Crain's Detroit Business, Oct. 17, 2016 issue by Crain's Detroit Business

Getting some healthy advice

What’s the fate of the Palace?

Susan Grant: Beaumont Hospitals will have patient councils, Page 9

A Pistons move downtown could have huge impact on local concert, event scene, Page 3

OCTOBER 17 - 23, 2016

Top blight judgment totals Karr’s companies make up five of the top 14 debtors for outstanding blight judgments:

Ernest Karr has racked up more judgments for unpaid blight tickets than anybody in Detroit, but even state law can’t stop him

Acorn Investment Co. (Ernest Karr): $916,447.50 Deutsche Bank National Trust Co.: $495,803.50

Blight on the landscape

Wells Fargo Bank: $302,534.50 J.P. Morgan Chase: $210,190 U.S. Bank N.A.: $162,082.90 KIRK PINHO

Out-of-control foliage shrouds a house owned by one of Ernest Karr’s companies, which owe more than twice as much in Detroit blight-ticket judgments than anyone else. By Kirk Pinho kpinho@crain.com

Ernest Karr is the king of Detroit blight. Companies tied to Karr have racked up an unpaid ticket for missing inspection certificates, unmowed lawns, trash in the yard or other violations on houses in Detroit an average of every 50 hours over more than a decade. And even though the 78-year-old Karr has this mountain of blight judgments and unpaid property taxes, you’d be hard-pressed to find someone who knows him by name.

They know his companies, though, with $1.11 million in blight judgments — more than double the $496,000 the city says it's owed by its second-highest blight judgment debtor, Deutsche Bank National Trust Co., a subsidiary of Deutsche Bank Holdings Inc.

More than 30 business entities have ties to Karr, a Bloomfield Township resident who has been making money in the city for more than three decades, buying houses at government auctions on the cheap and renting or selling them via land contract. His companies have been able

to amass such a large blight-violation debt for a number of reasons, including bare-bones collection efforts and city and county staff that have been spread thin as their ranks have been slashed amid financial crises. Even a new state law aimed at preventing problem landlords from getting more property doesn’t appear to be working as well as its proponents had hoped in his case. A company operating out of Karr’s office on Grand River Avenue near Hubbell Street bought 44 properties at Wayne County's tax-foreclosure

auction last year, more than 10 months after the law took effect, according to land records. In addition to Karr’s blight debt, the city of Detroit, still bearing the scars from the nation's largest Chapter 9 municipal bankruptcy, says Karr owes $369,000 in property taxes stemming from just the 2013 Wayne County tax-foreclosure auction of 61 homes his companies owned. That’s according to lawsuits filed in August. Karr — who didn’t return repeated requests for comment at his

Fannie Mae: $144,515 Elm Investment Co. (Ernest Karr): $111,350 Bank of New York: $75,450 John Miller: $60,025 George Snow: $57,212.50 Keith Kramer: $53,822.50 Rex Investment Co. (Ernest Karr): $42,100 Joy Management Co. (Ernest Karr): $33,662.50 Action Property Management Co. (Ernest Karr): $7,295 Source: Detroit Department of Administrative Hearings

SEE BLIGHT, PAGE 18

A budding market

New businesses sprout to support the medical marijuana industry By Lindsay VanHulle

For five years, Iron Laboratories LLC has been filling a niche in Michi-

Inside a small, suburban industrial building in Walled Lake, scientists in white lab coats look at marijuana under microscopes, noting every instance of mold or mites before sending the samples to be tested for potency and quality.

gan’s medical marijuana industry: Testing products for impurities and ensuring that the level of THC, the active chemical in marijuana, matches what is advertised, even though Michigan doesn’t require such testing.

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That’s about to change. By December 2017, new licensing regulations will make safety testing mandatory, which is likely to ramp up competition. Gov. Rick Snyder’s administration is expected to hire a vendor to run a statewide marijuana tracking system. And the regulations will add certainty for companies that have been operating in legal gray areas. “I’m in a good position. I can show the state three years’ worth of test results (to say): ‘I deserve a license,’” said Howard Lutz, Iron Laboratories’ CEO. The gradual march in the U.S. toward legalization of marijuana represents a new opportunity for entrepreneurs like Lutz looking to start

LINDSAY VANHULLE

Brent Leighton, Iron Laboratories’ head biologist, examines a marijuana sample. companies in a market that could top $7 billion this year, according to some national estimates. A new layer of business is forming in Michigan and across the country to support the growers and dispensaries long

thought of as its central players. Tech firms, science labs, business consultants and attorneys are opening their doors to the industry — medicinal or recreational, depending on the state SEE MARIJUANA, PAGE 20

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MICHIGAN BRIEFS Dow Chemical may sell unit to speed antitrust OK Midland-based Dow Chemical Co. is seeking a buyer for a unit that makes copolymers used in food packaging in what will be the first disposal of many needed to gain antitrust approval for its $59 billion merger with U.S. chemicals maker DuPont Co., people with knowledge of the situation told Bloomberg. Dow has hired a financial adviser to manage the sale of the business, which generates about $150 million in annual revenue supplying ethylene acrylic acid copolymers, said the people, who asked not to be identified. Wilmington, Del.-based DuPont is also drawing up a list of potential disposals, the people said. Representatives for DuPont and Dow declined to comment. Dow and DuPont are pushing to complete their planned merger by the end of the year, and competitors are circling for any assets that are cast off to remove any overlaps that regulators could use to block the deal.

Kellogg buys Brazilian food company for $430M Battle Creek-based Kellogg Co., looking abroad for growth in the face of a moribund U.S. cereal business, agreed to buy Parati Group in

ing markets to about 15 percent of company sales. Kellogg also bought a 50 percent stake in Nigerian food distributor Multipro last year for $450 million and acquired Mass Food Group, Egypt’s top cereal company.

MICH-CELLANEOUS

Flint businesses, educators and community organizations have formed an alliance called Flint Sprint to help improve the quality of life for embattled residents within 60 days. Michigan businesses will provide onthe-ground, pro bono support to Flint community organizations. These businesses and educators will be paired with local groups; their projects are identified as “sprints” as they are expected to be completed quickly, by Nov. 30. Among the core focus areas are public safety, infrastructure, health and wellness, education, communicasion, transportation and talent development. J The architects and developers of a new Grand Rapids office building for the law firm of Warner Norcross & Judd unveiled plans for a twin-tower development, the Grand Rapids Business Journal reported. The $63.5 million project will include ground-floor retail space, 14 floors with 123 one-bedroom and two-bedroom apartments in one tower and seven floors of office space on top of seven J

BLOOMBERG

Battle Creek-based Kellogg has expanded its snack business since 2012.

Brazil for about $430 million, acquiring a maker of biscuits, pasta and powdered beverages, Bloomberg reported. The all-cash acquisition is expected to be completed late this year, Kellogg said in a statement last week. The deal marks Kellogg’s largest purchase in Latin America and is the company’s fourth acquisition in emerging markets during the past two years. The expansion comes as many Americans are turning away from the former breakfast favorite. Kellogg, the largest U.S. cereal maker, has expanded its snack business since acquiring the Pringles brand in 2012. Parati’s products include Hot Cracker biscuits, Trink powdered beverages and Parati dried pasta. Analysts said the addition of Parati should help Kellogg boost emerg-

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INSIDE floors of parking in the second tower. Construction is expected to start next spring and take 24 months. The site is currently a surface parking lot. J Advancing Women in Energy is a new organization intended to bring networking and professional development to women in energy roles, mostly in Michigan, as well as encourage younger women to seek the industry as a career. The group will formally launch Oct. 17 with a 5-7 p.m. kickoff event at UrbanBeat Event Center in Lansing. Admission to the event is free, but registration is requested. For more information, email info@advancingwomeninenergy.org. J Grand Rapids-based Blue Medora LLC, a software developer for cloud and data-center management, said it has closed on a funding round of $8.6 million. The round, led by St. Louis-based Lewis & Clark Ventures, is intended to help expand global sales, marketing and R&D. Blue Medora has raised $14.5 million since its founding in 2007. Last month, the company launched its newest product, SelectStar, which unifies databases and monitors cloud infrastructure.

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DEALS & DETAILS

KEITH CRAIN

MARY KRAMER

OPINION

PEOPLE

RUMBLINGS

WEEK ON THE WEB

COMPANY INDEX: SEE PAGE 21 J M. Scott Bowen, Michigan’s lottery commissioner since January 2008, will resign effective Feb. 18 to pursue private sector work. Bowen, 51, was the longest-serving person in that role. Under his tenure, the Michigan Lottery generated $22.8 billion in sales, Gov. Rick Snyder’s office said. J The company that makes Sun Dolphin kayaks is gearing up to add 60 jobs, machinery and a warehouse between locations in Muskegon and Norton Shores, MLive.com reported. KL Outdoor, also known as Ameriform, makes a variety of plastic-form recreation equipment under the Sun Dolphin brand.

Correction n A Crain’s 40 under 40 profile of Erik Rönmark in the Oct. 10 issue incorrectly reported that his parents played in the Detroit Symphony Orchestra.

C R A I N ’ S D E T R O I T B U S I N E S S // O C T O B E R 1 7 , 2 0 1 6

Many jobs, few skills

Small biz asks for help with health insurance By Jay Greene jgreene@crain.com

PHOTOS BY OLYMPIA ENTERTAINMENT INC.

The contractors on the new Little Caesars Arena in Detroit were fined for failing to hire an adequate number of Detroit residents for construction jobs. Educators and trades leaders say the issue is related to a broader skilled trades shortage and education gap.

Red Wings arena construction fines reflect city’s shortage of qualified workers By Dustin Walsh dwalsh@crain.com

The tower crane operators, electricians, masons and iron workers constructing Little Caesars Arena in downtown Detroit are statistically less likely to reside in the city. This fact has cost the contractors hired to build the future home of the Detroit Red Wings roughly $500,000 in fines, as was reported widely last week. The contractors signed an agreement with city officials, in exchange for $250 million in tax-exempt bonds and other incentives, to maintain an employment base consisting of 51 percent residents of Detroit. They failed to reach the benchmark. And it’s no surprise: The arena construction worker talent gap is a symptom of the city’s bigger workforce affliction. Civic and business leaders acknowledge that Detroit’s workforce problems pose one of the greatest

threats to the region’s prosperity. “There are thousands of skilled trades jobs open in Michigan and Detroit, but they can’t find the skilled labor they need in Detroit,” said Dave Meador, vice chairman and chief administrative officer at DTE Energy Co. and member of the Detroit Workforce Development Board. “Paying fines and penalties isn’t going to fix that.” Only 29 percent of workers in the city as a whole are Detroit residents, according to an April report by the Detroit-based Corporation for a Skilled Workforce and funded by J.P. Morgan Chase & Co.

The reason is as simple as it is disturbing. The jobs in the city more often than not require more skills than Detroiters possess. For instance, 38 percent of jobs in Detroit are considered high-skill, requiring at least an SEE ARENA, PAGE 22

SEE INSURANCE, PAGE 17

A welder works on the future home of the Detroit Red Wings this month. Welders, electricians and other skilled trades workers are in short supply.

Palace’s fate would have big impact on concert business By Bill Shea bshea@crain.com

PALACE SPORTS & ENTERTAINMENT

The fate of the Palace of Auburn Hills is in question amid talks for the Detroit Pistons to move downtown.

A move downtown by the Detroit Pistons from the Palace of Auburn Hills would have a big impact on the local market for concerts and events — and could mean fewer of them. Talks by the NBA team to join the Detroit Red Wings at 20,000-seat Little Caesars Arena when it opens in September 2017 have spawned speculation that the Palace, built in 1988, would be demolished so it can’t compete with the new arena. There’s already precedent for demolition: The city of Detroit agreed that 20,000-seat Joe Louis Arena, which it built for $30 million

Small-business executives are asking Michigan for regulatory help to stem rising health insurance premiums and administrative costs in the wake of the Affordable Care Act of 2010. Small-business advocates contend that the current rating system in Michigan increases their administrative costs, increases human resources and accounting staff time, leads to potential age discrimination in hiring and could lead to higher premiums for companies with aging workforces. Some 25 other states have received federal approval to allow businesses with fewer than 50 fulltime employees to be charged for their insurance based on the traditional composite rating they used before 2014. That system sets premiums to employers based on the overall insurance risk level of the business on an annual contract basis. Michigan Insurance Commissioner Pat McPharlin’s office has said he has chosen, for now, to keep the federal default, which requires small-business health insurance costs to be priced under member-level rating — based on the age of each employee, his or her spouse, number of children, where they live and if they use tobacco. Marilyn Cargill, controller at Hazel Park-based Universal Flow Monitors Inc., an automotive manufacturer, said the Obamacare-mandated member-level rating system has

in 1979 as a home for the Red Wings, will be razed after the team leaves. That’s because the Ilitch family, which is building $627.5 million Little Caesars Arena for its Red Wings with a mix of public and private money, didn’t want Joe Louis competing for event dollars. One of the negotiation points between Ilitch-owned Olympia Entertainment and Pistons owner Tom Gores’ Palace Sports & Entertainment is the future of the Palace. Neither organization would comment on the potential fate of the Palace. Gores and his aides have said they want to ensure that value for the Palace is realized in any down-

town move. Possibilities include the Palace being torn down in return for the Pistons getting favorable financial terms as a Little Caesars Arena tenant, or the Ilitches could buy the Palace and other entertainment holdings from Gores. The sides have acknowledged they’re in talks, and with Little Caesars Arena less than a year from opening, sources have said negotiations have accelerated. In terms of revenue, it’s a near certainty the Palace will lose business to Little Caesars Arena. Entertainment industry insiders expect Little Caesars Arena to be the first choice for SEE PALACE, PAGE 19

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Midtown move Wilson center to be located in Shoppes at Woodward along with restaurant, residential units, Page 12

MEDC

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C R A I N â&#x20AC;&#x2122; S D E T R O I T B U S I N E S S // O C T O B E R 1 7 , 2 0 1 6

French auto supplier to acquire Key Plastics By Dustin Walsh dwalsh@crain.com

French auto supplier Mecaplast Group plans to acquire Livonia-based Key Plastics LLC in a bid to expand its global presence. Financial terms of the agreement were not disclosed. The deal is subject to regulatory approval. The acquisition would provide expansion in the U.S., Germany and China for Mecaplast, the company said in a news release. Key Plastics operates 12 manufacturing facilities worldwide, including paint facilities in six countries. The company produces automotive interior, exterior and under-the-hood plastic components with annual revenue of about $415 million. It has about 3,500 employees worldwide. Minnesota-based private equity firm Wayzata Investment Partners is the current majority stakeholder in Key Plastics, which it acquired out of the supplierâ&#x20AC;&#x2122;s second bankruptcy in 2009.

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Nominations sought for Crainâ&#x20AC;&#x2122;s Best Managed Nonprofit Crainâ&#x20AC;&#x2122;s Best Managed Nonprofit Contest this year will focus on local nonprofits overcoming challenges. Examples include, but are not limited to, overcoming program obstacles; making significant progress in solving an intractable, long-term problem; or overcoming technological hurdles. All applications must include the following: J A completed entry form by Friday, Oct. 28. J A copy of the most recent audited financial statement. J A copy of the most recent IRS 990 form. Applicants for the award must be a 501(c)(3) with headquarters in Wayne, Oakland, Macomb, Washtenaw, or Livingston counties. To submit a nomination, go to CrainsDetroit.com/nominate. Previous first-place winners are ineligible, as are hospitals, health maintenance organizations and other health care insurance plans, medical clinics, business and professional organizations, colleges and universities, private schools, churches and foundations. Finalists will be interviewed in person by judges the morning of Nov. 16. Winners will be notified shortly after. For information about the contest itself, contact Managing Editor Michael Lee at malee@crain.com or (313) 446-1630.

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C R A I N ’ S D E T R O I T B U S I N E S S // O C T O B E R 1 7 , 2 0 1 6

OPINION

Fines for arena jobs show talent gap

ichigan has been talking about the skilled trades talent gap for years — and the topic hit home in Hockeytown last week. Contractors on the new Little Caesars Arena under construction were fined $500,000 for failing to have at least 51 percent Detroit residents as workers. The talent gap is not for lack of effort. Olympia Development held job fairs and did other kinds of outreach. As Dustin Walsh reports on Page 3, Olympia registered 13,000 city residents as “interested” in arena construction jobs. But interest does not equate to job readiness. Welders, electricians and carpenters must work through apprenticeship programs and gain hands-on experience before they can be hired. This isn’t just a Detroit problem, but it’s magnified here. These jobs may not be seen as desirable career paths by many kids — or they may lack career coaches to overcome obstacles. As Walsh's story details, there are local resources that could help, such as the A. Randolph Technical High School in Detroit. Today, the school, which is the only one in the Detroit Public Schools system that can provide skilled trades certificates and internships, has only about 100 students. Of course, part of the problem there is intra-district funding competition. The talent gap for the Detroit Red Wings arena should serve as a wake-up call. Awareness-building should begin in elementary school. Parents and teachers should support kids who show an aptitude for a trade. Skilled trades jobs make up about a third of the employment base in Michigan, and the governor's office estimates 6,700 skilled trades job openings in Michigan each year through 2022. Let’s steer more kids to where the jobs are.

For drawing talent to region, transit beats trotting the globe

f voters in four Southeast Michigan counties approve a new property tax Nov. 8 to fund a network for public transportation in our region, we will finally shed our reputation as a backwater of transit. Fifteen years ago, I co-chaired a committee through the Metropolitan Affairs Coalition and the Southeast Michigan Council of Governments that studied the feasibility of SpeedLink, a “train on tires” idea that died in the early 2000s. The plan was a beauty: low-floor buses traveling in dedicated lanes that favored speedy travel by limiting the number of stops and coordinating traffic signals to give the buses the “green” light. Commute times would be reduced dramatically. Passengers could then take short-haul service nearly to their workplace doors. Major thoroughfares — including Michigan, Grand River, Gratiot, Van Dyke and Woodward avenues in and out of Detroit as well as Eight Mile, Big Beaver/Metro Parkway and M-59 crossing through two or three counties — would deliver people to their jobs or other destinations more easily and quickly than the current model of separate bus

Re: Opinion: Vote yes on RTA proposal

For years, the reign of slumlords like Ernest Karr has been a sticking point in solving the blight problem in Detroit. You know the type: They buy properties on the cheap, put very little improvements into them and rent them out or create land-contract deals with occupants. As Kirk Pinho’s story on Page 1 explains, one bad actor, Karr, with more than 30 different corporate entities, has amassed more than $1 million in blight judgments. But look closely at the top roster of offenders. The second-highest blight judgment debtor is a subsidiary of Deutsche Bank, clocking in with $495,800 in blight judgments. Wells Fargo, J.P. Morgan Chase and U.S. Bank come up next in the rankings. The footnote on these is that it's technically the mortgage servicer who is responsible, and many of these properties have been repackaged in commercial mortgage backed securities loan pools many times over. But instead of passing the buck, banks should push resolution, house by house. Trim down the vegetation. Fix drooping gutters. Apply a fresh coat of paint. Never forget than an ugly, unkempt house can spread. The city and county have some work to do when it comes to tracking bulk buyers and keeping them from amassing more properties. But any bank, or servicer, that wants to do business in the city should clear up judgments and/or negotiate settlements so Detroit can welcome even more economic development.

I don’t understand why SE Michigan can’t work toward building a comprehensive rail system like many other large metros. Seems like the money is there — and sadly we are blowing $1 billion of it on a 14-year project to add another lane to I-75. It’s hard to get excited about what sounds like a hodgepodge of trolley and express buses that run in existing traffic lanes.

There is no doubt that the most exciting activity in our city these days is construction of Little Caesars Arena. Not only will it house our world-class hockey team, the Red Wings, but there are plans to create a commercial district — stores, restaurants and residential opportunities — in about 50 blocks around the arena. It will be a great addition to our downtown when the puck drops at the start of the 2017-18 season. When all is said and done, the Ilitch family will have spent more than $500 million, including interest, on the arena; the publicly financed por-

KEITH CRAIN Editor-in-chief

tion will have cost almost that much. Everybody from the team owners to the new businesses will benefit. And maybe the fans, too. But what of Joe Louis Arena?

Publisher

systems in Detroit and its suburbs. The plan would roll out gradually and cost about $1.8 billion from start to finish. That was too much money for Oakland County Executive L. Brooks Patterson, a critic of the plan at the time. Consider: The I-75 widening and modernization project underway in Oakland County runs 18 miles and will cost about $1 billion. For the life of me, I don’t understand why local political leaders aren’t out there beating the drum for this millage because it’s an economic development tool. They trot the globe trolling for new jobs for the region, but they won’t invest in something that will help local employers already here find the workers who need jobs. And if Denver is any model, the system

TALK ON THE WEB

Repair blighted homes, system

Let’s save the Joe

MARY KRAMER

could actually attract new talent to the region. Denver voters approved a sales tax increase for a seven-county region more than a decade ago, covering bus rapid transit and light rail. The price tag: $4.7 billion. Earlier this year, The New York Times reported that an analysis of population movement by the Brookings Institution showed that Denver had the highest net annual migration of millennials of any city in the country from 2009-14. The paper quoted a California planning expert saying the transit system was a “central component” in drawing millennials. “It makes living here a lot easier for younger folks,” said Matt Prosser, a vice president of Economic and Planning Systems, based in California. “You don’t necessarily have to own a car.” For years, we’ve asked honorees in our 20 in their 20s program what they would most like to see in the region. Their No. 1 suggestion: transit. If you’re undecided about the vote, ask a millennial — or your adult child who no longer lives in the region — for an opinion. It may be enlightening.

305353

This is far from a plan for regional public transportation. It is the proverbial first step in a long journey. One of the many millions of steps will be in the state Legislature, or a ballot initiative, that will allow governmental units to use taxation methods other than millage — sales taxes, for

Demolition was specifically called for in the Ilitches’ agreement with the city/Downtown Development Authority to build the new arena. A city creditor was granted redevelopment rights to the site as part of Detroit’s bankruptcy negotiations. Financial Guaranty Insurance Corp. is to replace the Joe with a hotel of at least 300 rooms as well as office, retail and residential space on the 9-acre site. I have a better idea: I think they should save the Joe. It could be a resource for the city, offering activities that may not fit in

Reader responses to stories and blogs that appeared on Crain’s website. Comments may be edited for length and clarity. example — to fund necessary public services. Douglas Fuller

Re: New Red Wings arena contractors face fines This was well-known before these contracts were executed. It is more than likely that the $500,000 was baked into the contracts. Taxpayers will ultimately pick up the $500,000, while this is a big “Oh, well” for the Ilitch family.

job. Fast-food worker skills don’t translate well to welding and bricklaying, and a lot of the truly skilled have moved out years ago.

MarkYTH

Re: Ford Fund to invest in Detroit neighborhood Awesome! This is the kind of thing we get when we keep and attract major corporations to our community. E M Parmelee

Re: Sources: Gilbert at Trump fundraiser

Difficult to hire people if they

It galls but doesn’t surprise me. These two men (Trump and Gilbert) are of the same ilk, motivated by the same sense of royal entitlement in a world where the rest of us are peasants.

the new arena district. Maybe the “new district” doesn’t want competition from the old “Joe.” But I believe this wonderful new district doesn't have to worry about competition from anyone. The Joe should still be considered a great resource for our city; there may be certain activities that either can’t afford or simply don’t belong in the new district. Razing the Joe may be part of existing deals; maybe we should see about redoing those agreements. After all, the public portion of the financing — estimated at more than

$480 million, including interest — is helping to build the new arena. Keeping the Joe around might have lots of potential that we would regret if we suddenly tore it down without so much as a discussion. There has been a lot of discussion about a soccer facility in Detroit; maybe it fits that purpose. Or perhaps as a venue for other sports like lacrosse or concerts. The point is that we have a great resource, and to destroy it seems very wasteful. A little competition is a good thing for everybody, including sports team owners. Let’s save the Joe.

Carolyn Mazurkiewicz

don’t have the skills required for the

Cinders

C R A I N ’ S D E T R O I T B U S I N E S S // O C T O B E R 1 7 , 2 0 1 6

Lakeshore TolTest settles appeals with Pentagon By Chad Halcom chalcom@crain.com

A longtime Detroit civil engineering and public works contractor that filed for bankruptcy liquidation two years ago will surrender $23 million in outstanding contract payments to the Pentagon in a settlement — along with millions of dollars of equipment in Iraq, Afghanistan and elsewhere that may or may not be able to be recovered. Lakeshore TolTest Corp. settled more than 20 pending appeals in more than half a dozen U.S. Department of Defense contracts awarded in the last decade. The settlement was made several weeks ago before the federal Armed Services Board of

board Capital Partners LLC along with some management officials shortly before the bankruptcy, also declined to comment through his attorney, Douglas Toering of Mantese Honigman PC in Troy. Nicole Navas, public affairs specialist for the U.S. Department of Justice tax division which took part in the settlement, also declined to comment, saying the bankruptcy is still pending. Attorneys expect those court proceedings will continue at least into next year, as Lakeshore still has creditors to contend with in the oil and gas and commercial construction industries.

The government had made a combined $222.3 million in claims against Lakeshore in court, according to the settlement agreement, but also owed about $23.4 million on various change orders and contract modifications completed but not yet paid. Under the deal, Lakeshore will forgo those payments but the trustee will receive a $5.3 million tax refund to pay creditors. The Pentagon also will not try to recoup about $5 million in payments made in early 2014 under a construction contract for one Afghanistan base, Lakeshore had assigned to the

Insurance Co. of the State of Pennsyl-

vania under a conditional financing

agreement in late 2013. It will, however, remain an unsecured creditor while the case proceeds and gets to keep various vehicles, trailers, construction materials, machines and specialty equipment left behind at Lakeshore work sites in the Middle East, according to the deal. Guiliano, as the trustee, had tried to sell those to pay creditors for a while but ran into roadblocks. For example, Lakeshore got court approval in 2015 to sell Nebraska-based K-Mar Building Products Inc. some machinery at Forward Operating Base Delaram in Afghanistan for $120,000 — but then a

vehicle attack killed seven people on the work project site where the machinery was a few days before closing. That halted the sale, and Giuliano encountered “similar situations” elsewhere, before determining that war zone conditions and ownership disputes with the government made the asset sales cost-prohibitive, according to the agreement. The government deal does not specify who received the Afghanistan and Iraq contracts, although Calamunci suspects more than one company took over the work. Chad Halcom: (313) 446-6796 Twitter: @chadhalcom

Contract Appeals.

The deal between the government and the court-appointed trustee navigating its Chapter 7 bankruptcy in Delaware calls for parent LTC Holdings Inc. and its various companies to forgo the outstanding contract payments and $220 million worth of military contract business in exchange for a $5.3 million corporate tax refund. The contractor will also turn over to the government equipment and materials it abandoned at work project sites in Iraq, Afghanistan and elsewhere when it folded in 2014. “The government was both a creditor and debtor. It owed a fair amount of money on some of its contracts,” said Anthony Calamunci, an attorney at FisherBroyles LLP in Toledo and a co-counsel for trustee Alfred Giuliano in the Delaware bankruptcy cases. “Although the government was also due money because contracts were never completed, so there were competing claims. The agreement takes care of all of those, and ... I think the government did very well, but no one had computed it in an exact (cents on the dollar) sense.” Lakeshore TolTest filed for bankruptcy in May 2014, days after sending separation letters to various project managers, engineers and other employees on military contracts overseas. Past employees have told Crain’s that 79 employees and about 135 more subcontractors or independent contractors were handling projects for LTC in Afghanistan at the time, and they had to make arrangements to leave the country on their own. At least three military contracts with the U.S. Army Corps of Engineers and the U.S. Air Force Materiel Command were terminated for default in the preceding months, and in late April 2014 Chicago-based lender BMO Harris Bank NA also found Lakeshore in default and stopped providing advances for working capital, according to court filings. Co-founders and managing partners Thomas Burger and Eugene Conese of Connecticut-based Gridiron Capital LLC, one of three private equity firms that had acquired a stake in Lakeshore since 2011, did not return voice mail and email messages seeking comment last week. Avinash Rachmale, the company founder and ex-CEO who sued Gridiron and co-owner Star-

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C R A I N ’ S D E T R O I T B U S I N E S S // O C T O B E R 1 7 , 2 0 1 6

SPECIAL REPORT: HEALTH CARE JAY GREENE

jgreene@crain.com Twitter: @jaybgreene

Hospital CEO makes rounds to monitor care David Brooks likes to do his own research to find out about patient care and family experiences as CEO of St. Joseph Mercy Ann Arbor and Livingston hospitals in Ann Arbor. On the job at St. Joe’s just one year now, the Detroit-born Brooks said one of the favorite parts of his job is to roam the halls at St. Joseph and interact with patients, family, physicians and staff to learn what’s on their mind. He did the same from 2012 to 2015 when he was president of St. John Hospital and Medical Center, where he was well-known by staff from doctors to housekeepers for his regular executive rounds and good memory for names and life stories. “It is the coolest and easiest thing I get to do here. It’s fun,” said the 55-year-old Brooks, who supplements his own research with formal periodic patient and employee satisfaction surveys taken by the hospital. David Brooks: I visited Brooks last Enjoys on-the-job month to talk about his research. first year on the job at St. Joseph Mercy, the flagship hospital of Novi-based Trinity Health’s Michigan operations. “The complexity, pace and opportunity here is challenging — and not in a bad way,” said Brooks, who has been a hospital administrator for more than 30 years, beginning as an administrative fellow at Henry Ford Hospital under former CEO Gail Warden. “The number of engaged leaders here — doctors, nonphysicians, community leaders — is immense.” Brooks acknowledged that being the head of a successful, tertiary care hospital in Ann Arbor is far less difficult than turning around hospitals in inner-city neighborhoods. After a 45-minute interview, we walked from his corporate office, where he said he spends as little time as possible, to the hospital’s cafe to have lunch. On the way, he talked about feedback he receives daily from patients, family members and employees, stopping several times to chat with staff or visitors. “I get five positive letters for every one (offering suggestions for improvement or complaint),” Brooks said. “People are very surprised when I get their letter and call them right back on the phone to discuss it.” Besides Brooks’ own information gathering, St. Joe’s has four patient and family advisory councils to solicit information on programs and services. They include a pediatric neonatal intensive care unit council and a construction advisory council for the Livingston and Brighton facilities. For example, a cancer care advisory council regularly reviews patient satisfaction data, suggests community events and recommends changes in building designs. “Leadership involves listening just as much as making decisions,” Brooks said.

Healthy advice By Jay Greene

A growing number

If doctors are trained to listen closely to patients to arrive at correct medical diagnoses, shouldn’t hospital administrators listen to patients when designing clinical buildings, creating nursing policies and making discharge plans that affect patient care? A growing number of hospitals in Michigan, including eight-hospital Beaumont Health in Southfield and 12-hospital Spectrum Health in Grand Rapids, are doing just that by creating patient and family advisory councils. The councils are giving hospitals advice on aspects of hospital operations large and small: how they bring families into the plans for caring for patients, how hospitals are designed, what they feed patients, and how nursing stations operate. “We have made great strides with hospitals across the state to get them to commit to this journey,” said Brittany Bogan, vice president of patient safety and quality at the

of patient, family

jgreene@crain.com

Michigan Health and Hospital Association

and its Keystone quality center. “Some, like Spectrum, are further along. Beaumont has fewer numbers of councils. There are some challenges to go to the next level.”

councils help guide hospital operations Bogan said each type of hospital has its own challenge, whether it is a small, rural, academic, teaching or community hospital. “It depends on what they want to achieve and implement,” Bogan said. “Maybe they want to focus on the education of patients and how to include them in shift changes.” Bogan said benefits to hospitals can include improved patient and employee satisfaction scores, lower hospital readmissions, improved patient safety and medical outcomes, lower costs and, ultimately, improved revenue. Other benefits could include fewer unpaid hospital patient days and decreased medical malpractice lawsuits, experts said. In a 2015 survey of more than 2,000 patients, 41 percent indicated they would be willing to switch hospitals for a better pa-

tient experience, said the survey by Hospital Consumer Assessment of Healthcare Providers and Systems.

Kurt Knoth, Spectrum Health’s vice president of performance improvement, said his work with process improvement techniques has led him to believe the advisory councils could improve the experience with the health care system for patients and families. “The idea to involve patients and families makes perfect sense,” Knoth said. “They can contribute a lot about building use and how best to interact with staff.” Patient and family advisory councils also can help improve the increasing number of core quality measures mandated and publicly reported by the U.S. Centers for Medicare & Medicaid Services, said Deborah Sprague, Spectrum’s patient experience specialist. Metrics that can be used by the public to compare hospital performance include care for heart attacks, pneumonia, heart failure, and surgical site infections. By listening to patients and families, hospitals are understanding a great more deal about how to provide better medical services, how to better design patient care buildings SEE PATIENTS, PAGE 10

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SPECIAL REPORT: HEALTH CARE EXTRA

PATIENTS FROM PAGE 9

and how to improve patient experiences, Sprague said.

Began with tragedy While the American Hospital Association estimates that 45 percent of the nation’s 3,600 hospitals have at least one patient and family council, the movement began nearly 20 years ago after the Institute of Medicine released its landmark 1998 report, Crossing the Quality Chasm. “There has been very slow growth at hospitals (in developing patient and family councils),” said Susan Grant, Beaumont Health’s chief nursing officer. “Many hospitals say they are patient- and family-centered. Many are not engaging patients and families as they should.” In 1995, Grant was a nurse manager at the Dana-Farber Cancer Institute in Boston when Betsy Lehman, 39, a health reporter at the Boston Globe, died of a massive chemotherapy overdose that should have been prevented. “Back in the 1990s, (hospitals) didn’t talk about medical errors or wrong-site surgeries,” said Grant. “I was a nurse manager (at Dana-Farber). Betsy had a cardiac arrest on the day of her discharge. She told (providers) a number of times that something was wrong with her.” Lehman had futilely complained to doctors and nurses that she wasn’t feeling well after receiving four times the chemotherapy dose she was prescribed. Dana-Farber providers then compounded their error by ignoring

LARRY PEPLIN

Susan Grant, Beaumont Health’s chief nursing officer, said all Beaumont hospitals will have patient and family councils by the end of this year. “Many (hospitals) are not engaging patients and families as they should,” she said. results of tests indicating Lehman’s heart damage. She was being treated in an experimental procedure known as autologous stem-cell transplant, a variation on a bone marrow transplant. As a result of Lehman’s death and a second patient who received a similar overdose that led to brain damage, the IOM’s report laid out six principles to improve patient care, including engaging patients and families in care to improve safety. “This is how patient and family councils evolved to get them more in-

volved in their care,” Grant said. Over the past 20 years, Grant also has witnessed the Joint Commission and Centers for Medicare and Medicaid Services putting out regulations and guidelines to improve patient safety, the discharge process and involving patients more in their care. At Beaumont, several patient care and family councils have been established at the Royal Oak and Trenton hospitals, Grant said. “We want to have them for all eight hospitals,” she said.

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Grant said the effort to incorporate patient and family ideas began in pediatrics as Beaumont recognized the importance of families being close to their children to support healing and recovery. Bogan said the association has been encouraging hospitals to develop patient and family councils the past four years. The MHA board created a task force in 2013 and later a council with patient advocates to exchange best practice ideas, she said. Last year, Beaumont Hospital Royal Oak began a council for its emergency and pediatric departments. Earlier this year, another council was started at Beaumont Hospital Trenton. Work also has begun at Beaumont hospitals in Taylor and Dearborn, she said. By the end of this year, Grant said, all Beaumont hospitals will have patient and family councils, which will cover home health, nursing homes, ambulatory care and some specialty services. “We are standardizing bedside shift reports in patient rooms and inviting family members to sit in on the report,” Grant said. “Traditionally, this is done outside the patient room (with nurses). We are encouraging them to participate in the handoff to add any information. This will help with handoffs (from one nursing staff shift to another).” Ewa Panetta, the hospital association’s project coordinator, said Michigan hospitals view the councils as part of their effort to move toward a family-centered care model, not just delivering standard care. “Spectrum started out with patient and family advisory councils (for hospital services). Now they involve (councils) in strategic planning and policy,” Panetta said.

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Sprague said the Grand Rapids-based health system began looking at improving patient experiences more than a decade ago when it be-

gan to evaluate its visitor policy. “We wanted to design how best to allow family members to be at bedside when caring for patients,” Sprague said. “We needed to design care models, not for the patient, but with the patient.” As a result, Spectrum launched its first patient and family council. It now has 17 and is regarded as having the most sophisticated blend of councils in Michigan. “We have 160 members who volunteer their time and partner with top executive leaders on a variety of services lines and hospitals,” Sprague said. For example, Spectrum’s family and patient councils include services in its cancer, heart and vascular areas, primary care outpatient services and children’s intensive care unit. Last year, Spectrum added a digestive health council. “Some councils look at the whole system, like the cancer program, and others look at individual hospitals, like the children neonatal intensive care unit at Helen DeVos Children’s Hospital, Knoth said. For example, several years ago Spectrum was designing new ambulatory clinics, Knoth said. The architects were 95 percent done with designing the 130,000-square-foot buildings when a patient council pointed out the covered parking lots were designed only for physicians. “(The council said) it would be great if patients could get out of the rain and snow, too,” Knoth said. “We went back to the drawing board and put patient care space in the basement for parking. We have hundreds of parking spaces now and saved $180,000 in construction costs.” The council also provided input to MedNow, Spectrum’s telemedicine program linked with its Priority Health health plan that allows doctors and patients to communicate with each other on smart phones or computers. In August, Spectrum’s continuing care council discussed a new nursing home in Kalamazoo and helped redesign meal plans and how care is provided at the facility, Sprague said. In 2014, Spectrum’s orthopedic care council suggested changes in the nurse call light. Sometimes, during busy times, nurses can’t get to the bedside in time and patients are already up out of bed, creating a dangerous situation for themselves. “We found out that inpatient unit nurses are assigned to a number of patients. The call lights come on and they may be in a break or caring for another patient,” Knoth said. “The council recommended anybody can come to help: another nurse, unit secretary, housekeepers or patient care transporters. The goal is two minutes.” Knoth said the patient councils have helped to increase patient satisfaction scores. “We have saved money in construction costs, reduced patient falls because of better call lights, and patients and visitors find it easier to navigate through the hospital because of improvements in signage and parking,” Knoth said. Jay Greene: (313) 446-0325 Twitter: @jaybgreene

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New Center building to house Wilson center By Adrienne Roberts aroberts@crain.com

MICHIGAN ECONOMIC DEVELOPMENT CORP.

About $6.6 million is being invested in the transformation of the 1940s Shoppes at Woodward building.

A three-story building in Detroitâ&#x20AC;&#x2122;s New Center neighborhood will be renovated, transforming the structure into the Shoppes at Woodward, which will house the nonprofit Ralph C. Wilson Jr. Foundation Center of Excellence, a restaurant and residential units. The building, at 6568 Woodward Ave. at West Grand Boulevard, will be redeveloped by Midtown Detroit Inc. The project represents a $6.6 million investment. The Shoppes at Woodward last week won a $750,000 perfor-

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mance-based grant from the Michigan Community Revitalization Program, available from the Michigan Strategic Fund, a division of the Michigan Economic Development Corp. The city of Detroit has established an Obsolete Property Rehabilitation Act district for the site, and is expected to approve a request for a 12-year tax abatement valued at $502,451. Midtown Detroit plans to restore the tin ceiling in the commercial space and replace the exterior windows with replicas and vintagestyle awnings, bringing the building back to its 1940s style. â&#x20AC;&#x153;This project Melinda Clemons: is putting a vacant building Project â&#x20AC;&#x153;will spur back to use,â&#x20AC;? new development said Melinda in the area.â&#x20AC;? Clemons, a senior loan officer at Capital Impact Partners, which is financing the development. â&#x20AC;&#x153;(We believe this project) will be transformational and will spur new development in the area.â&#x20AC;? The Ralph C. Wilson Jr. Foundation will move its offices from Grosse Pointe Farms and occupy part of the 9,600-square-foot first floor, as well as 8,000 square feet of the second floor. The first floor will also have a yet-to-be-named restaurant and two retail spaces. The third floor will contain 10 residential units, with three designated affordable units. The project is expected to create 37 full-time jobs. Midtown Detroit purchased 11 buildings in 2015 in New Center as a way to jump-start the neighborhood, especially with the M-1 Rail set to run along Woodward Avenue up Grand Boulevard in New Center. Also last week, the MEDC offered a $500,000 performance-based grant to AGC Automotive Americas Co., a supplier of automotive glass, to move its headquarters from Kentucky to Farmington Hills at 34505 W. 12 Mile Road. AGC was founded in 1985 in Ohio but moved to Michigan to be more efficient and consolidate manufacturing. Michigan was chosen over competing sites in Ohio and Kentucky. The project represents an investment of $849,000 and will create 59 jobs.

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Beaumont Health gets go-ahead for shopping center redevelopment By Kirk Pinho kpinho@crain.com

The planned $32.8 million redevelopment of the Northwood Shopping Center in Royal Oak is expected to be complete in 2018. The city commission last week approved a $3.73 million brownfield tax abatement for work including demolition and asbestos abatement for the Beaumont Health-owned property at the southwest corner of 13 Mile Road and Woodward Avenue. The development is expected to total 183,000 square feet and include a grocery store, hotel, restaurants and other retail, a Beaumont news release said. Abatement and soil remediation will begin now and demolition of the existing shopping center will begin this fall, the release said. The project requires demolition of the existing 199,000-square-foot shopping center plus an 8,000-square-foot commercial building and a pair of townhouse buildings along Coolidge Highway totaling 13,000 square feet, according to a city commission memo. Beaumont earlier this year sur-

veyed more than 6,000 employees, physicians, medical students and community residents about preferences for the 61-year-old property. The survey showed strong community support for redevelopment, Beaumont officials said at the time. A grocery store, hotel and various retail businesses were among the most-cited options. Kroger, Office Depot, Dunham’s and Leo’s Coney Island are among the tenants of the shopping center that left their spaces earlier this year. The project is expected to create about 150 full-time jobs and require about 200 temporary construction jobs, according to the memo. The project on the 15-acre site consisting of three parcels is being led by Livonia-based Schostak Bros. & Co. and Bloomfield Hills-based AF Jonna Development LLC. The architect on the project is Hobbs + Black Associates Inc., which has offices in Ann Arbor and Lansing, and the environmental consultant is Berkley-based PM Environmental Inc.

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nications services company. Terms were not disclosed. Triad, based in St. Petersburg, Fla., had revenue of more than $500 million last year and net income of more than $120 million, according to a news release by WPP. Triad manages and delivers full-service media advertising campaigns to connect with shoppers at point-of-sale. Clients include WalMart, Sam’s Club, eBay, Toys R Us and Kohl’s. The company, which was founded in 2004, has nearly 700 employees and has offices in London, Sydney, Hamburg, Amsterdam and 10 other cities. Since Rockbridge invested in Triad in late 2012, in partnership with Boston-based Falcon Investment Advisors, Triad’s revenue and profits more than tripled. “Rockbridge Growth Equity has been a valuable strategic partner for Triad,” Roger Berdusco, CEO of Triad Retail Media, said in a news release. “Through this partnership, we have been able to accelerate our growth, expand internationally and position Triad as the global leader in digital retail media.” Kevin Prokop, managing partner of Rockbridge Growth Equity, said: “Our strategy and commitment to Triad Retail Media extended the company’s leadership in the industry by substantially increasing its service offerings, developing new and existing client relationships, and entering international markets. We have enjoyed partnering with the Triad team and look forward to watching the company grow.” Rockbridge was founded in 2007 by Brian Hermelin, Dan Gilbert and Prokop. The firm invests in companies that specialize in financial and business services; consumer-direct marketing; and sports, media and entertainment industries. It manages a portfolio of companies with more than $500 million in invested equity. Wells Fargo Securities and Petsky Prunier acted as financial advisers to Triad Retail Media. Honigman Miller Schwartz and Cohn LLP provided legal counsel. Tom Henderson: (313) 446-0337 Twitter: @tomhenderson2

C R A I N ’ S D E T R O I T B U S I N E S S // O C T O B E R 1 7 , 2 0 1 6

DEALS & DETAILS CONTRACTS

The University of Michigan Health System, Ann Arbor, is working with Meijer Inc., Walker, to provide hypertension management services for adult patients at participating pharmacy locations. Websites: uofmhealth.org, meijer.com. Aqaba Technologies Inc., Sterling Heights, an internet marketing agency, has been retained by WJR’s “The Handyman Show With Glenn Haege,” Detroit, to perform modifications and updates to the show’s website, and Curtis Metal Finishing Co., Ster-

ling Heights, to build a new mobile-responsive website. Websites: aqabatech.com, masterhandyman. com, curtismetal.com. Art Van Furniture, Warren, said Nigel Barker, a celebrity fashion photographer, TV personality and radio host, has developed living, dining and bedroom furniture collections for the retailer. Website: artvan.com.

EXPANSIONS FEV North America Inc., Auburn

Hills, has opened an office in Sunny-

vale, Calif., to serve the automotive electronics and connected vehicle technology division and support industries such as oil and gas, transportation and utility. Website: fev. com.

Ziebart International Corp., Troy, has opened an 8,000-square-foot facility in Bangkok, Thailand. It will offer appearance protection, detailing, films and rust protection services. Website: ziebart.com. 3DVision Technologies, Cincinnati, a 3-D printing firm, has opened an office in the Lewis Technology Cen-

ter, 39575 Lewis Drive, Suite 300, Novi. Telephone: (800) 745-3136. Website: 3dvision.com.

parmesan. Website: gourmet.com.

MOVES

Cryoworks Michigan, a cryotheraphy spa, has opened at 27803 Woodward Ave., Berkley. Telephone: (248) 607-9171. Website: cryoworks michigan.com.

Corbet, Shaw, Essad, Tucciarone & Bonasso PLLC has moved its law of-

fice from 645 Griswold St., Suite 2800, Detroit, to 30500 Van Dyke Ave., Suite 500, Warren. Telephone: (313) 964-6300. Website: csetlaw.com.

NEW PRODUCTS Garden Fresh Gourmet, Ferndale, a maker of refrigerated salsa and other consumer goods, announced a new line of refrigerated soups: chicken noodle with kale, chicken tortilla with roasted chilies, broccoli cheddar with parmesan and tomato with

“HOW CAN I KEEP MORE OF MY PROFITS?” When your business is more energy efficient, it’s also more profitable—and DTE Energy wants to help make that happen. Take John Logiudice, owner of Florentine Pizzeria, for example. DTE worked with him to make some small changes that led to big savings. Simply installing a programmable thermostat, sink aerators, LED bulbs and a pre-rinse spray valve in the kitchen saved John around 10% a month on his energy bill. If you’d like to manage energy use to save money at your business, visit dteenergy.com/savenow.

gardenfresh

STARTUPS

Deals & Details guidelines. Email cdbdepartments@crain.com. Use any Deals & Details item as a model for your release, and look for the appropriate category. Without complete information, your item will not run. Photos are welcome, but we cannot guarantee they will be used.

STATEMENT REQUIRED BY THE ACT OF AUGUST 24, 1912, AS AMENDED BY THE ACTS OF MARCH 3, 1933, JULY 2, 1946 AND JUNE 11, 1960 (74 STAT. 208) SHOWING THE OWNERSHIP, MANAGEMENT AND CIRCULATION OF: Crain’s Detroit Business, Publication No. 743370, published weekly at Detroit, Michigan, for September 30, 2016. 7. Complete mailing address of known office of publication: Crain Communications Inc., 1155 Gratiot Avenue, Detroit, Wayne County, MI 48207-2997. 8. Complete mailing address of the headquarters or general business office of the publisher: Crain Communications, Inc., 1155 Gratiot Avenue, Detroit, Wayne County, MI 48207-2997. 9. Full names and complete mailing address of Publisher, Editor, and Managing Editor: Publisher: Mary Kramer, Crain Communications Inc.,1155 Gratiot Avenue, Detroit, MI 48207-2997. Editor: Jennette Smith, Crain Communications Inc.,1155 Gratiot Avenue, Detroit, MI 48207-2997. Managing Editor: Michael Lee, Crain Communications Inc., 1155 Gratiot Avenue, Detroit, MI 48207-2997. 10. Owner (Do not leave blank. If the publication is owned by a corporation, give the name and address of the corporation immediately followed by the names and addresses of all stock holders owning or holding 1 percent or more of the total amount of stock. If not owned by a corporation give the names and addresses of the individual owners. If owned by a partnership or other unincorporated firm, give its name and address as well as those of each individual owner. If the publication is published by a nonprofit organization, give its name and address.) Crain Communications Inc., 1155 Gratiot Avenue Detroit, MI 48207-2997. K.E. Crain, 1155 Gratiot Avenue Detroit, MI 48207-2997. R.E. Crain, 658 Third Avenue New York, NY 10017-4036. 11. Known bondholders, mortgagees, and other security holders owning or holding 1 percent or more of total amount of bonds, mortgages or other securities: None. 15. Average number of copies of each issue of this publication sold or distributed through the mails or otherwise during the 12 months preceding the date shown above was: Total number of copies: 23,720; Paid distribution outside the mails including sales through dealers, carriers, street vendors and counter sales and other paid distribution outside USPS: 48; Mailed outside county paid subscriptions stated on PS Form 3541: 20,967; Paid distribtuion by other classes of mail through the USPS: 2; total paid distribution: 21,017; Free or nominal rate outside-county copies included on PS Form 3541: 1,560; Free or nominal rate distribution outside the mail: 98; Free or nominal rate copies mailed at other clases through the USPS: 0; Total free or nominal rate distribution: 1,658; total distribution: 22,675; Copies not distributed: 1,045; Total: 23,720, Percent Paid: 92.69%. Actual number of single issue published nearest to filing date (Sept. 30, 2016); Total number of copies: 23,250; Paid distribution outside the mails including sales through dealers, carriers, street vendors, counter sales and other paid distribution outside USPS: 34; Mailed outside-county paid subscriptions stated on PS Form 3541: 21,351; Paid distribution by other clsses of mail through the USPS: 2; Total paid distribution: 21,387; free or nominal rate outside-county copies included on PS Form 3541: 347; Free or nominal rate copies mailed at other classes through the USPS: 0; Free or nominal rate distribution outside the mail: 69; Total free or nominal rate distribution: 416; Total distribution: 21,803; Copies not distributed: 1,447; Total: 23,250; Percent Paid: 98.09%. 17. I certify that all information on this form is true and correct: Keith E. Crain.

C R A I N ’ S D E T R O I T B U S I N E S S // O C T O B E R 1 7 , 2 0 1 6

CALENDAR

TUESDAY OCT. 18

Business Model Optimization. 8:3010 a.m. Automation Alley. Jeff Binder, director of sales at P3 Group, will

lead a discussion on how to remove inefficiencies from a business model to make it more sustainable. Automation Alley, Troy. $20 members; $40 nonmembers; $30 walk-in members; $50 walk-in nonmembers. Contact email: events@automation alley.com; phone: (800) 427-5100.

WEDNESDAY OCT. 19

Destination: Unstoppable. 7:30-9 a.m. Leadership Oakland. Learn how when Cranbrook’s varsity hockey coach realized his crew was in trouble leadership expert Maureen Monte helped by applying her con-

cept of “no teammate left behind.” The team won a state championship six weeks later. MSU Management Education Center, Troy. $32 members; $36 nonmembers. Website: leadershipoakland.com.

The Automotive & Economic Outlook for 2017, 5-8 p.m. Marketing and Sales Executives of Detroit. Charlie Chesbrough, executive director, strat-

egy and research and senior economist, Original Equipment Suppliers Association, will discuss the North American economic outlook for 2017. Southfield Marriott. $45 members; $360 member table of eight; $60 nonmembers; $480 nonmember table of eight. Website: msedetroit.org.

UPCOMING EVENTS

U.S. Sen. Gary Peters: Autonomous Vehicles. 9-11 a.m. Oct. 24. Automa-

tion Alley. Peters discusses autonomous vehicles and their economic impact on metro Detroit. Automation Alley, Troy. Free. Preregistration required by Oct. 20. No walk-ins. Email: events@automationalley.com; phone: (800) 427-5100. Women @ Work: Developing Detroit. 3-6 p.m. Oct. 26. Wayne State University. Hosted by the Mike Ilitch School of Business Institute for Lead-

ership and Diversity, Women @ Work. The first in a series of events targeted to help women explore, establish and advance their careers. Keynote speaker is Jennette Smith, editor of Crain’s Detroit Business. A roundtable discussion will include Commercial Real Estate Women professionals in a variety of development-related disciplines. McGregor Memorial Conference Center, Detroit. Free. Contact: Sheri Perelli, phone: (313) 577-6116; email: ilead@wayne.edu.

2016 Crain’s 40 under 40. 5:309:00 p.m. Oct. 26. Crain’s Detroit Business. Since 1991, Crain’s has gathered 40 of the community’s top achievers for a special salute. The event will bring together the current class with colleagues, clients, family and friends to celebrate. Roostertail, Detroit. $125 individual; groups of 10 or more $120 each; 40 under 40 alumni $95. Contact: Kacey Anderson, email: cdbevents@crain.com; phone: (313) 446-0300.

Calendar guidelines. Visit crainsdetroit.com and click “Events” near the top of the home page. Then, click “Submit Your Events” from the drop-down menu that will appear. Fill out the submission form, then click “Submit event” at the bottom of the page. More Calendar items can be found at crainsdetroit.com/events.

ADVERTISEMENT SECTION

ACCOUNTING

MANUFACTURING

PEOPLE: SPOTLIGHT 3 Quicken Loans, Fathead execs retire A trio of executives from Detroit-based Quicken Loans Inc. and Fathead LLC recently retired. A statement from Quicken Loans provided to Crain’s did not provide the exact dates of the retirements of David Carroll as vice president of miscellaneous things at Quicken, Richard Chyette as vice president and chief corporate counsel at Quicken, and Patrick McInnis as CEO of Fathead. The announcement said they are the first senior-level executives to retire from Quicken, which was founded in 1985. Carroll, who started with Quicken Loans in 1991, was most recently counsel and “advocate” in local and state government for Quicken, the announcement said. Chyette joined the company in 1993. McInnis joined Quicken in 1993 and became CEO of Fathead, which sells vinyl wall graphics, in 2009.

Scarab Club names executive director

FINANCIAL SERVICES Rodolfo Dominguez

Vice President of Business Transformation and Chief Digital Officer Mercedes-Benz Financial Services USA LLC Rodolfo Dominguez has been named Vice President of Business Transformation and Chief Digital Officer of Mercedes-Benz Financial Services, becoming the first to lead the newly-formed Business Transformation Office. He will lead a team of more than 90 team members and will be responsible for the transformational change of people, processes and technologies that accelerate the company’s vision of providing a first-class digital experience for key stakeholders in the Americas region.

Johan Swart

Vice President and Chief Information Officer Mercedes-Benz Financial Services USA LLC Johan Swart has been named Vice President and Chief Information Officer of Mercedes-Benz Financial Services. He will lead more than 400 team members and direct overall IT strategy, resource planning, budgeting and operational initiatives for the U.S., Canada, Mexico, Brazil and Argentina.

For more information or questions regarding advertising in this section, please call Lynn Calcaterra at (313) 446-6086 or email: lcalcaterra@crain.com

The Detroit-based Scarab Club, which hosts art exhibitions

Kristin McLaughlin

Marilyn Elliott

Senior Director, Technical Accounting

Vice President of Human Resources &

Consulting

Chief Human Resources Officer

RSM US LLP

Stahls

Kristin joined RSM’s executive team to lead the Technical Accounting Consulting practice. She has focused on services for large public automotive entities as well as private equity portfolio companies. With prior roles at both GM and KPMG, Kristin has experience with technical accounting issues involving consolidations, mergers and acquisitions, leasing, revenue recognition issues, variable interest entities, contract manufacturing, supply agreements, technology licensing, and derivatives.

STAHLS’, a global leader in the garment decoration industry, has promoted Marilyn Elliott to vice president of human resources and chief human resources officer. Elliott will serve as a strategic business partner to all N. American business units, Canada and Nicaragua. Elliott will develop HR strategy and delivery of services and programs to including legal consult on employment law matters. Elliott has been with STAHLS’ since 1989 when she began building the HR department from the ground up.

LAW

Clifford L. Hammond Senior Attorney

Foster Swift Collins & Smith, PC Foster Swift welcomes Clifford L. Hammond to the Employers Services Practice Group. Hammond practices in both counsel and litigation, focusing on the National Labor Relations Act, Michigan Employment Relations Commission, union avoidance and dispute resolution. He is the co-chair of the Labor & Employment Committee for the Michigan Defense Trial Counsel and has been named a Michigan Super Lawyers, “Rising Star” and a Michigan Lawyers Weekly, “Up & Coming,” in the Class of 2010.

Jonathan H. Schwartz

Senior Attorney Foster Swift Collins & Smith PC Foster Swift welcomes Jonathan H. Schwartz to the Litigation Practice Group. Schwartz’s practice focuses on businesses and individuals in a variety of complex litigation matters, in both state and federal courts. He was recently named a dbusiness Top Lawyer, one of the Oakland County Executive’s Elite 40 Under 40 and the recipient of the Detroit Metropolitan Bar Association’s “One to Watch” award. Schwartz also serves on the board of the Jewish Bar Association of Michigan and NextGen Detroit.

and provides space for artists and arts education programs, named Ashley Hennen as executive director. She succeeds board President D u n c a n Campbell,

who had served as the arts organization’s Ashley Hennan unpaid executive director for a year and a half. Campbell stepped in after the departure of Josephine Shea in April 2015. Hennen, 28, had served as communications manager for Hatch Detroit since 2013 and communications and sponsorship manager for the Tour de Troit cycling event.

DAPCEP names deputy director to top post The Detroit Area Pre-College Engineering Program named its deputy director, Michelle Reaves, as executive director. She succeeds Jason Lee, who left after 12 years in August to become CEO of Detroit nonprofit Focus: Hope. Reaves, 46, had been DAPCEP deputy director since 2011. DAPCEP creates opportunities for students to explore new environments and provides STEM-immersive programs to metro Detroit students.

C R A I N ’ S D E T R O I T B U S I N E S S // O C T O B E R 1 7 , 2 0 1 6 CRAIN’S DETROIT BUSINESS

October 17, 2016

INSURANCE FROM PAGE 3

increased premiums charged to the company for its aging workforce. Universal has 37 employees and another 27 dependents covered under its three health insurance plans through Blue Cross Blue Shield of Michigan. Under member-level rating, which is used for individuals and small businesses with fewer than 50 full-time employees, premiums are assigned based on each employee or member’s risks. Composite premium rates charged to small businesses treat and bill each employee equally. In addition, two-person rates are the same and all family rates are fixed regardless of the age of the employee and family members. Insurance agents and business or-

ganizations tell Crain’s the Michigan

Department of Insurance and Financial Services should seek approval from the U.S. Centers for Medicare and Medicaid Services for the change back to

composite rating. They say it could give small businesses flexibility in providing employee health benefits that they say can reduce internal administrative and human resource costs, help with monthly budgeting and minimize increases in premiums during the year if companies hire older workers. Currently, 25 states allow health insurers to sell products to small businesses and individuals based on composite rates, said CMS. Among them are Illinois, Indiana and Massachusetts. Illinois believes the use of a composite premium system can reduce administrative costs, reduce premium instability for employers and employees and simplify employee decisions, according

to that state’s insurance department. But officials for Michigan DIFS tell Crain’s they haven’t received any requests to look into the federal waiver. Kevin Dyke, DIFS chief actuary, said the change won’t affect annual premium rates for small businesses. “It only changes the distributions of premiums based on the family unit,” Dyke said. Rhonda Fossitt, DIFS senior director of rates and forms, said the state could request the waiver for 2018, although it wouldn’t do so unilaterally without a conversation with business and insurance communities. “We are in favor of returning to a more simplified approach of single, two-party and family rates on a composite basis versus the member-level rating that is being used,” said Scott Lyon, senior vice president with the Small Business Association of Michigan.

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Call Us For Personalized Service: (313) 446-6068 CLOSING TIMES: Monday 3 p.m., one week prior to publication date. Please call us for holiday closing times. FAX: (313) 446-0347 E-MAIL: cdbclassified@crain.com INTERNET: www.crainsdetroit.com/section/classifieds Confidential Reply Boxes Available PAYMENT: All classified ads must be prepaid. Checks, money order or Crain’s credit approval accepted. Credit cards accepted.

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those rates go up,” he said. “Somebody has to eat the differences.” Though the use of composite rates to set premiums won’t lower overall health care costs for small businesses on a year-to-year basis, insurance experts say composite rates, also known as contract rates, make it easier for a small business to set budgets. But under member-level ratings, older workers pay higher rates than younger workers, especially when companies share premiums, said Joel Clark, president of J.S. Clark Agency in Southfield. Lyon agreed that a move to composite-level rates will not reduce health insurance costs for all small businesses. “It's just much simpler for a small business to administer,” said Lyon.

MISCELLANEOUS

ANALYZE

Health insurers view a change back to composite rating as possibly increasing their business costs. Helen Stojic, director of corporate affairs with Detroit-based Blue Cross Blue Shield of Michigan, said the state’s largest health insurer is reviewing federal regulations to recommend a solution for small businesses that doesn’t increase payers’ administrative costs. Lyon said moving to the traditional composite rating will help small businesses administer their health plans, especially when employees are hired or depart the company. “As soon as you have someone leave the company or join the company, they are joining at the member-level rate. That throws off the member-level rating every month” and the premiums charged by the health insurer need to be recalculated, he said. “Companies hire older workers and

JOB FRONT

REAL ESTATE

LUXURY PROPERTY

Page 17

The City of Oak Park has seen dramatic increases in economic development activities with over $65 million in investments in a two year period. The City has prepared an RFP for a 4.45 acre City owned site fronting Coolidge Highway just north of Eight Mile Road. The vacant land is ideal for a multi-use development with possible incentives and re-zoning offered by the City. The RFP is available on the City website at:

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POSITIONS AVAILABLE

Chief Operating Officer/ Vice President for Finance and Administration Alma College seeks an accomplished and strategic leader to serve as Chief Operating Officer / Vice President for Finance and Administration. Our new COO will be a strong operational leader for the college who will engage the campus as a whole as we work to achieve our ambitious strategic plan. A key member of the senior administrative team, this position reports to the president and works collaboratively with other vice presidents to execute campus goals. The COO will be charged with working across all campus sectors to allocate resources and manage day-to-day operations and therefore, must be adept at engaging all campus constituencies on a wide variety of complex issues. The COO must demonstrate the ability to develop innovative responses to the challenges for residential colleges today, while keeping focus on the liberal arts core of the college. A strategic advisor to the president and the board, the COO also serves as Alma’s chief financial officer, overseeing the college’s annual operating budget of $45 million and focusing upon strategic matters of the college’s operation such as financial analysis, debt structure, capital projects, and pricing strategy. The COO will demonstrate the ability to communicate complex financial data in a clear, understandable manner to campus constituencies. The COO oversees the Finance and Administration sector, which has 90 full-time employees and a budget of $14 million; the sector includes financial services, facilities management, information technology services, mailing and printing, food services, and the college bookstore. The ideal candidate will have a broad portfolio of leadership accomplishments with an entrepreneurial spirit, demonstrated financial and management success, and an understanding of and commitment to liberal arts education. A Phi Beta Kappa institution, Alma is a selective, residential private liberal arts college of 1400 students. It is dedicated to providing an academically challenging undergraduate education in a supportive environment emphasizing active, collaborative learning and close student-faculty interaction. The college is located in the city of Alma, Michigan, less than an hour north of Lansing and two hours from the state’s largest city of Detroit. A complete application will include a resume, cover letter and the names and contact information of at least 3 professional references submitted electronically to AlmaCOO@alma.edu. Review of applications will begin October 24 and continue until the position is filled. Confidential inquiries may be addressed to Jeff Abernathy, President, by e-mail to: AlmaCOO@alma.edu. Alma College is an equal opportunity employer committed to recruiting and retaining a diverse faculty, staff and student body.

C R A I N ’ S D E T R O I T B U S I N E S S // O C T O B E R 1 7 , 2 0 1 6

BLIGHT FROM PAGE 1

office, home and through his attorneys over the past six weeks — is not the only person the city and others consider a problem landlord. “We have a long tradition of people getting very wealthy exploiting the housing stock and residents of the city,” said Sheila Cockrel, a former longtime Detroit City Council member who is now president of Detroit-based Crossroads Consulting & Communications Group. “Slum landlords have been exploiting residents and neighborhoods since the 1950s and 1960s.”

A shroud of green City inspectors had been active on Klinger Street in recent weeks and months, but the neighborhood moved about its daily business. A man in a red T-shirt and white shorts cut his front lawn. A woman walked two muscular dogs panting under the high August sun, slobber dripping to the sidewalk. And on what was that day a sleepy strip of largely well-kept ranch-style homes between Seven Mile Road and

Outer Drive in the Conant Gardens neighborhood, stood Karr’s latest blight violation, its front porch shrouded in green, almost entirely inaccessible without a machete. Vegetation grew so high at the home that the branches buckled under the weight of leaves. The city characterizes the July 12 violation at 19416 Klinger clinically, like a doctor would a contusion or a cyst: “Excessive weeds or plant growth,” reads a description of the violation, just one Karr has notched on that street. Five weeks earlier, on June 3, the same 960-square-foot house was cited for the same code violation and issued a $50 ticket; the judgment amount was $85. Ten houses away, on the same street on June 3, on the same block, a house at 19325 Klinger was cited for the same reason, issued a $125 ticket, and a judgment of $167.50 was assessed when no payment was made. The same two houses received identical $50 tickets on Oct. 30, 2015 with $85 judgments. The story repeats itself over and over, with a grand total of unpaid violations starting in January 2005 of 2,075 — with judgments ranging from

just $57.50 to about $11,000. Still, the neighborhood moves on. A 2002 Metro Times report said Karr had “enjoyed carte blanche in Detroit for 20 years, renting out dilapidated and sometimes hazardous houses.” Karr himself lives 20 miles away from the blight on Klinger Street. On a meandering Bloomfield Township street off the Forest Lake Country Club, the homes are well-maintained. Contractors work on some of them leading up to a culde-sac on which Karr’s house sits, partially obscured by foliage. Karr appears to be current on the taxes for his 1.55-acre personal property, according to township records. No blight to be seen here. Brick pavers lead up to his front porch, where chairs sit and a woman, perhaps in her early 40s, answers the front door late one September morning. She identifies herself as Karr’s housekeeper. He is not home, she says.

Broken enforcement? Miriam Blanks-Smart, manager of Detroit’s Department of Administrative Hearings, said from 2007 to 2014,

YO U

come into compliance and pay unpaid judgments,” she said. Among the violators with the highest bills, the city says it is owed $2.67 million. And although Karr owns substantially fewer properties than he has in years past — perhaps fewer than 50 these days — he still keeps buying. Theoretically, Karr should not be able to purchase properties at the tax-foreclosure auction at all under a state law passed in the 2014 lameduck legislative session and made effective Jan. 14, 2015, after receiving Gov. Rick Snyder’s signature. The intent was to prevent landlords like Karr and others from erasing tax debts by letting their properties slip into foreclosure and then buying them back at auction for far less than what was owed on them. Under Public Act 501 of 2014, before a deed is issued to a buyer purchasing a foreclosed property, the foreclosing unit of government — in Karr’s case, Wayne County — is required to get an affidavit from a prospective buyer. That affidavit must state that “the person does not directly or indirectly hold more than a de minimis legal interest in any property with delinquent

Brick pavers lead up to his front porch, where chairs sit and a woman, perhaps in her early 40s, answers the front door late one September morning. She identifies herself as Karr’s housekeeper. ing Coalition

The law, Phillips said, removes one of the remedies that struggling homeowners behind on their taxes had to keep their homes even after the county has foreclosed on them because it strips them of their ability to purchase the home at auction. “The most practical approach would be to gut the whole damn thing, let the homeowners back in and at least give them that much of a right to it,” Phillips said. Marilyn Mullane, executive direc-

O MPL S A OYEES A RE

Ernest Karr facts Blight judgments: $1,110,855. Unpaid property taxes (2010-12): At least $368,962.77. Total: $1,479,817.77. Number of known companies: 33. Years in operation: More than 34 (Joy Management Co.). Sources: City of Detroit, Michigan Department of Licensing and Regulatory Affairs.

unpaid tickets for blighted properties were sent to collection agencies that used only phone calls and letters. But beginning last year, the department required collection agencies to contract with law firms to sue in Wayne County Circuit Court for unpaid blight tickets. “The city’s law firm (Clinton Township-based Roosen, Varchetti & Olivier PLLC) is again pursuing legal actions against the violators, and we expect that the law firm’s work in 2016 and 2017 will show that more top (See chart) and other blight violators will

O T N

property taxes located in the same county as the property” and that “the person is not directly or indirectly responsible for a violation of” a local blight ordinance. “De minimis” is a legal term meaning “so insignificant that a court may overlook it in deciding an issue or case,” according to Black’s Law Dictionary. “Thanks to this collaborative effort between Gov. Snyder, the Legislature, Mayor (Mike) Duggan and our office, we will be able to assist distressed taxpayers, stabilize communities and address blight in a manner never before possible,” former Wayne County Treasurer Raymond Wojtowicz said in a statement when the law was signed. “This is a great day for Detroit, Wayne County and Michigan.”

tor of Michigan Legal Services, said the focus needs to be on keeping occupants in their homes whenever possible. “You merely want the investor purchases where there are properties with nobody interested,” she said. “They are supposed to be putting money into these properties so they can rent them out.” The legislation’s primary sponsor was former state Sen. Tupac Hunter, D-Detroit, who served two terms in the state House of Representatives before serving two Senate terms and being term-limited out. Hunter, whose LinkedIn page says he is currently executive director of government initiatives for Wayne County, through a county spokesperson declined to comment.

Legislative ideas

Same old tactics

But Ted Phillips says otherwise. He and others say the law boots home occupants to the streets while failing to prevent buyers like Karr from purchasing more properties. The entire regulatory framework needs to be scrapped and rewritten, said the longtime executive director of the nonprofit United Community Hous-

The slum landlord tactics haven’t changed a lot in recent years, experts say. A building at 14815 Grand River advertises home ownership for as little as $1,500. A welcome sight, perhaps, for some in a city of 700,000 where the poverty rate is 39.8 percent, according to the latest American Com-

munity Survey data from the U.S. Census Bureau.

And where mortgages are still rare, with Mayor Duggan saying earlier this year that only about 500 were issued in 2015. Farmington Hills-based Realcomp Ltd. II says there were 3,613 home and condominium sales in the city last year, meaning about 86 percent of the home sales were cash deals. So it’s not like Karr and others who deal in land contracts — an agreement in which the homebuyer pays monthly to the seller rather than on a traditional mortgage with a bank — don’t meet a demand in the market. “My overall opinion is that commercial banks don’t really want to loan much to anybody anymore,” said Eric Nemeth, senior partner and head of the state, federal and local tax practice in the Detroit and Novi offices of Grand Rapids-based Varnum LLP. “It’s almost like they are saying, ‘Yes, we’ll loan — to pink unicorns. Yes, we are open for business to do this if you fit all our traditional parameters.’ But when you’re in a nontraditional market, don’t bother.” But the advertised price of $1,500 only tells part of the story for homes purchased on land contract. The

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$1,500 is essentially the down payment, and then it is more akin to a rent-to-own situation, where the buyer pays monthly and that is put toward the principal amount owed. Among those homes available are through Karr’s Action Property Management Co., housed at 14815 Grand River: 19771 Asbury Park, 8400 Piedmont and 14843 Winthrop. An employee in the building said “new homes” will be added to the list in late November or early December. That’s just a month after this month’s Wayne County tax-foreclosure auction. Karr declined to comment through his attorney, James Abbott.

Changing the biz model In August, the city announced it was filing nearly 600 lawsuits seeking a total of $12.2 million from mostly banks and companies in unpaid property taxes stemming from the 2013 Wayne County tax foreclosure auction. The average lawsuit claim is nearly $20,000; the average amount owed on each of the 1,543 parcels is $7,898. The city is not targeting people who own fewer than three properties and

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Auction numbers swamp county treasurer’s office Three part-timers. That's how many people the Wayne County treasurer's office has on staff working to investigate the approximately 1,300 registered bidders that participated in its September tax-foreclosure auction. Eric Sabree, who has held the Wayne County treasurer job for just five months, says 14,248 properties were up for auction. Of those, 1,125 properties were sold to about 400 buyers for a total of $20.35 million, according to his spokesman. The 11,100 that didn't sell last month moved to this month’s auction, Oct. 14-28, where they can be purchased for as little as $500. The total opening bid is $105.69 million. Between Sept. 1, 2015, and Sept. 1 this year, 78,705 new business entities were registered with the state, according to the Michigan Department of Licensing and Regulatory Af-

fairs. That averages to 6,559 per

month, or about 216 every day. "You’ve got to have people dedicated to this, doing this every day, just checking bidders and companies, going through the state website, checking to see who the registered agents are," Sabree said. So for three part-timers to keep track of and diligently investigate the ownership and history of each entity purchasing property at a foreclosure auction can be, put mildly, a daunting task, Sabree said. But perhaps not all that daunting in the case of landlord Ernest Karr. Generally, there are three locations associated with Karr's companies: A Grand River building near Hubbell Street and a pair of Southfield post office boxes: 484 and 2103. Kirk Pinho

PALACE FROM PAGE 3

concert promoters, siphoning business away from the Palace. “The new arena will certainly impact the market. Artists love to play new buildings, in part because they are state-of-the-art venues built with acoustics in mind, but especially because fan support is nearly always better if the building is new,” said Gary Bongiovanni, president and editor-in-chief of concert industry trade magazine Pollstar. In other words, acts would make more money playing the new arena. Olympia is forecasting 140 events a year atop the 41 Red Wings home games. The Palace has 41 Pistons games, but its number of concerts and events fluctuates based on tour schedules. It had 213,599 patrons for non-Pistons touring events last year, down from 279,098 in 2014 and 460,835 in 2013, according to Pollstar data. What could save the Palace is Olympia buying out Palace Sports & Entertainment, giving the Ilitches a monopoly on much of the region’s entertainment venues. “Controlling multiple facilities

philanthropic investments. Moving the Pistons downtown is seen as part of that, and theoretically he could construct his own arena in the city. However, Bongiovanni can’t envision Gores building his own downtown arena. “The Palace is still a very functional building, and with the new Red Wings arena, it will be hard to make the economics work for adding another venue in a market where the economy is not very robust,” he said. The Palace is widely touted as an excellent sports and event facility despite it being the second-oldest in the National Basketball Association. Former Pistons owner Bill Davidson, whose death in 2009 led to the team’s sale, built the Palace in 1988 for $90 million out of his own pocket. He spent an additional $112.5 million in subsequent renovations. Gores has spent more than $40 million in renovations and upgrades, including a three-year replacement of all 22,000 seats in a project scheduled to wrap up in 2017. Is he willing to view that investment as a sunk cost to get the team downtown? One possibility is that the Palace’s operational and maintenance costs are financially cumber-

ples Center in Los Angles. The venue, opened in 1999, is home to basketball’s Lakers, Clippers and Sparks, and hockey’s Kings. “It’s really hard to get dates in there if you’re a concert,” he said. Most are in the offseason, such as eight Adele concerts in August. That worry was echoed by longtime Detroit music promoter Jason Huvaere. “I would suspect if we only have one single venue to choose from, with two pro sports teams, we’ll have some challenges in scheduling,” said Huvaere, co-founder of Paxahau Promotions Group LLC, which stages the annual Movement electronic music festival in Hart Plaza. The building’s behind-the-scenes infrastructure and technology — from the number of loading docks, stage size, to the awesomeness of the acoustics and sound system — are criteria that promoters consider when picking locations, Huvaere said. “All those things play a role in venue selection,” he said. Metro Detroit, with its diverse mix of stadiums, arenas, amphitheaters, theaters, and clubs, remains a popular destination for concert tours of all

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are not associated with a limited-liability corporation or a company. Of the $12.2 million, the city says four Karr companies owe nearly $369,000 in property taxes. That’s just for three years (2010-12) of taxes on 61 properties owned at the time by Acorn Investment Co. ($181,453); Elm Investment Co. ($168,435); Rex Construction Co. ($10,911); and Rex Investment Co. ($8,162). “We are trying to disrupt the business model whereby folks can buy properties very cheap at auction, often rent it out to tenants, not pay taxes for three years then to be resold at tax auction, leaving the tenants in a lot of cases out on the street,” said Eli Savit, senior adviser and counsel to Duggan. “That’s obviously very harmful for neighborhoods and the innocent tenants who are treated as collateral damage, and deprives the money from the city for basic services,” he said. The city has had difficulty in collecting judgments from Karr in the past. “Although it is widely assumed that Karr is connected to these various entities (the Law Department has been

in litigation with Karr in the past), he is not named in any of the blight tickets,” Blanks-Smart wrote. “Since Karr uses corporate shells to own properties, it is possible that the collection actions could go through the circuit court process without his name being involved.” And collecting on what the city says it’s owed could prove difficult if the only assets for Acorn, Elm and the two Rex entities are bottom-of-the-barrel housing stock. But there are ways, said Jordan Bolton, equity member in the Birmingham office of Detroit-based Clark Hill PLC who specializes in commercial litigation with experience in fraud and judgment enforcement. If the city persuades the court to issue judgments against the companies and there aren’t funds within those companies to pay, Bolton said, the city could pursue fraudulent claims cases against Karr by arguing that he purchased properties with no intention of paying necessary costs, such as city property taxes. Only time will tell how the cases play out; the first court hearings aren't until December. Kirk Pinho: (313) 446-0412 Twitter: @kirkpinhoCDB

makes it better for them because they could steer a show where they need it,” Bongiovanni said. PS&E holdings include the Palace, DTE Energy Music Theatre in Clarkston, and the contract to operate Meadow Brook Amphitheater in Rochester Hills on behalf of Oakland University. PS&E in November 2015 signed a contract to co-manage Freedom Hill Amphitheatre in Sterling Heights from Novi-based venue owner Luna Entertainment. Gores paid $325 million for the Pistons and PS&E. The Ilitches in 2010 announced interest in buying the team, too, but talks broke down. How much Gores would want for PS&E is unknown, or even if the topic has been broached. Former longtime PS&E top executive Tom Wilson, who oversaw construction of the Palace, became president of rival Olympia in 2010, further adding an element of intrigue to the possibility of an expanded Ilitch entertainment empire (which also includes Comerica Park, Fox Theatre and City Theatre). Gores grew up in Flint and went on to become a billionaire in private equity. He’s announced an initiative to become more involved in Detroit and Michigan via business, civic and

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some, and those expenses would be off his books if the Pistons were a tenant at Little Caesars Arena. How revenue would be split at the new arena is known to be among the negotiating points for relocation. Cash from tickets, suites, club seats, corporate sponsorships, concessions, parking, etc., creates revenue streams that benefit not only the teams, but are factors in how revenue sharing apportionment is calculated in the NBA and National Hockey League’s collective bargaining deals with their players. Hence, the Pistons-to-Detroit talks are deeply complex, and could end up stymied. Another factor is that nearly 100 days a year will be obligated to the two teams, leaving fewer dates for lucrative concerts and events. That’s less cash coming in the door, and fewer entertainment options for fans. “If you have an NHL and NBA team in the arena, that’s going to eat up an awful lot of the dates artists may be looking for,” Bongiovanni said. “The A-level tours may find it difficult to find the open date they want. It’s always a delicate dance with that kind of stuff.” He cited the example of the Sta-

sizes. It’s not, however, among the must-play markets, Bongiovanni said. That’s a short list that includes New York City, Los Angeles, Chicago and Philadelphia. With a wave of arenas opening in the past couple of decades in smaller markets, tours have no shortage of options if they cannot find a venue and date in Detroit, he said. Artists and shows also can opt to add Detroit on a later leg of a tour, he added. “Artists only doing 20 to 30 shows, there’s a lot of competition for them,” Bongiovanni said. Scheduling a tour is most often driven by how much money can be generated, he said. That’s because the business structure of the music industry has shifted revenue from record sales to concert tours, he said. “That’s how artists make money today, from touring. Not from records,” he said. “If you want to pay your mortgage, you’ve got to tour.” Another factor in the choice of concert venues is psychology, Bongiovanni said. “Sometimes it’s the artist projecting where they think their audience would like them to perform,” he said. Bill Shea: (313) 446-1626 Twitter: @Bill_Shea19

C R A I N ’ S D E T R O I T B U S I N E S S // O C T O B E R 1 7 , 2 0 1 6

Detroit marches on with shuttering pot dispensaries By Marti Benedetti mbenedetti@crain.com

Detroit Corporate Counsel Melvin “Butch” Hollowell said the city is “making meaningful progress” in closing medical marijuana dispensaries that don’t comply with the city’s zoning ordinance. Of the 273 dispensaries that were counted in the city in March, 171 are still operating, he said. Hollowell’s goal earlier this year was to close all but about 50 of the dispensaries by December. He said city maps of dispensaries that meet zoning ordinance criteria "show room for about 50" in the city limits. “Eighty seven (of the 273) are out of business. Seven of those closed voluntarily, and 80 we’ve closed,” he said. He reported that 14 more dispensaries in the city have received closure notices. If a dispensary gets a closure notice and does not go out of business, a neighborhood police officer and a city Building, Safety, Engineering and Environmental Department inspector will follow

up by padlocking the building and mounting a poster saying the center is closed. Hollowell said 64 additional dispensaries “are in the pipeline this week to get a (closure) letter.” The medical marijuana dispensary zoning ordinance, passed by the Detroit City Council in December 2015, was originally created by City Councilman James Tate, who was concerned about the proliferation of dispensaries in the city.

MARIJUANA FROM PAGE 1

Marijuana dispensaries were required to submit bids or applications to operate in the city beginning March 1. The deadline to submit the bids was March 31. The city received 255 applications to operate by the end of March. The applicants were a mix of new and existing dispensaries. The zoning ordinance requires that dispensaries operate in designated zones, such as 1,000 feet from drug-free zones, including arcades, child care centers, educational institutions, libraries, outdoor recreation facilities, schools and youth activity centers; 1,000 feet from other medical marijuana caregiver centers; and 1,000 feet from a controlled use center such as a city park or religious institution. Meanwhile, in September, Michigan Gov. Rick Snyder signed into law new marijuana regulations that he said clarify the state’s 8-year-old voter-approved initiative that legalized marijuana for medical use. The laws require a new tax on dispensary shops and establish a state licensing system to grow, process, sell, transport or test marijuana. The law takes effect in December. People who want state operating licenses need to wait until late 2017 to apply. “The legislation indicated that dispensaries are allowable in cities if they pass the city ordinances,” Hollowell said. “That (clarification) is very helpful.” Hollowell was not concerned about the vacant city properties left by closed medical marijuana dispensaries. “The market will take care of itself."

— without, in some cases, ever handling the drug. Michigan is one of 25 states, along with Washington, D.C., and the U.S. territories of Puerto Rico and Guam, to decriminalize marijuana use for medical reasons, according to the National Conference of State Legislatures. California was the first state to

allow medicinal uses of the drug through a voter-approved initiative in 1996. Voters in just four states — Colorado, Washington, Oregon and Alaska — and Washington, D.C., have legalized recreational use of small amounts of marijuana for adults. The issue will be on the ballot in at least five states next month, including Arizona, California, Maine, Massachusetts and Nevada. Still, eventual legalization in Michigan is not guaranteed. Though the issue has made it onto the ballot in at least five states next month — though not in Michigan — cannabis entrepreneurship remains a highrisk, high-reward gamble that public opinion will continue to move toward legalization. And while sentiment seems to be shifting, operating during a time of transition is complex. Several states said they want to professionalize an industry that otherwise would be underground. People with experience in software development and biochemistry who could work in any number of fields are choosing to work in cannabis, despite difficulty in securing financing from traditional lenders and the

risk inherent in operating on the edge of legality. Companies like Iron Laboratories say their forays into the industry are in anticipation of stricter state regulation and, eventually, full legalization, which they consider the next wave of social change — one they hope to capitalize on. “I’m not some flag-waving, freethe-weed marijuana proponent,” said Lutz, who co-founded the company in 2011 after an earlier career in his family’s newspaper distribution business. “I think that there’s legitimacy in what we do, and I think there’s legitimate opportunities here.” Some law firms are creating cannabis practice areas to advise their industry clients on such issues as intellectual property related to branding and labeling, tax law, business formation and zoning rules. Lawyers also help navigate the fuzzy line between federal prohibition and state decriminalization. For instance, said Doug Mains, a Lansing-based attorney in Dykema Gossett PLLC’s cannabis group, can a company get a trademark on a logo that uses an image of a marijuana leaf? How does an attorney advise a client on compliance with state law when that same attorney knows the advice also violates federal law? The U.S. Department of Justice in 2014 issued guidance meant to deter some prosecution under the federal Controlled Substances Act — which bans marijuana on the basis that it has “no currently accepted medical use” — in states that have decriminalized use, but the Obama administration has stopped short of relaxing its classification of marijuana as an illegal drug with no acceptable medical use. Marijuana businesses need the same types of legal services as non-cannabis companies, Mains said, but the legal dichotomy means “everything’s a little bit more complicated.”

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Overall, changing attitudes toward marijuana are opening up new business opportunities for entrepreneurs, said Lutz, whose family company, Lutz News Co., distributed publications, including Crain’s, to newsstands in Southeast Michigan until it closed in 2008. “There’s a lot of people poised, there’s a lot of people eager to do it,” he said. “There’s a lot of people who are sinking a lot of investment in the notion that the investment itself will be a good one.” Michigan is home to several startup marijuana businesses, including other testing labs. PSI Labs opened at the end of 2014 near Ann Arbor, in Washtenaw County’s Scio Township, where it tests marijuana products for impurities, quality control and potency. Ben Rosman, 34, an attorney and co-founder, said he and his business partner, Lev Spivak-Birndorf, also offer consultation services to help growers, producers and dispensary owners manage such things as mold and proper dosing in edible products. The lab employs seven people,

most of whom have backgrounds in science fields, and counts hundreds of clients across the state, Rosman said. It offers a web portal to help marijuana growers and producers, as well as registered medical marijuana patients, find lab-tested products in Michigan. Rosman declined to disclose current sales figures or the amount of startup funding needed to get PSI Labs operating. He said he and Spivak-Birndorf presented a lengthy business proposal, mostly to family and friends, and many opted to invest in the company. He said he intends for PSI Labs to bring transparency to the industry, though he noted the lack of licensing requirements has created a unique situation for marijuana-related businesses. “We’re doing everything by the book, except we wrote the book,” Rosman said. “We’re trying to set the bar very high.” Steadfast LLC opened in November 2015 in Hazel Park after its owners spent about two years in research and development, said a company leader, who requested his name not be published because the lab is not yet his full-time job. The lab, which tests marijuana products for such impurities as mold and mildew and for chemical potency, employs three people and counts about 70 clients to date. Sales are in the “tens of thousands,” he said, noting that Steadfast is a smaller player in a growing market with competitors that have five to 10 times the market share. Advertising so far has mostly been word of mouth. And in Lansing, ACT Laboratories Inc. has been open about five years; it has seven employees between Lansing and a location in Illinois and about 250 clients, according to the business. Lutz and a group of partners started Iron Laboratories in 2011 with roughly $50,000 to $75,000 in upfront costs, he said. Iron Laboratories has tested 80,000 samples in its first five years, Lutz said, and counts close to 2,000 registered clients in Michigan. All clients must be Michigan medical marijuana cardholders. “We’ve quadrupled our capacity from the early days, when we used to do, say, 20 samples a week,” he said. “We can do 200 a night if we have to now.” The lab tests marijuana samples from dispensaries and growers across the state, Lutz said. All products go through biological and chemical testing. Its scientists have bachelor’s and advanced degrees in such fields as molecular biology, pharmacology and biochemistry. Lutz declined to disclose specific sales figures, but said business doubled every year for its first three years from a base of about $125,000 in 2012. Sales were up 25 percent in 2015 and are flat to date this year, though Lutz said at least half of the lab’s sales come in the final quarter of the calendar year. That growth has led Iron Laboratories to open a second office in Eugene, Ore. Lutz said he is looking at SEE NEXT PAGE

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C R A I N ’ S D E T R O I T B U S I N E S S // O C T O B E R 1 7 , 2 0 1 6 FROM PREVIOUS PAGE www.crainsdetroit.com Editor-in-Chief Keith E. Crain Group Publisher Mary Kramer, (313) 446-0399 or mkramer@crain.com Associate Publisher Ron Fournier, (313) 446-1674 or rfournier@crain.com Editor Jennette Smith, (313) 446-1622 or jhsmith@crain.com Director, Digital Strategy, Audience Development Nancy Hanus, (313) 446-1621 or nhanus@crain.com Managing Editor Michael Lee, (313) 446-1630 or malee@crain.com Managing Editor/Custom and Special Projects Daniel Duggan, (313) 446-0414 or dduggan@crain.com Assistant Managing Editor Kristin Bull, (313) 446-1608 or kbull@crain.com Digital Editor Carlos Portocarrero (313) 446-6056 or cportocarrero@crain.com News Editor Beth Reeber Valone, (313) 446-5875 or bvalone@crain.com Senior Editor Gary Piatek, (313) 446-0357 or gpiatek@crain.com Research and Data Editor Sonya Hill, (313) 446-0402 or shill@crain.com Newsroom (313) 446-0329, FAX (313) 446-1687, TIP LINE (313) 446-6766

REPORTERS Marti Benedetti General assignment (313) 446-0416 or mbenedetti@crain.com Jay Greene, senior reporter Covers health care, insurance, energy, utilities and the environment. (313) 446-0325 or jgreene@crain.com Chad Halcom Covers litigation, the defense industry, education, Macomb and Oakland counties. (313) 446-6796 or chalcom@crain.com Tom Henderson Covers banking, finance, technology and biotechnology. (313) 446-0337 or thenderson@crain.com Kirk Pinho Covers real estate, city of Detroit. (313) 446-0412 or kpinho@crain.com Adrienne Roberts General assignment, retail. (313) 446-1612 Bill Shea, enterprise editor Covers media, advertising and marketing, the business of sports, and transportation. (313) 446-1626 or bshea@crain.com Lindsay VanHulle, Lansing reporter. (517) 657-2204 or lvanhulle@crain.com Dustin Walsh, senior reporter Covers the business of law, auto suppliers, manufacturing and economics. (313) 446-6042 or dwalsh@crain.com Sherri Welch, senior reporter Covers nonprofits, services, food and hospitality. (313) 446-1694 or swelch@crain.com ADVERTISING Sales Inquiries (313) 446-6032; FAX (313) 393-0997 Advertising Director Matthew Langan Senior Account Manager Katie Sullivan Advertising Sales Christine Galasso, Gerry Golinske, Diane Owen, Sarah Stachowicz Classified Sales Manager Angela Schutte, (313) 446-6051 Classified Sales Lynn Calcaterra, (313) 446-6086 Marketing/Events Director Kim Winkler Events Manager Kacey Anderson Senior Art Director Sylvia Kolaski Marketing Manager Marilyn Banes Special Projects Coordinator Keenan Covington Sales Support Suzanne Janik Production Manager Wendy Kobylarz Production Supervisor Andrew Spanos CUSTOMER SERVICE Main Number: Call (877) 824-9374 or customerservice@crainsdetroit.com Subscriptions $59 one year, $98 two years. Out of state, $79 one year, $138 for two years. Outside U.S.A., add $48 per year to out-of-state rate for surface mail. Call (313) 446-0450 or (877) 824-9374. Single Copies (877) 824-9374 Reprints (212) 210-0750; or Krista Bora at kbora@crain.com To find a date a story was published (313) 446-0406 or e-mail infocenter@crain.com Crain’s Detroit Business is published by Crain Communications Inc. Chairman Keith E. Crain President Rance Crain Treasurer Mary Kay Crain Senior Executive Vice President William A. Morrow Executive Vice President/Director of Strategic Operations Chris Crain Executive Vice President/Director of Corporate Operations KC Crain Vice President/Production & Manufacturing Dave Kamis Chief Financial Officer Bob Recchia Chief Information Officer Anthony DiPonio 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 for a special issue the third week of November, and no issue the third week of 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 2016 by Crain Communications Inc. All rights reserved. Reproduction or use of editorial content in any manner without permission is prohibited.

ways to expand in other states, including California and Nevada, but said expansion has to be organic and sustainable. “We run everything ourselves, and that doesn’t mean that we’re not open to investment, because we are,” Lutz said. “But we’re open to investors that can come to our table and listen to what it’s taken for us to sustain the business to the point where we are now.”

Tiered licensing Snyder recently signed legislation that will create a tiered licensing system for marijuana businesses: Growers; processors, or those who make edible or other products infused with marijuana; provisioning centers, another term for dispensaries; secure transporters, who are paid to store and transport marijuana between locations; and safety compliance facilities, or businesses that test marijuana, all will need to be licensed to operate. Safety compliance facilities, like Iron Laboratories, would need to be accredited by a state-approved entity within a year after receiving a license. They will be required to submit records of transactions and inventory into a statewide database that tracks marijuana products, have a secure lab that can’t be accessed by the public and employ at least one person with an advanced degree in a medical or laboratory science. “Not only does this create transparency and legitimacy, this creates a fair playing field for everyone who wants to be a part of the business end of marijuana,” said Willie Rochon, vice president of the Michigan Cannabis Development Association, which advocated for the state regulations in the Legislature and represents about 20 members within the industry, including dispensaries. In order for a company to receive a license, a new medical marijuana licensing board within the Michigan Department of Licensing and Regulatory Affairs will review information

about any officers, directors, shareholders or partners; their criminal histories; and projected or actual sales revenue, among other things. LARA said it is beginning to create the licensing framework, and applications won’t be accepted until December 2017. “One of the reasons you have seen many proponents of either marijuana policy reform or even players in this emerging industry argue for things like regulation and government oversight is because they don’t

want to be painted in the same brush as those who are engaging in bad practices,” said Paul Armentano, deputy director of the National Organization for the Reform of Marijuana Laws, or NORML, a Washington,

D.C.-based advocacy group that advocates legalization of recreational marijuana for adults. “The only way that happens is when you have regulatory oversight and the regulations are clear and transparent for everyone involved.”

Risk for banks One piece that remains in flux also has to do with money. On Valentine’s Day 2014, the federal government issued a pair of memos offering guidance to financial institutions regarding marijuana-related businesses. The Justice Department earlier had instructed federal prosecutors to examine marijuana crimes through the lens of eight specific priorities, including keeping the drug out of the hands of minors and drug gangs and preventing it from being transferred across state lines to states in which it is banned. Yet banks and financial institutions could be prosecuted for conducting transactions for marijuana operations through federal money laundering statutes and the Bank Secrecy Act. What the newer guidelines suggest is that it “may not be appropriate” to go after financial institutions that serve marijuana-related businesses that don’t violate prosecutors’ eight marijuana focus areas, so long as they aren’t knowingly averting their eyes to illegal activity. Financial institutions that don’t comply with states’ regulatory structures or do business in states without one could face more risk, the memo said. The Financial Crimes Enforcement Network, within the U.S. Department of the Treasury, encouraged banks to review their own business goals and conduct a risk assessment and thorough due diligence, such as verifying a business’ state operating license, before deciding whether to work with marijuana-related businesses. Yet the advice didn’t assuage banks’ fears. The American Bankers Association, in a memo on its website, said the guidelines could send mixed signals to the industry because marijuana’s illegal status hasn’t changed. That has been enough for some banks to turn down all cannabis business. “They still had quite a chilling effect, because why would these financial institutions be complicit in violation of federal law?” said Thomas

INDEX TO COMPANIES

These companies have significant mention in this week’s Crain’s Detroit Business: Action Property Management 19 Barton Malow 22 Beaumont Health 9, 13 Blue Cross Blue Shield of Michigan 17 Capital Impact Partners 12 Detroit Pistons 3 Detroit Red Wings 3 Heritage Development Services LLC 22 Iron Laboratories LLC 1 Key Plastics 4 Lakeshore TolTest 7 Mich. Dept. of Insurance/Financial Services 17 Michigan Health and Hospital Association 9

Midtown Detroit Northwood Shopping Center Olympia Entertainment Palace Sports & Entertainment PSI Labs Ralph C. Wilson Jr. Foundation Rockbridge Growth Equity LLC St. Joseph Mercy Small Business Association of Michigan Spectrum Health Steadfast LLC Universal Flow Monitors Workforce Intelligence Network

12 13 3 3 20 12 14 9 17 9 20 3 22

Howard, a Peoria, Ill.-based attorney with Howard & Howard, a law firm that also has offices in Royal Oak and Ann Arbor. “It gets back to the conundrum: Is it illegal? Yes and no. That’s the problem — there’s no clear answer.” As a result, many marijuana business owners find it difficult to secure financing through traditional lenders. That means putting up some of their own money, borrowing from friends or family or tapping into hedge funds, Howard said. Kyle Sherman said he raised $500,000 in a seed funding round to start Flowhub, a Denver-based tech firm that creates a point-of-sale system for marijuana dispensaries and automates the data collection and reporting required under some states’ “seed-to-sale” tracking requirements. Some of that early-stage funding came from Poseidon Asset Management LLC, a San Francisco-based hedge fund that deals exclusively with cannabis companies, along with angel investors, friends and family members, said Sherman, 29, the company’s CEO. He declined to disclose details about additional fundraising or revenue. Sales are doubling every month, he said. Flowhub charges a monthly fee for the software, which starts at about $450, Sherman said. The company employs at least 20 people in such roles as engineers, software developers and sales, and regularly receives emails from people wanting to work there. “This is a great way to do it without touching the plant,” he said. The company is not yet in Michigan, but plans to enter the state once its compliance rules are written, Sherman said. The potential for an influx of new entrepreneurs as soon as next year has Iron Laboratories paying attention. “Everyone’s going to have to step up their game, including the laboratories,” said Robert Teitel, its president. “We know that people will be coming after us.” Lindsay VanHulle: (517) 657-2204 Twitter: @LindsayVanHulle

Michigan could gain millions in tax revenue from marijuana By Lindsay VanHulle

Crain’s Detroit Business/Bridge Magazine

LANSING — A fully developed legal market for medical marijuana in Michigan could lead to millions of dollars in new state tax revenue. Exactly how much is open to interpretation, but some analysts’ estimates suggest it could top $63 million a year. New regulations for the state’s medical marijuana industry, signed by Gov. Rick Snyder and taking effect in December (though a licensing system won’t be active until December 2017), will require a 3 percent excise tax on dispensaries’ gross sales receipts. That could yield $21.3 million annually in revenue to the state, based on roughly 204,000 registered patients in the 2016 fiscal year, according to the Senate Fiscal Agency. The agency estimated Michigan’s medical marijuana market could exceed $711 million, should prices and customers’ buying habits mimic those in Colorado, which has a more established market today. Additional revenue is expected if marijuana retail sales are subject to Michigan’s 6 percent sales tax — to the tune of $42.7 million — and with the collection of state and local licensing fees, the fiscal agency wrote. Michigan could be the third-largest state medical marijuana market by 2020, with $556 million in projected sales that year, according to a 2016 report from ArcView Market Research, which analyzes cannabis industry trends and statistics through San Francisco-based The ArcView Group. Michigan would rank behind California and Colorado, and ahead of Arizona and Oregon, the report suggests. This year, legal marijuana sales in the U.S. could reach $7.1 billion, up 26 percent from 2015, according to ArcView.

ARENA FROM PAGE 3

associate degree, while 63 percent of working Detroiters possess no more than a high school diploma, according to the study. This gap is becoming more pronounced as the skill levels needed increase as the construction advances from basic ground clearing to operating tower cranes and electrical work, said Lisa Katz, executive director of the Detroit-based Workforce Intelligence Network for Southeast Michigan. “Early on, it was pretty reasonable to expect (contractors) to find Detroit workers for cleanup and other basic jobs, but as they started getting into installing multi-ton trusses and increased use of heavy equipment or advanced electrical work, the skills needed go up, too,” Katz said. “Considering the scale of the project, it’s not surprising they can’t find the skills needed in Detroit.” For Barton Malow Co., one of the lead contractors for Little Caesars Arena, there’s a lack of skills in construction in every market, but especially in Detroit, said CEO Ryan Maibach. “In our industry as a whole, there’s a declining and aging workforce,” Maibach said, declining to discuss specific problems with employment at the arena site other than saying the issue won’t be fixed by the time the arena opens. “There are shortages everywhere,” he said. “Workforce issues becomes a topic when there’s a lot of work going and we’re fortunate to have that problem right now, but it makes it really dif-

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ficult to scale all those efforts when there’s such a tremendous need for workers. Especially here in Detroit.” An estimated 30 percent of all construction workers left the field during the last recession, which decimated the ranks of homebuilders, according to the National Association of Homebuilders. The ratio of U.S. construction job openings to hiring is at its highest level since 2007, according to U.S. Department of Labor statistics, at more than 200,000. It’s much worse locally. Since 2010, Detroit has seen a construction boom, yet fewer people work in construction. Since 2010, overall construction employment has risen 11 percent in the city, but the concentration of construction workers per capita in Detroit is 44 percent below the national average, according to figures provided by WIN. Further, construction workers in Detroit earn $3 to $4 more per hour than their elsewhere, according to WIN data. “Even though we’re paying more, we’re not getting the workers,” Katz said. “This is evidence there’s just not enough laborers in the city.” “Everybody is fighting for a small pool,” said Douglass Diggs, managing director of real estate development consulting firm Heritage Development Services LLC. “We’ve had contractors say they can’t pull from (workers) from one project to put on the arena project.” Heritage has been contracted by arena developers Olympia Development of Michigan to steer the arena job efforts and workforce initiatives. Olympia itself has made efforts to get

city residents connected to contractors, such as six job fairs held in Detroit in April and May 2015. From those events and other outreach, Olympia has registered 13,000 city residents interested in arena construction jobs through Detroit Employment Solutions Corp., the administrative and fiscal agent for workforce solutions for the city, Diggs said. “We knew going into this we would have to work with the city and unions to get additional Detroiters into the skilled trades,” Diggs said. “It takes a while to get people into the queue.” Take, for example, A. Randolph Technical High School on Hubbell Avenue, which at one point had about 700 students, Meador said. Today, the school, the only one in Detroit Public Schools that offers skilled trade certificates and paid internships, only has about 100 students. “There are deep, systemic issues here, and there is not a quick fix,” Meador said. “The average reading level is ninth grade. Average math level, seventh grade. Half have been in prison once. Half do not have transportation.” Randolph’s decline in enrollment stems from declines in funding. If a student left his or her regular high school to attend classes at Randolph, which occupies roughly two hours of a student’s day, funding gets shifted from that school to Randolph, Meador said. “This created situations where principals weren’t releasing students to go to Randolph,” Meador said, as well as pointing out that charter school and Education Achievement Authority students also could not attend the school.

“Families, teachers and advisers weren’t necessarily advising students to go there either. Because apprenticeships were lacking, students were asking themselves, ‘If I went to Randolph, would I get into an apprenticeship program at all?’” There are about 400 organizations in Detroit providing workforce development services — youth development, work readiness, mental health, literacy and financial literacy services, for example — and while many of them are doing good work, it’s a scattershot approach that sometimes does not produce the needed results, Meador said. The workforce development board is a broad coalition of executives and others from the private, nonprofit, education and other sectors. Katz said the lack of soft skills in the industry prove even more challenging for employers like contractors, which have strict requirements for safety. “You can’t just pull people off the streets,” Katz said. “Many Detroiters are facing basic soft skills challenges that eliminate them from participating in a major construction project, such as higher-than-average drug use.”

International Brotherhood of Electrical Workers Local 58 represents 90

percent of electricians in the city of Detroit and is the lead local for the arena project. Michael Richard, business manager for the local, said the union successfully enrolls only 4 percent to 6 percent of applicants each month into an apprentice program, largely due to the skills gap. “Either they haven’t prepared their (high school) transcripts, can’t meet the math requirement or pass the drug test,”

Richard said. “Every one of our members is working, and we can’t just create electricians overnight. It’s frustrating.” IBEW Local 58 journeymen earn $38.83 per hour, coupled with a benefits package worth $23.39, Richard said. Apprentices, who are in a five-year program, earn $17.43 per hour with the same benefits. Over the past four years, the local has spent $1 million on recruitment, including hiring teachers to help potential electricians meet the math requirements for the apprenticeship program. “An apprentice earns more than $200,000 just in benefits alone,” Richard said. “We’re banging our head against the wall to get applicants and get them in the program. We have the work.” The roughly $500,000 in fines to the contractors are going to skilled trades training, not into the general fund, said Jeff Donofrio, the city of Detroit’s director of workforce development. Much of that focus is on soft skills, he said. Part of the city’s curriculum is construction basic skills training, which includes reading and math to meet construction requirements, Donofrio said. The city is committed to training even in the ebbs and flows of construction projects, said Portia Roberson, director of the city of Detroit’s office of human rights, which monitors and enforces the hiring requirement for the project. “We’re training for the next jobs, not just this one,” Roberson said. Dustin Walsh: (313) 446-6042 Twitter: @dustinpwalsh Crain’s reporters Kirk Pinho and Bill Shea contributed to this report.

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THE WEEK ON THE WEB OCT. 8-14

Clinton Township official faces bribery charges

Detroit Digits A numbers-driven look at last week's headlines:

7.8 percent

ederal authorities charged Clinton Township Trustee Dean Reynolds with demanding and taking bribes in exchange for his vote on contracts, AP reported. Reynolds was arrested as part of a larger investigation into what’s described as “systemic corruption” in several Macomb County communities. Officials accused Reynolds of accepting as much as $70,000 from a representative of a company that secured a township contract, and accepting $17,000 from an undercover agent.

The average increase, to $167,700, in the median home sale price in metro Detroit in September, according to Farmington Hills-based Realcomp II Ltd. Meanwhile, partly because of decreased listings, home sales declined 5.6 percent compared to a year ago.

$75,000

The amount Troy-based Mahindra North American Technical Center is expected to give to six nonprofit urban farming projects in Detroit as part of its second annual Mahindra urban agriculture grants program.

COMPANY NEWS J Detroit Medical Center submitted a report to the federal government on how it will address infection control deficiencies in its central sterile processing and perioperative departments at its downtown campus. In the next 60 days, the Michigan Department of Licensing and Regulatory Affairs will conduct a surprise inspection for the

$2 million

The grant funding announced by the Troy-based Kresge Foundation for 15-20 community-based nonprofit groups in Detroit for projects to transform neighborhoods. The funds are for the third round of the initiative called Kresge Innovative Projects: Detroit.

U.S. Centers for Medicare and Medicaid Services to confirm if DMC has suc-

cessfully corrected its problems, or further action could be taken. J The board of Wayne State University Physician Group approved a new contract for medical, administrative and clinical services with Detroit Medical Center, ending several months of acrimony between the two academic health partners. Terms were not immediately announced. J Faurecia North America Inc. said it will lay off 348 employees and close two metro Detroit plants as a result of FCA US LLC discontinuing production of its Chrysler 200 and Dodge Dart models. Four Southeast Michigan plants, in Fraser and Sterling Heights, are impacted, and layoffs are to begin in December. J The Bloomfield Hills office of New York City-based Pillar Capital Finance LLC has originated $11.8 million in long-term debt for a $37 million Capitol Park redevelopment in Detroit. The project has five floors of office space for the Archdiocese of Detroit and 56 apartments on the upper seven floors. J Rochester Hills-based supplier Coastal Automotive LLC plans to hire

110 workers as part of its $6.5 million investment to establish a new manufacturing facility in Holland. Coastal makes foam-based safety products. J Birmingham-based Mills Pharmacy + Apothecary will expand with the opening of a shop with beauty and wellness products in Detroit’s Midtown district in November. The 1,300-square-foot store will remain open through the end of 2017 while the owners look for a permanent location in Detroit.

Zingerman’s Community of Businesses in Ann Arbor is set to open Miss Kim, a restaurant featuring KoJ

rean cuisine, in mid-November. Zingerman’s is an equal partner in the venture with Ji Hye Kim, who ran a food cart in Ann Arbor for four years. J Casey’s Pub, a longtime fixture in Detroit’s Corktown neighborhood, will be transformed under new management into a restaurant offering California-style street tacos and a wide selection of tequila. Details of the agreement were not released.

J A cut-and-sew business is set to bring jobs and designers to Hamtramck, as Sarah Ayers is stitching together her various projects under William + Bonnie and opening a new workspace called The Workroom as the local fashion industry grows. J Henry Ford Health System in Detroit was selected as one of several provider organizations to receive a share of a five-year, $5.5 million National Institutes of Health grant to lead data collection on a project that is part of the human genome research and precision medicine program. J Safe Balance Inc., a new Birmingham-based tech company focusing on helping seniors avoid slips and falls, was to launch its business venture at an event in Farmington Hills. American House, site of the launch event, is expected to be one of four early clients for Safe Balance. J Stein Mart began its expansion in Southeast Michigan by opening a store last week in Ann Arbor’s Maple Village shopping center and will open another this week in West Bloomfield Township’s Gateway Shopping Center, two of 13 stores the Florida-based discount clothing and housewares retailer is opening this year. J The list of suitors for embattled supplier Takata Corp. is expected to be reduced to two following a meeting in New York or Detroit at the end of this month. All 15 of Takata’s major customers, including the Detroit 3, Takata executives and its advisory firm Lazard Ltd. and bidders are expected to determine the future of the Japanese airbag and seatbelt supplier, which has been hammered by the largest recall in automotive history. J The Ford Motor Co. Fund is opening a second resource center in Detroit to help increase educational opportunities for students and other services, AP reported. The Ford Resource and Engagement Center is expected to open early next year in Fisher Magnet Upper Academy. J Revenue for the three casinos in Detroit dropped in September compared with the previous month but rose compared with the same month last year, the Michigan Gaming Control Board reported. Aggregate revenue for September was 3.2 percent lower than August’s revenue, the second straight monthly drop. Revenue for the casinos dropped 2.2 percent in August compared with July, but September 2016 revenue was 4.3 percent higher than September 2015.

OTHER NEWS

CHRIS EHRMANN

The Campbell Memorial Terrace, a small-scale performance venue at the Dequindre Cut, has been unveiled by the McGregor Fund and Detroit RiverFront Conservancy. The space was built from a $1 million fund gift to the conservancy to honor the legacy of the fund’s former president, C. David Campbell, who died in 2014.

J State officials filed a condemnation lawsuit in order to acquire the First Latin American Baptist Church in Detroit, remove it and make way for the Gordie Howe International Bridge between Detroit and Windsor, AP reported. J The USS Detroit arrived in its namesake city, docking by the GM Renaissance Center for a week of activities leading up to the Oct. 22 commissioning event for the new $440 million vessel.

RUMBLINGS Ross, Wilson slated to speak at ULI event

tephen M. Ross will be one of the speakers at an annual real estate forum put on by the Urban Land Institute Michigan. Ross, chairman and founder of New York City-based Related Cos. and a University of Michigan graduate, will participate in the 30th annual UM/ULI Real Estate Forum Nov. 17-19 in Detroit and Ann Arbor. Among the other speakers will be Tom Wilson, president and CEO of the Ilitch family’s Olympia Entertainment; and Jeff Blau, CEO and partner of Related Cos. and UM grad. Ross and Blau will take part in a discussion moderated by Bill Martin, a former UM athletic director, prominent real estate developer and founder of Ann Arbor-based First Martin Corp., about emerging real estate trends Nov. 19 at the Stephen M. Ross School of Business. The pair are leading the $20 billion Hudson Yards development on 28 acres on Manhattan’s west side.

Stephen Ross: Plans on developing in Manhattan.

Tom Wilson: Will discuss developments on arena.

On that old industrial site, Related plans 17.4 million square feet of commercial and residential space. On Nov. 17, Wilson will talk about The District Detroit project, the development zone that includes the new Little Caesars Arena. His remarks will be given at the Max M. and Marjorie S. Fisher Music Center in Detroit.

The theme of this year's forum is “Placemaking and the City of Tomorrow.” Tickets are available at umuliforum.uli.org.

Vectorform named top tech firm Royal Oak-based Vectorform LLC was named the top technology company of the year by Automation Alley. The award was set to be given at the group’s annual awards gala Friday night at the Detroit Yacht Club, after press time. Vectorform, which helps other companies invent new products, services, processes and tools, also has offices in Seattle, New York, Munich and Hyderabad, India. Other awards: J Bloomfield Hills-based Quipzor LLC was named startup of the year. A graduate of Automation Alley’s 7Cs accelerator program, Quipzor uses teleconferencing for pre-surgical collaboration between hospitals, physicians and surgical device company representatives and has developed a surgery scheduling app. J Shelby Township-based Fori Automation was named advanced manufacturer of the year. It designs automated systems for the aerospace,

automotive and defense industries and has facilities on four continents. J The Excellence in International Business Award went to Wixom-based Hosco Fittings LLC. J Rick Darter, president and CEO of Sterling Heights-based Rave Computer, was given the Automation Alley Champion Award for his contributions to the organization. J Goodwill Industries was honored as member company of the year for its work as a tier-one auto supplier. J The Outstanding Educational Initiative Award went to Michigan Apprenticeship Program Plus, a joint venture of Grand Rapids Community College and Macomb Community College to train up to 600 over five years in manufacturing and technology via a $3.9 million federal grant. The gala was emceed by Andrew Humphrey of WDIV-Channel 4, with Sheryl Connelly, the in-house futurist for Ford Motor Co., making the keynote address.

Cass Tech’s legal alumni gather

Some of the most powerful names in metro Detroit’s legal world gathered last week for the nonprofit Cass Tech Alumni Association’s “Lawyers & Judges Centennial Celebration.” The group has identified more than 250 judges nationally, and one in England, who graduated from Cass Tech between 1942 and 2008, and celebrated their contribution to law with current students. Reginald Turner, corporate litigator and member of the Clark Hill PLLC law firm, moderated a panel discussion at the high school with several Cass Tech alumni: J Lois Bingham, general counsel for Yazaki Corp.

Jeanine Brunson, deputy chief of the violent and organized crime unit of the U.S. attorney’s office for the Eastern District of Michigan. J Howard Hertz, entertainment lawyer with Hertz Schram PC. J Conrad Mallett, former Michigan Supreme Court justice and now chief administrative officer of Detroit Medical Center. J Emory Moore, a labor and employment attorney at Clark Hill. J Sherman Sealey, managing member of RSB Law firm. J Regina Daniels Thomas, deputy chief counsel at Legal Aid and Defender Association. J Suzanne Sinclair Smith, an adjudications officer with the U.S. Citizenship and Immigration Services. J

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