 1982 and last held only 13 seats in the House in the Roaring 20s. That’s one less voice for national policy that impacts Michigan businesses, and one less vote for federal tax dollars toward projects in Michigan. And the national picture on immigration paints an even grimmer picture for Michigan’s options for population. Immigration is trending down as President Donald Trump’s administration continues to limit avenues for legal immigration through reduced visa approvals. Break down Michigan’s net migration — the number of foreign and domestic people moving into the state minus the number of people leaving — and Michigan was largely buoyed by immigrants between 2010 and 2017. The state lost 225,302 native-born residents, but gained 150,756 immigrants during that time. If immigration numbers continue to fall, so too will Michigan’s population. Michigan now must go to the well to take residents from other states. Offering a new program as part of its overall economic development game plan can at least accomplish some of that goal. Incentives for workers fill jobs, fill homes and, eventually, fill tax revenue coffers.

car companies chose The Strip as a launch location for new cars, placing even more pressure on the Detroit show. Which brings us back to 2018. Last year, the long-planned CES schedule landed it directly in the same week as Detroit’s auto show press week. Detroit’s organizers, in turn, decided to push the show forward in the calendar one week, placing the Monday press day on the Martin Luther King holiday. Perhaps Detroit’s organizers underestimated the impact of that decision — one which forced many Detroit executives to honor the holiday rather than making appearances at the press day. The decision cast a spotlight on a show that was in need of change. Suddenly, some key elements began to compound. More brands pulled out of the show and, early last winter, Germany’s top-tier brands (Mercedes, BMW, Audi) announced they were skipping the show altogether in 2019. Suddenly everything was in question — which leads us to the opportunity of a fresh start in June 2020.

The good news is that the Detroit show is making necessary changes and moving forward. Exhibits will be more experiential in the future, and there is plenty of opportunity next year. There’s no question the June timeframe will attract people to the city, and there is so much more to show the world in the summer months. If done correctly, Detroit can become a bigger consumer show with more opportunities to experience vehicles — as opposed to static displays. This scheduling change also creates an opening around the opportunity to showcase technology, and Detroit is well positioned to take advantage. There is opportunity amid this disruption. And change, in this case, is a good thing.

Dustin Walsh: (313) 446-6042 Twitter: @dustinpwalsh

Auto show change an opportunity

he North American International Auto Show kicks off this week at Cobo Hall for the last time in January. Starting in 2020, the show will be in June. Last year was a turning point for the auto show, and I’ll tell you why. Auto shows have two major components: They have the media component, which happens before the show publicly opens; and then they have consumer days. When compared to some shows internationally, Detroit has never been the largest consumer show, but it could always compete for media introductions. At its height, Detroit attracted more than 6,000 international journalists. Every hotel in the city would be occupied, and car companies would wine and dine the media at every restaurant in town. With that much media attention, automakers pulled out all of the stops to put on their best show and carve out their piece of the coverage. You’d have Dodge pickups corralling stampeding bulls on Jefferson Avenue and Jeep Grand Cherokees busting through plate-glass windows at Cobo. It was an absolute show.

KC CRAIN Publisher

But, as time went on, all of those glitzy and expensive auto show displays had to start showing a return on investment. And the multiweek movein time at Cobo meant the Detroit show quickly became one of the most expensive shows in the world. And this isn’t just an issue for Detroit; auto shows are being disrupted all over the world. The Paris show last fall, for example, was a smaller version of itself. This year, brands have already dropped off the schedule at Geneva and Frankfurt — two of Europe’s largest shows. With today’s advanced metrics,

marketers are looking at every piece of data around car launches, particularly in cities where automakers didn’t have many buyers. When it comes to auto shows, the measurement of the return on that large investment is even more closely scrutinized. To put it simply: Automakers have more options today. They can choose to host media in exotic locations on their own schedule where they are guaranteed to receive complete attention — for a lot less money. Also, automotive marketing executives have started experimenting with social media introductions where they can get just as much attention launching a vehicle virtually — sometimes in multiple places at the same time. Detroit also had one other headwind: About a decade ago, the Consumer Electronics Show in Las Vegas started attracting the attention of automakers as technology became an increasingly important component of the vehicle. CES, as its known, also started to pull media attention to Las Vegas in January, particularly when

MORE ON WJR Listen to Crain’s Group Publisher Mary Kramer and Managing Editor Michael Lee talk about the week’s stories every Monday morning at 6:15 a.m. Mondays on WJR 760 AM’s Paul W. Smith Show.

C R A I N ’ S D E T R O I T B U S I N E S S // J A N U A R Y 1 4 , 2 0 1 9

Lipari Foods aims to keep expanding after private-equity deal By Kurt Nagl

knagl@crain.com

Lipari Foods — the Warren-based food distributor that has been on an acquisition spree — has been acquired by a private equity firm headquartered in Miami and says the deal will help it keep growing. The company was purchased by H.I.G. Capital, which bought out Westport, Conn.-based Sterling Investment Partners’ interests in Lipari Foods Operating Co. LLC, according to a Tuesday news release. The company said it partnered on the deal with the company’s founding family. Terms of the deal were not disclosed. The move bolsters Lipari’s plan to become the premier “perimeter of the store” distributor across the nation, according to the company. It expects H.I.G.’s expertise in mergers and acquisitions to help it achieve that goal by growing distribution and manufacturing. “The Company continues to have numerous opportunities to expand and H.I.G.’s experience and resources, particularly around M&A, will help us continue our successful growth trajectory,” Thom Lipari, president and CEO of Lipari, said in a written statement. “We remain committed to providing outstanding service to our longstanding, blue-chip customers.” H.I.G. acquires Lipari as the local wholesale food distributor is well underway with a bold growth campaign. Lipari has purchased more than a half dozen companies in recent years, including Dearborn-based Jerusalem Foods and Pennsylvania deli company Heagy Foods late last year, as well as a Wisconsin-based cheese maker in March. The acquisitions have added distribution channels and product diversity for Lipari, which distributes bakery, dairy, deli, packaging, seafood, meat, specialty grocery, food service, confectionery, convenience food and beverage and health, wellness and beauty products to retail outlets in 15 states. Lipari operates primarily out of a 725,000-square-foot facility in Warren and has annual revenue of around $1 billion. Founded in 1963, the company’s groundwork was laid years earlier by Jim Lipari, who operated a fullline grocery store and began shipping homemade barbecue sauce with his Ford station wagon, according to the company’s website. In 1967, Lipari became the distributor for Frank’s Tea & Spice, earning Jim the nickname “spice man” and catapulting his business to the mainstream. Soon after, the company added deli and dough to its distribution and has steadily added more offerings. Sterling Investment “invested in Lipari Foods” in 2014, according to a news release then. It is not clear how much of the company the firm purchased. It is also unclear how much interest the Lipari family still has in the company after the acquisition. “We look forward to supporting

Lipari and investing in both organic and acquisition-driven growth in its next stage of evolution,” Justin Reyna, managing director at H.I.G., said in the release. Sterling Investment, H.I.G. and Lipari did not return messages seeking additional comment and information last week. LIPARI FOODS

Kurt Nagl: (313) 446-0337 Twitter: @kurt_nagl

Warren-based Lipari Foods was acquired by H.I.G. Capital, a Miami-based equity firm, as the local wholesale food distributor plots large-scale expansion.

WE ARE ALL BORN TO SUCCEED. Sometimes all we have is the strength inside. The kind of strength that keeps you moving forward when you’d rather turn back. The strength to do the right thing when it’s easier to do nothing at all. To do good and then ask, “How can I do better?” The strength to never settle for the way things are, but to strive for the way things ought to be. And know that to get where you want to go, you might have to make your own path. At Wayne State University, we take that strength and make it stronger. Because being strong isn’t strong enough. You need to be Warrior Strong.

WARRIOR STRONG

C R A I N ’ S D E T R O I T B U S I N E S S // J A N U A R Y 1 4 , 2 0 1 9

FOCUS

CRAIN’S MICHIGAN BUSINESS: KALAMAZOO

Tech support

In this package

‘Real-world escape room’ for travelers. This Page 

Kalamazoo’s entrepreneurs find success through Western Michigan University, angel investors

Laser-based tools hone in on success. Page 11 

Helmet sensor spinoff a game changer. Page 12 

alamazoo is making strides in its support for entrepreneurs. This year, Western Michigan University plans to break ground on a major expansion of its research park that will create a cluster of high-tech companies and potentially hundreds of jobs. A new network of angel investors affiliated with Michigan’s most established investor group is funding new growth. The result? Tech that will shape the future made right here in Michigan, from flexible sensors for sports helmets to machining innovations and connected home technologies.

Marketing to smart-home geeks. Page 12 

WMU plans tech park expansion. Page 14 



Investors group takes wing. Page 14

Student business accelerator launches ‘real-world escape room’ for travelers By Tom Henderson

Need to know

thenderson@crain.com

Western Michigan University launched the Starting Gate, a student business accelerator, in 2013, when the school began to seriously address how to support the transfer of technology from university labs to the marketplace and help commercialize the aspirations of other would-be entrepreneurs on campus. Since then, it has helped launch 80 companies, held more than 400 events, awarded $50,000 in seed money and seen its companies get $380,000 in grants and file 10 patent applications. The Starting Gate is located in 1,000 square feet in the Park Trades Center Building in downtown Kalamazoo and is operated by the Haworth College of Business Center for Entrepreneurship and Innovation in partnership with WMU’s Office of Community Outreach. Acceptance to the accelerator is available to all WMU students through a competitive application process. Students need to demonstrate a promising idea for a product or service that can be launched quickly. Fifteen student companies go through the program each year, from October through March. The accelerator is open 24 hours per day, with mentors, faculty mem-

 WMU founded Starting Gate in 2013 to support tech transfer and commercialize research  Has since helped launch 80 companies, held more than 400 events and awarded $50,000 in seed money

Lori and Lee Taylor took a 10-day Cluventure to Athens, Greece.

bers and successful entrepreneurs helping define markets and refine the business model through what are called update nights. Experts are also available to offer legal advice and introduction to would-be investors. At the end of those six months, companies participate in Demo Day, making brief pitches to an audience of potential investors. Companies that Starting Gate has helped launch range from the high-

est of high tech — like SafeSense Technologies LLC, which makes flexible sensors for sports helmets that measure the impact of major and minor collisions — to playful customer services companies like Cluventure Travel LLC, which arranges surprising vacation experiences that require participants to solve a series of clues. SafeSense was one of the first companies the Starting Gate helped. It has gone on to get $650,000 in grants

 Recent Starting Gate graduate Cluventure arranges surprise travel packages and has a partnership with Xenith Inc., a helmet maker in Detroit that Dan Gilbert has invested in. (See related story, Page 12). Cluventure is a recent Starting Gate graduate. Last March, Cluventure won the first-place prize of $2,000 at Western’s sixth annual K.C. O’Shaughnessy Business Pitch Competition and Showcase held on campus March 23. More than 25 companies made three-minute pitches for a total of $5,000 in prize money. In May, Cluventure was named by Starting Gate as winner of the first annual $5,000 Wendell Christoff Award, an award named for an alumnus of WMU who got his degree in business administration in 1968. He is CEO and president of Litehouse Inc., a Lowell, Mich., maker of salad dressings and sauces that Entrepreneur magazine has named as a Top 100 privately held company.

GETTY IMAGES/ISTOCKPHOTO

Cluventure founder and CEO Desi Taylor has graduated from the Starting Gate program but not yet from WMU, where she is a senior majoring in Spanish. But Cluventure is going strong, arranging vacations and generating revenue, and Taylor says the business, which she promotes as a travel agency with a twist, will be her full-time focus. “After I graduate in April, I will put my heart and soul into this. It’s what I’m passionate about,” she said. “We recently launched a corporate section on our website. The agenda for 2019 is finalizing our corporate retreat pitch. We’ve done one corporate retreat so far.” Cluventure aims to combine mystery, unplanned adventure and travel to create an interactive vacation experience. Each trip is customized following interviews to determine a customer’s likes and dislikes. Cluventure arranges transportation, lodging and activities, nearly all of which is a mystery to vacationers until they get where they are going. Upon arrival, travelers must solve a series of clues to find out what activities have been planned. So far, Taylor has booked 87 trips for individuals, including international trips to Aruba, Greece and Costa Rica. SEE TRAVEL, PAGE 15

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SPECIAL REPORT: KALAMAZOO

Micro-LAM’s laser-based tools find market, success quickly

Financing Experience

In Your Corner.

By Tom Henderson

thenderson@crain.com

One and done: That’s the story of Micro-LAM’s equity fundraising. Most tech startups go out to the funding market for a seed round, then a larger A round and, more often than not, subsequent B and C rounds that keep the company alive but dilute the equity of earlier investors. The goal is eventually be able to fund growth out of cash flow. Micro-LAM’s early investors haven’t had to worry about their equity being diluted. Nor will they, based on revenue and employee growth curves. Unlike many other early stage CEOs, founder Deepak Ravindra doesn’t have to worry about spending time on new PowerPoint presentations for investors or going on road shows to try to get venture capitalists to write him checks. Soon after he sold his first machine in 2016, cash flow has been all he’s needed for his fast-growing company. Revenue was $1.7 million in 2017 and $4.6 million last year, with projections of almost $9 million in 2019. Micro-LAM’s formal name is Micro-Laser Assisted Machining Technologies Inc. The company makes laser-based tools to improve machining for ceramics, silicon and metal. The lasers generate heat of about 1,800 degrees Fahrenheit at a tiny point a tenth the width of a human hair, softening the target and greatly reducing cutting time and decreasing cutting tool wear. The advantage for customers is they can retrofit Micro-LAM’s laser tools into their existing CNC machines, a retrofit that can be done in about two hours. Systems range between $175,000 to $235,000. Ravindra said the company shipped 11 systems in 2017. It shipped 28 last year, including 13 in the month of November alone.

An early win There are first customers, and then there are first customers. Ravindra’s was the kind startups usually only fantasize about. It was AMETEK Precitech Inc., a maker of large, ultraprecision machining equipment in Keene, N.H.. It had one of Micro-LAM’s systems installed on a machine early in 2016, a purchase that occurred after Ravindra called the company looking to buy, not sell, used equipment. Mike Tanniru, Precitech’s business director, told Crain’s he was impressed by the technology and bought that first system not to do any machining of his own, but to show customers how well Micro-LAM’s technology works. By showing customers how to do better, faster machining, he’d sell more of the CNC machines that are fitted with Micro-LAM’s laser tools. After he sold that first machine, Ravindra started raising a seed round of capital. He hoped to hit $700,000. What he discovered was that investors love nothing more than an early stage tech company already generating revenue. He ended up raising $2.1 million, including $550,000 from the Grand Angels, an angel-investor group in Grand Rapids. Invest Detroit and Invest Michigan also joined the

Contact Kristen Veresh at kmveresh@varnumlaw.com

Financial matters, business and corporate matters, financial transactions, real property, acquisition and commercial financing transactions Startup to mid-size companies, corporate governance and private equity matters Tier 1 Metropolitan Ranking in Banking and Finance Law Management and Litigation 2019

Deepak Ravindra and Jim Branski of Micro-LAM.

Need to know J Micro-LAM makes laser-based tools to improve machining, decrease cutting tool wear J Spun out of Western Michigan University in 2012 J Company projects $9 million in revenue in 2019 round. “We ended up with more than we needed. I could have raised $5 million,” said Ravindra. “We’re cash-flow positive and we have a healthy amount of cash in the bank.”

Ahead of its time Micro-LAM was an early spinoff from Western Michigan University and its College of Engineering. It launched in 2012, before the university had much in the way of policies, programs or support in place for spinoffs. “Deepak was at the forefront here. When he started Micro-LAM, university support for startups was minimal,” said D. Clark Bennett, the director of technology and innovation advancement in the Office of the Vice President of Research at WMU and a former patent agent with the U.S. Patent and Trademark Office. “Deepak got through that lack of support, which says a lot about him. Deepak’s skill set as a scientist was perfect, and he’s evolved into one heck of an entrepreneur and business person,” said Bennett. Micro-LAM’s early growth was slow and measured, funded not by the equity markets but by a crucial first loan, then grants and other forms of capital that didn’t dilute founder or investor equity, helping Ravindra continue the long slog of R&D it took before he could bring his first product to market early in 2016. Ravindra licensed what had been an

MICRO-LAM

R&D project in the engineering school. After getting a loan in 2012 of $150,000 to buy used equipment from Battle Creek Unlimited, a nonprofit economic development organization, he moved his headquarters and lab into a building owned by the nonprofit. That same year he got the first of several significant grants, a $50,000 grant from the National Science Foundation’s I-Corps program to do customer validation. After he talked to 127 prospective clients in three months, he got an NSF Phase I Small Business Innovative Research grant of $150,000, followed in 2013 by a Phase 2 grant of almost $1.2 million. In 2013, he also got $150,000 from the Michigan Emerging Technology Fund. He won $2,000 for the best new business idea at the 2014 Great Lakes Entrepreneur’s Quest’s ACE event in Livonia, and in the 2015 Accelerate Michigan Innovation competition in Detroit, he won the top $25,000 prize in the next-generation-manufacturing category. In March 2017, after getting funding from the Grand Angels, Ravindra moved from his tiny, 1,200-squarefoot space in Battle Creek into 9,000 square feet of space in a building in Portage, south of Kalamazoo, and late last year began moving equipment into another 8,000 square feet of adjoining space. From two full-time and five parttime employees when he sold his first device, Micro-LAM has grown to 18 employees. It has sold 50 devices to 20 customers in 14 countries, with distributors in Japan, South Korea, Taiwan, China and the Netherlands. “It’s easy to get growth, it’s hard to manage it,” said Ravindra. It’s a problem many tech startups never survive long enough to encounter. Tom Henderson: (231) 499-2817 Twitter: @TomHenderson2

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Game changer

A WMU helmet sensor spin-off could prevent traumatic brain injuries By Tom Henderson thenderson@crain.com

SafeSense Technologies LLC is the poster child for the broad-based support system now available in Michigan to promising high-tech startups spun off from research universities. SafeSense has developed and patented technology for flexible printed sensors that can be embedded in football, hockey, lacrosse and wrestling helmets and in or on other athletic equipment and apparel to alert parents, coaches and doctors about the forces generated by contact. The sensors measure impact precisely and wirelessly transmit the data. The company is about ready to go out to the equity market and raise growth capital from angel and venture-capital investors to equip and staff a manufacturing facility in the WMedic Innovation Center, a large incubator in Kalamazoo owned by the Homer Stryker M.D. Medical School, a private partnership between Western Michigan University, Ascension Borgess Health Center and Bronson Healthcare. SafeSense’s search for capital comes after it raised about $650,000 in nondilutive funding from national, state and local sources, including the National Science Foundation, the

Need to know JJWMU spin-off makes sensors for sport helmets JJSafeSense has raised $650,000 from national and local sources JJDetroit-based football helmet manufacturer Xenith Inc. is helping to test the tech

state of Michigan and WMU. SafeSense grew out of work by Massood Atashbar, one of the company’s founders, its chief science officer and director of WMU’s Center for Excellence for Advanced Smart Sensors and Structures, and some of his post-doctoral researchers, including Binu Narakathu, who is the company’s president. Atashbar was his adviser during his Ph.D. program. The company was spun out as a for-profit company in 2014 and licensed its technology from the university in 2017. It has been granted several patents with another 10 or so in the works. The company has three fulltime employees and three part-timers. Would-be investors might be intrigued by a relationship SafeSense has forged with Xenith Inc., a manufacturer of football helmets that Dan Gilbert invested in and moved to De-

troit from Lowell, Mass., in 2015. SafeSense founders began meeting with Xenith before the move to Michigan. Xenith is helping SafeSense test and refine its tech and plans to become a paying customer when the sensors are ready for the market in a year or so. Over the last three years, field tests have been conducted on SafeSense sensors in helmets used by five high school football teams, in Kalamazoo, Grand Rapids and Ann Arbor. “We’ve thought a lot at Xenith about how to incorporate new technologies, and SafeSense is very interesting to us. Massood’s labs at Western are absolutely cutting edge. They are unparalleled in the country from what I have seen,” said Grant Goulet, the vice president of product innovation at Xenith. “We’ve been very excited to partner with them and take advantage of their expertise,” he said. “So far, it’s been an excellent relationship.” Support and funding for SafeSense includes: J Early nurturing by the Starting Gate, an incubator program founded by WMU in 2013 to help students and faculty commercialize promising ideas. J Participation in the Introduction to

Massood Atashbar (left) and Binu Narakathu, founders of SafeSense Technologies. SAFESENSE

Kalamazoo company markets to smart-home geeks By Tom Henderson thenderson@crain.com

It turns out to have been smart business for Eric Hines to get into the smart-home business. He co-founded Kalamazoo-based Inovelli LLC in April 2016. The company began selling products in April 2017, and by the end of that year had sold 16,000 units and had revenue of $575,000. In 2018, despite inventory shortages from his supplier in China, Inovelli had revenue of $1.5 million on 44,000 units sold. Hines now has a bigger and more reliable Chinese supplier and projects revenue for 2019 of $5.7 million and 2020 revenue of $14.9 million, though there are concerns that President Donald Trump’s tariffs on Chinese products might affect that revenue. Inovelli currently sells 11 products, including switches, indoor and outdoor plugs, outlets, sensors and light bulbs. If those numbers don’t seem impressive, consider: Hines was a marketing manager for Kellogg’s with no previous experience running a business. He continued as an associate manager of the Keebler brand until January 2018, when he committed to Inovelli full time. He is the company’s CEO. Consider, also, that Inovelli hit those numbers even though the business of selling smart-home components meant taking on General Electric, the overwhelming market leader. Inovelli sells its components through its own website, inovelli.com, and through Amazon, eBay and Newegg. Inovelli has no marketing budget. GE’s is huge. But what Hines has is a passion for smart-home technology

Need to know JJSmart-home technology enthusiast launched his own business in 2017 JJCompany sells switches, outlets, sensors and lights that run on Z-Wave protocol JJProjects revenue of $5.7 million in 2019

“My husband isn’t into this nearly as much as I am, but it’s made my life a lot easier. I’ll be buying more from Inovelli. I know they have a new manufacturer, and I’m looking forward to their new products.” Alex McLure of Pawtucket, R.I.

— his own home in Kalamazoo is a testament to the technology — and a ready-made market of potential buyers on social media, where smarthome enthusiasts, Hines among them, avidly discuss their passion in chat rooms and forums. The smart-home community also provided Hines with partners he brought on shortly after founding the company. Eric Maycock, the vice president of technology, is an IT specialist, the senior systems engineer at the Salt Lake City-based Neutraceutical Corp. and the creator of software for more than four dozen home automation devices; Brian Carbone, who describes himself

as an early adopter of smart-home technologies, is chief operations officer; and Nathan Harte is vice president of business development and in charge of ramping up the B2B sector of the business. Inovelli’s devices use a less common technology that has helped the company’s products appeal to a savvy market of self-professed techies and geeks. The main protocol for smart-home devices to communicate with each other is Wi-Fi. Inovelli focuses on a lesser-known protocol called Z-Wave, which was invented in Denmark in 1999. Hines said the main advantage of Z-Wave is that it runs on a separate bandwidth than the ubiquitous Wi-Fi. The Amazon Alexa and GoogleHome are both Wi-Fi based, but when a lot of home products at once use the Wi-Fi, like Netflix, Hulu and game streaming, it can cause bandwidth issues that can interfere with smart-home operations. Many Wi-Fi devices also use Chinese servers, which raises security concerns for some users. And Z-Wave makes it easier for DIY techies to do their own customization. In September at a national conference in Philadelphia, Inovelli won the Z-Wave Summit Marketing Award. Alex McLure of Pawtucket, R.I., said he has been a smart-home enthusiast for three or four years. “I started with two light bulbs and one switch and now I’ve got 80 or 90 bulbs, devices and switches. It’s become an absolute obsession,” he said. He learned about Inovelli through social media. “I made my first order in December of 2018 and was really impressed. The customer service is great.

I bought a plug and it had a big Inovelli logo and I told Eric it limited where I wanted to put it. You want things to be inobtrusive. And they changed their logo, made it a lot smarter.” Most of the lighting in McLure’s house is controlled by either voice or motion sensors. His doors can be unlocked remotely to let people in and he even has a sensor on his cat’s litter box to alert him to when it is time to change. “My husband isn’t into this nearly as much as I am, but it’s made my life a lot easier,” said McLure, who works in healthcare analytics. “I’ll be buying more from Inovelli. I know they have a new manufacturer, and I’m looking forward to their new products.”

A new, important year Hines has high hopes, and important needs, for 2019. One thing he doesn’t need is fancier digs. Until last January, Hines ran the business out of his home. Since then, he has been in a small, two story strip of small inexpensive offices on West Main, near I-131. Most of the offices have official signs out front. His does not. A small blue Sticky Note on a door downstairs says “Inovelli lives here (upstairs.)” “The rent is cheap, and it’s monthto-month. We don’t need anything fancy. Customers won’t be visiting us,” he said. Perhaps most important is the addition of Leedarson Lighting Co. Ltd. of Zhangzhou, China, as Inovelli’s supplier, replacing a much smaller supplier that had trouble keeping up with inventory demands. Leedarson began making smart-home devices in 2010 and bills itself as the world’s leading exporter of products for the

internet of things. With the previous supplier, Inovelli created the software that controlled the devices but bought the devices themselves off the shelf. With Leedarson, it will create the software and design the devices. “I know our growth projections sound a little crazy, but we were out of inventory for 60 percent of 2018,” said Hines. Now that he has a reliable supplier, Hines’ main worry is whether he will have the cash flow necessary to keep paying for enough inventory to match growing demand. He has begun meeting with equity investors to help him ramp up his marketing and sales team and to fund inventory. Hee’d like to raise an A round of $1 million. He has had preliminary meetings with Plymouth Ventures of Ann Arbor, the Grand Angels of Grand Rapids, Invest Michigan of Detroit and the Grand Ventures of Grand Rapids. He hopes a beefed-up marketing team and a website that was revamped this month will help increase the share of direct sales the company makes. “We want to position ourselves as the Dollar Shave Club of smart homes.” “Hardware is difficult, and these guys are doing it well,” said Tim Streit, the founding partner of Grand Ventures. “They have solid margins and solid growth. They’re also helping commercialize an alternative to Wi-Fi, Z-Wave. And they’re doing it in a really hot sector, the connected home. It’s a very unique story, but harkens back to our manufacturing roots.” Tom Henderson: (231) 499-2817 Twitter: @TomHenderson2

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C R A I N ’ S D E T R O I T B U S I N E S S // J A N U A R Y 1 4 , 2 0 1 9

SPECIAL REPORT: KALAMAZOO Customer Discovery, a three-week program run by the University of Michigan for entrepreneurs at state universities. J $50,000 in 2016 from the National Science Foundation to participate in its I-Corps program, where Narakathu and Atashbar met with 100 would-be customers around the country over seven weeks. J The I-Corps program led to a $216,000 grant from the NSF in 2017 that went to WMU specifically to advance SafeSense’s sensor technology. J $50,000 from the Michigan Economic Development Corp.’s University Commercialization Fund and $40,000 from the MEDC’s Advanced Grant Program. J $50,000 from the Michigan Pediatric Device Consortium. J $50,000 from a technology development fund at WMU that matched a $50,000 grant from the Tech Transfer Talent Network, a state of Michigan program administered by the University of Michigan. J $50,000 from the Business Accelerator Fund, an award granted by the state’s SmartZones.

C-suite support Some of that grant support, including the Tech Transfer Talent grant, has funded the participation in SafeSense’s management team by Steve Tokarz, a mentor-in-residence at Western who was assigned to the company through the school’s technology transfer office.

Tokarz has been a C-level executive at several tech companies over the last decade and currently is the co-founder and managing partner of Ann Arbor-based Cantilever Business Partners, a consulting firm that helps universities spin out technology into the private sector and helps those startups raise capital and manage their business operations. Though based in Ann Arbor, he also has the title of entrepreneur-in-residence at Michigan Technological University in Houghton and is a consultant with the technology transfer office at UM. He began working with SafeSense’s founders in 2015, assessing their technology and possible commercial applications. “It was cool stuff. You could print sensors on any substrate. I began to realize there’s a company here and a guy who wants to run it,” said Tokarz, referring to Narakathu. “Early stage companies need nurturing. We want founders to do what they do best, not write pitch decks for investors. Cantilever will help out at the C-suite level. The company doesn’t need a full-time CEO, or a fulltime CFO. We can provide a management team at a fraction of the cost.” Narakathu and Atashbar hope to sign a lease soon for dedicated lab space and are looking to hire a few more of Atashbar’s students or postdocs. “We have talent at Western. We don’t want these students leaving. We have two or three people ready to hire, now,” said Tokarz.

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Now comes the hard part: raising money to buy equipment to start making printed sensors on a commercial scale and hire people to run it. Tokarz said he Steve Tokarz: plans to start raisMentor-in-residence. ing money soon and hopes to raise between $350,000 and $750,000 in the next six months or so. The current partnership with Xenith will be key to that fundraising. Goulet declined to give sales totals for Xenith for 2018 but said “we have hundreds of thousands of helmets out in the market place. We’re in all the NFL locker rooms, we’re in Division I college football, in high schools and in youth football.” Xenith is No. 3 in helmet sales, behind Ridell and Schutt Sports. Goulet said his best guess is that in a year, Xenith’s field reps will be using SafeSense sensors in helmets being sold to teams to provide the best tailored fit for each athlete, to make sure there is an even distribution of pressure around the head. In two years, he predictes SafeSense technology will be incorporated into helmets to measure impacts and communicate those impacts wirelessly in real time to parents, team doctors and coaches. Tom Henderson: (231) 499-2817 Twitter: @Tom Henderson2

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WMU plans major expansion of research and technology park By Tom Henderson thenderson@crain.com

Western Michigan University hopes to break ground in the first quarter on infrastructure development for what it is calling the Business Technology and Research Park 2, a 55-acre parcel of land in Oshtemo Township, a few miles southwest of the main campus and across the road from the much larger Business and Technology Research Park 1. The fully built-out BTR Park 1 sits on 256 acres, with about 40 tenant companies employing about 850. That project is in the city of Kalamazoo. It includes WMU’s engineering school and the WMed Innovation Center, a 69,000-square-foot hightech incubator owned by the Western Michigan University Homer Stryker M.D. School of Medicine. Bob Miller, WMU’s associate vice president for community outreach, said the school hopes to put out requests for proposals soon for companies interested in bidding on the early infrastructure work, which includes roads and utilities. “I anticipate dirt being moved late winter or early spring,” he said. That preliminary work is being funded by a $2.1 million grant from the U.S. Economic Development Administration, a division of the U.S. Department of Commerce. Miller

Need to know JJWMU will break ground in 2019 on the second phase of its Business Technology and Research Park JJCurrent BTR Park 1 is home to 40 companies that employ 850 JJBTR Park 2 will have 30-35 developable acres and accommodate 7-10 new buildings

said the total estimated cost of infrastructure is $4.2 million. “The average parcel size in phase one is four to five acres. We’ll have 3035 acres that can be developed in phase two after we take into account open spaces and roads, so it’s realistic to think we can accommodate between seven and 10 new buildings,” Miller told Crain’s. He said the university will sell the land to developers of various projects but would have veto power over what the end use would be. He said some buildings will house single tenants, others will be multi-tenant. “We want high-tech companies. We will not build or own. Our goal is to sell the property, which puts it on the tax rolls. I’ve had half a dozen conversations with developers for potential projects. We don’t have any deals, yet, but there is significant interest.” Miller said there will be a clause in

the sales agreements that if the property owner eventually decides to sell, the university has the right of first refusal to buy it. “The expansion of the technology park via a phase two project is a positive addition to the business community. The expansion will bring more high-tech firms to the area, creating a larger cluster of engineering, IT and life science companies,” said Sandra Cochrane, the director of the innovation center and an assistant dean of the medical school. “Strong industry clusters create robust employment opportunities for skilled tech workers as well as collaborative opportunities for businesses and universities,” she said. “For the WMed Innovation Center specifically, the expansion of the park means that there will be property nearby for graduating client companies, thus retaining the companies, the employees, and the tax base here in Kalamazoo.” Southwest Michigan First, a nonprofit economic development organization based in Kalamazoo, will help develop the site. As buildings come on line, it is expected there will be job opportunities for WMU graduates and internships for students. The first phase has created hundreds of internships and counts about 100 school alumni among current

Sandra Cochrane, the director of the WMed Innovation Center and an assistant dean of the Western Michigan University medical school.

employees. Groundbreaking for phase two follows more than three years of community engagement and planning, with Oshtemo Township sharing the cost of the site design that led to the federal grant. “Oshtemo Township is excited to partner with Western Michigan University on the next phase of the Business Technology and Research Park, as it represents new opportunities for innovation and economic development in the township and the Kalam-

azoo region,” said Julie Johnston, the township’s planning director, in a press release. Southwest Michigan First was involved in phase one, which broke ground in 2000, from its inception and once owned the incubation center that was sold to the medical school in January 2016. When it opened in 2003, it was called the Southwest Michigan Innovation Center. “One of the things I am most proud of is our partnership with Western Michigan University through the BTR

Kalamazoo angel investors group takes wing By Tom Henderson thenderson@crain.com

The Ka-Zoo Angels, a new angel investment group in Kalamazoo, have taken flight. Twelve Kalamazoo residents founded the group in August 2017. Since then, they have invested $435,000 in eight companies and meet monthly to hear pitches from other early stage companies seeking equity capital to grow their businesses. Among its founders were two heavyweights of the western Michigan entrepreneurial ecosystem. Mary Sue Hoffman is the managing partner. A former tax attorney for PricewaterhouseCoopers, she runs a consulting company, eStage Assessments, which provides due diligence for early stage tech companies. From 2001-2016 she was a technology consultant for Grand Valley State University, managing the Michigan Emerging Technologies fund, a partnership between the Michigan Economic Development Corp. and the Michigan Small Business & Technology Development Center. The SBTDC is based at Grand Valley’s Seidman College of Business and has offices around the state, providing technology commercialization services to startups and early stage tech companies. Eli Thomssen has been an associate director of the Kalamazoo-based Apjohn Group LLC for 18 years. The group provides consulting services for early stage life-science companies. From 1961 to 1999 he was an executive at Up-

“The Grand Angels have been doing this long enough that they’ve validated the process for providing good information to make an investment decision. There’s a well organized plan for doing due diligence.”

Need to know JJ Founded in August 2017, Ka-Zoo Angels have since invested $435,000 JJAffiliated with the Grand Angels, state's most active angel investor group JJNeed for angel investor groups has increased across the state john and then Pharmacia after it bought Upjohn in 1995, including a stint as vice president of business development and strategic planning. In 2008 he co-founded and became chief business officer at Kalamazoo-based Armune BioScience Inc., which used biomarkers from the body’s immune system to detect prostate cancer. In 2010, Armune won the grand prize of $500,000 at the first annual Accelerate Michigan Innovation Competition. Last January, Armune was sold for an undisclosed sum to Exact Sciences Corp., a Madison, Wis.based molecular-diagnostics company. The sale was reported to have brought a three-times return to early investors, including the Michigan Pre-Seed Fund. Another company Thomssen helped found, ProNAi Therapeutics Inc., went public in 2015. The Ka-Zoo Angels are a separate legal entity but are affiliated with the Grand Angels in Grand Rapids, the most successful and active angel group in the state, which was founded in 2004 and has invested almost $30 million in 41 companies. The second Wednesday of each

Eli Thomssen

month, two or three entrepreneurs pitch the Grand Angels in the morning, then drive south to Kalamazoo to pitch the Ka-Zoo Angels in the afternoon. The Ka-Zoo Angels also hold monthly recruiting meetings to solicit more high-net-worth individuals to join. The most recent meeting drew about 40 to the Kalamazoo Country Club. There are now 15 members. New members pay $2,000 to join with a yearly renewal fee of $2,500. “The Grand Angels have been doing this long enough that they’ve validated the process for providing good information to make an investment decision,” said Thomssen. “There’s a well organized plan for doing due diligence.” Each investment the Ka-Zoo Angels make is structured as a special purpose entity, with a focus on four industry sectors: advanced manufacturing and materials, advanced technologies in agriculture and food, life sciences and software. The Ka-Zoo Angels have invested in: J Change Dynamix Inc. of Royal Oak, which offers a software plat-

form for cyber threat and risk detection. J Reconstruct Inc., a company in Champaign, Ill., that provides a visual production-management platform for construction projects. J Tespo, a health and wellness company in Northville that focuses on the nutritional supplement industry. J BlueWillow Biologics Inc, of Ann Arbor, formerly known as NanoBio Corp., a nanotechnology company developing intranasal vaccines for a variety of diseases. J Ablative Solutions Inc. of Kalamazoo, which is developing out-patient procedures for reducing hypertension caused by overactive sympathetic nerve activity. J Blue Medora Inc. of Grand Rapids, a software development company that makes products to support enterprise systems management. J Tetra Discovery Partners Inc. of Grand Rapids, which is developing treatments for depression, mild cognitive impairment and traumatic brain injury. J Varsity News Network LLC of Grand Rapids, which provides digi-

tal platforms nationwide for high school teams and athletes. Skip Simms is senior vice president of Ann Arbor Spark and managing member of the Ann Arbor-based Michigan Angel Fund. He said the addition in 2017 of both the Ka-Zoo Angels and the Innovation Shore Angels in Marquette to the state’s angel network will help address a big need for early stage tech investing, a need that has grown in recent years with the trend of venture-capital firms to look for investments in later-stage companies, ones already producing revenue instead of helping fund pre-revenue companies. “Angels provide the capital for startups. VCs only invest in about 1 out of 18 tech startups in the U.S. Other than friends and family, there is no other source of capital for an entrepreneur,” said Simms. “Last year, over $40 million was invested in Michigan tech startups by Michigan angels. The need for capital exceeded $100 million. “The growth of angel groups has been slow. The total number of angels in all Michigan groups is about 390, counting duplicates, meaning some angels belong to multiple groups. My mission is to encourage more high-net-worth individuals to invest in startups as an asset class as a diversification of their assets. Many will find it easier and more fun to do through a group, which I am also trying to help people do, to start new groups.” Tom Henderson: (231) 499-2817 Twitter: @Tom Henderson2

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C R A I N ’ S D E T R O I T B U S I N E S S // J A N U A R Y 1 4 , 2 0 1 9

SPECIAL REPORT: KALAMAZOO commission upon completion. Planning for the project included making sure it would co-exist as much as possible with what is currently on the undeveloped site. For example: a bee colony on the site was relocated; a rare orchid on the property will be preserved in a buffer zone; the design makes sure nesting bats will not be disturbed; diseased apple trees will be eliminated on-site and care taken that the disease does not spread off the property; buffer zones will be established to protect a nearby lake preserve as well as mature trees with trunks more than six inches in diameter and create an oak savanna; and design and development will allow the site to be designated as Sustainable Sites Certified, also known as SITES, a rating system for developing sustainable land and water management strategies.

A huge tech incubator

Park,” said Ron Kitchens, president of Southwest Michigan First and a WMU trustee. “It is one of the most successful university-based parks in the nation, and I have no doubt that phase two will be equally successful in both filling the park with jobs and creating incredible partnerships between the companies and the university.” The Road Commission of Kalamazoo County also helped with the planning. The main road providing access to tenant properties in phase two will be transferred to the road

TRAVEL FROM PAGE 10

She is the only official employee, but has 11 part-time subcontractors on her team, helping with customer interviews and trip arrangements.

Born out of grief Taylor is older than the average senior at 27, having combined school with life as a musician, first in Denver and then in Kalamazoo, playing guitar and piano, singing, negotiating contracts and managing bands. She took the fall semester of 2018 off to concentrate on Cluventure, then it was back to school for her last two classes. “I’m not in her Desi Taylor: demographic but Company grew it’s something I out of trip. really like,” said Lara Hobson, director of operations at the Starting Gate, of Cluventure’s business model. “It’s generated so much business. Of all the students I’ve worked with, Desi is the most open minded and appreciative. She’s motivated and ambitious, and she’s done a lot of research to see if people want this. And it seems they do.” Taylor said Cluventure grew out of a trip she planned for herself and her significant other in 2013. Each had had close friends die, and they needed something to break the depressing spell. Taylor said she came up with the idea of planning a threeweek trip that would require her partner to solve clues to figure out

The WMed Innovation Center, its abbreviation pronunced “W Medic,” is an unusually large tech incubator at 69,000 square feet. It operates as something of a hybrid: larger, well-established companies pay higher rent that subsidizes lower rent for early stage startups. Cochrane helped Southwest Michigan First launch the incubator in 2003, serving as its chief operating officer. Its size proved beneficial in 2007, when Pfizer Inc. announced a sharp reduction in employment both in Ann Arbor and Kalamazoo. Upjohn had employed 2,000 in downthe next item on the agenda. “I told her, ‘We need a road trip, and I’m going to surprise you,’” recounted Taylor. A big surprise was visiting the Modern Love Omaha restaurant in Omaha, Neb., run by her partner’s favorite chef, Isa Chandra Moskowitz. When they got back, “People said, ‘Wow, that looks like so much fun. I wish someone would plan something like that for me,’” said Taylor. Taylor filed the paperwork to form her company in August 2016. The Starting Gate connection was happenstance. In October 2017, she was cat-sitting for a friend and saw a flier for the student accelerator sitting on a table. “I applied the last day possible and got in, and it changed everything. It gave me formal training,” she said. Suzanne McCloskey is one of Cluventure’s very satisfied customers. McCloskey, an IT specialist at Consumers Energy in Jackson, visited Cluventure’s booth at an annual fair of women business owners hosted by Consumers hosts for women who own businesses that might be of interest to Consumers’ employees. Last year, the event was held in August. There, McCloskey visited Cluventure’s booth, until then unaware of the company. “Cluventure immediately caught my attention. It was a real-world escape room. You’re trying to solve puzzles to find your destinations, and I love solving puzzles. I was immediately hooked,” she said. “It was the gamification of travel. And I loved the idea that I didn’t have to plan anything.” She and her husband, Alex Butterfield, decided to give Cluventure a short trial before committing to a long vacation to distant places. They did an interview with the Clu-

The Business Technology and Research Park 2 is a 55-acre parcel of land in Oshtemo Township.

town Kalamazoo in the 1990s, before it was bought by Pharmacia, which in turn was bought in 2003 by Pfizer. The 2007 pullout left only 100 Pfizer employees in the city. But many of those laid off joined new contract research organizations, 15 of which were soon being incubated at the tech center, bringing it to nearly full occupancy. In 2016, the Homer Stryker M.D. School of Medicine, a private school affiliated with WMU, Ascension Borgess Health Center and Bronson Healthcare, bought the incubator from Southwest Michigan First. Cochrane, who since 2008 had been a consultant with the area’s Small Business Development Center, headquartered at Grand Valley State University in Grand Rapids, was recruited back as director and assistant dean. The center now houses 21 companies. While most are in life sciences, that is not a requirement for entry. Early stage companies include Tetventure and then settled on a twoday overnight trip somewhere near Jackson. “We told them we like unique things, stuff you wouldn’t find on a Chamber of Commerce website,” said McCloskey. In November, after solving several clues, they ended up at Kara’s Kottages, an upscale B&B in Kalamazoo. A clue there led them to the nearby Kalamazoo Mall, the key word being paraffin. At the mall, they found a candle shop, went in and asked if anyone there knew if they were supposed to be there. They were. It was, it turned out, time to make candles. In the hour it took for the candles to set, they dined at Principle Food & Drink on comfort food with bespoke cocktails, which they loved. The next day came their final clue, a street address. When they got there, it was a neighborhood home, no sign out front, no indication it was a business. They walked to the door, were invited in by the couple that lived there and found out they were about to make mozzarella cheese, ricotta cheese and homemade pasta. “I couldn’t think of anything better than that,” said McCloskey. “I definitely want to try an international destination, now.” Costs for trips vary, but the Cluventure website lists baseline figures, which don’t include food or drink. For domestic travels, costs range from $300 per person for an overnight stay to $4,500 per person for a 10-day trip. Costs for international trips range from $2,625 to $7,000 per person. There are higher-priced luxury trips for both domestic and international travel. Tom Henderson: (231) 499-2817 Twitter: @TomHenderson2

ra Discovery Partners LLC, which is developing therapeutics to treat memory loss and cognitive impairment; and SafeSense Technologies Inc., a 2018 spinoff from WMU’s engineering school that makes flexible sensors that can be embedded in football and hockey helmets to measure impacts. (See related story, Page 12.) More established companies include Proteos Inc., which makes protein analysis tools and assay services for biotechs; and Micromyx LLC, a contract research organization offering microbiology services and programs to companies developing new antibiotics. Both are Pfizer spinoffs and are what Cochrane calls anchor tenants, paying the full market rate of $34 per square foot. Early stage companies pay $25 per square foot. Both include 24/7 access, access to a full range of scientific equipment, reception services, free parking, help applying for federal grants, procure-

ment assistance and access to various state and local entrepreneurial support services. There are also a variety of inexpensive co-working plans for very early stage entrepreneurs who need a place to sit, Internet access, office equipment and a mailing address. A program called the Workbench offers a dedicated desk, locking file cabinet and shared workbench space in a 1,000-square-foot office for $199 a month; the Launch Mi Lab offers eight feet of dedicated bench space with 1,500 square feet of shared lab equipment for $400 a month per company; and the Ideation Station offers 1,000 square feet of shared office space, with desks available on a first-come first-served basis for $99 month for the first person and $50 for each additional person. The innovation center also serves as one of the state’s 12 SmartZones, providing a wide range of services to entrepreneurs in the area who are not tenants, including access to the Michigan Strategic Fund’s Business Incubator Gatekeeper program, which provides mentoring, technology assessments, market analysis and product development. In four years as part of the Gatekeeping program, the innovation center/SmartZone has served 142 companies, helped create nearly 250 jobs and helped companies raise $200 million in funding. Those companies have commercialized 91 products and been awarded 76 patents. Tom Henderson: (231) 499-2817 Twitter: @TomHenderson2

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SPOTLIGHT

Advertising Section

PEOPLE ON THE MOVE To place your listing, visit www.crainsdetroit.com/people-on-the-move or for more information, please call Debora Stein at (917) 226-5470 or email dstein@crain.com.

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Moore Stephens Doeren Mayhew

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Architect Chris Vogelheim, AIA, LEED AP has been elevated to principal of the national architecture and engineering firm Harley Ellis Devereaux (HED). A leader of HED’s Detroit office, he has led collaborations with clients in the science, technology, education, and workplace sectors. His commitment to the integrity of those collaborations and to creative thinking is evident in consistently superior project results.

Imperium Group is proud to welcome Jeffrey Lautenbach as Director of Leasing. In his role, Mr. Lautenbach is responsible for procuring, analyzing and negotiating all retail leasing initiatives in the course of assisting with new development projects and the redevelopment of assets for the company. Prior to joining Imperium Group, he spent over 12 years at RamcoGershenson Properties Trust and 5 years at Brixmor Property Group, both premier national publicly-traded real estate investment trusts.

Benefit Review Services, Inc. (BRSi) is proud to announce Lisa Shenduk has joined our agency as our Compliance Manager. In this role she will provide guidance to our clients in complying with the laws, regulations and internal policies that apply to their ERISA Health and Welfare plans. Lisa brings with her over 20 years of nursing and health compliance experience, working at Ascension St. John Hospital (Detroit, MI) and Beaumont Health Hospital (Royal Oak, MI).

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Khaled Soubra has joined HDR as vice president and Michigan area manager. His expansive experience and knowledge of the Michigan market will be key in growing HDR’s team across all market sectors. Soubra previously worked for AECOM (formerly URS), serving as vice president, operations manager for the Buildings & Places (Architecture) unit across the Eastern Midwest region. Before that, as URS Michigan operations manager, he oversaw the financial performance of four major business lines.

J.J. Barney Construction, a civil and commercial contractor, is proud to announce the addition of Eric Steck as the company’s Director of Building Trades Construction. Eric will lead the company’s building trades construction operations by providing leadership and oversight. He brings over 35 years of construction leadership experience to the company and has worked on a variety of building projects, giving him a multifaceted understanding of the construction industry. See www.jjbarney.com.

JPMorgan Chase is pleased to announce that September Hargrove is leading their philanthropic efforts in Detroit. Prior to joining the firm, she served as National Network Director for CDFI Assoc. for Enterprise Opportunity; White House Fellow at NEC during the Obama Administration; Senior Advisor at U.S. Dept. of Commerce; and manager of workforce & economic development programs for former New Orleans Mayor Mitch Landrieu. September attended UC-Berkeley & Harvard’s Kennedy School of Government.

Comcast has promoted Lisa Kocsis-LeCureux to Vice President of Customer Service Strategy and Operations for the company’s Heartland region. She will also retain responsibility for Comcast’s Project Management Office. In her new role, Kocsis-LeCureux will oversee the Heartland region&#039;s efforts to transform the customer experience and to advance a culture focused on exceeding customers’ expectations. Kocsis-LeCureux earned a BA from Michigan State and holds a Six Sigma Green Belt certification.

Moore Stephens Doeren Mayhew is pleased to announce Douglas Martin, CPA has been elected a shareholder effective Jan. 1, 2019. Garnering more than 11 years of tax experience, Martin is an international tax advisor guiding the firm’s multinational clients through cross-border tax compliance, foreign assignment planning and advisory services. He has significant experience assisting expatriate and inpatriate individuals to help minimize overall global tax exposure.

DDP hires ex-budget director as president

Former state representative and budget director John Walsh will become the Downtown Detroit Partnership’s president, a newly created position that will involve daily operation of the placemaking organization and creating a new public policy voice for downtown businesses. Walsh DDP CEO Eric Larson will remain at the top of the organization, focused on strategy and vision for operating public spaces downtown, while Walsh runs dayto-day operations and maps out advocacy. Walsh joins the DDP after about a year as former Gov. Rick Snyder’s budget director following three years as the governor’s strategy director.

Valassis shakes up leadership

Valassis Communications Inc. has appointed the COO of its parent company to lead the Livonia-based direct mail and coupon giant. Dan Singleton started as the new CEO last week. Singleton is also still COO of San Antonio-based parent company Harland Clarke Holdings. Singleton In addition, Valassis promoted its president of digital, Cali Tran, to president at-large and has tasked him with overseeing cross-channel campaigns focusing on consumer engagement.

Wright Museum names new CEO

The Charles H. Wright Museum of African American History in Detroit has hired a veteran of museum leadership as its new CEO. Neil Barclay will succeed interim CEO George Hamilton effective Tuesday. Hamilton had replaced longtime museum chief Juanita Moore, who reBarclay tired in July. Barclay comes to the Wright after five years as executive director and CEO of the Contemporary Arts Center in New Orleans.

DMC hires 2 execs for downtown hospitals

KNOW SOMEONE ON THE MOVE? For more information or questions regarding advertising in this section, please call Debora Stein at (917) 226-5470 or email: dstein@crain.com

Detroit Medical Center has appointed Leonardo Lozada, M.D., as its new chief medical officer and Travis Maher as chief nursing officer for DMC Detroit Receiving, Harper University and Hutzel Women’s hospitals. Lozada, an anesthesiologist, comes to DMC from Saint Luke’s Health System in Kansas City, Mo., where he served as senior vice president and chief physician executive. Maher previously was chief nursing officer at Abbott Northwestern Hospital in Minneapolis.

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CALENDAR THURSDAY, JAN. 17 Global Business Outlook for 2019 and Beyond. 8-11 a.m. Automation Alley. A discussion on the shifting dynamics of the global economy and how companies can best position themselves to take advantage of the opportunities and challenges of doing business in Traub the U.S. and overseas. Speakers: Paul Traub, senior business economist, Detroit Branch, Federal Reserve Bank of Chicago; Scott Sneckenberger, partner, Plante Moran; John Caldwell, executive director, Investment Specialist, Private Bank, J.P. Morgan; Thomas Murray, president and CEO, Hosco and Paul Ryznar, founder, president and CEO, Light Guide Systems. Automation Alley. Member Price: $30 member; $50 nonmember; $40 walk-in member; $60 walk-in nonmember. Contact: Lisa Lasser, email: lasserl@automationalley.com

FRIDAY, JAN. 18 17th Annual NAIAS Breakfast. 7:30-9:30 a.m. Inforum. Features a cross-industry panel that will focus on artificial intelligence and how innovations made across industries are being investigated and used in automotive. Speakers: Jason Mars, CEO and co-founder, Clinc, and professor of computer science, University of Michigan and Alisyn Malek, COO and co-founder, May Mobility Inc.

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Moderator: Carla Bailo, president and CEO, Center for Automotive Research. Detroit Marriott at the Renaissance Center. $75 nonmember; $1,000 table sponsor. Website: inforummichigan.org

UPCOMING EVENTS A Conversation with the Mayor. 11:30 a.m.-1:30 p.m. Jan. 22. Detroit Economic Club. Detroit Mayor Mike Duggan will discuss his 2019 plans for Detroit. The meeting will begin with the unveiling of the 2019 Detroit News NAIAS Readers Choice Duggan Awards. Cobo Center. $45 members, $55 guests of members. Website: econclub.org

ď § Eidi Properties, Sylvania Township, Ohio, a property management company, has acquired Crossroads Retail Development, a 470,225-square-foot shopping center, and Rossford Pointe Retail Development, a 47,477 squarefoot retail space, both in Rossford, Ohio, from RPT Realty, Farmington Hills. The purchase price was not disclosed. Websites: rptrealty.com, eidiproperties.com ď § Icahn Automotive Group LLC, Southfield, owners and operators of auto repair and maintenance providers Pep Boys, AAMCO and Precision Tune Auto Care, has an agreement to acquire RPM Automotive, Jacksonville, Fla., an auto repair chain. Websites: icahnautomotive.com, rpmautomotive.com ď § Covington Partners LLC, Southfield, an advisory firm specializing in mergers, acquisitions and restructuring, acquired Grand Traverse Plastics Corp., Williamston, a plastic fabrication company. Websites: covingtonllc. com, grand-t.com ď § Pegasus Entertainment Inc., Southfield, audiovisual supplier for large events, has acquired the StageRight staging assets of D & D Sound, Westland. Website: pegasusentertainment. com ď § Plante Moran, Southfield, a certified

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public accounting, tax and consulting firm, has acquired Planning Perspectives Inc., Birmingham, a business management consultant. Websites: plantemoran.com, ppi1.com ď § American Pharmacy Purchasing Alliance, Canton Township, a community of pharmaceutical experts and professionals, acquired Prestige Medical Group Pharmaceutical Solutions, Canton Township, provider of institutional pharmacy services. Websites: joinappa.com, prestigemedgroup.com ď § Armaly Sponge Company Inc., Walled Lake, manufacturer of household cleaning products including the Brillo brand, has acquired Acme Sponge Co., Tarpon Springs, Fla., distributor of natural sponges. Websites: armalybrands.com, acmespongeonline.com ď § Cowen Inc., New York, a financial services firm, has acquired Quarton International AG and affiliated Quarton entities, Birmingham, a financial advisory company. Websites: cowen. com, quartoninternational.com ď § Troy-based Kelly Services Inc., a staffing company, acquired two telecommunications service providers, Dearborn-based Global Technology Associates LLC and Chicago-based NextGen Global Resources LLC, effective Jan. 2. Terms of the deals were not disclosed. Website: kellyservices. com

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C R A I N ’ S D E T R O I T B U S I N E S S // J A N U A R Y 1 4 , 2 0 1 9

SHUTDOWN

ployees could be furloughed if there isn’t a resolution to the problem. The FDA conducts food inspections and tests pharmaceutical drugs for safety and monitors clinical drug trials. In Detroit, an FDA pharmaceutical testing lab was open but running at half speed because about 20 of the 40 employees have been furloughed, according to a Jan. 8 CNN story. Routine food inspections aren’t getting done because of the partial government shutdown, but checks of the riskiest foods — cheese, infant formula and produce — are expected to resume next week, the FDA said Wednesday. The FDA doesn’t oversee meat and poultry, and those inspections by the Agriculture Department are continuing.— Jay Greene

FROM PAGE 1

“Operations at Detroit Metropolitan Airport are normal at this time. As of now, we don’t expect that to change,” Erica Donerson, director of government and external affairs for the Wayne County Airport Authority that oversees Metro Airport, said via email. Passenger security screenings are handled by federal Transportation Security Administration officers, who are among those federal employees who are required to work during the shutdown, but aren’t being paid. They likely will be paid, but not until the shutdown is over. A TSA spokesman declined to say what could occur with screenings if the shutdown stretches long-term. “The officers are required to continue working as the lapse in funding continues, however, they will be paid once appropriations resume. I can’t get into hypotheticals, but whatever happens, security effectiveness will remain paramount,” said James Gregory, the TSA’s deputy assistant administrator for public affairs. Detroit Metro’s website on Friday morning showed security wait times of 11 to 12 minutes at both terminals. In the most recent available data, the maximum wait time in standard screening at the airport on Thursday was 17 minutes and less than 5 minutes in the precheck lines, according to Gregory. Nationally, 99.9 percent of passengers waited less than 30 minutes and 95.5 percent of passengers less than 15 minutes, the TSA said. The TSA processes about 2 million screenings daily, agency data shows, for nearly 26,000 domestic and international flights. It has more than 60,000 employees including more than 43,000 transportation security officers. TSA staffing numbers for Detroit Metro and Michigan’s other large airports, Gerald R. Ford International Airport in Grand Rapids and Flint Bishop International Airport, were not disclosed. There has been a spate of TSA officers calling off work at major airports during the shutdown — not necessarily in protest, but in some cases to earn money as the government shutdown drags on. The agency isn’t providing airport-specific data on absences but did say that the rate of unscheduled absences was 5.1 percent nationally on Thursday, compared with 3.3 percent on the same day a year ago. “We are not generally providing specific airport call-out information due to security concerns. This is because an adversary could potentially use that information to determine possible vulnerabilities,” Gregory said. Air-traffic controllers, who are Federal Aviation Administration employees, also continue to work. “Air traffic controllers and the technicians who maintain the nation’s airspace system continue to work without pay as they fill a critical mission to ensure the public’s safety,” FAA spokesman Gregory Martin said in a statement. Detroit Metropolitan Airport served 34.7 million air travelers in 2017, and likely will match or exceed that number when 2018 data is crunched in coming weeks. A message was left for the American Federation of Government Employees, which is the union for TSA staffers. AFGE, which represents 700,000 workers, is suing the federal government over the shutdown, alleging that it’s illegal to require some federal employees to work without pay during a shutdown. — Bill Shea

Quicken Loans taking shutdown ‘day by day’

AP PHOTO/PAUL SANCYA

Cheryl Monroe, right, a Food and Drug Administration employee, and Bertrice Sanders, a Social Security Administration employee, rally to call for an end to the partial government shutdown in Detroit on Jan. 10.

Food needs expected to grow The federal government said late Tuesday that it has identified funding to keep the Supplemental Nutrition Food Program, which provides food assistance to about 1.2 million low-income people each month in Michigan, operating through February. That’s good news, but operating dollars for the Commodity Supplemental Food Program — which provides monthly boxes of food for tens of thousands of senior citizens in the region — run out this week. The government will continue to provide food for the senior meal program through February, but that won’t cover administrative costs. Thanks to a large warehouse on its Detroit campus, Focus: Hope has about two months of food stored for the 44,000 seniors it provides with a box of food each month. That store can sustain the senior food program into mid-March, Focus: Hope President and CEO Portia Roberson said, and the nonprofit, which operates on a $32 million annual budget, has some general fund dollars to cover the $230,000 it takes to operate the program each month. “Obviously, that could not go on for a year. ... the hope is we won’t have to go for an extended period of time,” Roberson said. A more immediate concern: Federal employees who aren’t being paid during the shutdown are likely to need food assistance. Gleaner’s Community Food Bank of Southeastern Michigan is coordinating with United Way for Southeastern Michigan and 10 area pantries and food distribution sites to ensure those who need food while they wait for their next paycheck can get it. There are an estimated 5,000-6,000 federal employees in the state, with the bulk of them in Southeast Michigan, according to reported estimates. Those employees work for federal departments including the Transportation Security Administration, U.S. Department of Homeland Security, U.S. Citizenship and Immigration Services and the U.S. Environmental Protection Agency, Gleaners President and CEO Gerry Brisson said. Most people live paycheck to paycheck, “so we can’t have no response

now,” Brisson said. Gleaners has begun packing 1,000 food boxes with staples such as spaghetti and spaghetti sauce to get federal employees over the hump, he said. The boxes will be available starting today at 10 pantries/food distribution sites in Wayne, Oakland, Macomb, Livingston and Monroe counties.

“We have operating cash for emergencies, about 60 days of operating cash in the bank just for this kind of thing. But there’s no question if the emergency lasts a long time, we’re going to have to go out and ask people to help us.” — Gleaners President and CEO Gerry Brisson

Most people can make it for a week without a paycheck, he said, so “we think 1,000 boxes will be more than enough to get through the first wave,” with distribution expanded as needed. The first wave of boxes will cost Gleaners $23,000. “We have operating cash for emergencies, about 60 days of operating cash in the bank just for this kind of thing,” Brisson said. “But there’s no question if the emergency lasts a long time, we’re going to have to go out and ask people to help us.” United Way has agreed to serve as a referral point, directing federal employees who call its 211 health and human services hotline to the nearest pantry for a food box. United Way’s 211 staff is prepared to offer that support, said Eric Davis, vice president of basic needs, health and outreach. “The next couple of weeks I think we should be OK. But if it goes much larger than that, we’re going to have some serious problems ... once the benefits start to diminish,” Davis said. Child nutrition programs, such as Women, Infants and Children, and other food assistance programs will

also see funding into February and March. “SNAP is the biggest concern. It is the biggest federal food program. All of the other food programs combined don’t do as much as SNAP,” Brisson said. In Michigan, the program has more recipients than any other entitlement program offered, outside of Medicaid. Beyond food assistance programs, federal housing and rental subsidies are being jeopardized by the shutdown, “putting people at risk of losing their place to live at the coldest time of the year,” Gilda Jacobs, president and CEO of the Michigan League for Public Policy, said in an emailed statement. — Sherri Welch

Medicare, hospital payments safe for now Because Medicare has been funded through the end of the fiscal year on Sept. 30, hospital and physician payments are not expected to be directly affected for some time. Funds to pay Medicare claims come from a trust fund that is separate from regular appropriations. A spokesman for the Michigan Health and Hospitals Association said there are concerns that people’s access to food stamps might be a problem if the shutdown continues. Hunger is a social determinant to health and hospitals sometimes see patients in their emergency departments who are malnourished or have conditions exacerbated by poor diet. Veterans Health Administration hospitals and clinics continue to operate and see patients regardless of the shutdown, said a VA spokesman at John D. Dingell VA Medical Center in Detroit. Employees at the U.S. Centers for Disease Control and Prevention and the National Institutes of Health also are unaffected. CDC tracks health outcomes and supports public health monitoring and infection control responses in conjunction with state and city health departments. The NIH, which consists of more than 20 separate institutes, funds billions of dollars in medical research at hospitals and universities. However, only about 41 percent of the employees within the Food and Drug Administration were working because of the shutdown. More em-

Bill Banfield, executive vice president of capital markets for Quicken Loans Inc., which services mortgages on behalf of Fannie Mae, Freddie Mac, the Federal Housing Administration and other entities, said Dan Gilbert’s Detroit-based mortgage company is treating the shutdown as “a day by day event.” It has been waiving late fees for federal government workers, for example. However, when late fees start to “kick in” around the 15th of the month, Banfield said Quicken Loans expects to field more borrower calls to work out payment arrangements if the shutdown continues. “Feb. 1 is a key date because if someone hasn’t made a January payment they are technically delinquent,” Banfield said. Banfield said FHA- and VA-backed loan originations are expected to continue with “little to no” disruption, although federal government employees or contractors may experience delays getting a mortgage if their employment can’t be verified due to the shutdown. — Kirk Pinho

Breweries, wineries not toasting delays Breweries, wineries and distilleries are experiencing delays — and taking a financial hit — because some permits are not being issued. The Alcohol and Tobacco Tax and Trade Bureau issues permits that allow businesses to open, craft a new beer or wine, or create labeling for a product. That agency is currently closed. The bureau also is not approving beer label applications during the shutdown, which is impacting craft brewers in Michigan, said Joseph Infante, partner and head of the alcoholic beverage regulation practice at law firm Miller Canfield in Grand Rapids. The labels, which list things including the alcohol content and Surgeon General’s warning, are required for approval to ship across state lines. And once the bureau reopens, there will likely be a backlog of permits to be processed, which has businesses owners worried, including Jeff Lemon, a partner at Lemon Creek Winery in Berrien Springs. “They’re already somewhat short-handed,” Lemon said. “There’s been a lot of new wineries and breweries, not just in Michigan but across the country. I think they’ve been pretty maxed out with their staff and this obviously is going to get them behind a little more.” — Dustin Walsh The Associated Press contributed to this report.

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TECHSTARS FROM PAGE 1

Absmeier told Crain’s Lear is specifically looking for investments that focus on product, process and business model innovations across the autonomous, connected, electric and Industry 4.0. “We are always evaluating opportunities for M&A and we will invest and collaborate with startups,” Absmeier told Crain’s. “Techstars is also a venture capital fund and as a partner we will participate in equity investments in start-ups coming through the program. Through this program we will see more technology and new business models earlier and be able to evaluate, mentor and collaborate with the start-ups.” Lear has acquired several technology companies in recent years, including Israel-based GPS technology firm EXO Technologies in 2017 and Troy-based connectivity supplier Arada Systems Inc. and Calif.-based telematics service provider Autonet Mobile Inc. in 2015. Meanwhile, Techstars Detroit has had success in securing investments or startups coming to Detroit from all over the world. Since 2015, 44 startups have come to the city for the Techstars program and have raised $80 million, the company said. A recent success story is the estimated $20 million acquisition of Detroit-based transit service startup Splitting Fares Inc., better known as SPLT, by Germany’s Robert Bosch GmbH in February 2018. SPLT was part of Techstars inaugural class in 2015.

Ted Serbinski: More than just mobility.

John Absmeier: Lear evaluating opportunities.

Changing the name to Techstars Detroit from Techstars Mobility reflects the accelerator's diversification from the region’s automotive-centric businesses. “This our fifth year running the program and seeing the rise of the Detroit startup ecosystem has shown us it’s more than just mobility,” Serbinski said. “Entrepreneurs are embracing Detroit more broadly than just the mobility sector, including agriculture, manufacturing and the internet of things.” Techstars Detroit is hosting a startup pitch competition this week at the North American International Auto Show as part of its presence at the annual show’s Automobili-D showcase, which highlights advancements in mobility technology for the sector. The accelerator, in partnership with the Michigan Economic Development Corp. and others, will also host a series of vetted matchmaking meetings between startups and investors at the auto show at Cobo Center. Dustin Walsh: (313) 446-6042 Twitter: @dustinpwalsh

Techstars Detroit will move into Lear Innovation Center in Detroit.

COSTAR GROUP INC.

C R A I N ’ S D E T R O I T B U S I N E S S // J A N U A R Y 1 4 , 2 0 1 9

DAUCH FROM PAGE 3

Dauch earned a bachelor’s degree from the U.S. Military Academy at West Point, where he played football. He then spent seven years as an officer in the U.S. Army. He also earned a master’s degree from the Massachusetts Institute of Technology. Delphi Technologies (NYSE: DLPH), the spun-off former powertrain unit of Delphi Automotive, reported lower revenue and sharply lower net income for the third quarter last year, largely due to factors that hit other supplier results, especially an unexpected decline in sales in China. Shares of Delphi Technologies have lost more than 70 percent of their value in the past year, falling from more than $59 to around $17 late last week. The company expects more headwinds in 2019, including flat global production, falling demand for diesel passenger cars and high capital expenditures. Delphi, and other suppliers primarily focused on internal-combustion engine parts, faces changing tastes in the automotive market as automakers continue to seek engineering away from traditional engines, said Michael Robinet, executive director of Southfield-based IHS Markit’s automotive advisory group. “All the heavy lifting on engine and transmission development has al-

Need to know

JJHe replaces Liam Butterworth, who stepped down in October JJDauch is son of late American Axle founder Dick Dauch JJNew CEO will earn base salary of $1.1

million with target annual bonus in 2019 of nearly $1.4 million

“There’s not much capital or interest in developing a new engine family as companies shift to hybrids.” Michael Robinet

ready occurred,” Robinet said. “There’s not much capital or interest in developing a new engine family as companies shift to hybrids. Companies like Delphi, and a litany of others, will have to flourish by focusing on injection and software, otherwise they are left competing to steal production from competitors to survive, to build a better mousetrap.” Dauch told investors last week he would unveil a strategy to turn around the company in the next 100 days and is expected to attempt to shorten its production to payment cycle and improve operational performance at the supplier’s plants, Wells Fargo Securities LLC said in an analyst note on Jan. 10. “We think it is a very good hire,” the Well Fargo analyst note said. Before its spinoff in December 2017, Delphi Technologies operated as the powertrain systems segment of Delphi Automotive. Delphi Automotive spun off its electronics operation as a separate company, Aptiv, based in Dublin. Delphi Technologies ranks No. 58 on Automotive News’ list of the top 100 global parts suppliers, with parts sales to automakers worldwide of $3.9 billion in 2017, based on what its sales would have been as a separate company. Dustin Walsh: (313) 446-6042 Twitter: @dustinpwalsh

CHAD LIVENGOOD/CRAIN’S DETROIT BUSINESS

Adaptive Energy LLC Chairman Ranvir Gujral, Chief Technology Officer Tom Westrich and CEO Mike Edison stand on the production floor of the Ann Arbor fuel cell manufacturer.

ADAPTIVE FROM PAGE 3

“You can swap out your backyard barbecue tank — and our fuel cells will just keep running,” Gujral said. “That’s a lot easier after a disaster or power outage.” As unmanned aerial vehicles become more widely used by the military and there are more efforts nationally to harden infrastructure to guard against disastrous weather events amid climate change, the company’s leaders see potential for more use of fuel cells. “As there’s more epic disasters, our technology is going to be more

MERGE FROM PAGE 3

The merger follows several years of operating losses at Lighthouse in the face of what Chairman John Townsend said has been stiff competition for operating funds. In fiscal 2018, Lighthouse reported an operating loss of just under $248,000, with total revenue of $3.6 million, according to its audited financials. That followed an operating loss of $293,618 and $3.7 million the year before. Its net assets totaled $6.8 million at the end of last year, down from more than $7 million in 2017. “It’s a difficult market out there; the fundraising market has been very competitive,” said Townsend, retired manager of information technology services for DTE Energy Co. “(But) we’re not doing this as a survival strategy. We believe we can complement each other ... (and) become a more powerful force in the market.”

critical,” Gujral said. Adaptive Energy’s fuel cells for Lockheed Martin’s fuel cells can fly the unmanned aerial vehicles for two-to-three times longer than a battery-powered drone. Lockheed Martin has been actively using the fuel cells since 2012, said Tom Westrich, the company’s chief technology officer. “That drone and our fuel cell is currently in Afghanistan and combat zones being used and have seen thousands of hours of actual military flight time,” Gujral said. Gujral is chairman of Adaptive Energy, which has 20 employees at its 47,000-square-foot manufacturing facility on South State Street in

Pittsfield Township. He hired Mike Edison from DTE Energy Co. to be the company’s CEO. Edison spent 10 years at DTE in the utility company’s power industrials group working on finance and small-scale industrial energy development. Gujral and Edison met at UM as undergraduates nearly 20 years ago. “To find this opportunity and keep this company in Ann Arbor was really exciting and really fortunate,” Gujral said. For Gujral, Sleeping Bear Capital’s purchase of Adaptive Energy LLC is a homecoming of sorts. He’s been attending the Crain’s Detroit Homecoming event in re-

cent years, looking for an investment opportunity in the region where he grew up and got his education before forging a career in Silicon Valley. “This is a business that hasn’t had an enterprise sales team, there’s been no large go-to-market effort,” Gujral said. “We have great people here who have been doing a really great job, all things considered. But in many ways, this company has been under-resourced. And I think there’s a much larger market opportunity in front of us that we’re just growing into.”

While Lighthouse doesn’t have emergency shelters, SOS coordinates a rotating shelter program and stronger supportive housing services. Lighthouse has a much more robust food pantry than SOS and offers other emergency assistance and a transitional housing program for single mothers and their children, Townsend and Hertz said. Founded in 1972, Lighthouse assists more than 10,000 families annually with emergency food, utility assistance, transitional and supportive housing, foreclosure prevention and other services. It also provides programs to assist families to become economically self-sufficient so that they will not cycle back into crisis. SOS was established in 1985 by seven religious congregations in Oakland County. It coordinates a local shelter with 67 local congregations, providing shelter and food to those in need. In 2017, it launched an affordable housing subsidiary and its first development in the county.

Including results from its Spero Housing Group subsidiary, SOS reported over $4 million in total revenue last year — up from $3.9 million in 2017 — and a $177,280 operating excess. Its net assets totaled $1.36 million at year’s end, according to its audited financials. Leaders from both Lighthouse and SOS approached the Detroit-based McGregor Fund, among other funders, for feedback and advice as they considered the merger, said McGregor President Kate Levin Markel. There’s a lot of compatibility across the lines programmatically, and the leadership transition underway at Lighthouse created the opportunity and timing to look at a merger, she said. While Lighthouse and SOS still need to do full due diligence on programmatic, financial and cultural compatibility, their merger has potential, she said. Together, the nonprofits will be able to offer those in need more ser-

vices from single sites. And that should be the primary consideration when mergers are considered, Levin Markel said. There is an impression there are administrative efficiencies to be gained by merging organizations that do similar things, she said. “But our human service agencies run on such thin margins that often the answer turns out to be… that there really isn’t more efficiency to squeeze out,” she said. The greater consideration in looking at the merger of human service organizations is to understand if the sum of the two is greater than each on its own, Levin Markel said. “What are the opportunities a combined organization can pursue on behalf of the community that you can’t do separately?” she said. “To me, that should be the driving question.”

Chad Livengood: (313) 446-1654 Twitter: @ChadLivengood

Sherri Welch: 313 (446-1694) Twitter: @SherriWelch

C R A I N ’ S D E T R O I T B U S I N E S S // J A N U A R Y 1 4 , 2 0 1 9

A timeline of redevelopment By Kirk Pinho kpinho@crain.com

Transfiguration School

A list of the major development/ redevelopment requests for proposals the city has issued under Mayor Mike Duggan since he took office Jan. 1, 2014.

JJThe city issued an RFP for the redevelopment of the 21,500-square-foot Transfiguration School in the Banglatown neighborhood into 15-25 residential units. In September 2017, the city awarded a development agreement to Ethos Development Partners and Building Blocks Nonprofit Housing Corp. for a $6.4 million redevelopment with 23 affordable apartments that was expected to begin in the fall 2018. Construction has not yet started.

March 2014: A redevelopment of the former Tiger Stadium site at Michigan and Trumbull through an RFP by the Detroit Economic Growth Corp. In December 2014, the DEGC named an affiliate of Bloomfield Hills-based Larson Realty Group LLC as the lead developer of the project, which has a new headquarters for the Detroit Police Athletic League (PAL) and the Build Institute; 111 apartment units and 26,000 square feet of groundfloor commercial space. It is expected to be complete this year. August 2014: A redevelopment of the Brewster Wheeler Recreation Center at the I-75 service drive and Wilkins Street. In April 2015, the city announced that it had selected a pair of development teams to redevelop the property. KC Crain, publisher of Crain’s Detroit Business; restaurateur Curt Catallo; Livonia-based Schostak Bros. & Co. and John Rhea, a Detroit native who is managing partner at RHEAL Capital Management LLC planned a $50 million project that would have brought a new restaurant, meeting space, 100 to 150 residential units and an acre of green space to the 6.2 acre property. Commercial space was also planned. A disagreement over parking economics split the Brewster Wheeler project by July 2016. That caused Rhea and Schostak to pursue a residential development on a different chunk of city-owned land; Crain and Catallo pursued the Brewster Wheeler redevelopment. Crain declined comment last week. Rhea said the first 150-unit phase of the 300-plus-unit Brush Park South project is slated to begin in the spring after construction cost increases driven by a tight labor market forced the developers to redesign it. Roger Basmajian, one of the developers, said construction is slated to begin by summer. August 2014: An RFP for the development of two parcels totaling 8.4 acres of Brush Park neighborhood land. After fielding proposals from nine development groups, the city ultimately selected in May 2015 a joint-venture headed up by Dan Gilbert’s Bedrock LLC to build what is now 410 units of for-sale and for-rent residences plus 32,000 square feet of retail space. Construction on the project began in December 2016 and has continued since. Bedrock says leasing for senior affordable housing begins in February and apartment buildings at 440 Alfred Street and 2660 John R are slated to be complete by the end of the year. Housing at 2665 Brush Street will be complete next year, projects at 200 and 320 Edmund Place will break ground by the summer and three renovated historic mansions are slated for occupancy next month. December 2014: The R. Thornton Brodhead Naval Armory at 7600 E. Jefferson Ave. was targeted for redevelopment with an RFP but the city fielded no viable redevelopment plans. The 107,000-square-foot property has been vacant since 2003. “The city and DEGC are still evaluating

how best to position this property for redevelopment given its unique attributes and substantive challenges: historic designation, prime location and current condition,” Arthur Jemison, chief of services and infrastructure for the city, said. September 2015: A DEGC request for developers to develop seven properties (five buildings and two surface parking lots) in the enclave today referred to as the Paradise Valley Cultural and Entertainment District, formerly Harmonie Park. A series of developers were awarded property purchase agreements by the Downtown Development Authority in June 2016 for a series of projects totaling $52.4 million that would bring 60 loft apartments, a 25- to 30room boutique hotel, 12,620 square feet of retail space, 33,800 square feet of office space, among other uses. Only one small project has been completed. The hotel component has been scrapped in favor of a different programming structure. March 2016: A former Detroit Water and Sewerage Department building in Eastern Market was offered for redevelopment to developers. In July 2017 it was revealed that George Jackson’s Ventra LLC real estate company was working on a $19 million redevelopment of the building at 3500 Riopelle St. In the 18 months since, Jackson has teamed up with Ottawa-based developer Halcor Group on the project, which is now $20 million to $22 million that would have a mix of food-centered space like restaurants, accelerators and other uses, as well as office space. There has been no construction so far. July 2016: An RFP for a pair of properties — 1326 and 1332 Broadway St. — was issued by the DEGC. Six months later in December 2016, the DDA board approved selling them to developer Roger Basmajian, who previously purchased the building at 1322 Broadway. He plans 30 or so apartments plus 4,500 square feet of office space and 7,700 square feet of retail space. There has been no construction on the project to date. Basmajian said construction is slated to begin by summer. July 2016: The city issued an RFP for the Fitzgerald neighborhood in northwest Detroit that included vacant homes and lots for redevelopment. In April 2017, the city selected

a joint-venture between a pair of Detroit developers, The Platform LLC and Century Partners LLC, who are working on a $4 million project that involves the rehab of 115 vacant homes as for-sale and for-rent affordable and market-rate housing, a 2-acre public park and landscaping 192 vacant lots. The project, however, has been slow to materialize. The Detroit Free Press reported it was a year behind schedule in July. The cost is now $12 million to $15 million. An email was sent to The Platform seeking comment. September 2016: The city issued an RFP for the 7-acre vacant former Wigle Recreation Center. In April 2017, a joint-venture between Detroit-based developer Roderick Hardamon’s Urge Development Group LLC and New York City-based developer Mario Procida’s Procida Cos. LLC was awarded the chance to redevelop the site with a $77 million project currently called Midtown West. It is slated to bring 335 apartments and condos to the market, plus 8,000 square feet of retail space and an acre of open public space. Construction has yet to begin. An email was sent to Procida seeking comment. September 2016: An RFP was issued for about 0.75 acres of vacant property in the area known as the Sugar Hill Arts District on Garfield Street off John R. The city announced in June 2017 that a joint venture between Detroit-based Develop Detroit LLC and Rodger Brown of the Preservation of Affordable Housing Inc. plan 84 new apartments on the property, plus a 300-space parking deck and 7,000 square feet of retail space, in a $32 million project. Construction has not began; a groundbreaking was expected in September 2018. An email was sent to Develop Detroit founder Sonya Mays for comment. March 2017: The city issued an RFP to redevelop the Stone Soap Building on the east Detroit riverfront and awarded the project in October 2017 to Detroit-based Banyan Investments. At the time, the $27 million project was slated to bring 63 condominiums and apartments, a “European-style” market with food retailers and seating and a new home for the Shakespeare in Detroit nonprofit. However Aamir Farooqi, head of Banyan Investments, said the project has grown in cost to north of $30 million although there will only be 48 condos instead of 63. “We have been

working diligently with a large team of designers, architects and engineers to refine the Stone Soap offering,” Farooqi said. “While this has extended the timeline, we feel that the resultant project is now superior in its design and its programming.” The building is actually three structures at Franklin and Riopelle streets ranging from two to four stories built between 1907 and 1929. Construction was supposed to start in the spring 2018, but is now slated for this spring, Farooqi said. March 2017: The city issued an RFP for the redevelopment of the 21,500-square-foot Transfiguration School in the Banglatown neighborhood into 15-25 residential units. In September 2017, the city awarded a development agreement to Ethos Development Partners and Building Blocks Nonprofit Housing Corp. for a $6.4 million redevelopment with 23 affordable apartments that was expected to begin in the fall 2018. Construction has not yet started. The project has decreased slightly in size to 19 one-bedroom apartments, said Joe Heaphy, president of Ethos Development. “There have been challenges with developing program for the site as it is landlocked,” he said in an email. “The city has been actively working with us to address these issues and the project continues to be a priority for them.” Financing is expected to close later this year, he said, adding that construction should begin in spring 2020. October 2017: The city issued an RFP for the Holcomb Elementary School at 18100 Bentler Street in the Old Redford neighborhood. In July, a $6 million renovation was announced that is expected to bring a 32-unit senior living center to the property, which has Southfield-based Anchor Team and Brighton-based DDC Group as developers. Groundbreaking is expected no later than this summer. December 2017: The city issued an RFP for the 17-story Lee Plaza Tower on West Grand Boulevard at Lawton Street. The city received three proposals to redevelop the historic tower in March 2018 but ultimately decided in July that none were viable reuses of the 1929 building. New proposals for the building, which has undergone an approximately $400,000, twophase stabilization project, are being accepted on a rolling basis. SEE PROPOSALS, PAGE 22

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C R A I N ’ S D E T R O I T B U S I N E S S // J A N U A R Y 1 4 , 2 0 1 9

CFO of College Board picked to head DHHS By Chad Livengood

Gov. Gretchen Whitmer is turning to a veteran of the Obama administration who helped guide federal budget planning to run the Michigan Department of Health and Human Services, a massive government agency that has been operating in a state of turmoil for the past three years. Robert Gordon, senior vice president of finance and global strategy at The College Board, is joining the Whitmer administration on Monday as the new director of DHHS. He was previously a high-level official in two federal agencies in President Barack Obama's administration. Whitmer is tasking Gordon with running a 14,000-employee state department with a $25 billion budget that she has described as "enormous" and had mulled splitting up. "He brings a unique set of skills and experiences that will lead the Department of Health and Human Services to drive real results that help hardworking families," Whitmer said in a statement. DHHS oversees social welfare programs that directly touch one-quarter of the state's 10 million residents, works closely with managed care companies that administer Medicaid health insurance programs and has broad responsibilities over protect-

PROJECTS FROM PAGE 1

“I’m trying to make sure that people are working in good faith and that they are having progress,” said Arthur Jemison, the city’s chief of services and infrastructure. “If they are working in good faith and making progress, we are trying to figure out how to help them get over the finish line.” He declined to specify the projects that are facing the most pressure, although The Woodward @ Midtown and others have taken years to start. “We are focused on getting those projects that may have slowed down for one reason or another, and saying, ‘Is there an action we can take in the next 3-6 months to get something started?’” Jemison said. “It’s more about getting the stuff that can happen to happen than trying to go in and punish people.” The city’s timeline is key. In general terms, an economic slowdown is anticipated in the next two or three years, and getting the stalled projects completed before then is high on the city’s priority list. If construction starts by the second or third quarter, the average development project of about 18 months could be completed in advance of a downturn. “We are always reviewing projects

PROPOSALS FROM PAGE 21

December 2017: The city issued an RFP for the Woodlands Apartments north of the Boston Edison neighborhood seeking to turn it into multifamily housing in the 13,000-squarefoot property. It received one bid from Marlton, N.J.-based The Michaels Organization, one of the largest affordable housing developers and managers in the country. However, The Michael Organization withdrew its offer because the building’s

acting assistant secretary in the U.S. Department of Education and worked in President Barack Obama's Office of Management and Budget for more than four years. At OMB, Gordon worked with Awenate Cobbina, now the vice president of business affairs and associate counsel for the Detroit Pistons and Palace Sports & Entertainment. Cobbina served as deputy director of Whitmer's transition team and helped recruit Gordon to join the administration. In the Obama administration, there were "show horses and workhorses," Cobbina said. "Robert was firmly in the workhorse category," Cobbina told Crain's. "He developed a vast knowledge of the federal budget in a wide variety of areas." Gordon gained a reputation for implementing evidence-based programs in the federal government and demanding results, Cobbina said. "There's not that many people who have that level of familiarity with more than one or two federal programs," Cobbina said. As the new DHHS director, Gordon also inherits a Medicaid work-requirement rule left in place by former Republican Gov. Rick Snyder and the GOP-controlled Legislature that is supposed to take effect in 2020.

ing public health. It's the area of public health where DHHS has been under intense scrutiny for the past three years, for the state agency's role in the Flint water crisis. The department's former director, Nick Lyon, and former chief medical executive, Eden Wells, are fighting involuntary manslaughter charges in Genesee County Circuit Court that stem from a deadly outbreak of Legionniares' disease tied to Flint's di-

sastrous 2014 switch from Detroit's water system. Wells remains employed at DHHS after securing a newly-created civil service position as a advisory physician. In an interview with Crain's, Gordon called the government failures surrounding the Flint water crisis "an extraordinary injustice." "I will need to take time to learn more about precisely what happened and what needs to happen moving forward," Gordon said.

Gordon, 47, said he would run the department with four guiding principles: Act on scientific data; put the interest of the public "ahead of my personal interests or the interests of the agency"; treat residents of all racial or socioeconomic backgrounds "with dignity, honesty and respect"; and spend taxpayer dollars "like they were my own." At the heart of the criminal prosecutions against Lyon, Wells and other state employees in DHHS and the Department of Environmental Quality has been scrutiny of how both departments initially dismissed the outside scientific research of lead levels in Flint's water and in the bloodstreams of the city's children. The criminal cases against Lyon and Wells hinge on their alleged failure to alert the public about a bacterial outbreak that went on for two consecutive summers. Gordon joins Whitmer's team after four years as chief financial officer at The College Board, a $1 billion-a-year not-for-profit organization that administers the SAT college-entrance exam to 10 million test-takers annually. “I have significant experience managing large, complex organizations that are in the business of delivering services effectively,” Gordon told Crain's. Prior to that, he did a stint as an

to address issues that may be delaying them from moving forward,” Jemison said. “What we are doing now involves a focused approach on older projects to review their status, why they have stalled and how to keep to our joint goal of attracting investment and seeing development happen.” In the five years since Mayor Mike Duggan was sworn in, there have been no fewer than 19 major development RFPs (see related story, Page 21), ranging from large chunks of Brush Park land to buildings and vacant lots in neighborhoods like Banglatown and Fitzgerald, Old Redford and Islandview/Greater Villages. Of those, 14 have been awarded, with projects totaling about $540 million proposed bringing more than 2,000 residential units, at least 40,000 square feet of office space and 100,000 square feet of retail space, a Crain’s tally found. Yet just three totaling $156 million and about 630 residential units have started and are in varying stages of completion: Dan Gilbert and others’ City Modern development in Brush Park, The Corner development by Eric Larson’s Larson Realty Group LLC and the Fitzgerald neighborhood project. Sarah Pavelko, director of real estate and financial services for the De-

troit Economic Growth Corp., which is also participating in the review, said last week that development delays can be caused by things ranging from pending litigation to property title issues, unexpected environmental snags and zoning issues, and financing gaps. “We are here to find solutions to roadblocks,” she said. “In public land sales and RFP development projects, the city is going through assessing those projects, determining what the roadblocks are and how to first address those, whatever is holding it up.” Jemison said others taking part in the review are the Building Authority, Housing and Revitalization Department, Planning and Development Department and the Detroit Land Bank Authority. Queen Lillian Development’s The Woodward @ Midtown project, the former medical office building which most recently was expected to have 134 apartments, 15,000 square feet of retail space and a 150-space parking deck, was announced in April 2013. Chris Jackson, one of the developers behind The Woodward @ Midtown, declined to comment in specifics on the project although he did say that the city has been working with him on the development consistently for years and there hasn’t been a heightened level of interaction recently under the city’s re-

view. The Platform LLC, a Detroit-based developer also working on the project, declined comment. In addition to the Queen Lillian project, the redevelopment of the Brewster Wheeler Recreation Center near Brush Park by KC Crain, publisher of Crain’s Detroit Business, and restaurateur Curt Catallo, which plans a new restaurant and meeting space, was announced as a larger $50 million project in 2015 although construction has not yet begun. In 2016, a multifamily component by another developer was moved south to a different chunk of city-owned land. Crain declined comment. Others that are behind their originally announced schedule are the $27 million Stone Soap Building redevelopment on the east Detroit riverfront by Detroit-based Banyan Investments, which is a year behind. Aamir Farooqi, the project’s main developer, said the redevelopment budget has increased to north of $30 million although the number of planned condominiums has shrunk from 63 to 48. “In this process, the City (Planning & Development, the Mayor’s office) and the DEGC have been outstanding partners and we are confident that this collaboration will be the key to this project's success,” he said in an email. A groundbreaking is now

expected in the spring. The majority of the $52.4 million redevelopment of several properties in the Paradise Valley Cultural and Entertainment District, formerly Harmonie Park, by multiple developers, has not yet started even though it was awarded more than two and a half years ago. One small project has been completed, though others have been delayed by litigation, logistical construction issues and changes in project programming, according to a DEGC spokeswoman. For projects that have not yet started, the city review could lead to things like expedited rezoning requests or design approvals, for example, and Jemison said the city would consider “small increases” to already-awarded public financing if that would ensure a project gets completed (Considering it “doesn’t mean the city is going to do it,” he said). The review’s results will become more tangible if projects start popping up on board and commission agendas in the coming months, Jemison said. “That’s how you'll see the results of the review, boards and commissions, getting them feeling like every agenda is packed.”

condition was determined to be “more significant than first thought,” Jemison said. “It appears this building may be beyond being salvaged.”

April 2018: The city put 0.8 acres of Brush Park land up for redevelopment seeking at least 80 units of housing, with 20 percent of them being affordable. In July 2018, it awarded the land to Detroit-based City Growth Partners LLC, former DEGC executive Moddie Turay’s new development company which is planning a pair of projects totaling $56 million slated to bring 186 units to the market. Construction on the first project, Brush 8, is expected to begin in March with a January 2020 completion; construction on the larger 176-unit

Brush House is slated to start in September and be complete by September 2021.

... we wanted to make sure we gave each the consideration it deserved.” An announcement is expected “in the next couple months.”

clivengood@crain.com

“I don’t think taking away health insurance from people that are struggling is productive.” — Robert Gordon, new director of Michigan Department of Health and Human Services

November 2017: The city announced that it was putting 1.1 acres of vacant Brush Park land up for redevelopment. In July 2018, it awarded the land to Detroit-based American Community Developers, which plans a $45 million development with 180 residential units (half of which will be affordable) and 8,500 square feet of retail space. Construction is slated to begin later this year.

June 2018: The city issued an RFP for developers for a residential project at Bagley Avenue and 16th Street near Michigan Central Station, which is the anchor of Ford Motor Co.’s planned autonomous and electric vehicle campus in Corktown. Construction could start this year. A developer was expected to be named by the end of 2018. Jemison said seven developers responded, however, and that “because of the strong responses

Kirk Pinho: (313) 446-0412 Twitter: @kirkpinhoCDB

November 2018: The city is looking for developers for a pair of RFPs that call for the rehab of eight duplexes and new construction on more than an acre of land in around the city’s Islandview/Greater Villages area on the east side. Developers are expected to be picked by Feb. 1. Kirk Pinho: (313) 446-0412 Twitter: @kirkpinhoCDB

C R A I N ’ S D E T R O I T B U S I N E S S // J A N U A R Y 1 4 , 2 0 1 9

THE WEEK ON THE WEB

RUMBLINGS

Gilbert snags vacant warehouse near Michigan Central Station

Ex-Sen. Hildenbrand joins lobbying firm

JANUARY 4-10 | For more, visit crainsdetroit.com

an Gilbert has added a large vacant warehouse across the train tracks from Ford Motor Co.’s Michigan Central Station to his Detroit real estate portfolio. The billionaire mortgage and real estate mogul’s Bedrock LLC confirmed the December purchase of the property at 1800 18th St. that had been owned by Robert Elmes, the founder of Galapagos Art Space. The Detroit News first reported the purchase. Plans for the 128,000-square-foot building built in 1924 have not been determined, the company said in a statement, which said it believes the property has “great potential, especially given its proximity” to the depot that is set to anchor the automaker’s planned $740 million Corktown campus. Bedrock did not disclose the purchase price, although the previous owner raised eyebrows exactly three years ago when it listed it for $6.25 million, more than 12 times the $500,000 that was paid for it in 2013. The listing price was $48.83 per square foot at that point; Ford paid $150 per square foot ($90 million) for the train station. “We look forward to determining our development vision for the property,” the Tuesday evening company statement said. Jim Ketai, now the chairman of Bedrock, which has a sweeping and ever-expanding portfolio of greater-downtown Detroit real estate holdings, told Crain’s in May that Ford’s acquisition of the 1914 train station and subsequent investment didn't change Gilbert’s overall development and acquisition strategy. “I would only say for our needs (would Bedrock expand farther westward). If we have warehouse needs or something like that, we would absolutely look in Corktown,” Ketai said at the time. Elmes bought nine buildings totaling 600,000 square feet over the course of about a year between 2013 and 2014 as an effort to move Galapagos Art Space to Detroit and Highland Park. They were planned for uses such as art shows, theater, dance, film, dance and science productions, not to mention a 10,000-square-foot indoor lake in one of the buildings. Not much has happened since, minus last month’s sale. A text message seeking comment was sent to Elmes on Tuesday evening. This isn’t Gilbert’s first venture west of the downtown core. In January 2016, an affiliate bought nearly 180,000 square feet of space near Corktown at 1700 W. Fort St. and 1681-1749 W. Lafayette Blvd. from Detroit-based Display Group. City property records show the four properties sold to Corktown Lofts LLC for $5.2 million, or about $29 per square foot, south of the $5.95 million asking price. In November 2013, Gilbert bought a 38,000-square-foot property that was torn down to make way for what is now the 66,000-square-foot Quicken Loans Technology Center at 1401 Rosa Parks Boulevard at Porter Street.

COSTAR GROUP INC,

Galapagos Art Space bought this building in 2013 for $500,000 and then listed it for $6.25 million three years ago. It’s not known how much Dan Gilbert paid for it last month.

Detroit digits A numbers-focused look at last week’s headlines:

$1.44B

The record annual revenue reported for 2018 by Detroit’s three casinos

10.5

The percentage drop of metro Detroit commercial property sales in 2018

$4.1M

The price the Ilitch family paid for the former Cheli's building in downtown Detroit

BUSINESS NEWS J Chris Chelios has sold the building that was home to his once-popular downtown sports bar to the family that employed the former Red Wings defenseman and front office adviser for two decades. The property at 47 E. Adams Ave. sold to the Ilitches for $4.1 million last month. The building, which sits across from Comerica Park and down the street from Little Caesars Arena, was purchased by 47 E. Adams Ave. LLC, an entity registered to John Kotlar, according to city property records. Kotlar is vice president of tax affairs for Ilitch Holdings Inc. J Co. 512, the Royal Oak sportswear store opened by former University of Michigan quarterback John Wangler, announced it will close Feb. 2. The 5-year-old shop that sells mostly Adidas clothing and shoes has seen a sales increase year over year, but not the growth it needed to continue, said Wangler's wife, Lorraine. They opened Co. 512 just north of 11 Mile Road on Main Street in April 2014. J Detroit's casinos reached record heights last year, posting $1.44 billion in annual revenue — $20 million more than the former record in 2011. Overall, annual revenue at the casinos rose 3.1 percent to 2018, 1.4 percent higher than its previous re-

cord of $1.42 billion, the Michigan Gaming Control Board announced last week. J The microdistillery Our/Detroit in Detroit’s Mexicantown has closed its doors after four years in business, according to media reports. The vodka distillery and its 40-person tasting room at 2545 Bagley St. is part of a global network of vodka distilleries called Our/Vodka owned by French distributer Pernod Ricard. J McLaren Oakland Hospital in Pontiac is outsourcing its acute care and trauma surgical services to respond to patients in a more timely fashion. The hospital is contracting with Sacramento, Calif.-based Surgical Affiliates, which will provide acute care and trauma surgeons on duty and on site 24/7. J Southfield-based Atwell LLC has acquired an Austin, Texas-based civil engineering company, adding 15 employees to its payroll and expanding its presence around the country. The purchase of Texas Engineering Solutions strengthens Atwell’s foothold in Texas, where it operates a handful of offices already, and broadens its expertise in land development consulting and civil engineering — specialties of the acquired firm.

OTHER NEWS J A sinkhole that damaged homes and disrupted businesses in Macomb County and cost $75 million to fix was caused by human error that allowed the quick release of waste and water into a sewer line, according to top county official Candice Miller. An engineering assessment determined the surge fractured the pipe in Fraser which drew in sand and created a void in the surrounding soil, Miller said, as reported by the Associated Press. J Henry Ford Health System is creating an art-focused community center out of a vacant building near its Detroit hospital. A $200,000 youth and family grant from the West Bloomfield-based Vera and Joseph Dresner Foundation is funding the project, the health system announced last week in a news release.

he immediate past chairman of the Michigan Senate Appropriations Committee is joining the prominent multi-client Lansing lobbying firm Kelley Cawthorne as a lobbyist specializing in advocating for state appropriations. Former Sen. Dave Hildenbrand, who was term-limited from office at the end of 2018, said he did not begin negotiating his post-Senate emHildenbrand ployment until after leaving office. Just last month, Hildenbrand shepherded through the Legislature a $1.3 billion midyear spending bill that attracted a lot of interest from the Capitol lobbying corps, capping four years as chairman of a powerful committee that controls Michigan’s $57 billion state budget. “I had informal conversations, but I told everybody I could do nothing serious until after the New Year,” Hildenbrand told Crain’s. Kelley Cawthorne, a lobbying firm

founded by former Attorney General Frank Kelley and businessman Dennis Cawthorne, counts among its clients Deloitte LLP, DTE Energy Co., Ford Motor Co., McLaren’s Karmanos Cancer Institute, Walmart and Wayne State University. “No one knows the state budget process better than Dave Hildenbrand,” Rob Elhenicky, one of four principals in the 10-lobbyist firm. “... Having his insight and work ethic on our team will be a tremendous asset for our clients.' Hildenbrand, a Republican from Lowell, spent 14 years in the Legislature, hitting the constitutional limit of six years in the House and eight years in the Senate. Hildenbrand, 45, has spent his entire 22-year career working at the Capitol in some capacity. After mulling whether to get into an agriculture production business back home in Kent County, Hildenbrand opted to keep working in the trade he knows best. “I kept coming back to my experience and relationships are in this system of government and the Legislature — and I enjoy that work,” Hildenbrand said.

LARRY PEPLIN FOR CRAIN’S

Ford Motor Co. has planned a 10-day winter festival in front of Michigan Central Station.

Ford to host winter festival at train station during NAIAS F ord Motor Co. has planned a 10day winter festival in front of Michigan Central Station to coincide with the Detroit auto show. It’s the last North American International Auto Show to take place in the winter (it’s moving to June in 2020) and the first winter with Ford presiding over the mammoth Corktown train depot. The Dearborn-based automaker will project regular 3-D light shows onto the building Jan. 18-27, paired with live music, food trucks, drink stations, ice carving and kids activities, according to a news release. The Detroit Historical Society is also curating an exhibition of artifacts from the long-vacant depot, which saw its last train leave in 1988 after opening in late 1913. The festival outside Michigan Central Station along Michigan Avenue kicks off at 5:30 p.m. Jan. 18, the same night as the auto show Charity Pre-

view. It will run 5:30-10 p.m. on Fridays, Saturdays and Sunday, Jan. 20. From Monday to Thursday, and on Sunday, Jan. 27, it will end an hour earlier, at 9 p.m. In its announcement, Ford calls the planned light show a combination of “advanced 3D projection-mapping technology and old-fashioned storytelling.” It will project onto the 18-story station three times an hour. Find more event information at MCSFest.com. The 2019 public show runs Jan. 1927. Winter has also posed a challenge for Ford, which is working to weatherize and dry out the 105-year-old train station before it starts major work for a $350 million renovation. Michigan Central Station is the centerpiece of Ford’s planned 1.2 million-square-foot, mobility-focused campus in the Detroit neighborhood just west of downtown.

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