Crain's Detroit Business, Aug. 21, 2017 issue by Crain's Detroit Business

AUGUST 21 - 27, 2017

Chinese buyers clamor for American foods.

Historic Whitney mansion goes green with PACE cash. Energy savings program is growing statewide. Page 3

Page 3

Real Estate

Big sale may trigger out-of-town cash rush Bank of America building may spur more interest from flippers

By Kirk Pinho kpinho@crain.com

One of the region’s largest office building sales in recent memory to a New York City buyer may trigger fresh interest from large institutional real estate investors looking for a quick payday. Coming off Sol Gutman’s $74 million purchase of the Bank of America building in Troy last week, experts

say the approximately $175-persquare-foot purchase price is enough to make out-of-state buyers that concentrate on what are known as value-add properties take a serious look at the Detroit market. Such properties are generally those struggling to attract or retain tenants or in need of capital expendi-

Then New York City-based Sovereign Partners LLC purchased it from the bank, which was consolidating its office space, for just $35 million and, earlier this month, sold it to Gutman for more than twice that. Put simply: A textbook flip, with a gross profit of 111 percent, although that doesn’t include costs Sovereign incurred to lease up and improve the property, or carrying costs like taxes, maintenance and insurance.

tures to make them more attractive to potential tenants. Two years ago, the Bank of America building at 2600 W. Big Beaver Road was a prime example: Only about 60 percent leased, with its namesake and largest tenant shrinking its footprint in the 422,000-squarefoot property.

SEE SALE, PAGE 17

The $74 million sale of the Bank of America building in Troy amounted to $175 per square foot. COSTAR GROUP INC.

Nonprofits

The arts get squeezed

As downtown rebounds, rents rise and traffic grows, small cultural nonprofits are finding it harder to stay there By Sherri Welch swelch@crain.com

PUPPETART

PuppetART founders Irena Baranovskaya (left), Luda Mikheyenko and Igor Gozman. crainsdetroit.com

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Small arts organizations, the base of the city’s arts and cultural ecosystem and a stepping stone for artists and art lovers, are being pushed out by rising rents, parking problems and other issues as downtown Detroit rebounds. Earlier this year, the Carr Center was evicted from its downtown location. Now, the PuppetArt theater is

downtown resurgence. With their budgets and audience numbers just a fraction the size of the city’s largest museums and cultural institutions, the contributions of the small arts/cultural groups are often overlooked, said Hillary Brody, brand and community strategist at local arts and culture association CultureSource.

pulling up its downtown stakes. Their departures from longtime homes come amid performing arts groups’ struggles to find rehearsal and performance space and the leases of some small arts groups winding down, leaving them to wonder if the new rates will be affordable. The squeeze-out comes with real costs to the city’s arts scene and the vibrancy that formed a seed of the

EACH WEEK DON’T MISS OUT ON CRAIN’S SPECIAL REPORT!

SEE ARTS, PAGE 17

, 2017 S I N E S S // A U G U S T 2 1 CRAIN’S DETROIT BU

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MICHIGAN BRIEFS

INSIDE

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

Snyder sets up Michigan opioid council

Gov. Rick Snyder established the Council on Opioid and Prescription Drug Enforcement after signing an executive directive aimed at combating the opioid epidemic. Led by Lt. Gov. Brian Calley and recommended by the Michigan Prescription Drug and Opioid Abuse Task Force, the council’s goal will be cultivating relationships among local, state and federal agencies that enforce laws and regulations, according to a news release from the governor’s office. “The opioid epidemic is destroying lives and families every day,” Calley said in a written statement. “It is an emergency and we need to go above and beyond to combat it.” The council will meet monthly to discuss prescription drug and opioid abuse across the state. It will coordinate with the Michigan Attorney General’s Office, U.S. Drug Enforcement Administration, the Prosecuting Attorneys Association of Michigan and other agencies. At minimum, the council will consist of Calley and a representative designated by both the Department of Licensing and Regulatory Affairs and the Michigan State Po-

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WEEK ON THE WEB

Meijer, Spectrum to offer co-branded medicine line

Meijer Inc. and Spectrum Health have partnered to offer nearly two dozen over-the-counter line of products.

lice, the governor’s deputy press secretary, Tanya Baker, said via email.

Food cart maker to invest in West Michigan

New York-based food cart manufacturer Move Systems International is spending $13.3 million and adding 27 jobs at its production center in Walker, outside of Grand Rapids. With the investment, Move Sys-

tems will amp up production, bring in new equipment and add on to administrative areas at the Walker facility. The company received a $200,000 performance-based grant through Michigan Economic Development Corp. to support the expansion. The Right Place Inc., an economic development organization based in Grand Rapids, worked with MEDC to assure Move Systems would invest in Michigan as op-

posed to out of state, The Right Place spokesman Tim Mroz said. The Right Place brought Grand Rapids-based Wakestream Ventures on board to invest in the company, Mroz said. Michigan native James Meeks created Move Systems in 2016. The company manufactures eco-friendly carts with solar roofs for street food vendors and an electricity pedestal it calls Simple Grid.

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Worked with more than 300 global purchasers

Meijer Inc. and Spectrum Health have partnered to offer nearly two dozen over-the-counter line of products. The medications will be sold in 23 stores across 13 counties in Michigan. The Grand Rapids-based companies will split the profits, with Spectrum’s profits going to the Helen DeVos Children’s Hospital, a news release said. The line of tablets include allergy relief, acid reducer, laxatives and pain relief, among others. “We are very pleased to work with Spectrum Health on such an important product launch,” Jason Beauch said, vice president of Pharmacy Merchandising for Meijer. “Spectrum Health is an outstanding health care provider in West Michigan and this product launch provides yet another option for us as we strive to provide healthy living solutions for our customers.”

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Food Business

Michigan food makers aim to fill China’s appetite

Export aims require more than a cup’s worth of preparation By Lindsay VanHulle

Crain’s Detroit Business/Bridge Magazine

Atwater Brewery owner Mark Rieth is bullish on China. Rieth plans to get his Detroit company’s craft beer to Chinese drinkers, who he says have a “tremendous appetite” for a good brew. It won’t be this year, though he hopes it can happen by spring. If exporting were a baseball game, Rieth said Atwater Brewery would be in the sixth inning. He invested in a flash pasteurizer that can increase the shelf life of beer to help prevent spoilage on the trip to China. And he said he plans to hire someone who has import and export experience in the auto industry to lead Atwater’s international business opportunities — and not only in China.

“We want to make sure we have the right partners in place in China so that when we do start exporting, we have all the I’s dotted and T’s crossed.” Atwater Brewery owner Mark Rieth

“We want to make sure we have the right partners in place in China so that when we do start exporting, we have all the I’s dotted and T’s crossed,” he said. Chinese buyers are clamoring for American foods, from craft beer to fruit — good news for Michigan companies, like Atwater, looking to dip their toes into the Chinese market.

State to lead business trip to China

Jamie Clover Adams, left, director of the Michigan Department of Agriculture and Rural Development, will lead up to a dozen food- and agriculture-related companies to China in November.

Getting a foothold is hard. That’s particularly true for businesses that specialize in fresh foods with short shelf lives. A maze of regulations and bans on certain imports also pose hurdles. Trade is the federal government’s bailiwick, but Michigan’s agriculture leaders are trying to do what they can to open channels to China’s massive and growing middle class for the state’s farmers, growers and food businesses. That’s one reason why Gov. Rick Snyder has traveled to the country seven times since taking office in 2011, including a nine-day trip that wrapped up a few weeks ago. Trips have focused on promoting everything from Michigan manufacturing to tourism to agriculture.

The trade trip Nov. 6-8 will include stops in Hangzhou and Shanghai, according to the department. Participating companies will meet with Chinese buyers, tour retail operations and participate in briefings with the U.S. Department of Agriculture. The trip costs $1,000; companies are responsible for covering airfare and travel costs, including hotel stays and incidentals. Registration will be limited to 12 companies. Space is still available. The deadline to apply is Aug. 23. To inquire, contact Jamie Zmitko-Somers at (517) 284-5738, or email zmitkoj@ michigan.gov.

SEE CHINA, PAGE 18

Energy

Whitney Restaurant, Garfield medical office building go energy efficient with PACE project By Jay Greene jgreene@crain.com

The historic Whitney Restaurant in Detroit is getting a green makeover as it becomes the first energy-efficiency project in Wayne County to receive financing through an innovative program. In Macomb County, the Garfield Metro medical office building in Clinton Township, owned by the Peleman family, will soon begin that county’s first energy-efficiency project financed by PACE, the Property Assessed Clean Energy program. Both projects will massively upgrade the buildings’ heating and cooling systems, lighting, controls and window insulation, saving 10 percent to 20 percent or more on utility bills, owners say. PACE offers property owners longterm loans for energy upgrades at fixed interest rates that owners can repay through their property tax bills.

THE WHITNEY PHOTOS

Detroit’s historic Whitney Restaurant will be the first Wayne County business to get energy upgrades through the Property Assessed Clean Energy (PACE) program.

How it works Begun in California, PACE has been approved in 33 states, including Michigan. Some 32 local governments in Michigan have approved it, including Wayne, Macomb, Oakland, Washtenaw and St. Clair counties, to participate along with 10 cities including Southfield, Troy and Royal Oak. Local taxing districts must approve PACE because payments for the projects will be collected as if they are property taxes. More than eight similar projects in Michigan have taken advantage of

Bud Liebler, owner of the Whitney. first thought the savings projected from the PACE program was “too good to be true.”

MUST READS OF THE WEEK Brownfield tax incentive starts to gain interest

Commercial demolitions ramping up in Detroit

>> Long-vacant Moose Lodge might get new life

Developers have started inquiring about Michigan’s new brownfield tax incentive, but nobody has applied for one yet. Page 14

Recently cleared rubble from a store that burned down nearly a year ago is a small step in the blight battle. Page 15

The Ilitch family could be rehabilitating the downtown Loyal Order of the Moose Lodge they’ve owned more than a decade. Page 19

PACE, with five to 10 more expected this year, including up to four in Southeast Michigan, said Andy Levin, president of Levin Energy Partners LLC. Levin, son of U.S. Sen. Sander Levin, promotes PACE through his company’s Lean & Green Michigan program. “These these two projects are beautiful bookends for the potential of PACE,” Levin said. “You have The Whitney, a historically important building, one critically important to retrofit for the future. You have a small medical office building on Garfield Road. They have 20 to 30 doctors in that building, one of many in that

area. Garfield is a symbol of how PACE can help make owners cut their operating costs” and increase their occupancy rates by attracting new tenants. As electric rates rise and companies look to reduce their carbon footprints, more companies are investigating investments in renewable energy projects like solar and wind or energy-efficiency technologies. Bud Liebler, owner of The Whitney, said when he heard about how PACE financing works and the 20 percent potential savings, “It sounded too good to be true.” SEE PACE, PAGE 16

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Chase: Detroit leads in spending growth

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Consumer spending in April in metro Detroit among credit and debit card holders was 4.8 percent higher than a year ago, the highest yearover-year growth in the midsize metropolitan areas studied by the JPMorgan Chase Institute. Metro Detroit’s spending growth ranked third overall behind Denver (10.4 percent) and New York (5.2 percent) among the 15 metropolitan areas the banking giant's institute has been tracking for its monthly Local Consumer Commerce Index report. “Metro Detroit was the best-performing in the midsize metro areas,” said Diana Farrell, president and CEO of the JPMorgan Chase Institute, a company think tank. In the city of Detroit, spending in

Best managed nonprofit nominations due Sept. 8 Crain’s Best Managed Nonprofit Contest this year will focus on how nonprofits are responding to shifting government and foundation funding priorities and the threat of government cuts. Examples could include, but are not limited to moves made to diversify your organization’s revenue base or advocacy efforts.

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Applications are due Sept. 8. Finalists will be interviewed by judges the morning of Nov. 1. Applicants for the award must be a 501(c)(3) with headquarters in Wayne, Washtenaw, Oakland, Macomb or Livingston counties. Applications must include an entry form, a copy of the organization’s code of ethics, a copy of its most recent audited financial statement and a copy of its most recent IRS 990 form. First-place winners within the past 10 years are not eligible; neither are hospitals, HMOs, medical clinics, business and professional organizations, schools, churches or foundations. The winners will be profiled in the Dec. 4 issue, receive a “best-managed” logo from Crain’s for use in promotional material and will be recognized at Crain’s Newsmaker of the Year luncheon early next year. To submit a nomination, go to CrainsDetroit.com/nominate. For information about the contest, email Senior Reporter Sherri Welch at swelch@crain.com or call (313) 446-1694.

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April was up 5.3 percent from a year ago, compared with 4.7 percent growth in the suburbs, according to the report. “It’s a particularly good story for Detroit,” she said. The study doesn’t account for cash transactions or online shopping, only in-person swipes of credit and debit cards for everything from fuel to groceries and durable goods. “In light of how much spending is occurring online ... what we’re trying to understand is what is happening to local commerce,” Farrell told Crain's. JPMorgan Chase Institute has made its data available to businesses and researchers to download from its website. — Chad Livengood

Contact Chris Baker at cpbaker@varnumlaw.com

This fall, for the first time, Crain's Detroit Business will recognize Eight Over 80: a new program to profile and recognize individuals over the age of 80 who are still making a difference in business or the community. Who are our region’s most influential leaders over 80 in business, philanthropy, leadership, public service and civic life? Nominations are now open at crainsdetroit.com/nominate. If selected, nominees will be featured in the Oct. 16 issue of Crain’s. For questions regarding nominations, contact special projects coordinator Keenan Covington at kcovington@crain.com or 313-446-0417 or special projects editor Amy Elliott Bragg at abragg@crain.com or 313446-1646.

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

Hillside buys Ann Arbor buildings for $50 million

McKinley Towne Centre, Liberty Square total about 190,000 square feet of office and retail space “We hope to acquire another couple hundred thousand square feet by the end of the year.”

By Kirk Pinho kpinho@crain.com

Plymouth-based real estate company Hillside Investments LLC has paid $50 million for a pair of key downtown Ann Arbor buildings. The company bought McKinley Towne Centre and Liberty Square from Ann Arbor-based McKinley Inc., according to a news release. The buildings total about 190,000 square feet between their office and retail components, said Jaimey Roth, Hillside’s principal of operations, and Jason Biber, principal of acquisitions and leasing. Key McKinley Towne Centre office tenants are Llamasoft Inc., TD Ameritrade and Bodman PLC, with retail tenants including AT&T and Bar Louie, they said. Major tenants at Liberty Square are the University of Michigan and FedEx Corp. McKinley Towne Centre is 130,824 square feet and 97 percent occupied, while Liberty Square is 59,081 square feet and fully occupied, according to a representative from McKinley. Hillside has approximately 1.5 million square feet in its portfolio, including office, retail, multifamily, industrial and medical properties. “We hope to acquire another couple hundred thousand square feet by the end of the year,” Roth said.

Jaimey Roth, Hillside’s principal of operations

COSTAR GROUP INC.

McKinley Towne Center in downtown Ann Arbor sold Friday as part of a $50 million deal to Plymouth-based Hillside Investments LLC.

Anne Galbraith Kohn, senior vice president in the Southfield office of Los Angeles-based CBRE Inc.’s investment and institutional proper-

ties division, was McKinley’s broker on the deal that closed Friday. McKinley, founded by Ron Weiser and currently headed up by CEO,

co-owner and managing member Albert Berriz, said in the release that the sale was part of an ongoing disposal of much of its office and retail

properties so it can concentrate almost exclusively on multifamily housing. McKinley bought McKinley Towne Centre, which was essentially vacant at the time, in 2005; and Liberty Square in 2007, when it was also basically empty. The Liberty Square property was redeveloped and vacant land across the street was turned into the Sterling 411 Lofts development for students, according to the release. Berriz said in a statement that the company projects its multifamily portfolio in Florida, Michigan, Illinois, Indiana and Georgia to be close to 20,000 owned units by 2020 and management portfolio to be 5,000 units. Kirk Pinho: (313) 446-0412 Twitter: @kirkpinhoCDB

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OPINION

COMMENTARY

Momentum builds for change on driver fees T here is an effort afoot in Lansing to revisit the wisdom of burdening Michigan motorists with hundreds of millions of dollars in past driving infraction fees that may never be paid off. And it could give lawmakers an opportunity to knock down a barrier to employment and economic mobility while claiming credit for delivering “tax” relief to more than a quarter-million potential voters before the next election. Secretary of State Ruth Johnson said she’s working with Gov. Rick Snyder’s office and a bipartisan group of legislators on options for paring down or possibly eliminating most of the nearly $595 million in Driver Responsibility Fees debt owed by some 317,000 residents. “I think the bulk of the debt that’s owed is simply uncollectible,” Johnson told Crain’s. “Some people will never be able to pay — so they can never drive again. I think we need to acknowledge that and find ways for people to drive.” Former state Rep. Joe Haveman, R-Holland, argued in favor of forgiving most of the debt when lawmakers

CHAD LIVENGOOD clivengood@crain.com

passed his bill phasing out the fees over five years by 2019. “My position was we’re taking from people who can’t afford to pay these fees, and we’re keeping them in perpetual poverty by having this debt hang around their head,” said Haveman, a former chairman of the House Appropriations Committee. But Haveman was overruled by Republican leadership at the time who were concerned about immediately depriving the state budget of a lucrative no-strings-attached source of revenue. At the height of the fees, they filled the state’s general fund coffers with $100 million in annual revenue. This

year, the state expects to collect $62.5 million in new and old Driver Responsibility Fees. “I was talked out of trying to deal with the long-term debt because it was too big of a hill to climb,” Haveman said. But the political hill may be getting easier to ascend as the headache the Granholm-era fees created for drivers shows up in other public policy problems facing lawmakers, such as the high rate of uninsured drivers on the roads each day. In business and political circles, there appears to be some recognition that the old debt has become a burden on economic mobility. Snyder “is open to discussing options to address fines and outstanding fees,” spokeswoman Tanya Baker said. Detroit Mayor Mike Duggan’s Workforce Development Board, a panel of mostly corporate executives, has begun advocating for state policymakers to cut or eliminate the fees, arguing that they’re crimping and increasingly limited labor pool. In 2014, the outstanding debt exceeded $620 million, suggesting

what’s been paid off since may be all the state can reasonably expect to collect, said Kent County District Court Judge William Kelly. “If people had the money, they would have paid the thing off by now,” Kelly said. “But they don’t have the money (and) they keep on driving … and they just get deeper and deeper in debt.” Kelly led the fight to get Driver Responsibility Fees repealed after years of seeing the consequences play out in his Grand Rapids courtroom. The judge said he hears from drivers “just about every day” who can’t get better jobs because their driver’s licenses have been suspended for not paying off the fees tacked onto local fines for traffic fees. Only a federal bankruptcy judge can forgive the fees, Kelly said. “The big problem that remains is this mountain of debt that’s uncollectable,” Kelly said. “They’re throwing good money after bad trying to collect this debt that’s uncollectable.” One proposal floating around Lansing calls for the reinstatement of a community service option to let people volunteer for charities as an alter-

native to writing the state Treasury Department a check. “The outstanding money is just sitting there so those who could pay have probably already paid it,” said state Sen. Morris Hood III, a Detroit Democrat sponsoring a bill reinstating the community service option. Haveman, who is running for the state Senate next year, said lawmakers could consider cutting the fees — which average $1,876 per driver — to a $500 settlement fee or a one-year suspension of their license to get the debt forgiven. As a House member from Oakland County in 2003, Johnson voted against the fees. She contends the fees are nothing more than a “a tax on tickets” that are now restraining upward mobility. “I think it’s really hampering some of our comeback because no license means potential employees are limited to public transportation,” said Johnson, who also is running for the state Senate next year. “It’s really a negative drag on the state’s talent pool.”

pay the highest auto insurance premiums in the country, even moreso the “working poor.” As is typical, the auto insurance industry (which is raking in massive profits) defends this practice as legitimate and relevant. This is like taking the word for it from your loan shark that the high interest rates are barely covering his costs. It’s long past time that laws are based

on a simple concept: Your driving record determines your rate — period. This environment harms people, especially the working poor, and the ability for businesses to acquire the talent needed to operate. It’s long past time to light a fire under our Legislature to correct these practices. They’ve had plenty of time to make this right. James Aiello, Grosse Pointe Woods

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

Detroiters love a party

hat was once a wild idea has now become a tradition. I am convinced that if all the communities involved announced the Woodward Dream Cruise were canceled, at least a million people would show up anyway and sit by the side of the road and enjoy whatever drove by. It has become an important tradition and a vital link with our past. It will continue, and folks will continue to enjoy its history. Meanwhile, another tradition, also decades old, is going to be storming along the Detroit River in a couple of weeks. All you have to do is take a look at some of the history of the Unlimited Hydroplane races, the drivers, the owners and the boats from years ago to get a sense of the heritage. Last year I had the honor to be the grand marshal of the HydroFest, and I am looking forward to this year’s races. And I am pleased that Paul W. Smith will be taking over for me as this year’s grand marshal. I must admit I miss the boats powered by the World War II engines that had a roar that was simply unmatched. Now they use jet engines and powerful car engines and go as fast or faster with a lot more reliability and safety. The HydroFest is one of many

KEITH CRAIN Editor-in-chief

must-attend summer events that we are lucky to have. It starts each year with the IndyCar races out on Belle Isle right after the Indy 500 — and then it’s off to the races. When you stop and realize how many events are taking place during our summer months, you quickly realize what a great boost it is for business in Southeast Michigan. As Detroit continues its rebound, it’s a pleasure to see so much business activity happening right along with all of these events. The HydroFest alone brings in millions of additional dollars to our community that benefits so many businesses all over our area. There is nothing like summer in Detroit for outdoor activities. If it happens to be good for business in Detroit, so much the better.

LETTERS

Time to correct mistakes on car insurance, fees

I have to applaud two articles by Chad Livengood in the Aug. 7 issue (“Old Fines Strand Drivers, Crimp Region’s Workforce” and “How Detroit factory workers get charged more for auto insurance”). Both articles highlight similar indefensible practices regarding driving in Michigan. One deals with the lingering fines

from the hugely unpopular “Driver Responsibility Fee” which in reality was nothing more than a cash grab. It was one of the few laws which imposed onerous fines regardless of whether the driver was found guilty of the infraction. Although enacted in 2003, acts phasing out the fines and fees were not enacted until 2015. Why did it

take 12 years to begin to make this right? What relief should be available to those still paying the onerous fines? The second addresses the disparate practices in auto insurance pricing. Irrelevant factors like job title, education level, renting or owning a home and income are used to determine premiums. Michigan drivers

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St. Joseph Mercy plans $24M cancer center expansion By Jay Greene jgreene@crain.com

St. Joseph Mercy Ann Arbor is planning to expand its 24-year-old comprehensive cancer center in a $24 million project. Groundbreaking for the 25,000square-foot cancer center expansion will begin in September for a planned November 2018 opening. "This new state-of-the-art facility will help cancer patients and their families by combining the very best in prevention, screening, research, treatment and support all in one location," Dave Brooks, president of St. Joseph Mercy Ann Arbor and Livingston hospitals, said in a statement. "This significant care delivery redesign will improve patient experience across all of our west market region of Canton, Brighton, Chelsea and Ann Arbor." The number of cancer patients coming into St. Joseph Mercy Ann Arbor has tripled to more than 3,400 patients last year from when the Robert H. and Judy Dow Alexander Cancer Center opened in 1993, St. Joseph Mercy officials said. The existing two-story cancer center is 44,000 square feet on the west side of the Ann Arbor campus. The project calls for St. Joseph Mercy to renovate the cancer center's lower level with a dedicated conference center and research suite and build out the front with a new two-story glass atrium. The patient-centered project, which was planned using a patient advisory board, will feature the latest medical technologies, treatments and enhanced clinical and support services, officials said. "Over the last 25 years, we've gone from eight to 15 medical and radiation oncology specialists and from three to 28 research staff, as well as added surgical specialists for all tumor types," Phil Stella, M.D., medical director for oncology services with St. Joseph Mercy, said in a statement. The main floor of the cancer center will also be renovated to include an expanded infusion suite with 22 private bays and a view of a serenity garden for patient comfort. Nurse navigators, genetic counselors, dietitians, chaplains, social workers and an onsite pharmacy for chemotherapy services will be located on the main floor. The second floor will feature physician offices. Patient needs and preferences were a top priority in the design that ranged from registration to radiation therapy, chemotherapy, lab and pharmacy services, said Katie Beekman, M.D., medical director for outpatient infusion with St. Joseph Mercy. "We are grateful to our cancer patient advisory board who helped us to design this beautiful new facility with the patient experience as the highest priority," she said in a statement. St. Joseph Mercy is also conducting a $10 million campaign to help pay for the cancer center expansion and fund operations. It has hired architectural firm Harley Ellis Devereaux and Granger Construction for the project. The cancer center expansion is St. Joseph Mercy's first capital project approved for fiscal 2018, which began July 1.

The Ann Arbor hospital is part of St. Joseph Mercy Health System, a five-hospital system with $1.9 billion in annual operating revenue that serves seven counties surrounding Ann Arbor and is part of Livonia-based Trinity Health, a Catholic system in 22 states with 47 hospitals and operating revenue of $15.8 billion. Jay Greene: (313) 446-0325 Twitter: @jaybgreene

Groundbreaking for the 25,000-square-foot cancer center expansion at St. Joseph Mercy Ann Arbor will begin in September for a planned November 2018 opening.

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SECOND STAGE: THE TECH ENTREPRENEUR

T a By

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“We didn’t predict that our revenue model wasn’t going to work.” Jason Teshuba, co-founder and CEO of Mango Languages

It’s not (just) the tech

LARRY PEPLIN

How Southeast Michigan tech entrepreneurs grow and scale their companies By Rachelle Damico

Special to Crain’s Detroit Business

The setbacks technology companies face are rarely related to the technology itself. “The best technology rarely wins, and the person that’s first to market is rarely the most successful,” said Bill Mayer, vice president of entrepreneurial services at Ann Arbor Spark, a nonprofit that focuses on attracting, developing and investing in businesses to help bring job creation to the Ann Arbor region. Mayer said most technology companies that are not meeting their revenue milestones need to work on the kinds of issues that most companies have to address: defining their culture, having a disciplined sales process and managing potential and current customers. “It all comes down to the execution of your business,” Mayer said. “You have to be a really excellent executor and a really excellent person at running a business that’s growing to scale.”

For advice and tips on growing and scaling a successful technology company, Crain’s talked to Southeast Michigan technology companies and technology experts.

1. Work on building your company culture first. The most common pitfalls technology companies experience typically stem from cultural issues, and failing to put proper procedures in place. “It’s building the culture within the organization that allows you to hold people accountable for what they’re tasked with doing, and making sure they’re getting the work done in a way that services the mission of the business,” said Tom Kelly, executive director of Automation Alley. The Troy-based manufacturing and technology business association works with technology companies to help them grow. Kelly said technology companies need to have formal processes in

place that hold everyone in the company accountable for their tasks. For example, Automation Alley has put companies through an assessment that helps them understand how employees perceive the mission of the business and how teams function together. “They need to understand that the culture that they’re building is the most important aspect of the business,” Kelly said. “It leads to good strategy, and that leads to good execution.” Dug Song, CEO of Ann Arbor-based Duo Security Inc., said the Duo team meets bi-weekly to agree on what needs to be done, how they’ll support each other to do it and how they hold themselves accountable. Song co-founded the company with Jon Oberheide in 2010. Duo Security offers a two-factor authentication process to identify who is trying to access a computer or network. Their customers include more than 8,000 companies and organizations in more than 100 countries, includ-

ing Facebook, NASA, Paramount Pictures, Twitter, Etsy and Yelp. The company generated $73 million in annual recurring revenue last year, raised about $49 million in venture capital and has more than doubled revenue for the past four years. “Figure out what kind of team you aspire to be, and how you’ll work together — these become your guiding vision and values,” Song said. “Culture really does eat strategy for breakfast.”

2. Target your customers before capital. Ryan Gourley, director of University of Michigan’s TechArb Student Venture Accelerator, said many technology companies make the mistake of focusing on capital first rather than their customer’s needs. “Know your customer inside and out before you even think about spending money on developing,” Gourley said, who works with student entrepreneurs at the Ann Ar-

Bill Mayer: Tech firms have same issues as other companies.

Ryan Gourley: Know customer before spending money.

bor-based school to help them launch their ventures. Gourley said second stage companies that aren’t generating enough revenue likely have a marketing problem. “Either they don’t understand the market well enough, they’re not a great product-market fit, or they need to go back and discover their customer better by figuring out exactly who their customer is and what they want,” Gourley said. Jason Teshuba, CEO of Mango SEE TECH, PAGE 9

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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 // A U G U S T 2 1 , 2 0 1 7

SPECIAL REPORT: SECOND STAGE

Tech companies: Get creative about recruiting employees By Rachelle Damico

Special to Crain’s Detroit Business

Identifying and retaining talent is a challenge for many technology companies. Software developers, designers and many other roles involved in creating technology are in high demand. Finding talent that fits a company’s culture and values can be even more of a struggle. “It’s not easy to identify through a traditional hiring process for who would be a high-potential candidate, so we focus a lot on the hiring process,” said Paul Glomski, CEO and co-founder of Detroit Labs. The company launched in 2011 after a $250,000 investment from Detroit Venture Partners LLC, the venture capital firm founded by Dan Gilbert, Josh Linkner and Brian Hermelin. Detroit Labs doesn’t release financial information, but the company reported in 2013 that it planned to generate $3.2 million in revenue that year. The company has more than 100 employees; its clients include General Motors Co., Volkswagen and Domino’s Pizza. Glomski said the company does

TECH

CONTINUED FROM PAGE 8

Languages, said the company had to change which customers they were servicing after running out of money the first year the company was founded. “We didn’t predict that our revenue model wasn’t going to work,” Teshuba said. The Farmington Hills-based language development software company offers language learning resources that can be accessed on computers, smartphones and tablets. Teshuba co-founded the company in 2007 with Mike Teshuba, Ryan Whalen and Mike Goulas. Mango employs 62 full-time workers and 30 independent contractors. The company does not share revenue information, but reported $7.9 million in revenue in 2013. Mango Languages launched as a free learning website. The revenue model, Teshuba said, was to sell to third-party advertisers that would benefit from traffic coming in from the company’s website, similar to Facebook or Google. The initial website generated positive buzz quickly, Teshuba said, but once advertisements were showcased on the site, the customers’ sentiment turned negative. “We realized that the advertising model infringed on the learning experience,” he said. The senior sales representative approached Teshuba about phone calls from interested libraries, schools and municipalities. The company abandoned their third-party advertising model and instead started selling business-to-business in 2008. “We discovered that we had a market and we could start developing it,” Teshuba said. Organizations pay Mango for a yearly subscription up front. Their users, such as students or library-go-

“It’s not easy to identify through a traditional hiring process for who would be a high-potential candidate, so we focus a lot on the hiring process.” Paul Glomski, Detroit Labs

not look at resumes but instead has job candidates fill out a “getting to know you” document that helps the company hire based on cultural fit. Detroit Labs then allows all employees to discuss the candidate before they come in for their first interview. Having a more detailed application process, and having more people involved, helps define the very good candidates, Glomski said. “The best people in the field want to work with others who they’re going to learn and grow with, so they’re the best to weigh in on who might be a good fit.” The company also made an effort to invest in education training, including The Detroit Labs Apprenticeship Program, a three-month

paid training program that provides apprentices with hands-on training to gain experience in software creation. “A third of our team members came from that program,” Glomski said. Another practice Glomski said helps retain talent is to stay transparent with employees about what’s going on inside the company, and weighing the positives and negatives of whether or not to take on specific projects or opportunities. “We share a lot of information about the company and get opinions from everybody,” Glomski said. “Not only do they feel better about it, but we usually end up making better decisions as a result.”

“Half of the software we use today, there’s a trial before you have to purchase anything. That was one of the key insights for us.” Dug Song

ers, still have the opportunity to learn for free. Households can also use Mango’s language resources for a monthly fee, with a free two-week trial. Being paid up front allowed Mango to hire more people, including three additional sales people at the end of the year. Mango also assigned a sales team to focus on bringing in new business, as well as a separate team to focus on managing support for its current customers. “Once we started closing sales, the cash flow turned around for the positive significantly,” Teshuba said.

3. Bring in the experts who have specialized skills needed for change. There may come a time when a tech entrepreneur is no longer the right person for the role they’re filling. Mayer said Ann Arbor Spark has seen many successful, growing technology companies realize they need to bring new people into the organization who are skilled at creating processes and managing day-to-day work. “You need to hire someone that can come in and run the organization that’s going to be able to handle $10 million in sales,” Mayer said. “It’s a completely different experience and organization when a company is actively running a whole book of customers.” Mayer said that sometimes, that may mean the co-founder them-

selves transitions from CEO to a different role. “The minority of people can go (from) idea stage, to early stage, to second stage, and remain in the CEO role,” Mayer said. “You have to realize that your company may grow into this living, breathing thing that becomes way more than one person can manage.” Mayer said technology companies should consider hiring a skilled CEO who has experience growing companies. Bringing in the right CEO, Mayer said, can help transition technology companies from $1 million in revenue to $10 million, or from $10 million to $50 million in revenue. “It could be one of the best things that has ever happened to you,” Mayer said. One of the most essential factors to Mango’s growth, Teshuba said, was promoting a project manager the company hired in 2009 to chief financial officer in 2011. (Teshuba had previously assumed the CFO role.) “He keeps everything in perspective, and any time I get a big idea he’s supportive but very careful to make sure we understand the financial trade-offs,” Teshuba said. “When money’s starting to flow, somebody’s got to be really responsible about how it’s coming in and where it’s going, because you can seem like you’re making money and if you’re not watching the profitability you can run yourself under quickly.”

4. Offer product demos. Allowing customers to try your product or service for free provides marketing exposure your company may need. SEE TECH, PAGE 10

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SPECIAL REPORT: SECOND STAGE “If you have a product customers love, when you get to the second version of the product, identify a customer or two that are willing to fund the research and development.” Tom Kelly, Automation Alley

TECH

FROM PAGE 9

Duo Security allows potential customers to engage in a free, 30day trial before buying its service. The service is also free for customers with up to 10 users. “Half of the software we use today, there’s a trial before you have to purchase anything,” Song said. “That was one of the key insights for us.” Song said Duo’s early customers all came from this model, paying for subscriptions after the trial period expired. One of those early customers was Facebook, which used an alias during the trial period. “They already knew the product and wanted to buy it,” Song said. Another way to gain exposure for a technology product or service is to engage potential customers through product demos at networking events or trade shows. “The most effective thing we did was demo the product,” Teshuba said. “You have to put on a good show, and you have to show the software and get people excited about it.”

5. Realize what type of growth is right for you. There are many different ways to go about funding growth. These methods include angel investors, venture capital or bootstrapping the company and growing organically. Technology companies should weigh the risks and rewards of each. Automation Alley consults technology companies to grow organically. Outside capital, Kelly said, isn’t always the best option for a technology company. “Outside capital is very good if you like this high-risk high-reward model,” Kelly said. “It works in a market where you have to gain market share extremely quickly, but for most businesses that exist within Michigan, that’s not the case.” As an alternative, Kelly recommends looking for strategic partners within a company’s customer base to leverage and grow their companies. “If you have a product customers love, when you get to the second version of the product, identify a customer or two that are willing to fund the research and development,” Kelly said. “Maybe the trade-off is they get a royalty-free license on that improvement and you’re free to sell to somebody else.” Even if technology companies want to attract venture capital in the future, the company will still have to prove they’ve grown signifi-

cantly on their own. If they’re successful, outside capital can give companies more resources to fuel their growth. “Ask yourself how you can grow the company faster and bring more customers in faster if money wasn’t the issue,” Mayer said. “What would you do if somebody dropped $5 million in your lap?”

6. Build and grow your network. If you’re a tech entrepreneur, your professional network is vital to your success. Companies should prioritize meet-ups and networking events. Ann Arbor has local networking events, including A2 New Tech Meet-up, where technology entrepreneurs meet monthly to demo and discuss their current projects. The Detroit-based Accelerate Michigan Innovation Competition, a yearly competition held in November, brings technology companies together to compete for a $500,000 prize. It draws investors, seasoned technology companies and others prominent in the technology world. “Go and meet five or 10 people,” Mayer said. “You might not need something now, but 3-6 months from now if you have a problem and don’t know how to solve it, you’ll probably meet someone who can help.”

7. Stay on top of technology trends. Technology companies tend to move faster than traditional companies, so it’s vital that team members are constantly seeking out the latest technology. When Mango Languages was founded, customers engaged with their language software product exclusively on their website. Now, customers are using smartphones and tablets — all of which are being updated constantly. They also have to be built to work with specific platforms or software updates. Mango initially built its platform on Adobe Flash. Now, Teshuba said, it’s using HTML5. “It’s one thing to get the product out to market, but the product has to be constantly maintained,” Teshuba said. “A lot of entrepreneurs want to build the next big (thing), but you also need to maintain what you have.” Automation Alley recommends tasking specific employees to research industry trends. “You are in a business that radically evolves and changes much faster than most other businesses,” Kelly said. “If you’re a technology company, in two years you may not even be selling the product you initially went to market with.”

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CALENDAR TUESDAY, AUG. 22 Filling the Supervisory Gap. 8:3010:30 a.m. Michigan Manufacturing Technology Center. Event discusses effective leadership and bridging the gap between newer and seasoned workforces, senior and junior staff, and front office and plant floor associates. Free, but registration required. Michigan Manufacturing Technology Center, Plymouth. Contact: Gary Marley, email: gmarley@ the-center.org

WEDNESDAY, AUG. 23 Trends Impacting Automation Companies. 8:30-10:30 a.m. Automation Alley. Info session to discuss Industry 4.0 trends, address systems integration challenges and offer solutions to issues impacting the current business climate. Speakers include: Tim Finerty and Sarah Russell, CPA shareholders, Clayton & McKervey. Automation Alley, Troy. Members free; nonmembers $20. Phone: (800) 427-5100; email: events@automationalley.com Executive Briefing: Cybersecurity and Third Party Providers. 8-9:30 a.m. UHY LLP. Norman Comstock, managing director, and David Hartley, principal of UHY Advisors, will lead a discussion. Topics include: What are current trends regarding use of third party partners in technology? What due diligence should you consider when on-boarding a third party service provider? What security requirements should companies expect from a third party service provider? What control responsibilities remain with the company when contracting with a third party service provider? Free. UHY, Sterling Heights. Contact: Chris Clark, phone: (586) 843-2637; email: cclark@uhy-us.com.

UPCOMING EVENTS Navigating Security and Privacy in Next-Gen Mobility. 8:30-10:30 a.m. Aug. 30. University of Michigan-Dearborn. A panel of academic researchers at University of Michigan-Dearborn and industry leaders from Ford Motor Co. will discuss security and privacy challenges, solutions and recommendations in the

next generation of mobility. Topics will include: an overview of the smart mobility trend, security risks and privacy implications in the next generation of mobility era and recent research advances in security and privacy protection. Speakers: Di Ma, associate professor of Computer and Information Science and founder of the Cybersecurity Center for Research, Education and Outreach, University of Michigan-Dearborn; Pramita Mitra, mobility research engineer, Ford Research and Innovation Center; Brahim Medjihed, associate professor of Computer and Information Science, University of Michigan-Dearborn. Automation Alley, Troy. Free members; $20 nonmembers. Phone: (800) 427-5100; email: events@automationalley.com September Economic Development Forum. 8-9:30 a.m. Sept. 13. Troy Chamber of Commerce. Speaker: David Johnson, vice president of Customer Service and Economic Development, DTE Energy, on economic development initiatives. Rehmann, Troy. Free, Troy chamber members; $10 nonmembers. Contact: Jessica Hruska, phone: (248) 641-1606; email: jessica@troychamber.com; website: troychamber.com/ events/september-2017-economic-development-forum/ Washtenaw Economic Club Luncheon. 11:30 a.m.-1:30 p.m. Sept. 14. Washtenaw Economic Club. What will the world look like in five years? Journalist and innovation speaker Leah Hunter draws on her research and background as a corporate innovation consultant for companies like Apple, Pepsi and Cisco. 4800 E. Huron River Drive, Ann Arbor $77.50 nonmember. Phone: (765) 677-5060; email: washtenaweconclub@wccnet.edu; website: washtenaweconclub.org 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.

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CRAIN'S LIST: LARGEST MICHIGAN INFORMATION TECHNOLOGY COMPANIES Ranked by 2016 revenue Rank

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 18 20 21 22 23 24 25

Company Address Phone; website

Top executive(s)

Revenue Revenue ($000,000) ($000,000) 2016 2015 Type of business

Syntel Inc. 525 E. Big Beaver Road, Suite 300, Troy 48083 (248) 619-2800; www.syntelinc.com

Rakesh Khanna, president and CEO; Bharat Desai, chairman

$966.6

$968.6

Logicalis Inc. 2600 S. Telegraph Road, Ste. 200, Bloomfield Hills 48302 (248) 957-5600; www.us.logicalis.com

Sally Brandtneris CFO

726.3

713.5

526.0

528.0

424.0 B

424.0 C

Engineering and design, product life cycle management and product development IT services, proprietary software and knowledge management software systems

331.8

318.3

Staff augmentation, outsourcing and IT and engineering consulting, application development and enablement, relational database design and development, Web design and development

330.0

303.0

Consulting and staff augmentation services, vendor management programs, executive search services, call center technology and a domestic IT development center

313.0

304.0

Global software and technology, engineering simulation, advanced computing, enterprise analytics and product development

267.7 C

330.0 C

Application development and maintenance, business process management, document and content management and project management office services

250.0 C

360.0 D

Mainframe software-dedicated business

221.0

220.0

Service desk; onshore, offshore nearshore IT infrastructure outsourcing; digital; consulting and applications.

210.0

251.0

Mobile application, managed IT and talent management services

203.5

182.5

Global retail marketing consulting with a scientific approach

158.0

152.0

Technology consulting, systems integrator and design and digital strategy

135.3

135.1

Industrial manufacturing group, incorporating fabrication, design, assembly, logistics, transport and information technology

126.0

Information technology and IT-enabled consulting services and business process outsourcing

105.0

99.0

Information technology outsourcing; Digital Transformation; Big Data Analytics; Mobility; Cloud Integration; Software application development leveraging AWS, Azure and Google Cloud

93.1

90.6

Security services: alarm installation and service, guard services, medical monitoring

93.0

95.0

Distributes imaging/printer supplies, develops IT strategies for clients and supports back-end connectivity with XML feeds, EDI integration and an e-commerce platform

93.0

81.0

Global provider of managed cloud services, IT operations and applications hosting.

91.0

65.9

Workforce management platform for large employers with complex needs such as time and attendance, scheduling, absence and leave management and employee fatigue, along with reporting and analytics

85.0

118.2

Cloud-based, connected-vehicle telematics and embedded electronics to OEMs and tier-one suppliers

76.0

70.0

Live event and AV technology experiences

71.8

69.0

Software development, IT services, staffing, VMS/MSP Services, engineering, vendor management, and recruitment process outsourcing

70.0 C

70.0

Business transformation and technology solution provider. We cater primarily to global enterprises in the areas digital, connected solutions, consumer technologies and enterprise integration

68.0

67.5

IT, engineering and professional staffing.

Frederick Minturn MSX International Inc. One Detroit Center, 500 Woodward, 19th Floor, Detroit 48226 president and CEO (248) 829-6300; www.msxi.com Warren Harris Tata Technologies Inc. CEO and managing director 41050 W. 11 Mile Road, Novi 48375-1302 (248) 426-1482; www.tatatechnologies.com Ron Shahani Acro Service Corp. president and CEO 39209 W. Six Mile Road, Suite 250, Livonia 48152 (734) 591-1100; www.acrocorp.com Cynthia Pasky Strategic Staffing Solutions Inc. president and CEO 645 Griswold St., Suite 2900, Detroit 48226 (313) 596-6900; www.strategicstaff.com James Scapa Altair Engineering Inc. chairman and CEO 1820 E. Big Beaver Road, Troy 48083 (248) 614-2400; www.altair.com Madhava Reddy HTC Global Services Inc. president and CEO 3270 W. Big Beaver Road, Troy 48084 (248) 786-2500; www.htcinc.com Chris O'Malley Compuware Corp. CEO 1 Campus Martius, Detroit 48226 (313) 227-7300; www.compuware.com Spencer Gracias Stefanini Inc. CEO 27100 W. 11 Mile Road, Southfield 48034 (248) 357-2866; www.stefanini.com David Segura, CEO; Christine Vision Information Technologies Inc. Rice, president 3031 W. Grand Blvd., Suite 600, Detroit 48202 (877) 768-7222; www.visionit.com James Anderson Urban Science Applications Inc. president, founder and CEO 400 Renaissance Center, Suite 2900, Detroit 48243 (313) 259-9900; www.urbanscience.com Meredith Bronk Open Systems Technologies Inc. (OST) president and CEO 605 Seward NW, Suite 101, Grand Rapids 49504 (616) 574-3500; www.ostusa.com Robert Gruschow Deshler Group Inc. president, CEO 34450 Industrial Road, Livonia 48150 (734) 525-9100; www.deshlergroup.com Radhakrishnan Gurusamy Technosoft Corp. chairman and CEO 1 Towne Square, Southfield 48076 (248) 603-2600; www.technosoftcorp.com Anup Popat Systems Technology Group (STG) chairman and CEO 3001 W. Big Beaver Road, Suite 500, Troy 48084 (248) 643-9010; www.stgit.com David Goldstein Guardian Alarm Co. CEO 20800 Southfield Road, Southfield 48075 (248) 423-1000; www.guardianalarm.com Joseph Hollenshead Diversified Computer Supplies Inc. chairman, president and CEO 4435 Concourse Drive, Ann Arbor 48108 (800) 766-5400; www.dcsbiz.com Mike Jennings Secure-24 LLC CEO 26955 Northwestern Hwy., Southfield 48033 (800) 332-0076; secure-24.com Mike Morini WorkForce Software LLC CEO 38705 Seven Mile Road, Livonia 48152 (877) 493-6723; www.workforcesoftware.com Raju Dandu Danlaw Inc. founder and chairman 41131 Vincenti Court, Novi 48375 (248) 476-5571; www.danlawinc.com Suzanne Schoeneberger BlueWater Technologies Group Inc. president 24050 Northwestern Highway, Southfield 48075 (248) 356-4399; www.bluewatertech.com Nanua Singh Rapid Global Business Solutions Inc. (RGBSI) chairman and CEO 1200 Stephenson Highway, Troy 48083 (248) 589-1135; www.rgbsi.com Tim Manney Altimetrik Corp. president and CFO 1000 Town Center, Suite 700, Southfield 48075 (800) 799-9625; www.altimetrik.com Jerome Sheppard, CEO; Josie Epitec Inc. Sheppard, president 24800 Denso Drive, Suite 150, Southfield 48033 (248) 353-6800; www.epitec.com

IT outsourcing, knowledge process outsourcing, application development and management, e-business services, architecture consulting and support, IT infrastructure management, cloud computing, data warehousing and business intelligence, application testing, other International provider of integrated information and communications technology systems and services Business process outsourcing service provider for global automotive retail segments and human capital managed service provider

This list of leading computer companies is an approximate compilation of the largest such companies in Michigan that research, design, manufacture or invent equipment or software, plus companies that provide sophisticated computer services such as systems design, programming and information retrieval. It is not a complete listing but the most comprehensive available. Companies based elsewhere are listed with the address and top executive of their main Michigan office. Unless noted, the companies provided the information. Crain's estimates are based on industry analyses and benchmarks, news reports and a wide range of other sources. Actual revenue figures may vary. NA = not available. ProQuest LLC and RevSpring Inc., which Crain's believes would rank highly on this list, declined to report their revenue. Tweddle Group Inc., HCL Global Systems Inc. and FutureNet Group Inc. were unable to report their revenue by deadline. Netech Corp is no longer on this because they were acquired by New York-based Presidio Inc.

B Company estimate. C Crain's estimate. D Crain's estimate. Compuware was acquired by Chicago-based private equity firm Thoma Bravo LLC on Dec. 8, 2014. Compuware sold or divested pieces of the business throughout 2014 and is now a mainframe software-dedicated business. LIST RESEARCHED BY SONYA D. HILL

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34 employers sue Blue Cross over ‘hidden’ fees “These lawsuits date back from issues from more than 20 years ago and they predate many of us at Blue Cross.”

By Chad Livengood clivengood@crain.com

Thirty-three Michigan businesses and Hillsdale College have sued Blue Cross Blue Shield of Michigan in federal court, joining a litany of companies that have accused the health insurance giant of skimming “hidden” administrative fees from their self-funded health plans. Southfield-based Lear Corp., Auburn Hills-based Gardner White Furniture Co. Inc. and Dearborn-based Auto Club Insurance Association (AAA) are among the 33 companies that have filed nearly identical lawsuits in U.S. District Court in the eastern district of Michigan claiming Blue Cross engaged in a “hidden fee scheme” for years. The lawsuits, filed Aug. 9-11, allege the Detroit-based health insurer “skimmed additional administrative fees” from self-funded insurance pools it administered for the companies dating back to 1994. “These lawsuits date back from issues from more than 20 years ago and they predate many of us at Blue Cross,” BCBSM spokeswoman Helen Stojic said last week. The plaintiffs are pursuing repayment from Blue Cross using an earlier $6 million judgment awarded to Litchfield-based auto supplier Hi-Lex Controls Inc. in a case that went to trial in 2013. U.S. District Judge Victoria Roberts ruled in May 2013 that Blue Cross concealed five different fees in billing statements by tacking them onto hospital charges and not disclosing the fees to Hi-Lex. Most of the new lawsuits were filed last week by attorneys at Varnum LLP who handled the Hi-Lex case and have assisted dozens of companies in trying to recoup money from Blue Cross, said Perrin Rynders, a partner at the Grand Rapids-based law firm. Roberts’ ruling was upheld a year later by the 6th Circuit U.S. Court of Appeals, allowing more lawsuits to be filed against Blue Cross over its past administrative fees and billing practices. The latest lawsuits were filed this month because one judge indicated there may be a Aug. 12, 2017, statute of limitations to pursue legal recourse

Helen Stojic, BCBSM

when the state Court of Appeals judges overturned lower court judgments over the fees brought by local governments. Those plaintiffs included Cass, Midland and Tuscola counties, the city of Saginaw and the Genesee County Road Commission. Stojic said she couldn’t comment on the allegations in the complaints because Blue Cross has not yet been formally served with the lawsuits. “We are, of course, disappointed when parties go to court because we prefer to resolve these matters by working with customers,” Stojic said. “That’s really been our position all along with these lawsuits.” Thirty-three Michigan businesses and Hillsdale College have sued Blue Cross Blue Shield of Michigan in federal court.

against Blue Cross, Rynders said. “However, we do not believe the statute of limitations has expired,” Rynders said Tuesday in an email to Crain’s. “We will continue to help victims recover the overcharges, and we are confident any future attempts by BCBSM to avoid responsibility using a statute of limitations technicality will be as unsuccessful as all the rest.” Rynders said his law firm has represented nearly 200 companies that were charged “secret” fees by Blue Cross, which controls 70 percent of Michigan’s private health insurance market. “Some companies went out of business, so they aren’t around anymore to recover what they lost,” Rynders said. “Others can’t believe they could be the victims of such a comprehensive scheme and have looked the other way. Some, I’m sure, heard about what we’re doing and used their brokers to cut a deal with BCBSM, which I’m sure was a poor decision.” Varnum attorneys began pursuing federal lawsuits over fees for corporate clients against Blue Cross after 2011,

Companies suing BCBSM JJAAA (Auto Club Insurance Association)

JJN-K Manufacturing Technologies LLC

JJAjax Paving Industries Inc.

JJOakland Stamping LLC

JJAnchor Lamina America Inc.

JJOptimal Computer Aided Engineering Inc.

JJArtiflex Manufacturing LLC

JJPhillips Service Industries Inc.

JJAutocam Corp.

JJPlastomer Corp.

JJDecorative Panels International Inc. in Toledo

JJRhema Holdings LLC

JJDelta Faucet Co. JJDura Automotive Systems LLC

JJRitsema Associates JJRoss Education LLC

JJFuel Systems Inc.

JJUnified Brands Inc. (Randell Manufacturing Inc.)

JJGardner White Furniture Co. Inc.

JJU.S. Xchange LLC

JJGeneral Die Casting Co.

JJThyssenKrupp Materials NA Inc.

JJHealthsource Saginaw Inc.

JJTrans-Matic Manufacturing Co.

JJHillsdale College

JJTI Group Automotive Systems LLC

JJHusky Envelope Products Inc.

JJW & P Management LLC

JJImlach Movers Inc.

JJWendricks Truss Inc.

JJLear Corp.

JJWilliams Chevrolet Inc.

JJL.E. Jones Co. LLC

Sources: U.S. District Court Eastern District of Michigan and Crain’s research

JJMayco International LLC

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

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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 // A U G U S T 2 1 , 2 0 1 7

Developers, including Gilbert, ask about incentive By Lindsay VanHulle

Crain’s Detroit Business/Bridge Magazine

LANSING — Developers have started inquiring about Michigan’s new sweetened brownfield tax incentive, sometimes known as the “Gilbert bill,” but nobody has applied for one yet, state officials say. The law quietly took effect last month, lost amid Foxconn frenzy that reached a fever pitch with the Taiwanese electronics giant’s decision to build a $10 billion factory in Wisconsin. Real estate developers eager to use the sales and income tax capture to finance large, mixed-use projects on contaminated sites haven’t formally applied yet, according to the Michigan Economic Development Corp., which runs the program. But they are taking note. In Detroit, billionaire real estate magnate Dan Gilbert’s Rock Ventures considers the incentive “essential” to the company’s plans to redevelop the former J.L. Hudson’s downtown department store into a proposed $775 million, 52-story building, along with a two-block redevelopment east of Campus Martius Park known as Monroe Block and restoration of the Book Tower and adjacent Book Building. “We are also evaluating related projects as part of our transformational investment program,” company spokeswoman Whitney Eichinger said via email. “Our goal is to move through the process over the next several months, as we are eager to break

ROCK VENTURES

A rendering of the plan by Dan Gilbert’s Rock Ventures to redevelop the former J.L. Hudson’s downtown department store site.

ground on these projects and put cranes in the air and shovels in the ground as soon as possible.” Michigan’s “transformational” brownfield incentive went live July 24 — two days before Gov. Rick Snyder signed into law an income tax with-

holding incentive designed to lure hundreds of thousands of new jobs to the state and Foxconn Technology Group touted its Wisconsin plans at the White House with President Donald Trump. The enhanced brownfield subsidy

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— backed by Gilbert and a coalition of real estate developers, economic development agencies and municipal leaders from across the state — is designed to help close the financial gap between the cost of construction and what market rents can command, given that it is more expensive to build on contaminated or blighted property. Opponents have said the incentive pads the pockets of rich developers and puts Michigan at financial risk, similar to the defunct Michigan Economic Growth Authority program that has the state on the hook for billions of dollars in obligated tax credit payouts. Snyder signed the brownfield incentive in early June inside a vacant building in downtown Saginaw. The incentive would allow a developer to be exempt from paying sales and use taxes during construction, and to capture income taxes during construction and income and withholding taxes of the new tenants and employees living and working inside the buildings once completed. Captured taxes can be used to offset the cost of infrastructure work and removal of contaminants such as lead and asbestos, as well as for demolition, renovation or construction. Developers will be required to put up their own financing to qualify for a transformational brownfield incentive, ranging from $15 million in communities with fewer than 25,000 people to $500 million in Detroit. That can be waived in the smallest communities if the project would not otherwise be financially viable, in municipalities facing an emergency due to drinking water contamination and for historic properties that wouldn’t otherwise be restored, according to MEDC guidelines. The first incentive award might not show up on a Michigan Strategic Fund board agenda until the first quarter of 2018, said Greg Tedder, the MEDC’s executive vice president and chief community development and marketing officer. Yet, he added, there has been talk that one or more developers might try to get a project ready by the end of the year. Gilbert and his Rock Ventures parent company have said the brownfield subsidy could unlock at least $2 billion from his team alone. It’s not yet known what Rock’s Book Tower or Monroe Block projects might cost. The Monroe Block project would include the historic National Theatre building and two new office and residential towers bounded by Randolph Street, Bates Street, Cadillac Square and Monroe Avenue. The city is scheduled to hold a meeting this month to discuss a community benefits agreement for the Monroe Block and Book Tower projects. Tedder, with the MEDC, said the agency has had “preliminary discussions” about the brownfield subsidy with Gilbert’s team, as well as with developers and municipal leaders from across the state. A project will not qualify for any other Michigan Strategic Fund incentive if it receives a transformational brownfield incentive, guidelines show. Likewise, projects that can work with another type of state financing will not qualify for a transformational brownfield incentive. “There’s not going to be any double dipping,” Tedder said. Crain’s reporter Kirk Pinho contributed to this report.

SPOTLIGHT Meridian appoints Jon Cotton president Jon Cotton has taken a step up the executive ranks with his promotion to corporate president of Meridian, a Detroit-based health plan that is the Michigan's largest Medicaid HMO with Jon Cotton 515,00 members. The promotion is effective Sept. 4. Cotton, 39, is one of several members of the family that owns Meridian, founded by his father, David Cotton, M.D., and his mother, Shery, in 1997. David Cotton will continue as CEO and chairman of Meridian. Since 2012, Jon Cotton has been president of MeridianHealth of Michigan. Sean Kendall, Merdian's senior vice president of business development who has been with the company since 2008, will succeed Jon Cotton.

Former state GOP chair to help lead MSU training program Michigan State University has named former state Republican party chair Susy Avery as co-director of the Michigan Political Leadership Program. The fellowship program funds training Susy Avery in governance, campaigning and public policy for 24 selected applicants each year. Avery, 69, retired a year ago as executive director of the Michigan Women’s Commission under Gov. Rick Snyder. Avery replaces Anne Mervenne, the program's longest-serving co-director at 20 years. Mervenne will finish out the current session, while Avery starts work on selecting the class of 2018.

Guest House names president and CEO Lake Orion-based Guest House Inc. named Jeff Henrich its new president and CEO. He replaces Robert Koval, who stepped down after his threeyear contract ended. Henrich brings more Jeff Henrich than 25 years of clinical experience to the addiction treatment nonprofit, a news release said. Henrich is former executive director of the Guest House Men's Program in Rochester, Minn., where he served 2011-14. Henrich earned an economics degree from Macalester College and a master's in counseling from Saint Mary's University of Minnesota.

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15 August 21, 2017

Detroit ramps up commercial demolitions By Chad Livengood clivengood@crain.com

A pile of rubble from a party store on Mt. Elliott Street that burned down nearly a year ago was cleared last week by a city contractor — a small step in Detroit’s citywide battle with commercial blight. Crain’s highlighted the former Motor City Party Store at 5471 Mt. Elliott St. in a July 10 front page article about the slow pace of removing blighted commercial buildings from the city’s landscape. City officials issued an emergency demolition permit last month after the Crain’s article was published. On Wednesday, DMC Consultants Inc. hauled off the 98-year-old building’s charred debris and Thursday morning an excavator was digging out the block basement for a demolition job that city records show cost $19,150. The former party store at the corner of Mt. Elliott and Perry streets burned down last September after the property was seized by Wayne County in foreclosure for unpaid taxes by the previous owner, who told Crain’s he walked away after the building had been stripped of its metal by vandals. City officials began taking action on the building after Crain’s inquired about why the site had not been cleaned up given that it’s on a busy street connecting the Gratiot, Warren and Grand Boulevard corridors on the city’s east side. “Something like that to me on a main street should get more attention than something that’s kind of hidden,” said Jim LaHaie, president of W.C. DuComb Co. Inc., a distributor of bearing and power transmission products that is located down the street from the burned-down party store. LaHaie has worked at W.C. DuComb for 35 years on Mt. Elliott, watching the neighboring Packard plant and other nearby abandoned industrial and commercial buildings gradually decay. W.C. DuComb has operated on Mt. Elliott since the mid-1920s, supplying bearing and transmission parts for machine tool and conveyor belt builders. The 18-employee company recently spent $20,000 for “cosmetic” improvements to its buildings and property, LaHaie said. “I guess I’ve kind of gotten hardened to it. I don’t like it,” LaHaie said of commercial blight in the Poletown East neighborhood. “There’s not a whole lot I can do about it except maintain my property and keep it in tip-top shape.” LaHaie had passed by the burned down party store on a daily basis, wondering for months why no one at City Hall had moved to clean up the pile of burned walls and roof that had collapsed on top of an exposed basement just a few feet from the street. “Not only is it a eyesore, it certainly has to be a safety hazard,” LaHaie said. “People still live in nearby houses and those kids play in the streets and they have to go to school.” Even as Detroit has torn down more than 12,000 blighted houses over the past four years, removing abandoned commercial structures that are beyond repair has proved to be a more taxing challenge. Commercial buildings are bigger,

CHAD LIVENGOOD/CRAIN’S DETROIT BUSINESS

Above, rubble from a burned-down party store that was part of a July Crain’s report on languishing blighted commercial buildings in Detroit. Below, an excavator operator from DMC Consultants Inc. removes blocks from the basement of the store last Thursday as part of a $19,150 emergency demolition.

contracting process that required each demolition to get approval of City Council and the Detroit Financial Review Commission. LaHaie said he understands Detroit has financial restraints that limit the number of demolitions. But he’d like to see quicker action to obvious safety hazards. He noted the old party store’s orig-

inal brick chimney was still standing for the past year while the rest of the building’s remains laid next to the street. “I’m surprised nobody pushed it over,” LaHaie said of the chimney. “That was dangerous.”

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more costly to raze and, unlike residential demolitions, Detroit can’t use federal funds to tear them down. Detroit’s May 2014 blight task force report said there are more than 5,400 blighted commercial structures in the city, 83 percent of which were privately owned at the time. Mayor Mike Duggan, who faces re-election this year, told Crain’s in a May 31 interview that the city would soon ramp up its demolition of abandoned commercial buildings and double the number of annual demolitions. “We’ve been taking out 150 a year, and we’re going to double that to 300 a year,” Duggan told Crain’s. As of Wednesday, 67 commercial

buildings have been demolished this calendar year, according to city data. The Duggan administration is now promising to top 160 commercial demolitions by year’s end or early January. Duggan spokesman John Roach said last week that 97 commercial demolitions were at various stages in the pipeline, with 18 buildings ready to be torn down. Other planned demolitions are working their way through the bidding and contract approval process, which has been scrutinized by auditors in the residential demolition program. City officials have acknowledged the commercial demolitions were slowed in 2016 by changes to the

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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 // A U G U S T 2 1 , 2 0 1 7

PACE

Garfield medical office project

FROM PAGE 3

Liebler purchased the 123-yearold former residence of lumber baron David Whitney in 2007 because he wanted to preserve one of Detroit’s classic old buildings and keep it open as a public space, he said. But an old building means upgrades and repairs — expensive ones — and Liebler needed a way to pay for it. Each year, he spent an average of $100,000 on operations and maintenance for the mansion. “We knew we couldn’t afford it with traditional bank financing,” said Liebler, a former vice president with Chrysler Corp. who also runs a public relations firm on the third floor of the restaurant with his son Patrick. PACE offered a way past that. Liebler’s $863,000 PACE loan through Austin, Texas-based Petros PACE Finance will pay for a more efficient heating and cooling system, more efficient 1,600 LED chandelier light bulbs, 214 new storm windows, new building controls and kitchen equipment. James Newman, CEO of Farmington Hills-based Newman Consulting Group LLC, crunched the numbers for both The Whitney and Garfield, projects he helped coordinate with Levin. The savings, he said, looked good. The Whitney spends each year an average $95,000 in electricity and $25,000 in natural gas for a total of $115,000, Newman said. After the improvements, he projected $86,000 in annual utility costs, a 25 percent savings. But on top of those expenses The Whitney spends $100,00 a year on maintenance for mechanical systems, he said. Over 20 years, Newman projected, The Whitney would save about $450,000. “I told Bud that, and he just smiled,” Newman said.

History and challenge Newman said one of the challenges of The Whitney is that when it was converted into a restaurant in a $3 million renovation in 1986 by Dick Kughn, the building had no air conditioning. Newman recalled he was the engineer at the time who installed some 30 heat pumps with vents and return grills in the ceilings so no one would notice. “Those systems last about 30 years

Part of The Whitney’s PACE loan is paying for a more efficient heating and cooling system.

THE WHITNEY

Businesses see advantages of PACE

One trick for The Whitney was replacing 1,600 chandelier light bulbs with energy-efficient LEDs without changing the mansion’s ambience.

with decent maintenance but they were not maintained very well, so they were in bad shape,” Newman said. “We ended up installing 24 new heat pumps (for Liebler) and also three gas-fired heating units to warm the outside air in the winter to cut down on the load” for the heat pumps and to increase cost savings. After the work is done later this year, the 21,000-square-foot, 52-room mansion with hand-carved woodwork, Tiffany windows, 21 fireplaces and period wallpapers and furnishings will not look appreciably different to dining customers, Newman said.

Liebler said he was a little concerned at first about how the change in lighting would change the atmosphere of the restaurant. He said people come to The Whitney for its ambiance and don’t want sterile, bright lights. “We want to make the old as good as you can get” and get great energy-efficiency and cost savings, he said. With the changes, Liebler said he believes customers will continue to enjoy The Whitney because of its reputation and its history — and its menu and top chefs.

Besides The Whitney and the 20,000-square-foot Garfield Metro medical office building, other recent PACE projects include ones at Delta Business Center in Lansing and Powers Distributing Inc. in Orion Township. Levin said PACE projects have great value to owners and tenants, but they require specialized lenders. Local banks haven’t developed expertise yet, he said. “Every bank does commercial loans and every business has relationships. But nobody (commercial bank) is knocking down your doors to get you to do” a PACE loan. But Levin said he believes Michigan is on the verge of exploding in PACE. “There are $450 million in PACE projects in the U.S., and our pipeline is $90 million in potential projects, with more than $30 million in up to four projects in Southeast Michigan,” Levin said. Wayne County Executive Warren Evans said he hopes The Whitney project will encourage other businesses to do similar improvements. “It has great potential to keep in good shape old historic buildings that are part of the beauty of this county,” Evans said.

Matthew Peleman, who manages the Garfield building in Clinton Township for his parents, said the $249,000 PACE project that begins later this month will include energy-efficient LED lighting, high-efficiency heating and cooling systems and system controls. “Our HVAC and lighting systems are 30 years old and to replace it is a huge cost for a family-owned building,” said Peleman, whose father Rene Peleman is a gastroenterologist whose office occupies about 20 percent of the 20,000-square-foot building. Peleman said last year the family explored bank financing and found it unaffordable. Garfield’s 20-year PACE payments will total $475,000, but utility savings are expected to be $733,000 over that period. Another advantage Peleman cited is the ability for him as landlord to market the Garfield building as modern and energy-efficient. He said he hopes to increase occupancy from about 60 percent now to as much as 90 percent. “One thing PACE does is solvethe split-incentive problem, a huge issue in American business,” Levin said. “One person owns the building, but the tenant pays for utility bills.” Peleman said marketing the Garfield building is another factor that drew the family to the PACE deal. “Everybody wants an energy efficient building. It is a huge draw with low energy costs,” he said. “Most of the buildings in the area are older. We can be more competitive in a competitive market.” For the Garfield project, BASS Controls and Bumler Mechanical worked with the Newman to develop the project. BlueColt Lighting provided the lighting, Newman said. Contractors for The Whitney included Carter Mechanical, Dustmen Electric, Kelly Windows, Midwest Illumination, W.J. O’Neil for controls and Daikin for heat pumps. Jay Greene: (313) 446-0325 Twitter: @jaybgreene

Wayne State officials blast leadership of University Pediatricians group By Jay Greene jgreene@crain.com

Top officials for Wayne State University met with about 50 faculty members of the medical school’s pediatric department Thursday to lay out dire consequences if the 170-physician University Pediatricians, the medical school’s quasi-independent pediatric practice group, doesn’t adhere to its affiliation agreement with the university. Wayne State President M. Roy Wilson, M.D., told the pediatricians they had a choice to make: Do you want to remain part of a university, or do you want to be in a private medical group practice? "Roy spoke to his history of working with organizations and for him, as a university president, (a teaching contract signed last fall by University Pediatricians was) subverted by the practice plan and Tenet," said David Hefner, WSU's vice president of health affairs. The meeting is emblematic of a

growing rift between Wayne State and the pediatrics affiliate over money and control of the practice group. Many of the pediatricians provide services at the Detroit Medical Center’s Children’s Hospital of Michigan, owned by Tenet Healthcare Corp., a Dallas-based investor-owned chain with 77 hospitals in the U.S. One of the big issues in the dispute is whether the practice can sign a teaching contract with DMC under its Wayne State affiliation agreement. Hefner briefed Crain's about the meeting in which he, Wilson and Jack Sobel, M.D., dean of the medical school, spoke for 75 minutes about an ongoing dispute Wayne State is having with University Pediatricians, which includes the faculty of the university pediatric department and services Children's Hospital. Hefner said Wilson told the pediatricians that the teaching contract and related financial issues represens "an existential threat to the university." Bill Horton, an attorney who rep-

resents UP with Giarmarco Mullins & Horton P.C. in Troy, said he was aware of the WSU pediatric meeting. In May, UP filed a lawsuit against Wayne State to ask a judge to clarify the rights UP believes it has established in previous contracts, including the right to sign a teaching contract with DMC. "We believe (a 2008) affiliation agreement (with WSU medical school) granted us the right to sign the contract" with DMC Children's Hospital, Horton told Crain's. Earlier this year, three WSU pediatricians sued UP, alleging, in part, that UP "is not an independent private practice. We are a university faculty practice. ... We witnessed flagrant violations of our bylaws and university rules and polices." Both lawsuits involve multiple issues that are expected to clarify how independent UP is from the university. But Hefner said the purpose of the pediatric department meeting was to inform faculty members about key is-

sues that are coming to a head in the next month. He said Wayne State officials don't believe UP pediatricians have been given full information from their board about the dispute. "Our intention was to educate our faculty about the things that are happening," Hefner said. First, Hefner said, Wayne State presented the board of UP an updated salary reimbursement agreement on July 20 for them to sign. Under the agreement, Wayne State pays pediatrician faculty salaries and benefits, and UP reimburses Wayne State for its clinical services share of the paychecks. For efficiency, Hefner said, Wayne State cuts a single paycheck to faculty that covers physicians’ clinical, teaching and education payments. Horton said UP has refused to sign WSU's new salary reimbursement agreement for several reasons. First, he said, UP could not confirm that Wayne State's other 16 clinical groups also had signed it. Second, the previous agreement was a one-page docu-

ment and UP was presented with a 25page document. "There were many unrelated items," Horton said. "We told them we would sign a one-page document we have used for a decade." Hefner said a one-page document "no longer suffices in this world. We put normal business terms and conditions in there," said Hefner, who acknowledged that one of the provisions asked UP to abide by the dean's guidelines for participation as a clinical group. Horton acknowledged UP is withholding $5 million in payments to WSU related to the salary reimbursement agreement. Wayne State set an Aug. 15 deadline for the salary reimbursement agreement. "We have offered to (pay) that," Horton said, "But there is insistence (by WSU) that UP make all payments and no agreement in response to cut loose other money (owed UP) by Wayne State.” DMC declined a request for comment on the WSU meeting.

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

ARTS

“Our landlord has been good to us, so I’m hoping to mitigate whatever increase there may be,” he said. Not all small arts groups are worried. N’namdi Center for Contemporary Art in Midtown owns its building. Founder George N’namdi views the $32 million Sugar Hill project, with apartments, retail and a parking deck, set to be constructed nearby as a positive. It will bring more residents and shoppers to the area, “and it’s filling up a vacant lot, which is important, too,” he said.

FROM PAGE 1

However, “in vibrant cities around the country, the arts, both large and small, are a major economic driver,” contributing to both local and out-ofstate tourism, Brody said. “We see that around the country and believe Detroit should follow.” Small community arts and cultural groups are often where families and children first connect with the arts. They help foster local artistic talent and serve as a place for arts professionals to begin their careers before moving on to larger institutions, Brody said. Locating near other arts groups can help make the smallest in the sector a destination, she said, pointing to galleries that cluster in major cities. “When businesses of any kind are close to one another, consumers will explore, thus they can learn about other shows and exhibits and will be encouraged to attend more events at a given time.”

In search of space Downtown nonprofits like the Michigan Opera Theatre and the YMCA of Metropolitan Detroit have welcomed small arts groups in, offering them shared rehearsal, performance and exhibition space. And Music Hall Center for the Performing Arts is trying to gain support for a $25 million plan for a performing arts center that would be built next to its building. Music Hall President and Arts Director Vincent Paul hired a lobbyist last year and met this July with Michigan congresspeople. It’s seeking $1.2 million to $2 million in federal money to start the project.

The PuppetArt story When PuppetArt Center moved into its Grand River building 19 years ago, the shuttered Hudson’s across the street still stood. The fenced property was an eyesore, and the stale smell coming from the department store’s basement was strong even from across the street, PuppetArt’s co-founder and artistic director Igor Gozman recalls. But the fledgling nonprofit opened its doors there anyway, content with having found a place downtown. Gozman felt it was natural for PuppetArt to locate near larger cultural institutions. Today, the Hudson’s building is long gone. But orange barrels block PuppetArt’s display windows and pedestrian traffic, Grand River sees partial closures, and parking in the area can hit $20 to $40, dwarfing the price of a $10 or $15 ticket to a puppet show. PuppetArt decided to move when it realized how difficult it was for the audience to get to the theater, Gozman said. But it hopes to come back downtown someday. “Downtown is a puzzle composed of many pieces,” Gozman said. “If there is

PUPPETART

“When children go to see puppet theater, that’s where their interest in the arts begins,” said PuppetArt co-founder Igor Gozman.

no children’s puppet theater, the picture is not complete. ... When children go to see puppet theater, that’s where their interest in the arts begins.”

A program in transition The Carr Center operated just a short walk away from PuppetArt until late last May, when it was evicted from the Harmonie Club building it had called home for eight years. The center, which hosts African and African-American and other diverse arts programs, lost a bid to buy the building after falling two years’ behind on its rent. It was allowed to stay until the Detroit Economic Growth Corp. sold the building last summer to developers planning to convert it into a boutique hotel in the

SALE

FROM PAGE 1

“This will be an important transaction in that others will point to it when they are trying to sell a value-add property to say, ‘Yes, you can be successful here; you can buy this, put your expertise to work to lease it up, sell it and it will work out,’” said Jeffrey Shell, executive vice president of Los Angeles-based CBRE Inc.’s Corporate Capital Markets group in Grosse Pointe, who sold the building to Gutman along with Amie Sweeney, vice president in the same group. One Oakland County office expert was quick to praise the sale and property. “Total home run,” said Matt Farrell, CEO of the Bingham Farmsbased real estate company Core Partners LLC. “It’s a phenomenal piece of brick and mortar on Big Beaver, a truly Class A property with significant amenities and service with a covered garage, cafeteria. You couldn’t reproduce that building today for anything less than $250 a square foot, plus. From that aspect, it looks like a strong buy for those looking to put capital and liquidity in brick and mortar.”

Jeff Shell: Deal bodes well for Troy, other areas.

Amie Sweeney: Still a gap despite high sale prices.

Dennis Bernard, president of Southfield-based Bernard Financial Group, said the deal will help attract money from the coasts and internationally to the market. “You’re gonna see New York money and, a lot of times, that New York money is representing international money,” he said. “It bodes well not just for Troy, but other areas, whether it’s the Detroit CBD, Southfield or the I-275 corridor.” One of the reasons out-of-state investors are looking in Detroit and in other “interior” markets is because of declining capitalization rates, a measure of investment return, in other major cities along the coasts, said Barry Swatsenbarg, senior vice president of investment and loan sale advisory in the Southfield office of Col-

new Paradise Valley Entertainment and Cultural District. When the center closed, it also affected about 30 other arts groups that had used the Carr Center building to create art, exhibit, rehearse and perform. It’s now operating from low-cost locations in Midtown, southwest Detroit and Bloomfield Hills while it works to stabilize its finances and plan for a new home. “In the situation we’re in now ... it’s a little bit more challenging to be able to accommodate (arts groups),” said Carr Center President Oliver Ragsdale Jr. Over in the Midtown Cultural Center, Detroit Artists Market is approaching the end of its three-year lease, Executive Director Matt Fry said. It will begin talking with its landlord about a new lease early next year. liers International Inc. “The yield that investors are receiving from acquisitions in coastal markets that have been highly sought after has been compressed. Therefore, if they are trying to fulfill similar yields or returns, they start expanding their geographic footprint,” he said. Since 2013, no other office building in Wayne, Oakland or Macomb counties larger than 200,000 square feet has sold for as much per square foot, according to data from CoStar Group Inc., a Washington, D.C.based real estate information service. However, last year, Southfield-based Redico LLC paid $166 per square foot ($81.5 million) for the 491,000-square-foot 150 West Jefferson skyscraper downtown. “I would say that as big as $175 per square foot is to locals, it still represents a very wide gap between that sale comp and replacement cost, whereas in other markets, that gap is either closing or it’s gone,” Sweeney said.

Towering over Other large, well-known Oakland County office properties have sold to New York investors in recent years, but nowhere near the price per

The culture puzzle How do small arts and cultural groups fit into Detroit’s revitalization from the city’s perspective? For the most part, those groups have been incubated in the city’s neighborhoods, from the Heidelberg Project on the city’s east side to Artist Village Detroit on the northwest side, said Detroit planning director Maurice Cox. “A lot of my sense of where the planning department can be of most value to the cultural community is partnering in the neighborhood frameworks we are developing right now,” he said. Downtown, developers are the likely drivers of partnerships with small arts organizations, he said. Those partnerships are already forming. Bedrock LLC said last week that it’s making its 1505 Woodward Avenue building at Clifford available to the Carr Center at cost until a permanent tenant signs on for that space, square foot paid by Gutman. Travelers Towers I and Travelers Towers II in Southfield sold in 2013 for $25.1 million to New York Citybased Time Equities Inc. when the buildings totaling 790,000 square feet were only about half full. Francis Greenburger, chairman of the company, said they are now 80 to 85 percent occupied. But Time holds property for the long-term and has no intention of selling any time soon. Greenburger said his company has spent at least what it paid for the property on improvements in the last four years. “We find suburban Detroit to be a favorable market,” he said, noting that his company has warehouse, industrial and retail property across the region. It just closed on a $23.5 million purchase of the Clinton Valley Mall Shopping Center in Sterling Heights from Farmington Hillsbased Ramco-Gershenson Properties Trust (NYSE: RPT). But other institutional investors still view Detroit and its suburbs with a leary eye, Greenburger said. “The market is known for cyclicality and obviously when Detroit itself was going through its fiscal problems, that was a negative. Between market cyclicality and its reputational challenges, it’s still challenging to this day in terms

said Bedrock senior communications manager Gabrielle Poshadlo. The high-profile site, located across from the John Varvatos menswear store, recently hosted the “Still Searching” exhibition of Detroit artist Charles McGee, who painted the “Unity” mural on the exterior of the 28 Grand Building in Detroit’s Capitol Park. In addition, Bedrock and the Carr Center have just begun talking about a permanent location, Poshadlo said. Bedrock’s 52-story skyscraper planned for the former Hudson’s site and a Monroe Block project near Campus Martius will also include arts and culture. Whether that will include operating space for local arts and culture groups and artists hasn’t yet been determined, Poshadlo said. Another developer, The Platform LLC, the company formed by Peter Cummings and Dietrich Knoer, is offering creatives space on the fourth floor of the Fisher Building. The developer plans to subsidize the rent for three years to bring it to market rates, said Abir Ali, director of design and culture for The Platform. “We believe if we can put that out as an option, rather than waiting for a lot of creatives to reach that rate, we can grow with them,” she said. The Platform is also negotiating the purchase of a large building on East Grand Boulevard, as Crain’s reported in March. Ali declined to comment on the planned use for that building, but Cox said it will provide some type of incubator space for creatives. In Midtown, the Sugar Hill developers said during community meetings this summer that they are committed to infusing the project with art, said Elysia Borowy-Reeder, executive director of the nearby Museum of Contemporary Art Detroit. Sonya Mays of Detroit-based Develop Detroit LLC is teaming up with Rodger Brown of the Preservation of Affordable Housing Inc. on the project. Without the diversity that artists bring, cities become homogenized, Borowy-Reeder said. “If we can keep Detroit art-focused, I think that’s going to be an incredible asset for us in the long run,” she said. Sherri Welch: (313) 446-1694 Twitter: @SherriWelch of interesting financial institutions. There are some, but it’s not a market that everybody sees favorably.” And perhaps Southfield’s most recognizable office complex, the 2.2 millionsquare-foot Southfield Town Center, sold three years ago to New York Citybased 601W Cos. for $177.5 million. Michael Silberberg, principal of 601W, told Crain’s at the time that the company expected to own the buildings for 3-5 years, a period which was planned to include $50 million in renovations and increasing occupancies. While the complex off The Lodge freeway has had some wins under 601W’s ownership attracting new tenants, such as Blue Cross Blue Shield of Michigan, a few large ones have fled, notably for downtown Detroit, where both Microsoft Corp. and Fifth Third Bank Eastern Michigan have taken space in Dan Gilbert-owned buildings. In addition, Ally Financial had considered taking a large block of space — at least 200,000 square feet — in the office complex two years ago but opted to become a key tenant in what was then One Detroit Center, now Ally Detroit Center, also owned by Gilbert. Kirk Pinho: (313) 446-0412 Twitter: @kirkpinhoCDB

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CHINA FROM PAGE 3

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Jamie Clover Adams, director of the Michigan Department of Agriculture and Rural Development, led a group of Michigan-based companies, including Atwater, to China last November. She went on Snyder’s trip this month to meet with potential buyers before she returns this fall with another group of food businesses in tow. “A lot of times, if I go and some of our companies happen to be there … I’ll go to dinner with them and their in-country people,” she said, adding that relationships with government leaders and Chinese distributors are key to opening doors. “I think, ‘Why would they want me?’ But to the Chinese, government officials are important, even though I don’t feel I add any value. If I can help them by participating in a meeting or going to a dinner, I’ll go.”

The biggest opportunity The big lure is the size of the potential market: China’s middle class is about 300 million people, with expectations that it will reach 600 million in the next 20 years, according to Chinese e-commerce platform Alibaba. Even as China’s economic growth has slowed in recent years, its middle class is still growing — 76 percent of China’s urban population will be considered middle class by 2022, according to a 2016 McKinsey & Co. report. In 2000, that figure was 4 percent The Chinese “are really interested in different and unique things, and they want food safety and they want quality,” Clover Adams said. “Those are all things that Michigan products and U.S. products have.” Case in point: Southfield-based Nirvana Tea Inc. is looking to distribute its fruit-infused teas to grocery stores and tea shops in China. Alecha Benson-Lockhart, the company’s president and CEO, said buyers she met with asked questions about the taste of hibiscus she uses in a tea blend and appeared interested in her company’s fruit flavors. “They were asking me what made me think about putting fruit in the tea,” she said. “It seemed to me that it was a novelty.” Benson-Lockhart said exporting to China will help diversify her business and create more jobs locally. She said she is moving production to Southfield from space it used in Detroit Kitchen Connect, a program of Eastern Market Corp. She said finding a co-packer will be necessary if the company is going to produce the volume of tea a Chinese buyer would want, and has identified a local company to help with that. Benson-Lockhart said she has stayed in contact with the Chinese buyers she met on the state trip last fall and plans to go back. She now is working to line up financing for a distribution deal to get her tea to market. “We want to make sure that when we do, we will be able to execute on it,” she said. “One mistake can be financially very costly.”

MICHIGAN DEPARTMENT OF AGRICULTURE AND RURAL DEVELOPMENT

Jamie Clover Adams, director of the Michigan Department of Agriculture and Rural Development, promotes U.S. beef at an event in southwestern China on a recent Michigan trade trip to the country.

The Chinese “are really interested in different and unique things, and they want food safety and they want quality. Those are all things that Michigan products and U.S. products have.” Jamie Clover Adams, director of the Michigan Department of Agriculture and Rural Development

ican beef was allowed back into the country this spring for the first time since an outbreak of mad-cow disease in 2003. That opens up a growing, $2.5 billion market, the U.S. Department of Agriculture said. In addition, Clover Adams said the opening of a $250 million pork processing facility in Coldwater, owned by Hatfield, Pa.-based Clemens Food Group, could lead to more avenues for meat exporters. But American poultry has been kept out of China since 2015 after an avian flu outbreak, according to the USDA, which said reopening the market is a priority.

U.S. blueberries are banned, too. Chinese consumers “would eat every one we send there,” Clover Adams said of Michigan’s blueberry crop, one of the nation’s largest. The federal government is working with China on analyzing risks of spreading pests through blueberry imports to try to change the rules. “This is a huge opportunity for Michigan blueberry growers if we’re able to get it over the finish line,” said Kevin Robson, a horticultural specialist with the Michigan Farm Bureau in Lansing. “But there’s a lot of work between now and the finish line.”

Playing the long game Nancy Niezgocki, who has owned Old World Style Almonds Inc. since 1984, is working to extend the shelf life of the cinnamon-roasted nuts she makes in Livonia and sells at special events at the Fox Theatre and Ford Field, among other venues. Right now, she packages the snacks in cone-shaped plastic sealed with a twist-tie, which is fine for direct sales but not for international shipping. Plus, Niezgocki said, “there was no dull packaging in China, and we didn’t have anything that stood out like that.” Niezgocki became interested in exporting to China after participating in

The regulatory maze A host of regulations make it tricky to export to China, from labeling requirements to limits on the types of products allowed into the country. Among Clover Adams’ stops on the Snyder administration’s most recent China trip was a grocery store hosting a U.S. beef promotion. Amer-

Goldman Sachs’ 10,000 Small Businesses program in Detroit, which helped business owners identify ways to grow. Old World Style Almonds has 15 employees, five of whom are permanent. Sales are expected to hit at least $1.3 million for the fiscal year that ends Sept. 30, she said. She has shipped a small amount to Canada as a trial run, but said it takes longer to prepare to sell in China: “You don’t just jump into it ... or else you set yourself up for failure.” That’s why companies interested in China say they play the long game. Rieth, of Atwater Brewery, said his company’s goal is to increase exports from 2 percent of business today to about 20 percent by 2022, within five years. Atwater has sent beer to Canada, Peru and Germany to date, he said. “Unless you have a distributor partner or feet on the street, you could have product that could sit on shelves and maybe not stored properly,” he said. He also is looking to establish a brewing operation in China or a partnership with a brewer in China to get Atwater’s beer to market faster. Several food producers pointed to Alibaba as an opportunity. Clover Adams said the recent trip included a meeting in Hangzhou with Alibaba executives following the company’s recent conference in Detroit. Alibaba is poised to best serve small food businesses, said Robson of the Michigan Farm Bureau. Yet he cautioned vendors against looking at Alibaba as a way to bypass China’s trade restrictions and regulations. Niezgocki’s husband, Bruce, attended the company’s June conference at Cobo Center and was interviewed on CNN about the experience. “They’re so aggressive and so on the forefront of exporting to China that we would be foolish not to (pursue it),” she said. “Not that we’re not going to work with individual buyers, but we’re exploring that avenue for China, definitely.”

LARRY A. PEPLIN

Mark Rieth of Atwater Brewery invested in a flash pasteurizer that will help increase the shelf life of beer and reduce spoilage on the trip to China.

Crain’s senior reporter Dustin Walsh contributed to this report.

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THE WEEK ON THE WEB

RUMBLINGS

Lululemon Athletica to open in downtown Detroit

New life for a dead Moose? W

AUGUST 11 - 17 | For more, visit crainsdetroit.com

ancouver-based Lululemon Athletica is bringing its line of yoga and athletic apparel to downtown Detroit with a new store set to open in late September, a company spokeswoman said Tuesday. More details were not provided. Located in a Bedrock-owned building, this will be Lululemon’s first store in the city. Locations in metro Detroit include downtown Birmingham, Twelve Oaks Mall in Novi and Somerset Collection in Troy. The retailer is taking over the former location of Kit + Ace at 1459 Woodward Ave. Kit + Ace closed its Detroit location in April as part of a move to pull out of the U.S., Australia and U.K. markets. Kit + Ace was launched in 2014 by Shannon Wilson, wife of Lululemon founder Chip Wilson, and Chip Wilson’s son J.J. Wilson. Lululemon joins other national retail brands to open shop along Woodward, inlcuding Under Armour sportswear and Nike store.

BUSINESS NEWS J A fanfare-filled week of activities Sept. 5-10 will include insider tours ahead of the Sept. 12 opening of Little Caesars Arena. J The Detroit Pistons announced they will open the 2017-18 season at their new Little Caesars Arena on Oct. 18 against the Charlotte Hornets. J Plymouth-based real estate company Hillside Investments LLC has paid $50 million for a pair of key downtown Ann Arbor buildings: McKinley Towne Centre and Liberty Square. J St. Joseph Mercy Ann Arbor is planning to expand its 24-year-old comprehensive cancer center in a $24 million project. The groundbreaking is set for September. J A massive mural wrapping a parking garage in Detroit’s New Center neighborhood is getting the final touches a few weeks after The Platform LLC completed a $6.5 million rehab project on the aging structure. J The Motown Mansion, once owned by Motown Records founder Berry Gordy, has sold for $1.65 mil-

REALCOMP

The former Berry Gordy mansion sits on a 2.2-acre lot and boasts stained glass windows, a fountain and several fireplaces. J Detroit-based NextEnergy LLC is marketing its property in the TechTown district for sale for an undisA numbers-focused look at last closed price. week’s headlines: J Detroit-based Banza LLC, a maker of chickpea pasta, has raised a Series A funding round of $7.5 million led by Wellesley, Mass.-based BeechThe ratio of Michigan retailers who wood Capital, Accelerate Michigan expect sales to improve from July to announced. September, according to the J The temporary skate park Tony Michigan Retail Index. This is due in Hawk helped bring to the future part to the back-to-school sales Monroe Blocks development in bump. downtown Detroit could spur creation of more permanent skating infrastructure in the city, the profesThe height of a recently announced sional skateboarder said at an event Cedar Point roller coaster that the ahead of the park’s opening last park says will be the world’s tallest, Wednesday. steepest, fastest and longest J Detroit native and professional steel-wood hybrid. Steel Vengeance race car driver Brian Olatunji is orgais set to open in 2018. nizing Motor City Showdown, a drag racing event Sept. 23 at the Coleman A. Young International Airport on the city’s east side. The number of skilled-trade J Two entrepreneurs launched apprenticeships created by The American Made Performance, a District Detroit since April 2015; startup in Pontiac that offers what more than half are Detroit residents. they say is a unique line of fishing and resort apparel: 100 percent American made. lion to a native Detroiter moving J Detroit City Dairy Inc., doing busiback from San Francisco who was ness as Dairy Fresh Foods Inc., will shut down its operations in Taylor not identified. J Starkweather Lofts, a $21.2 million and lay off 160 people by the end of luxury apartment complex in Plym- October, according to notice filed outh, has begun moving in its first with the state. J Detroit’s three casinos reported an round of residents. J As the annual Woodward Dream aggregate revenue of $119 million in Cruise, which marked its 23rd year July, a 5.3 percent increase over last weekend, continues to grow it is June’s figure, the Michigan Gaming expected to inject nearly $240 million Control Board said. into the metro Detroit economy — an J Motor City Match announced its annual impact rivaled only by the latest round of matching grant winNorth American International Auto ners last week as it celebrated the Show, the Metro Detroit Convention program’s two-year mark with a and Visitors Bureau says. food-centric round of giving $500,000 to 13 businesses.

Detroit digits 60 percent

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OTHER NEWS Motor City Street Dance Academy and the nonprofit Coalition on Temporary Shelter are among the 63 finalists that will compete for a share of $3 million in funding through the John S. and James L. Knight Foundation’s 2017 Detroit Knight Arts Challenge. J Danialle and Peter Karmanos Jr. have pledged $1 million to support the Fashion Accessories Design program and student scholarships at the College for Creative Studies. J The city of Detroit and Wayne State University are rolling out more resources for expectant mothers in an effort to reduce preterm births and infant mortality in the city. J

Peter (left) and Danialle (right) Karmanos

ill the Ilitch family finally rehabilitate the long-vacant Loyal Order of the Moose Lodge building it has owned downtown for more than a decade? Signs are pointing toward that. A document filed with the Michigan Department of Environmental Quality earlier this month says asbestos abatement is taking place this week, and other improvements have been made to the building itself and surrounding parking lots recently. For their part, the Ilitches remain mum about the building at 2115 Cass Ave. at Elizabeth Street. Ed Saenz, director of communications for the Detroit-based company, only said Olympia has “not announced future plans yet.” The DEQ document lists Detroit-based Olympia as the owner and says the building is 30,000 square feet (although Washington, D.C.based real estate information service CoStar Group Inc. says it’s about 45,000 square feet). In May, Olympia announced plans to renovate four other long-vacant buildings around the arena for residential use: J The United Artists Theatre building at 150 Bagley St. with 148 units and first-floor retail space. Construction is to begin this year. J The Hotel Eddystone at 110 Sproat St. with 96 units and first-floor retail space. Construction is planned to begin next year. J The Hotel Fort Wayne with 163

KURT NAGL/CRAIN’S DETROIT BUSINESS

The Loyal Order of the Moose Lodge building on Cass Avenue at Elizabeth Street was purchased by the Ilitch family in 2007 for $1.5 million, according to city records.

units at 408 Temple St. Construction is to begin next year. J The Alhambra Apartments with 46 units at 100 Temple St. Construction is to begin next year. Historic Detroit, which tracks the city’s buildings and architecture history, says the Moose Lodge building opened in 1922 and was designed by Baxter, O’Dell & Halpin. Curbed Detroit reported on some minor repair work taking place there in 2013. There were plans as far back as 1994 to turn the vacant building into a nightclub, Crain’s reported at the time. Olympia paid $1.5 million for it in February 2007, according to city records. We’re keeping our ears to the ground.

GRAND HOTEL

The 393-room Grand Hotel has had a run of awards from national publications, including being named best hotel in Michigan by U.S. News & World Report.

Mackinac’s crown jewel tops historic hotel vote

ackinac Island’s Grand Hotel was voted the best historic hotel in the country by USA Today readers, from among a pool of 20 nominees. The 393-room hotel, which is designated as a National Historic Landmark, attracted votes and positive reviews from people around the globe. The recognition comes on the heels of Travel + Leisure Magazine naming the 131-year-old Grand the second-best resort hotel in the Mid-

west for 2017 and caps a long list of awards the hotel has earned over the past two years. Among others, U.S. News & World Report named it Best Hotel in Michigan for 2017, Conde Nast Traveler, Brides Magazine and TheKnot.com have named it among the best wedding venues in recent years and Familyvacationcritic.com has named it among the top 10 best all-inclusive family resorts in the U.S. the past two years running.