MiBiz April 27, 2020 print edition by MiBiz

West Michigan will work differently post COVID-19

How employers can help with mental health

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APRIL 27, 2020 • VOL. 32/NO. 14 • $3.00

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Health systems face financial crisis brought on by pandemic

TRIAL BY FIRE: SBA races to provide relief to small businesses, but some hiccups remain By MARK SANCHEZ | MiBiz msanchez@mibiz.com

he sheer volume of small businesses that have sought federal relief loans illustrates the depth and scope of the economic pain brought on by the COVID-19 pandemic. The U.S. Small Business Administration quickly blew through $349 billion in just 14 days and approved loans for 1.6 million small businesses nationwide before halting new applications April 16 for the Paycheck Protection Program. That’s as many loans as the SBA processed in the previous 14 years combined. Congress last week allocated another $320 billion for the PPP, $30 billion of which will go to federally designated community development financial institutions, plus banks and credit unions with less than $10 billion in assets. Banks and credit unions with assets between $10 billion and $50 billion will get another $30 billion. The legislation also directed $60 billion in funding to the SBA’s Economic Injury Disaster Loan program Congress set up earlier in the pandemic. Before running out of money for the first round of the PPP, the SBA approved relief loans totaling $10.38 billion for nearly 43,500 small businesses in Michigan. Executives at banks and credit unions say applications for the PPP came from across the economy, including Main Street-type businesses, companies up to the 500-employee threshold, the hospitality sector, restaurants, manufacturers and retailers that have been hurt by the pandemic and resulting stay-at-home orders. “If you connect enough dots, and some you have to connect more dots than others, you can almost see where every single human being and every

See SBA LOANS on page 8

By MARK SANCHEZ | MiBiz msanchez@mibiz.com n normal times, Trinity Health’s seven hospitals across Michigan generate combined operating income of $9 million to $10 million a month. But the current operating environment is far from normal, and the COVID-19 pandemic has pushed the Catholic health system’s financial performance deep into the red. The Michigan operations for Trinity Health, the Livonia-based parent corporation of Mercy Health in West Michigan and Saint Joseph Mercy Health System in Southeast Michigan, recorded a $50 million operating loss for March, “and remember in March half the month was a normal month,” said President and CEO Rob Casalou. The operating loss Casalou stems from the lost revenue from canceling non-essential surgeries and procedures, combined with ramped up spending to test and care for COVID-19 patients. See FINANCIAL CRISIS on page 6

I Downtown Grand Haven. MIBIZ PHOTO: MARLA MILLER

LAKESHORE RETAILERS ADAPT, MOVE ONLINE AS SOME SCRAMBLE TO STAY AFLOAT By MARLA MILLER | MiBiz mmiller@mibiz.com

s the owner of longtime downtown Grand Haven retailer Down To Earth, Sholeh Veiseh has turned to hosting virtual fashion shows and offering sales on social media to bring in some revenue during the coronavirus closure. Gov. Gretchen Whitmer’s initial executive order closing non-essential businesses through April 30 shuttered most storefronts on Washington Avenue, an established shopping district in one of

the region’s busiest tourist towns, as Main Streets across the state are bearing the brunt of COVID19 closures. While some restaurants and breweries have pivoted to takeout and delivery, retailers deemed nonessential fall into more of a gray area. Some have shut down entirely, while others are transitioning online to remain at least partially open for e-commerce. Under a new executive order issued April 24, those stores now have more clarity: Retailers selling non-essential items can open for curbside pick-up and for delivery. See LAKESHORE RETAILERS on page 10

After unbridled growth, Michigan craft beverage companies gird for devastating lows By JOE BOOMGAARD | MiBiz jboomgaard@mibiz.com

ichigan’s craft beverage industry is facing a challenge with the economic fallout from the coronavirus pandemic that is unlike any other in its history. Many companies have been completely closed for weeks as a result of state-mandated orders to end all

in-person dining and drinking in their establishments in an effort to curb the spread of COVID-19. For the first time in many of their histories, the owners of breweries, distilleries, wineries and cideries have been forced to lay off staff members — their companies’ direct connections with consumers in their taprooms and bars. The craft beverage companies that remain open are leveraging skeleton

crews for to-go orders, curbside pickup or home delivery of beverages and food. Meanwhile, distilleries have repurposed their stills to produce ethanol in an effort to answer the call to boost critical supplies of hand sanitizer. These scrappy and resilient companies are finding revenue wherever they can, but few could have prepared for such an abrupt sea change that’s been brought on by the pandemic.

In a survey compiled by Boulder, Colo.-based Brewers Association in early April, 14.1 percent of respondents indicated their business could sustain for four weeks or less if the current conditions persisted. An additional 45.8 percent of respondents said their businesses could only sustain for one to three months if the social distancing measures and restrictions on sit-down service remain in place. See CRAFT BEVERAGE on page 14

Foodservice disruptions cause crisis for farmers PAGE 12

INSIDE:

Drinking economy SEE PAGE 14

THE NEW NORMAL

As public officials and businesses plan to reopen, the future will look much different By ANDY BALASKOVITZ, JESSICA YOUNG and MARK SANCHEZ | MiBiz editor@mibiz.com

he world around us — as we knew it in Michigan before March 10 — is going to look much different for the next 12 to 18 months. As state officials negotiate plans to reopen portions of the economy in phases, business owners are planning short- and long-term changes in their operations to prevent further spreading of the coronavirus. As of April 22, COVID-19 had killed more than 2,800 Michigan residents and placed more than a million on unemployment. MiBiz spoke with more than a dozen business owners, public health experts and development agencies over the past two weeks about what the region will look like during what’s expected to be at least a year of disruption — or until a COVID-19 vaccine is widely available. “Post-COVID-19, employers should look at the way they do business. They should start planning on having their employees come in and work at a social distance,” said Muskegon County Public Health Officer Kathy Moore. “That may be contradictory to everything they’ve done before. I do think we should start planning for post-COVID-19, but I think we have to embrace that it’s not going to be business as usual.” Moore spoke to MiBiz on April 15 when Michigan was “still right in the middle of the crisis.” In Muskegon County, the numRichardson ber of positive COVID-19 cases was still rising. Experts and employers agree that some steps will become common, including strict sanitizing of workspaces, Walsh social distancing, employee temperature checks and remote working. Physical dividers in places like banks, grocery stores and restaurants will likely be the new aesthetic. “Employers who have not prepared for pandemic events should prepare themselves and their workers as far in advance as possible of potentia lly worsening outbrea k conditions,” according to guidance issued by the federal Occupational Safety and Health Administration. “Lack of continuity planning can result in a cascade of failures as employers at tempt to add ress

APRIL 27, 2020 / MiBiz

challenges of COVID-19 with insufficient resources and workers who might not be adequately trained for jobs they may have to perform under pandemic conditions.” Cindy Brown, vice president of talent initiatives for The Right Place Inc., said the OSHA guidance is helping employers, but the flood of information is coming amid widespread uncertainty about what’s next. Another consideration: The process won’t be the same across sectors. Pandemic preparedness looks different for offices, manufacturers, restaurants, bars and venues. The list goes on. “Everyone is trying to take the best of what they’re hearing and adapting it to their individual spaces,” Brown said.

Phased-in reopening Reopening plans began to surface from state officials in mid-April, and followed politically driven protests at the Capitol. Senate Majority Leader Mike Shirkey, R-Clarklake, and House Speaker Lee Chatfield, R-Levering, released separate plans focused on the economic rebound. The House Republicans’ plan calls for placing counties in tiers based on risk for COV ID-19 spreading, while the Senate Republicans’ plan involves five phases. Me a n w h i l e, G ov. Gre t c h e n Whitmer had organized her own panel of experts known as the Michigan Economic Recovery Council with advice coming from public health, business and labor groups. Whitmer has joined six other Midwestern states to coordinate reopening plans. Whitmer has said the main criteria for reopening include a sustained reduction in infection rate, better ability to test and trace positive cases, sufficient health care capacity and best practices in the workplace. All of the reopening plans seek to avoid a second COVID-19 outbreak that would strain the state’s health care system. “We all recognize that a second wave would be devastating to our state, our people and our economy,” Whitmer said during an April 22 press conference. Business groups also have been organizing. The Grand Rapids Area Chamber of Commerce released a plan this month calling for a varied approach based on region and sectors. The Grand Rapids Chamber is also part of a Midwestern coalition of business groups calling for a coordinated reopening. “Our call to action is to be focused and nuanced based on individual communities, sectors and needs so we can rebuild our economy everywhere as quickly as we can,” according to the Grand Rapids Chamber’s plan.

Gerald R. Ford International Airport might have to rethink how ticketing and TSA checkpoints are designed as part of an ongoing shift related to the coronavirus pandemic, according to President and CEO Tory Richardson. COURTESY PHOTO

High-traffic areas The phased-in rebound will look different across business sectors, but at this point the most uncertainty surrounds high-traffic areas — bars, restaurants and venues, to name a few. Some large events are already postponed until next year. Tory Richardson, president and CEO of Gerald R. Ford International Airport, oversees an operation that lost 95 percent of its business since mid March. The airport qualified for $16.2 million in federal grants to help maintain operations, but revenue, which is highly dependent on passenger airline and parking fees, has dwindled. In April 2019, the airport brought in just less than $5 million in revenue. This April, it’s expected to be around $500,000. When questioned about how the airport will operate in the future, Richardson said it will depend on the “public’s acceptance or experience coming out of this.” The “unknowns,” he added, are how ticketing, restaurants, TSA checkpoints and rental car counters may be redesigned. “How do we keep (facilities) cleaner and safer going forward or design facilities to accommodate more spaces in gates so people aren’t sitting on top of each other in a cramped area?” he said. “All of those things are being brought into question now and are causing us to look at how we do business and what the future might hold.” Hilarie Carpenter, spokesperson for ASM Global, which manages the Van Andel Arena and DeVos Place in downtown Grand Rapids, said in a statement: “The safety of our guests, employees and clients is our top priority. We are working with the Grand Rapids-Kent County Convention/Arena Authority, ASM Global Corporate and public health organizations such as the Center for Disease Control on an ongoing basis. Actions taken will be consistent with guidelines from these agencies as well as local health department officials.”

A spokesperson for The Gilmore Collection — which operates 14 restaurants in the greater Grand Rapids area and in Grand Haven — declined to comment for this story. Another area restaurant group declined to speak on the record about changes under consideration ahead of more guidance from the state. However, the person raised concerns about how restaurants would be able to limit occupancy and how customers might react to restaurant staff wearing personal protective equipment. Restaurants face the dilemma of ensuring customer safety while also not alarming them. Also, some restaurant owners — as in other sectors — have raised concerns about being able to retain employees in the future who may receive more income t hrough unemploy ment benefits. The Michigan restaurant industry is expected to lose $1.2 billion in sales in April, according to survey data from the Michigan Restaurant and Lodging Association. Randy Bryant, owner of Fortune Chef in Caledonia, says he has been able to maintain steady takeout orders since Whitmer’s stay-at-home order in March. But he’s concerned about potentially having to distance customers in his dining area, which currently holds 72 people. “For me, I’m in trouble,” Bryant said. “This is a tight-knit little restaurant. If the governor opens it up but people have to be 6 feet apart or more, I’m only going to be able to fit about 20 people for dining.”

The new workplace On an April 22 virtual discussion hosted by the West Michigan Policy Forum, CEOs from around the region discussed steps they’re already taking to maintain safety, including sanitizing workspaces and employee temperature checks. They also referred to the OSHA guidelines, as well as reopening plans made public by Lear Corp. and best practices issued by Business Leaders for Michigan.

John Walsh, president of the Michigan Manufacturers Association, recommends companies keep in touch with customers and be prepared for ongoing shifts in operations. “It’s all about being prepared,” Walsh said. “It’s not going to be a light switch, it’ll be a gradual reopening — be prepared for that.” Kevin Clay, CEO of Grand Rapidsbased Tier 2 automotive supplier Pridgeon & Clay Inc., said his company has installed partitions in the workplace and uses social distancing measures around time clocks, breakrooms and lunchrooms. “We’ve redesigned all of those things and I don’t know if we’ll ever go back to the old way,” Clay said. “The new way just becomes the way after a while. I think this is going to be a real kick in the pants for the cobot and automation industry. Not that there hasn’t already been a huge drive toward additional automation and robotics, but this was just another reason to utilize those things that don’t get sick and that don’t have the safety concerns.” Ivy Rehab Network, which includes physical therapy clinics around West Michigan, has redesigned waiting rooms, anticipating that more distancing will be common. The company has a “no germs in, no germs out” policy requiring patients to wash their hands before coming and leaving, said regional director of operations Gina Otterbein. Jupiter Family Medicine P.C. in Belmont will not have patients waiting in a reception area and will limit paperwork involved with visits. Dr. Rose Ramirez says she is concerned about the practice’s ability to cover its fixed costs while these limitations are in place and absent a COVID-19 vaccine. “This virus is going to be around for a while,” Ramirez said. “I think some staff will not want to return to work and we may not have enough work to do if patients refuse to come into the office. (There are) lots of questions about enough revenue to support the operations.” Visit www.mibiz.com

COVID-19 wipes out clean energy job gains as regulators explore effect on utilities By ANDY BALASKOVITZ | MiBiz abalaskovitz@mibiz.com

he coronavirus has wiped out recent statewide clean energy job gains as Michigan companies take a patchwork approach to continuing work during the pandemic. According to a study released by business and environmental groups this month, the U.S. lost 106,000 clean energy jobs since the outbreak started in March, including 5,446 in Michigan, or 4.1 percent of the state’s clean energy job sector. The report estimates national clean energy job losses could top 500,000, or 15 percent, as new unemployment data become available for the month of April. The report — released by Environmental Entrepreneurs (E2), the American Council on Renewable Energy, E4TheFuture and BW Research Partnership — analyzed U.S. Department of Labor data for March. In Michigan, the pandemic has created a patchwork with ongoing projects. West Michigan’s major electricity provider, Jackson-based Consumers Energy, has planned to continue all construction projects. Some solar installers have halted work at the request of projScripps ect owners. In-person audits and inspections for energy efficiency and clean energy projects have come to a halt. The jobs report covers renewable energy, energy efficiency, clean vehicles and battery storage. “It’s pretty staggering that Michigan is one of the highest in terms of states losing clean energy jobs right now,” said Michigan Public Service Commissioner Dan Scripps. “My hope is it’s short-lived.” According to the report, Michigan had 125,365 jobs across clean energy sectors in the fourth quarter of 2019. Sherman More than 85,000 — or 68 percent — are in energy efficiency, which includes HVAC and renewable heating and cooling, lighting and advanced materials. The Holland-Grand Haven and Niles-Benton Harbor metro areas rank among the top 10 small cities nationally in the percentage of their overall workforce tied to clean energy jobs. The report ranks Michigan second in the U.S. for rural clean energy jobs. “In general, people are just sitting tight on things and are not necessarily moving forward with new projects,” said Laura Sherman, president of the Michigan Energy Innovation Business Council. “A lot are in a holding pattern.” In Minnesota, solar installers have been exempted from the state’s stay-at-home order and projects have continued there. Michigan defines energy as critical infrastructure and an essential job, but Sherman said MEIBC members are “making their own determination” — or it’s decided by the project owner — about whether to continue work. Increasingly, clean energy companies are adapting, Sherman said. An executive order by Gov. Gretchen Whitmer earlier this month allowed for the online Reduction notarization of documents, which had been specifin net power ically requested by a large clean energy developer. demand in Virtual audits for energy efficiency and virtual inspecMichigan tions for solar installations are becoming more comrelated to the mon, Sherman said. pandemic Meanwhile, clean energy advocates have made their case for stimulus funding, or at least reworking federal tax credits, to keep the project pipeline moving. They cite the construction job potential and the ability to reduce costs for ratepayers as key reasons the industry should see stimulus funds. National business group Advanced Energy Economy and others have specifically called for direct payments in lieu of federal production and investment tax credits for wind and solar projects. With an uncertain timeline for the economic coronavirus-related slowdown, advocates say clean energy workers can fill spaces while maintaining social distancing, for example by retrofitting empty schools with energy efficiency and renewable energy projects. “That sort of creativity is probably what we’ll need as we think about getting back to work and meeting energy savings targets,” Scripps said.

15%20%

Regulators launch COVID-19 oversight On April 15, the Michigan Public Service Commission formally launched an oversight plan on utilities’ handling of the crisis, including disconnections for nonpayment and how future coronavirus-related costs will be recovered. Michigan utilities have agreed to not disconnect vulnerable customers based on income or medical needs. The order also outlines the process for utilities’ tracking of coronavirus-related costs. Visit www.mibiz.com

STATES WITH MOST CLEAN ENERGY JOB LOSSES: MARCH 2020 UNEMPLOYMENT CLAIMS

SHARE OF CLEAN ENERGY WORKFORCE

106,472

3.1%

California

19,949

3.60%

North Carolina

6,800

5.90%

Pennsylvania

6,608

6.20%

Massachusetts

5,611

4.40%

Michigan

5,446

4.10%

New York

4,789

2.90%

Ohio

4,719

4.10%

Texas

4,246

1.70%

Washington

3,940

4.40%

Illinois

3,326

2.60%

Florida

2,673

1.60%

Indiana

2,592

2.90%

Minnesota

2,415

3.70%

New Jersey

2,345

4.10%

Virginia

2,044

2.10%

Wisconsin

2,031

2.60%

Maryland

1,954

2.30%

Kentucky

1,505

3.80%

Tennessee

1,492

1.70%

Louisiana

1,463

4.6%

Missouri

1,462

2.5%

Georgia

1,332

1.50%

Oregon

1,324

2.20%

Colorado

1,080

1.60%

Iowa

1,066

2.90%

STATE

US TOTAL

CLEAN JOBS AMERICA 2020 REPORT, ENVIRONMENTAL ENTREPRENEURS

“In general, people are just sitting tight on things and are not necessarily moving forward with new projects. A lot are in a holding pattern.”

While utilities have faced new costs including quarantining workers, net power demand in Michigan has decreased by 15-20 percent, Scripps said. Increased residential power usage has been roughly offset by commercial declines, while industrial power demand is down, reflecting trends across the country. “They’re shocking numbers, — LAURA SHERMAN but given the calamity not all President of the Michigan Energy that surprising,” Scripps said. Innovation Business Council The MPSC order directed energy providers to affirm the availability of consumer protections around affordability and flexible payment options. The order also directs utilities to disclose continuity plans for energy efficiency and to track COVID-19-related costs, although there is “no guarantee” of future recovery, Scripps said. The shift in power demand is raising questions about utility revenue and how those costs are being shifted among customers. In recent years, residential ratepayers have seen increasing electricity rates while those for larger, industrial customers have remained steady or declined. Scripps said the MPSC is in the process of understanding COVID-19’s effects on both utilities and ratepayers. “We want to understand both the increased revenue and increased expenses,” he said. “We want to see both sides of the ledger.”

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MANUFACTURING

Rules relaxed as manufacturers step up to address critical health equipment shortages By JESSICA YOUNG | MiBiz jyoung@mibiz.com

Best practices

s Michigan manufacturers shift course to join the growing “arsenal of health,” federal regulators have responded to the COVID-19 outbreak by reducing potential liability that typically comes with making medical supplies. But experts say manufacturers that now produce equipment like face shields and ventilator parts should partner with companies more experienced in the space and ensure they are not making health claims about their new products. “Even if a ventilator or facemask looks simple — or simpler than the product you usually manufacture — you need to make sure you get it right, for the good of the patients and caregivers and to avoid later liability,” said Steven Cernak, a Detroit-based partner at the law firm Bona Law PC. The U.S. Food and Drug Administration has issued emergency procedures and instructions for manufacturers that are now producing personal protective equipment (PPE) and other health care devices. These rules allow the agency “a little extra power” to permit new clearances for medical equipment that might otherwise take weeks or months to meet compliance requirements, according to Nicholas Werner, director of regulatory policy and education at Network Partners LLC, a medical device and pharmaceutical consulting and contract staffing agency in Jackson. Regulations can be an overwhelming hurdle when moving products through the medical device industry. However, since the first confirmed cases of COVID-19 hit the country and the ensuing danger of overwhelmed hospital systems emerged, the FDA has been working to facilitate the rapid development and availability of medical products and equipment “as quickly and safely as possible,” according to Werner.

Manufacturers making medical devices and equipment for the first time should be most wary of making claims about the products that they are producing — especially as they relate to the coronavirus — and leave the specifics for usage up to hospitals and medical staff, Werner said. Specifically for the new production of face shields and masks, FDA issued certain guidelines to manufacturers, including recommendations for proper labeling and materials. For example, the labeling cannot state that the use of the face shield alone will prevent infection from microbes or viruses. “FDA does not regulate the practice of medicine,” Werner said. “All that they’re regulating is what the manufacturers do, how they make the product and what they say about their product. Once it gets to the hospital, once it gets to the doctor, they reserve the right to use it however they want.” One best practice for manufacturers entering the medical space for the first time is to partner with another company that is already a part of the medical supply chain, according to Werner. “In that case, they essentially become a supplier or a contract manufacturer to any existing medical device company,” Werner said. Through its enforcement discretion, FDA has given many of those medical device companies the ability to add in new manufacturing lines that would normally require review by the agency. As with all agreements, manufacturers need to confirm “who is responsible for what,” in these partnership agreements, Cernak said. Design responsibility and intellectual property are important discussions to hash out before production. Working with competitors within an industry also can make sense during the current crisis and “probably is fine under the antitrust laws,” so long as the cooperation is limited, customers

Manufacturers around West Michigan formed the 3Dc19 group to offer their 3-D printing capabilities in making medical equipment such as face shields. COURTESY PHOTOS

will benefit and there are limits to the information shared, according to Cernak. “While an automotive manufacturer is used to making a complicated product that must be done right or people die, it is not easy to switch to a completely different product that must be made right for the same reason,” he said.

‘We are in this together’ During public health emergencies, the FDA can use emergency authorities, including Emergency Use Authorizations (EUA), to allow unapproved medical products to reach patients, physicians and health care systems when FDA-approved alternatives are unavailable. During the coronavirus pandemic, a number of supply disruptions have created obstacles to obtaining diagnostic tests and supplies, like swabs, and personal protective equipment, such as facemasks.

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APRIL 27, 2020 / MiBiz

In response, West Michigan manufacturers rapidly countered the crisis with new products. Kalamazoo-based Stryker Corp. was recently approved through EUA for a product that uses vaporized hydrogen peroxide to “decontaminate” the respirators attached to coveted N95 face masks for reuse by health care workers. To help meet critical shortages of vital medical equipment, a local network of additive manufacturers calling themselves 3Dc19 is ramping up the industrial printing of face shields and other medical devices for nursing homes, hospices, police departments, doctors and nurses. Allendale-based Perception Engineering LLC is part of the group of individuals and companies that have access to additive technology and are able to rapidly have parts running for those in need. To date, the group has 3-D-printed and donated more than 32,000 face shields, ear savers and ventilator parts, according to Stephen Wierenga, president of Perception Engineering. “When we look back on this time, we want to know that we did everything with the skills and resources that we were blessed with to be part of the solution,” Wierenga told MiBiz. “The attitude of everyone involved in 3Dc19 is one of ‘what can I do to help,’ and with this mindset, big change can happen.” However, designing and making parts for a chair or filing cabinet is much less of a liability for manufacturers than producing parts for a ventilator. The 3Dc19 group is protected under the Public Readiness and Emergency Preparedness Act, which allows the U.S. Secretary of Health and Human Services to issue a declaration to provide “liability immunity to certain individuals and entities against any claim of loss caused by, arising out of, relating to, or resulting from the manufacture, distribution, administration, or use of medical countermeasures.” Plastic face shields are used by medical staff as secondary personal protective equipment. The accessibility of designs and materials for the face shields have made the product an ideal alternative for otherwise idled 3-D printers, particularly for manufacturers in the automotive industry. “I am encouraged after watching the business community in Michigan rapidly step up in this way,” Wierenga said. “We are in this together.” Members of the 3Dc19 network are using a free, open-source ventilator design and partnered with Ford, GM and Boston Scientific to get FDA clearance to make ventilator parts, according to the group. Werner is unconcerned about what comes after the temporarily loosened liability requirements. “These manufacturers want to help because they’re here and there’s a shortage,” he said. “The likelihood that when this is all over that FDA is going to come out and start just hammering manufacturers with warning letters, fines or telling people that they’re wrong for this is slim to none.” Visit www.mibiz.com

Shutdown could delay new vehicle launches, increase pricing pressure By JESSICA YOUNG | MiBiz jyoung@mibiz.com

utomakers are delaying or rethinking the timing of new vehicles as production disruptions caused by the global COVID-19 pandemic linger into the spring. That’s according to industry analysts who say the new coronavirus and widespread stayat-home orders that shut down auto plants and suppliers worldwide have already affected vehicle launches in 2020 and 2021. However, the full scope of the pandemic’s disruption on new models is likely to be felt even more in the coming years, according to Mike Wall, director of automotive analysis in Grand Rapids for IHS Markit. “When you look at the vehicles launching — especially the back half of next year, going into 2022 and 2023 — everything is on the table,” Wall told MiBiz. The danger to carefully orchestrated programs and schedules grows as the Wall virus outbreak persists. If the industry can snap back fairly quickly after the shutdown, analysts predict future launches could remain on track. However, automakers will certainly be working with significantly less cash flow than planned. In the firm’s latest foreClay cast, IHS Markit expects global light vehicle sales to fall 22 percent to 70.3 million units in 2020. U.S. auto sales are expected to fall more than 26 percent to 12.5 million units this year, compared to about 17 million in 2019. At the moment, Wall expects 14.8 million light Harbour vehicles will be sold in 2021, an increase over projections for this year, but still nowhere near forecasts from just weeks ago. Vehicle production will reflect decreased demand levels, according to the data. The IHS Markit forecast reflects production shutdowns in North America from mid-March through early May, at a minimum. In those nine weeks, an estimated 2.75 million units will have been lost with the risk of further extensions as the virus continues to affect various regions of the country. “For those vehicles that the tooling is cut already that are launching this year, we’re not seeing serious jeopardy to the programs themselves,” Wall said. “It’s more or less timing variations.” However, OEMs could cancel future redesigns or feature updates to existing models, often known as facelifts or mid-cycle refreshes. “Every few years, they tweak the front end, the rear, the interior and do a minor facelift,” Wall said. “A lot of those have been put on hold and that’s one way to stave off further spending up front.” The North American International Auto Show (NAIAS) in Detroit, one of the industry’s premier annual events, announced last month it was canceling its June 2020 show in light of the pandemic and FEMA’s plans to repurpose its venue into a temporary coronavirus field hospital. Automakers usually debut new vehicles at the show, which was permanently moved from January to June last year and typically draws hundreds of thousands of people to the Motor City to catch a glimpse of the latest from the industry.

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Already, at least 15 vehicle launches have been delayed this year, according to data from LMC Automotive. Eleven launches scheduled for the second half of 2020 are at high risk of delay and 22 additional new models could shift into next year. Four launches have already been delayed from 2020 to 2021, according to the data. As the effects of the pandemic continue to take shape, the crisis is already rippling through the automotive industry’s complex supply chain. “Right now, we’re seeing some delays but not cancellations,” said Kevin Clay, CEO of Grand Rapids-based automotive supplier Pridgeon & Clay Inc. “The delays are what youwould think

would be commensurate with the amount of time that we’ve all taken off work.” The uncertainty of when production will restart this year and questions about the length of the recession after the crisis will lead to changes in whether automakers will stay on schedule with launches that are currently targeted for the middle of the decade, according to Laurie Harbour, CEO of Harbour Results. Automakers will be forced to prioritize their investments and trucks, SUVs and crossovers will continue to offer higher profitability per unit than sedans — making it probable that companies will continue to bet overwhelmingly on those segments, according to Harbour. “Because of the financial impact that these

companies are going to go through this calendar year, OEMs are going to have to pick and choose which programs make sense for them to launch,” Harbour told MiBiz. “I think that profitability or lack thereof is going to impact future launches.” Harbour predicts that it could take the industry “a good two years” to recover from the crisis caused by COVID-19. That means auto suppliers in West Michigan are going to face a more competitive environment in the coming months, as OEMs finalize their plans for the next generation of vehicles. “It’s not that there isn’t going to be any demand — it’s just going to be less,” Harbour said. “So, it’s going to be a real fight for price.”

Core Competencies & Growth May 12, 2020 The Center-West and MiBiz are teaming up to present an industrial-strength quarterly webinar series focused on best practices for small and mid-sized manufacturers. Each webinar in the 2020 series — Back to Manufacturing Basics — will feature experts on the topic at hand as well as Michigan manufacturers sharing their

Identifying your key capabilities and resources can be an important first step to creating new growth opportunities for manufacturers. In this webinar, we’ll discuss processes for assessing your core strengths and share proven strategies for leveraging your key advantages to develop new products, new applications and new markets for your company. This 50-minute webinar will provide actionable, real-world information for owners, executives, engineers, and facilities managers in the manufacturing sector. To register, visit mibiz.com/backtobasics

stories. The 50-minute webinars will provide actionable, real-world information to help manufacturers improve their efficiency, enhance quality and drive profitability.

MiBiz / APRIL 27, 2020

HEALTH BIZ FINANCIAL CRISIS

with our previous expectation of 2 percent to 3 percent growth in 2020.” Continued from page 1 S&P Global Ratings took a similar view, reducing the nonprofit health care sector to “negative” from Trinity Health Michigan now conservatively projects “stable.” monthly operating losses in excess of $100 million for April, “For all health care organizations, we believe the May and June, Casalou told MiBiz. pandemic will result in sizeable increases in operating The situation at Trinity Health Michigan illustrates the costs, particularly for labor and supplies, reduced volsevere and potentially long-lasting financial effects that the ume and revenues related to elective and non-essential Peters Manns Ramirez Huffman COVID-19 pandemic has on hospitals. health care needs, reliance on working capital lines of “This crisis has really weakened the financial foundations credit, and material declines in unrestricted reserves burning through cash right now and no system has unlimited of health systems across the country,” Casalou said. “A lot of us and non-operating revenue as the investment markets weaken,” capability to do that forever.” believe that this crisis may alter the configuration of not just S&P analysts wrote in a March 25 outlook on the sector. “These Casalou doubts the financial pain the pandemic brought on for Trinity, but other health systems.” added constraints are coming at a time when organizations will wane anytime soon. He expects the fallout from the panThe Michigan Health and Hospital Association estimates were already under some revenue and expense pressure related demic to linger for months, even after outpatient centers reopen that in the last two weeks of March, after Gov. Gretchen Whitmer to industry dynamics and balance sheet strength had been a and hospitals can resume elective procedures and surgeries. issued an executive order for care providers to postpone or canstabilizing factor.” He expects a “mini bump” will occur from pent-up demand cel non-essential surgeries and procedures, member hospitals Inpatient revenue from treating COVID-19 patients may offthat will drive some volume immediately after the state’s stayacross the state lost more than $600 million in combined net set some of the financial burden, although “it will likely not home order is lifted and elective procedures resume. A steady patient revenue from the pandemic. compensate for that full amount,” according to S&P. resumption of “real activity” may not come until late summer The lost revenue from the pandemic is on top of losses in or early fall “at the earliest,” he said. their investments and an estimated minimum $150 million that Rethinking independence “Our recovery could be months down the road before we hospitals in Michigan spent on unbudgeted expenditures “in a As the pandemic goes on and financial pressures mount, some actually start seeing activity resume,” Casalou said. “It’s going very short time,” MHA CEO Brian Peters told MiBiz. Even hoshospitals may “have an increased appetite for M&A,” accordto be a while before the public is ready to come back into health pitals that have not had many COVID-19 patients have had to ing to Chicago-based Juniper Advisory, an investment bank care. Just psychologically, people have been afraid to come to prepare to increase bed capacity for a possible surge, Peters said. specializing in nonprofit hospital transactions. hospitals. They’ve been afraid to go anywhere they think they That “conservative estimate” is based on information from The pandemic and resulting financial pressures may lead may catch this virus. So, we’re going to have to spend time buildabout three-quarters of the MHA’s member hospitals, accorddirectors at smaller community hospitals that remain indepening confidence back in people that the health care systems are ing to Peters. dent to “rethink” that strategy, said Rex Burgdorfer, a managing safe to use.” “It has already impacted our hospitals and health systems director at Juniper Advisory. very significantly in Michigan and that impact is going to be felt “The pandemic response has underscored the need for the more severely in the months ahead, there’s no question about Costs add up access to capital, supplies and equipment, and operational it,” Peters said. “And every day, every week that goes by, those In response to the financial hit, Trinity Health Michigan has expertise that is often afforded to hospitals in health systems. numbers get worse.” been drawing from reserve funds and earlier this month said As part of a system, a hospital may find itself better positioned Given the mounting losses, Peters worries that small comit would furlough about 2,500 mostly non-clinical employees to respond to their communities’ needs and more resilient in munity and rural hospitals that generate a large majority of their in April. According to Casalou, “we may have to look at some challenging times,” according to a note to clients issued by revenue from outpatient care and procedures — many of which additional” furloughs in the coming months. Juniper Advisory. “After experiencing a global pandemic, hoswere already having financial difficulty — may not make it. The furloughs affected about 10 percent of Trinity Health’s pital boards may choose to prioritize operational and clinical workforce in Michigan who work at Mercy Health and Saint effectiveness over independence, trading some of their ‘nimbleInitial support Joseph Mercy Health System. ness’ for stability.” Further relief for hospitals nationally Many other health systems are takEven with a wave of consolidation among hospitals over from the federal government — beyond ing similar actions. several years, the industry in the U.S. remains “pretty fragt he $100 billion under t he federa l In West Mich iga n, revenues at mented” and “a patchwork configuration of local community Coronavirus Aid, Relief, and Economic Bronson Healthcare in Kalamazoo hospitals that by and large has been driven by ‘independence,’” Security (CARES) Act that Congress are down more than 50 percent since Burgdorfer said. At a minimum, hospitals will have to consider enacted in March — “is desperately March. The health system cut execucollaborating and partnering clinically, he said. needed,” Peters said. The CARES Act tives’ pay through August, starting with “Most believe that’s going to be imperative to future sucprovided $468 million to Michigan hosa 25-percent reduction for new CEO Bill cess,” Borgdorfer said. pitals, according to the MHA. Manns. Bronson said last week that furA subsequent stimulus Congress loughs “will be implemented over the Pain for physicians passed last week provides another $75 next few weeks for several hundred The financial pain in health care from the pandemic surely goes billion for hospitals, health systems and mostly non-clinical employees. The furbeyond hospitals. Physician practices also are ailing from lost other health care providers across the loughs are expected to be for 16 weeks, non-essential patient visits. country. The $75 billion would reimhowever, some employees may be called “This is going to hurt a lot of people,” said Dr. Rose Ramirez, burse eligible health care providers for back sooner as their areas ramp back a family physician at Jupiter Family Medicine P.C. in Belmont. expenses or lost revenues attributed to up.” At ophthalmology practice Sight Eye Clinic P.C. in Zeeland, COVID-19, according to the American Bronson said predictive models indiDr. Bryan Huffman typically sees 130 patients a week. Since the Hospital Association. cate Southwest Michigan “may expeexecutive order in mid-March that required care providers to “We are very concerned that if we rience ongoing communit y spread stop non-essential care, he’s been averaging six to eight patients don’t have the appropriate support, of COVID-19 into the fall rather than — ROB CASALOU an overwhelming surge this spring, a week who have an urgent or emergency condition such as eye and that is from the state and federal President and CEO of Trinity Health infections or injuries. level, that we could have small rural assuming responsible social distanc“It’s been a huge hurt on our business,” Huffman said. “We hospitals, small independent hospiing continues after the governor’s order have a lot of expenses that just don’t stop when we stop working.” tals that are very much in jeopardy,” expires.” The ophthalmology practice has had to lay off much of its Peters said in an interview with MiBiz prior to the new stimGrand Rapids-based Spectrum Health, which owns and staff, he said. ulus package. “Even before the COVID-19 came along, for a operates 14 hospitals, said this month that it plans to aggresThe pandemic’s effect on the health care industry could variety of reasons, we had hospitals that were in very severe sively cut costs, starting with executive pay, to shore up finances drive more independent medical practices to look at becomfinancial straits. This obviously is an incredibly significant that have been hit by the COVID-19 pandemic. ing part of a health system, if possible, Burgdorfer said. The problem to add to the existing challenges that those hospitals Spectrum Health’s revenues are down after having to posthigh costs of I.T. systems for electronic medical records have were confronting. pone or cancel non-urgent and non-emergency surgeries, been a contributor for years to physician practices deciding to “We can’t afford to lose many of these hospitals. They are procedures and clinical appointments to prepare for a surge sell to a health system. The fallout from the pandemic could the only source of care in communities throughout the state. in COVID-19 patients. That resulted in “a multimillion dolpush more in that direction. Whether it’s COVID, whether it’s treating trauma, whether it’s lar reduction in revenue in just one month,” according to the “Being part of a system is really just having a safety net to primary care, or deliveries, you name it, if that hospital goes health system. fall back on,” Burgdorfer said. away, we have a real problem in those communities.” As well, Spectrum Health said it spent “more in one month The Michigan State Medical Society has been surveythan it would typically spend in one year” for supplies and pering physicians to gauge the pandemic’s effects on medical sonal protection equipment for staff. Building confidence practices. At Trinity Health, which has 92 hospitals nationally, federal Dr. Ramirez, a past president of the Michigan State Medical Financial health in question money from the CARES Act covered about one month of operSociety, believes more doctors will want to become part of a The financial effects of the pandemic on hospitals led ratings ating losses, Casalou said. health system because of the fallout from the pandemic. But she agencies to lower their outlooks for the industry. “The CARES Act, while appreciated, was really not going to wonders whether health systems will have the capital needed In March, Moody’s reduced the outlook for nonprofit hospibe the panacea that I think lawmakers were hoping it would be to acquire more physician practices. tals in the U.S. from “stable” to “negative,” citing how the sector because of the losses in the health systems,” said Casalou, who’s “I don’t think hospitals are going to have the deep pockets “will likely see lower cash flow compared to 2019. This compares hoping Congress will provide further aid to hospitals. “We’re anymore, at least not anytime soon,” she said.

“The CARES Act, while appreciated, was really not going to be the panacea that I think lawmakers were hoping it would be because of the losses in the health systems. We’re burning through cash right now and no system has unlimited capability to do that forever.”

APRIL 27, 2020 / MiBiz

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FINANCE

METRO HEALTH TAPS BUSINESS INTELLIGENCE TEAM TO DEVELOP PANDEMIC MODELING, PROJECTIONS By MARK SANCHEZ | MiBiz msanchez@mibiz.com

s doctors and nurses treat patients during the COVD-19 pandemic, Casey Kuhn and his team of seven people at Metro Health-University of Michigan Health have been busy working to identify what they face in the days and weeks ahead. The manager of business intelligence and analytics at Metro Health, Kuhn leads ongoing efforts to use modeling to project the pandemic’s trajectory so the hospital can plan, prepare and respond accordingly. Kuhn, whose staff normally works on Kuhn operational reporting and analytics, spoke with MiBiz about the modeling.

What are some of the key factors and variables that go into the modeling equation to come up with projections?

two-week lag from the time that we do something. And then, because of the 14-day infection period of COVID-19, it’s another week to two weeks before you actually see a difference in the health system. You look at an executive order going into effect, we can’t see that for three to four weeks later to know how effective this really is.

How far ahead can you confidently project? With some confidence, we can make projections for the next seven to 10 days. When we get to that 30-day mark, (the factors are) not knowing what’s going to happen with that social distancing and even weather — although there are a myriad of factors. Any model that shows what we’re going to look like over a month from now is like looking at a Farmer’s Almanac.

How does the health system use this data to prepare? We really need to know: Are we going to hit capacity for our general beds, for our ICU beds, and for our ventilators? When is that going to be and how many might we need totally? Like every other health system, we need to be ready for when we do peak. By developing these bell curves and demonstrating what they’re like, we can plan for reasonable scenarios so that we’re proactive, rather than reactive, and then we’re using these in order to combine our models and our understanding as a community for overflow planning.

What have you learned throughout this pandemic that you can use in your everyday work once this crisis passes?

Doubling rates is the one key variable, and the doubling rate of basically the initial rate of infection, and that’s where we’re using these SIR models (an epidemiological model for projecting infection rates). Those numbers apply to the infected population and because of the lack of testing, we can’t really know what that is, and so we have to make some approximations based on what we are actually observing.

The need for more collaboration before we get to crisis mode, and to have a lot of these processes built in advance to be ready for the next crisis. As an example, as we’re working on these models — and my number one struggle is access to complete and accurate data — it occurred to me weeks ago that what we really need is a national registry and a process for health care institutions to contribute on a national level and to be able to localize that data to their particular locale. If we had that earlier, it would have helped us create better models faster, instead of digging around looking for good data.

How large of a sample does that take into account?

Bottom line: Have something in place before a crisis hits?

For Metro, for example, a difficulty is if we are only looking at our patients, how many patients we have and how many are hospitalized. With all statistical modeling, the larger it is the better. That’s why we are not just looking at our own patients. We’re looking at Wuhan (China) and South Korea and Italy and whatnot in order to look for common trends.

Are you partnering on this with other organizations across the market? What we are doing is sharing data among the three largest health systems (in Kent County) so we all have more complete data sets. The best part of this is that all of our colleagues — from our sister organizations across Michigan (that are part of University of Michigan Health) to the other health care organizations in West Michigan — are all working together openly, sharing and helping each other. That open cooperativeness transcends through the ranks as a testimony of how real this is.

What’s the biggest challenge to doing modeling? The biggest X factor is in fact the human (element) and what are the effects of social distancing. How far have we gone? What we know is that in order to make a change to that curve of infected (people), it’s a one- to

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Our number one mission is to treat the patients. That’s our priority. Now isn’t maybe the time as a nation to have compulsory reporting, because that’s an extra burden for the health care institutions that are trying to treat patients at a time when there has been scarce resources. If we had defined this ahead of time — ‘for this crisis, this is what’s going to happen’ — and those data feeds were already there … maintaining it is not as difficult. The hard part of setting up a data feed is just the initial analysis and understanding what you need to do and building it out. We need to have an efficient flow of data so scientists have access to the data when they need it.

What kind of pressure do you feel as you go about modeling and preparing projections? I do feel a constant weight to go beyond our best because there’s clearly not only lives at stake, but then there’s the financial implications as well and folks’ livelihoods. We could certainly take a worst-case scenario and say, ‘Here, let’s make sure we do this,’ but that wouldn’t be in our best interests, so we’re developing the most reasonable model that we can plan toward in hopes that we save as many lives as possible.

MSU Foundation to manage state-backed $5.5M pre-seed fund By MARK SANCHEZ | MiBiz msanchez@mibiz.com he Michigan Economic Development Corp. plans to put $3 million into a capital fund that will invest in earlystage technology companies. The Michigan State University Foundation will match the state money with $2.5 million of its own, for $5.5 million total, and manage the Pre-Seed Fund III, which will operate similarly to two prior capital funds formed by the state. As well, the MSU Foundation will provide coaching and mentorship in areas such as finance, marketing tactics and strategy to entrepreneurs behind the startups the fund backs, said Jeff Wesley, executive director of Red Cedar Ventures, the organization’s venture capital subsidiary. Red Cedar Ventures operates an “active fund” that “is there to provide guidance and coaching in every aspect with their business,” Wesley said. The MSU Foundation Wesley also has an established professional network that includes prospective investors who could participate in follow-up investments as a startup company progresses, he said. “When you’re dealing with pre-seed companies, you’re pretty hands-on. So, Molnar we’re there every day, working with them on all aspects of the business,” Wesley said. “We see the challenges of the startups and we’ve worked with many over the last few years. We just can’t get these funds fast enough to help these entrepreneurs that work so hard and get their businesses commercialized.” Grogan The Michigan Strategic Fund board chose Red Cedar Ventures to manage Pre-Seed Fund III over Invest Michigan and Ann Arbor SPARK, each of which operated prior pre-seed funds. Proposals from all three firms scored highly in an evaluation, with the MSU Foundation edging out Invest Michigan and Ann Arbor SPARK in final scoring. Red Cedar Ventures, created in 2014, presently has 50 active startups that it backs. Those startups have collectively received about $5 million from Red Cedar Ventures and have gone on to secure $200 million in follow-on investments, Wesley said. Managing Pre-Seed Fund III extends the reach of Red Cedar Ventures, which has focused primarily on innovations spinning out of the university. “We think we can have a huge impact going forward for these companies through the unique infrastructure that we have and our ability to coach them to success, and we’re just looking forward to the opportunity,” Wesley said. “We’re looking at taking all of the lessons learned, and all of the experience we have and the ecosystem we have, and bring that to the rest of the state.”

‘Right thing to do’ Pre-Seed Fund III follows two prior funds that since 2011 have collectively provided $20.5 million in early-stage capital to 125 tech startups,

which went on to leverage the investments to attract nearly $560 million in additional capital. Given the success of the earlier pre-seed funds, the MEDC decided to proceed with Fund III to try to address a persistent gap in the access to capital for young startups. That gap has widened over the years as angel and venture capital investors moved upstream to take on less risk with companies that have progressed beyond their earliest stages. “That’s just become the norm now,” said Fred Molnar, vice president of entrepreneurship and innovation at the MEDC. “Some very good companies would come out of the university system or out of a SmartZone and they would have great ideas and rely on their self-funding — friends, family, etc. — and then after that, there was a gap,” Molnar said. “That’s where the state stepped in and we thought we could best help.” The MEDC hopes the funding can help to move early-stage startups to where they can attract funding from other angel and venture capital investors, Molnar said. Filling the gap in the capital continuum is “elementally crucial to the ecosystem,” said Dale Grogan, a managing director at Grand Rapidsbased Charter Capital Partners. He served on a committee that evaluated proposals to manage Pre-Seed Fund III. “It is absolutely the right thing to do and I wish there was more of it,” Grogan said. “I can’t stress how important this is for economic gardening and building the ecosystem.”

‘Best support possible’ The MEDC was planning the Pre-Seed III Fund prior to the COVID-19 pandemic that spread into Michigan in March. The fund is separate from other efforts to aid small businesses and startups hit by the pandemic. Still, a MEDC staff memo this month to the Michigan Strategic Fund board noted that formation of the fund “is especially critical at this time, considering the impact of (the) COVID-19 pandemic on Michigan technology early stage companies.” “Now more than ever, the goal is to get (the) best support possible to early stage technology companies, putting them on a path to survive the current economic crisis and scale when the downturn subsides,” MEDC staff wrote in the memo. “When it’s impacting major companies, you can only imagine the stress smaller companies have as they try to power through it,” Wesley said. The MEDC’s first pre-seed fund of $10.2 million, formed in 2011 and administered by Ann Arbor SPARK, made 86 microloans and investments in 74 companies over five years. Those companies went on to attract $283.2 million in follow-on investments, created or retained 509 jobs, secured 109 patents and generated $25.1 million in new sales, according to the state. The $10.3 million Pre-Seed Fund II, run by Invest Michigan, made 108 investments in 51 tech startups that later attracted $275.5 million in private capital, created or retained 2,248 jobs, were issued 95 patents, and collectively generated $130.2 million in new sales, according to the MEDC. The state’s $3 million allocation for the third pre-seed fund was based on what was available in this year’s MEDC budget, Molnar said. The MEDC plans to return to the Michigan Strategic Fund board in subsequent years for further allocations for the fund, he said. MiBiz / APRIL 27, 2020

FINANCE SBA LOANS

Continued from page 1 single business is going to be affected, whether it’s decreased orders or things of that nature,” said Tony Mandarino, vice president of commercial lending at St. Joseph-based United Federal Credit Union. “Almost everybody’s going to be impacted in some way, shape or form. We’re having a pretty widespread demand from across all of our business owners,” Mandarino said. “It’s such a strange time because in some cases they are shut down entirely, and in others they are very much restricted. There’s a lot of anxiety out there and uncertainty on when they’ll be able to reopen or get back to a more normal time.”

Strong demand The anxiety among small businesses played out in the large number of PPP loan applications that banks and credit unions received and processed in a short period of time. For example, in two weeks, the Grand Rapids-based Mercantile Bank processed and secured approval for 1,549 loans for small business clients totaling $502.9 million. Many more PPP loan applications are waiting to go forward with additional funding for the program, according to CFO Chuck Christmas. “There are other borrowers out there that would like the assistance

Mandarino

McFarland

and we would like to get it to them,” Christmas said last week during a conference call to discuss Mercantile’s first quarter results. Fifth Third Bank, the market leader in West Michigan, processed and submitted some 10,000 PPP loan applications for nearly $3.5 billion across its 10-state market. PPP loans for Fifth Third customers averaged $350,000 to $370,000, according to President and CEO Greg Carmichael. Huntington Bank, the largest SBA lender in the U.S., had PPP applications from nearly 26,000 small businesses for more than $6 billion in seven Midwestern states. T he 177,000-member Un ited Federal Credit Union, with offices in six states, submitted and secured SBA approval for more than 175 PPP loans for members totaling nearly $28 million, Mandarino said. The credit union received more than 500 applicat ions for more t ha n $40 million, a volume that shows the heav y demand for PPP loans, he said.

In a sur vey by t he economic development organization Lakeshore Advantage Corp. of more than 300 companies in Allegan and Ottawa counties, business owners ranked economic relief as t heir top need. More than eight in 10 of the Lakeshore Advantage survey respondents said they had applied or planned to apply for state or federal assistance, and nearly a quarter indicated they could not survive another four weeks of a stay-athome order.

Some banks talk Congress created the PPP in March as part of the massive $2.2 trillion CARES Act enacted in response to the COVID19 pandemic. The PPP has provided “an economic lifeline” to small businesses across the country, allowing them “to remain viable and maintain their workforces during the COVID19 pandemic,” said T. Rann Paynter, CEO of t he Michiga n Ba nkers Association. The SBA got the program up and running within a week of the CARES Act becoming law, although Great Lakes Regional Director Rob Scott admitted the rollout had some difficulties. Many of the complaints about the PPP have come from small business owners frustrated by how their bank handled the process and bottlenecks in the system. National media

reports detailed how some large that goes into bankruptcy or is not banks did not expect a large enough succeeding?” return to take on the cost and risk of the PPP loans. Running the gamut Crain’s Detroit Business also In an interview with MiBiz prior to reported many customers were frusCongress enacting a second round trated with Comerica Bank for how of PPP funding, Mandarino at United long it took to get a portal operating Federal Credit Union said he hoped to take PPP applications. to see changes to ensure that more In a recent media conference call, money flows to smaller businesses Scott acknowledged that banks that with fewer than 100 employees, or had never done SBA lending before maybe 50 or fewer employees. might “be a little timid.” “There’s a lot of The potential to large companies use the PPP to keep that ate up a lot of their small business the $349 billion,” clients afloat should Mandarino said. “It provide banks plenty would be nice to have of incentive, Scott more of those dollars said, adding that Collective amount of designated for those banks are receiving SBA relief loans issued to small businesses.” a fee to handle the nearly 43,500 MichiganAt the time the application process. based small businesses SBA ran out of fundEven if banks

$10.38B

“don’t make a lot of money on it, they are at least saving their customers,” Scott said. “The lenders, especially the bigger lenders, if they could get a process down, they could actually make some decent money,” Scott said. “Additionally, the lenders that are doing this, it’s also to help their customers. All of their customers are hurting, and if their customers go under without the assistance the federal government is providing through this program, how does that serve the bank’s interests if they have a customer

ing for the first round of the PPP, United Federal had members “sitting on the sidelines with their fingers crossed hoping that this second wave does come through,” he said. Scott McFarland, CEO of Berrien Springs-based Honor Credit Union, also points to how the SBA and the U.S. Department of the Treasury provided guidance on the PPP up until late the night before the program launched, and also changed the application forms. “It’s extremely difficult to play a game when the rules are constantly changing,” McFarland said.

STAY HOME, STAY SAFE: How To Protect Your Employees And Your Business When Law Enforcement Is Knocking On Your Door

overnor Whitmer’s “Stay Home, Stay Safe” Executive Order (EO 2020-21) directs all Michigan businesses and entities to temporarily suspend in-person operations that are not necessary to sustain or protect life. In recent weeks, state and local law enforcement officials have begun to enforce the order against both individuals and businesses by showing up at businesses and asking questions and by stopping employees and others in transit and inquiring about the purpose or legitimacy of the person’s travel. Below is a list of best practices to keep in mind if you encounter law enforcement officials.

For Businesses Designate one employee (“Designated Employee”) at the business to respond to any law enforcement inquiry. The Designated Employee should be available 24/7 in person and/or over the phone. If law enforcement appears at the place of business or calls, inform the Designated Employee immediately. Wait to speak with law enforcement until the Designated Employee arrives or is reached by phone. The Designated Employee should ask for the officer’s name, badge number and contact information.

APRIL 27, 2020 / MiBiz

The Designated Employee should not answer any questions. Rather, the Designated Employee should give the officer the name and contact information for the business’s attorney and indicate that the attorney can provide whatever information the officer needs. If the officer issues a citation (ticket) or indicates they will be referring the matter to the Attorney General’s Office or a local prosecutor for further action, please call your attorney immediately.

For Individuals (Employees) Law enforcement officers have begun to pull over individuals and ask that person to demonstrate a legitimate purpose for being out and about. A best practice is to issue letters to employees who are performing minimum basic operations or employees who are critical infrastructure workers indicating their designation. If you decide not to issue letters to your employees, provide employees with the name and contact information for the Designated Employee whose name and number can be provided to law enforcement officers to verify that the individual pulled over is a critical employee.

Front: Pamela Enslen, Charlie Quigg, Madelaine Lane Back: Megan Vogrig, Chris Tracy, Tamara Reeves, Jeffrey Segal, Brian Lennon

If an employee received a citation or is told they will be ticketed or charged, please contact your attorney as soon as possible or contact Warner attorneys: Brian Lennon:

616.901.7693 blennon@wnj.com

Madelaine Lane:

616.826.9327 mlane@wnj.com

“Speaking with a law enforcement officer during the course of an investigation may leave the employee criminally liable for knowingly providing false information to a law enforcement officer if the officer or prosecutor later believes the information provided was false or incomplete.”

White Collar Criminal Defense and Investigations Practice Group Warner’s criminal defense and investigation attorneys lead internal investigations and represent businesses and individuals in numerous state and federal jury trials. They protect businesses, victims, witnesses and the accused and provide preventative services for organizations such as compliance audits and training. Preparing for difficult situations that may involve state and federal authorities can help prevent or minimize events before they become a compliance or criminal problem.

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“The SBA has a unique opportunity to really show themselves as a solution, but they’re going to need a little bit of grace with both the borrowers and the financial institutions.” — SCOTT MCFARLAND CEO of Honor Credit Union

Honor Credit Union, with more than 86,000 members, received about 300 applications totaling $27 million for the PPP from across all economic sectors, McFarland said. The credit union had another 100 applications in process to submit to the SBA. “We have everything from momand-pop shops to 40-person restaurants that are trying to keep things going. We have landscapers, construction,” he said. “It crosses the entire gamut. Even churches, everybody. Day camps, YMCAs — you name it.”

‘Unique opportunity’ McFarland hopes that in the next round of PPP funding, the SBA provides “clear and concise directives” to lenders and offers leeway for borrowers. Lenders could use reassurance from the SBA that it will not penalize them for minor mistakes on the application forms, such as a box not getting checked, he said. “Remove technicalities. Don’t let us get bit by a technicality,” he said. “We’re talking businesses that are closed, trying not to close, or just trying to keep their head above water, and then we’re asking them for lots of documentation, and we’re diligent about getting it.” Most small businesses have never sought an SBA loan, and in the PPP “you’re introducing them to an entirely new entity by fire,” McFarland said. “The SBA has a unique opportunity to really show themselves as a solution, but they’re going to need a little bit of grace with both the borrowers and the financial institutions.” PPP loans are forgivable and designed to help businesses cover payroll, rent, mortgage interest and utilities. Business owners must use 75 percent of the loan on payroll expenses to be eligible for loan forgiveness. For business owners who take out a PPP loan, bankers recommend they monitor how much they are using and keep some money aside to pay off the loan if they don’t need all of it for eligible expenses. Christmas at Mercantile Bank said he expects that most of the small businesses that get a PPP loan will seek forgiveness from the SBA “soon after going through their borrowings to pay their salary, mortgage payments, rent payments and utilities.” Visit www.mibiz.com

Michigan’s VC industry soars in 2019; pandemic cools outlook for 2020 By MARK SANCHEZ | MiBiz msanchez@mibiz.com he number of angel investors expanded again, the average size of Michiganbased venture capital funds increased, and even if you exclude major deals as one-time outliers, the amount invested last year still grew. Those details in an annual report from the Michigan Venture Capital Association are signs that Tim Streit considers indicative of a maturing venture capital industry in Michigan, especially when coupled with Ann Arbor-based Arboretum Ventures’ $250 million new fund last year. “I’d say the conditions are very good. It’s not without challenges, and there are always challenges, but the tune and tide and energy around the Michigan venture capital ecosystem is very strong,” said Streit, co-founder and a partner at Grand Rapids-based Grand Ventures that in 2019 raised $28 million for a new fund. In 2019, venture capital firms invested a record amount into Michiganbased companies, led by a Plymouth-based automotive technology company that Streit accounted for three-quarters of the total. The $1.55 billion investment in Rivian LLC lifted total venture capital investments in Michigan to $2.06 billion across 71 deals for 2019, according to an annual research report issued by the Michigan Venture Capital Association. Minus the Rivian deal, venture capital investments across the state totaled $514 million through 70 deals, which is still a record amount and more than 150 percent higher than five years earlier. Last year’s total also included a $110 million investment in Detroit-based StockX LLC, an online marketplace and clothing reseller, primarily for sneakers. The Rivian and StockX investments, plus $58 million in Series C funding for Ann Arbor-based life sciences company HistoSonics Inc., “are numbers that we have not seen before,” said Dale Grogan, managing director of Grand Rapids-based Michigan Accelerator Fund I, which invests in early-stage companies. A decade ago, such larger, later-stage capital rounds “never” occurred in Michigan. “That is a tremendous trend that really bodes well for the venture industry. It also shows our industry is starting to drift a little bit later on the venture side,” Grogan said, referring to later-stage capital rounds. “It certainly signals a maturity of the venture industry within Michigan, no doubt about that.”

Panemic implications Whether the venture capital industry can continue momentum through 2020 remains uncertain. The COVID-19 crisis will surely affect deal flow and the amount invested, “hopefully not horribly severe, but we’ll see,” said Ara Topouzian, executive director of the Ann Arbor-based MVCA. Despite the economic pain now occurring, Topouzian sees venture capital deal flow and investment continuing as firms focus on helping their portfolio companies navigate the crisis, although probably on a limited basis. “The end result is going to be (based) on how long this crisis lasts. If we come out of this crisis in a shorter term, I think (the) impact overall will hopefully not be as great,” Topouzian said. Recent reports from the National Venture Capital Association and PitchBook show the cumulative value of deals across the U.S. held up during the first quarter, at $34.2 billion this year versus $35 billion a year earlier. However, the number of venture capital deals nationwide declined 27 percent to 2,298.

In Michigan, venture capital investing in the first quarter was off significantly with 17 deals for $43.8 million, down from 43 deals for $219.2 million in the same period in 2019, according to PitchBook and NVCA data. Venture capital activity in the last two economic downturns contracted 30 percent to 50 percent and post-recession returns have improved, Streit said. He believes the Michigan venture capital market will “be more resilient than most” across the U.S. during the economic recession brought on by the COVID-19 pandemic. “The pendulum swings, but I think that Michigan will be OK,” Streit said. “I’m sure we’ll see a little more of a reset, but I’m confident in the longer term outlook.”

Finding opportunity

per firm increased to $133 million from $110 million. Likewise, the average size of a Michigan-based venture capital fund was $60 million at the end of 2019, up from an average of $48 million in 2018. “Any way you slice through it, Michigan has been doing very well,” said Jeff Rinvelt, a principal at Renaissance Venture Capital, an Ann Arbor-based fund-to-funds who sees the economic downturn from the pandemic temporarily pausing progress for venture capital in Michigan. “It’s how do we continue that momentum in 2020? I think it’s going to be down. It’s how far does it go down and what can we do to sort of do a V-shaped recovery or a Nike swoop recovery?” Rinvelt said. Many venture capital funds right now are primarily focused on supporting their portfolio companies and “making sure they’re well stocked to weather the storm,” he said. An inability to travel and meet face-toface with investment prospects will result in a reduction of deal flow, although deals that “are already in the hopper” should go forward, Rinvelt said. Among the 2019 data Rinvelt points out in the annual research report is that for every $1 invested by firms based in the state, another $45.71 came from out-ofstate investors who over the years have increasingly been targeting deals in Michigan and the Midwest. “That means we’re growing great startups and attracting them, and that’s really the thing you want to do in the long term,” Rinvelt said.

Grand Ventures has been active in the market, recently signing two term sheets and writing a third, Streit said. One of the fund’s portfolio companies also signed a term sheet for follow-on financing, he said. Needs persist In time, the COVID-19 pandemic and economic fallout will create new opportunities for venture capital The MVCA report also details the persistent gap investors, Streit said. New technologies could emerge between the amount of funds venture capital firms that better accommodate health care and telemedicine, have set aside for follow-on investments in portremote work and education, logistics and delivery ser- folio companies and what’s needed to support the vices, or other areas that play into consumer and busi- companies’ continued development and growth. Venture capital firms at the end of 2019 had $396 ness behavior stemming from the pandemic, he said. One of Grand Ventures’ latest investments was in million available for follow-on investments, a third a company with a technology to more effectively use of the $1.2 billion that’s presently needed. At the end of 2019, Michigan was home to 144 videoconferencing platforms like Zoom, Streit said. Another portfolio company, TimeDoc, a telehealth companies backed by venture capital. There were 26 platform for chronic care patients, is “booming right venture capital firms active in Michigan last year, 20 now,” and Grand Ventures is actively looking at other of which are based in the state. The others are based elsewhere but have an office in Michigan. telehealth providers and applications, he said. Venture capital based in Michigan and with a “There are sectors that are really going to thrive on the other side of coronavirus and that are thriv- presence here raised $623 million last year for new ing right now during the outbreak,” Streit said. “What funds, or 86 percent of the $722 million they colwe’re investing into and researching heavily is what are lectively targeted. Streit at Grand Ventures the sectors that really stand to expects that firms planning benefit and to thrive post coroto raise capital for new funds navirus. We’re exploring a lot of in 2020 may have to wait. these trends to see what they “I think fundraising plans mean for the economy and in general will just get delayed. our fund.” If I were thinking about 2021 Grogan cites the rise in for fundraising, I’m probably the use of telemedicine durnow looking more at 2022,” ing the pandemic as epitohe said. mizing how “doing things Streit and Rinvelt believe we once thought were only the pandemic and resultavailable in person are proving greater volatility in the ing to be false” as consumers stock market could benefit are forced to change behavventure capital. The volatilior. That creates opportunity — TIM STREIT ity and economic downtown for innovators and investors, Partner at Grand Ventures may drive some high net he said. worth individuals to direct more money to alternative Growth trends investments. The MVCA’s annual research “A lot of these investors report offers a detailed look at the state of the ven- are still looking for returns that outpace the pubture capital industry in Michigan. lic markets and private equity and venture capital The report shows that in addition to a record are one of the only places to get that,” Rinvelt said. amount invested in deals, the total amount of capital under management grew last year for the Angel activity first time since 2015. Venture capital firms based in Michigan and from out of state collectively had As activity by venture capital firms grew in 2019, $4.26 billion in capital under management at the angel investors also put more money into more end of 2019, an increase of 14.2 percent from 2018 deals than ever before. Angel investors put $73.6 million into 106 startup and up 52 percent from five years earlier. Capital under management by Michigan-based companies last year, which compares to $52 milfirms grew nearly 21 percent last year to $2.66 billion lion invested in 84 startups in 2018, according to from the $2.2 billion at the end of 2018, according to the MVCA report. The number of angel investors in Michigan, the MVCA report. That’s the largest amount of capital under management for Michigan-based firms since either through one of 13 groups such as Grand the MVCA began issuing an annual research report in Rapids-based Grand Angels and its affiliates across 2005. The increase also reversed a two-year decline, the state or as individuals, grew more than 50 perand the amount surpassed the prior record of $2.4 bil- cent to 1,322 in last year, up from 859 in 2018. More than half of the angel money invested last lion in 2016 for Michigan-based venture capital firms. The average amount of capital under management year went to startups involved in I.T.

“The pendulum swings, but I think that Michigan will be OK. I’m sure we’ll see a little more of a reset, but I’m confident in the longer term outlook.”

MiBiz / APRIL 27, 2020

SMALL BIZ LAKESHORE RETAILERS Continued from page 1 didn’t specifically state that they can sell mer“I am totally shut down, but I am reachchandise via online or contactless curbside ing my customers through my live (Facebook) delivery. fashion shows once or twice a week, where I “That has given a lot of retailers pause, so walk around the store and show them what’s they have shut down their stores,” Meegan new,” Veiseh said, noting a recent Facebook Holland, spokesperson for the Michigan Live fashion show garnered 4,000 views. “Right Retailers Association, said prior to the new now, people are calling me or messaging me, executive order. “We are urging ‘Please send me this or send this the governor to allow retailers to to my mother or my daughter or reopen as long as they can sell my niece. They are lonely.’ It’s products with minimal to no connot even close to what my regular tact with the public, as restaurants sales are, but it really keeps me on Sponsored by: are now allowed to do.” my toes and busy.” SMALL BUSINESS The associat ion was bomNow work ing f rom home, ASSOCIATION barded with calls and even set up Jeremy Sw i f t ne y, e x e c ut i ve OF MICHIGAN a private Facebook group for retaildirector of Grand Haven Main ers who wanted to share concerns Street Downtown Development and ideas and learn about available programs Authority, continues to help business owners to help them. as best he can, sending out emails with updated Veiseh turned to social media to stay visible information and forwarding resources for to customers near and far. Down To Earth, at grants, loans and other assistance. 105 Washington Ave., sells women’s clothing, “I am sitting by my phone,” he said. accessories and home décor and has been in “Anytime someone has a question, I try to find business for nearly 30 years. Veiseh continues to out what the answer is and make sure they are go into the store, answer the phone, take orders educated and ready to go for whatever their and arrange for pickup or delivery of merchanneeds may be.” dise while her part-time employees post photos on social media and send out emails. Gray area She has a store full of spring merchandise Some small businesses have shifted to online and has held off on receiving additional shipsales through their websites, while others are ments from her vendors. Veiseh credits owning using social media outlets to drive sales rather her downtown building, having loyal customthan launching a full online e-commerce ers and having a spouse with a job with helpsystem. ing her business survive. One customer even Under Whitmer’s original order, retailers told her to add an extra $20 to a recent order could perform basic functions to keep their to help her out. stores afloat — like inventory, security and “I don’t want them to forget about my store,” accounting functions such as payroll — but it Veiseh said. “I’ve never been through anything

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Business owners in Muskegon’s Lakeside business district have faced ongoing obstacles because of prolonged road construction before being forced to close due to the coronavirus. MIBIZ PHOTO: MARLA MILLER

like this — it’s just a very, very different challenge for my business.”

Making do in a crisis

“We will hang on as long as we have to,” Goode said. “We are not going anywhere. We are standing right here in the middle of it, and plan to be stronger as an organization when we come out the other side.”

With business districts scattered throughout the city of Muskegon, new and established busi‘Riding out waves’ ness owners face a similar plight. Some of the For stronger elixirs, Unruly Brewing Co. restaurants, coffee shops and breweries have LLC, Rake Beer Project LLC and Pigeon Hill scaled back hours but remain open for takeout, Brewing Co. LLC are still selling beer on a to-go delivery and to-go sales. basis. Pigeon Hill also has turned to Facebook Drip Drop Drink LLC, a coffee shop that Live to keep customers abreast of its operations started in a small space on Western Avenue and offer some comic relief, along with launchand later moved to 926 Second St. in late 2018, ing a Social Distance Series and canning beers and Aldea Coffee LLC are open limited hours that were meant to be served in the taproom. for to-go and roasted coffee sales. Other local businesses — including spirits Aldea Coffee opened a coffee shop in the brand Burl & Sprig and BoomTown Market Grand Haven Armory building about five LLC — have turned to making hand sanitizer. years ago and expanded to a second location BoomTown, the downtown’s new grocery store, in Muskegon’s NorthTown 794 building last fall. also is open for curbside pickup and delivery. Aldea owners Andrew Boyd and Jeremy However, for several downtown Muskegon Miller — along with Brittany Goode, the re st au r a nt s a nd ba r s, only remaining full-time operations have stopped. employee — are keeping In recent weeks, it was the operation afloat after a similar scene in other laying off and furloughing retail districts, with dark 11 employees. storefronts and “tempoAldea applied for emerrarily closed due to the gency grants but hasn’t governor’s order” signs on applied for federal loan the doors of Third Coast support. Goode also said Vinyl and The Griffin’s NorthTown’s landlord, John Rest in the Midtown area, Essex, “has from the beginVintage Redefined a nd ning been very willing to The Century Club buildwork with us.” Goode said customers — BRITTANY GOODE ing in downtown, and most storefronts in the Lakeside are still stopping in both Sales Associate at Aldea Coffee LLC Business District. the Muskegon and Grand Louise Hopson, an artHaven cafés, and they are ist in the Lakeside area, limiting it to one customer has owned and operated at a time. Most of the other Art Cats Gallery for 20 years. She rents space businesses in the multiplex office/retail buildin a multi-unit building at 1845 Lakeshore Drive ings have temporarily closed, Goode said. and said her landlord has been willing to work While Aldea’s wholesale program took a big with her. hit with offices and churches closing, bagged Hopson is trying to stay visible on social coffee and online sales have skyrocketed. media, put more items on her website, and “It really is individuals purchasing coffee is accommodating customers by shipping or for home or individuals purchasing coffee for delivering orders. She still plans to host a speothers,” Goode said. “We already had an online cial invitational art exhibit in May to benefit presence before this, but it has blown up. I have Pound Buddies and Heaven Can Wait Animal never seen this many online orders.” Haven. She says she is fortunate to have cusStill, the timing of the global pandemic put tomers seeking gift cards or wanting to buy art further expansion plans on hold. Aldea has pieces. a roasting facility in Muskegon Heights and As well, Hopson applied for a grant through recently hired more people to handle increased the Small Business Administration, but as a coffee production. Even so, the company plans longtime self-employed worker, she isn’t used to weather whatever is in store.

“We already had an online presence before this, but it has blown up. I have never seen this many online orders.”

Help navigating your business & COVID-19. Visit us at sbam.org/covid19 We are connected with HR, legal and accounting experts and can help you find the answers you need during these uncertain times.

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Retail store owners in the Lakeshore towns of Grand Haven and Muskegon scramble to stay afloat after widespread closures caused by the coronavirus pandemic. MIBIZ PHOTOS: MARLA MILLER to seeking out assistance and hasn’t applied for any loans. In late March, the city approved emergency loans up to $10,000 for Lakeside businesses because of an extended road project that resulted in lost revenue for most businesses during 2019. “I’ve just got myself to worry about, and I have been around long enough that I have some money saved, but it’s retirement money,” she said. “Artists are definitely a group of selfemployed people who are really used to riding out waves of ‘I have a ton of money’ or ‘I have no money.’”

Banks get flexible Meanwhile, banks have been responding to the f lood of demand for loans. The first round of funding through the CARES Act stimulus package was expended by April 16. As of press time, the U.S. Senate had passed another $463 billion aid package, including $310 billion for the Paycheck Protection Program. President Trump was expected to sign the aid package. “We’ve had a lot of interest in those (PPP loans),” said Kelly Potes, president and CEO of Sparta-based ChoiceOne Bank. “We’re taking a lot of applications so far. We’re dispersing funds. We’ve been very active.” Local banks are funding the Paycheck Protection Program loans as a way to help businesses cover payroll, rent, mortgage interest Visit www.mibiz.com

and utilities. Business owners must use 75 percent of the loan on payroll expenses to be eligible for loan forgiveness. Business owners who take out a PPP loan should monitor how much they are using and keep some money aside to pay off the loan if they don’t need all of it for eligible expenses, Potes said. “Within 10 days of approving that loan, the SBA requires those funds be taken by the client, and they essentially have eight weeks to use that money,” he said. “If their employees are working, they can use that money to pay their employees. Whatever isn’t used for that purpose won’t be forgiven by the SBA.” ChoiceOne Bank is allowing business customers affected by the coronavirus pandemic to make interest-only payments or is offering a complete deferment of the payment depending on their need. The initial deferment is 90 days, but it may be extended as needed. Hu d s on v i l l e -b a s e d We st M ich i g a n Community Bank also is issuing PPP loans and providing payment waivers for up to three months for existing loans, including lines of credit, equipment loans and mortgages, said President and CEO Phil Koning. Those deferred payments are added to the end of the loan. Koning said business ow ners have to aggressively manage their business, especially expenses, so they can survive. “Actually, most customers are adapting very well to this environment, both on the deposit

and loan side,” he said. “At this point in time, we feel most businesses will make it through, but it depends on how long this thing lasts.” Koning said bank employees are making contact with business customers via phone or email to let them know help is available. “We have already funded some PPP loans,” Koning said. “We think most will be forgiven within the next few months. People are using the money for what it was meant for, to keep paying their people. Those are qualifying expenses that will amount to forgiveness on the loan.”

Trusting the process For PPP loans, local banks are backing them in good faith that clients will meet the terms of the loan and the SBA will pay off the loan. The Federal Reserve also developed a special program to help banks finance the PPP loans.

Businesses that have to repay a portion of the loan will pay it back to the bank. “We’re believing the federal government and SBA are going to do what they said they are going to do, and the client is going to do their part,” Potes said. “There is a lot of trust built into this.” Since the Federal Reserve dropped interest rates, ChoiceOne also has seen an uptick in customers refinancing existing home mortgages. If they keep the same terms and do not borrow more money, they should see their loan payment go down. Potes’ best advice is for people to reach out early, rather than to simply stop paying or let a loan become delinquent. “The key, especially on the deferments, is to talk to the bank early before you get into trouble,” he said. “We have more things we can do for clients if they contact us early as opposed to when they start missing payments.”

BUILDING ON OUR PROMISES Construction. Commitment. Unparalleled.

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FOOD BIZ

Foodservice disruptions create crisis for farmers By JESSICA YOUNG | MiBiz jyoung@mibiz.com

s the new coronavirus spreads throughout the Midwest and people’s behaviors change as a result, Michigan’s turkey farms are struggling to stay afloat. That’s according to Curtis Walcott, a second-generation operator of Walcott Farms in Allendale. Turkeys raised in Michigan are not the typical Thanksgiving fare most Americans associate with the bird because farms in the state raise toms instead of hens. Toms grow to about 40 pounds and are sold as ground turkey, deli turkey and whole turkey breast. About 60 percent of those products are consumed in sandwiches prepared at fast-casual restaurants or found on dine-in menus, Walcott told MiBiz. Along with vast numbers of people throughout the country, West Michigan residents are now spending the majority of their time at home as part of mitigation efforts to fight the spread of COVID-19. That’s largely changed the way people eat, Walcott said. Now, consumers are buying nearly all of their food from local grocery stores, markets or online retailers, often stocking up on supplies that will last weeks at a time. Aisles of meat and produce at stores have been wiped out. At the same time, vast storage of local meat and dairy products that were destined for foodservice is Walcott piling up because the two supply chains operate in disparate and intricate channels, according to Walcott. Walcott Farms is the largest turkey producer in the state and is part of a group of 18 family-owned and operated turkey farms that collectively work together and own the Michigan Turkey Producers Co-op processing operations in Grand Rapids and Wyoming. The co-op also is struggling, Walcott said. Brink Prior to the coronavirus pandemic, people purchased 50 percent of their food at restaurants, schools and other locations outside of their homes, according to data from the U.S. Department of Agriculture. The overall demand for turkey from Michigan has decreased by 70 percent since the beginning of the coronavirus outbreak, according to the co-op. If restaurants and grocery store deli counters remain disrupted, turkey farmers who have nowhere for their product to go may have to shut down, according to Walcott. “The distribution centers that you may be shipping product to may already be sitting on product that was supposed to go to a school or college or a restaurant that no longer wants that product,” Walcott said. “So, in addition to our product needing to go out, somebody might be sitting on product that they anticipated to go out, too. It’s created some very complex problems for people to deal with and it’s a real struggle for people on every end of it.”

Turkey farms in West Michigan are struggling because most of their products typically end up in foodservice distribution channels, which have been disrupted because of the state-mandated closure of restaurants to curb the spread of the coronavirus. COURTESY PHOTO Any food supply shortages that happen during or immediAbout $16 billion from the program will be directly distributed ately following the COVID-19 crisis are “not for lack of producto farmers and ranchers and the remaining funding will be used to tion at the farm level,” according to Ernie Birchmeier, manager buy excess food that is overloading the supply chain. of commodity, farm and industry relations at the Michigan Farm Historically, turkey farmers have not been able to access emerBureau. gency financial assistance from the federal government, accord“I don’t ever remember a time when the potential for crisis was ing to Allison Brink, executive director of Michigan Allied Poultry this big across the industry,” Birchmeier told MiBiz. Industries. However, the group is working to clarify if turkey farmThe state’s dairy and livestock industries have been the harders can access funds this time around. est hit by the shift in consumer behavior, according In the meantime, the state’s turkey industry is reachto Birchmeier. While dairy processors are ramping ing “critical levels,” Brink told MiBiz. “Turkey farms canup bottling operations to somewhat meet demand, not exist on grocery sales alone,” she said. “We’ve got milk prices have dropped 30 percent, he said. Unlike diminished demand, we’ve got falling prices and all of Sponsored by: operations in some neighboring states, dairy farmers this is contributing to economic pain at the farm level.” DAN VOS in Michigan have not yet been forced to dump their Even if selling all of the turkeys that are raised in CONSTRUCTION milk, according to Birchmeier. the state through grocery stores was a viable option, COMPANY Meanwhile, closures and reductions of capacity at shifting excess products to retail channels is not a simprocessing plants are inflating meat prices in grocery ple task, according to Brink. stores while animals remain stuck on feedlots. Livestock farmers “The meat market is a very competitive market and the retail who are already facing increased food and shelter costs will likely market is very competitive,” she said. “It’s important to develop see a decrease in the financial value of each animal they produce good relationships with your customers and when you see that now that the supply is increasing. swing (away) from the foodservice industry, it’s clearly impact“Processing plants are in business to make money,” Birchmeier ing the Michigan turkey industry. It’s a very fluid situation right said. now and retailers aren’t really looking at taking on new product.” Some farmers and ranchers hit by the disruptions and shutTurkey farmers in the region are scrambling to adapt to the downs caused by COVID-19 will receive financial assistance lingering decrease in demand by making “difficult decisions” to from the federal government. Earlier this month, U.S. Secretary reduce capacity through the end of the year, which will have lasting of Agriculture Sonny Perdue announced $19 billion in fundeffects on the industry beyond 2020, according to Walcott. ing for the Coronavirus Food Assistance Program (CFAP). The “I don’t think anybody really knows what’s going to happen in program will “take several actions to assist farmers, ranchers, the future,” Walcott said. “We can safely say that people are doing and consumers in response to the COVID-19 national emerthings differently in their personal life and one thing we can’t be gency” including immediate relief funds, according to the certain of is how people are going to behave or what life is going announcement. to be like for people moving forward. The bottom line right now CFAP will use funding provided in the Coronavirus Aid, Relief, is the meat that we have coming in and the products that we have and Economic Security (CARES) Act, the Families First Coronavirus coming into our facilities don’t have a home once they’re ready Response Act and other existing USDA authorities. to go.”

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ECONOMIC DEVELOPMENT

Without treatment, mental health experts fear long-term damages from COVID-19 By ANDY BALASKOVITZ | MiBiz abalaskovitz@mibiz.com

he coronavirus brought swift public health and economic damages, but the mental toll from thousands of deaths, millions on unemployment and isolation could have lasting effects on mental health. While the volume of West Michigan residents initiating behavioral treatment hasn’t necessarily increased, the sever ity of callers’ anxiety, stress and depression has, experts say. Without early treatment to identify the symptoms, Spykerman longer term mental health disorders may settle in. “ The people who are calling seem to have much more severe symptoms to what we’ve experienced preCOVID-19,” said Edwards Kristin Spykerman, chief clinical officer for Network180, Kent County’s community mental health authority. “We definitely are thinking these will have long-term impacts.” Behavioral health experts say the warning signs of long-term mental health issues are already evident in increased alcohol sales, for example, and rising unemployment, which grew from less than 4 percent to more than 20 percent in Michigan over a matter of weeks. The ongoing uncertainty over the economy and forced isolation

contribute to anxiety and depression, culminating in increased risk for post traumatic stress disorder or suicide, particularly for front-line health and other essential workers, as well as those who have lost loved ones but weren’t able to see them. Evonne Edwards, outpatient clinical director for Pine Rest Christian Mental Health Services in Grand Rapids, says while crisis hotline calls have increased in Michigan and nationwide, “We’re not seeing that same increase in people coming to initiate services. There’s a mismatch, and it might mean people don’t think we’re open for business.” She added that seeking help and intervening early is key. “Managing stress early on might treat it while it’s still mild symptoms and prevent you from a long-term anxiety disorder,” Edwards said. “It doesn’t have to be a crisis level to seek help.” Still, Edwards remains concerned about long-term effects on health based on research following other pandemics, such as SARS in the early 2000s. She is “particularly worried” about an increase in substance use disorders, or using alcohol and drugs to cope with the surrounding health crisis. “I’m seeing on Facebook things like ‘quarantinis’ — that’s clearly being used to cope,” Edwards said. “When you use it that way, it puts you at increased risk of substance use disorder.” Other concerns for Edwards include a spike in domestic violence incidents, child abuse and neglect and increased suicide rates. “So many of the known predictors of suicide and worsening

mental health are increasing,” she said. “Unemployment is predictive of anxiety, depression and suicide. … Some of the mental health outcomes will reverberate longer than some of the economic ones.”

Services expand, move online A national poll released last month by the American Psychiatric Association showed more than a third of Americans say COVID-19 is having a serious effect on their mental health. One possible silver lining to the mental health implications of COVID19: It’s never been easier to get treatment. Phone-based treatment and telehealth, or seeking therapy virtually, is now commonplace and likely will be in the future. Network180, Pine Rest and Forest View Hospital — a private psychiatric facility in Kent County — this month launched the “Don’t Go Out, Reach Out” campaign encouraging residents to contact local mental health agencies instead of going to emergency rooms. The organizations and others around the state and country run 24/7 hotlines. “It’s never been easier to reach out for mental health help than right now,” Spykerman said. The reach-out campaign is meant to avoid straining emergency departments treating COVID-19 patients. According to Spykerman, Kent County sees more than 15,000 ER visits a year related to behavioral health. The Whitmer administration has also focused on mental health during televised COVID-19 updates and has issued multiple orders making it easier for residents to seek treatment.

MENTAL HEALTH SUPPORT HOTLINES Disaster Distress Helpline (800) 985-5990 National Suicide Prevention Lifeline (800) 273-8255 or text TALK to 741741 Michigan Warmline (888) 733-7753, 10 a.m.-2 p.m. For frontline workers, text FRONTLINE to 741741 Postpartum Support International Helpline (800) 944-4773 Veterans Texting Helpline Text 838255

Earlier this month, a statewide “warmline” was opened to offer phone services to people who need to speak to someone but aren’t suicidal. The Michigan Cares program aimed at educators and families with school children offers free digital lessons involving mental health. On April 17, the state also launched the “Stay Home, Stay Mindful” website that includes in-home meditations and exercises free of charge. “Michiganders have faced an unprecedented crisis over the past month, and in these uncertain times having access to mental health resources is crucial,” Gov. Gretchen Whitmer said in a statement announcing the website. “This virus has taken a toll on Michiganders’ physical and mental health. While we all stay home

and stay safe, it is so important (to) take the time to check in and take care (of) yourself. Michiganders are tough, but having access to tools like this one will help us all get through this together.” Michigan has also received federal funding to improve mental health services. On April 21, the U.S. Department of Health and Human Services issued $2.3 million in grants for the state, including $2 million for community mental health programs.

How employers can help For people who have been working from home, employers can play a key role in monitoring the mental health of employees. Spykerman encourages employers — while it varies based on industry — to remain in contact with staff and reach out “far more frequently” than before. This includes “more all-staff meetings and encouraging supervisors to connect if not daily then several times a week to ask staff how they’re doing — not just work-related, but emotionally.” Edwards said employers can ensure health insurance plans cover telehealth and should convey to workers “the importance of using those resources.” She agrees with Spykerman that regular check-ins with employees are crucial, as is making the work environment as safe as possible for those companies remaining open. “Feeling emotionally safe and physically safe at this point makes a very big difference,” Edwards said. “If they’re feeling unprotected by employers or put at a greater risk than needed, that can exacerbate any symptoms that are there.”

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MiBiz / APRIL 27, 2020

FOCUS: DRINKING ECONOMY CRAFT BEVERAGE Continued from page 1

Extrapolating the Brewers Association data to Michigan’s approximately 357 craft breweries, it’s possible that 50 companies could already be forced to close their doors because of the loss of business related to the pandemic. Now nearly six weeks into the bar and restaurant closure in the state, another 146 breweries might not be able to hang on if the restrictions persist until mid June. “I think that number could potentially even be higher,” said Ryan Behringer, a CPA and senior manager at Plante Moran in Southfield, referring to the markets in Grand Rapids and metro Detroit. “In some of the more heavily concentrated areas, it seems like you really could have a coin flip of 50-50,” Behringer said. “Over the past year or two, even those small local spots had been feeling the pressure of some of their regulars

being taken away from them because they were going to the spot that was one mile from their house instead of two miles or three miles.” Based on their prevalence in the industry, the small breweries are most at risk in the current conditions, said Bart Watson, Ph.D., the chief economist for the Brewers Association. “The secondary answer is obviously brewery balance sheets matter,” Watson said in a virtual press conference this month. “Breweries with high debt loads right now are at an additional risk.” Craft brewery sales plummeted by 25-30 percent as a result of the coronavirus mitigation efforts that shut down key draft beer accounts at bars and restaurants. Nationwide, draft sales account for 10 percent of beer sales by volume, although vary by state, according to the Brewers Association. Watson said the current situation perhaps has exposed a flaw in the taproom-focused business model that so many breweries have adopted in

COPING WITH COVID-19

Kalamazoo Stillhouse KALAMAZOO When Nic and Joanna Merrill heard about shortages of hand sanitizer in Southwest Michigan, they began wondering how their company, craft distillery Kalamazoo Stillhouse, could help fill the void. As soon as the company received federal regulatory clarity on producing sanitizer, the Merrills immediately got to work figuring out how to make the product in their Kalamazoobased distillery. “I already had vodka in process that met the ethanol requirements for what the WHO formulation required,” Nic Merrill said. “We said, ‘Hey, we’ll throw some time and money at this.’” The federal agency issued the guidance on a Wednesday. The Merrills found out about it on Thursday morning, ordered 500 2-ounce personal sized bottles via next-day shipping and started preparing the liquid. That Friday, they filled the bottles with sanitizer and labeled them, and Joanna Merrill put up a social media post about the company giving away free sanitizer that weekend. “I went to bed that night and we woke up in the morning and 65,000 people had seen that I took my silly little picture of a hand Nic and Joanna Merrill, Kalamazoo Stillhouse. sanitizer bottle,” she said. COURTESY PHOTO They moved the entire initial batch over the weekend, and then the company faced another dilemma: Do they buy more bottles and keep producing sanitizer, or do they keep focused on their main business of making spirits? “We were toeing the line between, ‘Wow, there’s a big need for this, and we’re all of a sudden able to do this. We have to keep going,’ and, ‘Holy moly, that’s a lot of labeling and dealing with all the (hassle),’” she said. “Every few days, I think, ‘Is it viable for us to do this?’’’ Nic Merrill said. “We were doing small personal-sized bottles, which were not inexpensive. It costs us about $2 a bottle to do it and we were basically giving those away. But we’re going to get to the point where we really can’t afford to do that.” The situation was further compounded as breweries in the Kalamazoo area started to reach out to see if Kalamazoo Stillhouse was interested in taking some beer they planned to dump and turning it into sanitizer. The company is in the process of some early trial runs with the beer that look promising, at least for the short term, and has adopted a blended model of selling and donating sanitizer. Aside from figuring out the push/pull of sanitizer production, the Merrills also were closing in on leasing space for a tasting room in downtown Kalamazoo when the pandemic hit, but that deal is currently on hold. Kalamazoo Stillhouse currently sells via distribution and limited directto-consumer sales at its production facility; it does not have a tasting room. “We could’ve been in a really bad spot had we signed a lease in March because we would then have been on the hook for that, and it’s not like we can have contractors into a facility right now for non-essential stuff,” Nic Merrill said, noting the company hopes to re-engage on the property after the shutdown and various restrictions are lifted. “We are hopefully in a better position than most to weather this storm,” he said. “I think we’ll be OK. I’m feeling terrible for a lot of the businesses that are not going to be.” — Reported by Joe Boomgaard

APRIL 27, 2020 / MiBiz

recent years as a move to root themselves within their communities, particularly as crowded store shelves limited the viability of a retail model for small producers. “I do think this is going to force businesses to think about other revenue streams and how robust their business is to shocks,” Watson said. “A lot of this is going to go back to: What do consumers want out of all this as we come out of this? How willing are they to return to on-premise activities that we’ve seen before? … I think this is going to have long-lasting effects for how the breweries that went through this think about their business and how they build it for the future.”

Tough choices As they hope to rebuild and reopen in the future, many owners of craft beverage companies that also operate restaurants told MiBiz they found the government-sponsored small business relief programs particularly lacking. While the Small Business Administration’s Economic Injury Disaster Loan was likely their best option, the program only offered loans up to $10,000. Most owners were lured in by the loan forgiveness provisions in the Paycheck Protection Program, which offered two-year, 1-percent loans of up to 2.5 times the company’s average monthly payroll. Companies can use the loan to cover payroll and most mortgage interest, rent, and utility costs over the eightweek period after the loan is made. Forgiveness hinges on companies maintaining their payroll during that period. Jason Spaulding, CEO of Grand Rapids-based Brewery Vivant, called the PPP “a hard pill to swallow” since the brewery and restaurant was unsure if it would be able to hire back all of its employees to pre-shutdown levels to qualify for the loan forgiveness program. Brewery Vivant, which also includes Broad Leaf Local Beer, a restaurant and brewery in Kentwood, typically employs 75 people and qualified for $500,000 under the PPP program, which the company did not end up taking. Spaulding conservatively estimated he would be able to qualify for forgiveness of about $80,000 of the loan, and did not want to put the company at risk by repaying the remainder of the loan plus interest within a two-year period. “It feels like the boat we were on capsized, we’re floating in the water and have to take whatever life ring they throw at us. And the one they’re throwing us is a hard pill to swallow,” Spaulding said, noting he’s currently exploring options with the CARES Act’s Employee Retention Tax Credit, but is “going to try to not make any commitments until we absolutely have to.” Brewery Vivant has faced many “terrible choices” in recent weeks, he said. The company has deferred what outstanding bills it could, while still buying food and employing people to run the takeout program, “which is the only thing keeping us afloat.” Even so, the company is operating at a small fraction of normal revenues, Spaulding said, adding that the distribution business is “approaching zero.” “We had to stop midstream with bills already racked up and just had to change so fast,” Spaulding said. “There’s no way to plan or adjust. I don’t know what the solution is.” For now, the company continues to “tread water” until life goes back to normal or a better relief option materializes. “So far, so good,” Spaulding said. “We’ve got really nice support from our community around us.”

More consolidation? The current market turbulence also could drive more consolidation and M&A in the craft brewing industry, which already experienced a handful of deals in the last year. For example, Detroit-based Atwater Brewery, Michigan’s fourth-largest brewery that also operates a taproom in Grand Rapids, sold in January to Tenth and Blake Beer

U.S. CRAFT BREWING INDUSTRY BY THE NUMBERS Small and independent craft breweries continued to grow in 2019 at a similar rate as prior years, according to data from the Brewers Association. The Boulder, Colo.-based trade group tracks statistics for breweries that produce up to 6 million barrels of beer and are less than 25 percent owned by a non-craft beverage alcohol industry company. Here are some industry statistics from 2019: n 4% growth in production volume, which reached more than 26.3 million barrels in 2019 n 13.6% volume share for craft brewers, up from 13% in 2018 and 12.5% in 2017 n $29.3 billion in retail sales, up 6% from 2018 n 25.2% share of the beer industry by retail dollars n 8,275 craft breweries operated at some point in 2019, up from 7,582 in 2018 n 942 craft breweries opened in 2019, while 294 closed n 161,007 people are directly employed by a craft brewery

Co., the craft division of Chicago-based Molson Coors Beverage Co. (NYSE: TAP). “Certainly, I think we’re going to see more breweries that look at exit options, but that doesn’t necessarily mean that they’re the breweries that someone who’s on the acquiring side wants to acquire. You need to have two to make a deal,” Watson said. “I think we’ll probably get a lot of people kicking the tires, and there certainly is the possibility that the strategic platforms look to use this opportunity to buy lower if they have the cash on hand and they’re in a good financial position.” Companies focused on being able to reopen their doors once restrictions are eased also need to start contingency planning for the postCOVID-19 realities in which customers might not be willing to immediately return to crowded situations like taprooms and tasting rooms, according to industry watchers contacted by MiBiz. “With the guidance that we’re starting to see from public health and other places, it wouldn’t be surprising if there are going to be social distancing requirements, and it wouldn’t be surprising if there are going to be square footage limitations,” said Dennis West, president of Marquette-based Northern Initiatives, a small business lender active across the state. “The other side is consumer confidence. How are people going to feel about servers in masks and gloves if that’s what it comes down to? It is a tough time, because there’s no crystal ball yet in terms of timing for reopening and under what conditions.” In the meantime, companies need to ensure they have enough working capital to be ready for the restart, whenever it comes, West said. He noted that current market conditions are particularly difficult for entrepreneurs to wrestle with because of the lack of clarity. “It’s a really difficult environment,” West said. “There are two things that humans don’t tolerate well, one is isolation and the other’s uncertainty, and unfortunately we have both.” Visit www.mibiz.com

COPING WITH COVID-19

Speciation Artisan Ales LLC COMSTOCK PARK Mitch Ermatinger’s outlook has improved in the weeks since the midMarch closure of all Michigan bars and restaurants, but the economic effects of the pandemic are still weighing heavily on the co-founder of Speciation Artisan Ales LLC. “When we first realized that we were going to be shut down, I ran the numbers in my head and I was like, ‘We’re not going to be able to last more than like two months,’” Ermatinger said. Once the executive order hit, Speciation laid off all but one production employee so staff members could stay home and collect unemployment. The same day, Ermatinger and wife/co-owner Whitney

Mitch Ermatinger, Speciation Artisan Ales and Native Species Winery. COURTESY PHOTO

Ermatinger went “line by line” through the company’s bills and “cut all of our expenses down to the absolute bare bones.” “It was preemptive,” he said. “We weren’t out of money or anything, but we knew it was going to get rough.” As business has settled into the new operating environment over the last month and a half, Ermatinger got more clarity on the company’s survivability. “It’s still bad, but we do have a longer runway than I thought initially,” he said, noting his wife took a full-time job as a social worker to help diversify his family’s income while he continues to work on the business. Despite the upheaval, Speciation is taking a risk by pushing forward with plans to build-out and open a second taproom on Wealthy Street in Grand Rapids that will also feature its Native Species Winery subsidiary. That means the company currently is paying double rent as it continues to lease its production facility and taproom in Comstock Park. Ermatinger admits the move is “kind of a gamble” given the company’s reduced income, but he expects it will pay off as long as the Wealthy Street location will be able to open “in some capacity” in the coming months. Unlike most other West Michigan breweries, Speciation does not have a brewhouse. Instead, the company contracts out production of wort, the base liquid for its beers, and performs all fermentation in house. The brewery also specializes in wild and spontaneously fermented products that are aged in oak foeders or various barrels for long periods of time. “A lot of other breweries had tanks full of beer that basically needed to be served fresh and the clock is ticking on that beer. Whereas for us, we could go a year without brewing because we have a whole massive inventory of oak barrels that we can blend,” Ermatinger said, noting the business model “helps with cash flow.” “We spent a lot of our money already just getting the beer in the barrels. It’s already there,” he said. “It’s funny, I’ve always referred to those barrels as little bank accounts. You’re putting it aside in a savings account for use later. And it turns out that that is more true now than ever.” The company successfully applied for and received a small business grant, as well as a Paycheck Protection Program loan from the SBA, which combined will help “fill in the gaps,” he said. “One other thing we have going in our favor is that we’ve cultivated this cult following and we have hardcore fans that support us through everything,” Ermatinger said. “I think that is a little bit of insurance against a global pandemic.” — Reported by Joe Boomgaard

COPING WITH COVID-19

The Brass Ring Brewing Co. LLC GRAND RAPIDS The recent shutdown forced many small craft beverage companies to shift their business models on the fly. That was true for Grand Rapids-based Brass Ring Brewing Co. LLC, which operates a taproom with a small kitchen in the city’s Alger Heights neighborhood. Until the social distancing guidelines and stay-at-home orders, Brass Ring focused entirely on on-premise sales of food and beer. When the orders took effect, they sent the company scrambling at first to find “just basic supplies for the kitchen and the front of house,” said owner Chris Gibbons. The brewery muddled through the first couple of weeks, but then stabilized to the new operations focused on takeout orders and delivery. “We tried to stay ahead of the curve … and not get caught short,” Gibbons said. “(We also decided) to scale down the menu and make it work for takeout and delivery. We had to let some of our entrees go and retooled, and we added a couple of new sandwiches that we thought were amenable to the delivery model.” More than a month in, the neighborhood around the brewery continues to respond with an outpouring of support, he said, noting that the company continues to host its virtual open mic nights to help stay connected to its fans. “The fact that they’re still calling every night for takeout suggests that it’s something they

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need, it’s a break from their routine,” Gibbons said. “Especially in these times, I think offering beer and comforting food to people is a very necessary thing.” Gibbons was an early adopter of social distancing measures within the taproom, initiating a separation plan for patrons before the state-imposed order, which took some education on the company’s part to convince patrons of its purpose. Noting Brass Ring may voluntarily remove some of its tables as a result of the pandemic, Gibbons wonders how customers will be affected when they eventually return. “But I don’t see people avoiding restaurants forever,” he said. “People like to go out. People are going to want to get back out and socialize, and we’re all just going to have to find a way to do that in this new post-COVID environment.” Brass Ring, which worked with Macatawa Bank to secure a Paycheck Protection Program loan from the SBA, has been able to maintain all of its full-time employees throughout the shutdown, but had to lay off its part-time workers. Leveraging the company’s relationships with various food brokers, Gibbons set up a low-cost food pantry to help affected employees get by. Brass Ring also is using beer as a way to give back to the community. The company had a new IPA set for a mid-April launch, but lacked a name and a concept for getting the beer out to the public. Gibbons eventually

Brass Ring devised a ladder-based social distancing model for its taproom. COURTESY PHOTO settled on calling it Neighborly IPA as a tribute to the brewery’s community and opted to donate an amount equal to 20 percent of the beer’s sales to Kids’ Food Basket. “We’re just going to remain positive,” Gibbons said. “We have a little extra time and our model has been interrupted. For us, it’s just an opportunity to tighten things up and rethink our menu, rethink our process, and rethink some of the aspects of our presentation to the public, just to make ourselves sharper and leaner when we get back, and more ready to tackle the environment.” — Reported by Joe Boomgaard

COPING WITH COVID-19

Oktober Design LLC GRAND RAPIDS Oktober Design LLC proves the aphorism of being in the right place at the right time when it comes to finding success in business. The Grand Rapids-based company manufactures a line of machines that allows beverage companies to seal cans with their liquid creations. While the company has enjoyed breakout success since its debut can seamer hit the market in 2016, the last few weeks since the coronavirus outbreak hit and forced many breweries to close their taprooms has been a boon for business as customers shifted to a to-go model out of necessity. CEO Dennis Grumm said in the early days as states started to impose restrictions on in-person dining for bars and restaurants and issued stayat-home orders, Oktober’s sales were up “unexpectedly” by as much as six times normal. Sales have continued at an elevated pace, maintaining at a level around four times the company’s normal operations. “I didn’t know what was going to happen. I figured breweries were going to close up shop for a while and we were just going to go into hibernation,” Grumm said, noting that during the first day of Michigan’s stay-athome order, he worked from home when “all of a sudden my phone blew Model 7 Oktober up … and our sales just Can Seamer. went crazy.” COURTESY PHOTO “I was like, ‘Oh shit, I’ve got to get back to the shop and figure this out,’” he said. The company devised a plan that allowed most employees to work from home and build the can seamer machines in their garages or basements. Oktober used its two cargo vans to “ferry parts back and forth to people’s houses” as well as spaced out its production facility to comply with social distancing guidelines. The company also staggered shifts at its facility to limit contact even further. Oktober also offers cans in bulk, and promptly sold out of them in the first week of the stay-at-home order. The company now has a “steady flow” of cans coming in, and worked to solve some of the supply chain issues it had for parts for its can seamers, Grumm said. “It’s just been a wild few weeks,” he said. Based on the continued elevated sales volumes, Grumm thinks most companies are preparing for extended social distancing restrictions and customers being slow to return to bars and restaurants even after shelter-in-place orders are lifted. “I have a feeling that it’s going to be this takeout trend for a while. As stuff starts turning back on and people start going out again, I think it’s going to be slow (in returning to normal),” Grumm said. He credits his “super awesome” staff for rolling with the new operating environment and helping Oktober’s customers eke out whatever business they can by selling canned beverages to-go, curbside or via home delivery. “Those first few days, we had a lot of the local places coming in and they’re like, ‘Oh my gosh, we need these cans, we need these (can seamers) just to keep our doors open.’ It’s the only option they have left,” Grumm said. “We’re just trying to help them keep their doors open as much as we can.” — Reported by Joe Boomgaard

MiBiz / APRIL 27, 2020

FOCUS: DRINKING ECONOMY — 3 A D V I S E R S / 3 Q U E S T I O N S —

Experts weigh in on next steps for Michigan’s craft beverage industry By JOE BOOMGAARD | MiBiz jboomgaard@mibiz.com

raft beverage companies have been rocked by an unprecedented crisis, one caused not by bad business decisions or fundamental industry shifts, but by widespread closures related to a sweeping public health concern. Right now, most of the companies are focused on survival, eking out whatever revenue they can find and taking steps to ensure they’ll eventually be able to turn the lights back on and serve their elixirs to thirsty patrons. In separate interviews, MiBiz reached out to three craft beverage industry advisers to hear their take on what companies are doing to survive, weather the crisis and plan for an uncertain future. They were: n Ryan Behringer, CPA and senior manager at Plante Moran PC in Southfield n Brandon Finnie, managing director of Hungerford Valuation LLC in Grand Rapids n Joe Infante, principal and head of the alcoholic beverage regulation team at Miller, Canfield, Paddock and Stone PLC in Grand Rapids These three advisers participated in a similar MiBiz craft beverage industry discussion in 2017. Here are some highlights of what they had to say this time with the industry experiencing a much different set of circumstances.

What’s your take on the state of the industry right now? BEHRINGER: I think in general just the uncertainty is killing everybody, not knowing when and if they’ll be able to get back to normal. … There’s no idea when you might even be able to turn the lights on, and when that happens, what’s the new normal going to look like? We’re all getting stir crazy, but I can’t necessarily say I will immediately jump into a room with 100 or 200 people to grab a beer. … A lot of these brewery owners, within five years of them opening up, they’ve been slowly ramping up to try to pay themselves a salary because they’ve just been investing in the business. They’re working the weekends, they’re the bartender. When you think about the potential to cut that revenue just in a blink of an eye at 25 percent, 50 percent or more, I think that’s how you get to that high number (of brewery failures). FINNIE: We were already dealing with some breweries that were finding out how difficult the business was. There were several that were for sale, basically just people that were needing to get out. I’m sure this is going to make it even more difficult for them to survive. You’ve still got two buckets even within the good operator category. You’ve got the ones that were in better financial positions and ones that had maybe more debt from capital and other startup costs. Those ones that maybe were still good operators but had too much leverage, this could still suck them in. You heard about saturation for years and years. It had to happen at some point. You started to see the consolidation happening already in the last couple of years. What you started to see, even before COVID, is some people struggling to make it without any (state-mandated) closure. INFANTE: I don’t believe the sky is falling. I don’t

know that this is going to wipe away the industry trends that we’ve seen over the last five to eight years where the industry has shifted to local. I’ve seen the number out there that 30 percent of all restaurants are going to close, and the same for breweries. … I’m hopeful that that’s not the case, but it really depends on consumers. Are people going to still want to go to restaurants when this is over with? Part of that depends on when do we come out of this, and what does coming out of it look like? Are we coming out of it with a vaccine? If that’s the case, I think things will probably return to normal, and people wouldn’t be scared to go to restaurants anymore.

How should craft beverage companies be preparing now for the future? BEHRINGER: Now is as good a time as any to hunker down and make sure you really understand your fixed and variable costs and how much cash you truly need to operate. … Most people aren’t looking to cut costs when they’re growing year over year and they’re just trying to keep up with demand. … But now, if you don’t have an understanding of what you need, you’ve really got to look and start putting together some forecasts to figure out, ‘OK, what can I expect if…?’ The numbers are key and making sure if they’re not doing it, they’re getting with their advisers to really take a deeper look at their operations, their costs and what they’re going to need going forward to really understand the runway. FINNIE: I think a lot of places are going to have to be prepared to deal with hygiene in a different way, and the promotion of healthier habits. In the near term, there may be some spacing out of tables and chairs. Some of that certainly is going to be mandated in the near term, but that then becomes a difficult business decision. You’ve got

Ryan Behringer, Plante Moran PC

Brandon Finnie, Hungerford Valuation LLC

underutilized capacity from a number of seats. That doesn’t help contribute to the overhead. I think we’ve also seen people taking advantage of time being closed to freshen up the taprooms, move stuff around, think about their layout, think about their processes and ways to be more efficient. INFANTE: I don’t think anyone has any idea of when things are going to open back up. They should be preparing for the status quo to continue for a while, and to tread water for a while. But then when things do reopen, they need to prepare for things not to go back to normal right away. I think there’s going to be a lag for in-person sales. You’ll probably see a rush of people who still want to come in, but it’s going to be certain people that will do that. I think your vulnerable population is still probably going to stay away. Your young families are probably still going to stay away, or at least limit it. It’s probably going to be a curve and it’s just going to ramp up and maybe it’s back to normal six months from now, 12 months from now, 18 months from now — who knows.

What could this current situation mean for the craft beverage industry going forward? BEHRINGER: From a business perspective, fortunately or unfortunately, it’s probably a crash course on seeing who the true leaders are and who’s been able to pivot, take a hard look at their business, make tough decisions, and continue to look out for their employees. I think there’s going to be a lot of people that gain a lot of goodwill with their local communities, their employees, as well as their customers by making the correct decisions on contactless delivery and pickup and still trying to do

Joe Infante, Miller, Canfield, Paddock & Stone PLC

everything they can for their existing employee base, keeping everybody on as much as possible. Hopefully, there’ll be more of those feel-good stories versus the headline of ‘another craft brewery in so-and-so area closes its doors for good.’ FINNIE: I don’t think that this is going to change consumers’ preferences for craft beer and spirits and quality. Where you could see some impacts is if this does turn more into a recession and people decide to spend less on their beer and spirits. That could have a negative impact on craft. … We’re still evaluating (what the situation means) as it relates to all valuations. As we evaluate things from a high level, recognizing the drop in the public markets, there’s likely some negative impact on private companies. But I think doing projections right now is difficult for a lot of businesses. We’re not sure what the level of decline in valuations will be. We know that it’s something. But with the amount of risk and uncertainty, there’s a lot of hesitation. INFANTE: So far, I haven’t had a single client tell me they are going to shut their doors permanently. That hasn’t come out yet, and that’s why I’m still a little bullish on this. … Since (the stayat-home order), I’ve had at least five new inquiries for opening breweries and wineries. People still want to open them. The people who want to open them are seeing this as sort of a silver lining for them. They’re saying, ‘I’m laid off right now, so I have time to focus on my dream of owning my own brewery.’ They’re taking the time of putting together their business model, line up investors and find space. If anything, it’s probably going to be better for those people. There’ll be some cheap equipment, some cheap space, borrowing might be cheap, although you might have a hard time getting lenders. But they have time.

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APRIL 27, 2020 / MiBiz

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Short’s Brewing, Green Peak launch line of beer-flavored cannabis edibles By ANDY BALASKOVITZ | MiBiz abalaskovitz@mibiz.com

wo prominent players in Michigan’s cannabis and craft brewing industries have launched a new product merging their areas of expertise: beer-flavored edibles. In late April, Short’s Brewing Co. and Green Peak Innovations were finalizing the delivery of “Short’s x Jolly” gummies to Green Peak’s Skymint dispensaries around the state. The partnership — which originally also included plans for vape pens and non-alcoholic cannabisinfused beverages — signals the growing fusion but also legal and regulatory uncertainty between the two industries. “One of the reasons we sought out Short’s is they are super creative and not afraid to push the envelope,” said Joe Neller, Green Peak’s chief government affairs officer. Around early 2017, Green Peak first contacted Short’s about a potential partnership, Neller said. Green Peak is a major vertically integrated cannabis firm, with large growing and processing facilities in Lansing and recreational and medical retail stores around the state, including in Nunica, Newaygo and White Cloud.

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Last year, the companies announced initial plans for products, yet edibles were most feasible to produce due to health concerns around vaping and regulatory challenges with infused nonalcoholic beverages, the companies say. The edible gummies borrow flavors from Short’s flagship beers Soft Parade and Huma Lupa Licious. A third product is based on Mosa, a mimosa-like beverage from Short’s Starcut Ciders brand. Short’s — which is headquartered in Elk Rapids and runs a brewpub in Bellaire — sends wort (the liquid before fermentation) to Green Peak facilities near Lansing. Neller said Green Peak has a chef on staff who worked on different formulations to “mimic the flavor” of Short’s beers. “The sweet, sugary liquid [wort] is perfect for gummies,” said Tony Hansen, chief innovation officer at Short’s. Short’s also is developing flavors that could potentially be used for infused non-alcoholic beverages, “dry flavors” that would be used in powder form and cannabis flower strains that pair with their beers. “We have a lot of irons in the fire,” Hansen said. The 10-milligram THC edibles — which cost $25 to $30 for a 10-pack and are available for medical and recreational use — were set to come to

market the week of April 20. They will be sold through Skymint stores, but Neller hopes to wholesale them to other cannabis retail outlets. Before even making products, the companies had to navigate legal questions ahead of the partnership. Short’s and Green Peak have a licensing agreement that doesn’t involve the exchange of money so that Short’s, a federal- and statelicensed brewery, avoids profiting from the sale of a cannabis product, company officials say. All of the processing takes place at Green Peak’s facility. Instead, the arrangement is about market position. It also aligns with efforts by Lagunitas Brewing Co., which has a 20-percent equity stake in Short’s and sells a “Hi-Fi Hops” sparkling water infused with CBD and THC. “From a business point of view, there’s a lot of data coming out of other countries and states that would indicate substitution from alcohol to marijuana potential,” said Short’s CEO Scott Newman-Bale. “Obviously there’s myriad legal restrictions and constraints, but we want to make sure that if that’s where the market goes — whether it’s in a year or 20 years — that we’re actively aware of it.” Varnum LLP attorney Chris Baker said overall there are “not a lot of

Short’s Brewing partnered with vertically integrated cannabis firm Green Peak Innovations to launch a line of beer-flavored edibles. COURTESY PHOTO efforts being made at least by alcohol manufacturers to include cannabis or even hemp in their products.” But he said introducing an alcohol product to cannabis is not unlike other food or beverage products. Under state law, a beer manufacturer couldn’t sell product directly to a third-party food manufacturer. “That manufacturer, whether it’s cannabis or otherwise, would have to buy the product in the same way any other retailer would,” Baker said. For now, Short’s and Green Peak are just focused on edibles. Hansen said the companies hit a “little bit of a stop” with infused beverages because of state testing procedures

for edibles that limits moisture and water content. But he says “beverages are definitely the future of cannabis consumption.” Hansen and others have noted increased demand in more discreet cannabis products. Testing a variety of those offerings now may benefit the brewery in the longer term. “For me, it’s all about developing new products and new exciting opportunities to take a lot of our creative process and focus it in a new arena,” Hansen said, adding that the brewery has long experimented with beer, cider, hard seltzer, wine, mead and food. “This was another avenue to play in.”

MiBiz / APRIL 27, 2020

FOCUS: DRINKING ECONOMY

Startup craft beverage companies face delays, financial strain amid pandemic By JOE BOOMGAARD | MiBiz jboomgaard@mibiz.com

aunching a new craft beverage business can prove challenging in even the best of economic times, let alone in the middle of a global pandemic. Yet that’s the reality a handful of startups have faced across West Michigan over the last few weeks. Some of the companies were within weeks of holding their grand openings when the state’s stayat-home order took effect. Others that were further behind in the process are being forced to deal with longer-than-anticipated delays, especially as they try to get the attention of state and local inspectors to grant permits or even to bring contractors back into their spaces to finish up their build-outs. MiBiz spoke with four startup craft beverage companies from around the region. Here are their stories.

STONEY RIDGE WINERY LLC

Stoney Ridge Winery features an airy timber-frame barn and tasting room. COURTESY PHOTO

Sparta Township

on April 25, said owner Mary Smearman. Those plans changed with the statewide stayat-home order that also closed all non-essential businesses. “Basically, we had to hit the brakes and regroup,” Smearman said. “We were really ready to open. We were even thinking of opening earlier just to get some of the bugs worked out and then at the ribbon cutting having a big event, but that’s been postponed indefinitely right now until we have some idea of what’s going on.

The last few weeks have been filled with both highs and lows for the owners of Stoney Ridge Winery LLC in northern Kent County. After about eight years in planning, Stoney Ridge Winery had just started in early March to hold some small soft opening events at its tasting room and working vineyard located off M-37 along what’s known as the region’s Fruit Ridge. The plan was to hold a soft opening every weekend leading up to the company’s ribbon cutting

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“It’s quite disappointing, but there isn’t a whole lot you can do about it, so you have to just look for the good.” The company had already hired a couple of employees, which it had to temporarily lay off, and had planned to be staffing up for the spring and summer season, “but all that’s on hold right now,” Smearman said. Stoney Ridge features a large timber-frame barn and tasting room, as well as outdoor seating and a large lawn area. Situated between the popular winery districts in the southwestern corner of the state and in the Traverse City area, Stoney Ridge aimed to become a “middle of the road” option closer to home. “We wanted a place where people could come and relax and enjoy themselves instead of driving two hours either way to go to a vineyard and a winery,” Smearman said. The winery also wants to offer the tasting room and vineyard for weddings and corporate events, and plans to host live music, food trucks and sensory classes for patrons. “We really want to do wine dinners and do charity events,” Smearman said. “This year is probably not going to be as packed with events as hopefully next year or after that. We’re going to play it by ear. Everything is evolving.” The company also made an on-the-fly decision to switch its business model to offer curbside pickup of wine, and began promoting the sales via its social media outlets. While the sales channel offers a way for the company to get its name out, Smearman acknowledges the difficulty in selling product that people have not yet had a chance to taste. “We’re hoping that’s going to be a positive thing, that people will come, buy some wine, try it and say, ‘This is great. We can’t wait to come out here when you’re open,’” she said. “Once they come out and see the venue, it’s very pretty. It’s in a beautiful area, very scenic.”

Without answers on when he will be able to bring contractors back into the facility, Sawyer is left in limbo. “Unfortunately, the crystal ball is quite foggy for us,” Sawyer said. “It’s going to be something we’re just going to have to muscle through. It’s going to be another month or two. “I’m in a very weird position. I’d like to have answers because I don’t do well without them, let alone proper information. I can behave even in the roughest of times if I have the information to behave on, but we’re just kind of stuck.” Even before the company can open and start fermenting, Adesanya Mead also has adapted its business model for the new realities of to-go sales, according to Sawyer. That includes purchasing a can seamer from Grand Rapids-based Oktober Design LLC, which makes a machine that seals beverage cans one at a time, to allow the meadery to sell its draft meads in a convenient to-go package. “From the financial standpoint, if we can get some quick turnover on draft mead, which behaves similar to beer with regards to its path in fermentation, we should be OK out of the gates as far as being able to get some money coming in,” he said. “We chose the mead route because of the low overhead.” Adesanya Mead also tapped into some additional capital sources as the current situation evolved. Sawyer described it as a proactive move so the company didn’t totally burn through its cash as it closes in on the build-out of its bar and some other trades work within its footprint. Sawyer also is in the process of working with the company’s landlord on a possible extension of its partial rent period for the space, and is looking into whether the company qualifies for various small business loans and grants. “It puts us in a weird spot not having revenue yet, for sure,” he said. The company set aside the proceeds from an earlier membership club sale to eventually purchase raw materials and begin mead production, but needs regulatory approvals before it can start fermentation. Sawyer hopes to find a way to work within the regulatory framework to be able to start production as soon as possible so Adesanya can begin to bring in much-needed revenue, but he’s not ruling out finding gray areas or working the phones “to find someone to say yes.” “If I can’t ferment, I’m really going to be up a creek without a paddle,” he said. Even with all of the current challenges to get to opening day for Adesanya, Sawyer acknowledges the company is lucky to have this closure occur at this point in its life cycle. “Thankfully, I didn’t have to lay off people because that would have crushed me,” he said. “Right now, it’s me and a business partner that are working at this. It’s really only hitting us hard, it’s not hitting anyone else hard. As weird as that sounds, it’s probably the best time this could happen.”

LOST ART BREWHOUSE Walker

ADESANYA MEAD Grandville

Contact Hungerford Valuation: Brandon Finnie and Kerry Bean, CPA/ABV Phone: 616.940.2680 Website: www.hungerfordvaluation.com

APRIL 27, 2020 / MiBiz

Hungerford Valuation

Very little work stands in the way of David Sawyer being able to open his new meadery. Given the recent stay-at-home order and restrictions on non-essential businesses, Sawyer has little clarity on when his business will be able to put the finishing touches on its new 28th Street tasting room. While the production area of the facility is ready to go, Adesanya Mead still needs to complete the build-out of its bar area, a needed step to get final Michigan Liquor Control Commission and local health department approvals that would allow the company to open.

Just after Lost Art Brewhouse wrapped up efficiency testing on its brewing equipment and finished the last of its test batches of beer, the operating environment changed rapidly for the startup company. The Walker-based nanobrewery had been planning to open its taproom during the week of April 20. All that remains is finishing up a quick build-out on the bar and guest area so Lost Art can get its final inspections, secure its licenses, and move ahead with brewing. Co-owner Brad Lawrence estimates the company had a week’s worth of work left on its taproom when the stay-at-home order hit. “Even once this lifts and we can do that extra week’s worth of work, we’re still probably going Visit www.mibiz.com

to have five weeks into getting ready to open the doors,” Lawrence said. “It is very frustrating to work on a project for three years and then get to three or four weeks ahead of time and like everyone else, it’s just not knowing (any answers) right now. Are we going to be able to open in a few weeks? A few months? Is it going to be a year at this point? There is no knowing.” Now, Lost Art’s best-case scenario hinges on being able to open in late May or early June, according to Lawrence. Even if the restrictions on restaurants and bars get lifted, the company plans to start with curbside to-go orders of beer, as well as home delivery. Lawrence, who expected by now to be working as a full-time brewer, has been spending most of his time during the shutdown “building a new business model from scratch” to make sure the curbside model can be viable for the company. “We’re not in any rush for people to come in and sit down anywhere, even beyond any sort of government order. We don’t want to put anybody in our community in a bad situation and be part of a problem,” Lawrence said. “The only real frustrating part of that is the unknown. You just don’t know when it’s going to be over so you don’t know how to prepare. “It’s kind of a logistical nightmare switching business models at the last second, but you just do what you have to do.” In the meantime, Lost Art also finds itself in a “weird period” when it comes to being able to access any of the available small business relief because the company is in its pre-revenue phase, which disqualifies it from most of the programs. Lawrence said the company is benefitting from a six-month deferral of its SBA loan payments, but continues to seek out other options. “Every month as we come up to the beginning of the month now, it’s going to be a scary period for us because there’s all those bills that are coming due and we don’t have the cash flow that we were hoping to at this point,” he said. Throughout the turbulent startup environment, Lawrence said he’s been buoyed by how supportive the community has been. As well, he also admits the struggles of starting up a business are small in comparison to the public health crisis in which “people out there are sick and fighting for their lives right now in the hospital.” “As long as we can get open in some form or another in the next few months here and be safe doing it, every day we’re just trying to stay positive,” he said. “Being negative and being angry about the situation doesn’t help solve any problems.”

Brewing equipment is installed in Lost Art Brewhouse’s space in Walker. COURTESY PHOTO “There goes our safety net — I was planning to keep my full time job while we were doing our startup,” he said. Forbes has turned his attention to trying to tie up loose ends at the site until contractors can get back to work. The company had been “moving right

along” toward opening in May before the pandemic hit, but now expects that to get pushed back to mid to late June, “or maybe even later depending on when they can get us back on their schedule.” In the meantime, Burzurk Brewing is taking advantage of a six-month deferral in paying back its existing SBA loan to help conserve cash. Forbes continues to seek gap financing from the city of Grand Haven “so we can finish up and keep us afloat for the next two months while we finish opening.” Burzurk Brewing has looked into state and federal small business relief programs, but found them to be “a complete and utter joke, especially for startups,” Forbes said. “Everyone seems to have missed the startup in all this,” he said, noting that his company is not yet generating cash flow or employing people, typical requirements for the relief programs. “At the end of the day, on our part, people could say it was lack of planning: ‘You didn’t have

enough to make sure you can get through your startup phase.’ But what startup does? Everyone starts on a shoestring, and you try to do your best job planning, tack on a percentage for safety, and that gets pissed away quickly,” he said. “Literally, next month’s lease payment for the building is coming out of my personal paycheck — we’re that low in our startup financing.” Despite the financial challenges, Forbes said he and his wife, Karen Forbes, have no plans to bring on other investors. “We just want to try to do this on our own, come hell or high water,” he said. “We are doing this on a shoestring to start with … but we’re getting there. We’re building tables from scratch now that we’ve got the time. We were going to buy them but now we’re making them, which is good. We’ve got time to do some things now that we weren’t planning on doing ourselves. We’re doing all we can to try to save money where we can — every nook and cranny.”

BURZURK BREWING CO. Grand Haven

Small business owners often come to the harsh realization that opening a company takes more time and money than they expected. For Burzurk Brewing Co. in Grand Haven, the coronavirus-related shutdown posed the latest in a series of delays the company has faced in the last year. “We were already behind the eight ball before this with just typical startup things,” said founder Tyler Forbes. “Everything fell really late in the overall scheme of our startup. We were already starting to run really low on startup funding.” Other delays came in the local site planning process and build-out of Burzurk Brewing’s taproom. A neighbor’s dispute over parking in the neighborhood added about two months to the company’s timeline, while the need to install a two-hour fire-rated wall to separate the space from an adjacent unit added an additional $20,000 to the project. “We didn’t get our building permit until December, and that really pushed us behind, and now it’s just delay after delay because of the coronavirus,” Forbes said. An added complication arose in mid March when Forbes lost his job of 17 years as part of a reduction in workforce at the company. Visit www.mibiz.com

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MiBiz / APRIL 27, 2020

REAL ESTATE & DEVELOPMENT

Brokers brace for changes in post-COVID-19 office environment By JAYSON BUSSA | MiBiz jbussa@mibiz.com

ffices across West Michigan sit temporarily vacant as the current statewide COVID-19 shutdown provides a stress test for businesses and their ability to operate effectively with a homebound workforce. The drastic change in dynamics now has commercial real estate brokers wondering what effect this will have when a semblance of normalcy returns to professional life. “We’re just kind of taking guesses on where things will go and how it will be affected,” said Mary Anne Wisinski-Rosely, a partner and office specialist at NAI Wisinski of West Michigan. “I think it will definitely have an impact, but what that impact is is kind of up in the air. “I’ve heard speculation that some people are going to find that working from Wisinski-Rosely home works great and offices can save money because they don’t need as big of a space. On the other hand, I’ve heard the opposite; working from home is challenging especially if you have kids and are trying to work around that.” The short-term effect on office utilization amid the shutdown is undeniable. In fact, a recent study by MIT revealed that 34.1 percent of respondents that were previously commuting to work were now working from home because of the COVID-19 pandemic.

GRAND RAPIDS OFFICE MARKET NET ABSORPTION

Q4 2019 WEIGHTED AVERAGE ASKING RATE

Q1 2020 WEIGHTED AVERAGE ASKING RATE

3,853,159

-31,392

$20.63

$23.07

7.77%

1,998,490

-44,702

$19.05

$20.02

9.41%

5,851,649

-76,094

$19.86

$21.68

BUILDINGS

EXISTING INVENTORY (SQUARE FEET)

VACANCY (SQUARE FEET)

VACANCY RATE

OCCUPIED (SQUARE FEET)

Central business district

4,292,574

439,415

10.24%

Downtown

2,166,744

168,254

110

6,459,318

607,669

SUBMARKET

Total

SOURCE: COLLIERS INTERNATIONAL, WEST MICHIGAN OFFICE REPORT Q1 2020

Aside from some companies getting a taste of what remote work life is all about, the prolonged shutdown continues to threaten the livelihood of many businesses, which also could potentially eventually affect office demand and lead to more vacancy.

Upward trajectory The West Michigan office market came into 2020 on a strong note, and could still retain its footing even after the short-term stallout ramps back up.

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Recent reports from the West Michigan office of Colliers International chronicled a market in which vacancy rates were dropping and rental rates have consistently crept upward. In its 2020 forecast, Colliers reported that in 2019, the vacancy rate in West Michigan fell below 10 percent for the first time in 30 years. Office vacancy in downtown Grand Rapids was 9.4 percent in the first quarter and 6.2 percent in the suburban market, according to a Colliers market report last week. As well, rental rates in the Grand Rapids market have gone up around 50 cents per square foot each year for the last 10 years. For the first quarter, rates increased to $21.68 per square foot in the downtown market, according to Colliers. With demand and the evolving needs of tenants up in the air, these rates still appear relatively unshakable. “I think it depends on where vacancy ends up,” Wisinski-Rosely said. “People are in leases right now. We’re not all of sudden going to have 50 percent of the space vacant. I think a lot of it depends on what happens to businesses. Will some shut down? Are some going to work from home? “We had a very strong market until this happened. I think there will be some effect on prices. But I think landlords will try to find more incentives for tenants, which we saw in the downturn last time.” Those incentives could include more tenant improvement allowances or free rent in some cases. Office broker David Wiener agreed. “Most companies that are into a lease, they don’t enter into a three-year lease,” said Wiener, senior vice president at Colliers International in West Michigan. “Strong companies, large or small, (that are) doing full build-outs will sign seven-, 10- or even 15-year leases. When you’re looking at the long-term rates, I don’t see this short-term health recession affecting the longterm rental rates of the office market, especially with interest rates where they are.”

A case for more space

Affordable, common-sense websites.

APRIL 27, 2020 / MiBiz

Colliers noted in the first quarter report a trend of “many companies hitting pause on their assessment of office space requirements” amid the pandemic. The concept of social distancing has been at the forefront of virtually everybody’s minds and lexicon throughout the thick of the COVID-19 crisis. Commercial real estate brokers are trying to anticipate whether or not this concept or other new health-conscious practices will stick and how that will change the look of the modern office.

Both Wiener and Wisinski-Rosely ventured to guess that social distancing is here to stay, even if it’s pared down from the more extreme measures currently in place for the general public. To accommodate effective social distancing, Wiener said that tenants could possibly see a need for more office space instead of less. “State-of-the-art office space is about collaboration,” he said. “It’s about shared space, hip space — a lot of the cool spaces have pool tables, all these facilities have wonderful amenities. Even here at Colliers, we have a main area where we can entertain. So, with that, we’re seeing less private offices. “We’re also seeing, if you go back a number of years, the average employees per thousand square feet was about two-and-a-half or three. Right before (the COVID-19 crisis), we had clients with six to 10 employees per thousand square feet. I don’t see that as something that will come back regardless of what happens.” Businesses also could be looking for more functionality in office furniture, going from shorter to taller cubicles and perhaps additional barriers becoming the norm. Wisinski-Rosely also agreed that life after COVID would merit alterations to office space. “We’ve seen a shift from private offices to open working environments to now a shift back to maybe a combination of the two,” she said. “Maybe private offices become more common. I think there will definitely be an impact.” While working from home might be acceptable to management and be logistically possible, many professionals simply might not prefer it. Wiener said that in cases in which companies want to be prepared for any similar health events in the future, they’d need to tell themselves: “We need to plan for space, to be here working safely and social distancing. We need to take more office space.”

Catalyst for culture By estimations of Wiener and Wisinski-Rosely, the many intangible benefits that come with working inside an office are simply too valuable to give up entirely. “Over the past five years, I have repeatedly said that the culture, amenities and quality of the space are the most important thing to companies,” Wiener said. “You have companies that spend 70 to 80 percent of their expenses on people. Their real estate is not really a big expense in their corporate structure. “Having the right space is important. Companies don’t even mind paying more for it. They want a cool space. They want to walk to a bar across the street. They want to bike to work. They want great collaborative space upstairs.” Visit www.mibiz.com

NONPROFIT ORGANIZATIONS

Holland/Zeeland loan program shows how nonprofits are getting creative during pandemic By JANE SIMONS | MiBiz jsimons@mibiz.com

ike Goorhouse isn’t a banker, but the coronavirus pandemic has him thinking like one. As president and CEO of the Community Foundation of the Holland/Zeeland Area, Goorhouse is helping administer a loan program that’s expected to help 10 to 15 nonprofits maintain financial stability as the COVID-19 economic fallout continues. The Line of Credit Guarantee Program includes a $2 million line of credit established through West Michigan Community Bank. Organizations with a 2019 operating budget of more than $1 million can apply for up to $200,000. Those with budgets of between $500,000 to $1 million are eligible for up to $100,000. “The whole Goorhouse tool is meant to give nonprofits a way to have flexibility over the next two years,” Goorhouse said. “So many have had to cancel fundraising events or close their resale store. Instead of having that issue wholly impact that now, the line of credit will help to fill that gap, and they can pay it back without the same sense of impact.” Asked where he came up with the idea for the program, Goorhouse said, “I stole it. Someone in the field of lending wrote a blog about the idea and basically encouraged foundations to go beyond grant making and make it easier to deploy their asset base to help their nonprofit partners.” The foundation’s partnership with West Michigan Community Bank “enabled us to respond quickly and efficiently to the ongoing needs created by the COVID-19 pandemic,” he added.

“We are also exploring how our In addition to guaranteeing the Program Related Investments (lowline of credit, the foundation will prointerest loans from our endowment) and vide reimbursement to the nonprofit sponsorship resources can be adjusted for all interest that the nonprofit has or used in response to new community paid during the first two years. Going needs,” Sieger said. “We will continue into the second year, the nonprofits to target our resources to support comwill be expected to begin paying down munities disproportionately impacted.” the line of credit and by the third year Teri Behrens, executive director of it will all have to be paid back. the Dorothy A. Johnson Center for “We are guaranteeing the line of Philanthropy at Grand Valley State credit for the bank so they’re not holdUniversity, said foundations are ing collateral against the nonprofit for ensuring funding goes to organizathe line of credit,” Goorhouse said. “If, tions “on the frontlines,” such as those for some reason, a nonprofit is not answering 211 calls and making sure able to pay down the line of credit, homeless people are getting a place the CFZH will pay it off.” to shelter. The program is a “combination of “Funders are creating funding the ability for us to utilize the flexible pools to address those needs with assets of the Community’s Endowment resources,” Behrens said. “What we’re to respond to the changing needs of seeing and hearing in our community and Michigan and nationthe ingenuity of CFHZ ally is that they’re keepto provide innovative ing equity in the center solutions to serve our Sponsored by: as we move into the community in its time GRAND RAPIDS longer recovery phase. of need,” said Leslie COMMUNITY They’re working with Brown, board chair of FOUNDATION banks and financial the CFHZ and chairinstitutions to make person of Hollandsure funds get to those most in need based Metal Flow Corp. and they have access to capital.” Criteria for the program includes The Holland/Zeeland loan prothe financial strength of the nonprofit gram and GRCF’s multifaceted prior to the crisis, how severely it was approaches show the creative ways affected by the pandemic, and its track area foundations are stepping up to record of results in the community. assist their communities, Behrens “We will pick organizations that said. From a funding standpoint, she are a good financial choice and a good said the foundation community’s community choice and those that response has been much more rapid have a big impact in the community,” than funding from the government. Goorhouse said. “This really is meant Philanthropic leaders have for a little bit stronger financial orgaexpressed concerns about the increasnizations that have had no decreased ing role they are asked to play as govcapacity during this time. We’re defiernment funding for social service nitely putting our assets out there. The programs is reduced. hope is that everyone can pay us back.” Sieger said she believes many sectors – including philanthropy, busiFoundations’ role ness and government – have a role to Through emergency funding and play in the community’s recovery. providing flexibility on existing grant “Working collaboratively is how partnerships, the Grand Rapids we’ll come to the best outcomes. Community Foundation also is findThe strong relationships, built over ing ways to partner, said President time and between these sectors, is Diana Sieger. an asset to our community’s recovery

NONPROFIT SECTOR NEWS

their work, the worst effects will be and something we are leaning on felt by organizations led by people of now,” Sieger said. “Businesses and color, Behrens said. corporations are, in some cases, sup“We know the impact will be longporting response funds or direct serterm, especially for those who were vice organizations. The Community already navigating racial, social and Foundation sees our philanthropic economic inequities, who have also work as a bridge until governmental been hardest hit by this crisis,” Sieger programs are available.” said. “We are focused on the most Behrens said she hopes that the immediate needs, and will be workquick responses and actions of foundaing with many nonprofit partners now tions and nonprofits during this crisis and into the future to address their will help lawmakers and government near and long term needs. officials appreciate the importance of “Our primary focus is to address the nonprofit sector and understand the deep and historic racial, social the critical role they play in their comand economic inequities that exist in munities while also acknowledging that our community and are intensified in foundations can’t be the sole supporters of the work done by nonprofits. “I like to remind people that philanthropy is such a small part of the funding for nonprofits,” she said. “Individual giving and corporate dollars account for the majority of funding.” Loosening reporting requirements and restrictions on the use of funds, along with streamlining application processes, are among the efforts foundations are making, Behrens said. “I think we’ve seen foundations doing — DIANA SIEGER much more advoPresident of the Grand Rapids Community cacy on the part of Foundation the nonprofit sector as a whole, including making sure that times of crisis.” nonprofits are included in the Payroll Behrens said nonprofits that serProtection Program,” she said. vice communities of color have the Corporate and family foundation hardest time staying in business. She philanthropy also has been playing an anticipates seeing many conversaimportant role through being nimble tions with funders in Michigan about and using their core business to support ways to support nonprofits that are efforts directed at keeping people safe. struggling and helping them to find “I know foundations who have parways to collaborate with each other. ticularly stepped up to make sure non“There is an emphasis on supprofits have PPE (Personal Protection porting those nonprofits,” Behrens Equipment) materials,” Behrens said. said. “We see higher unemployment “These are nonprofits on the front line rates among people of color and those dealing with the newly unemployed with smaller nonprofits as they close and homeless. It’s not medical hands and lay people off. We are starting to on, but for human services people.” have conversations about how we professional development and Addressing inequities create workforce development strategies to As the movement to recovery begins get these people back into the workand startups and nonprofits relaunch force.”

“We know the impact will be long-term, especially for those who were already navigating racial, social and economic inequities, who have also been hardest hit by this crisis. We are focused on the most immediate needs, and will be working with many nonprofit partners now and into the future to address their near and long term needs.”

Together, we will recover. Inequities are intensified in times of crisis, and our community has responded with collaboration, innovation and generosity. Learn more at grfoundation.org/covid19 Visit www.mibiz.com

MiBiz / APRIL 27, 2020

Q&A Steve Bertman Professor of Environment and Sustainability, Western Michigan University For the past five years, Western Michigan University has offered a bachelor’s degree in sustainable brewing, focused on the scientific process of brewing with a flavor of environmental consciousness. WMU Professor Steve Bertman, who designed the coursework and has a research history in atmospheric chemistry, will help lead a new phase of the program involving the business of craft brewing. However, the new track comes amid an industry — and economy — ravaged by the coronavirus, and it’s unclear what long-term effects it will have on craft breweries and pubs. Early next month, Bertman will be a featured speaker at this year’s virtual Craft Brewers Conference. He spoke with MiBiz recently about the climate crisis and threats to the brewing supply chain, and why it’s appropriate to discuss climate alongside COVID-19. What’s involved with WMU’s sustainable brewing program? It’s a pretty hardcore science degree at this point. This fall, we’re scheduled to start a new track that focuses more on the business and operations side and less on the science. We try from the beginning to teach this ethic of every choice you make — whether it’s in your life or in business — has an environmental impact. Since brewing is an inherently energy-intensive and resource-intensive operation, it’s an ideal classroom opportunity to think about those things from the very beginning. How will the course shift to focus on the business side of brewing? I think of brewing in three sections. There’s the supply chain that gets the raw ingredients. Then the brewhouse where the beer is actually made. Then there’s the front of the house — the business of getting product to customers and providing customer service. This new track is to address the opportunities and challenges of the front of the house, which is going to be very interesting to watch after the dust settles from this pandemic. The craft brewing industry is going to take a hit in a major way — this whole business model of a brewpub that relies on retail sales in an establishment basically in that one location or distributing locally. That business model is going to have to be re-evaluated, I think, after this pandemic. Your upcoming talk at the Craft Brewers Conference is called, “How will climate change affect brewing.” What do you plan to cover? The biggest impact is likely to be on the supply chain. The two main agricultural crops that are critical for beer — barley and hops — have a limited range of tolerance to drought and temperature. As those conditions change and as the range of appropriate climate and agriculture conditions moves, the availability of the supply chain is going to be affected. How will these disruptions to the supply chain trickle down to consumers? There’s a couple of ways you can think about that. One has to do with the quality of the supply chain. Brewers are used to having a certain level of quality of these products, whether it’s a protein, enzyme or carbohydrate content or, in the case of hops, essential oils or the alpha acid profile of certain varieties. Changes in the growing conditions and range can have an impact on the quality of agricultural products. It may be there are certain beer styles or flavor profiles that are going to be harder to produce. Then there’s questions of yield, which is quantity. If there’s a limited amount of hops and barley produced, who gets the barley, how is it allocated and distributed, and what does it mean for the small craft brewers? Also there’s certain beers that are very resource-intensive. These strong IPAs, double and triple IPAs are becoming more common. These use a huge amount of hops per batch. If hops become rarer, then some styles might be harder to maintain. People might start to see their flagship beers having to change. Given the turmoil in the industry now, what are you hearing from students and companies? How might you have to rework the course as a result of the new realities? The big change is in the business model for craft brewing. The jury is out on whether we’ll ever get back to being comfortable being in such close quarters, which is what these small brewpubs rely on. I think there’s going to be a major adjustment. Some of the numbers are pretty huge on the number of breweries predicted to go out of business because of this. The question for future students is: How can you maintain that social function of a brewpub with the demand for interesting and innovative beer flavors in an atmosphere that is not necessarily comfortable with the closeness that we’re used to? It’s too early to say. There’s been comparisons between the COVID-19 crisis and the climate crisis. Why is now a good time to think about issues like climate and sustainability? The one thing (the COVID-19 crisis) is doing is shining a bright, searing light on the ridiculousness of rejecting science in making public policy. We’re relying on scientists to find a cure for this pandemic. No one else is going to do that. We are relying on science for our survival, and that’s exactly the way we should be thinking about climate change. As inconvenient as it is to think about, we still have to think about the impact of climate change and devise reasonable strategies of action to address it. The parallels between how we have rallied a broad social movement to address this pandemic is a beautiful model for what we need to do to address climate change. What we’ve done in the last month as a world is something a lot of people who oppose action on climate change claimed couldn’t happen. To end on a more upbeat note: What beer is getting you through quarantine? My standby is Bell’s Two Hearted Ale. But I am tired of drinking alone.

Interview conducted and condensed by Andy Balaskovitz. COURTESY PHOTO

APRIL 27, 2020 / MiBiz

IN THE NEWS M&A

n Ontario, Calif.-based New-Indy Containerboard LLC, a joint venture between the Kraft Group and Schwarz Partners LP, acquired Shoreline Container LLC, a Holland-based based paper and packaging company. Through the deal, New-Indy adds Shoreline Container’s two facilities in Holland that produce corrugated packaging products, and a Zeeland facility that distributes protective and specialty packaging materials. Shoreline’s chief operations officer, Bob Zuker, remains with the company. Ernst & Young Capital Advisors LLC served as the financial adviser to Shoreline Container. Terms of the deal were not disclosed. n Patten Monument Co. in Comstock Park, a cemetery headstone provider, acquired Campbell Murch Memorials Inc. in Mattawan, a 125-year-old manufacturer and engraver of cemetery memorials. Todd Sokolowski owned Campbell Murch Memorials since 1984 and sold the company to retire. He was represented in the deal by Small Business Deal Advisors LLC in Grand Rapids. Terms of the transaction were not disclosed. n New York-based managed technology solutions provider BCM One Group Holdings Inc. acquired nexVortex Inc., a Herndon, Va.-based internet phone service provider with an office in Grand Rapids. BCM One plans to maintain the Grand Rapids office, led by Mike Nowak, according to a statement. Terms of the deal were not disclosed.

FUNDING

n The Michigan Economic Development Corp. created a $3 million fund to aid technology startups affected by the COVID-19 pandemic. Early-stage tech startups can apply for investments and loans of $20,000 to $100,000 from the Tech Startup Stabilization Fund, depending on their stage, sector, estimated runway, and a demonstration of need. The fund, administered by Detroit-based ID Ventures, “will prioritize early-stage tech companies that are beyond ideation and have previously raised capital from angel and/ or venture capital sources,” according to the MEDC. n Eight organizations united to create an emergency relief fund for undocumented workers and mixed status families in Kent County who are ineligible for unemployment or other relief. La Lucha Fund will help families pay for basic needs such as rent, groceries, cleaning supplies and medicine. Movimiento Cosecha GR and the Grand Rapids Area Mutual Aid Network collaborated on the La Lucha Fund with The Hispanic Center of Western Michigan, the Latino Community Coalition, Latina Network of West Michigan, West Michigan Hispanic Chamber of Commerce, and the West Michigan Latino Network. More than 13,000 people who are undocumented live in Kent County, according to 2016 data from the Gateways for Growth initiative. The Grand Rapids Community Foundation serves as the fiscal sponsor for the fund and is processing donations. The Community Foundation also contributed an initial $100,000 to the fund. n The foundation for the Grand Rapids Area Chamber of Commerce wants to raise another $2 million for an emergency relief fund for small businesses affected by closures from the COVID19 pandemic. The Greater Grand Rapids Chamber Foundation already has raised $1 million for the Rapid Response Economic Relief Fund. Donations came from local foundations and corporations. The relief fund provides grants of $5,000 to $10,000 for small businesses in Kent County with five to 25 fulltime employees, as well as consulting assistance on cash flow projections. The fund as of last week had awarded 44 grants that total $415,000.

DEVELOPMENT

n A federal government decision to move 157.5 acres of tribally owned land into trust could spur movement on a large mixed-use development in Acme Township near Traverse City. In a letter from the federal Bureau of Indian Affairs (BIA), the Grand Traverse Band of Ottawa and Chippewa Indians was notified that its application to move the parcel of land into federal trust was granted. The parcel, located approximately 20 miles from the tribe’s headquarters in Peshawbestown, will provide land for economic development and “much-needed housing”

for some of the 200 tribal members employed at the nearby Turtle Creek Casino and Hotel owned by the tribe, according to the letter. The BIA filing further outlines the Grand Traverse Band’s plans for the property, including a state-authorized planned unit development with multi-purpose housing and commercial properties to complement existing tribally owned properties in the M-72 corridor.

HEALTH CARE

n Mary Free Bed Rehabilitation Hospital in Grand Rapids opened a new rehab unit for patients recovering from COVID-19. The 18-bed ReCOVery Unit serves patients needing intensive rehabilitation but who still test positive for the virus. The unit, which opened April 16, is located in a physically secluded area of the hospital and staff remain there for the duration of their shift. The unit adheres to U.S. Centers for Disease Control and Prevention precautions.

BANKRUPTCY

n Pace Industries LLC, which manufactures diecast parts and previously acquired the former Port City Group operations in Muskegon, filed for Chapter 11 bankruptcy. The Arkansas-based company cited two years of financial difficulties coupled with supply chain disruptions caused by the outbreak of the coronavirus for forcing the company to close plants and lay off most employees, according to a statement. Last month, Pace Industries notified employees at the company’s Port City division in Muskegon that operations would be temporarily shut down and all but 38 salaried employees would be laid off. A total of 456 local employees were furloughed, according to a notice filed with the state. The Muskegon plant, which Pace Industries acquired in 2015, manufactures aluminum die castings, zinc die castings, mechanical assemblies and injected molded plastics for the automotive industry. n Grand Rapids-based Purple East Plus Inc., a lifestyle retailer of paraphernalia used for the consumption of cannabis and tobacco, filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Western District of Michigan. The company, which bills itself as “the premier head shop and lifestyle store” in the Grand Rapids area, reported it had less than $50,000 in assets and liabilities in the range of $100,000 to $500,000, according to court filings. In a sworn statement dated April 18, President Drew Phillippy said Purple East’s financial troubles stemmed from its unsuccessful expansion from one retail location to four stores in the Grand Rapids area, coupled with recent disruptions caused by the outbreak of COVID-19. Purple East reported more than $270,000 in unsecured debts owed for property leases, utility payments, receivables, state and federal taxes and business loans. The company is being represented in the case by Chase Bylenga Hulst PLLC.

ADVOCACY

n Doug Rothwell, the chief executive of Business Leaders for Michigan, a statewide business roundtable of top CEOs and university presidents, plans to retire at the end of the year. Business Leaders for Michigan intends to conduct a nationwide search and name a successor to Rothwell in November. Rothwell has led the organization and its predecessor, Detroit Renaissance, for 15 years. He also previously led the Michigan Economic Development Corp.

LAWSUIT

n Zeeland-based Herman Miller Inc. (Nasdaq: MLHR) has filed a federal lawsuit against an online retailer for counterfeiting iconic Eames designs. Herman Miller claims “injury from infringement and unfair competition” against Interior Icons, a brand with an undetermined owner that is used in connection with the operation of an e-commerce website, according to filings in the U.S. District Court for the Western District of Michigan. A representative from Herman Miller declined to comment further for this report, citing the pending litigation. Herman Miller is being represented in the case by attorneys at Foley & Lardner LLP. Visit www.mibiz.com

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