Crain's Detroit Business, March 9, 2020 by Crain's Detroit Business

THE CONVERSATION

CORONAVIRUS IN MICHIGAN

McKinley Inc. CEO Albert Berriz talks workforce housing, Ann Arbor and Cuba. PAGE 23

 Which companies are at risk, and which stand to gain? PAGE 3  How nursing homes are preparing. PAGE 3

CRAINSDETROIT.COM I MARCH 9, 2020

CRAIN’S INVESTIGATION

Real estate executive’s lottery scheme collapses when his luck runs out

REVERSAL OF FORTUNE

More to the story

BY KIRK PINHO

Viktor Gjonaj was allegedly spending as much money each week on the Michigan Lottery as the bureau that oversees that state enterprise fund allocates each year to gambling addiction treatment and education: $1 million. And for the 42-year-old former commercial real estate executive, at times that gambling paid off tremendously, with winnings on the Daily 4 game totaling at least $21.5 million in just three winning days across a span of about seven weeks in early 2018 and no less than $28 million overall, according to sworn testimony taken in Oakland County Circuit Court in September and other records. A winning Daily 4 ticket can pay up to $5,000; the Daily 3, up to $500. But Gjonaj could manage his problem — until he couldn’t anymore. The winning streak that was allegedly financed with millions of dollars from an alleged Ponzi scheme wouldn’t last, and within about two years of his first known big payday, Gjonaj went from being a prominent player in the commercial real estate industry to a pariah. For Gjonaj, who hasn’t been heard from since the summer even as at least 11 court cases involving him have been filed, his habit culminated with him apparently drunk and upset in an Ann Arbor hotel, according to a Ann Arbor Police Department report. When law enforcement found him on a warmer-than-average August evening near a Kensington Hotel elevator, he was wearing nothing but boxer shorts outside of his third-floor room.

 A timeline of Gjonaj’s massive winnings, then trouble. Page 18  How we reported this story. Page 18  Ticket sales boosted Macomb County stores. Page 20

 Lottery took unprecedented step to limit sales. Page 20  Online extra: Q&A with former lawyer Michael Burke, now head of the Michigan Association on Problem Gambling, whose addiction led him to state prison. Read it on CrainsDetroit.com ILLUSTRATION BY MICHAEL HOGUE FOR CRAIN’S DETROIT BUSINESS

See GJONAJ on Page 18

FOCUS | CRAIN’S MICHIGAN BUSINESS: THE THUMB  Trial lawyer quit his day job for kayaking. PAGE 10

NEWSPAPER

RETAIL

How Art Van’s house burned down BY DUSTIN WALSH

Art Van began its final sale Friday. The Warren-based retailer’s sudden announcement that it would wind down operations comes only three years after its late founder, Art Van Elslander, sold the company to a Boston-based private equity firm, Thomas H. Lee Partners LP, in an estimated $550 million deal. How did a seemingly healthy,

valuable and beloved company go so wrong so fast? After its 2017 acquisition, Thomas H. Lee set an aggressive strategy to open 200 more stores and double revenue to $2 billion by 2020. But saddled with roughly $400 million in debt and no financial cushion to respond to the disruption of changing furniture habits left Art Van’s business model sitting on a tinderbox. Management missteps

were all the fuel needed to burn the house down. The story of Art Van’s demise is full of finger-pointing and finger-wagging from consumers and experts blaming bad management from financial acquirers, and consumers’ growing penchant for online retail. They’re all true. See ART VAN on Page 17

NEED TO KNOW

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THE WEEK IN REVIEW, WITH AN EYE ON WHAT’S NEXT ` BLOOMBERG’S AD BLITZ COMES TO QUIET END THE NEWS: Mike Bloomberg bet big on the power of broadcast television advertising to propel him to the Democratic presidential nomination — and the billionaire businessman’s strategy did not work. Before dropping out last Wednesday, Bloomberg’s campaign had shattered presidential primary spending records in Michigan by pouring nearly $12 million into advertising on broadcast television stations, cable networks and radio stations, according to Advertising Analytics tracked by the Michigan Campaign Finance Network. WHY IT MATTERS: Bloomberg’s withdrawal, along with that of Elizabeth Warren last week, leaves Tuesday’s Democratic race in Michigan down to former Vice President Joe Biden and U.S. Sen. Bernie Sanders.

` SPORTS BETTING TO GO LIVE WEDNESDAY THE NEWS: Legal sports betting is expected to go live in Michigan on Wednesday. Detroit’s three casinos will be allowed to offer sports gambling starting at 1 p.m. that day, the Michigan Gaming Control Board said. The board is expected to issue final approval of the activity at its regular meeting Tuesday.

WHY IT MATTERS: Michigan legislators passed a bill legalizing sports betting in December and the state had targeted the beginning of the NCAA March Madness basketball tournament as a deadline to implement the law. That tournament begins with the First Four play-in games on March 17-18, with the main 64-team field starting March 19.

` FORMER UAW PRESIDENT JONES CHARGED THE NEWS: Federal prosecutors Thursday charged Gary Jones with stealing more than $1 million from the UAW membership he pledged to serve as president, an unprecedented abuseof-power allegation for a union that has fought for workers’ rights throughout its 84-year history. WHY IT MATTERS: Jones becomes the 14th person charged in connection with the yearslong corruption probe that has uncovered a wide-ranging conspiracy to steal union funds and spend them on expensive cham-

pagne, cigars, golf clubs and other luxuries. The scandal has snared two retired vice presidents in addition to a onetime top negotiator at Fiat Chrysler Automobiles.

` TRANSIT PUSH STALLS IN LEGISLATURE THE NEWS: Another legislative attempt to solve Southeast Michigan’s long-standing regional impasse over public transportation stalled out in the Michigan House on Tuesday, potentially scuttling efforts backed by business leaders to get a new tax proposal before metro Detroit voters this fall. House Speaker Lee Chatfield said Tuesday he’s tabling legislation that was designed to let Macomb County opt out of a Regional Transit Authority service and taxing jurisdiction. WHY IT MATTERS: The latest legislation, backed by a coalition of metro Detroit business leaders, was meant to break a political logjam to get a new transit millage on the November ballot. The tabling of the legislation would make a ballot proposal almost impossible.

` EMAGINE SEEKS TO BUY BANKRUPT THEATERS THE NEWS: Troy-based Emagine Entertainment Inc. is in negotiations to purchase Grand Rapids-based Goodrich Quality Theaters Inc., which filed for

Dimon, a Detroit champion, recovering from heart surgery ` JPMorgan Chase & Co. CEO Jamie Dimon underwent emergency heart surgery Thursday, temporarily handing control of the largest U.S. bank to his lieutenants, Bloomberg News reported. Dimon felt chest pain before work Thursday and went to a hospital, checking himself in, according to a person with direct knowledge of the matter. It may have saved his life: He was diagnosed with acute aortic dissection, a serious condition involving a tear in the large blood vessel branching off the heart. “It was caught early and the surgery was successful,” the bank Jamie said in a statement. “He is awake, Dimon alert and recovering well.” | GETTY IMAGES Dimon has been a big booster of Detroit, directing $200 million of strategic investment and philanthropy from JPMorgan Chase in economic development programs centered around entrepreneurship, neighborhood redevelopment and housing. JPMorgan Chase placed co-Presidents Daniel Pinto and Gordon Smith in charge during his recuperation.

Chapter 11 bankruptcy protection last week. “We plan to make every effort reasonably possible,” Emagine CEO Anthony LaVerde said Tuesday in an interview. “We would love to end up owning Goodrich. Obviously it’s quite a process through the bankruptcy court, but we will make every effort

possible to acquire the chain.” WHY IT MATTERS: An acquisition of all of Goodrich’s theaters would more than double Emagine’s locations in Michigan and add 16 more theaters in Florida, Indiana, Illinois and Missouri.

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Ross hires city official for Detroit office

CORONAVIRUS CONCERNS

Chief development officer first hire locally

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BY KIRK PINHO

MI nursing homes prepare for possible outbreak among elderly BY JAY GREENE

Nursing homes and assisted-living facilities in Michigan are doing what they can now to prepare for coronavirus. The question isn’t as much if coronavirus will strike; it is when the deadly new virus will begin to affect vulnerable seniors and others with weakened immune systems, officials said. While only eight people in Michigan have been tested for coronavirus, none has tested positive for the COVID-19 disease. But the disease appears to be particularly dangerous for seniors, based on deaths in China from the disease. And a nursing home in Washington state is the center of

the biggest outbreak in the U.S. so far. In the U.S. as of Friday, 215 people have tested positive in 20 states with 14 deaths, including 13 in Washington state and one in California. Worldwide, COVID-19 has been identified in nearly 100,000 people with 3,300 deaths. Over the past several weeks, nursing homes staff have been monitoring residents with more frequent temperature checks than usual, advising staff not to come into work if they have fevers, coughs or colds, stocking up on supplies such as masks, gowns, gloves and alcohol hand sanitizer gels and closely screening staff and visitors to find out if any have traveled to the more than 70 countries

with known cases of COVID-19. Many people in nursing homes are a special concern because many have pre-existing conditions, weakened or compromised immune systems and are in close living quarters, many in semi-private rooms. “We are anticipating (coronavirus) will be widespread,” said Melissa Samuel, CEO of the Health Care Association of Michigan, which represents several hundred of the state’s nursing homes and rehabilitation facilities. “The vulnerable population is seniors, so we are forward planning to put measures in place to prevent or mitigate the spread of this.”

Nursing-home advice In a statement last week, the Michigan Department of Health and Human Services issued a memo related to long-term care facilities, advising them to limit visitors, post additional signs at entrances about hand hygiene, respiratory hygiene and cough etiquette. Other advice includes: Ensure supplies are available (tissues, waste receptacles, alcohol-based hand sanitizer) Take steps to prevent known or suspected COVID-19 patients from exposing other patients Limit the movement of COVID-19 patients (e.g., have them remain in their room) Identify dedicated staff to care for COVID-19 patients Observe newly arriving patients/ residents for development of respiratory symptoms

See NURSING on Page 22

Which Michigan firms are vulnerable as virus spreads? BY DUSTIN WALSH

FORD MOTOR CO. — NEGATIVE

has seen market share plummet in China to just 2.2 percent in 2019 from 4.2 percent in 2017. While its exposure is reduced, the country currently hardest hit by the coronavirus outbreak still accounts for nearly 20 percent of Ford’s vehicle sales. CEO Jim Hackett said it’s still too early to tell of the virus’ economic impact, but in its Feb. 4 earnings call expressed optimism that the hit would still land the company within its current 2020 earnings before interest, taxes, depreciation and amortization guidance of $5.6 billion to $6.6 billion. Extensive spread of the virus throughout Europe and North America would be far costlier to Ford.

The Dearborn-based automaker

See VULNERABLE on Page 22

The impact of COVID-19, the disease caused by the current coronavirus, is rippling through the U.S. economy and Michigan businesses face different outcomes. Several, including many in the automotive sector, have already sent out warnings and projections indicating losses during at least the first quarter of 2020. Others have remained silent. However, nearly every company will be impacted. Here is a list of Michigan’s top 15 companies by revenue and how the coronavirus outbreak is going to impact their bottom lines.

Benton Harbor-based appliance maker Whirlpool is getting hit on two continents as appliance sales are hurting in China and Europe.

Stephen Ross has made his first hire in Detroit: Ryan Friedrichs, the city’s chief development officer, who will join the billionaire’s development company later this month. Friedrichs joins New York City-based Related Cos. as vice president, the development firm announced Wednesday. The company said the Friedrichs 43-year-old will lead efforts related to the planned $750 million redevelopment of the former Wayne County Consolidated Jail site downtown, along with its $300 million anchor, the Detroit Center for Innovation. “A Related presence in Detroit is the next milestone in realizing our vision for the Detroit Center for Innovation,” Ross, chairman of Related, said in a statement. “Ryan’s passion and commitment to advancing the city of Detroit and unwavering belief in DCI made him uniquely suited to grow our local team that will see the project to fruition.” Friedrichs told Crain’s that he has been attempting to get Ross to invest in Detroit for a number of years and that discussions about joining Related locally began over the holidays. Friedrichs will be tasked with building a roster of employees to work on that project and possibly

“THIS IS AN EXCITING MOVE FOR RYAN, STEPHEN ROSS AND OUR CITY. “ — Detroit Mayor Mike Duggan

others in the city. He said Related is searching for office space downtown. “This is an exciting move for Ryan, Stephen Ross and our city,” Detroit Mayor Mike Duggan said in a statement. “Ryan and his team have done extraordinary work to build a professional development and grants office that has brought in more than $1 billion in outside funding over the past five years to support many of our most important initiatives. We are sad to see Ryan go but I understand this is the opportunity of a lifetime to help lead a project like the Detroit Center for Innovation and the many other great things we expect Stephen Ross and Related to do in Detroit.” Friedrichs is the husband of Secretary of State Jocelyn Benson, who previously headed up Stephen Ross’ Ross Initiative in Sports for Equality (RISE). Last year, Friedrichs was entwined in what has come to be known as Duggan’s Make Your Date scandal. See ROSS on Page 21 MARCH 9, 2020 | CRAIN’S DETROIT BUSINESS | 3

REAL ESTATE INSIDER

This 1.5-acre property in Midtown has been targeted for a new mixed-use development for years. It is owned by Wayne State University. | KIRK PINHO/CRAIN’S DETROIT BUSINESS

WSU board scuttles — for now — land sale for large Midtown project

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It’s not just high construction costs holding up development in Detroit. One high-profile Midtown project has been wounded — but Kirk not fatally — in PINHO the ongoing war between two factions on the Wayne State University board of governors. In a closed session last year, the board deadlocked 4-4 on a vote to sell the property at Cass Avenue and Canfield Street to Detroit-based developer Broder & Sachse Real Estate Services Inc. Michael Busuito, M.D., a Wayne State board member, confirmed that the board split on the sale of the 1.5 acres at 66 W. Canfield St. and 440010 Cass Ave. He said several issues caused him to vote against the sale, including long delays on the project by the developer and what he and some other board members felt was an undervaluation of the site. He also said there were issues related to the ongoing bitterness over Wayne State University leasing with an option to buy the old Hospice of Michigan building off Mack Avenue in Detroit. He said he is hopeful the board can reach an agreement to sell the property in the next few months. Todd Sachse, founder and CEO of Detroit-based Sachse Construction and vice president of Broder & Sachse, declined comment other than confirming that a vote to sell the land failed. “The purchase and sale of real estate is a matter handled in executive session due to the obvious needs for confidentiality in negotiations. This project is still under consideration by the board,” said Marilyn Kelly, chair of the board of governors, in an emailed statement. The bitter divide has enveloped the Detroit university. As my colleague Kurt Nagl wrote last month: “Hostility among the uni-

versity’s board of governors has led to lawsuits between board members, sparked a vote to fire President M. Roy Wilson that Michigan’s deputy attorney general deemed to be illegitimate, and triggered an investigation into board ethics by the Higher Learning Commission, which accredits the university.” My other colleague Jay Greene has written extensively on it, too. Busuito has advocated for Wilson’s ouster, while Kelly has defended him. An appraisal of the land done two years ago by Detroit-based The Harbin Group Inc. on behalf of Wayne State puts its value at $5.468 million. Busuito said the proposed purchase price was 3 percent higher than that, which would come to $5.63 million. It’s been an uphill battle for the project, which originally had been planned for 248 apartments, a 120room hotel, 19,000 square feet of re-

“THE PURCHASE AND SALE OF REAL ESTATE IS A MATTER HANDLED IN EXECUTIVE SESSION DUE TO THE OBVIOUS NEEDS FOR CONFIDENTIALITY IN NEGOTIATIONS. THIS PROJECT IS STILL UNDER CONSIDERATION BY THE BOARD.” — Marilyn Kelly, chair of the Wayne State University board of governors

tail and a 300-person conference center after awarding an April 2013 request for proposals to Broder & Sachse and entering into a memorandum of understanding for the $60 million project with the developer in November 2013. Instead of apartments, the plan has now shifted toward condominiums. The property would have originally been leased to Broder & Sachse, but would be sold to the company under

the condo plan. That’s because projects are completed using master deeds, and individual units are then sold to buyers; if Broder & Sachse leased the land, it would eventually return to the university at the end of that agreement.

Taubman, Blackstone finalize China deal Bloomfield Hills-based Taubman Centers Inc. (NYSE: TCO) has finalized the $91 million sale of half of its ownership interest in the CityOn. Xi’an shopping center in Northwest China to Blackstone Group Inc. It’s part of a broader deal involving properties the shopping center company has in Asia announced in May. “We’re pleased to have completed our remaining asset sale and we look forward to a very productive partnership with Blackstone,” Robert Taubman, chairman, president and chief executive officer of Taubman Centers, said in a press release. Last month, Taubman and Indianapolis-based Simon Property Group LP announced a $3.6 billion deal in which Simon pays $52.50 per share cash for all of Taubman’s common stock and the Taubman family is selling one-third of its ownership interest and remains a 20 percent partner.

Pre-leasing starts in City Modern building Market-rate units in Dan Gilbert’s Bedrock LLC’s The Flats building in the Brush Park neighborhood are now available for lease, the company said. The building is at 2660 John R St. and has 35 apartments. City Modern is a multibuilding project across 8.4 acres of Brush Park land that Gilbert and several other investors are developing with more than 400 residential units and retail space. Contact: kpinho@crain.com; (313) 446-0412; @kirkpinhoCDB

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Nonprofit lays roadmap for getting women into Michigan tech careers New report outlines how to create interest in sector BY NICK MANES

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In an industry famously dominated by men, the Southfield-based Michigan Council of Women in Technology Foundation seeks to move the needle on getting young women into the state’s in-demand technology jobs. A new report released by the nonprofit MCWT in late February tries to create a roadmap for how it can not only make inroads with girls and young women in order to create interest and excitement about tech careers, but also work with “professional” or “career” women about the opportunities in the sector. The state has long said that there could be nearly one million open jobs in technology and technology-related fields in the coming years. As part of its efforts, the MCWT starts working with young girls as early as the fourth grade, and offers a wide variety of mentoring programs, said Chris Rydzewski, MCWT executive director. It also does camps and awards scholarships. “We’re trying to accelerate our impact, especially on the career side. ... So we are in the process of expanding a lot of our mentoring programs,” said Rydzewski. “Again, it’s providing those role models and making them more visible and sharing some of their stories.” The nonprofit’s advisory board consists of executives from corporations around the state including Flagstar Bank, Ford Motor Co. and Deloitte. Board Chair Melanie Kalmar is corporate vice president and chief information officer at the Dow Chemical Co. in Midland. Kalmar told Crain’s MCWT strives to work with those companies and others who have goals around 50-50 parity in fields like information technology. A 2018 study found that less than 20 percent of U.S. tech jobs were held by women. “One of our goals for 2020 is to work with our partner companies to understand their metrics, and to start building a correlation of what we’re doing at MCWT to having an impact on (their)

Kalmar

Rydzewski

parity metrics for a lot of (the) corporations in the state,” said Kalmar. Beyond just disparities in terms of female representation and pay, the technology sector as a whole has a workplace culture issue to overcome. A 2019 study by Blind Workplace Insights, which calls itself “an anonymous social network for working professionals” found that 37 percent of industry workers had reported some form of sexism at work. Among the almost 8,000 people who responded to Blind’s survey were employees at major tech corporations like Facebook, Google, Microsoft and Adobe.

‘Better business outcomes’ The MCWT report lays out myriad methods that it says could help achieve far better gender parity in the sector. Chief among them: family members. “A high proportion of middle school girls, and over half of the university students surveyed, have a family member in the field,” states the report. “Many recount time spent together, especially with parents, learning how to engineer, code and use computers. While many girls said they interact through technology with peers, relatively few cite them as a source for learning about computing.” The report also recommends early introduction — by middle school years — to computer education, and notes that a career in the sector provides women a “path for security and personal fulfillment.” Even without the concern of the lack of gender parity, there’s a good reason to be pushing for women to enter the

state’s technology sector. Simply put, the state needs them. Back in 2018 then-Gov. Rick Snyder unveiled his so-called “Marshall Plan for Talent,” which sought to commit $100 million over five years to fill an estimated 811,000 job openings in Michigan through 2024 in tech-heavy fields like information technology, computer science, manufacturing, health care and professional skilled trades. Kathleen Norton-Schock, a Southeast Michigan serial entrepreneur and marketing executive who has long volunteered with MCWT, touted that need in an interview. “The companies — and the state of Michigan itself — depends on a vital, innovative strong flow of candidates who are talented candidates,” said Norton-Schock. To that end, global business consulting firm Deloitte has studied the topics of diversity and inclusion extensively. A 2018 report from the firm notes that diversity coupled with inclusion — or when someone is “feeling confident and inspired,” can lead to companies being twice as likely to meet or exceed financial targets and eight times as likely to achieve better business outcomes. “Deloitte’s research identifies a very basic formula,” the report says. “Diversity + inclusion = better business outcomes. Simply put, diversity without inclusion is worth less than when the two are combined.” The MCWT, for its part, subscribes to that belief and for board chair Kalmar, a key part of the organization’s mission is to ensure that tech talent remains in the state of Michigan. “Early in the IT boom (people) kind of migrated to the coasts, either the East Coast or the West Coast,” said Kalmar. “And we really looked at the fact that we’ve got great corporations in the state of Michigan ... with huge IT opportunities and thus the desire to make Michigan the number one state for women in technology. Because women don’t need to leave this great state to find a career in IT.” Contact: nmanes@crain.com; (313) 446-1626; @nickrmanes

INFRASTRUCTURE

Enbridge selects contractors for Line 5 tunnel construction Livonia-based Jay Dee Contractors, U.S. subsidiary of Obayashi team up on project BY CHAD LIVENGOOD

Enbridge Energy Co. has hired a trio of Michigan and international construction and engineering companies to bore a tunnel under the Straits of Mackinac to house its controversial Line 5 oil pipeline. Livonia-based Jay Dee Contractors Inc. is teaming up with the U.S. subsidiary of Japanese infrastructure giant Obayashi Corp. through a partnership that will be called Great Lakes Tunnel Constructors to be the principal construction contractor. Enbridge also has hired London-based architectural and engineering firm Arup to design the 4-mile-long tunnel that will be bored 100 feet below the lake bed of Lake Michigan. Arup’s tunneling achievements include designing a pedestrian tunnel under Lake Ontario connecting mainland Toronto and its island airport and designing the world’s largest tunnel constructed by a tunnel boring machine, according to Enbridge. A tunnel bored by a custom-built machine is the type of passageway Enbridge intends to build to get its aging twin oil pipelines out of the environmentally sensitive Straits of Mackinac waterway connecting Lakes Michigan and Huron. After months of vetting through an RFP process that began in August, the three firms are moving into a detailed

Enbridge Energy Co. is moving forward with construction of a 4-mile-long tunnel 100 feet below the lake bed of Lake Michigan to house its controversial Line 5 oil pipeline. | WIKIMEDIA COMMONS

design and engineering phase of the project, working out of Jay Dee Contractors’ Livonia corporate headquarters, said Amber Pastoor, tunnel project manager for Enbridge Energy. Enbridge’s moves toward beginning construction of the tunnel in 2021 comes as Gov. Gretchen Whitmer’s administration has resumed working with the company on the project after Attorney General Dana Nessel unsuccessfully tried to block it in state courts. In January, the Michigan Court of Appeals rejected Nessel’s attempt to immediately halt the tunnel project. “The administration’s position that the statute is unconstitutional hasn’t changed, but we are fully committed to following the law,” Whitmer spokeswoman Tiffany Brown said.

The Mackinac Straits Corridor Authority, a three-person state panel charged with overseeing construction of the tunnel, is meeting Friday morning in St. Ignace for the first time in more than a year after Nessel challenged the constitutionality of the 2018 law that created the authority. “The governor let us know that we are back on track and not sidelined anymore,” said Mike Nystrom, chairman of the Mackinac Straits Corridor Authority and an appointee of former Gov. Rick Snyder. Nystrom is executive vice president of the Michigan Infrastructure & Transportation Association, which represents infrastructure construction companies vying for work on the tunnel project.

Since the Court of Appeals ruling in mid-January, the Whitmer administration has made state employees from the departments of Transportation and Environment, Great Lakes and Energy available to work with the Mackinac Straits Corridor Authority and Enbridge on the permitting and planning of the project, Nystrom said. The Court of Appeals has not yet ruled on whether the law that established the authority for purposes of allowing Enbridge to build the tunnel is constitutional. “Because the law is in effect, at least for now, EGLE staff plan to process permit applications for the project, pending further action on the merits of the case by the Court of Appeals,” Nessel spokeswoman Kelly Rossman-McKinney said. The resumption of state involvement in the project has allowed Enbridge to move forward on hiring contractors, company officials said. Jay Dee Contractors, which bills itself as the largest tunnel construction firm in Michigan, has partnered with Obayashi in other upper Midwest projects, but nothing of the size and magnitude of the Enbridge tunnel project. “It’s certainly going to be one of the great (works of) infrastructure built in this area in quite some time, and we’re certainly glad to be part of the team that’s involved with it,” said Tim-

othy Backers, a vice president at Jay Dee and project manager for Great Lakes Tunnel Constructors. Backers said Enbridge’s tunnel will be “technically challenging” to construct underneath one of the world’s largest bodies of freshwater. Jay Dee Contractors has built more than 200 miles of tunnel in its 55-year history and is constructing a large drainage tunnel for the I-75 modernization project in southern Oakland County, Backers said. Obayashi says it has built more than 600 tunnels around the world. Jay Dee is partnering with Obayashi on a tunnel project for the Northeast Ohio Regional Sewer District, the sewer system of greater Cleveland, Backers said. Enbridge aims to have the tunnel design complete this year so that construction of the tunnel boring machine can begin. The Calgary-based energy transportation giant wants to begin boring the tunnel in 2021 so it can be complete by 2024, Pastoor said. Enbridge has pledged to pay for the full cost of the utility tunnel — a price tag that could range from $350 million to $500 million. “We’re going to refine it as we get more into the weeds,” Pastoor said of the final construction cost. Contact: clivengood@crain.com; (313) 446-1654; @ChadLivengood

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COMMENTARY

Chad

LIVENGOOD

Amy Morton loads luggage on Delta planes at Detroit Metro Airport’s McNamara terminal all day long — on blustery days in January and sweltering days in July. It’s difficult work, she says. And it’s critical work — the safety and balance of an airplane depends on the luggage being

loaded correctly. The 43-year-old single mother from New Boston started at minimum wage less than three years ago and says she has already topped out on the wage scale at $12 per hour. She gets no health insurance, vacation days or paid sick time. Morton participated in a SEIU rally at the airport last week calling for a $15 hourly wage from Delta’s baggage-handling subsidiary, Unifi. “I want the politicians and airport authority to realize that $15 an hour is not going to make me rich, but it sure will help with my bills,” said Morton, who feeds two teenage boys on her paycheck. “The food (bill) is outrageous. I’m struggling each week to determine which bill I’m going to pay next.” In Michigan, Morton’s quality of life and limited economic opportunity is more common than most would think. Nearly 43 percent of Michigan families — 1.7 million households — are earning less than what they need to pay for ever-rising MICHIGAN’S PER bills costs: Housing, health CAPITA INCOME care, food, utility, child care and other necesFROM WAGES sities, according to the AND EMPLOYER- Michigan Association of United Ways. PROVIDED That 43 percent figure is Michigan’s perFRINGE centage of families livBENEFITS IS 14 ing in ALICE, a that stands PERCENT BELOW acronym for Asset-Limited, InTHE NATIONAL come-Constrained, Employed. The 2017 AVERAGE. ALICE rate was up from 40 percent of households in 2010 in the United Ways’ latest study. The United Ways define the ceiling for living in ALICE at around $61,272 for a family of four. For a worker like Morton, she’s making less than half that supporting her family of three. A $15 hourly wage would boost Morton’s earnings to $31,200, still under the ALICE threshold and $14,000 below the median household income in Wayne County. The United Ways’ ALICE figure has been around for years. Advocates for the poor routinely cite it as evidence that Michigan’s postGreat Recession economy has not benefited everyone. ALICE has now been embraced by some top-ranking Michigan business leaders. A group of economic development-minded business and foundation executives have

signed onto a “call to action” initiative to make rising income Michigan’s principal economic mission, not just adding more low-wage jobs. “(Low) unemployment numbers can mask what’s going on more broadly,” said Dave Meador, vice chairman and chief administrative officer of DTE Energy Co. “This idea that rising tides lift all boats is not true. The data says it’s not true.” Michigan’s per capita income from wages and employer-provided fringe benefits is 14 percent below the national average. In 2000, before Michigan’s auto industry endured a decade of turmoil, wages and benefits for Michigan workers was 1 percent above the national average. Rising per capita income has been “a missing element to job creation and economic development,” said Sandy Baruah, CEO of the Detroit Regional Chamber. “There’s a growing realization of this.” This call to action, dubbed Rising Income For All, has been endorsed by Baruah and Meador as well as a who’s who of the state’s economic development professionals and foundation executives. This initiative has been spearheaded by Lou Glazer, president of the Ann Arbor think tank Michigan Future Inc. So far, this new group is not putting forward any specific public policy proposals. But the timing is interesting, given Tuesday’s presidential primary in Michigan. Vermont Sen. Bernie Sanders’ campaign for the presidency is fueled by a growing chasm in the workforce over income inequality. Glazer is not a new arrival to this debate. He’s been waving his hands for years about income inequality, trying to get the attention of policymakers about the growing gap between the working poor and upper income earners. And for as much progress as Michigan has made economically since the Great Recession, rising household incomes is not one of the successes. Glazer has been stressing that increasing the wealth of Michigan workers as a whole can’t happen without a better-educated workforce — and with more people working. He routinely points to Minnesota and Massachusetts as the states with strategic public investments in education as the model that Michigan should follow to lower the ALICE rate. “We have way too many people who are working in low-wage jobs,” Glazer said. “Making income the measure of success is pretty transformative.” Every debate about wages seems to revolve around raising the mandated minimum wage, which the Republican-controlled Legislature has worked to thwart or slow the growth of at the behest of business interests. But with the likes of Meador, Baruah, Klohs and Khouri coming around to the fact Michigan has become a low-prosperity state, maybe the policymakers in Lansing will start listening to the voices of people like Amy Morton. Contact: clivengood@crain.com; (313) 446-1654; @ChadLivengood

DANIEL SAAD

Executives take aim at wage stagnation in Michigan

COMMENTARY

Michigan must be unified in growing the mobility sector BY GOV. GRETCHEN WHITMER

It might not come as a surprise to most Americans — and certainly not Michiganders — that this state and mobility are synonymous. We put the world on wheels more than a century ago, and many of the most important advances Gretchen — from Henry Ford’s asWhitmer is the 49th governor of sembly line to autonomous driving — are pure the state of Michigan. Michigan. With nearly one-fifth of all U.S. auto production and more manufacturing facilities than any other state, Michigan remains a global leader in the automotive industry. But we know the industry is changing, and we need to make sure we are harnessing our resources to ensure Michigan remains the go-to state to research, build, test, and deploy mobility vehicles of the future. Six trends are at the core of this transformation: autonomous driving; vehicle connectivity; powertrain electrification; shared mobility; intelligent automation; and globalization of the supply chain. Michigan’s future prosperity will be shaped by our state’s ability to master these trends and keep pace with the opportunities they present. That’s why I created the Michigan Office of Future Mobility and Electrification and am hiring the first ever chief mobility officer for the state of Michigan. The office will be charged with helping our state’s mobility industry and state agencies around two north star goals: 1) Bolstering Michigan’s automotive core and 2) Expanding Michigan’s leadership in all aspects of mobility.

Write us: Crain’s welcomes responses from readers. Letters should be as brief as possible and may be edited for length or clarity. Send letters to Crain’s Detroit Business, 1155 Gratiot Ave, Detroit, MI 48207, or email crainsdetroit@crain.com. Please include your complete name, city from which you are writing and a phone number for fact-checking purposes. 8 | CRAIN’S DETROIT BUSINESS | MARCH 9, 2020

My administration is already making good progress in bolstering our automotive core and shifting to producing the latest mobility technologies. Last year alone, we announced almost $8 billion in investments and the creation of nearly 11,000 new automotive jobs — more than any other state in the nation. Thanks to investments by Fiat Chrysler, Ford, GM, Rivian and Waymo, among others, Michigan will expand its design and production of battery electric vehicles including all electric trucks and SUVs and autonomous vehicle technologies. These investments are poised to open the first new assembly plant in Detroit in a generation and will pull GM’s Detroit-Hamtramck Assembly plant off the closing list and transform it into the company’s most technologically advanced manufacturing facility. Our state has a unique portfolio of assets in place, boasting a pipeline of technical talent, manufacturing expertise, elite research universities and the nation’s best-connected infrastructure. But make no mistake, the wide-ranging uses and applications of future mobility, particularly in software and technology, means that our built-in advantages could be lost to other states and countries. Our continued prosperity depends on our ability to outpace our competitors and diversify our traditional assets. To do so we must think creatively and be unified in our actions to drive investment in the mobility sector.

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.

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

HEALTH CARE

Michigan seeks to create new Medicaid transformation office Goal of 5-employee office would be to come up with overall provider, health plan reimbursement systems BY JAY GREENE

Buried in Michigan Gov. Gretchen Whitmer’s proposed 2020-2021 executive budget proposal is $5 million funding request to create a five-employee office with a big mission: transforming how the state pays for health care through Medicaid. The ultimate goal of the Medicaid Gordon Pallione transformation office in the Department of Heath and Human Services is hospitals and rehabilitation facilities to come up with a variety of new or en- are reimbursed under Medicaid and hanced “value-based” reimbursement offer home and community and homesystems for health plans, hospitals, based alternatives to long-term care faphysicians, nursing homes and home cilities for seniors. “Our vision of the (transformation) and community based providers, said Robert Gordon, MDHHS director, in a initiative, at a high level, is to make sure we are spending every dollar effectiverecent interview with Crain’s. In other words, systems that seek to ly,” said Gordon, adding that Ohio is one state model Michigan is using. pay for quality. Gordon said MDHHS needs more “bandwidth” and additional experts to Ohio’s office help move Medicaid further away from what’s known as a “mixed-model” reGreg Moody, the former director of imbursement system — that has nearly the Ohio Office of Health Transformahalf of providers paid fees for services tion, said Ohio’s 10-year-old office re— and toward higher quality and lower ceived support from the state Legislacosts. Medicaid health plans, which ac- ture and health care industry groups. count for about half of the state’s Med- He said Ohio was able to improve care icaid budget, currently are paid capitat- coordination, enhance quality and ed, or per person per month, rates lower costs in virtually every health based on at-risk contracts. program. If approved by the state Legislature, Moody said it took the Ohio health Gordon said the new Medicaid trans- transformation office about six months formation office would evaluate best into Gov. John Kasich Jr.’s administrapractices in other states, develop pro- tion in 2011 to start making recommengrams and offer recommendations to dations that were incorporated into the the governor, state policy officials and state budget. legislators. “We started with a clear sense of purThe bottom line, Gordon said, is pose, took on a number of challenges, Medicaid must further modernize how physical health, behavioral health, it uses tax dollars to pay Medicaid pro- home and community-based services viders by improving quality, reducing as an alternative to nursing homes,” costs and address some of the factors said Moody, who now is Executive in that cause patients to do poorly in the Residence at the John Glenn College of health care delivery system. Public Affairs at The Ohio State Univer“We don’t have a huge staff” to over- sity. see nearly $16 billion in Medicaid “We modernized the eligibility sysspending, Gordon tems and reorgasaid. “We are deal- “WE WOULD LIKE TO nized agencies to ing with (many align incentives other issues) that CREATE SOME RESOURCES and eliminate disare on the books. TO CREATE A MEDICAID ruption of care,” We would like to he said. “(From create some re- TRANSFORMATION 2014 to 2018) we sources to create a INITIATIVE. ... OUR STAFF re-imagined every Medicaid transprogram with formation initia- CAN’T DO THAT IN THEIR population tive. ... Our staff SPARE TIME.” health, valcan’t do that in ue-based strate— Robert Gordon, MDHHS director their spare time.” gies and social deOver the past 20 terminants of years, the Medicaid program has in- health.” creased state general fund spending for The first step was to create the Ohio medical services from about $5.2 bil- health transformation office to coordilion in 2000 to $15.9 billion for fiscal nate changes across multiple proyear 2020. During the same period, full- grams, Moody said. Over the next sevtime equivalent employees rose to only eral years, the state rebid Medicaid 406 employees from 353. That is a 15 managed care to add more quality inpercent increase in staff compared with centives, increased home and commua three-fold increase in spending, Gor- nity-based alternatives to nursing don said. homes and began the process to inteThe $5 million cost for the office grate physical and behavioral health. would come from $2.5 million in generSome of the initial reforms were foal fund budget, with the other half cused on setting a tiered reimbursematched by the federal government. ment system to pay behavioral health The funding would support develop- providers a better rate and matching it ment of innovative programs and pay- with quality and expertise. More hospiment mechanisms in Michigan’s physi- tals and physician practices then encal health and behavioral health tered the behavioral health market, exmanaged care programs, he said. panding access and quality, Moody Besides looking at integrating physi- said. cal and behavioral health, the office The state also identified the top 5 also is expected to take leadership re- percent most expensive patients and sponsibilities for creating new reim- matched them with appropriate probursement systems for Medicaid health viders. The change improved outcomes plans and nursing homes. It also would for patients with depression, he said. recommend changes in how doctors,

“You don’t get benefits on day one, it’s down the road, but you start immediately,” he said.

Experts react Udow-Phillips

Dominick Pallone, executive director of the Michigan Association of Health Plans in Lansing, said he supports the Medicaid initiative aimed at improving reimbursement systems, calling the new office a “very positive investment that will yield long-range benefits.” Starting in 2016, Pallone said, Medicaid health plans were awarded new contracts that built in performance-based payments for improved

health outcomes. “Director Gordon is talking about finding ways to encourage more value-based reimbursement, and we are moving in that direction already,” Pallone said. “We are ready, willing and able to embrace value-based reimbursement.” Gordon acknowledged that Medicaid HMOs in Michigan are doing a good job improving quality compared with other states. “We want to help plans and advance alternative payment methods to make sure everyone has skin the in game,” Gordon said. Pallone said Medicaid health plans have been increasing the percent of payments to providers that are linked to quality improvement, or value-based contracts. In the 2015-2016 fiscal year, 14 percent of payments to providers in-

cluded some value-based payments. Today, more than 24 percent is directly linked to quality, he said. One problem, however, that many physician organizations have is that each Medicaid plan has a different payment incentive system. Because they are administratively different, physician organizations find value-based payment systems difficult to manage. “We want to talk with (MDHHS) about it. We know (the state) wants to focus the (transformation) office to move on the value-based path. We need to take into account providers, but not stifle innovation,” he said. Marianne Udow-Phillips, director of the Center for Healthcare Research & Transformation in Ann Arbor. Contact: jgreene@crain.com (313) 446-0325; @jaybgreene

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MARCH 9, 2020 | CRAIN’S DETROIT BUSINESS | 9

CRAIN’S MICHIGAN BUSINESS: THE THUMB

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JUSTIN SCHNETTLER

ROCK STAR

Kayakers at Turnip Rock in Lake Huron, several miles east of downtown Port Austin.

How a turnip-shaped rock got a trial lawyer to quit his day job and take up kayaks BY TOM HENDERSON

Chris Boyle had a choice: kayaks or lawyering. Not that he didn’t enjoy having his own law practice in Bad Axe, but it was an easy call. He had started out renting a few kayaks in the village of Port Austin at the tip of the Thumb as more of a hobby, but the business took off like a boat going down whitewater rapids and demanded his full-time attention. Boyle had been a lawyer in the Air Force, with the title of judge advocate at the Seymour Johnson base in Goldsboro, N.C. When he left the service in 2005, he returned to Michigan and hung out his shingle in Bad Axe, with a focus on trial work. In 2006, he started a small kayak and bike-rental business in Port Huron, buying 15 kayaks and 10 bikes. “It was just a hobby. I hired a couple of high school kids to run the business. I had my law practice to run,” he said.

10 | CRAIN’S DETROIT BUSINESS | MARCH 9, 2020

 How a rock shaped like a turnip got a trial lawyer-turned-kayaker to quit his day job. THIS PAGE  Gemini Group builds manufacturing might. PAGE 11  Huron County, state’s No. 1 farming county, also top source of wind energy. PAGE 14  More online at crainsdetroit. com

“IF I HAD ANY MONEY, I PUT IT BACK INTO BUYING MORE KAYAKS. I DIDN’T PAY MYSELF FOR YEARS.” — Chris Boyle

The business, called Port Austin Kayaks, remained a hobby until 2012, when he got some priceless publicity. There is a famous rock called Turnip Rock that juts out of Lake Huron 3 1/2 miles east of the village, and a half-day rental would get you there and back. It is just offshore, but a shorefront gated community blocks the rock from public view. And the lake is shallow and rocky, not suitable for approach by most boats, so kayaks are the way to get there and see it. The public television show “Under the Radar” did a piece on Boyle’s kayaks at the rock, and the Pure Michigan Travel Guide ran a photo of kayakers at the rock on the cover. Suddenly Port Austin Kayaks was swamped with tourists, many of them having made their first drive up Van Dyke/M-53 to get to the village. “We’d been

just hanging on by a thread till we got that publicity,” said Boyle. Boyle doesn’t provide guides to Turnip Rock, but his rental business has helped promote the paddle to Turnip Rock as one of the state’s iconic outdoor attractions. “If I had any money, I put it back into buying more kayaks,” said Boyle. “I didn’t pay myself for years.” In 2013, a small, run-down marina just east of the main intersection in Port Austin came on the market. “It had become a boat graveyard,” said Boyle. It was in foreclosure but was sold before he could make an offer. But the deal fell through, a for-sale sign went back up and the rest, as they say, is history. See ROCK on Page 14

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ON THE GROW Heirloom seed store digs into demand for unusual fruit, vegetable varieties.

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PAGE 12

Gemini Group builds manufacturing might

BASEBALL.

CHANGES IN THE TAX CODE.

Bad Axe-based supplier ships parts worldwide

JUSTIN SCHNETTLER

BY TOM HENDERSON

Lynette Drake is a registered nurse. She graduated from the nursing program at Madonna University in Livonia, and worked for 4 1/2 years at Childrenâ&#x20AC;&#x2122;s Hospital in Detroit. Sheâ&#x20AC;&#x2122;s working in Bad Axe, now, but not as a nurse. She is president and chair of the Drake Nelson board of the Gemini Group Inc., an international tier-one auto supplier rolled into a parent company, Gemithat ships more than 600 million ni Group Inc. In 1998, the last local parts a year around the globe with 14 company was acquired, Bad Axeproduction facilities in three states based Thumb Tool & Engineering, an and Mexico, a regional sales office in aluminum extrusion die company. Joining Roberts and Peplinski as Auburn Hills and customers that include General Motors Co., Ford Mo- partners in the group were the owners tor Co., Toyota Motor Corp., Magna of acquired companies, Jack RocheInternational Inc. and ZF Fried- fort and Clark Shuart, and the owner of a local CPA firm, Dave Hyzer. richshafen AG. The company declines to release Gemini is based in Bad Axe and is the largest employer in Huron Coun- revenue. The website Zoominfo estity, employing about 1,150 at its five mates revenue at $390 million. When factories in Bad Axe and three in asked if that number were accurate, nearby Ubly, doing metal stamping, CEO Kevin Nelson declined cominjection molding and blow molding ment. The group is still owned by the five under a variety of names. In Bad Axe, they are Briney Tooling Systems, families who owned the companies GPMI North, GPMI South, Thumb that were rolled up into Gemini Plastics Inc. and Thumb Tool & Engi- Group. A majority of the second- and neering; in Ubly they are Valley En- third-generation family members terprises, Regency Plastics and Gem- who own the company are women, making it officially a woman-owned ini Plastics Inc. The company also has four small company. In junior high school and high shops in Muscle Shoals, Ala.; a large plastics factory in Mexico; and one in school, Drake would do piecework Texas. In all, the company employs for her father in the basement of the about 1,600 and has about 1.3 million family home in Ubly, making a penny a part for fastening components tosquare feet of factory floor space. Gemini is a family business, one gether. â&#x20AC;&#x153;I was pushing pins into small that Drake grew up in. It traces its parts.â&#x20AC;? On weekends, she, her sibroots to 1972, when her father, Bill lings and the children of the other Roberts, was working as an engineer founders would go to the factories for Hamill Manufacturing in Bad Axe. and sweep floors or stack boxes. â&#x20AC;&#x153;It was a lot of fun.â&#x20AC;? That year, Hamill In 1990, wantManufacturing ing to return to was sold to Fires- IN JUNIOR HIGH SCHOOL be closer to famitone, which was AND HIGH SCHOOL, ly, Drake took a then sold to TRW, who decid- LYNETTE DRAKE WOULD DO nursing job in the Thumb with the ed to move Ha- PIECEWORK FOR HER local health demill out of state. partment, then Roberts and an- FATHER IN THE BASEMENT in 1999 launched other Hamill em- OF THE FAMILY HOME IN and ran a comployee, Frank panywide wellPeplinski, then UBLY, MAKING A PENNY A ness program for founded Gemini PART FOR FASTENING the Gemini Plastics in nearby Group. The comUbly, which did COMPONENTS TOGETHER. pany founders seat-belt sewing were investors in and on the boards and plastic molding. Over the next 20 years, Gemini ac- of community banks in the Thumb, quired several local companies â&#x20AC;&#x201D; and she began setting up and managCKS Precision Machining & Briney ing their wellness programs, too. Drake was appointed to the GemiTooling Systems, Axly Production Machining and Thumb Plastics Inc. ni board in 2006, when her father, â&#x20AC;&#x201D; and created two companies, Re- who was CEO of the Gemini Group, gency Plastics and an interior trim became ill. He died in 2007, and manufacturing operation named Drake was named chair of the board in 2010 and president in 2011. Valley Enterprises. Each company operated individually until 1996, when they were all See GEMINI on Page 12

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MARCH 9, 2020 | CRAINâ&#x20AC;&#x2122;S DETROIT BUSINESS | 11

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Heirloom seed store digs into demand for unusual fruit, vegetable varieties BY TOM HENDERSON

In 2011, Luke Marion founded a small heirloom seed business out of 100 square feet in his apartment, thinking maybe there were gardeners out there like him who would buy old and unusual fruit, vegetable, herb and flower seeds if they could find them. Since then, Port Huron-based MIgardener LLC has grown into something of a social-media phenomenon. It has 500,000 subscribers on YouTube, 100,000 followers on Facebook, employs 20, 16 of them full time, and will ship upward of 4 million seed packets around the U.S. and to some 40 countries this year. MIgardener can also be found on Twitter, Pinterest, Instagram and Tumblr. While 95 percent of its business is online, MIgardener has a brick-andmortar retail outlet in downtown Port Huron, where some 600 varieties of heirloom vegetables, fruits, flowers and herbs are available at 99 cents a packet. The back of the store serves as the packing and shipping center. Seeds are bought in bulk from growers around the U.S. and then packed and mailed out, about 600 packets a day, six days a week. Marion or his employees pack the seeds on an antique piece of equipment in the back of the store, a 100-year-old machine called a Ballard seed packer. Last February, Marion’s book, “The Autopilot Gardener: A Guide to Hands-off Gardening,” was published by Cedar Fort Inc. of Springville, Utah. “They saw me on YouTube and approached me and said, ‘Would you be

GEMINI

From Page 11

“They didn’t teach me a lot of banking and manufacturing at Madonna, so I’m glad to have a great team behind me,” she said. “Numbers aren’t my strength; people are. That nursing background helps me out a lot.” Nelson, who has 28 years of executive experience in a range of industries, joined Gemini in 2009. T.L. Bushey, the CFO, has been with Gemini since 2006. Drake chairs the board of directors of Bad Axe-based Northstar Financial Group Inc., a bank holding company with more than $600 million in assets, and is on the boards of Mainstreet Community Bank of DeLand, Fla., and Hudsonville-based West Michigan Community Bank. She is also a board member of the Huron County Community Foundation and vice chair of the Huron County Economic Development Committee. The Mainstreet Community Bank was founded by the Gemini Group’s original partners after they bought vacation homes in the area and realized the need for a local community bank. In 2011, Gemini opened a plant in Saltillo, Mexico, Gemini Plastics de Mexico. It already had a plant in El

interested in writing a book?’” said Marion. Clearly, he was. There is a small library in the front of the store, where visitors can sit in a chair and read from a collection of books on gardening. The store also sells gardening equipment and MIgardener T-shirts. MIgardener combines Marion’s two passions. His parents weren’t gardeners but his grandfather was, and Luke spent many happy hours as a kid in his grandfather’s garden in Brown City, a small town in Michigan’s Thumb. “My inspiration was my grampa. He always had me in his garden.” His other passion? Entrepreneurship. He got his business degree from Northwood University with a major in entrepreneurship, and was working at the Garden & Beyond nursery in St. Clair when he got an idea for his business. “I started with $100 in my pocket, literally,” said Luke. “I was a gardener and I saw the shortcomings the seed industry had. There just wasn’t a real variety out there.” The business has grown out of cash flow and is debt free. From the small apartment space, Marion moved the business into a garage, then into the store in Port Huron. In February, he signed a lease to take another 2,500 square feet upstairs, and has about 5,000 square feet of warehouse space in a nearby industrial park. Later this month, he will launch a podcast, too, called “Seeds the Day.” A large rack along the wall on the left side of the store holds the packets of about 600 different heirloom Paso, Texas, Sierra Plastics, the company’s largest factory at 281,000 square feet. In 2013, the Gemini Group bought three small companies in Muscle Shoals, Ala., including a die-cast tool shop and two aluminum-extrusion tooling shops, making it, according to the company, the second-largest producer of aluminum extrusion dies and tooling in North America. Nelson said those acquisitions came after the owner of the companies called the Gemini Group. “He said, ‘We know your reputation, we like you, we’d like to sell to you,’” said Nelson. The Gemini Group has just opened a fourth business in Muscle Shoals, a startup doing interior trim called Gemini Group Interior Trim. Asked if the company is exploring any acquisitions, Nelson said: “We’re always looking and kicking the tires, absolutely. Is there anything imminent? No.” Not all of Gemini’s customers are OEMs or other tier ones. Brad Couture is president and CEO of Superior Extrusions Inc., a maker of aluminum products, including ladders, boat lifts and trailers, in Forsyth Township, south of Marquette. He has been buying dies from Thumb Tool & Engineering for what he says is “way more than 25 years. I met Thumb’s owner, Jack Rochefort, and after 15 minutes I knew

seeds. The packets include names both familiar and less so:  Ha Ogen melons, native to Israel  Chernobyl tomatoes, which are an odd green-yellow color and, says Marion, have a rich combination of sweet and spicy flavors, with extremely productive yields of lime green fruit  Epazote, an aromatic herb from Mexico whose leaves and stems can be cooked

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Luke Marion and his wife Sindy Marion, a partner in the business, in the MIGardener shop.| MIGARDENER

 Thai and Genovese basil  Royal burgundy beans, which are a deep purple  Federle tomato, a West Virginia heirloom that produces high yields of seven-inch-long banana shaped fruits  Cucuzzi squash, an Italian squash

known as the snake gourd because of its long, curving snakelike appearance  Red garnet amaranth, a flower that produces a gluten-free head that is drought tolerant, grows in most soils and is called the Indian spinach for its spicy taste  Sawtooth cilantro, native to Cuba and Costa Rica and heat tolerant  Adzuki beans from India All the seeds, as well as tools, fertil-

A Gemini Group factory. In all, the company has 1.3 million square feet of factory floor space. | CRAIN’S DETROIT BUSINESS

izers, soil additives and apparel can be ordered at migardener.com. There are also tips on gardening. “People ask, ‘Did you ever think you’d be here?’” Marion said, gesturing around at his store and toward the back room filled with bustling employees. “Never. Not in my wildest dreams.”

CLARKSTON: 248-625-8585 | WATERFORD: 248-886-0086 TOLL-FREE: 866-707-2871

Contact: thenderson@crain.com; (231) 499-2817; @TomHenderson2 he was as honest and genuine as any person I’d ever met. When they made him, they broke the mold. “When he told you he’d do something, he did it. When I have a problem, I reach out to Thumb Tool, and it becomes their problem. They fly up here or drive up here to help me with any problem I am having.” When asked if, as a profitable large privately held auto supplier Gemini gets offers from private-equity firms in the auto space, Drake joked: “We get offers all the time. Hourly. All day, every day.” And with never a thought toward cashing out. “Our employees are our friends and neighbors. We go to church and sporting events together. I wouldn’t be anywhere else or do anything else.” Nelson said the company tries to show young people in Huron County they don’t have to leave the Thumb after high school to find good jobs. He said the company runs training programs in local high schools and each summer hires 35-40 interns, high school kids or kids home for the summer from college. “We want to get them interested in manufacturing, show them you can get a good job in your own hometown,” he said. Contact: thenderson@crain.com; (231) 499-2817; @TomHenderson2 MARCH 9, 2020 | CRAIN’S DETROIT BUSINESS | 13

FOCUS | THE THUMB

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Huron County, state’s No. 1 farming county, also top source of wind energy BY TOM HENDERSON

Huron County, the “fingernail” of the Thumb, is the No. 1 farming county in the state, according to the U.S. Department of Agriculture. According to the USDA’s 2017 agricultural census, the county’s farms generated revenue of $610.8 million, which also ranked it No. 67 out of the 3,077 counties in the country. The average farm was 430 acres with a county total of 495,258 acres in production, with crops including corn, soybeans, potatoes, sugar beets, grains, vegetables and sod. The county ranked second in the state in the sale of livestock, poultry and related products, and was No. 1 both in cattle and milk production. Huron County was also a clear No. 1 in another kind of farming — wind farms. There are 401 wind turbines in the 10 wind farms that line the perimeter of the county, taking advantage of winds off Lake Huron. The first turbine in Huron County was erected in 2009. Six of them are owned by DTE and four are owned by others but feed the DTE grid, producing, according to the company, 663.3 megawatts of electricity,

enough to power the equivalent of about 292,000 homes. DTE has four other wind farms in the state, all in Gratiot County. The company is commissioning four new wind farms this year, one in the Upper Peninsula and three in mid-Michigan. The Polaris Wind farm in Gratiot County will be DTE’s largest, with 76 turbines. DTE also has four solar-panel fields in Huron County, with a total of 8,640 solar panels generating enough electricity to power about 316 homes. The turbines are spread out in low-density fashion, two or three per acre of land in the sparsely populated county, which had a 2010 census count of 33,118 residents. They rise from farmers’ fields and have been a financial blessing both to farmers, who typically lease their land for more than 30 years, and to public schools, townships and libraries. DTE doesn’t release what it pays farmers, but in addition to lease payments, it pays them a royalty on electricity produced. On average, they retain 97 percent of their farmland after the turbines are built. The company does release what it

DTE Energy’s Pinnebog Wind Farm | MARK HOUSTON/DTE ENERGY

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Boyle bought the marina, which included a 5,000-square-foot building on a small bluff overlooking an acre and a half of land and 30 boat slips. Suddenly, he and his wife, Kathy, had bigger things in mind — expensive things. “We knew kayaks weren’t going to pay for all that,” said Boyle. In 2016, they opened PAK’s Backyard Cafe & Beer Garden, PAK standing for Port Austin Kayaks, which took up a big chunk of the building as well as the bluff overlooking Lake Huron, where they put in outdoor seating and a stage. In the summer, they have live music Fridays, Saturdays and Sundays, with comedy shows and other acts during the week. The kayak business took up part of the building, and Kathy opened up a retail store selling higher-end outdoor apparel from such brand names as Columbia, Patagonia and Kuhl. The cafe started with a small grill, but demand was such that eventually Boyle put in a $200,000 kitchen. The cafe seats up to 50 inside, with room for 100-120 outside. “We have a wait list on Saturdays to get in,” he said. “We’ll do 300 to 500 dinners on a busy Saturday.” Fare includes a variety of appetizers, burgers, chicken and pulledpork sandwiches. In 2018, Boyle decided to close his law practice. “We just got too busy here,” he said. He has remained active in civic affairs. He is past president of the Port Austin Chamber of Commerce and is still on its board, is a member of the Downtown Development Authority and is on the board of the Bad Axebased Community Foundation of Huron County.

Kathy and Chris Boyle at Port Austin Kayak. |CRAIN’S DETROIT BUSINESS

“WE HAVE A WAIT LIST ON SATURDAYS TO GET IN,” HE SAID. “WE’LL DO 300 TO 500 DINNERS ON A BUSY SATURDAY.” — Chris Boyle

Today, Boyle has 180 kayaks available in Port Austin and has a small kayak rental business in Harbor Beach, on the eastern side of the Thumb. He said he’ll do 300 kayak rentals on a summer weekend, with the four-hour rental it takes to get to Turnip Rock and back costing $35. The Boyles employ more than 100 during the busy summer months at

their various businesses, including 50-60 high school and college kids. Boyle has another business expansion in mind for next year. He bought a houseboat last year and wants to set it up in the marina and rent it out by the week, and as cash flow permits buy and rent more houseboats, with the goal to have six to 10 eventually. Boyle has also bought an old, vacant 10,000-square-foot tool-and-die shop down the road a bit from the restaurant and marina, with plans to turn it over the next two or three years into a combination of co-working space, event space and hostel. Contact: thenderson@crain.com; (231) 499-2817; @TomHenderson2

FOCUS | THE THUMB pays to local units of government. From 2014-2016, a total of $27.4 million was paid out to various entities in Huron County, including $11.4 million to school districts, $7.6 million to the county itself, $7.3 million to various townships and $725,449 to libraries. DTE posted a video on YouTube last year that included comments about the turbines from government officials and local farmers. â&#x20AC;&#x153;Fifteen or 20 years ago, a lot of people were leaving our community,â&#x20AC;? Pam Roestel, who with her husband Kevin owns a farm in the county, said in the video. â&#x20AC;&#x153;They were rolling up the carpet and people were leaving. That has changed, and itâ&#x20AC;&#x2122;s because of these turbines. Itâ&#x20AC;&#x2122;s been a blessing to have them come in. Itâ&#x20AC;&#x2122;s made our community better.â&#x20AC;? David Beck owns a sod farm. Countering claims by President Donald Trump that dead birds can be found piled up beneath turbines, including many bald eagles, he said: â&#x20AC;&#x153;We work around the turbines day after day. I have never seen a bird laying in the field that got hit.â&#x20AC;? â&#x20AC;&#x153;I can remember when my township had $40,000 to put into roads,â&#x20AC;? said Steve Vaughn, a county commissioner. â&#x20AC;&#x153;I now live in a township that has $1,750,000 in its road account.â&#x20AC;? â&#x20AC;&#x153;Weâ&#x20AC;&#x2122;ve been able to go out and do more road projects and more fire department projects, and itâ&#x20AC;&#x2122;s reduced millage rates,â&#x20AC;? said Doug Merchant, the assessor for Pine River Township.

â&#x20AC;&#x153;FIFTEEN OR 20 YEARS AGO, A LOT OF PEOPLE WERE LEAVING OUR COMMUNITY. THEY WERE ROLLING UP THE CARPET AND PEOPLE WERE LEAVING. THAT HAS CHANGED, AND ITâ&#x20AC;&#x2122;S BECAUSE OF THESE TURBINES. ITâ&#x20AC;&#x2122;S BEEN A BLESSING TO HAVE THEM COME IN. ITâ&#x20AC;&#x2122;S MADE OUR COMMUNITY BETTER.â&#x20AC;? â&#x20AC;&#x201D; Pam Roestel, who with her husband Kevin owns a farm in Huron County

Contact: thenderson@crain.com (231) 499-2817; @TomHenderson2

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16 | CRAIN’S DETROIT BUSINESS | MARCH 9, 2020

ART VAN

From Page 1

Failure of financiers Private equity and hedge funds have a rough history in the retail sector, despite a growing presence across all industries. Companies owned by private equity firms accounted for 8.8 million jobs in the U.S. in 2018, according to a Feb. 1 New York Times story on the demise of Payless ShoeSource under Alden Capital Partners. However, 10 of the 14 largest retail bankruptcies since 2012 have been owned by private equity, including Toys R Us and RadioShack. Thomas H. Lee entered the business with no previous experience in the furniture retail market. But it’s not a retail virgin, as the private equity firm manages a $22 billion portfolio that includes 1-800 Contacts, Bargain Hunt Superstores, Dunkin’ Brands, Fogo de Chao and Party City. Diana Sikes, senior vice president of marketing at Art Van from 2010 until August 2018, said Thomas H. Lee wasn’t brought in to rescue a struggling retailer, but to modernize its IT infrastructure and build its online presence. However, all it brought was a misunderstanding of retail and inept executives. “(Thomas H. Lee) had blind spots,” Sikes said. “They had a complete disregard for Warren, Michigan, and its ability to attract top talent. They were of the belief that if you weren’t Ivy League talent and vetted by Boston Consulting Group or KPMG, you couldn’t possibly be capable of growing a company.” The company was profitable when Thomas H. Lee entered, but its cost-cutting strategy quickly dismantled its balance sheet, said a former executive who spoke to Crain’s on the condition of anonymity due to a nondisclosure agreement. “The first thing (Thomas H. Lee) did was start cutting costs and cutting people,” the executive said. “When everyone starts looking back and analyzing this, how it happened, they are going to see they took a successful brand with a successful executive team and destroyed a great company in three years by bringing in the same team that ran the demise of Kmart and Sears.” Longtime CEO Kim Yost retired from the company in February 2018, less than a year after Thomas H. Lee acquired the company and only days after Van Elslander died. He was replaced in April 2018 by Ronald Boire, a former Barnes & Noble Inc. CEO and executive at Toys R Us, Brookstone, Kmart and Sears. Yahoo! Finance ranked Boire as the worst executive of 2016 after Barnes & Noble reported a $24.6 million loss that year. The executive said Thomas H. Lee terminated or accepted the resignation of upwards of 22 Art Van executives in the first two years of its ownership. “(Thomas H. Lee) did not put passionate leaders in seats,” Sikes said. “They replaced people working crazy hours and with passion with a team of numbers crunchers who would fly in on Monday and fly out on Thursday night. That might work in manufacturing, but not in retail.” Boire left the company 14 months later in July 2019. Gary Fazio took over the top executive role in September. Fazio had retired in 2015 as the CEO of the Serta-Simmons Bedding Co., the world largest bedding manufacturer and supplier to Art Van. Gail Galea, Art Van’s executive vice president and chief merchandising officer, also departed last year. To fund the transaction, Thomas H. Lee loaded up Art Van with debt

Art Van’s stores started going-out-of-business sales on Friday. | CRAIN’S DETROIT BUSINESS

— a common private equity tactic to reduce the firm’s financial exposure. Art Van currently carries $178 million in debt with FS KKR Capital Corp., the publicly traded business development and lending arm of New York private equity firm KKR & Co. Inc. KKR declined to comment. Crain’s was unable to independently verify the rest of Art Van’s debt, but sources said the company owed $60 million to Wells Fargo & Co. with an additional roughly $180 million in unsecured debt. Wells Fargo did not respond to inquiries. The bent of private equity often is to extract as much cash as possible, as quickly as possible from a company, said Pat O’Keefe, CEO of Bloomfield Hills-based advisory form O’Keefe & Associates Consulting. At closing in 2017, Thomas H. Lee entered into a series of sale-leaseback deals on Art Van’s real estate, including its 1.06-million-square-foot headquarters in Warren and 20 locations in Michigan, with a variety of buyers after closing the deal to buy Art Van. “Private equity saw value outside the business in the real estate owned by Art Van, who owned a number of their stores,” O’Keefe said. “They entered into a massive sale-leaseback to liquidate the value of the real estate and recover a big part of their initial investment.” The executive said the move constrained cash flow as the retailer was now bogged down by high rents. Thomas H. Lee then made the bolton acquisitions of Levin Furniture in Pittsburgh and Wolf Furniture Co. in Altoona, Pa., in separate deals Crain’s estimated at a total of $260 million. The acquisitions boosted Art Van’s workforce by 1,900 to 5,500 employees and added 53 stores. Art Van reported to Crain’s revenue of $850 million in 2018, up from $650 million in 2015. O’Keefe said the bolt-on formula that was popularized in manufacturing routinely fails under finance-driven private equity ownership. “This is almost always a disaster, as the PE firm rarely executes on the plan post closing as they don’t devote resources to the synergies they are hoping to get from centralized purchasing, human resources and other administrative duties,” O’Keefe said. “They often don’t plow money into the business and the companies now under a sea of debt often don’t make it, especially if there is a small hiccup in the numbers.” Thomas H. Lee told Crain’s in an emailed statement that “investors in the March 2017 acquisition, including THL, will lose 100 percent of their principal investment in the company and never received any dividends or returns of capital from their investments.”

Hiccups in home furnishings Online companies such as Wayfair in furniture and Casper, Leesa and Tuft & Needle in bedding have gobbled up market share away from legacy traditional retailers like Art Van and competitor Gardner White. Online retail giant Amazon is also cutting into its bottom line. The 25 largest furniture and bedding retailers in the U.S. combined for a 7.5 percent increase in sales to $45.7 billion in 2018, according to a report in Furniture World. However, it was Amazon and Wayfair that dominated those increases. The pair combined for an estimated 35.8 percent increase in estimated furniture and bedding sales in 2018. Nearly 20 percent of all U.S. furniture sales are now online, according to IBISWorld data. Traditional brickand-mortar outlets continue to lose

“IF YOU WATCH TV IN MICHIGAN, YOU COULDN’T MISS AN ART VAN AD. BUT WHEN THEY CUT THAT BACK, WE STRUGGLED TO GET PEOPLE IN THE DOOR.” — Diana Sikes, former senior vice president of marketing at Art Van

market share even as total sales increase, with the exception of manufacturer-branded companies such as Monroe-based La-Z-Boy Furniture, according to Furniture Today. “Despite our best efforts to remain open, the Company’s brands and operating performance have been hit hard by a challenging retail environment,” Diane Charles, Art Van Furniture’s vice president of communications, said in a statement upon announcing the liquidation. But all the evidence of decline didn’t stop retailers from expanding, In 2018, there were more mattress stores in the U.S. than McDonald’s, USA Today reported. The number of mattress stores in the U.S. increased by 32 percent between 2009 and 2017 to 15,255, according to IBISWorld. An Art Van competitor, Houston-based Mattress Firm Holdings, entered Chapter 11 bankruptcy after an acquisition binge that grew its footprint to 3,230 storefronts and 10,000 employees. The mattress retailer ballooned revenue to $3.4 billion in 2018 from just $432.3 million in 2009, but was bleeding money for years. It reported a $54 million net loss in 2018. Upon exiting bankruptcy in November 2018, Mattress Firm closed as many as 900 underperforming stores. The executive said Art Van’s move to mattress stores was likely unwise,

as it reduced foot traffic at its furniture stores. “Bedding is a major driver of furniture sales,” the executive said. “When you put them out separately, you have those additional (real estate and marketing) costs and one product line to make up all the money. That didn’t work.” Art Van attempted in recent years to upscale its product line, under the belief that the store had more opportunity to compete with home furnishing retailers Pottery Barn and Ethan Allen Interiors, said retail and urban planning expert Robert Gibbs, CEO of Birmingham-based retail advisory firm Gibbs Planning Group. “Art Van never got over the image of being the low-cost option, or the middle-class’ furniture store,” Gibbs said. “They believed the newer, higher quality merchandise and price points would reflect differently on the brand. At the same time, Pottery Barn and Ethan Allen reduced their prices and offered many more promotions. Art Van never caught up. They were having a once-ina-lifetime sale every weekend.” Sikes disagrees that Art Van’s PureSleep stores or upscaling had anything to do with its demise. “(Thomas H. Lee) is promulgating this idea that the challenging retail environment did this. No way,” Sikes said. “Mr. Van built up a strong company where people in their first apartment with a $500 budget would be well served and people building their dream home with a $50,000 budget could be served. All of this is such a minuscule piece of the pie. Did Millennials kill Art Van? No. Did a shift in product kill Art Van? No. We were in a wonderful spot when they came in.” Thomas H. Lee also slashed the company’s marketing budget, making it even more difficult to communicate its new quality and stores, the executive said. “If you watch TV in Michigan, you couldn’t miss an Art Van ad,” the executive said. “It was in your face every day. But when they cut that back, we struggled to get people in the door.” Conway said cutting the advertising spend was the death knell for the company. “Art Van is a huge marketing play. Art was a marketing genius and that’s what grew the company,” Conway said. Another compounding factor was the ongoing trade war between the U.S. and China. China was the top furniture exporter to the U.S. in 2018, sending $34 billion in tables, chairs, couches and other home furnishings to our shores. Those imports were hit with a 10 percent tariff in September 2018, but then jumped to 25 percent in May 2018 after the U.S. and China trade talks stalled.

The tariffs would add $4.6 billion a year to what consumers will spend on imported furniture such as recliners, couches and upholstered living-room items, according to a June study from the National Retail Federation. Alex Calderone, managing director of Birmingham-based Calderone Advisory Group, said the tariffs have lowered margins significantly for major furnishing retailers. “Some of the furniture retailers our firm has come across simply couldn’t pass these costs on to consumers,” Calderone said.

The aftermath Despite announcing liquidation last week, a Chapter 11 bankruptcy filing was expected as early as Friday, March 6 (after this story went to print), or early this week. Hilco Global and Gordon Brothers have been retained to assist Art Van in liquidating, the company told employees in a memo sent last week and obtained by Crain’s. The liquidators would sell all of Art Van’s remaining inventory, including office equipment and wall fixtures, and any other assets to repay creditors. Art Van’s approximately 44 Levin Furniture and Wolf Furniture stores, which the company acquired in 2017, will be sold back to former owner Robert Levin, pending court approval, the company said in a news release. Eight of those stores, however, will be liquidated. There are another 146 Art Van stores remaining. An unknown portion of those stores are franchised and will not be liquidated. Roughly 3,100 employees, including 262 at its headquarters in Warren, are scheduled to lose their jobs as the company winds down, with all stores expected to be closed by May 31. The Van Elslander family, led by Gary Van Elslander, were in discussions to buy back the company in a stalking-horse bid under the Chapter 11 reorganization, but a deal never materialized. On whether the family could return to the table, Conway said it’s unlikely. “I don’t see the family coming back in,” Conway said. “Art has about 40 grandchildren. I don’t see Gary wanting to get in the middle of that mess.” A buyer could yet emerge to salvage parts of the company and the valuable name. “Art Van is really one of the best know furniture stores in the country,” Gibbs said. “It’s highly respected. I’d hate to see it just go away.” Contact: dwalsh@crain.com; (313) 446-6042; @dustinpwalsh MARCH 9, 2020 | CRAIN’S DETROIT BUSINESS | 17

FROM PAGE 1 | REVERSAL OF FORTUNE Viktor Gjonaj is under federal investigation Viktor Gjonaj is the subject of a federal probe into his alleged Ponzi scheme. A source familiar with the matter said the former commercial real estate executive is under investigation by federal law enforcement in a probe looking at his alleged Ponzi scheme that allegedly resulted in no less than $15.25 million being lost to investors who believed they were purchasing ownership interests in real estate. The status of that investigation is unknown. Spokespeople for both of the Federal Bureau of Investigation and the U.S. Department of Justice have declined to say whether they are looking into him. The Troy Police Department has said it sent a Sept. 26 fraud complaint to the federal Detroit Metro Identity Theft Task Force for investigation. Michigan Attorney General Dana Nessel’s office has gotten involved in the case. “On behalf of one of our state agency clients, our office requested the Oakland County Circuit Court’s file,” said Kelly Rossman-McKinney, communications director.

The Gjonaj-Crain’s relationship Viktor Gjonaj and Crain’s Detroit Business have worked together intermittently going back several years. ` His former company, Troy-based Imperium Group LLC, sponsored the newspaper’s Real Estate Next event in April 2019, and he delivered remarks during the gathering. `He has also been quoted on retail real estate matters and advertised Imperium in Crain’s. For a time, Imperium Group also had the contract to market space for lease in the Brewery Park office building that serves as the Detroit headquarters for Crain Communications Inc., the parent company of Crain’s Detroit Business.

How this was reported These stories are told using documents filed in lawsuits in Oakland County Circuit Court and Macomb County Circuit Court; incident reports from the Ann Arbor and Shelby Township police departments; detailed records from the Michigan Lottery compiled using multiple Freedom of Information Act requests; an office eviction case from the 52-4 District Court in Troy; and interviews with former Viktor Gjonaj employees, friends and associates, as well as other sources. Since September, repeated requests have been made to interview Gjonaj; his wife; attorneys who have represented them at varying points; attorneys for Kris Krstovski and Jerome Masakowski, the two plaintiffs in the main legal case against him; each of the other alleged victims. None have been granted. Requests since October to interview Gregory Vitto, who describes Gjonaj's lottery activities in court testimony, have also not been granted. In the last five months, Gjonaj’s cell phone has been turned off and emails sent to his Imperium Group email account and other accounts associated with him bounced back. His whereabouts remain unknown. 18 | CRAIN’S DETROIT BUSINESS | MARCH 9, 2020

GJONAJ

From Page 1

Inside, it was in shambles. Empty beer and wine bottles, pills scattered everywhere, cigarette butts, $2,033 cash and three handwritten notes, the contents of which were redacted from an Ann Arbor police report obtained through the Freedom of Information Act. There was also a stack of lottery tickets. “He was speaking in broken sentences and was incomprehensible,” the report says. “He was sweating profusely, his eyes were rapidly shaking, and he kept looking around in a frantic manner.” So the evening of Aug. 20, the man who is alleged in multiple lawsuits to have bilked at least $15.25 million from no fewer than nine investors who thought they were making real estate investments in various properties throughout metro Detroit, was taken to the University of Michigan Health System for treatment and evaluation. It’s the last time anyone is known to have seen him.

Windfalls In December 2017, Gregory Vitto buried his mother. Gjonaj, who had known Vitto for 25 years, came to the funeral and ended up, in his own way, burying the grieving son. Vitto had just been let go from a previous job and was looking for new employment. His next career opportunity came with Gjonaj, who less than two months earlier had formed Troy-based Imperium Group LLC, a real estate company, after a $2.5 million payday from the Daily 4 in June 2017 and after slogging away for two decades in the trenches buying, leasing and selling buildings for others. So Gjonaj made the move to hire Vitto, who he originally tasked with light industrial brokerage in Macomb County. He might have known something was amiss his first day at the office, Jan. 29, 2018, when Gjonaj became $10 million richer. The windfall wasn’t from the sale of a property or a commission from a lease, but instead 2,000 winning Daily 4 tickets worth $5,000 each purchased at Picolo’s Liquor & Deli (see related story, Page 20) at 23 Mile Road

and Schoenherr Road in Shelby Township, less than two miles from his home on Bournemuth Drive, according to state lottery records. “The day I started for him, January 29th, um — he won $10 million,” a transcript of Vitto’s 15-minute court testimony on Sept. 12, 2019, reads. He was responding to questioning by Ethan Holtz, partner for Southfield-based Jaffe Raitt Heuer & Weiss PC, which is representing plaintiffs Kris Krstovski and Jerome Masakowski in a lawsuit filed in August 2019 alleging a large Ponzi scheme masterminded by Gjonaj. “On February 27th, he won ah — $9.5 (million) and on March 17th, he won $2 million. It was $21.5 million in 47 days.” It may actually have been a bit more. State records show $6.125 million won in Daily 4 on Feb. 28 at Picolo’s and $3.5 million at a store called Smoker’s Express, also in Shelby Township, that same day.

Running the numbers Vitto’s LinkedIn profile nebulously lists him as a “senior advisor” for Imperium Group, but in reality, his dayto-day job was much more specific than that. To facilitate Gjonaj’s gambling, which is alleged in multiple lawsuits, Vitto said he was shifted from real estate brokerage to “(running) his numbers,” something he did every day, six hours a day, for months, at times playing up to $80,000 a day for his boss. That’s complicated for a variety of reasons (see related story, Page 20). Vitto says he would get a text message from Gjonaj around 8:30 a.m., call “a small network” of party stores that he had built around Macomb County and “make sure everybody had ‘em (the numbers) going,” the testimony reads. The process would repeat itself, day in, day out, with Gjonaj playing the twice-daily game essentially on credit, settling up his gambling debt with the party stores at the end of every week with a wire or a cashier’s check, Vitto’s testimony says. A wire transfer would be from an entity called Strategic Statistics LLC, which is registered in Troy to Peter Gojcaj, partner for Troy-based law firm Beier Howlett PC. Gojcaj did not return repeated emails seeking an interview.

ILLUSTRATION BY MICHAEL HOGUE FOR CRAIN’S DETROIT BUSINESS

A timeline of Viktor Gjonaj’s troubles ` OCTOBER 2016

Lottery flags party store Noticing an increase in Daily 4 sales, the Michigan Lottery Accounting Division noted that Picolo’s Liquor & Deli had appeared on a weekly report with high overall sales for several months and attempted to verify the sales information. The store was cooperative and the matter was considered closed, the Michigan Lottery says.

` JUNE 18, 2017

` NOV. 14, 2017

` JAN. 29, 2018

` FEB. 2, 2018

Viktor Gjonaj claims 500 winning Daily 4 tickets for the June 18 evening drawing totaling $2.5 million, which he won at Picolo’s Liquor & Deli. His winning tickets cost $12 each for a total of $6,000.

Gjonaj claims 800 winning Daily 4 tickets for the Nov. 14, 2017, evening drawing totaling $4 million. He spent $19,200 ($24 each) on the winning tickets at Picolo’s Liquor & Deli.

Gjonaj wins $10 million from 2,000 winning Daily 4 tickets purchased at Picolo’s Liquor & Deli, according to state lottery records and testimony in Oakland County Circuit Court.

In response to Gjonaj’s play, the Michigan Lottery institutes a statewide $5,000 cap on the amount that can be played at a lottery terminal on any given day.

Gjonaj wins $2.5 million

` OCT. 23, 2017

Gjonaj forms Imperium Group LLC Gjonaj registers Imperium Group LLC, his Troy-based real estate company, at 50 W. Big Beaver Road in Troy.

Gjonaj wins $4 million

Gjonaj wins $10 million

Michigan Lottery limits terminal play

` FEB. 27, 2018

` MARCH 17, 2018

Gjonaj wins $9.625 million, state lottery records and Oakland County Circuit Court testimony reflect. Lottery records say he won $6.125 million at Picolo’s Liquor & Deli and another $3.5 million at a store called Smoker’s Express, also in Shelby Township.

Gjonaj wins $2 million at Picolo’s Liquor & Deli with 400 winning tickets.

Gjonaj wins $9.625 million

Gjonaj wins $2 million

` AUG

Gjo

The A comp the Ke distur with c handw Unive

FROM PAGE 1 | REVERSAL OF FORTUNE Sometimes Gjonaj would win, and other times he would lose in his six-month, $1 million-a-week gambling binge. But after those 47 days in early 2018, the winnings were nowhere near as large — $1 million here, $1 million there, but “nothing of the — the magnitude of what happened in the beginning,” Vitto said in his testimony in front of Oakland County Circuit Judge James Alexander, who cautioned Vitto about criminally implicating himself. “About 90 days ago it started to get a little weird because things were being paid slow, and I started to put two and two together of OK, we’re over $20 million so things are not in a good place,” Vitto said. He didn’t ask questions. Money was coming in, money was going out, and he didn’t know where it started and where it ended until he himself began settling up bills for Gjonaj, apparently anticipating a repayment that never came. Broke, having been taken for what Vitto later in a text message to Crain’s referred to as “a ton of money,” it ended in a park.

to eviction documents filed in Troy district court. He wasn’t paying his debts to the party stores. Vitto had fronted some of the money owed to them but was now just one more of his creditors. “I was used just like the rest of the people,” Vitto said in a September text message, before he stopped responding to Crain’s. “He owes me a ton of money also.” “I was his right hand and he screwed me worse then (sic) anyone I feel. Everyone thinks I did all this. I trusted him blindly the whole time.” Others were owed millions, with Gjonaj allegedly having used their investments to fund his lottery addiction,

Company evaporates

and he had no way of paying it back. The Daily 3 and Daily 4 winnings had dried up.

It was August and by that time, Gjonaj had stopped showing up for work. “The day I saw him was the day that he supposedly had gotten out of whatever mental hospital he was in for a week or whatever it was — I don’t know all the details — but I met him at a park and spoke to him for a little bit and yeah he said he had just gotten out of a ward, he wanted to kill himself, he was all depressed and didn’t know what to do and he was sorry for the situation he put me in but it is what it is,” Vitto testified. Gjonaj’s company, formed less than two years prior, had evaporated. Employees weren’t getting paychecks and one by one, started leaving in an exodus. By September, his company had been evicted from its Troy office, which more than doubled from 1,800 square feet to 3,800 square feet during its short-lived lease in the Liberty Center complex on West Big Beaver Road, according

` AUG. 23, 2019

Investor Ded Dedvukaj sues Gjonaj in Oakland County Circuit Court, claiming he is owed $2.475 million. ` AUG. 26, 2019

Krstovski, Masakowski sue Gjonaj

` AUG. 20, 2019

Gjonaj found in Ann Arbor hotel The Ann Arbor Police Department responds to a complain of a man later determined to be Gjonaj in the Kensington Hotel in Ann Arbor causing a disturbance on the third floor, where he is found with cash, lottery tickets, alcohol, pills and handwritten notes. He is transported to the University of Michigan Medical Center for treatment.

Gjonaj and related companies are sued in Oakland County Circuit Court by investors Kris Krstovski and Jerome Masakowski, alleging a “Ponzi-like scheme” involving commercial real estate and gambling. They ultimately get a judgment of $6.13 million, bringing total claims against Gjonaj to $8.605 million. ` AUG. 30, 2019

Jerome Morgan sues Gjonaj Investor Jerome Morgan sues Gjonaj in Oakland County Circuit Court, claiming that he is owed $1.5 million, bringing total claims against Gjonaj to $10.105 million.

“I WAS USED JUST LIKE THE REST OF THE PEOPLE. HE OWES ME A TON OF MONEY ALSO. I WAS HIS RIGHT HAND AND HE SCREWED ME WORSE THEN (SIC) ANYONE I FEEL. EVERYONE THINKS I DID ALL THIS. I TRUSTED HIM ‘This too shall pass’ BLINDLY THE WHOLE In 2014, when he was a principal TIME.” with Southfield-based Signature Asso— Gregory Vitto, in a text message to Crain’s

By the summer of 2019, his employees were stunned by the sudden absence of their boss. “Everybody was shocked and nobody knew anything about it. Everyone lost a job and everybody is trying to recoup,” said one former employee, speaking on the condition of anonymity. “I wish we were a real estate company but unfortunately we were not. I just wish people who were cheated get their money back.” Three days after his Aug. 20 encounter with Ann Arbor law enforcement at the Kensington Hotel, the first Oakland County lawsuit was filed by Ded Dedvukaj, alleging he is owed $2.475 million. That case is pending, with a Nov. 2, 2020, trial start date. On Aug. 26, the Krstovski/Masa-

Contact: kpinho@crain.com; (313) 446-0412; @kirkpinhoCDB

` SEPT. 12, 2019

` SEPT. 30, 2019

` NOV. 22, 2019

Gregory Vitto, a former Gjonaj employee as a real estate broker and lottery player, testifies about his involvement in Gjonaj’s gambling and how much Gjonaj played: at times, $1 million a week for about six months.

Investor Kreshnik Fetahu sues Gjonaj in Oakland County Circuit Court, claiming he is owed $200,000, bringing total claims against Gjonaj to $10.805 million. A judgment for $200,000 was registered in February.

Investor Nol Lleshaj sues Viktor Gjonaj in Oakland County Circuit Court, claiming he is owed $380,000, bringing total claims against Gjonaj to $14.25 million.

` SEPT. 18, 2019

` NOV. 1, 2019

` DEC. 26, 2019

Investor Nua Palushaj sues Gjonaj as an intervening plaintiff in the Krstovski/Masakowsi case, claiming he is owed $3.065 million. That brings total claims against Gjonaj to $13.87 million.

Investor Gjergj Sinishtaj sues Gjonaj in Oakland County Circuit Court, claiming he is owed $1 million. This brings total claims against Gjonaj in Oakland County Circuit Court to $15.25 million. The case is pending.

` SEPT. 4, 2019

Deda Dedvukaj sues Gjonaj

Gjonaj is sued in Macomb County Circuit Court for $197,000 in unpaid bills for a new $2.25 million Lockwood Drive mansion being built for him in Washington Township. The 6,418-square-foot mansion remains unfinished.

Investor Deda Dedvukaj sues Gjonaj in Oakland County Circuit Court, claiming he is owed $500,000. This brings the Oakland County civil lawsuit total against him to $10.605 million. A judgment was registered for $500,000 in February.

Contractor sues Gjonaj over home

ciates Inc., Gjonaj appeared with another guest on a Bloomfield Community Television program called “Self Talk,” hosted by Danco Sotirovski. He talked about his family — parents who came to the U.S. from Montenegro, speaking little English, and a brother — and his first interaction with real estate. He said he was 12 years old and his family was selling its house. Because of their limited English, he was tasked with fielding calls from agents on the property, he said. “So I think I was kind of born into this a little bit,” he said. During the 30-minute show, the subject was fear and the conversation was wide-ranging. “My favorite line to use all the time is, ‘This too shall pass,’ ” Gjonaj said, when asked about how he got through the 2008 recession. “Whatever you’re going through in life, you just gotta remember that no matter how bad it is, eventually it will pass. Things will change.”

Lawsuits mount

Gregory Vitto testifies against Gjonaj

Ded Dedvukaj sues Gjonaj

kowski lawsuit was filed, with the investors alleging that Gjonaj doctored purchase agreements to make it appear to others as if they were buying ownership interests in properties around Southeast Michigan, when in fact they were already owned by the two men. It was later revealed that Krstovski believes he is owed $775,000 and Masakowski, $5.355 million. That case is pending, with pretrial set for April 26 and trial beginning May 18. Four days after that lawsuit was filed, Detroit builder and contractor Jerome Morgan filed his own lawsuit, alleging Gjonaj owes him $1.5 million. A default judgment was filed Nov. 25. On Sept. 18, Deda Dedvukaj — it’s not known if Deda and Ded Dedvukaj are related — filed suit saying Gjonaj owes him $500,000. Nol Lleshaj claims in a Nov. 22 lawsuit he is owed $380,000, and Nua Palushaj says he is owed a little over $3 million. Most recently, Gjergj Sinishtaj said in a lawsuit filed at the end of 2019 that he is owed $1 million. In each case, attorneys for the plaintiffs have had difficulty serving their lawsuits to Gjonaj.

Kreshnik Fetahu sues Gjonaj

Nua Palushaj sues Gjonaj

Nol Lleshaj sues Gjonaj

Gjergj Sinishtaj sues Gjonaj

IMAGES BY KIRK PINHO; IMPERIUM LLC; ANN ARBOR POLICE; DAN IVANOVIC

MARCH 9, 2020 | CRAIN’S DETROIT BUSINESS | 19

FROM PAGE 1 | REVERSAL OF FORTUNE

Party stores reaped windfalls Commissions, ticket sales for Daily 3, 4 games added up to millions for Macomb County retailers BY KIRK PINHO

You could enter Picolo’s Liquor & Deli in Shelby Township on any given day and hear the pair of lottery machines running. So much, in fact, that if you went in between Oct. 1, 2016, and Sept. 30, 2017, it would have sounded like a constant presence, an almost white noise that you got used to the more regularly you went in there. That’s because that fiscal year alone, the party store churned out over 3.92 million Daily 4 tickets alone — on average, one every 8 or so seconds for an entire year. It paid big for the Matty family that owns the store and for Viktor Gjonaj, the former commercial real estate executive who is believed to be the buyer of an almost impossibly large majority of tickets, and the recipient of tens of millions of dollars of winnings as a result. (see related story on Page 1). It’s not known exactly how much Gjonaj won or lost in his apparent lottery binge, but records obtained through the Freedom of Information Act show that between fiscal 2014 to present, the Matty family has netted $2.38 million in commissions from the sale of Daily 3 and Daily 4 tickets, and their winnings, alone. That includes no other revenue from any other state lottery games. Based on a 2 percent commission on winnings, Picolo’s $343,054 in commissions on tickets winning more than $600 for the player, the store sold $17.15 million in winning tickets in the 2018 fiscal year and $6.61 million in winning tickets in the 2017 fiscal year, based on its $132,237 in commissions. Since September, Crain’s has been investigating Gjonaj’s alleged Michigan Lottery gambling habit and how that may have contributed to an alleged “Ponzi-like scheme” that a smattering of lawsuits in Oakland County Circuit Court in the aggregate allege at least $15.25 million in lost investor money. When contacted earlier this year to talk about the store’s Daily 3 and Daily 4 sales numbers, the man answering the phone at Picolo’s said there would be no comment. Attorneys for two plaintiffs with judgments totaling $6.13 million against Gjonaj have filed a garnishment against Picolo’s parent company, Steven & May Inc., seeking to get repayment of some of their clients’ money. That entity, which is registered to Maysoon Matty, said in a court response that it is “not in possession of money or property” of Gjonaj’s.

Ticket sale boom No other Macomb County lottery retailer comes close to replicating the prolific nature of Picolo’s Daily 3 and Daily 4 operation, which has sold over $30 million worth of tickets for the two games since FY 2014, according to state records. In fact, Daily 4 ticket sales at Picolo’s accounted for $1 out of every 20 | CRAIN’S DETROIT BUSINESS | MARCH 9, 2020

State: Few options to stop players BY KIRK PINHO

Picolo's Liquor & Deli in Shelby Township netted $2.38 million in commissions from the sale of Daily 3 and Daily 4 tickets, and their winnings, between 2014 to the present. | KIRK PINHO/CRAIN’S DETROIT BUSINESS

“RECORDS INDICATE THAT ACCOUNTING NOTED THE INCREASE IN SALES AT PICOLO’S IN OCTOBER OF 2016. HOWEVER, AN INCREASE IN SALES ALONE IS NOT NECESSARILY CAUSE FOR CONCERN.” — Jeff Holyfield, spokesman for the Michigan Lottery

Online Q&A: A personal tale of gambling’s toll

Michael Burke’s gambling problem led him to state prison. Now the head of the Michigan Association on Problem Gambling, Michael Burke says he embezzled $1.6 million of client money over the course of a long addiction. He spoke with Crain’s Detroit Business about his gambling problem, what more should be done at the state level to help gambling addicts and end the stigma surrounding addiction. Read it at CrainsDetroit.com.

$12 spent in Macomb County on the game during that time frame. It had $26.3 million in sales, with $336.2 million countywide. Its ticket sales shot up dramatically from year to year in a small window of time, which attracted the attention of Michigan Lottery officials, said Jeff Holyfield, spokesman for the lottery. “Records indicate that accounting noted the increase in sales at Picolo’s in October of 2016,” Holyfield wrote in an email. “However, an increase in sales alone is not necessarily cause for concern.” In fiscal 2015, there were a total of $51,745 worth of Daily 4 sales and $33,522 in Daily 3 sales at the store, which is at 13459 23 Mile Road at the northwest corner of Schoenherr Road in a strip plaza that public records say is owned by the Matty family (Gjonaj’s Imperium Group LLC real estate company also employed Simon Matty, the store owners’ son; a voicemail was left on his cell phone). That year, between commissions on Daily 3 and Daily 4 sales plus winnings on those tickets, the store took in only about $6,600. But the next year, fiscal 2016, it was $1.3 million in Daily 4 sales plus $413,000 or so in Daily 3. The state paid $111,360 or so in sales and winnings commissions for those two games to the store, according to lottery data. The following year, fiscal 2017, $15.62 million in Daily 4 sales and $217,426 in Daily 3 sales plus winnings on those tickets resulted in the state doling out over $1.08 million in commissions to the store and its owner. Then, on sales of $6.99 million in 2018 on Daily 4 and $1.38 million on Daily 3 and those tickets’ winnings, there was $881,650 in commissions. In FY 2019, the store netted $286,000 in sales and winnings commissions on Daily 4 sales of $2.28 million and Daily 3 sales of $1.89 million.

Spreading the wealth Picolo’s wasn’t the only store where Gjonaj seemed to be playing the Daily 3 and Daily 4. “I’m not the only store he used to play,” said Jinan Kakos, who is listed as the registered agent for Garfield Investments Inc., the corporate entity behind One Step Party Shoppe, which also had large increases in Daily 3 and Daily 4 sales in its location at 16530 21 Mile Road in Macomb Township. “I already went to the lottery, so please don’t give me a call back, thank you.” One Step Party Shoppe reliably did $114,000 to $152,000 per year in lottery business until fiscal 2019, when that figure shot up to $812,579, according to state lottery records. Its Daily 3 sales never eclipsed $98,000 or so until fiscal 2019, when it sold $212,395. A garnishment was sent to Garfield Investments, and the company responded in court by saying it had “no money owing (to Gjonaj) and no money held.” Stores like Smokers Express went from $149,000 in Daily 4 sales in FY 2014 to $3.59 million in FY 2018; Daily 3 sales increased more than tenfold during that time period, from $61,400 to $751,000. Nathan Kizi is the registered agent for Mario’s Corner Market at 49011 Romeo Plank Road in Macomb Township. He said he doesn’t know Gjonaj, both in court filings in response to a garnishment as well as in an interview earlier this year. His store between fiscal 2014 and fiscal 2018 sold no more than $66,000 worth of Daily 4 tickets any given year. But in fiscal 2019, that figure shot to $1.14 million. Kizi acknowledged the increase in his Daily 4 sales and said, “I was happy with my sales, but it wasn’t my business — I was getting paid and making my money. It was not really my concern how the money was spent.” Contact: kpinho@crain.com; (313) 446-0412; @kirkpinhoCDB

In June 2017, Viktor Gjonaj walked into a sleepy retail strip on Dequindre Road in Sterling Heights. He wasn’t heading for the massage parlor, or the small Indian and Pakistani grocery store or restaurant or the hair salon. Instead, he went into the Michigan Lottery claim center at the northern edge of Sherwood Plaza. There, he showed his driver’s license and Social Security card, completed a claim form, and left $2.5 million richer with a check cut to him as the prize for the 500 winning Daily 4 tickets he had for the June 18 evening drawing — 7-80-0 was the winning number — purchased at Picolo’s Liquor & Deli in nearby Shelby Township. It was the first interaction the Michigan Lottery says it had that stood out with the 42-year-old commercial real estate industry veteran, and it wouldn’t be the last. Less than five months later with the Nov. 14 evening drawing (winning number: 2-0-7-6) he would repeat that process with another 800 tickets from Picolo’s, leaving $4 million richer. Ultimately, he ended up claiming no less than $28 million in winnings on the twice-daily game in less than a year, and the state enterprise fund, which earlier this year announced its first-ever $1 billion contribution to the School Aid Fund, some of which would have been funded by Gjonaj’s rampant play, instituted unprecedented measures in 2018 to try to slow his gambling by limiting terminals to $5,000 in play per day. But it didn’t stop the founder of Troy-based Imperium Group LLC, a real estate company he started in October 2017, a year after state lottery officials first flagged a high amount of play at Picolo’s that has largely been attributed to Gjonaj. Instead of slowing down as intended, he seems to have attempted to ramp up his play. Gjonaj allegedly recruited at least one person, Gregory Vitto, to work for him full time — ultimately with a job description that only ended up being to play the lottery. To get around the $5,000 limit, Vitto went about establishing what he described in court testimony as a small network of Macomb County party stores at which he would play Daily 3 and Daily 4 to the tune of $80,000 a day for months. Vitto also suggested there were others who played on Gjonaj’s behalf. In his wake, Gjonaj, who hasn’t been seen since the summer, allegedly left at least $15 million from investors unrepaid, with speculation that there could be much more owed to those not inclined to seek their money back through legal channels.

‘This player’ Michigan Lottery officials speak clinically about Gjonaj and almost never identify him by name. See LOTTERY on Page 21

LOTTERY

From Page 20

“This particular player” or “the player” or “this player” is the only language they use to refer to him publicly because state law allows players to remain anonymous, implicated in a $15 million-plus Ponzi scheme or not. The only official confirmation that the $3.8 billion fund even knows who Gjonaj is comes in the form of an email Benjamin Vogel, who worked in the Michigan Lottery security division, wrote to James Grady, a detective with the Michigan State Police, two years ago. It was obtained by Crain’s through a Freedom of Information Act request. “Concerning our previous conversation, the retailer is Picolo’s Party Store at 13459 23 Mile Rd. in Shelby Township,” Vogel wrote to Grady on Feb. 7, 2018. “From 1/1/17 through 2/5/18, Picolo’s generated $19,277,352 in Daily 4 sales.” “Viktor Gjonaj is said to work in commercial real estate out of Metro Detroit,” the email says. Michael Shaw, Special Enforcement Section commander, said in mid-January that the Michigan State Police does not have an open investigation into Gjonaj. Michigan Attorney General Dana Nessel’s office is reviewing one of the Oakland County court cases. Aric Nesbitt, who is now a Republican state senator but at the time was the state’s lottery commissioner, remembers Gjonaj and the bureau’s response. “As I recall, I believe we took actions at the lottery to try to slow him down and then everything that we read in the news showed him to be

some legitimate developer. It seemed like most people at the time thought he was a successful businessman,” Nesbitt said in an interview. “It sounds like his Ponzi scheme was front and center,” Nesbitt said. “It sounds like he was chasing his tail. The guy was winning big, I had my people do an investigation, provide recommendations, February 17, 2020and I feel like we followed through in trying to provide both responsible December 2, 2019gaming and also making sure that everything was followed in our processes.”

State: Few options The state says that all Daily 3 and March 9, 2020 Daily 4 ticket purchases are anonymous, so it had few, if any, options for preventing a single player from playing too much. “The anonymous nature of a ticket purchase makes it nearly impossible to determine who is purchasing tickets, and to what extent, until the player presents themselves in a claim center with a winning ticket,” the lottery said in emailed responses to questions from Crain’s. Requests for information and interviews were directed to a lottery spokesman. However, after winning $4 million in November 2017 coupled with the $2.5 million win in June five months earlier, lottery officials say that the state had “a better picture of this player’s level of play.” At that point, an internal evaluation of how to reduce Gjonaj’s Daily 3 and Daily 4 spending was conducted. However, the lottery says it does not have a record of how long the evaluation took or who was involved in it. “The amount a person may spend

on gambling or other activities is subjective to that person,” the lottery said in response to emailed questions. “The claim was reported to management in Nesbitt November based solely on the large number of tickets being redeemed.” “Other than the large number of tickets being redeemed at one time, there did not appear to be anything unusual.” It’s not known how Gjonaj was able to win so frequently in a game that can have 1 in 10,000 odds of winning a maximum $5,000 prize. The way Gjonaj played, however, improved his odds to 1 in 416 and 1 in 833, according to the lottery.

Experts: Do more The end result of the lottery’s internal evaluation was a cap on terminals play statewide, and a few responsible gaming pamphlets. The limit and the literature did not work. “If anybody calls the lottery and tells the lottery they a gambling CRAIN ’S have DETROIT BUSINESSproblem, and they need help, the lottery will send them is available CRAINto’Swhat DETROIT BUSINESSin the state, and I gotta tell you, it isn’t a lot,” said Michael Burke, president of the Michigan Association on Problem Gambling (see related story at crainsdetroit.com). His organization has Michigan Lottery on its board. CRAINstaff ’S DETROIT BUSINESS “Yeah, for a problem like this, we’re sending out a pamphlet. I deal also with gamblers who might go through $10,000 in a few months’ period, and they get the same thing. There, their play starts to vary, they end up with higher amounts of play-

ROSS

From Page 3

An investigation by Detroit’s Office of Inspector General found that Friedrichs and his deputy, Sirene AbouChakra, were ordered by Chief of Staff Alexis Wiley to have a pair of their employees delete emails — which were later recovered and released — related to the city’s involvement with the program headed up by Sonia Hassan, M.D. The OIG office found Duggan provided “preferential treatment” in “unilaterally” directing taxpayer resources to the Wayne State University prenatal care program. Duggan’s office disputed the OIG’s conclusions. An investigation by the Michigan attorney general’s office is ongoing, spokeswoman Courtney Covington confirmed. Ross’ team said Friedrichs and his department have brought more than $1 billion in public and private grant

money and investment to the city for things like buses, parks and other things. He has also been heavily involved with the Strategic Neighborhood Fund program. Ross announced last month that he is contributing $100 million to the Detroit Center for Innovation project, which is a joint effort with fellow billionaire Dan Gilbert and the University of Michigan at I-375 and Gratiot Avenue at the eastern edge of downtown. The UM graduate school initiative is for students in things like mobility, AI, sustainability, cybersecurity, financial technology and other fields. The first phase of the project includes the 190,000-square-foot UM academic building, startup incubator, housing, hotel and conference center. The project is expected to break ground next year. Contact: kpinho@crain.com; (313) 446-0412; @kirkpinhoCDB

Contact: kpinho@crain.com; (313) 446-0412; @kirkpinhoCDB

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New York real estate developer Stephen Ross. | ANDREW JOWETT

ing and the lottery will send them the same pamphlet. That’s what they have available.” It wasn’t nearly enough, said Les Bernal, national director of Washington, D.C.-based Stop Predatory Gambling, a 501(c)(3) advocacy group. “He’s obviously showing that he wagered an enormous sum of money to get this. And what did they do? The answer is nothing,” said Bernal. “It’s appalling on both counts. If he was rigging the machine and they didn’t cut it off, it’s appalling. If they didn’t take action to cut off a guy who clearly had suffered from mental health problems, that is equally outrageous and disgusting. The lottery needs to be held accountable. I think in either scenario, the Michigan lottery has some serious questions to answer.”

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VULNERABLE

bottom line depends wholly on whether the outbreak spurs office and plant closures in Michigan. Commercial customers, such as office buildings, accounted for about 38 percent, or 17 million megawatt hours, of DTE’s sales in 2019. Industrial customers accounted for 22 percent, or 9.8 million megawatt hours, last year. Shutdowns and office employees working from home would dent those figures, but residential use would likely spike, mitigating at least part of the damage.

From Page 3

` GENERAL MOTORS CO. — NEGATIVE The Detroit automaker sells more cars in China than in the U.S. GM has delayed the reopening of its plant in Wuhan, the epicenter of the outbreak, until March 10. GM, including its joint ventures, operates 15 plants in China, but nearly 40 percent of its Chinese production occurs in the Hubei province that includes Wuhan. China sales for all automakers fell 92 percent in the first half of February. Parts shortages have been long rumored for GM’s truck plant in Arlington, Texas, and Flint, but have yet to materialize. A continued spread across Europe and the U.S. is clearly bad for GM’s bottom line.

` DOW INC. — POSITIVE While the Midland-based chemical company faces exposure in China from its polyurethanes and specialty plastics divisions, which supply the auto and industrial sectors, it will likely be buoyed by its consumer solutions division. CEO Jim Fitterling told CNBC in late January that demand was already rising for its chemicals found in household cleaners. He also indicated any long-term quarantining or more people staying home out of fear of the virus’ spread will likely cause a spike a grocery store sales and, thus, increase sales for the company’s packaging division.

` WHIRLPOOL CORP. — NEGATIVE The Benton Harbor-based appliance maker is getting hit on two continents. In late January, it trimmed its first-quarter guidance as appliance sales were already hurting in China and Europe. The company said its supply chain and sales in Asia will be “significantly impacted by the virus until at least the end of the first quarter.” And with Whirlpool’s European headquarters located in Milan, Italy, near the epicenter of the first and largest outbreak in Europe, operations are expected to be impacted. It also employs roughly 6,000 in Italy alone.

NURSING

From Page 3

Washington state Over the past week, eight residents have died at Life Care Center, a nursing home in Kirkland, Wash. At least 24 others have been sickened by COVID-19 with high fevers, highlighting the vulnerability of the elderly and caregivers who have been exposed to coronavirus. As of March 6, the state of Washington has reported 75 people testing positive for COVID-19 with 14 deaths. Dozens of residents, some in their 80s and 90s, remain inside the Life Care Center with caregivers. Families and visitors have been denied entry. The situation illustrates what could happen elsewhere in a quarantine situation at a long-term-care facility. Nationally, 2.2 million people live in nursing homes. In Michigan, 38,000 seniors and disabled people live in the state’s more than 440 22 | CRAIN’S DETROIT BUSINESS | MARCH 9, 2020

` STRYKER CORP. — NEUTRAL

Adient is in the middle of a restructuring strategy and is now faced with the impact of the coronavirus outbreak.

` PENSKE AUTOMOTIVE GROUP INC. — NEGATIVE The Bloomfield Hill-based auto dealer group faces risks on both sides of its business, sales and repair. While Penske has no dealerships in China, aftermarket replacement parts are often made there and many plants won’t be fully operational until later in March or even June in some cases. Penske also operates 16 dealer locations in Italy, where sales are expected to plunge as they did in China during the peak of the outbreak. With more than 150 dealerships in the U.S., the extent of Penske’s pain will largely depend on the containment of coronavirus stateside and the overall impact on the economy. And a recession spurred by a pandemic would almost certainly cause vehicle sales to slide.

` LEAR CORP. — NEGATIVE The Southfield-based seating and electronic systems supplier operates 17 locations in China, including one in Wuhan. Lear has been mum on the virus’s impact on its operations, but the supplier has increased efforts in China in recent years, including opening a new automotive leather plant in 2018. China accounted for 13 percent of Lear’s $19.8 billion in revenue last year. Europe and North America account for more than three-quarters of Lear’s business, so its exposure depends on how the virus spreads in those regions. skilled nursing homes. Chris Plance, a health care consultant in New York with PA Consulting, said seniors in nursing homes, independent living Vesterfelt and assisted living typically are more impacted for the same reason people like the facilities: the socializing. “These communities focus on providing social events, and it is part of their business model, plus the average ages for these groups are mid70s,” Plance said. “Senior living providers will need to implement strong controls now to have any chance of handling this with positive outcomes for their residents.” At Novi-based Optalis Healthcare, Marianne Vesterfelt, corporate director of clinical initiatives, said the nine-home chain is keeping a close eye on health alerts.

` ADIENT PLC — NEGATIVE The Plymouth-based seating supplier is in the middle of a restructuring strategy and is now faced with the impact of the coronavirus outbreak. Its operations in China were hit hard by government-mandated quarantines and officials believe production may not be at full capacity until June, the company confirmed to Crain’s. Adient said it is tracking toward the low end of its guidance range of between $870 million to $910 million because of lower volumes in China, partially offset by operational improvements in Americas and the Europe, Middle East and Africa region.

` APTIV PLC — NEGATIVE In mid-February, the Troy-based autonomous vehicle software supplier said the outbreak would put a major dent in its China sales, impacting first-quarter revenue by $150 million to $200 million and operating income by $60 million to $80 million. With production delayed across the globe from shutdowns throughout late January and February, as well as continued spread of the virus, those figures stand to get worse.

` DTE ENERGY CO. — NEUTRAL The Detroit-based utility provides service across the state and also controls energy plants and pipelines across the U.S. Any impact to DTE’s “We are carefully reviewing our infection control policies and are at a heightened level right now,” said Vesterfelt, who also is a nurse practitioner. “... When it comes to Michigan, we will elevate our (response) level if it becomes pandemic and widespread.” Like other nursing homes, Optalis has taken a number of steps so far that include ensuring new patients and visitors have been screened properly before entering the building, and telling staff if they feel sick to stay at home. However, Vesterfelt said Optalis also has a contingency plan to isolate sick patients and create a central area for visitors to come in if they want to see their family members. There could be complete restrictions if coronavirus is detected in the community, she said. “It all is in the planning stages now. If it comes, we want to be able to limit visitation areas and exposure, that is the key,” she said. “We don’t want to go to the extreme right now.

Kevin Lobo, CEO for the Kalamazoo-based medical device manufacturer, told CNBC in late January that China accounts for very little of the company’s business and that virus impact would be minimal. However, it has spread since then. On the downside, people are more likely to skip an elective knee- or hip-replacement surgery during an outbreak and possibly during the potential recession that could occur later. However, Stryker also manufactures hospital equipment, such as hospital beds, and medical-grade cleaners and disinfectants that would be in demand if the outbreak continues to spread.

` KELLOGG CO. — POSITIVE The Battle Creek-based food manufacturer may benefit from coronavirus hysteria or a global outbreak in general. Its shares dropped alongside the entire S&P 500 on Feb. 27 after news the virus killed nearly 3,000 and spread to South Korea and elsewhere. However, it has recovered and was up more than 10 percent last week as reports revealed shoppers were stockpiling on packaged foods with long shelf lives, like Kellogg cereal, Pop-Tarts and Cheez-Its. That behavior will likely rise, benefiting Kellogg, if the virus continues to spread, causing more people to work from home in the coming weeks or months.

` BORGWARNER INC. — NEGATIVE The Auburn Hills-based drivetrain supplier operates seven plants in China, including in Wuhan, and accounted for 17 percent of BorgWarner’s sales last year. Europe accounts for 37 percent of its sales. The supplier can’t easily reroute ... Legally, we have to have a policy for visitation.” On March 4, the Centers for Medicare and Medicaid Services ordered nursing homes and hospitals to activate enhanced infection-control practices and announced inspectors would be visiting some sites with histories of poor infection control. “All health care providers must immediately review their procedures to ensure compliance with CMS’ infection control requirements, as well as the guidelines from the Centers for Disease Control and Prevention,” said CMS Administrator Seema Verma in a statement. At last count, coronavirus cases have been reported in 20 states with three declaring emergencies: California, Maryland and Washington. In the Midwest, only Illinois has confirmed cases.

supply chains and is wholly exposed to immediate production volumes. The company has not publicly stated its prospective losses tied to the outbreak, but they are expected to be in line with its biggest customers Ford and Volkswagen AG.

` ALLY FINANCIAL INC. — NEUTRAL The U.S. Federal Reserve cut short-term interest rates last week to mitigate the economic damage the coronavirus outbreak could yield. This is a clear benefit to the Detroit-based automotive and mortgage lender (not to mention the business of privately held Quicken Loans Inc. and United Shore Mortgage). However, the virus’s impact on the companies on this list alone has the ability to impact the overall economy and could, in turn, make consumers pause purchasing a new car or home.

` MASCO CORP. — NEGATIVE The Livonia-based home construction and repair conglomerate imports roughly $600 million in products from factories in China annually. It’s already being hit by tariffs to the tune of $150 million. With an aggressive restructuring effort, which included the sale of its doors and cabinetry business last year, the company has been able to stave off the impact with growth in its plumbing and decorative architecture segments. But bottlenecks in its Chinese supply chain or a recession spurred from the outbreak would dent the company’s bottom line.

` SPARTANNASH — POSITIVE The Grand Rapids-based food distributer and grocer, which operates 160 stores under the banner Family Fare, D&W Fresh Market, Martin’s Super Markets and others, is positioned to benefit from increased sales as the virus creates more panic buying from the public. Sales of fruit snacks were up by nearly 13 percent, dried beans up 10 percent and pretzels up 9 percent in the week that ended Feb. 22, according to data from Nielsen. However, SpartanNash’s potential benefit is limited to its ability to keep those products on store shelves. Contact: dwalsh@crain.com; (313) 446-6042; @dustinpwalsh

Still deadly flu season

million Americans since October and killed about 46,000, according to Centers for Disease Control and Prevention in its Feb. 22 flu alert. In Michigan, there have been four confirmed influenza-associated child deaths since October, compared with 125 nationally. Hospitalizations in Michigan have been increasing the past two months, with 116 children and 529 adults. Hospitals are not required to immediately report flu-related deaths for adults, but estimates show that more than 1,300 people died from the flu complications during the 2018-19 season in Michigan alone. One of the difficulties with the two viruses is that the known symptoms for influenza and COVID-19 are nearly identical: fever, cough, body aches, fatigue and at times vomiting and diarrhea. Both can result in either mild or severe symptoms, and can kill people.

By comparison to coronavirus, influenza has infected more than 45

Contact: jgreene@crain.com; (313) 446-0325; @jaybgreene

THE CONVERSATION

Albert Berriz talks workforce housing, Ann Arbor and Cuba

crainsdetroit.com

MCKINLEY INC.: Ann Arbor-based real estate company McKinley Inc. saw the writing on the wall for its retail portfolio a few years ago and cut bait, turning its focus primarily to its large crop of tens of thousands of workforce housing units across the country. One of the people at the helm of that decision was Albert Berriz, CEO and managing member, who came to America as a young boy fleeing Cuba and now steers a large company with a portfolio valued at more than $4 billion. | BY KIRK PINHO `Crain’s Detroit Business: Can you talk a little bit about how the McKinley portfolio began and where it’s at today? Berriz: McKinley started in 1968 in Ann Arbor, and it was founded by (former U.S.) Ambassador Ron Weiser. It started in the student housing business and eventually transitioned into more traditional multifamily housing, and in addition to that, office and retail, as well. Today, we’re primarily a workforce housing multifamily operator. We have essentially disposed of our retail and office assets in an effort to really focus on multifamily and also focus on an asset class that I think is more in line with our current goal, which is to have a generational multifamily real estate enterprise and a pool of assets that really are long term in nature. ` Explain workforce housing versus affordable housing. We’re not in luxury housing. Our residents are working. They’re going to wake up tomorrow morning and go to work. Our average rents are, for example, in Washtenaw County, about $1,100 to $1,200 or in Orange County, or Seminole County, Florida, $1,400 or $1,500. So these are affordable rents. And the difference between us and affordable housing is our buildings are not subsidized. They’re all market rate, and they’re all privately owned. The owners are not receiving any form of subsidy, nor are the residents. However, if you wanted to sort of assess residents and low-income housing tax credit deals compared to ours, they’re probably not too dissimilar, the median incomes. The McKinley residents in, let’s say, Washtenaw County, when you look at the numbers are probably not going to be too much different than what you would see in a traditional LIHTC deal. But again, our buildings, the primary differences, our buildings are market rate and they’re not subsidized any way. `I don’t think it’s overblown to use the word “crisis” for Ann Arbor’s affordable housing situation. Give us your

perspective on how the city should go about addressing it. I think it’s a supply issue. The reality is that Ann Arbor has not really welcomed solutions from the private sector and has only sought solutions from the public housing side or the community nonprofit side. And both of those groups, while I think they’re very well intentioned, don’t have the capital and the expertise to resolve the problem at the scale it’s needed. To put it in perspective, you know, the Washtenaw County study that came out had a need of about 3,000 units. And if you look at the cost per unit today, and let’s say $250,000 or $300,000 per unit to build a brand new unit today, you know, it’s an $800 million to a $1 billion problem, so I don’t think that’s a problem that gets resolved on the public side or on the community nonprofit side. You know, they have to go to places to seek capital and there just isn’t enough capital, nor do they have enough resources or expertise to resolve the problems. So the city I think, by and large, has attempted to do this in those ways because they really haven’t welcomed the private side. And there is a lot of expertise and there’s a lot of capital that could do this, from the private side perspective. It just hasn’t been the way that Ann Arbor operates, so you see what has happened in Ann Arbor year over year, decade over decade is there’s a lot of conversations about affordable housing, but there’s no solutions. `You were talking a little bit earlier about how McKinley got out of retail and office. What led to that decision and how has that reflected or shaped your business strategy? It was a risk profile that we were just not comfortable with. We are a generational business and so we look at our assets in a way that we never expect to sell them. We expect to invest in them so they last for long term, and we just couldn’t see that on retail. We saw a significant degradation of our rent rolls. We had buildings that were, let’s say, 70 percent to 80 percent investment-grade credit

tenant composition and then we saw that we saw that quickly degrade. We just didn’t see a place where we could really have an asset class retail that would last for the long run. And then office in many ways, the same way. The way people are shopping and the way people are occupying offices today, the risk profile is very different than it was, let’s say, when we were making those investments 20 and 30 years ago, so for us, it was the right move. It’s paid off because, had we held many of the assets today, they would be significantly compromised. I think they would be worth a lot less. We started those sales about six years ago, and we sold a lot of that early on, so we sold them still at a time they were being valued significantly more than they would be worth today, in our opinion. And we sold some big buildings. I mean, these weren’t small buildings. We sold a 1 million-square-foot shopping center, for example, in Norfolk, Va., which is one of the largest power centers in the state of Virginia. So these weren’t small assets. So they were important for us to move them out at the right time, and for people that thought that was there was a good upside for them, so we actually sold them at good prices, and certainly we couldn’t have sold them at those prices today.

fortunate to have left alive, fortunate to have resettled in what is without question the greatest country on the planet. I was not born here. I was born in Havana and I emigrated as a Cuban refugee just before I was 4 years old with my parents. `What consumes your day outside of the office? My wife and I walk. We like to boat, so those are the two things. In our summers we live at Saugatuck, and it’s a great place to live. We’d live there year-round, but it’s a little too cold in the winter. Albert Berriz, CEO and managing member, McKinley Inc.

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Trump appoints Jennifer Fischer to Kennedy Center board LOCAL CIVIC LEADER JENNIFER FISCHER has been appointed by President Donald Trump to the Board of Trustees of the John F. Kennedy Center for the Performing Arts in Washington, D.C. She will serve for a term expiring Sept. 1, 2025. Fischer, 68, is married to David Fischer, chairman emeritus of the Troy-based automotive dealership group Suburban Collection, who was sworn in as the new U.S. ambassador to Morocco in January. She has been a community activist for over 40 years, serving on nonprofit boards in the arts, medical, cancer, education, hospitals, hunger

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`Can you give thumbnail sketch of coming here and what your trajectory was to where you are today in terms of the head of McKinley. I left (Cuba) compliments of Fidel Castro in early 1959 because of the Cuban Revolution. We had to flee. It was survival to leave the country at the time and my parents relocated to Miami. We were fortunate for that. We’re

America,” she said. Fischer, past owner of an advertising, public relations, event and entertainment agency, serves on the boards of local nonprofits including: the Detroit Institute of Arts, Detroit Zoological Society, Michigan Opera Theatre, Music Hall for the Performing Arts, Museum of Contemporary Art Detroit, Henry Ford Hospital West Bloomfield and the Community Foundation of Southeast Michigan; and on advisory boards for the Taubman Medical Institute at the University of Michigan, the College for Creative Studies and Figure Skating in Detroit Leadership for Inner City Girls. She also held roles with other

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and homelessness fields. Jennifer Fischer is also chairman of the Board of Trustees of the National Symphony Orchestra and a member of the Kennedy Fischer Center International Committee on the Arts. In a phone interview Friday, Fischer said she is honored to join the Kennedy Center’s board. “The Kennedy Center is absolutely the beacon of arts and culture, representing the United States of

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groups, including the Oakland County Art Institute Authority and Michigan Film Office Advisory Council, but resigned from them to move to Morocco with her husband. It’s been exhilarating, exhausting and a whirlwind adjusting to life in the North African nation and her husband’s new role, Fischer said. “We’re trying very hard to help Morocco and help the U.S. to find many ways to help adults (there) get into jobs and to bring American culture and arts to Morocco,” she said. She’s teared up watching the American flag raised there, she said. “It’s humbling and patriotic to represent your country.”

Crain’s Detroit Business is published by Crain Communications Inc. Chairman Keith E. Crain Vice Chairman Mary Kay Crain President KC Crain Senior Executive Vice President Chris Crain Secretary Lexie Crain Armstrong Chief Financial Officer Robert Recchia G.D. Crain Jr. Founder (1885-1973) Mrs. G.D. Crain Jr. Chairman (1911-1996) Editorial & Business Offices 1155 Gratiot Ave., Detroit MI 48207-2732; (313) 446-6000 Cable address: TWX 248-221-5122 AUTNEW DET CRAIN’S DETROIT BUSINESS ISSN # 0882-1992 is published weekly, except the third week in December, by Crain Communications Inc. at 1155 Gratiot Ave., Detroit MI 48207-2732. Periodicals postage paid at Detroit, MI and additional mailing offices. POSTMASTER: Send address changes to CRAIN’S DETROIT BUSINESS, Circulation Department, P.O. Box 07925, Detroit, MI 48207-9732. GST # 136760444. Printed in U.S.A. Contents copyright 2020 by Crain Communications Inc. All rights reserved. Reproduction or use of editorial content in any manner without permission is prohibited.

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