Crain's Detroit Business, May 29, 2017 issue by Crain's Detroit Business

MAY 29 - JUNE 4, 2017

Salt bill raises questions

Employer health costs rise 5 percent for 2017

Seeks to help Detroit Salt gain edge over Canadian firms, Page 3

Tops projected national rate of 4.1 percent, Page 3

Health Care

Wayne State, Henry Ford Health discuss combining physician groups

By Jay Greene jgreene@crain.com

Wayne State University and its medical affiliates are talking about a potential business deal with Henry Ford Health System, Crain’s has learned. While Wayne State already has various medical education and re-

search arrangements with Henry Ford, the talks underway since at least January involve the possibility of merging or combining the 1,200-physician Henry Ford Medical Group with most of Wayne State's 400-physician University Physician Group, according to four sources familiar with the matter.

A deal also could expand the current education and research agreements between the two Detroit-based health care organizations and would have effects that could reverberate far beyond the two organizations. It signals that the long-term partnership between Wayne State and DMC may be winding down.

Jack Sobel, M.D., dean of the Wayne State University School of Medicine, confirmed the talks with Henry Ford. He said “multiple other” health care organizations also are involved that could help Wayne State become a nationally recognized academic medical center. SEE WSU, PAGE 18

Education

Tackling a talent crisis A Detroit Public Schools Community District teacher recruitment fair was held at Martin Luther King Jr. High School last week.

LARRY PEPLIN FOR CRAIN’S

New Detroit schools chief makes recruitment a priority By Chad Livengood clivengood@crain.com

Taking over management of the Detroit Public Schools Community District poses a litany of challenges for new Superintendent Nikolai Vitti, not the least of which is filling each classroom in the district’s 93 school buildings with a certified teacher. The state's largest school system

has struggled this year to fill 260 vacant teacher jobs — nearly 10 percent of the unionized teaching staff — as an emerging statewide K-12 educator shortage has started to take root. Detroit’s teacher shortfall resembles the talent shortage many industries face. In his last superintendent job in Jacksonville, Fla., Vitti tapped the business community and philan-

thropists to help attract highly-rated teachers needed to prepare students for higher education or the workforce. In Detroit, the 46,000-student school district has deployed a hodgepodge of long-term substitutes, building principals and other teachers during their planning hours to make sure each classroom is covered each day. SEE SCHOOLS, PAGE 17

New Detroit schools chief Nikolai Vitti tapped business community in Florida.

Real Estate

Shopping shakeup? Activist investor’s quest for change at Taubman looms as shareholders meet By Kirk Pinho kpinho@crain.com

A seven-month public campaign to shake up shopping mall pioneer Taubman Centers Inc.’s board comes to a head Thursday as the Bloomfield Hills-based giant holds its annual shareholder meeting. At stake: Two seats on Taubman’s (NYSE: TCO) nine-member governing body, which investor Jonathan Litt has been peppering with criticism as being too cozy and averse to change, resulting Litt: Investor has in what he calls a taken aim at mall company that operator has financially underperformed in the last several years as it navigates an ever-shifting and challenging mall and retail climate. Yet even as some shopping malls and owners struggle to combat store closings caused by online shopping, Taubman appears to be resisting some of the trends. The mall owner saw growing revenue in the first quarter as well as increases in rental rates and sales per square foot, despite slightly higher vacancy rates. Litt, who has had a level of success with shake-up efforts of other high-profile real estate investment trusts, has the opportunity to succeed with Taubman, said one expert. “The company owns some of the country’s best malls but is deeply undervalued and has been for a long time,” said Erik Gordon, clinical assistant professor at the University of Michigan Stephen M. Ross School of Business. “That’s what gives Litt a chance.” SEE TAUBMAN, PAGE 16

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Michigan venture capital grows to new heights Investments, new funds sprout up, Page 8

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MICHIGAN BRIEFS

INSIDE

Agency: 401(k) switch for teachers costs billions Making newly hired teachers and other school employees ineligible for a pension and instead giving them a 401(k) would cost Michigan $465 million more annually in the first five years, legislative experts said. The analysis was released by the nonpartisan House Fiscal Agency a day after House and Senate Republicans proposed identical bills to close the 7-year-old hybrid pension/401(k) plan to school workers hired after Sept. 30, The Associated Press reported. Roughly two-thirds, or $280 million, of the $410 million cost in year one reflects an actuary’s recommendation to incrementally lower longterm investment return assumptions for the Michigan Public School Employees Retirement System for cash-flow reasons, starting in 2034. The pension plan’s portfolio would become more conservative because benefit payments to retirees eventually would significantly exceed contributions if no new employees are allowed to join. Increased unfunded liabilities associated with lower return assumptions “increases the annual required contributions necessary to fund the sys-

MIDMICHIGAN MEDICAL CENTER

MidMichigan Health committed $57 million to build a 160,000-square-foot facility and a new heart and vascular center at its MidMichigan Medical Center in Midland. tem,” the analysis said. First-year costs would increase by $96 million in the retirement systems for state workers, police and judges because their assets are pooled with MPSERS. Another $33 million in additional spending is included because the 401(k)-only plan would cost more on an ongoing basis than the hybrid system.

MidMichigan Health plans Midland center expansion MidMichigan Health is preparing for a three-year $57 million expansion to its Midland medical center this fall pending a certificate of need approval from the State of Michigan, the Midland-based health system announced Wednesday.

Plans include $30 million to build a heart and vascular center on its Midland campus and $27 million to integrate its full-service diagnostic and support areas, such as lab and imaging, the news release said. The 160,000-square-foot facility would also unite its off-campus cardiology offices, non-invasive cardiovascular testing and interventional surgical heart and vascular services. Michigan Medicine, University of Michigan’s health care division which MidMichigan aligned with in 2013, will assist in the development, the release said. The nonprofit health system plans to raze its Sugnet building this summer to make way for the heart and vascular center on the corner of Sugnet Road and Orchard Drive. “With heart disease currently the

leading cause of death in men and women both regionally and across the United States, we need to be well equipped to fight this disease,” President and CEO Diane Postler-Slattery said in a statement. “We are committed to creating a premier heart and vascular center that will offer world-class clinical care in a patient and family-friendly environment.” MidMichigan has additional medical centers in Alpena, Alma, Clare, Gladwin and Mt. Pleasant. The system also offers home health care and physician services.

Social media games won’t count as gambling in MI LANSING — Social media games on the internet used by some businesses would not be considered gambling in Michigan under a bill signed into law by Gov. Rick Snyder, The Associated Press reported. An analysis of Senate Bill 202 says some businesses have used free online games to promote themselves. The games typically are free and offer additional plays instead of prizes. The new law doesn’t cover fantasy sports. Casinos in Detroit were in favor of the legislation, along with the Michigan Gaming Control Board.

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DEALS & DETAILS

KEITH CRAIN

MARY KRAMER

OPINION

RON FOURNIER

PEOPLE

RUMBLINGS

WEEK ON THE WEB

COMPANY INDEX: SEE PAGE 18

Corrections J A story on Page 8 of the May 22 issue misidentified Steve Palackdharry’s title at Southwest Solutions. It is communications director. J The list of some of the top-compensated nonprofit CEOs in metro Detroit on Page 10 of the May 22 issue should have included a footnote to indicate that the 2014 total compensation listed for the top executive of Beaumont Health was earned by retired CEO Eugene Michalski.

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Health Care

Survey: Employer health costs up 5 percent for 2017 in Michigan By Jay Greene jgreene@crain.com

Average health care costs for midsized employers are projected to increase by 5 percent in 2017 after benefit plan changes, a slight uptick from last year’s 4 percent expected rate and higher than the projected national rate of 4.1 percent, according to Troybased Marsh & McLennan Agency LLC in a new report. Most employers manage rising

health care costs by boosting deductibles for PPO and HMO benefit plans, shifting costs to employees, modifying prescription drug coverage, adding wellness and telemedicine services and offering high-deductible health insurance plans, according to 388 employers that participated in Marsh & McLennan’s 14th annual Southeast Michigan Mid-Market Group Benefits Survey. “The health care cost trend in gen-

eral is going up with higher unit costs,” said Becky McLaughlan, vice president with Marsh & McLennan. “Specialty drugs are becoming a greater and greater share of the costs.” For example, drug costs are projected to rise to 17 percent of total health care costs this year, compared with 14 percent in 2007, a 21 percent increase, according to data from Pricewaterhouse. SEE COSTS, PAGE 16

LISA SAWYER/CRAIN’S DETROIT BUSINESS

Economy

Detroit Salt LLC employs about 60 people on Sanders Street in southwest Detroit.

Leveling the field or picking a fight? Bill seeks to help Detroit Salt gain edge over Canadian firms By Lindsay VanHulle

Crain’s Detroit Business/Bridge Magazine

LANSING — Should the Legislature give companies in Michigan an economic edge over out-of-state businesses when they bid on government contracts? Yes, says the Michigan Senate, which overwhelmingly passed such a measure last week to protect a salt

MUST READS OF THE WEEK

mining company operating in Detroit, whose executives say they aren’t able to keep pace with Canadian mines on price. The business, Detroit Salt Co. LLC, claims the legislation will prevent it from being undercut by Canadian competitors, which the company claims are able to offer a lower price on rock salt to the state, in part

Bringing STEM into focus Toyota theater aims to bring new dimensions to Michigan Science Center. Page 4

because of currency differences between the two nations. But such “Michigan First” legislation has drawn concern from economists, legal experts and even some government officials, who worry that the bill could drive up costs to state taxpayers, and raise the possibility of an international trade dispute. “By not opposing the bill, we’re

Ron Fournier: A ride on the QLine, a snapshot of a city on the move. Page 6

SEE SALT, PAGE 15

“The field is not level now... The value of (Canada’s) dollar plays a part in their ability to sell at a larger volume, as well as their size.” George Davis, Detroit Salt

Banking

Flagstar’s Michigan appointment points to renewed push in commercial loans By Dustin Walsh dwalsh@crain.com

‘That’s a train, son’

advocating picking winners and losers to an extreme degree that isn’t consistent with the fairness in our bidding process for all suppliers, new and current, and most importantly to us, ensuring the best value for tax dollars spent,” Jim Colangelo, chief procurement officer with the Michigan Department of Technology, Management and Budget, testified before the Senate commerce

LARRY PEPLIN

The executive who ran Flagstar Bancorp Inc.’s push to expand commercial lending is now in charge of the bank’s Michigan operations. The Troy-based bank named earlier this month Andrew Ottaway, executive vice president of lending, to president of its Michigan market. Since joining Flagstar in December 2015, Ottaway launched new com-

mercial lending initiatives, including homebuilder financing, equipment financing and leasing, franchise financing and industrial loans. Ottaway now also leads the bank’s retail operations and its 99 branches in Michigan. The promotion represents Flagstar’s renewed aim to expand its commercial and retail portfolios after its residential mortgage business nearly claimed the

bank during the Great Recession. Under Ottaway, commercial loan balances grew to $3.3 billion and commercial real estate loans increased 55 percent to $1.3 billion, the company said. Warehouse lending commitments climbed 32 percent to $2.9 billion year over year and, for the first time, Flagstar’s commercial loan portfolio exceeded its consumer loans. SEE FLAGSTAR, PAGE 17

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“Everstream’s robust fiber network provides customers with the high-speed network connectivity, tools and scalability they need to be successful today and as their needs change tomorrow.” Brett Lindsey, President and CEO, Everstream Chris Reynolds, executive vice president, corporate resources; chief diversity officer and group vice president, social innovation for Toyota Motor North America; Tonya Matthews, president and CEO, Michigan Science Center; and science center board member Jeff Makarewicz, senior vice president, vehicle quality and safety engineering function, Toyota, before a preview of the upgraded Toyota Engineering Theater at the science center.

Toyota theater aims to bring science to life at Michigan Science Center By Sherri Welch swelch@crain.com

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Imagine Detroit students being able to see and speak with engineers testing new vehicles in the deserts of Arizona, a doctor performing a live surgery or men in the international space station, all from Detroit. The Toyota 4-D Engineering Theater at the Michigan Science Center, which was set to open to the public Saturday, will make that type of live-streaming possible, following an upgrade funded with a $1.44 million grant from Toyota. “It’s more than a theater space,” said Tonya Matthews, president and CEO of the Michigan Science Center. “We’re literally trying to give folks in far western Michigan or the UP the exact same experience when we’re talking with them through the TET as it is when we get in our van and we drive and set up right in their auditorium.” The theater now also includes more advanced interactive seats that can provide instantaneous movement, misting and puffs of air (think science meets amusement park) to put viewers into the action on the screen, and pyrotechnics that light up the theater’s stage on command, without the use of actual fire. The misting feature on the seats was turned off last week during a preview of the theater and film “Extreme Weather” for Toyota officials, local dignitaries and the press. “You won’t get wet when you’re watching the hurricane, but the kids will, and they’ll love it,” Matthews told the crowd. For Toyota and others, the live-streaming capabilities will provide an opportunity to engage in STEM education in a new way. For example, say Toyota wants to show school kids a new, cool fuel cell technology, how it uses Prius

batteries to power facilities in national parks or a flying car development it’s backing — before the car’s official, planned launch at the 2020 Summer Olympics in Tokyo, said Chris Reynolds, executive vice president, corporate resources, chief diversity officer and group vice president, social innovation (corporate philanthropy) for Toyota Motor North America. “We can take the kids right there through this theater. Their classroom becomes wherever we have something cool to show them in the U.S. or maybe at our research facility in Ann Arbor or perhaps even in Japan.”

Memories of the science center Reynolds, a Detroit native who is based near Dallas, holds a number of titles with Toyota Motor Corp. as well, including managing officer, general counsel and chief legal officer. The 1979 graduate of Cass Technical High School remembers putting his hand on the electrostatic ball and wondering why his hair didn’t frizz out and watching a pendulum create patterns in the sand as the earth revolved and the pendulum did not at what was then called the Detroit Science Center. “I didn’t know I was growing up in the Detroit that everybody else saw,” Reynolds said. “I thought I was growing up in a great city that had lots of fun things to do,” like Eastern Market, the Detroit Institute of Arts and the Detroit Science Center. And the world was his oyster because he had only to cross the Ambassador Bridge to be in a foreign country. “What Detroit gave me was a sense of possibility. It was only when I left that I (understood) that the city’s reputation was a sense of

limits on the possibility.” The way to preserve that sense of Detroit being a place of possibility is through places like the Michigan Science Center and the Toyota Engineering Theatre, Reynolds said. “You have no idea what memory any child will lock onto that will compel them for the rest of their lives. No idea. So all we can do as adults is provide these kids with as many of these moments as possible. One’s going to stick,” he said. “The tragedy is when we don’t give that child that moment.” The new streaming technologies open the door to similar types of partnerships with companies in other industries, as well as other automakers, Matthews said. There’s nearly a negative pipeline for all of the STEM careers coming on line, Matthews said. “This is about more than just Toyota … this is about how you make STEM careers a career of choice because that’s how fast it’s growing. How do you get more and more kids and even more and more adults to think this is where to go … this is what is most fun ... most rewarding ... most transformative.” As long as more kids become interested in STEM careers, “I don’t care where they go. We just need them,” Reynolds said. “If one or two happen to show up at Toyota 20 years from now, this is a worthwhile investment.” In the short term, the Toyota Engineering Theater and science center also offers opportunities to engage current Toyota employees in Saline and Ann Arbor, he said. That produces the more immediate benefit of engaged employees. “Is there some self-interest here? You bet,” Reynolds said. “But it’s one of those nice things where it works for Toyota but it also works for the communities in which we’re placed.”

C R A I N ’ S D E T R O I T B U S I N E S S // M A Y 2 9 , 2 0 1 7

Tax & Financial Controversy Experience

In Your Corner.

Ŷ Former Senior Trial Attorney for the District Counsel of the IRS and Special Assistant U.S. Attorney for the U. S. Department of Justice. Ŷ Tax and financial controversy (IRS and various States), civil and criminal tax litigation. Food and beverage offerings at Little Caesars Arena will include “locally-based brewery offerings and craft cocktails with hand-carved sandwiches at 1701 Pub,” Olympia Entertainment said.

Delaware North Sportservice chosen as LCA concessionaire By Bill Shea bshea@crain.com

Sports venue food service giant Delaware North Sportservice has been awarded the food, beverage and retail sales contract for Little Caesars Arena, which opens in September as the new home of the Detroit Red Wings and Detroit Pistons. Buffalo-based Sportservice has handled concessions for the Detroit Tigers since 1930, so the company’s work is familiar to Detroiters. Terms of the deal were not disclosed in the announcement last week by Olympia Entertainment, which will manage the 20,000-seat Little Caesars Arena for events and games for the Wings and Pistons. Typically, a concessionaire and team split revenue at negotiated rates for food, beverage and retail sales during games and events. Sportservice will handle concessions at LCA’s 50-plus fixed and portable stands, and it will manage premium dining services in five club areas, 24 loge boxes and 62 suites, Olympia said in a statement. Food and beverage offerings at Little Caesars Arena were described by Olympia as including “fresh fruit and greens at the District Market Express; hand-breaded chicken and fresh cut fries at The Coop; locally-based brewery offerings and craft cocktails with hand-carved sandwiches at 1701 Pub; regionally themed favorites like coney dogs and shawarma at Detroit House, along with other Detroit-area favorites, including Dearborn Sausages and Better Made Potato Chips.” The 19,000-square-foot District Market, which includes a restaurant and bar, is outside of the arena and will be open daily, Olympia said. Additionally, Sportservice will manage merchandise sales inside the arena at a 9,500-square-foot team store shared by the Red Wings and Pistons. The merchandise focus will change depending on which team is playing at the arena that day.

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OPINION ‘That’s a train, son’

louds hung dark and heavy in the midafternoon sky when I decided last week to try the QLine. I didn’t know what to expect. I didn’t even know where to board until I asked a city worker emptying garbage cans. “Right there,” he said, pointing to a spot beneath the People Mover at the foot of Woodward Avenue, where a hulking rail car had somehow evaded my sight. “That’s a train, son,” the man chuckled. “It’ll keep you dry.” And so it did — for 3.3 miles, from start to finish of the $187 million light rail experiment, a trip that took me from Woodward to Grand Boulevard with a rotating cast of commuters and tourists who showed me the QLine’s limits and promise. Boarding just behind me, Dennis White asked the driver, “How far does this thing go?” “Grand Boulevard,” replied the driver. “Will it go farther?” White pressed. “Not yet,” the driver said. White stepped off before I could ask him where he was headed. Across the aisle from me sat Robert Pearson, 39, an employee at the nearby Quicken Loans headquarters. He parks his car four blocks north of the first QLine stop. “I don’t feel like walking to my car today,” he said. “So I jumped aboard.” Pearson paused to consider a younger man who boarded with a worn and dirty cardboard box filled with clothing. “I think this thing is going to be a success,” Pearson said of the QLine. “But it’s going to take some time. Detroiters are used to driving their own cars or taking buses.” The young man with the box interjected. “This QLine is a great ride. It’s cool and it’s exciting and it’s a great thing for the city of Detroit,” he

KEITH CRAIN Editor-in-chief

It is what it is

RON FOURNIER Publisher and Editor

Ron Fournier is publisher and editor of Crain’s Detroit Business. Catch his take on business news at 6:10 a.m. Mondays on the Paul W. Smith show on WJR AM 760.

said. When I asked his name, the young man said, “Call me ‘Sir.’ I’m a private man.” Later, he told me he’s homeless. Five minutes after I boarded, the train took off with seven people aboard, evenly mixed by gender and race. We passed Campus Martius, Comerica Park, and the construction site for the Little Caesars Arena, then we entered Midtown before I realized how different the city looks when you’re looking — not driving. Century-old architecture. Construction cranes. Orange traffic cones. People of all colors and ages daring the skies to rain, walking and biking and Uber-ing their way through the small, pulsing heart of a 143-square-mile city — most of it a transportation desert. Suddenly, my attention shifted back inside train, where a heavyset, elderly white man fell into the lap of a slender, slightly younger black man. The train had rocked Tom Skura off his feet. Freddy Henry caught him. Then a woman shouted: “Did I miss the Whitney?” It was the voice of Kim Weldon, a Westland woman who had dragged her boyfriend, Skura, from the sub-

KIRK PINHO/CRAIN’S DETROIT BUSINESS

The new QLine streetcar takes a run down Woodward Avenue. urbs for a day of downtown sightseeing. Softer this time, she asked again: “Did. I. Miss. The. Whitney?!” Yes, I told her; we had just passed the David Whitney House, a fancy midtown mansion-turned-restaurant. Weldon was bummed, but still enjoying the QLine. “I love coming downtown,” she said. “I only come down when I have to,” groused Skura. “But I’ve got to admit, this train thing is pretty nice. It might bring me down here again.” After helping Skura off his lap and into a seat, Henry introduced himself. He works at Cobo Center and lives in Detroit. The QLine is his new commute. “Donald Trump said the QLine should run all the way up Woodward to Nine Mile Road,” Henry told us. “I think he’s right. It should go all the way into the suburbs so people like me can get to jobs.” “I’d like to see it go out Michigan Avenue, too,” Weldon said. “How about the neighborhoods?” Skura said. “I hear the neighborhoods in the city need help.”

Henry nodded. “Yes, they do.” The trained stopped at Grand Boulevard and Weldon asked the driver if we could stay aboard and loop back downtown. He said no; the next train would arrive in 15 minutes. “They need to fix that,” Weldon said. There are bigger issues that need fixing, starting with the fact that the QLine has no long-term funding source. Furthermore, metro Detroit voters rejected a tax to create a regional transit system in an election last fall that exposed old racial and regional divisions. But there was no talk of taxes or politics aboard my train, as suburban tourists and city commuters pleasantly said their goodbyes on Grand Boulevard. I hailed a passing taxi and, for $7.50 plus tip, rode back to the foot of Woodward where the guy emptying garbage cans greeted me at the curb with a look of bemusement. “What are you doing in a cab?” he laughed. “Thought I found you a better ride.”

LETTER TO THE EDITOR Reported numbers overstate Kagan’s compensation To the editor: I would like to clarify (and correct) information concerning Crain’s nonprofit CEO compensation article/list. Detroit Zoological Society CEO Ron Kagan’s average annual compensation is around $400,000. Of the $927,359 listed as total comp for 2015, $460,000 represents retro pay owed, as well as retirement contributions, for a 10-year period (20062015). Accruals for this were spread out over two years, so our 2013 and 2014 Form 990s reflect an amount greater than Ron’s actual compensation those years by $120,926 and

$339,074, respectively (he received neither amount for those years, so the 2014 number on the list is incorrect). As the article states, the IRS requires reporting on Form 990s both in the year(s) deferred compensation/retirement accrues and then again in the year(s) it vests. While the IRS believes “double reporting” is necessary for compliance reasons, the requirement leads to a perception that an individual’s compensation is greater than it actually was. According to 2015 Association of Zoos & Aquariums and other nonprofit compensation surveys, the average base salary for CEOs of equivalent zoos/aquariums in size, attendance and budget with similar

tenure and success is about $400,000. For reference, CEO comp for both of Chicago’s zoos and its aquarium ($439,000, $532,000 and $884,000) as well as zoos in New Orleans ($528,000), New York ($881,000), St. Louis ($770,000), San Diego ($668,000), Omaha ($454,000) and Atlanta ($527,000) are all above Ron’s comp of $400,000. Ron’s performance excellence is reflected in the numerous awards, successful fundraising, overwhelmingly favorable response to visitor-experience surveys, increasing zoo attendance, new exhibits, leadership in humane education, animal welfare and conservation, the organization’s financial health and the community’s strong support.

The DZS has earned the highest possible rating (less than 10 percent of others are at this top category) — four out of four stars — year after year for sound fiscal management and commitment to accountability and transparency from Charity Navigator, the nation’s largest and most respected independent evaluator of nonprofit organizations. It’s no surprise the DZS was named a Crain’s Best-Managed Nonprofit in 2015. Lloyd Semple Chairman of the board Detroit Zoological Society Editor’s note: Crain’s nonprofit compensation report includes total compensation figures as reported on nonprofits’ Form 990s and attempts to explain unusual situations as they occur.

It doesn’t seem that long ago when Detroit was way up there with the population leaders of the nation. Detroit started to slide, and it fought to stay in the top 10. That was OK, we all could understand the slight reduction. Marketers realize that you want to be in the top 10, so advertisers want to spend time and money in your market. You definitely want to be in the top 25 in the country, whether as a media market or a city. Well, in case you missed it, Detroit is getting closer to falling out of the top 25. The people who do the counting say we’re now the 23rd-largest city. That seems impossible, but it’s a fact according to the folks who do the counting. That’s pretty low. If you want to understand the importance of this, just take a look at who is ahead of us. We have pretty well stopped the exit, but people still seem to be trickling out faster than we can convince them to either settle here or return to their hometown. Meanwhile, we are what the government says, 23rd. I have to admit I am surprised and a little stunned and a lot disappointed. I am not blaming anyone. I happen to think that our mayor is doing everything he can to stop the outflow of residents and encourage people to settle. If you are looking for a place to rent in most of the downtown, it is impossible to find. We are working on the neighborhoods, but it will take longer. Meanwhile, if you add up the population of our five counties, the total gives us a far more respectable population than just the city limits. Sadly, there are a lot of economic indicators that use population as their benchmark. We could well be losing substantial amounts of money and, more importantly, potential investment as our market ranking slips. I think we all can add another project to our long list to help our city grow. Meanwhile, let’s not forget the population of Greater Detroit. There was a time when we were in the top five. We aren’t going to reclaim that ranking, but we definitely want to stay in the top 25. Just another challenge.

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Meyer ouster makes for awkward OCC commencement speech Awhile back, Tim Meyer, chancellor of Oakland Community College and its five campuses, invited me to be the commencement speaker on May 20. Two days before the big day, I learned through our own story on crainsdetroit.com that Meyer had been removed as chancellor and an interim was appointed. Can you say “awkward”? I accepted Meyer’s invitation because I have long admired how he has moved OCC forward to be one of the top workforce assets in our region, responding to some of employers’ greatest needs. But that work often ran afoul of the faculty union at OCC; members took a no-confidence vote against him in 2014. But the board of trustees had his back — until new elections that

MARY KRAMER Group Publisher

fall and in 2016 shook up the makeup of that body. And on May 16, the board voted 5-1 to put Meyer on administrative leave, news reports said. But for all practical purposes, they fired him.

And as Crain’s Detroit Business’ Kirk Pinho reported, Meyer promptly hired a D.C. lawyer with higher ed experience to represent him. Oakland County Executive L. Brooks Patterson was a fan of Meyer’s, largely because of OCC’s ability to nimbly address workforce training needs for county employers. Patterson laid the blame on Meyer's ouster squarely on board chairman John McCulloch, whose own political history has had ups and downs in the county. Meyer had a remarkable run at a tax-supported institution that once had a revolving door of chancellors.

The churn and a lack of professionalism on the board at one time endangered the college’s accreditation. Accreditation will be coming up again. So will a millage renewal. So it will be interesting to see if Meyer’s legacy is dismantled to the point that employers’ support for the school wanes. It wasn’t easy to follow through on the commitment to speak Saturday. One option — to call out the board for an action I don’t agree with. But the graduates were probably oblivious to the drama playing out at the administrative level. Ironically, my message to grads was to start exercis-

TALK ON THE WEB Re: DiChiera’s legacy: ‘We were there’ I wouldn’t burden the man with the label “saint” but he certainly had the patience of one back in the ’70s when putting on opera in Detroit had not yet attracted major support. He just never gave up. He believed in the potential of downtown when the evidence was all the other way. James38

Re: QLine has teething pains People Mover v2.0 William J Maybe if those behind transit infrastructure development in Detroit (and Metro Detroit if such is ever allowed) didn’t have to fight to even create a tiny bit of public transit, these lines would be connected and provide a unified and efficient form of transportation. God forbid this community work together and provide an infrastructure competitive with the rest of the country instead of stubbornly insisting that gutting the core business district and more and wider freeways actually works. E M Parmelee This makes it a perfect time to start the conversation about the Detroit metro bus system. The bus systems actually cover a lot of ground and can often move faster than the streetcar since they can change lanes. Many people have never stepped foot on a city or suburban bus and are often blind to them as an option. Time to remove the blinders, quit complaining that the QLine isn’t apart of a bigger transit system and start using the transit systems we do have. BloggerDave Reader responses to stories and blogs that appeared on Crain’s website. Comments may be edited for length and clarity.

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ing a healthy dose of skepticism — asking more questions of potentially “fake news” circulating on the internet, especially shared on social media. I guess the same kind of skepticism can apply to the press releases and statements coming from the OCC board.

C R A I N ’ S D E T R O I T B U S I N E S S // M A Y 2 9 , 2 0 1 7

SPECIAL REPORT: FINANCE

Venture capital growth Michigan hits record with latest round of fundraising Inside: n Michigan

outpaces the nation in venture capital growth. Page 9 n Invest Michigan has its most active quarter to date. Page 9 n Seraph Biosciences closes on $5 million funding round. Page 10 n Celsee Diagnostics will raise up to $10 million to grow global sales. Page 12 n Flint-based eyewear company Article One closes a $1.5 million funding round. Page 12

Tom Henderson thenderson@crain.com

Venture capital in Michigan is on a record-breaking round of fundraising. Four numbers indicate historical high-water marks for VC activity in the state: J 12 — that’s the number of firms either based in Michigan or with offices here that are currently raising new funds. J 806,000,000 — that’s the total number of dollars those 12 firms plan to raise over the next two years. J 8 — that’s the number of firms headquartered in Michigan that are raising new funds. J 4 — that’s the number of firms that are concurrently targeting funds of at least $100 million. No wonder, then, that there was a sense of optimism and excitement about the state of venture capital in Michigan at the recent Michigan Growth Capital Symposium, which drew 35 companies from around the Midwest to Ypsilanti to pitch for equity capital. The symposium attracted a record attendance of 530, which included angel investors, venture capitalists and service providers from around the state. “What we are seeing is long-term vitality in the venture ecosystem,” Maureen Miller Brosnan, the executive director of the nonprofit Ann Arbor-based Michigan Venture Capital Association, told Crain’s prior to addressing the crowd at lunch on the first day of the two-day conference, in a speech filled with statistics from the organization’s 2017 research report. (See related story, Page 9.) “There are a lot of firms looking to expand their capital availability at every stage of investment — seed, early stage and later stage,” she said. The surge has surprised some in the VC community, Maureen Miller who worried that venture capital activity might slow after the state decidBrosnan: Seeing ed not to fund a third Venture Michigan Fund. Two previous funds, the vitality. $95 million Venture Michigan Fund I, created in 2006, and the $120 million VMF II, created in 2011, are credited with jump-starting VC activity in the state. Those funds invested in venture-capital funds either based in the state or willing to open an office here. By 2015, those funds had deployed their capital, and the venture community began lobbying for a third fund. But the legislature had grown more conservative and balked at the idea of creating a third fund, in part because the recession had slowed the projected timetable for when VC firms who got state funding would begin paying back their investments. VC firms held off raising new funds until it became clear there would not be a third VMF, and a handful of out-of-state firms closed their local offices, including Cleveland-based Early Stage Partners, Cambridge, Mass.-based Flagship Ventures, Boston-based Fletcher Spaght Ventures and Effingham, Ill.-based Open Prairie Ventures. “This is a really important period for the VC community in Michigan, to see if it can get to the next level,” said Chris Rizik, CEO and fund manager for the Ann Arbor-based Renaissance Venture Capital Fund. “Some feel it’s time for the VC community to be on its own. But it’s a reasonable attitude that a third VMF would have been very helpful in getting us to where we want to be. VMF I and II were created as a bridge and we’re not quite there yet. There have been a lot of small funds created, but we need more large institutional funds.” SEE VENTURE, PAGE 10 SONOFPROMISE VIA ISTOCK

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Michigan outpaces the nation in venture capital growth By Tom Henderson thenderson@crain.com

The venture capital community in Michigan continues to grow, particularly by the most important metric: money under management. Twelve firms with offices in the state, eight of them headquartered here — both record numbers — are concurrently raising new funds. Four of the funds are targeted at $100 million or more, another record. Together the firms plan to raise a total of Emily Heintz: $806 million Gathered metrics over two years. for report. The current total of $2.4 billion under management by VC firms based in Michigan is almost five times as much as the $520 million in available capital in 2001. The 12 firms raising funds expect to raise $369 million this year. By many measures, activity in Michigan has outpaced venture capital nationally over the last five years. That’s according to metrics gathered by Emily Heintz of the Ann Arbor-based Michigan Venture Capital Association for the organization’s recently released 2017 annual report. For example, from 2011 through 2016, the number of VC firms nationally grew by 10 percent, while

growth in Michigan was 25 percent, with the number of state-based firms going from 20 to 25; total capital under management here grew by 60 percent to $2.4 billion, compared to national growth of 22 percent; average capital under management grew 28 percent to $96 million per firm, compared to 8 percent nationally; and the number of startups getting funded grew by 42 percent to 54, compared to 24 percent nationally. Over that five-year period, the number of venture capital-backed companies in Michigan grew by 48 percent from 95 to 141; and the number of VC professionals working in the state has climbed by 41 percent, from 40 to 93. One number that has declined is the total number of venture capital firms with offices in Michigan, falling from 38 in 2014 to 33 last year. Out-of-state firms opened offices here to get funding from the state’s two VC funds: the $95 million Venture Michigan Fund I, created in 2006, and the $120 million VMF II, created in 2011. As it became apparent in the last two years that there will be no third fund out of Lansing, some of those out-of-state firms closed their small local offices. But they have portfolio companies here, have coinvested with state firms and will continue to look at state deals, so the hit caused by closing local offices is minimized. Here are some other highlights of

the annual report: J The amount of money invested in state companies was $191 million in 2011, a record of $282 million in 2015 and $222 million last year; the number of startups getting funded in those three years was 38, 74 and 54, respectively. J The average amount of money under management was $75 million in 2011, $88 million in 2015 and $96 million last year; the average fund size in those years was $41 million, $45 million and $50 million, respectively. J A total of 343 out-of-state VC firms have invested in Michigan companies. J For every $1 invested in a state company by a Michigan-based VC firm, $4.61 was invested by out-ofstate firms. J The 141 VC-backed firms will need $504 million in followup funding over the next two years. VC firms have $424 million set aside for those companies, hence the need for fundraising for current and future portfolio companies. J 42 percent of VC investment in Michigan is in life science and healthcare; 31 percent is in information technology; 7 percent is in media; 5 percent is in mobility; 3 percent is in advanced manufacturing; 3 percent is in business services; 2 percent is in consumer products and 1 percent is in alternative energy. The rest is categorized as other. Tom Henderson: (231) 499-2817 Twitter: @TomHenderson2

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Invest Michigan has its most active quarter By Tom Henderson thenderson@crain.com

Invest Michigan had its most active quarter to start the year, and deal flow in the second quarter continues at a fast pace, according to President and CEO Charlie Moret. The Detroit-based nonprofit, which was created by the Michigan Economic Development Corp. in 2014 to invest in early-stage companies through the $10.5 million Michigan Pre-Seed Fund 2.0, made nine investments in the first three months, closed on three more in April and has others under consideration. “We have nine deals in due diligence, companies we recognize as having good potential that have passed the proof-of-concept stage,” said Moret. “We’ll see how many we invest in once we peel back the onion, or peek under the kimono or whatever metaphor you want to use. “Around the state, things remain extremely active. I continue to be impressed by how much more deal flow there is here compared to where I came from.” Moret was recruited to Detroit’s

TechTown in December 2012 as managing director of technology-based entrepreneurship after spending 13 years at Rocky Hill, Conn.-based Connecticut Innovations, a provider of support services for emerging technology companies. He then was picked by the MEDC to run Invest Michigan. Since launching in 2014, Invest Michigan has made 57 investments in 35 early-stage companies. As portfolio companies hit growth targets, they get follow-on investments as needed. “As they make progress, we don’t let them run dry,” said Moret. Moret said about half of the state’s original investment has been deployed. “We have enough left to be fairly aggressive over the next couple of years.” Invest Michigan focuses its funding on advanced engineering, manufacturing and materials, IT software and cybersecurity, life sciences and medical devices. To help manage the aggressive pace of investing, Moret hired a second investment professional, Prem Bodagala, earlier this month. Recent investments made by Invest Michigan in Southeast Michi-

gan companies include: Fusion Coolant Systems of Ann Arbor, a University of Michigan spinoff that got $200,000 to commercialize its process of using a fluid state of carbon dioxide as a coolant in machining processes. J SPLT of Detroit got $150,000 to continue commercialization of its ride-sharing apps, used by large companies to help workers arrange rides and by healthcare systems to provide transportation for the elderly to their doctors' visits. J Change Dynamix of Royal Oak, which got $150,000, provides next-generation IT security. J Celsee Diagnostics of Plymouth Township got a follow-on investment of $100,000 to go with a previous investment of $225,000 to speed up commercialization for its medical devices, which help researchers and diagnosticians find tiny amounts of cancer cells and other rare cells in large amounts of fluid. J AutoBooks of Detroit got $50,000 to help commercialize accounting software it provides to banks and credit unions to offer to their business customers. J

Tom Henderson: (231) 499-2817 Twitter: @TomHenderson2

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Seraph Biosciences closes on $5M funding round By Tom Henderson thenderson@crain.com

Seraph Biosciences Inc., a new company based on technology licensed from Wayne State University, has closed on a funding round of $5 million to continue development of its medical devices. Seraph’s devices are based on Raman spectroscopy, named for Chandrasekhara Venkata Raman, who won the Nobel Prize in physics in 1930 for his discovery that when light passes through a transparent material, some light deflects and changes wavelength. Seraph is testing prototype devices the size of a small piece of luggage that identify pathogens or contaminants by hitting them with laser beams. The company’s database compares the resulting fingerprints of scattered light against a large database of fingerprints it has stored from previous tests conducted by a related company. Tests can identify a pathogen in 100 milliseconds. Fingerprints available in Seraph’s database include methicillin-resistant staphylococcus aureus (MRSA), all flu types, rhinovirus, human papillomavirus, E. coli and various staph infections. Current devices using Raman spectroscopy are the size of a table, which limits their use in the field. Samples taken from a patient must often be cultured for several days, growing enough pathogens for an identification to be made. Seraph will target the veterinary market first, where it can generate revenue as it goes through the pro-

VENTURE FROM PAGE 8

“VMF I and VMF II did what they were designed to do: grow a Michigan venture capital community and attract out-of-state money to the state,” said Brosnan. “Though I still hope there will be an appetite within the Michigan Economic Development Corp. and the legislature to support entrepreneurship through investing in venture capital. For every $1 invested by state VCs here, $4.61 is coming in from out of state.” Jim Adox, Jim Adox: who manages Heartening to see the Ann Arbor so many firms. office of Venture Investors LLC, was chairman of the MVCA two years ago and made repeated trips to Lansing to lobby legislators for a third VMF. Some of the out-of-state VCs who have left the state in the last two years were based in his building in downtown Ann Arbor. “Did they leave because there was no VMF III? Absolutely,” he said. Adox said it is heartening that so many firms — including his firm —

TOM HENDERSON/CRAIN’S DETROIT BUSINESS

Jim Shanley, CEO; Greg Auner, co-founder and chief science officer; and Charles Shanley, chairman and co-founder of Seraph Biosciences Inc. cess of getting approval from the U.S. Food and Drug Administration to use its devices on humans. The company hopes to have veterinarians enrolled in a pilot program in the first half of next year, to start FDA trials in the second half next year and to submit results for FDA approval in the first half of 2019. The company has licensed three patents from WSU and has applied for three others. Seraph was spun out last November from another WSU spinoff, Medical Engineer Partners LLC, which was founded in 2011 to determine what medical needs might be met by sensor-based technologies being developed in professor Greg Auner’s Smart Sensors and Integrated Mi-

crosystems program in the College of Engineering at WSU. MEP was co-founded by Auner; Charles Shanley, a surgeon and professor at both Wayne State’s medical school and the Oakland University William Beaumont School of Medicine; and Mark Trexler, CEO for more than 20 years of Technical EnviroServices, an environmental consulting firm based in West Bloomfield. MEP developed Seraph’s technology and created its library of pathogen footprints, then spun it out when the technology was ready for commercialization. MEP will continue to serve as a platform for creating other medical-device companies. MEP raised its own seed funding

are out in the marketplace at once. “The question is, will they all get there? Nothing is guaranteed,” Adox said.

Originally formed by Business Leaders for Michigan, Renaissance is a fund of funds, meaning it generally invests in other venture-capital firms, who in turn invest in individual companies. It raised a total of $124 million its first two funds. So far, it has invested in 25 different funds with 19 different VC firms, and has also invested directly in five companies. Its investors include Whirlpool Corp., DTE Energy Co., Blue Cross Blue Shield of Michigan, Ford Motor Co., the Dow Foundation, Meijer Inc., Wolverine World Wide Inc., the Kellogg Foundation, the MichiChris Rizik: Had gan Employees' success with Retirement Sysprevious funds. tem, CMS Energy Corp. and the MSU Foundation. Those foundations and corporations get a return on investment, but in addition to providing growth capital, their executives can serve as advisers to startup execs and can later, when appropriate, become large early customers. Rizik declined comment about the new fund but was happy to talk about the success he’s had with previous funds. Firms he invests in ar-

Eight raising funds Because of rules by the U.S. Securities and Exchange Commission prohibiting fund managers from seeking publicity while raising funds, they can’t talk about new funds on the record, even to disclose whether or not they are fundraising. Some of their fundraising is public information because they have filed what is called a Form D with the SEC. Some fundraising is common knowledge in the local VC community because firms have started to make their pitches to high-net-worth individuals. Crain’s has identified eight of the 12 firms who are raising funds. Here they are:

Renaissance Venture Capital Fund, Ann Arbor, $120 million Rizik, the CEO and fund manager at Renaissance, filed a Form D on April 7. According to that document, he has had a first close of $52 million on a target of $120 million for a fund formally named Renaissance Venture Capital Fund III LP.

of $400,000, including $100,000 from Paul Glantz, co-founder and chairman of Troy-based Emagine Entertainment Inc. Glantz, a member of Seraph’s board of directors, joined in this funding round, which was led by Mike Shields, chairman and CEO of Auburn Hills-based Novation Analytics LLC, a company that provides software, data analysis and advisory services on vehicle energy efficiency and greenhouse gas emissions. Last August, Shields sold Allen Park-based Control-Tec LLC, a provider of telematics and analytics software, to Delphi Automotive plc for more than $100 million. “I’m a venture capital guy and angel investor and heard about Seraph through mutual friends,” said Shields. “The No. 1 thing I look at is the team, and this is a really good team. It’s novel technology, a disruptive technology. I’ve invested in a lot of companies, but I’ve never invested in a company that is going to save lives before.” Matt Cullen, a principal at Rock Ventures and CEO of M-1Rail, the nonprofit that organized and financed the newly operational QLine in Detroit, is also an investor and a member of Seraph’s board of directors. “Obviously, this is a very impressive technology that properly validated and deployed would have a profound impact on keeping people healthy and helping those with illnesses become healthy again,” said Cullen. “It’s a great blend of medical, technical, business and marketing

talent, and a commitment to grow and develop in the city of Detroit. Checks a lot of boxes for me.” Auner is Seraph’s chief science officer; Shanley is chairman; his brother, Jim, formerly an executive director of business development at the advertising firm of Grace & Wild Inc., is CEO; Bradon Robison, the former senior director of business development and strategy at Kalamazoo-based Stryker Corp. and then a mentor in residence in the tech transfer office at the University of Michigan, is COO; Robert Gougelet, the longtime vice chairman of the National Advisory Council of the Federal Emergency Management Agency, will serve as Seraph’s liaison with various federal agencies, including the National Institutes of Health, the National Institute of Allergy and Infectious Disease, the Naval Research Laboratory, the Department of Homeland Security and the Department of Defense. Seraph has engaged Regulatory Affairs Associates LLC of West Bloomfield to help guide it through the FDA approval process. Regulatory Affairs’ founder and president, Steven Goldner, is a toxicologist and lawyer who invented the drug methadone and has 40 years of experience as a regulatory expert. In March, Seraph opened an office in the WeWork co-working and incubator space in the Bedrock Building in downtown Detroit. It employs four there and five in Auner’s lab at WSU.

en’t required to invest in Michigan companies but are asked to look at local deals. “From Fund 1, we’ve invested $35.6 million and attracted $868 million (in investments in state companies) as of Dec. 31, or 24 to one. Fund II is still too early to be meaningful, but even this early is over 10 to one and increasing every year.” Rizik’s most recent investment was in Austin, Texas-based Next Coast Ventures in April. Renaissance’s success has made Rizik a draw at venture-capital events around the U.S., explaining his model and its success. On May 25, he was a keynote speaker at the TechniCLE Speaking 2017 Conference in Cleveland. In April, Rizik met with business leaders and politicians in Houston, where the Greater Houston Partnership plans to launch a fund-of-funds of its own. And in March, Rizik, a finalist for the EY Entrepreneur for Michigan and northwest Ohio, was an invited speaker at the Wisconsin Tech Summit.

Ventures III LP. Managing partner Tony Grover, chairman of the Michigan Venture Capital Association, confirmed for Crain’s that RPM has just successfully concluded its fundraising RPM Ventures was founded in 2000 with a $40 million fund and its second fund of $60 million was raised in 2009. It is an early-stage investor, focusing on B2B enterprise solutions, online marketplaces, and automotive IT, which includes autonomous vehicles and connected cars. RPM’s website lists 25 portTony Grover: Just folio companies and 15 exits from concluded previous investfundraising. ments. The most recent of those was in December, with the highly profitable sale of Ann Arbor-based Deepfield Inc., a small tech company focused on providing real-time big-data analytics, network-performance management and security for service providers and large enterprises, to Nokia Corp., the Finnish communications and information technology giant.

RPM Ventures, Ann Arbor, $100 million RPM Ventures filed a Form D on Jan. 29, 2016, for its $100 million RPM

Tom Henderson: (231) 499-2817 Twitter: @TomHenderson2

SEE VENTURE, PAGE 11

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VENTURE FROM PAGE 10

Deepfield was launched with seed funding of more than $1.5 million, which was led by RPM. RPM co-founder Marc Weiser was a member of the Crain’s 40 under 40 class of 2006.

eLab Ventures LLC, Ann Arbor and San Mateo, Calif., $100 million eLab, which is headquartered in Ann Arbor, was launched by three veterans of Silicon Valley with Michigan ties in 2013. It raised a first fund of $22.5 million, which included $2.25 million from the state's Pure Michigan Venture Development Fund. The three founders are Doug Neal, Bob Stefanski and Rick Bolander. Subsequently, Paul Brown, a former vice president of the Michigan Economic Development Corp., joined them as a partner. The business model was to find early stage Midwest companies, including spinoffs from the University of Michigan, and get their network of affluent Silicon Valley denizens to invest in them. The company hasn’t filed with the SEC yet, but has begun making presentations about the new fund to current investors. eLab focuses on auto mobility, digital healthcare, big data, Internet Security and enterprise software. Portfolio companies include Grand Rapids-based Blue Medora, a company that manages cloud-based data systems; Akadeum Life Sciences LLC, a UM spinoff that hopes to make it easier, cheaper and faster to prepare tissue, water or food samples for testing; Clinc, an Ann Arbor company in the hot space of artificial intelligence; and Strata Oncology, a Scio Township company that facilitates enrollment in cancer drug trials.

Venture Investors LLC, Ann Arbor and Madison, Wis., $100 million Venture Investors is a pioneer nationally in venture capital, founded in 1982 to commercialize technology at the University of Wisconsin. It has raised $280 million in five funds and opened an Ann Arbor office 10 years ago. It hasn’t yet filed a Form D but has begun getting the word out to past investors and accredited individuals that it is raising a new fund, targeting technologies spun out from Midwest universities, including therapeutics, diagnostic tools, medical devices and healthcare IT. Local portfolio companies include Ann Arbor-based HistoSonics Inc., whose devices use ultrasound to destroy cancer tissue; SkySpecs Inc., an Ann Arbor company making software involved in using drones to inspect infrastructure; and Plymouth Township-based Delphinus Medical Technologies Inc., a spinoff from the Karmanos Cancer Institute in Detroit

that uses ultrasound for early-stage detection of breast cancer.

Resonant Ventures, Ann Arbor, $75 million Michael Godwin and Jason Townsend co-founded Ann Arbor-based Resonant Ventures in 2010 and raised a first fund of $10.5 million. Its first investment was in a seedstage round for Ann Arbor-based Duo Security, a fast-growing Internet security firm that subsequently raised a total of $39 million from venture capitalists, many of them heavyweights in Silicon Valley. Resonant recently had a lucrative exit with the sale of Deepfield, one of its portfolio companies, and has been buoyed by the dynamic growth of Duo, which will hit revenue this year of $75 million and has 400 employees. “Duo will eventually return money to us in the multiples,” said Godwin. Townsend will continue to help Resonant manage its current portfolio of five companies but has long been a real-estate investor on the side in multifamily housing and is now leaning toward raising a real-estate investment fund. Last year, Godwin filed with the SEC to raise a second fund with a cap of $75 million, and is bringing on an experienced investment partner he said he is not yet at liberty to name.

Tim Streit: Grand Ventures next chapter.

McKeel Hagerty: CEO, Hagerty Insurance.

Grand Ventures, Grand Rapids, $50 million Grand Ventures, the state’s newest venture capital firm, filed a Form D with the SEC in February for its Grand Ventures I LP, which will be aimed at very early-stage companies in Michigan and the Midwest. Fund partner Tim Streit had been a partner in Huron River Ventures, an Ann Arbor-based venture capital firm that raised $16 million in two funds since being founded in 2010. Huron River has invested in 20 leading technology companies, including Ambiq Micro Inc., a spinoff from the University of Michigan now based in Austin, Texas, that makes ultra-low power integrated circuits; and Ann Arbor-based FarmLogs, a fast-growing provider of cloudbased data and services to farmers. “Huron River is a healthy, ongoing concern. Grand Ventures is just the next chapter for me,” said Streit, who has long been based in Grand Rapids. His co-founder at Grand Ventures is McKeel Hagerty, the CEO of Traverse City-based Hagerty Insurance, which has more than 840 employees

and offices in Canada, Germany and the United Kingdom and claims a total insured coverage value of more than $36 billion. Streit said Grand Ventures will focus on agriculture, manufacturing and transportation.

Ludlow Ventures LLC, Detroit, $45 million Jonathon Triest, managing director of Ludlow Ventures, filed a Form D in January, showing a first close of $15.5 million. His first fund of $15.5 million was raised in 2014. Triest is based in the Madison Building in downtown Detroit. Among his investors is Dan Gilbert, who owns the building. Though Ludlow is based in Detroit, it has a national reach. More than half of the 52 investments made by Triest from his first fund were in the Bay Area in California, with others in Los Angeles, New York, Nevada, Nebraska, Ohio, Pennsylvania and Colorado. Ludlow generally invests between $250,000 and $750,000 in early-stage tech companies. Among high-profile West Coast firms in which Triest has invested are Sprig, an organic meal delivery service; Product Hunt, a product discovery service; Navdy, a maker of heads-up displays for vehicles; and uBeam, a wireless power provider. His only current portfolio company locally is Royal Oak-based Ambassador, which makes off-the-shelf and custom software for what is called referral marketing, where businesses set up reward programs for customers who refer their friends and social networks. Triest, a member of the Crain’s 20 in their 20s class of 2011, launched Ludlow Ventures in 2009 as an investment vehicle for family members, and at first he raised money from them as needed to do deals. His father, Brent Triest, is an attorney and veteran private-equity investor. His great-uncle, Warren Coville, co-founded Guardian Industries Inc. with Bill Davidson and was president of the Guardian Photo division from 1955 to 1985.

Tamarind Hill Management LLC, Ann Arbor and Columbus, Ohio, $35 million Tamarind is one of the state’s newest VC firms, launching six months ago in a stately old house converted to office space just west of downtown Ann Arbor. A Form D filed with the SEC in May shows a first close of almost $7 million for the Tamarind Hill Fund LLC. Ben Trumbull and Mark Shary co-founded Tamarind — named for a fruit tree that thrives in harsh environments — six months ago. Previously, Trumbull had been with Plymouth Venture Partners in Ann Arbor and the Rocket Venture Fund in Toledo. Shary has been a serial entrepreneur in Columbus, where he will be opening Tamarind’s second office in the third quarter.

Tamarind will focus on early-stage companies in healthcare IT, software as a service and supply chain logistics. Trumbull and Shary had been doing due diligence on investments before launching the firm and already have five portfolio companies. Their portfolio includes Upbox, a Dublin, Ohio-based company that helps doctors communicate with patients. “We’d been planning to do this awhile and already had opportunities lined up,” said Trumbull. Currently there are no portfolio companies in Michigan, but they plan to change that. “We’re going to collaborate with other funds in the area. We’re not in active due diligence on anyone, now, but we have four or five companies on our radar screen, and we have several entrepreneurs we’re helping get started,” said Trumbull, who said Tamarind will have a geocentric focus that ranges from Michigan to Louisville to Pittsburgh to Indianapolis, with a typical investment range of $250,000 to $2 million. “In that geography, there are a lot of entrepreneurs who are on their third and fourth startups. They have a knowledge base of how to do startups, but there’s still a capital gap for seed and early-stage companies,” he said. “Typically, a company will have some seed funding from the angel community and we’ll come in and help with product evaluation and

funding that will lead to an A round. We’ll be looking for companies that if they were on the coasts, they’d already be funded.”

Huron River Ventures, Ann Arbor, $30 million to $50 million Huron River, which was founded in 2010 and has raised $16 million in two funds, hasn’t filed a Form D, yet, but word in the venture community is that managing director Ryan Waddington has begun meeting with current limited partners and potential new investors for his new fund. Waddington declined comment. Huron invests in early-stage energy, agriculture and transportation businesses. One of its current portfolio companies is Ann Arbor-based FarmLogs LLC, whose IT helps farmers more efficiently grow their crops. In April, Huron River had a successful exit when another of its portfolio companies, Algal Scientific Corp., was sold to Kemin Industries of Des Moines, Iowa. In 2012, Algal Scientific, a maker of algae-based chemicals for the food and beverage industries, won first place of $500,000 at the annual Accelerate Michigan Innovation event in Detroit. The company will remain in Plymouth Township. Tom Henderson: (231) 499-2817 Twitter: @TomHenderson2

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Celsee Diagnostics will raise up to $10M to grow global sales “We have cuttingedge best-in-class products. We need to get the word out. That’s our limiting factor.”

By Tom Henderson thenderson@crain.com

Kalyan Handique, president and CEO of Plymouth Township-based Celsee Diagnostics, has begun raising a funding round of $7 million to $10 million to ramp up marketing and global sales. Celsee makes several lab-on-achip diagnostic devices and sells kits and reagents for those devices. Its focus is on cancer research and diagnostics, with the ability to capture and identify rare single cells among the billions circulating in the system, including circulating tumor cells. The company is based in the state-owned Michigan Life Sciences and Innovation Center, a tech incubator and research center. Handique is one of the more highly regarded entrepreneurs in Southeast Michigan. In 2000, he co-founded HandyLab Inc., which became one of the most successful startups in state history. The company, which made bench-top devices for quick analysis of body fluids and to detect food-borne pathogens, was sold in 2009 to New Jersey-based Becton, Dickinson and Co. for $275 million. In 2011, Handique joined Celsee, which was then known as DeNovo Sciences, a company founded the year before. In November 2011, DeNovo attracted national attention when it won $500,000 as the top company in the annual Accelerate Michigan Innovation event at Orchestra Hall in Detroit. Last September, Celsee was named by PM360, a trade publication for the pharmaceutical, biotech and medical device industries, as a

Kalyan Handique

ROBERT CHASE

Kalyan Handique co-founded HandyLab Inc. with Sundaresh Brahmasandra while both were students at the University of Michigan. Handique, president and CEO of Plymouth Township-based Celsee Diagnostics, has begun raising a funding round of $7 million to $10 million to ramp up marketing and global sales. Medical Device Company of the Year Trailblazer; last June, the magazine Red Herring named Celsee as one of the top 100 most promising companies in North America. Handique has raised $10 million in equity capital for Celsee, including a round of $3 million last year. Invest Michigan, a Detroit-based nonprofit funded by the state of Michigan to invest in early-stage companies, has invested $325,000 in Celsee. “One of the most important traits of a successful entrepreneur is an

ability to surround oneself with a community comprised of co-founders, team members, a board, advisers and investors that bring a diversity of strength and resources to the startup. Handy has a perfect batting average on all accounts,” said Charlie Moret, Invest Michigan’s president. “The ability to detect early circulating cancer cells in the blood of patients is a tremendous patient benefit in catching and treating the disease. Celsee’s technology is on the forefront of diagnosis, which will

significantly expedite the selection of appropriate treatments,” he said. Handique said the company is quickly growing revenue but needs a larger sales and marketing team. He said the company employs 13 full time and eight part time and plans to quickly add five or six to the sales team. He said he expects to finish raising his funding round in four to five months. “We have cutting-edge best-inclass products. We need to get the word out. That’s our limiting factor,” he said.

Handique said the company had revenue of more than $1 million last year and should hit $3 million this year. He said the company has sales in China, Japan and India and has recently begun selling in Australia and Brazil. The company sells a range of fully automated bench-top devices, about the size of a large breadbox, for between $30,000 and $85,000. He said competitor devices by San Diego-based Menarini Silicon Biosystems Inc. and Seattle-based RareCyte Inc. sell for between $250,000 and $350,000. Celsee sells much more basic units about the size of a shoebox for between $1,500 and $10,000. At the high end, Celsee’s devices use microfluidic chips that have 250,000 single indentations for capturing single blood cells. U.S. customers include the Henry Ford Health System, the University of Michigan Health System, the University of Maryland and MD Anderson Cancer Center in Houston. Celsee also has a research collaboration with Ann Arbor-based Zomedica Pharmaceuticals Corp. (TSX-V: ZOM), a veterinary pharmaceutical company, to test Celsee’s technology for canine cancer diagnostics. Tom Henderson: (231) 499-2817 Twitter: @TomHenderson2

Eyewear company Article One closes a $1.5M funding round Tom Henderson thenderson@crain.com

Article One, a Flint-based company that sells prescription eyeglass frames to optometrists around the country, has closed on a funding round of $1.5 million. Wes Stoody, the company’s founder and CEO, said he will use the funds to open a retail store and help move his manufacturing to Flint from Italy. He says he has been negotiating a lease on a building on Saginaw Street in downtown Flint that will house his company’s offices, the store and manufacturing operations. The funding round was led by Project I, a boutique venture capital firm based in New York that has opened an office in Flint to source investments in early-stage fashion-apparel companies that focus on e-commerce. The “I” in Project I stands for incubation. The firm, which has a $5 million fund, invests between $250,000 and $1 million in its portfolio companies. It looks for companies it can provide networking and

ARTICLE ONE

Wes Stoody, CEO, and the Article One team. Article One provides prescription eyeglass frames to optometrists around the country that are made by artisans in a small village in northern Italy. mentoring support to in addition to equity. “Project I’s expertise in fashion

and supply-chain management will make them a good strategic partner to help us manufacture our eyewear

in Flint,” said Stoody. “We want to do scalable manufacturing, not niche manufacturing. We want to meet not only our manufacturing needs, but to be able to produce eyewear for large eyewear brands. “We’re seeing what Shinola has done in Detroit. They created 300 jobs in Detroit, but more important, they created a symbol for Detroit, and that’s what we want Article One to do for Flint,” he said. He said the plan over the next two or three years is to slowly move manufacturing here from Italy, eventually bringing all of it to Flint and creating 30-50 jobs. “We are proud to support innovative companies in the fashion space like Article One, and applaud them for reaching this important and crucial milestone,” said Jon Lewis, Project I’s chairman. “The team at Project I looks forward to working with Article One today and into the future as we help to make Michigan a major player in the fashion and apparel industry.” The round was joined by SkyPoint Ventures LLC, a private equity and real estate firm in downtown Flint,

which currently houses both Project I’s office and Article One, which moved there from Chicago in 2014. Previously, SkyPoint provided seed and follow-on funding totaling $1 million for Article One. Stoody is a Flint native who wanted to come home. He is a graduate of Flint Power Catholic High School and a 2011 graduate of Eastern Michigan University. Before graduating, he decided he wanted to start a socially responsible business. Article One, which was founded in 2012, donates $2 from each sale to Helen Keller International. In college, Stoody said he read that vitamin A deficiencies cause 500,000 children a year worldwide to lose their eyesight. Half of those children eventually die from the deficiency. It costs just $1 a year to supplement a child in the third world for a year. Stoody says he sold almost 6,000 pairs of glasses in 2016 and expects to sell 15,000 this year at about $250 a pair. Tom Henderson: (231) 499-0187 Twitter: @TomHenderson2

C R A I N ’ S D E T R O I T B U S I N E S S // M A Y 2 9 , 2 0 1 7

CALENDAR WEDNESDAY, MAY 31

Tech Takeover: Collaborative and Autonomous Robots: How Do You Use These Things? 8:30-10:30 a.m. Auto-

mation Alley. Behco-MRM, a technology distributor and integrator, on how to successfully use new robotic tools in applications including machine tending, fabrication, quality inspection and assembly. Automation Alley, Troy. Free for members; $20 nonmembers. Phone: (800) 4275100; website: automationalley.com

UPCOMING EVENTS

Building a Consumer-Focused Health Care System. 11:30 a.m.-1:30

p.m. June 5. Detroit Economic Club. Mark Bertolini, chairman and CEO, Aetna Inc., will discuss his thoughts on a 21st century health care system that is built around the consumer. Townsend Hotel. $45 members, $55 guests, $75 nonmembers. Website: econclub.org.

Funding Options For Your Next Big Idea. 8-9 a.m. June 7. Inforum A2Af-

finity. Presenter Marlo Rencher, vice president, Innovation, Entrepreneurship and Diversity at Cleary University, discusses getting the next big idea off the ground, looking for funding for a new product or service and using crowdfunding. Attendees will learn about funding options available for business ventures: seed capital, venture capital funding and crowdfunding investing. Free. Ann Arbor. Contact: Debra Power, phone: (734) 741-1134; email: debra@getresearchpower.com; website: inforummichigan.org

Michigan’s Economic Bright Spots.

11:00 a.m.-2 p.m. June 8. Corp! business magazine. Speakers include: Andrea Riley, chief marketing officer, Ally Financial and Jed Howbert, executive director, jobs and economy team, Detroit mayor’s office. In-

ternational Banquet Center, Detroit. $75. Contact: sscheffer@corpmagazine.com. Website: https://www. c o r p ma gaz i n e. c o m / events/2017-michigans-economic-bright-spots/

12. Detroit Economic Club. A discussion on the social barriers which hold women back from participating more fully in the workplace, and where progress has been made; what the talent pipeline looks like across Fortune 500 companies in the U.S., and how it differs by industry and how leaders’ talent decisions impact gender equality in the workplace. MotorCity Casino Hotel, Detroit. $45 members; $55 guests of members; $75 nonmembers. Website: econclub.org. JVS 20th Annual Strictly Business Luncheon. 11 a.m.-1:30 p.m. June 13.

Tom Wilson, president and CEO of Olympia Entertainment, will talk about building the Little Caesars Arena and rebuilding Detroit. The event will also showcase success stories of people who JVS helped to overcome life challenges to find success in the workplace. MotorCity Casino, Detroit. $150. Contact: Marla Janness, email: mjanness@jvsdet. org; website: www.jvsdet.org/strictlybiz 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.

DEALS & DETAILS ACQUISITIONS & MERGERS

J Hosco Holdings LLC, Wixom, a finishing system components and engineered solutions manufacturer, has acquired Classic Precision Inc., Wixom, a manufacturer of aerospace fuel delivery and combustion components for turbine engines. This is part of Hosco’s ongoing plan for growth in providing engineered solutions and components in paint, coating, fuel delivery and fluid handling systems. Website: hosco.net.

EXPANSIONS

J Michigan Counseling Centers, Taylor, a division of Wolverine Human Services, Detroit, a counseling and clinical therapy provider, opened at 20300 Superior Road, Suite 160, Taylor. Telephone: (888) 622-3345. Website: michigancounselingcenters.org.

Re/Max Eclipse, Madison Heights, a real estate office owned and managed by broker Levan Wood, opened at 4190 Telegraph Road, Suite 3300, J

Sunday, June 11, 2017

Gender Equality in the U.S. and the Workplace. 11:30 a.m.-1:30 p.m. June

Bloomfield Hills. Telephone: (248) 770-1029. Website: eclipseagents. com. J Hubbell, Roth & Clark Inc., Bloomfield Hills, a full-service civil engineering firm, opened an office in Kalamazoo. Website: hrcengr. com.

NEW PRODUCTS

J Hydra-Zorb Co., Auburn Hills, a manufacturer of standard clamping pipe or tube in the hydraulic, pneumatic and HVAC/R industries, launched the Bronco Tube, Pipe Saddle and the Titan Riser Clamp. Website: hydra-zorb.com.

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C R A I N ’ S D E T R O I T B U S I N E S S // M A Y 2 9 , 2 0 1 7

Broder & Sachse under contract to buy Orchestra Place By Kirk Pinho kpinho@crain.com

Broder & Sachse Real Estate Services Inc. plans to purchase the Orchestra Place office building at Woodward Avenue and Martin Luther King Jr. Boulevard in Detroit’s Midtown. The Michigan Strategic Fund board last week approved the transfer of Renaissance Zone benefits related to the Class A building, which was built 20 years ago. The building is owned by Orchestra Place Renewal Partnership, which is registered to Detroit Symphony Orchestra President and CEO Anne Parsons. An MSF memo said the DSO’s pending sale to an entity called 3663 Woodward Owner LLC would “provide capital funds for the nonprofit organization to use toward their operating costs and their community mission.” The sale is expected to be complete by the end of next month, the memo says. Matt Carlson, director of communications for the DSO, declined to reveal the planned purchase price. However, he said the DSO board will determine how the sale proceeds will be used, “particularly to reduce risk and promote stability in accordance with our strategic 10-year plan.” The DSO’s budget for fiscal year 2017, which ends Aug. 31, is $29 million, Carlson said. Richard Broder, CEO of Birmingham-based Broder & Sachse, is the registered agent for 3663 Woodward Owner LLC. He said the expected sale does not include a

COSTAR GROUP INC.

Orchestra Place Hall was completed in 1997 at the northwest corner of Mack Avenue and Martin Luther King Jr. Boulevard in Midtown Detroit. DSO-owned parking deck behind the building. He also declined to reveal the expected purchase price. Carlson said the parking deck has 689 spaces. The 152,000-square-foot office building at 3663 Woodward Ave. currently houses Detroit Medical Center administrative offices and other tenants, according to the board memo. CoStar Group Inc., a Washington, D.C.-based real estate information service, says the building is

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100 percent leased. Birmingham-based Broder & Sachse has been active in Midtown and Brush Park real estate in recent years, including building The Scott at Brush Park apartments and buying the Milner Arms apartments directly west of Orchestra Place last year. The company is also planning a development at Cass and Canfield avenues called The Vernor on land currently owned by Wayne State University.

Incoe Corp. to build new headquarters By Kirk Pinho kpinho@crain.com

Incoe Corp. is building a new $20 million-plus global headquarters in Auburn Hills. The Troy-based manufacturer of plastics-making equipment said in a news release that its new 135,000-square-foot building in the Oakland Technology Park is expected to be complete by summer 2018. Southfield-based General Development Co. LLC has been hired as the developer. The building will sit on about 15 acres, according to Ethan Weisman, business development manager for General Development, which will own and lease the building to Incoe. Incoe currently has its headquarters at 1740 E. Maple Road in a 52,000-square-foot building just west of I-75. The company said it has also expanded its Asian headquarters in Shanghai and its European headquarters in Germany since 2013. It said its move to Auburn Hills represents a consolidation of three separate locations in metro Detroit and an expansion. A spokesman declined to provide additional detail on the move. Farmington Hills-based GAV & Associates Inc. is the project architect. General Development jointly owns Oakland Technology Park with Farmington Hillsbased Friedman Integrated Real Estate Solutions LLC. The property has attracted companies including Faurecia North America Inc., Atlas Copco North America Inc. and Hirotec America Inc. for new buildings. Most recently, Auburn Hills-based Hutchinson North America made public its plans for a new $8 million headquarters there. The joint venture between General Development and Friedman has more than 200 acres, while another portion has about 800 acres owned by FCA US LLC, Johnson Controls Inc. and Delphi Automotive plc.

SPOTLIGHT

MEDC CEO Steve Arwood to leave post June 30

Steve Arwood, CEO of the Michigan Economic Development Corp., will be leaving the job as of June 30, Gov. Rick Snyder’s office said. Arwood will be spending more time with his family, including his wife, Cheri, who recently retired from a position as extradition coordinator within Snyder's office, the Steve Arwood state said in a written statement. Snyder is nominating Jennifer Nelson as interim MEDC director, pending a decision by the agency's executive committee. Nelson serves as executive vice president of business development within the MEDC. Snyder will name a new president and chairman of the Michigan Strategic Fund, which approves business and community development incentives. Arwood currently holds that position.

Longest-serving UM-Dearborn chancellor to step down The longest-serving chancellor in University of Michigan-Dearborn’s history is stepping down. Chancellor Daniel Little, 68, who was appointed chief of the school in 2000, said in a letter to faculty and staff that he will leave the post following the end of his term, which is June 30, 2018. Little intends to reDaniel Little main at the university as a researcher and teacher. He said he chose to make his decision public to give the board of regents sufficient time to find his replacement. University of Michigan President Mark Schlissel said a formal search for the next chancellor will be launched in the coming months.

Mosaic seeks executive director as it splits leadership Mosaic Youth Theatre of Detroit plans to launch a search for a new executive director as it transitions to a new leadership structure in its 25th year. President and Founding Artistic Director Rick Sperling will remain with the organization as artistic director and the orgaRick Sperling nization will hire a separate executive director, a split leadership model used by most major American nonprofit theaters, Mosaic said in a release. Its board of directors has contracted with The Hunter Group to conduct a national search and set a goal to name an executive director by August. The new leadership structure is the best strategy to take the organization, which is known internationally for its youth arts program, to further success, Board Chair Kate Spratt said in a statement.

Page 2

SALT FROM PAGE 3

committee two weeks ago. The bill that created a preference for Detroit Salt sailed through the Michigan Senate last week with all but two senators on board. Itâ&#x20AC;&#x2122;s now in a House committee. The advantage would come in the form of an 8 percent premium tacked onto bids from companies outside the state for products mined in Michigan when the state weighs bid prices in awarding the contract. The only Michigan company that sells a mined product to the state is Detroit Salt, which employs about 60 people on Sanders Street in southwest Detroit. As it happens, Detroit Salt is now owned by a Canadian company. The company contends it is being hurt by Canadian competition resulting from mines that are larger and the currency weaker than the U.S. dollar, making it cheaper to buy Canadian salt. Sen. Rick Jones, a Republican from Grand Ledge who sponsored the bill, says the state should do what it can to protect Michigan workersâ&#x20AC;&#x2122; jobs. He said heâ&#x20AC;&#x2122;s not concerned that the state might grant an incentive to a company with Canadian ownership, in part to offset competition by other Canadian suppliers. â&#x20AC;&#x153;You call it a Canadian company,â&#x20AC;? Jones said. â&#x20AC;&#x153;I call it Americans, Michiganders, working here in the state of Michigan, and we need to support them and not workers somewhere else. If it is based here and providing 60 to 80 jobs to people here in Michigan, I consider it a Michigan company.â&#x20AC;? Thatâ&#x20AC;&#x2122;s a sentiment the salt company can get behind. â&#x20AC;&#x153;The field is not level now,â&#x20AC;? said George Davis, public affairs manager for Detroit Salt. â&#x20AC;&#x153;The value of (Canadaâ&#x20AC;&#x2122;s) dollar plays a part in their ability to sell at a larger volume, as well as their size,â&#x20AC;? he said. â&#x20AC;&#x153;Our Legislature should have some way to be a better arbiter of that at market.â&#x20AC;?

Canada in Michigan Detroit Salt extracts rock salt from a mine that reaches nearly 1,200 feet below the city. It was purchased in 2010 by Cambridge, Ontario-based The Kissner Group, which has a U.S. office in Overland Park, Kan. The prevalence of â&#x20AC;&#x153;buy localâ&#x20AC;? or â&#x20AC;&#x153;America Firstâ&#x20AC;? preferences tracks with President Donald Trumpâ&#x20AC;&#x2122;s yen for protectionist trade policies. He has called for renegotiating the North American Free Trade Agreement and for Washington to more heavily favor U.S. companies when awarding government contracts. And last week, Trump told European Union officials that Germany was â&#x20AC;&#x153;very bad on trade,â&#x20AC;? citing the volume of automobiles it imports to the United States. Giving preference to in-state companies isnâ&#x20AC;&#x2122;t illegal, particularly when the stateâ&#x20AC;&#x2122;s the one doing the buying, said one expert. Rick Walawender, an attorney at Miller, Canfield, Paddock and Stone PLC in Detroit who specializes in corporate

May 29, 2017 15

CRAIN CRAINâ&#x20AC;&#x2122;S DETRO I T â&#x20AC;&#x2122;SBDUETROIT S I NBEUSINESS S S // M A Y 2 9 , 2 0 1 7

JOB FRONT

REAL ESTATE

MISCELLANEOUS

INDUSTRIAL PROPERTY

SURVEY Detroit Salt contends that it is being hurt by Canadian competition. and international law, said an exception to the U.S. Constitutionâ&#x20AC;&#x2122;s commerce clause applies to states if state government is acting as a participant in the market and not a regulator. â&#x20AC;&#x153;The state can favor its own, even if itâ&#x20AC;&#x2122;s one company,â&#x20AC;? he said. Even so, the Detroit Salt bill, if it becomes law, runs the risk of being challenged if a company outside the U.S. perceives the 8 percent premium as a â&#x20AC;&#x153;non-tariff barrier to trade,â&#x20AC;? said Bruce Thelen, an attorney with Dickinson Wright PLLC in Detroit, who leads the firmâ&#x20AC;&#x2122;s international practice team. Thelen said the Michigan legislation would not be considered a tariff because it would be used to compare bid prices, and would not be imposed on the actual importation of rock salt. The U.S. Constitution gives Congress, not states, the power to regulate trade through tariffs. Backlash could come if a foreign supplier feels that it has been hurt by the preference, he said. He added that a company could decide whether to take action under World Trade Organization or other trade agreements, and similar issues likely will arise as negotiations about NAFTA continue. â&#x20AC;&#x153;To the extent that federal law is inconsistent with a state law, the federal law will take pre-emption over that,â&#x20AC;? Thelen said. â&#x20AC;&#x153;And treaties are part of federal law.â&#x20AC;?

Question of preferences Currently, a Michigan-based company is given preference for a state contract if all other factors are equal, including price and project specifications. Yet the existing language is so light, it has never been invoked, said Colangelo, the Michigan DTMB administrator. â&#x20AC;&#x153;All things are never equal,â&#x20AC;? he said. â&#x20AC;&#x153;If weâ&#x20AC;&#x2122;re going to have Michigan-based preference language, it should be much, much stronger than that, or why bother?â&#x20AC;? Ohio, for instance, offers a 5 percent financial preference. Sen. Jones said Ohioâ&#x20AC;&#x2122;s provision inspired his bill. But Ohio also includes a reciprocity agreement for border states, meaning a Michigan-based company also would receive a 5 percent preference when bidding on a contract in Ohio, department spokesman Caleb Buhs said. Jonesâ&#x20AC;&#x2122; bill does not. Colangelo said he has drafted language modeled after Ohioâ&#x20AC;&#x2122;s law and those of other states to extend preference to all Michigan-based companies that bid on state contracts, regardless of industry. Jones said he would be open to considering such a bill, but not as part of the current legislation.

LARRY PEPLIN

Unintended consequences The bill would likely increase state costs, the nonpartisan Senate Fiscal Agency said. In its example, a firm based outside of Michigan bids $10 million for a contract, and a Michigan-based firm bids $10.5 million. Ordinarily, the non-Michigan company would win the work for being the lowest bidder. But the new legislation would add an 8 percent surcharge, or an extra $800,000, to the non-Michigan companyâ&#x20AC;&#x2122;s bid price. That means its $10 million initial bid instead would be considered at $10.8 million. In this scenario, the Michigan-based firm would become the lowest bidder, and the state would pay an additional $500,000 above the true lowest bid. In an interview with Bridge Magazine and Crainâ&#x20AC;&#x2122;s Detroit Business after his Senate testimony, Colangelo said: â&#x20AC;&#x153;We would rather see a bill go through that is much more broad and helps a greater number of businesses.â&#x20AC;? The narrowness of Jonesâ&#x20AC;&#x2122; bill opens up Michigan to â&#x20AC;&#x153;a real slippery slope,â&#x20AC;? said Charles Ballard, an economist at Michigan State University. If adopted, he said, it could raise costs for services like winter road salt that are shared by state and local governments. Detroit Salt has two state contracts that run through August 2018 after the state exercised extensions, according to state records, worth a combined $20.1 million. The financial preference being debated wouldnâ&#x20AC;&#x2122;t amount to billions of dollars, so itâ&#x20AC;&#x2122;s possible that it wouldnâ&#x20AC;&#x2122;t elicit a negative response from the Canadians, Ballard said. Itâ&#x20AC;&#x2122;s also possible that it could. Against the backdrop of talk in Washington about renegotiating NAFTA and imposing border taxes, â&#x20AC;&#x153;weâ&#x20AC;&#x2122;re in territory where there are policies that are now being considered seriously that would lead to a wrenching adjustment that would take years and years to get past,â&#x20AC;? he said. â&#x20AC;&#x153;If you whack the other guysâ&#x20AC;&#x2122; exports to you, he may want to whack your exports to him, and thatâ&#x20AC;&#x2122;s how trade wars start.â&#x20AC;? For his part, Emmanuel Manos, Detroit Saltâ&#x20AC;&#x2122;s president, told a Senate committee that the larger Canadian mines could run Detroit Salt, its 60 employees and the truck drivers, mechanics and hydraulics operators that support it, out of business. â&#x20AC;&#x153;Iâ&#x20AC;&#x2122;m lowering my prices to try to keep winning the salt,â&#x20AC;? Manos testified, â&#x20AC;&#x153;but there will be a limit to it.â&#x20AC;? Lindsay VanHulle: (517) 657-2204 Twitter: @LindsayVanHulle

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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 // M A Y 2 9 , 2 0 1 7

COSTS FROM PAGE 3

The next fastest-growing cost category is outpatient services, which are projected to rise to 19 percent of total costs this year from 16 percent in 2007, a 19 percent increase, said Pricewaterhouse. “Pharmacy is approaching inpatient hospital costs,” McLaughlan said. Overall, specialty drugs now account for 38 percent of total pharmacy spending, up from 19.4 percent in 2012, said Christopher Bouschet, managing director and survey leader. That data comes from Blue Cross Blue Shield of Michigan, which accounts for about 75 percent of the preferred provider organization market in the state. “With a steady pipeline of new specialty medications entering the market every year, the rising cost and distribution of specialty medications is a major concern and focus for employers,” Bouschet said. As a result, more employers are increasing copayments for specialty medications and non-formulary branded drugs. For example, employers increased non-formulary brand copayment to $80 from $75 for PPO plans. Formulary brand drugs’

TAUBMAN FROM PAGE 1

At issue is that while Taubman says it has had high total shareholder return, on par with competitors, the last 10-20 years, critics like Litt point to the past three to five years as trying for the company as its stock is undervalued when considering the quality of its mall portfolio compared to other mall operators like Simon Property Group Inc. and General Growth Properties Inc., or GGP, which filed for Chapter 11 bankruptcy protection in 2009 as it swarmed in more than $25 billion debt it was unable to refinance in the economic bloodbath. Among the issues Litt cites are an entrenched board of directors with an average tenure of 16 years, discounting the recent appointment of one new member in December; flawed capital expenditures in Asian markets and in Puerto Rico, which recently filed for bankruptcy; and other missteps. He seeks to oust Robert Taubman, CEO, president and chairman, and Myron Ullman III, the former executive chairman and CEO of J.C. Penney Co., from the Taubman board. Litt, the Stamford, Conn.-based investor who is co-founder of Land & Buildings Investment Management LLC, has nominated himself and Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware, for board seats. Taubman, in statements, has defended its board and company performance, including saying that its compounded annualized stock return is 14.6 percent over 20 years, which places it in the top 10 both among all shopping mall REITs as well as tops among peers with CEOs who have served comparable amounts of time as Robert Taubman.

Rebecca McLaughlan: Concern about controlling costs.

Chris Bouschet: High-deductible plans effective to control costs.

copays remain at $40 and generic copays are $10. “Employers are being more aggressive on non-formulary brands to change behavior (of employees)” to encourage them to shift to generic drugs, McLaughlan said. Employers also are continuing to shift about half of rising costs to employees. Contributions by employees rose 2.2 percent to $139 per month for single PPO coverage and 2 percent to $457 per month for family PPO coverage. But employees with HMO plans saw their contributions increase 11.5 percent to $107 per month for single coverage and 9.9 percent to $365 per month for family coverage, Marsh said. High-deductible employee contriNeither he nor CFO Simon Leopold were made available for interviews last week. But in a statement to Crain’s earlier this month, the company said: “It is unfortunate that Land & Buildings continues to wage a campaign based on inaccurate attacks in an attempt to obtain board representation for its director nominees who are significantly less qualified than Taubman’s nominees. Taubman is confident it has the right strategy and board to continue delivering strong financial and operational results and driving value for all Taubman shareholders.” Since Litt’s campaign was announced, the company’s shares have fallen 14.26 percent from $71.17 at close on Oct. 18 to $61.02 on May 23.

Ownership guidelines Earlier this month, Land & Buildings sued Taubman in federal court, alleging that the Taubman family’s ownership of preferred shares, or voting shares, violates ownership guidelines set in the company’s charter and that the company’s proxy materials contain materially false and misleading statements about the ownership and voting power of the Taubmans. The suit contends that the Taubmans — Robert Taubman, COO William S. Taubman and Gayle Taubman Kalisman, their sister and president of the A. Alfred Taubman Foundation — own 29.3 percent of voting shares, while the charter restricts ownership at 8.23 percent. A research report from Institutional Shareholder Services says Robert Taubman has 26.54 million shares while William Taubman has 25.34 million shares. ISS says Litt holds 718,000 shares. Litt says both ISS and Glass, Lewis & Co. — a pair of proxy voting adviso-

butions also rose 8.6 percent to $88 for single coverage and 5 percent to $294 for family high-deductible coverage. “There is a lot of concern about controlling costs without shifting (too much) costs to employees,” McLaughlan said. Overall, before plan changes, health care costs are expected to rise 6.3 percent this year, far ahead of general inflation of about 1.5 percent, Marsh said, but still lower than 9.1 percent in 2010, 8.2 percent in 2012 and 8 percent in 2014. Nationally, Mercer said employers have projected they would hold cost growth to about 4 percent in 2017, the same approximate rate as in 2011. For seven years before the Patient Protection and Affordable Care Act of 2010, employers' health care cost increases averaged about 6 percent annually, Mercer said.

Trend benders Of the 388 participating employers in the Marsh survey, 101 are considered Trendbenders because they are most effective at reducing health benefit costs. Trendbenders represent the top 25 percentile of companies over the two years. OHM Advisors, a Livonia-based ry companies — have recommended him and Elson for the Taubman board. Taubman said in a statement last week that it’s “regrettable” those recommendations were based in part on things like on the company’s thwarted takeover by Simon Property Group, the largest U.S. shopping mall owner, and Westfield America Inc. to buy Taubman for $4.25 billion, or $20 a share, in 2003. But the reports also focused heavily on financial performance and corporate governance. The Taubman family resisted the Simon Property Group/Westfield buyout, a move which was aided by an amendment to Michigan law signed by then-Gov. Jennifer Granholm on Oct. 7, 2003, that prompted the companies to withdraw their offer the following day. The shareholder recommendations from ISS and Glass Lewis are potentially significant because both companies tend to recommend candidates preferred by existing boards, Gordon said. “Sometimes they do recommend a dissident slate,” he said. “It’s not rare, it happens fairly often, but in a jump ball, it’s always going to go to management. It will have some effect.”

A storied history Founded in 1950 by A. Alfred Taubman, who died in 2015 at age 91, Taubman Centers has held an illustrious place on the podium of shopping mall development companies. The company developed Lakeside Mall in Sterling Heights, its first enclosed Michigan mall, in 1976 , and it currently owns Twelve Oaks Mall in Novi and Great Lakes Crossing in Auburn Hills, which are solely owned by Taubman. In 2014, it sold Dearborn’s Fairlane Town Center and The Mall at Par-

architecture, planning and civil engineering firm with 400 employees, is one of Marsh’s 101 Trendbender companies. It has steadily seen benefit plan reductions as it has implemented various cost management strategies. Kelly Jackson, its human resource director, said OHM has lowered health care costs by engaging its employees with wellness and telemedicine programs and encouraging generic drug use by lowering copayments. And by adding a consumer-driven health plan with company contributions to health savings accounts, Jackson said the company expects to hold down average annual health costs this year to a projected 2.89 percent. OHM operates a self-funded health plan managed by Blue Cross Blue Shield of Michigan. “We contribute $750 for a single health savings account and $1,500 for a family” per year, Jackson said. OHM’s high-deductible plan has a $2,000 deductible for singles and $4,000 for two-person or families, she said. OHM also offers a slightly higher-cost PPO plan for people with health conditions. Jackson said OHM also tries to educate its employees to be better consumers of health care to avoid costly

emergency care and make best choices on medical procedures. “We started a wellness program two years ago and engaged our employees by offering incentives to participate,” said Jackson, noting that OHM has 100 percent participation with the program. To receive an annual discount on employee health benefit premium contributions, employees must earn 400 wellness points by participating in such activities as getting their blood pressure, glucose and weight checked. Employees also can get a $75 reimbursement toward an approved wellness purchase, including gym membership, running shoes or active wear. “We want to encourage people to go to the doctor,” Jackson said. “Next year we will offer physicals. We believe if you have chronic condition and not treated, you can have a catastrophic problem. If your blood pressure is up, the silent killer, you could have heart attack. We don’t want that.” OHM also has decreased copayments to $10 each for generic drugs to encourage more use. “We have been able to reduce pharmacy costs,” she said.

tridge Creek in Clinton Township as part of a $1.4 billion deal with Greenwich, Conn.-based Starwood Capital Partners Inc. as part of a capital recycling campaign that also included MacArthur Creek in Norfolk, Va.; The Shops at Willow Bend in Plano, Texas; Stony Point Fashion Park in Richmond, Va.; Northlake Mall in Charlotte, N.C.; and The Mall at Wellington Green in Wellington, Fla. Today, the company has 27 malls under management and lease in the U.S. and Asia, Taubman says. In the first quarter, the company reported that average rents per square foot rose 1 percent to $60.60 and that tenant sales per square foot increased 0.9 percent to $776. However, occupancy rates fell 1.5 percent year-over-year to 93.9 percent due to closures of Sports Authority and The Limited stores. It reported $149 million in revenue, up from $139.5 million in the first quarter last year. But expenses increased from $114.8 million to $139 million last quarter, reducing profit from $44.3 million in last year’s first quarter to $32.8 million last quarter. “William and Robert run the highest-quality malls in the world,” said Christopher Brochert, partner of Bloomfield Hills-based shopping center and retail developers and investors Lormax Stern Development Co. LLC, which owns Macomb Mall in Roseville. “These gentlemen are highly sophisticated businessmen and will never let anything slip through the cracks under any circumstances. I am not familiar with all the finite details of the proxy battle. However, I can tell you that the Taubman company has successfully endured through thick and thin under their leadership, and any change that would lessen their leadership would be a tremendous disservice to the shareholders of

Taubman Centers.”

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

Activist campaign Last year, Litt launched his campaign in light of what he called a lack of board diversity, poor corporate governance and bad capital allocations. His recommendations included halting major external growth initiatives such as new development; exploration of “management-led privatization or a sale of the company to a third party;” selling assets and buying back Taubman stock; monetizing its Asia business in a joint venture, spin-off company or outright sale; and a sale of the Beverly Center in Los Angeles. If he is able to gain board representation, it wouldn’t be the first time he has precipitated change at intransigent REITs. He has had some success in forcing management and governance shake-ups recently. New York REIT Inc. explored selling assets or the entire company two years ago after he and other activist investors sought board change and an increase in share price, Bloomberg reported at the time. He also pressured NorthStar Realty Finance Corp. to sell assets; it later announced a merger with NorthStar Asset Management Group Inc. and Colony Capital Inc. into a real estate investment trust, Bloomberg reported last year. Shortly after the merger was announced, Litt said he opposed it. Litt also targeted Associated Estates Realty Corp., a Cleveland-based apartment REIT, and within a year it sold to Brookfield Asset Management for $2.5 billion in April 2015, Forbes reported. In 2015, after seeking four independent board seats for Macerich, the REIT announced it would add two in a compromise move, according to Reuters. Kirk Pinho: (313) 446-0412 Twitter: @kirkpinhoCDB

C R A I N ’ S D E T R O I T B U S I N E S S // M A Y 2 9 , 2 0 1 7

SCHOOLS FROM PAGE 1

Some classes also have been combined, adding pressure to class sizes and the workload for teachers whose average pay lags behind most suburban schools, which also are experiencing a shortage of teaching candidates. “This problem is a crisis in Detroit, but it’s a problem everywhere,” said Randy Liepa, superintendent of the Wayne County’s intermediate school district. Vitti is making teacher recruitment and retention one of his top priorities, with hopes of expanding national recruitment pipelines and luring military veterans and private sector professionals to come teach career technical education in Detroit. “From a business perspective, you have to have talented individuals within an organization in order to create different systems that are the inputs to create better outputs,” Vitti said in an interview with Crain’s. “The (school) system already has some talented people, but we have to scale that.” “Once we scale talent, I think then your product — which is educational services — improves.” Vitti will be one of the opening speakers Wednesday at the Detroit Regional Chamber’s Mackinac Policy Conference — just a week after arriving in Detroit from Jacksonville, where he was superintendent of the 129,000-student Duval County district for the past four years. The Dearborn Heights native will speak at a session sponsored by the Skillman Foundation on how he intends to lead the city school system less than a year after it received a $617 million state bailout to pay off debt that was largely piled up by state-appointed emergency managers. In an interview, Vitti said the district needs to “enhance the teacher profile in Detroit” to make the city a more desirable place to be an educator. “I think our story can be the factor that leads to teachers coming to Detroit from across the country to teach,” he said. “We just have to create those pipelines and the marketing effort to do that.”

A salary gap The average teacher salary in Detroit’s school system was $57,793 in the 2015-2016 school year, nearly $7,200 less than the average pay in all other school districts in Wayne County and all school districts in Oakland County, according to a Crain’s analysis of teacher salary data from the state’s Center for Education Performance and Information. Macomb County school districts paid teachers an average of $8,275 more than Detroit schools, state data shows. “We have to become more competitive with pay,” Vitti said Tuesday while visiting a teacher recruitment fair at Martin Luther King Jr. Senior High School. “The teaching job in Detroit is much harder than the teaching job in surrounding suburban districts — and we have to pay to that level.” Detroit’s average teacher salaries also were $4,000 below the statewide average in 2015-16, the most recent

LARRY PEPLIN

New Detroit schools chief Nikolai Vitti meets Cedric Ward, director of academic engagement at Martin Luther King Jr. High School, as Alycia Meriweather, who served as interim superintendent, looks on. year salary data is available. The starting salary in Detroit for a teacher with a bachelor’s degree is $35,683. A first-time teacher with a master’s degree can earn an additional $1,701 annually. In Jacksonville, Vitti worked to boost the starting pay for teachers to $39,000 and maintained an entirely employer-paid health insurance benefit, said Scott Shine, a Duval County school board member. “It did act as a recruitment tool,” Shine said of Vitti’s salary and benefits policies. “There was a lot of pressure to share employee costs, but he maintained that.”

The Florida experience As the nation’s 20th-largest school district, Duval County schools also has struggled like Detroit to attract teachers who can get paid more in surrounding suburbs, Shine said. Vitti shepherded a privately funded teacher incentive program that provided up to $17,000 in annual bonuses for high-performing educators who took teaching assignments in the district’s 36 lowest-performing schools. Principals have been eligible for bonuses of up to $20,000 for leading the schools. Business owners and philanthropists donated $40 million to the fiveyear Quality Education for All Fund, which is about to complete its fourth year under Vitti’s management, said Nina Waters, president of the Community Foundation for Northeast Florida. “We felt like the biggest issue that the schools faced was high-quality teachers. It was a human capital problem,” said Gary Chartrand, owner of Acosta Inc., a Jacksonville-based food industry sales and marketing company. Chartrand’s family foundation was among the donors to the teacher bonus fund. Waters said the incentives lured teachers and principals into schools with chronic vacancies. “With the incentive program in the first two years, those schools were 100 percent staffed on day one, which is huge,” Waters said. At the start of this school year, not all of the jobs were filled, which Waters said was largely a reflection of the national teacher shortage “catching up” with northeast Florida.

Vitti was able to negotiate a memorandum of understanding with the local teachers union in Jacksonville that allowed principals to remove lower-performing teachers and replace them with teachers whose students fared better on state tests, Chartrand said. “The idea was trying to incent quality rather than continuing to incent mediocrity,” said Chartrand, a member of Florida’s state board of education. Other donors to the teacher bonus fund included the Jacksonville-based PGA Tour and Wayne Weaver, owner of the Shoe Carnival chain shoe stores and former owner of the Jacksonville Jaguars. Weaver said he was sold on donating $5 million when education consultants concluded the school system’s biggest problem was constant teacher turnover in schools with the largest percentage of children living in poverty. “Being a business person, that registered with me,” Weaver said in an interview. “I said ‘I know in my own business, it’s all about human capital.’”

An idea for Detroit Vitti’s teacher bonus program is already a concept that’s been floating around Detroit’s philanthropic circles. Alycia Meriweather, a veteran Detroit educator who served as interim superintendent for the past year, said she has been pitching a similar teacher pay incentive program to foundations while the district pursues other ways to attract more teachers to work in Detroit. “It is a serious issue and that’s why we’ve put a lot of effort into solving the problem,” said Meriweather, who remains a senior adviser to Vitti. One new program DPSCD started this year with Wayne State University is a two-year teacher certificate track for long-term substitute teachers who receive fringe benefits while working in Detroit schools. “After two years, we guarantee them that we are hiring them as certified teachers,” said James Baker, deputy superintendent of human resources for DPSCD. The program is called Dream-

keepers and, with the help of regular substitutes, it has helped lower the 260 classroom vacancies to an average of 102 each day, Baker said. “We then at the school level have to cover classes with teachers who have other duties,” Meriweather said. “Because we will not leave children unattended.” There may be other ways than boosting salaries to incentivize teaching in Detroit, Meriweather said. Meriweather said she’s been in talks with city officials about extending to school teachers the 50 percent discount city employees get for buying a land bank-owned vacant home. “We’re looking at ways to try and make Detroit a teacher town,” Meriweather said.

FLAGSTAR FROM PAGE 3

At last Tuesday’s teacher recruitment fair, Detroit principals staked out cafeteria tables and waited to interview 265 teaching prospects who came through the doors at MLK High School on the city’s near-east side. Approximately 90 conditional job offers were made after the interviews, district spokeswoman Chrystal Wilson said. Vitti attended the event on his first day on the job, after a day of touring schools and hearing from teachers about problems with large class sizes and vacancies requiring them to sacrifice their planning hours to staff classrooms. “We have to address that issue immediately,” Vitti told reporters. In some ways the nascent revitalization of Detroit and the school system’s new lease on life has already become the recruiting tool Vitti said he wants to sell nationally. Lauren McBroom, 31, recently moved back to Southeast Michigan after spending a decade teaching in Washington, D.C., and France. “This is where the greatest need is right now,” the Bloomfield Hills native said. “I want to see what happens in Detroit.” Her sentiment about being part of the revival of a school district that was near death a year ago was echoed by Billie Jean Fierros, a 25-year-old native of rural Caro in Michigan’s thumb. “There’s so many students who have potential but aren’t getting the attention they need,” Fierros said in between interviews for German and social studies teaching positions. “It seems like they definitely need help.” Bob Pfeffer, a 50-year-old veteran social studies teacher from Chesterfield Township, showed up to the job fair hoping to land a high school teaching position in the district. He said he has previously taught in Detroit charter schools, suburban districts and school systems in Texas, Kentucky and Arizona. Pfeffer said he’s not shying away from the challenges of teaching in an urban district where the majority of students live in poverty. “Everyone is so quick to run away from Detroit. But there’s so much here to offer,” Pfeffer said. “It’s those diamonds in the rough that I live for.”

Ottaway attributes his success to Flagstar’s ability to attract talent. “If you don’t have the right people, you won’t be successful,” Ottaway said. “We’ve been fortunate to add on a well-rounded, deep group of experienced bankers that are established in this community.” Because Flagstar has transitioned into commercial lending, it allows the banks to have ‘running room’ that other banks in the industry don’t have, Ottaway said. “We’re a unique organization because our history is in mortgage,” Ottaway said. “We’re not full up (on commercial loans) like the other banks are.” The bank is still heavily mortgage-based, with roughly 60 percent of its banking revenue coming from mortgage origination. But that’s down from 90 percent in 2012. “We are working to have enough arrows in our quiver so that if one (business) goes bad, it doesn’t cause a problem,” said President and CEO Alessandro DiNello. Flagstar had its roots in Oak Hills Mortgage, founded by Tom Hammond in 1981 and later renamed First Security Mortgage. A sister company, First Security Savings Bank, which would eventually become Flagstar, was formed in 1987. The business was built on mortgage originations and servicing and enjoyed years of go-go growth, but it also built a branch network offering general banking. By 2009, the bank was reeling in the wake of the housing collapse. It would be 15 straight quarters of losses, totaling more than $1.1 billion, before Flagstar would finally get into the black, in the second quarter of 2012. Hammond, who was Flagstar chairman at that point, and son Mark, president and CEO, left the bank that year, soon after MatlinPatterson Thrift Investments LP, a New York City-based private equity fund, became a major shareholder. Flagstar managed to keep afloat, thanks to periodic infusions of cash from MatlinPatterson. Since then, the bank (NYSE: FBC) sold its 49 bank branches outside of Michigan, sold off mortgage-servicing rights for $40.7 billion worth of home loans. Today, it’s nearly recovered to pre-recession levels with assets near $15.4 billion, compared to its peak of $17 billion in 2007. It’s also down to 99 branches from 179 in 2009. The results speak for themselves, said Kevin Barker, principal and senior research analyst at Minneapolis-based investment bank Piper Jaffray Cos. “They are one of the better run mortgage servicers in the country,” Barker said. “A lot of work that Flagstar has done has decreased the amount of errors and the amount of risk the company takes on. They are now one of the better positioned banks out there.” Flagstar’s shares are up nearly 20 percent in the past 12 months.

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

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

Teacher fair

C R A I N ’ S D E T R O I T B U S I N E S S // M A Y 2 9 , 2 0 1 7

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FROM PAGE 1

Sobel did not specify which other health organizations, but Crain’s has previously reported that Henry Ford has been talking with health care giant Kaiser Permanente of Oakland, Calif., the past two years about business arrangements that could be a part of an enhanced Wayne-Henry Ford relationship. Sobel did not deny Kaiser was involved in the multiparty talks that also include other Southeast Michigan health systems. David Hefner, Wayne State’s vice president of health affairs, last week confirmed that the university also has talked with Henry Ford and also other major local health systems. Crain’s contacted the four other health systems in Southeast Michigan. Beaumont Health, St. Joseph and St. John Providence denied they are in talks with Wayne State. McLaren declined to comment. Last week, Crain’s obtained a copy of a confidentiality agreement signed Jan. 6 by Lisa Keane, UPG’s president and CEO, related to talks between Wayne State University, UPG and Henry Ford Health System. The document described consideration of a “proposed business relationship” between the parties that is being facilitated by Navigant Consulting of Chicago. It did not specify the nature of the discussions. Navigant officials declined to comment. “We are talking with a lot of others,” Sobel said. “We can only talk so long before we make a decision.” Henry Ford officials declined to comment on the nature of the talks. John Crissman, former dean of Wayne State medical school, said an expanded relationship with Henry Ford is long overdue and was a goal when he was dean from 1999 to 2004. “Working with (former medical group CEO) Mark Kelley, we were able to coordinate some research and graduate student education programs, but both Mark and I left our positions before a more complete merging of medical education programs could occur,” Crissman said. “Henry Ford has a long tradition of excellence in undergraduate medical education and has been a major contributor to WSU medical student education,” he said. “It is gratifying that additional steps are now being considered. The composition of HFHS and its guiding principles are more in keeping with (Wayne State School of Medicine) goals and objectives and should contribute to a bright future to both institutions.”

Far-reaching effects But if Wayne State struck a comprehensive deal with Henry Ford, it is possible that arrangement could eventually affect Detroit Medical Center and the Barbara Ann Karmanos Cancer Institute, sources said. The relationship between Wayne State and the DMC has been fraught. Last September, Wayne State and DMC agreed to an 18-month clinical services and medical administration contract that both parties were unsatisfied about because they hoped for a “transformational” agreement that would propel both partners into top

10 institutions. Wayne State and DMC also have a ongoing graduate medical education contract that covers DMC and Wayne State residency programs at DMC’s hospitals and a medical student contract. The talks with Henry Ford would not affect medical education programs for at least five years, sources said. “I meet with (Anthony Tedeschi, DMC CEO) every week,” Sobel said. “We have a very good relationship. We may extend the agreement.” But in a previous interview with Crain’s, Sobel said Wayne State needs a like-minded hospital partner and physicians willing to “share our vision and ambition.” He said DMC, which is owned by for-profit Tenet Healthcare Corp. of Dallas, doesn’t share Wayne State’s values. Hefner said DMC and the university are not presently engaged in contract talks. “It doesn't mean we won’t do it. We are just not having discussions now,” he said. Hefner also declined to specifically discuss talks with Henry Ford, citing the confidentiality agreement. However, he said he has been pursuing “one dance partner to go long and deep” since he arrived two years ago. He said Wayne State wants to combine its medical group with one system, but the university also wants enhanced research and educational relationships with all five systems. Sources familiar with the arrangements told Crain’s that Wayne State’s contract with DMC to staff Children’s Hospital of Michigan also would remain unchanged regardless of any new deal with Henry Ford. DMC contracts with the university’s pediatric department, which is not part of UPG, sources said. Lou Romano, WSU Senate Faculty president and a chemistry professor, said he isn’t surprised with the talks. He said he hasn’t been briefed on the details. “I know (WSU) is looking for a new clinical partner because of concerns about DMC,” said Romano, who is on the advisory committee of the Wayne State board of governors and attends all medical school retreats. “We have had longstanding problems with DMC with reduced income, difficulty in maintaining departments required by academic medical schools and a lack of interest with DMC being a clinical research center. They are mostly interested in the bottom line.” Romano said Wayne State doctors are concerned about the structure of the deal with Henry Ford, adding: “We have to do something.” Another unclear aspect of a potential Henry Ford-WSU deal is the future of the Perinatal Research Branch housed at the DMC and the Comprehensive Cancer Care designation at Karmanos, both of which are held by WSU. The PRB is a federally funded research program designed to study ways to reduce infant mortality. Hefner said the talks with Henry Ford do not involve the PRB or the Comprehensive Cancer Center at Karmanos. In 2013, Wayne State renewed a 10-year contract for the PRB at DMC with the National Institutes of Health. Detroit was chosen by the NIH because of the expertise of Wayne State’s

Department of Obstetrics and Gynecology and the high number of pregnant women in Detroit with a higher-than-average rate of infant mortality. Wayne State also is the fiscal agent of the Comprehensive Cancer Center designation at Karmanos, where many Wayne State faculty oncologists and researchers work. Karmanos was acquired in 2013 by Flint-based McLaren Health Care, a 12-hospital nonprofit system. Karmanos is on the campus of DMC and shares some support services. If a deal is struck with Henry Ford, one possible option could be that WSU’s Comprehensive Cancer Center designation could be extended to Henry Ford Hospital and continue with Karmanos, said several sources, although they said no deal is on the table and any change could take years and require federal approval. Phil Incarnati, McLaren’s CEO, said McLaren, Karmanos and Wayne State enjoy a long-term relationship in cancer care that has benefited patients. “(Wayne State president) Roy Wilson and I share a common vision for teaching, research and clinical care that is reflected in the cultures of both of our organizations,” Incarnati said in a statement. “I don’t perceive a shift in that shared commitment moving into the future.” Another administrative source close to Wayne State and Henry Ford told Crain’s that it is feasible for HFMG and UPG to merge or combine operations. A combination would be difficult to do because of opposition from Henry Ford’s and UPG’s employed doctors, which have different concerns. But the administrative source said WSU’s medical group continues to lose money and needs a financially stronger partner. Another physician source close to Wayne State said administrators at Henry Ford and Wayne State are pushing the deal more than doctors. A hospital administrative source and a DMC physician, both of whom have close ties to Wayne State, told Crain’s that one sticking point is that Henry Ford only wants a fraction — ranging from 25 percent to 35 percent — of UPG’s 400 faculty physicians. The DMC doctor said the biggest concerns UPG doctors have is they will lose relationships with patients and access to DMC leased office space. If Wayne State moves closer to Henry Ford, DMC would still remain an academic medical center because it receives Medicare funding for its dozen or so residency programs. DMC could replace departing Wayne State doctors who head up departments or residency programs, the DMC doctor said. He said DMC ex-

plored a worst-case scenario last year and discovered some doctors would stay at DMC instead of moving to Ford. DMC could hire others to replace the ones who left, he said. DMC also would not be impacted too much from a patient volume perspective. About 20 years ago, Wayne State doctors accounted for about 90 percent of patient admissions. Now that percentage is down to about 22 percent, a source said. The DMC physician said the loss of Wayne State’s academic relationship would hurt DMC’s reputation, but that Michigan State University would likely increase its participation in DMC medical and education programs. Looking a decade into the future, the administrative source said Wayne State’s fate ultimately is tied to the big hospital systems in Detroit. A still declining population in Detroit is causing the three major health systems to rethink their strategies. Besides DMC and Henry Ford, St. John Providence also operates a major teaching hospital in Detroit.

Financial problems In December 2015, an audit by Wayne State found that UPG was incorrectly accounting for salaries and other expenses and had lost $32 million that year. A turnaround plan with cost-cutting was instituted and annual losses are expected to drop to $12 million this year, down to a negative $5.5 million in 2018 with break-even projected for fiscal 2019 ending Sept. 30. Cost cutting includes up to 40 faculty members either retiring or going through detenuring. Last December, Sobel announced talks would soon commence with other hospitals in Southeast Michigan about possible academic affiliations because the corporate culture with academic partner DMC no longer fits the nation’s largest single-campus urban medical school. “We need to partner with other health systems. The contribution from the DMC ... has been minimal,” Sobel said in a previous interview. He added that DMC “contributes (little) toward education and research. It appears our cultures are incompatible and we are looking for other partners.” But Sobel promised faculty that the medical school “will never abandon this campus” because of the school’s 100-plus year history and the importance for students and researchers to be close to an urban environment. “We will be clearly negotiating with other partners ... and changing the compensation model (for UPG, its academic medical group) we have used in previous years,” Sobel said last December. Jay Greene: (313) 446-0325 Twitter: @jaybgreene

INDEX TO COMPANIES These companies have significant mention in this week’s Crain’s Detroit Business: Article One

Michigan Science Center

Celsee Diagnostics

Michigan Venture Capital Association

Detroit Salt LLC

Olympia Entertainment

Flagstar Bancorp.

Seraph Biosciences

Henry Ford Hospital

Taubman Centers Inc.

Little Caesars Arena

University Physicians Group

Marsh & McLennan Agency LLc

Wayne State University

C R A I N ’ S D E T R O I T B U S I N E S S // M A Y 2 9 , 2 0 1 7

THE WEEK ON THE WEB

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Detroit aims to get rental properties up to code

Rise of black business documentary premieres this week in Detroit

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he city of Detroit wants to get 50,000 rental properties up to code in two years under a new proposal for enforcement, Mayor Mike Duggan announced Wednesday, flanked by Councilman Andre Spivey and building department Director Dave Bell. At Tuesday’s Detroit City Council meeting, Spivey will propose to revise the city’s rental property ordinance to enforce property tax collection, rental registration and compliance codes on landlords in the city. If approved, it would authorize tenants to withhold rent from noncompliant landlords and protect them from eviction. The amendment would also give landlords a three-year compliance certification under which, barring blight and property tax violations, the property would not have to be inspected for three years. The threeyear certification would not apply to rental properties requiring annual lead risk assessment and clearance. Property owners can schedule an inspection with the city’s Buildings, Safety Engineering and Environmental Department or a certified third-party inspector on the city's website. Bell said the department has recently hired seven new inspectors to bring its staff up to 35 and plans to hire two more to step up its efforts.

COMPANY NEWS Broder & Sachse Real Estate Services Inc. plans a $12 million renovation of the former Milner Arms apartment building in Midtown and to keep some of its 93 units as affordable housing. J Philadelphia-based Comcast Corp. plans to close and outsource its Wixom warehouse operations, which will result in more than 70 layoffs this summer, according to a notice filed with the state. J Chevrolet extended its sponsorship contract with the Detroit Red Wings, becoming the official vehicle of Detroit's new Little Caesars Arena. J Detroit-based Huron Capital Partners LLC announced that one of its portfolio companies, Texas-based Good Sportsman Marketing, has bought an Oregon company and a product line from a Michigan company. GSM acquired Scent Web from Beaverton, Mich.-based A-Way Hunting Products Inc. and Eugene-based Bullseye Camera Systems. J Plymouth-based Varroc Lighting Systems Inc. is working with German company Mekra Lang GmbH & Co. to expand its manufacturing operations to Brazil. J Macy’s Inc. plans to open outlet stores inside three of its department store locations in Southeast MichiJ

documentary on the rise of black business in America by Detroit filmmaker Anthony Brogdon will premiere in Detroit this week before heading to New York, Los Angeles and other cities as part of a national release. Anthony Among those Brogdon: Created interviewed in documentary. Brogdon’s “Business in the Black — The rise of black business in America, 1800s-1960s” are Detroiters whose families owned a business in the

COSTAR GROUP INC.

The apartment building now known as The Hamilton opened in 1913 as the Hotel Stevenson off Martin Luther King Jr. Boulevard just west of Woodward Avenue. Most recently, it was known as Milner Arms.

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

2.5 percent

Anticipated increase in Michigan residents expected to travel by road over this past Memorial Day holiday, according to AAA Michigan

600

Number of jobs Little Caesars Arena hopes to fill at a job fair June 21.

97.1 FM

Radio dial slot of the station that signed a new deal to carry Detroit Pistons games starting in 2017-2018.

gan as the retail giant shifts to appeal more to a millennial base that prefers low-price, resale and outlet shopping to traditional mall shopping. Macy’s Backstage are planned for Fairlane Town Center in Dearborn, Oakland Mall in Troy and Lakeside Mall in Sterling Heights. J Northville-based Digital Roots, a social media software company launched in 2009 by Jay Wolcott, has been acquired by Interactions LLC. J A $32 million maintenance hangar at Detroit Metropolitan Airport has opened as part of efforts to ensure safety among Spirit Airlines’ fleet.

OTHER NEWS New Census figures indicate Detroit's population continues to decline amid efforts to revitalize the city. The population estimates by the U.S. Census Bureau said Detroit is the nation’s 23rd largest city with a population of 672,795 last summer, a loss of 3,541 since 2015. The numbers showed the Detroit area ranks 14th among U.S. metropolitan areas, with 4.3 million people in Wayne, Oakland, Macomb, Livingston, St. Clair and Lapeer counties. J The Palace of Auburn Hills is slated to be rezoned as a technology and research district in advance of the Detroit Pistons’ move to Little Caesars Arena in downtown Detroit. J Cass Community Social Services is offering tours of its new tiny houses built in Detroit for low-income residents in an effort to raise $10,000 to help fund construction of more units. J Detroit’s renovated Cobo Center will host the 2018 USA Volleyball Girls’ Junior National Championships, the U.S. Olympic committee-recognized nonprofit announced Tuesday. J The first Rizzo Environmental Services Inc. executive to be charged in a Macomb County bribery scheme involving the now defunct trash company has cut a deal with the government, the Detroit Free Press reported, citing court records. According to a filing in U.S. District Court, Quintin Ramanauskas, a former commercial manager for Rizzo, has a plea hearing set for June 30 before U.S. District Judge Robert Cleland. J

area in the early 1900s, including a hospital, cemetery, law firm, architectural firm and barber school. The 75-minute film chronicles the fact that there were black millionaires in the U.S. in the 1800s as part of pointing out what African American businessmen have accomplished. The Detroit premiere of “Business in the Black” is scheduled for 7 p.m. Wednesday at the Charles H. Wright Museum of African American History. On Thursday, the Main Art Theatre will show the film and the Detroit Historical Museum on Friday. Tickets to the premiere are $20, and $10 for the other local performances.

Detroit forum to coincide with Mackinac conference T he state’s business, political, civic and education leaders will be strolling the Grand Hotel’s famous front porch Wednesday evening for the opening dinner of the Detroit Regional Chamber’s annual public policy confab on Mackinac Island. While they’re rubbing elbows, a group of Detroit community activists will be huddled in a historic Midtown house to discuss public policy issues they think won’t be debated on the island this week. Urban Consulate will host the forum from 6-8 p.m. at its office in the David Mackenzie Home, 4735 Cass Ave., on the edge of Wayne State University’s campus. Declare Detroit, a policy-oriented organization, is co-hosting the talk with speakers from the Corridors Alliance, New Solutions Group, the Detroit Land Bank Authority, Type A Creative and Wayne State.

Chase Cantrell, who heads up the Detroit office of the Knight Foundation-funded Urban Consulate, also will be speaking. Cantrell also runs a Detroit nonprofit called Building Community Value that is working to put 200 vacant parcels in the Fitzgerald neighborhood back to use. Issues affecting the arts, economic development, education and transportation will be discussed. “I think some of the core issues that Detroiters face aren’t necessarily being discussed real in depth at Mackinac,” said Cantrell, who attended the policy conference last year. “I think it’s important people have an outlet to talk through some of these issues.” The topics at Wednesday night’s forum in Midtown also are scattered throughout the panel discussions at the Mackinac Policy Conference.

Chase advertising campaign promotes city investment J .P. Morgan Chase & Co. is trying to spread the word about the bank’s $150 million investment in Detroit’s revitalization in national advertising. Since announcing a $50 million investment increase, the New Yorkbased bank has promoted its philanthropy and investment in newsletters from political websites Axios.com and Politico.com. One ad in Axios AM even featured a picture of Mayor Mike Duggan. A recurring Chase ad in Politico Playbook boasts: “Detroit is a case study for how the private sector can

collaborate with government and community leaders to drive change.” On Thursday, an ad in the Axios newsletter featured Detroit lettering artist Joseph Alessio, linking to a video of Alessio creating a wall illustration of the bank’s investment lending and grants in the city. “The more we can spread that message in and outside of Detroit, the better it is for others who are looking to take some of those lessons from Detroit and apply them to their challenges — or others who are thinking about investing in Detroit,” bank spokesman Steve O’Halloran said.

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