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Automakers get fuel rule help from local steel
Mergers boost SS&G profile in Windy City Chicago now firm’s second-largest market
ArcelorMittal’s lighter product matches stringent efficiency law
By MICHELLE PARK mpark@crain.com
Before October 2010, SS&G Inc. employed no one in Chicago. Following SS&G’s third Chicagoarea merger in as many years, the Windy City now is the second-largest market for the Solon-based certified public accounting and business advisory firm. A Jan. 1 deal with Silver, Lerner, Schwartz & Fertel — known by its initials, SLSF — added 45 people, doubling SS&G’s Chicago staff to nearly 90 and bringing its total employee count to more than 500. The presence of that many employees in the Chicago market Shamis makes SS&G about the 20th-largest accounting firm there, when “two and a half years ago, we didn’t exist in Chicago,” said Gary S. Shamis, SS&G’s managing director. The deal is a true merger, executives of both firms said. The shareholders of SLSF have exchanged their stock for stock in SS&G. Michael L. Perlman, who began his career with SLSF in 1981, now is managing director of SS&G’s Chicagoarea operations. The firm’s offices there include what had been SLSF’s Skokie office, another suburban office in Des Plaines and a downtown Chicago location. All three locations were added to SS&G through mergers, the first of which closed in October 2010, and the second of which closed Jan. 1, 2011. SLSF executives had been determined to stay solo, Mr. Perlman said. However, on the advice of an outside consultant and tasked with growing his firm, Mr. Perlman started exploring potential merger opportunities. Talks between SS&G and SLSF
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See SS&G Page 7
By DAN SHINGLER dshingler@crain.com
MARC GOLUB PHOTOS
Cleveland Whiskey’s Tom Lix
A DRINK CLEVELAND CAN CALL ITS OWN Local entrepreneur uses ‘radically different’ method of aging whiskey that big-name restaurateurs are endorsing By KATHY AMES CARR clbfreelancer.com
T
om Lix is just about ready to toast the commercial distribution of a premium bourbon he has produced using technology that challenges centuries-old distilling techniques. Using a carefully controlled balance of pressure, time and other variables, Mr. Lix’s patent-pending method of aging whiskey compresses production of the spirit from about 10 years into a couple of days. “We use a radically different pressure-aging process that creates a deeper, bolder taste,” he said. Cleveland Whiskey is closing in on entering the marketplace after recently receiving labeling approval from the U.S. Alcohol and Tobacco Tax and Trade Bureau — one of its final procedural requirements before the black bourbon can be stocked on the shelves of bars, restaurants and retailers in Greater Cleveland and Ohio. Mr. Lix, Cleveland Whiskey’s founder and CEO, eventually plans
Steelmaker ArcelorMittal and United Steelworkers Local 979 both have high hopes for 2013, thanks to a new type of steel that they’ll be producing specifically for the nation’s automakers. “I’m feeling pretty good,” said Mark Granakis, president of Local “If they can 979, in discussing the new prodmake someuct that will be made at the plant thing lighter manned by his union members and stronger on Cleveland’s near West Side. It isn’t the continued rebound ... that’s a of the automotive industry that great thing has Mr. Granakis and the company for Cleveso optimistic, though they say land.” that’s a huge plus as well. It’s because automakers soon will – Ed Gonzales, need to lighten their vehicles in owner, Ferragon order to meet new, higher federal Corp. Corporate Average Fuel Economy INSIDE: Plastics, standards, commonly referred to too, can play a part as CAFE standards. in reducing vehicle Thanks to recent investments weight. Page 5 in its Cleveland Works, ArcelorMittal says it will be able to make a new type of steel in the first quarter of 2013. The metal will be lighter and stronger than the steel the plant currently makes and which automakers stamp into car hoods, doors and other large stamped pieces. It also will be lighter and stronger than competitors’ products, according to the company. See STEEL Page 18
INSIDE: OUTLOOK 2013 Beyond the Election to expand into national and international markets. “This is a $20 billion worldwide market,” said Mr. Lix, who also is director of the Center for Entrepreneurship at Lake Erie College. “China, India, Russia are importing more whiskey, and as a country we have an obligation to manufacture products that people want.”
Crain’s reporters forecast what to expect in seven sectors vital to Northeast Ohio — real estate, health care, higher education, technology, manufacturing, small business and finance — and predict how political uncertainty may play a role. PAGES 11-15
See WHISKEY Page 7
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NEWSPAPER
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ALSO INSIDE
A Painesville company that once manufactured only racing trailers has diversified and recovered from the recession ■ Page 3 PLUS: OFFICE/INDUSTRIAL REAL ESTATE VACANCIES
Entire contents © 2013 by Crain Communications Inc. Vol. 34, No. 1
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CONTRIBUTING FACTORS
CRAIN’S ON THE WEB Check out Crain’s 2012 Year in Review ■Managing editor Scott Suttell takes a lengthy look at the year that was in Northeast Ohio business, from Macy’s pulling out of Parmatown Mall in January to the Rock and Roll Hall of Fame choosing a new CEO to replace longtime boss Terry Stewart. For the complete list, visit www.CrainsCleveland .com/2012Review.
REGULAR FEATURES Big Issue ........................9 Classified ....................18 Editorial ........................8 From the Publisher ........8
JANUARY 7 - 13, 2013
Going Places................10 Personal View ................8 Reporters’ Notebook ....19 What’s New ..................19
Private industry employers now spend more per employee hour worked for defined-contribution retirement plans — retirement plans that specify the level of employer contributions and place those contributions into individual employee accounts — than they do for defined-benefit plans, which provide guaranteed retirement benefits based on a benefit formula. The U.S. Bureau of Labor Statistics reports that in March 2012, private industry employer costs for defined-contribution plans were 60 cents per employee hour worked compared with 43 cents for defined-benefit plans. Here’s a breakdown of the numbers:
Employer costs per employee hour Defined benefit Defined contribution Management
72 cents
$1.35
Sales/office
22 cents
43 cents
Service
9 cents
13 cents
Firms w/1-99 workers
23 cents
39 cents
... 100-499 workers
42 cents
65 cents
... 500-plus workers
99 cents
$1.10
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INSIGHT
Bill pushing uniform muny tax could return Businesses cheer potential for one set of rules, but cities fear effects By JAY MILLER jmiller@crain.com
As a businessman who until last month was owner of Summers Rubber Co., which has operations in 15 communities across Ohio, Michael Summers has supported the Ohio Legislature’s efforts to
make municipal income tax filing requirements more uniform. But in his other role, as the mayor of Lakewood, Mr. Summers thinks the General Assembly’s attempt last session at municipal tax reform, House Bill 601, went too far. “You’ve got the state of Ohio saying one size fits all and (commu-
nities) saying, ‘That’s impractical,’” he said. “There’s a reason this stuff is at the local level, because it’s complex and nuanced.” Mayor Summers said there were significant differences between HB 601 and Lakewood law with respect to the requirements for who pays the tax and on what income. He
estimated HB 601 would have cost Lakewood about $160,000 annually and $600,000 in the first year of the changeover. HB 601 died with the end of the legislative session as 2012 came to a close, but a reworked version might be revived soon. Rep. Michael Henne, a Dayton-area Republican and a co-sponsor of HB 601 last session, told Crain’s Cleveland Business last Wednesday, Jan. 2, “I believe we
Painesville company relaunches trailer business with several new offerings By GINGER CHRIST gchrist@crain.com
Vacancies drop in both areas, with downtown Cleveland the hottest
S
ince 1981, Bruce Hanusosky has held the wheel of a Painesville company that produces custom trailers for carrying the vehicles and equipment of professional auto race teams. But now, after surviving a turn for the worst during the Great Recession, Mr. Hanusosky is leading a portfolio of trailer-related companies, The Bruce Cos., serving a bevy of new markets. He has hired back 55 of the 60 workers the company once had and plans to hire another 10 to 15 in the next year. Trailer orders alone are nearly halfway back to peak levels and are supported by new revenue streams, although Mr. Hanusosky wouldn’t release specific figures. “I was close to just giving up. We were in big trouble at that time,” Mr. Hanusosky said of 2008. “I’m only happy we can continue to grow. … I want my company better than it ever was.” The road to recovery has been in diversification. While the company previously served only the racing business, which was hit hard by the recession as corporate sponsors slashed budgets for racing teams, Mr. Hanusosky has tapped into the commercial, restaurant and medical markets to sell new products. Besides manufacturing racing semi-truck trailers and awnings, as it did since 1987, the Bruce Cos. now also makes smaller trailers for commercial and municipal customers; interior furnishings for commercial properties; heavy trucks, such as municipal trucks; and large-format vinyl graphics and decals.
By STAN BULLARD sbullard@crain.com
Northeast Ohio’s industrial real estate market continued humming, and the long-dour office market gained a bit of spark last year, according to new statistics from the Cleveland office of the Newmark Grubb Knight Frank brokerage. “It was a great year for absorbing industrial space,” said Terry Coyne, executive managing director at Newmark Grubb. “If you don’t see speculative industrial building, you will see pricing pressure return to the market. There are already no concessions in (industrial) leasing.” Newmark Grubb’s data show industrial vacancy declined to 10.6% as of Dec. 31 from 11.75% a year ago. The decrease is no small achievement in a market with about 300 million square feet of space owned or leased by manufacturing and distri-
A wrong turn
INSIDE: A closer look at data from Cleveland’s industrial and office real estate markets. Page 16
The recession hit Bruce High Performance Transporters — known at the time as High Tech Performance Trailers Inc. — hard. With 90% of its business tied to auto racing, the company didn’t have an answer to its revenue woes when it went from receiving 20 to 30 trailer orders a year — for about $300,000 apiece — to no orders in 2008.
MARC GOLUB
Bruce Hanusosky stands in a 2013 NASCAR transporter for Joe Gibbs Racing.
THE WEEK IN QUOTES “If they can make something lighter and stronger, that’s what automakers need. That’s a great thing for Cleveland.” — Ed Gonzales, owner of Cleveland-based Ferragon Corp., a steel toll processor. Page One
“This is a $20 billion worldwide market. China, India, Russia are importing more whiskey, and as a country we have an obligation to manufacture products that people want.” — Tom Lix, founder and CEO, Cleveland Whiskey. Page One
See TAX Page 16
Industrial, office real estate data show life
RACING WITH THE TIMES
See RACING Page 18
will re-introduce it later this month.” Rep. Henne’s Republican cosponsor, Cheryl Grossman of Grove City, said the new bill will have some “revisions and tweaks to make it a really good bill.” “This continues to be a major challenge for many, many businesses,” Rep. Grossman said.
“Chicago definitely has the potential to be the biggest office in terms of everything. If we’re good at what we do, then that probably should happen.”
“Of course you’re going to sit on cash. … Why should I start deploying my cash now if my customers aren’t going to be there in 2013?”
— Gary Shamis, managing director, SS&G Inc. Page One
— Kevin T. Jacques, Boynton D. Murch Chair in Finance, Baldwin Wallace University. Page 11
bution-oriented concerns. The volume of vacant industrial space fell 9% to almost 32 million square feet as of year-end 2012 from 35 million a year earlier. Michael Petrigan, a Newmark Grubb executive managing director, said the market benefited from pentup demand for industrial space, particularly in Lorain County. Although vacancy statistics in the office market remain much higher than in the industrial market, office tenants were more active than in recent years. “There was much more leasing action” in 2012 than in 2011, said Bob Nosal, who heads Newmark Grubb’s Cleveland office. The region’s appetite for office space grew more than 200%, as the market absorbed 500,175 square feet last year compared with 246,316 square feet in See VACANCIES Page 16
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Due to shale boom, search for truckers shifts into overdrive By TIMOTHY MAGAW tmagaw@crain.com
The flurry of activity in Ohio’s oil and gas sector has put an alreadyaggressive search for thousands of new truck drivers into high gear, and a handful of local academic programs hope to be clutch in the effort of filling that need. The American Trucking Associations suggests 100,000 new drivers must be recruited annually to keep up with the demand. Moreover, the trucking industry in Ohio expects to create 9,130 jobs over the next five years — a number that many in the
business say could balloon as the need grows for drivers to haul equipment and materials to support the shale exploration boom taking hold throughout the Buckeye State. Great Lakes Truck Driving School, a for-profit school in Columbia Station, recently inked a deal with three publicly financed career centers, including Medina County Career Center, to expand their course offerings that lead to a commercial driver’s license, or CDL. The arrangement, which could handle as many as 200 students each year, allows students to do their classroom work at the career centers but
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their in-truck training at Great Lakes Truck’s Columbia Station location. “Private schools partnering with the public schools like this is going to help alleviate that shortage and helps us reach out into a larger marketing area,” said Doris Young, the truck driving school’s owner and operator. “We’re looking at every avenue to provide those services to the people.” Industry observers say gas and oil companies aren’t necessarily in the market for only traditional truck drivers. Rather, many prefer nondriving personnel to have CDLs should the need arise to transport materials. On the other hand, Chesapeake Energy Corp. — the Oklahoma City-based energy giant responsible for much of the state’s natural gas production — hired 69 truck drivers in Ohio last year and
plans to fill an additional 16 posts. Despite strong demand for licensed truck drivers, the number of people with commercial driver’s licenses in the state dipped in 2011 for the first time in at least a decade, according to the latest data available from the Ohio Bureau of Motor Vehicles. Between 2000 and 2010, the number of people with commercial driver’s licenses rose by about 10%, to 390,885 from 355,020. In 2011, the number edged down to 389,969. It’s a shift educators say has led them to beef up their recruiting efforts.
Grads find work The Medina County Career Center, which offers vocational training for area adults and high school students, explored the possibility of launching its own truck driving school before signing on with Great
Ohio may lead development of next Accord By HANS GREIMEL Automotive News
TOKYO — A clean-sheet redesign of the Honda Accord just left the gates, but engineers already are planning its successor — and that eventually could mean more business for suppliers to the Marysville plant of the Japanese automaker. Development of Honda’s nextgeneration flagship sedan, due in 2016 or 2017, likely will be led from Ohio instead of Japan. The car may get a downsized turbocharged engine for better fuel economy. And the gasoline-electric hybrid variant will be made in North America. That is a preview of Honda Motor
Receiver’s Sale Cleveland Jet Center Bids being accepted for a Receiver’s sale of the Cleveland Jet Center, located at the Cuyahoga County Airport.
Co.’s thinking from Shoji Matsui, large project leader of the Accord’s current redesign. Mr. Matsui has led the Accord since 2009. A good English speaker and self-confessed Disneyland devotee, the jovial engineer was tapped for his expertise in developing cars for America. He cut his teeth on earlier generations of the U.S.-spec Accord and most recently was chief engineer of the Odyssey minivan. His orders with that vehicle: Seamlessly transfer Odyssey lead development from Japan to Honda’s American researchand-development center in Ohio. With the ninth-generation Accord, which hit showrooms in September, Mr. Matsui overhauled the car with the American market in mind. The same strategy will apply for the 10th-generation Accord. The Accord is already one of Honda’s most Americanized cars. But the company’s global tech center in Utsunomiya, north of Tokyo, still handles key engineering. That will change with the next generation, Mr. Matsui says. “Technologically speaking, Ohio is fully capable,” Mr. Matsui told Automotive News. “As the future trend, it is for sure that the R&D is being transferred over there.” Honda has said that the Ohio tech center will lead development of the next-generation Civic. A spokeswoman says no decision has been made for the Accord. But President Takanobu Ito, in an October interview, said he wants to give America top responsibility for the next Accord.
Now, about hybrids …
The Cleveland Jet Center is a sub-tenant in an office building and freestanding airplane hangar at 26380 Curtiss Wright Parkway, Richmond Heights, Ohio 44143. Sale is subject to Court approval, where is, as is, without warranty or representations.
Lakes Truck. The joint six-week program, which quietly launched last fall, graduated in November its first class of nine students — all of whom are now employed. “We turn out unemployed people and get them back on the tax rolls and doing it in a way we’re not spending a lot of money to do that,” said Gary Searle, director of adult and continuing education at the Medina career center. “Great Lakes already has the equipment and facilities. What we do is maximize the use of the classrooms.” Cuyahoga Community College’s truck driving academy trains between 90 and 100 students each year, according to program manager Kreigh Spahr. The demand for training has led Tri-C officials to increase the school’s enrollment projections for the program to 120 students. ■
For additional information contact via email: Tim L. Collins, Esq., Receiver Collins & Scanlon LLP 3300 Terminal Tower Cleveland, Ohio 44113 tcollins@collins-scanlon.com No telephone calls, please. Do not contact the Court.
Postmark Deadline for bids: January 15, 2013
Honda also aims to build the hybrid version of the car in North America. That shift would require a beefed-up R&D operation and a new supply chain for specialty parts such as batteries. Honda plans to make the plug-in and regular hybrid variants of the new Accord at the company’s
Sayama plant north of Tokyo, at least initially. The plug-in hits the United States next year. But hybrid manufacturing should shift to the United States by 2015, within the Accord’s current generation, Mr. Matsui said. “We intend to produce them around the world within the current design of the vehicle,” Mr. Matsui said. “It’s not too far away. Right now in Ohio, they are looking into it and making studies.” The start of hybrid manufacturing would need to coincide with a Christmas or summer shutdown to allow for factory retooling, he said. That limits the window to twice a year. For the next generation, madein-USA hybrids should be routine. Mr. Matsui also expects some drivetrain tweaks next time around.
Motivated by MPGs Boosting fuel economy was key in the recent redesign. To increase efficiency, Honda considered using a downsized turbocharged engine. But Mr. Matsui’s team scrapped the idea because it felt the turbocharger’s delayed kickin wasn’t conducive to the smooth ride the team wanted. But Honda hasn’t forgotten the idea. “For the next-generation Accord, it will get a downsized turbo for better fuel efficiency,” Mr. Matsui predicted. In the newest Accord, Mr. Matsui opted to improve fuel economy by using a continuously variable transmission. However, there’s one problem: Those transmission typically deliver slower driving response than automatic transmissions. But Mr. Ito wanted the continuously variable transmission to deliver better torque than an automatic at low RPMs. ■ Hans Greimel is Asia editor for Automotive News, a sister publication of Crain’s Cleveland Business.
Volume 34, Number 1 Crain’s Cleveland Business (ISSN 0197-2375) is published weekly, except for combined issues on the fourth week of December and fifth week of December at 700 West St. Clair Ave., Suite 310, Cleveland, OH 44113-1230. Copyright © 2013 by Crain Communications Inc. Periodicals postage paid at Cleveland, Ohio, and at additional mailing offices. Price per copy: $2.00. POSTMASTER: Send address changes to Crain’s Cleveland Business, Circulation Department, 1155 Gratiot Avenue, Detroit, Michigan 48207-2912. 1-877-824-9373. REPRINT INFORMATION: 800-290-5460 Ext. 136
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Ohio manufacturers thriving in gas, wind markets WIRE-Net survey shows many industrial companies do business in energy sectors By DAN SHINGLER dshingler@crain.com
As it turns out, you can have gas and still break into the wind business, and vice versa. When the manufacturing advocacy group WIRE-Net on Cleveland’s West Side surveyed about 50 Ohio manufacturers in December — including members of its GLWN wind manufacturers’ network, members of WIRE-Net and some unaffiliated companies — it found almost all those companies did business in at least one energy-related supply chain and most were in at least two. Wind and gas were the most common sectors into which Ohio industrial companies sold their goods, the survey found. The survey also revealed, perhaps more importantly, that most of those companies were serving the natural gas drilling, production and processing business — and what they learned from the natural gas industry often transferred and was usable in the wind energy sector. At the same time, some companies found their experience in wind energy positioned them to serve the oil and gas market. That synergy could be important to Ohio manufacturers that hope to break into wind energy or into the state’s growing natural gas drilling business, the latter of which is seen as fueling growth in the state’s economy both directly and by spurring manufacturing here. “It shows that the future of American manufacturing is really tightly intertwined with American energy and American clean energy,” WIRE-Net president John Colm said of the survey’s findings. “For those concerned about jobs in the gas industry, this is not a bunch of projections from think tanks in
Cleveland or Columbus. It’s real.” About 84% of the companies polled already sell into at least one energy market, though more were producing products for the natural gas market than were selling into the wind, solar, biofuel, fuel cell or hydroelectric energy sectors.
Skills put to diverse use WIRE-Net conducted the survey on behalf of the Washington D.C.based American Clean Skies Foundation, and had little trouble finding Ohio companies that exemplified the trend of serving more than one energy market with similar products and technology. Take Elyria-based Norlake Manufacturing Co. and nearby Elyria Foundry. Norlake makes transformers, which are used to power variable speed pumps that help move oil and gas at well sites and through pipelines. It also makes power converters — another expertise that helped Norlake produce power management equipment for the wind industry in 2010. Now it’s expanding into solar energy. Elyria Foundry makes complex gray and ductile iron castings, including compressor components that it long has been selling to the natural gas industry — the source of a significant portion of its revenues, according to WIRE-Net’s report. Around 2008, it began using that same technology to cast components for the wind energy market, it told WIRE-Net. In Cleveland, Advanced Manufacturing Corp. had been doing precision machining and metal fabrication for the oil and gas markets since at least the 1980s, but in 2008 it applied those same skills to selling products to wind turbine manufacturers. And in Wadsworth, Ebnerfab Co.
has made heavy-duty metal products for the wind and natural gas markets, including pipe and pressure vessels. Ebnerfab invested $2 million in new vertical boring equipment in 2010, mainly to boost its capacity to process heavy steel for wind turbine towers. As it turned out, that equipment also has enabled it to make heavy-walled pressure vessels for the natural gas industry, it reported in the survey. Such transfers of capacity have come in handy for various manufacturers, especially when one energy sector has waned while another has grown. That has been the case in the United States over the last two years with wind energy and natural gas production. “Gas was taking a few years off, when wind came roaring in,” GLWN executive director Ed Weston said. “Now wind is slowing and gas is back. It’s a nice portfolio to have.”
More business, bit by bit Sometimes, the connections are not direct. For example, Ebnerfab also sells to other companies that supply the natural gas business. “I had a three-hour meeting today with a company, where we’re kind of a tier two supplier, that sells to the
shale gas industry,” Ebnerfab vice president Jim Pugh recently told Crain’s. “They’ve seen their business triple in the past couple of years. We’re a sub supplier to them, so we’re enjoying growth from that, too.” The benefits of serving two industries, as well as the benefits of the growing shale gas industry, were not limited to companies in Cleveland or eastern Ohio, where most of the shale gas drilling is taking place. In Franklin, between Cincinnati and Dayton, Nation Coating Co. traditionally has been a small, hightech company producing advanced coatings that toughen materials for aerospace parts and other harsh environments. It has been helping to make better drill bits and other products for the oil and gas market since the 1980s, and still does, but more recently it’s also begun selling into the wind energy market. Now, it is taking what it has learned from all those other businesses and doing experimental work on new drilling heads for the shale gas industry, company president Larry Grimenstein said. If it can make shale drilling bits last longer, it would save drillers time and money, because drill bits must be replaced many times during the
construction of a single well. “When they drill, it’s in a very corrosive environment,” Mr. Grimenstein said. “You have to pull that whole damn rig up to get to that drill bit to change it.”
Pipeline to growth Like Ebnerfab, Nation Coating is enjoying some indirect growth as well. It sells to companies such as Rolls-Royce, which makes large engines and compressors used to move oil and gas through pipelines. As more pipelines are constructed, more engines and compressors are required, which means more of their critical parts are sent to Nation Coating for coating. Messrs. Colm and Weston were pleased with the study’s results, but not completely shocked. After all, they note, wind energy largely was developed at NASA Glenn Research Center in Brook Park, before technology there was exported and adopted in places like the Netherlands, Mr. Weston noted. And Ohio was one of the first states in the nation to have an oil boom about 100 years ago. “A lot of these technologies were kind of birthed around here, so it’s not a surprise that these companies can do both,” Mr. Weston said. ■
WHEREVER YOU ARE,
YOU’RE CLOSE TO GREAT CARE.
Fuel economy standards place onus on plastics By BILL BREGAR Plastics News
Companies will need to work together closely to meet aggressive corporate average fuel economy (CAFE) standards and boost recycled content in cars, speakers from Johnson Controls Inc. and Bayer MaterialScience AG said at the recent Plastics in Lightweight Vehicles conference in Livonia, Mich. “You feel like sometimes that everything that needs to be developed has been developed,” said Bruce Benda, who oversees the North American automotive and transportation market for Bayer MaterialScience. That’s not the case, though, as government regulations that boost CAFE standards to 54.5 mpg by 2025 will spur innovation. Fuel efficiency has remained pretty flat since 1980, even though gas prices have risen 200% since then. “Fuel economy, cost reduction is a reality for our business,” Mr. Benda said. “These are huge challenges
that the automakers and their supply base have to deal with.” Mr. Benda said automakers will remove as much as 600 pounds from the average vehicle to help meet CAFE. Ford Motor Co. announced plans to reduce as much as 750 pounds. Mr. Benda said Bayer’s Bayflex polyurethane, reinforced with milled carbon fibers, is finding use in fenders, where it saves 35 pounds versus steel fenders. One key will be new adhesives to link composite and metal parts. “There needs to be new bonding concepts put together,” Mr. Benda said. Dan Koester, director of new product technology at auto supplier Johnson Control, said a bioplastic project with Ford is studying seven bio-based materials for a door panel; the materials include polylactic acid and wheat straw. ■ Bill Bregar is a senior staff reporter at Plastics News, a sister publication of Crain’s Cleveland Business.
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KA hits ‘rare’ third generation Nationally known architecture firm offers younger staff unique experience By STAN BULLARD sbullard@crain.com
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A new regime, and a new generation of leaders, has assumed the reins at KA Inc. Architecture, which goes by ka. More management and ownership shifts also are ahead at the highprofile architecture firm, which is better known nationally than locally for designing enclosed shopping malls and other large commercial structures. The firm announced the lineup today, Jan. 7, as it unveiled its current management structure for the first time. The shift is as natural as growing older. Longtime president and shareholder James B. Heller has hit 65, the age the firm’s founder, the late Keeva Kekst, instituted for exiting ownership and management in 1996 so the practice would survive him. With the transition, the firm Mr. Kekst started in his attic in 1960 reached its third generation. The new executive board members are John Burk, the firm’s chief operating officer and just-minted president, and shareholders Alan Siliko, its chief financial officer, and Craig Wasserman, executive vice president and a studio leader. Meanwhile, the two other executive board members — Darrell Pattison, director of design, and James Bader, director of landscape architecture — will hit age 65 by October. At that time, two new board members will join the executive board
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from the ranks of the firm’s dozen employee shareholders. In a recent interview at the firm’s two-story office at the Western Reserve Annex building in Cleveland’s Warehouse District, the trio of executive board members said they now drive the firm’s future collaboratively. Asked who has the deciding role to settle arguments, Mr. Burk said that is his responsibility as president. But Mr. Siliko said the firm’s executive board has a decisive vote on major issues and always will be an odd number to prevent a deadlock.
A rare feat Reaching a third generation in an architecture practice is exceptional in Cleveland and the profession. Cleveland architect Peter van Dijk, 83, a retired — though still drawing professionally — name partner at the firm now known as Westlake Reed Leskosky, described reaching a third generation in Cleveland as “something very rare.” Mr. van Dijk’s former firm dates to 1905 and was founded by Abram Garfield, the youngest son of the 20th president of the United States. Henry “Hank” Reder, a Chesterland attorney and architect, said even nationwide, few architecture firms survive generational transitions. “It’s the nature of the business,” Mr. Reder said. “Architecture is a very personal service. So many of the principals have design egos they have trouble delegating. When that architect moves on, the goodwill he’s built often moves on as well.” In ka’s case, its structure means no one person is in charge of everything, and younger architects over time gain relationships with valued real estate development clients such as Forest City Enterprises Inc. of Cleveland, Simon Property Group of Indianapolis and Glimcher Realty Trust of Columbus. Today, Mr. Wasserman said, “The beauty of the structure is that we’ve
Burk
Siliko
Wasserman
all been here a long time so we understand things. Our strengths complement one another.”
Surviving the storm However, the style will be different. The hard-driving Mr. Heller, who remains at the firm though the board members could not apply a current title to him, is a rainmaker known nationwide in retail circles. Mr. Burk, a specialist in construction documents, said his role will be less public and more internally focused. The firm, which caters to real estate developers, retailers and corporations, survived the downturn due to several steps, including staff cuts. Its staff numbers 44 today, down 58% from 105 in 2008, though it is up from a low of 36 in 2010. Its staff is heavy with registered architects, 22, and their number is up from 16 in 2010. “We were ready for the storm that hit us,” Mr. Siliko said, as the firm had built up a reserve from profits in stronger years, eschewing the tendency to pay it all out to shareholders. The national firm also landed two big projects — both local — that were crucial to carrying it through. It serves as architect of record for the New Haven, Conn.-based Pickard Chilton architecture firm on the $170 million Eaton Corp. headquarters building in Beachwood. The firm also designed the $435 million makeover of the Higbee Building as Horseshoe Casino Cleveland for the joint venture of Rock Gaming and Caesars Entertainment Corp., and it’s at work on a Baltimore casino for the same clients. ■
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By FRANK ESPOSITO Plastics News
Color and additive concentrates maker Americhem Inc. of Cuyahoga Falls has acquired Infinity Compounding LLC, a producer of resin compounds based in Swedesboro, N.J. The deal “makes sense on a number of levels,” Americhem CEO Rick Juve said in a Jan. 4 news release. “We’re both about providing highly reliable, technology-based solutions to our customers.” For both Infinity and Americhem, the purchase also “broadens the technology base, opens new markets and expands geographical reach,” Mr. Juve added. The purchase price was not disclosed. Markets served by Infinity include medical, electrical/electronic and business machines. The company will continue to operate independently under existing management, including president Carlos Carreno, who — along with sales and marketing
vice president Tim Carroll — founded Infinity in 2005 “As part of Americhem, Infinity Compounding will be able to offer new products and technologies to our customers, including best-inclass color capabilities,” Mr. Carreno said in the release. During 2012, Infinity added its fifth production line — a twin-screw extruder — and added six jobs. The company now employs 35 and has annual production capacity of about 7 million pounds. Sales for 2011 were around $15 million, with 20% sales growth expected for 2012. Americhem ranks as one of North America’s 30 largest compounders and concentrate makers. The acquisition is Americhem’s first since 2005, when it bought materials firm Color & Additive Technologies Inc. of Dalton, Ga. Americhem operates seven plants worldwide. ■ Frank Esposito is a senior reporter at Plastics News, a sister publication of Crain’s Cleveland Business.
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Whiskey: Brand can hit SS&G: Chicago could be biggest market market less expensively continued from PAGE 1
continued from PAGE 1
For now, the entrepreneur is distilling and storing about a couple hundred gallons of the whiskey in a 3,000- square-foot production area at the incubator on East 25th Street in Cleveland run by manufacturing assistance group Magnet. Mr. Lix’s product already has piqued the interest of brand-name restaurateurs such as Michael Symon — who said he plans to offer the whiskey in all his eateries — Sam McNulty and Chris Hodgson. “We’re definitely bringing Cleveland Whiskey into our restaurant once it’s available,” said Mr. Hodgson, chef and co-owner of Hodge’s in downtown Cleveland. “We’re waiting. We want some of the first cases.”
Against the grain Mr. Lix, a serial entrepreneur who moved in 2007 from Boston to Cleveland, long had been toiling with the abridged distilling process in his basement before assuming incubator space from Magnet in 2009. Magnet provided access to its product design and development engineering team and lab space outfitted with water chillers and heaters, temperature and pressure sensors, water filtration and other test equipment. The bourbon initially is aged in new white American oak barrels — a legal requirement to call it bourbon — for at least six months. The pressure-aging process occurs within computer-monitored stainless steel vats. Oxygen is infused into the tanks to accelerate the aging process of the bourbon, with oak in the vats alternately absorbing and expelling the high-proof raw liquid. Traditional distilling using oak barrels involves six to 10 years of aging, during which unseasonably warm or humid seasons can impact the flavor of the spirit idling in warehouses. “A couple of years ago, Knob Creek ran out of its product and had to wait for (the next batch’s) eighth birthday before it could begin selling again,” Mr. Lix said of the Kentucky bourbon maker. “They can’t just crank up the production like you can with corn flakes or computer parts. “This process changes all that,” he said. “We can bring our quality whiskey to market faster and less expensively.” David Crain, director of entrepreneurial services at Magnet, describes Cleveland Whiskey as a “perfect fit” for the incubator based on the startup’s potential to satisfy a strong market need using the advanced technology. “I’m excited to see the product get on the shelves,” he said. The venture has secured about $1 million in financial support, including $125,000 from the Innovation Fund of the Lorain County Community College Foundation; $123,500 from the Cuyahoga County North Coast Opportunities Technology Fund; $15,000 from the Cuyahoga County New Product Development and Entrepreneurship Loan Fund; and $405,000 in private investment.
Shake it up Mr. Lix, who has six employees, expects to produce 6,000 to 7,000 cases of whiskey during his first year. His goal is to unveil other flavors and in five years dispatch 250,000 cases throughout the nation and generate $54 million in revenue before entering the international market.
Craft distillers abound in Ohio While Cleveland Whiskey has its sights set on the international marketplace, a small but fledgling group of artisan craft distillers across Ohio is taking advantage of the state’s agricultural resources and consumers’ increasing penchant for quality and are producing their own designer spirits. Portside Distillery in December began selling a white rum at its operation in Cleveland’s Warehouse District. Sam McNulty, owner of Market Garden Brewery and other Ohio City brewpubs, plans to begin distilling a white whiskey, old world gin and a new world gin once he receives the nod from the federal government. Mr. McNulty said he eventually will unveil a dark rum and aged whiskey after they’ve been aged in barrels for a couple years. Seven Brothers Distilling in Leroy Township, near Painesville, in 2011 began distilling a handcrafted premium vodka. Owner Kevin Suttman expanded his offerings to a silver rum and a spiced rum, all of which are distributed throughout liquor stores in Northeast Ohio. Mr. Suttman in October won first place in a Council of Smaller Enterprises’ business pitch competition, which awarded him $20,000 that will help him create new products and tap into private label and retail opportunities. There are 14 craft distillers located throughout Ohio. According to the American Distilling Institute, there were 234 distilling spirits plants in the United States in 2011, a sharp increase from 24 in 2000. By the end of 2015, the institute predicts more than 1,000 craft distilling plants will be located throughout the United States and Canada. — Kathy Ames Carr
Tim McCarthy, a Cleveland Whiskey minority investor and founder of the Ashtabula-based Business of Good Foundation, said he shares a similar vision. “I have been through two full startups myself and have been involved with a couple dozen others,” he said. “I think Tom has something that in three years will be a national consumer business, and in six years will be an international (brand).” Cleveland’s identity is part of what makes the brand appealing, at least to an online test market of more than 600 voters, said Mr. Lix, who conducted a nationwide online poll over the summer to see which brand names and bottle designs potential customers preferred. “The Cleveland label and bottle scored the highest (among the choices),” Mr. Lix said. A subsequent online concept test with about 200 frequent bourbon purchasers revealed they were inclined to buy the black bourbon, after reviewing pictures of the Cleveland Whiskey bottle containing both a black bourbon and the lighter-colored counterpart they are accustomed to drinking. ■
began in February 2012; their executives say the merger was attractive because both firms have extensive restaurant practices and because their cultures were similarly employee-centric. Plus, Chicago itself is the country’s second-largest financial market and “a really good restaurant city” where the firm’s people are starting to corral opportunities, Mr. Shamis said. Approaching the “magic number” of 100 employees in the Chicago market will give SS&G more leverage as it pursues business, said Allan D. Koltin, CEO of Koltin Consulting Group, a Chicago firm that specializes in the accounting profession and has advised both firms in the past. “There is a perception with referral sources (bankers and attorneys) and middle-market clients that at 100 people, the firm has the necessary depth and resources to service larger” and more sophisticated clients, Mr. Koltin said.
Moving up the charts Mr. Shamis expects SS&G will crack the top 40 of the Top 100 Firms compiled by Accounting Today, thanks to the SLSF merger.
The firm in 2012 ranked as the 41stlargest accounting firm in the United States with $70.7 million in revenue. Now that SS&G’s acquisition strategy has achieved a “critical mass” in the Chicago area, its strategy there now will be one of growing internally, potentially with some small acquisitions, Mr. Shamis said. “Chicago definitely has the potential to be the biggest office in terms of everything,” he said. “If we’re good at what we do, then that probably should happen.” It is “not in the plan” to move the headquarters to Chicago, he said. Mr. Perlman is confident merging his firm into SS&G will present opportunities for enhanced growth for its professionals. Plus, his people won’t need to outsource services such as valuation for clients because SS&G has professionals who can perform them. Better integrating all three SS&G Chicago-area offices is on Mr. Perlman’s to-do list. So is developing centralized marketing initiatives for SS&G in the region in order to take advantage of opportunities that Mr. Perlman said have emerged as other accounting firms consolidate. Consolidation is up nationwide and in Chicago: Mr. Koltin said he is
working on five other CPA firm mergers in Chicago that probably will close by the middle of next year. That pace reminds him, he said, of the 1998-99 merger frenzy in Chicago, when public companies such as CBiz, American Express and H&R Block acquired a half-dozen of the top 25 CPA firms.
Coast-to-coast hunger While internal growth may be the plan going forward in Chicago, acquisition remains SS&G’s strategy for both the eastern and western seaboards, specifically in and around New York City and Orange County, Calif., Mr. Shamis said. “If you’re servicing restaurants, why wouldn’t you want to have locations in those areas?” he said. The plan is for SS&G to find coastal partners over the next couple years and to grow its annual revenues to roughly $100 million. With the addition of SLSF, SS&G is at annualized revenues of nearly $80 million, according to Mr. Shamis. Already, SS&G has an acquisition in the works that it expects to close mid-year 2013 in one of its existing markets, which include Cleveland, Chicago, Akron, Cincinnati, Columbus and Raleigh, N.C. ■
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PUBLISHER/EDITORIAL DIRECTOR:
Brian D. Tucker (btucker@crain.com) EDITOR:
Mark Dodosh (mdodosh@crain.com) MANAGING EDITOR:
Scott Suttell (ssuttell@crain.com)
OPINION
Toll tale
W
ill the Ohio Turnpike do for the state’s roads and bridges what the Ohio Lottery has done for education in the Buckeye State? We hope not. More importantly, it must not. Gov. John Kasich made the right call in deciding not to raise money for needed highway and bridge investments by leasing the Ohio Turnpike. But we’re not quite jumping for joy about his plan to use the turnpike’s tolls as collateral for the sale of bonds that would finance infrastructure improvements beyond the turnpike. Why? Look no further than our state’s history with the lottery. Three decades ago, the Legislature earmarked profits from the Ohio Lottery to go toward education. People expected the lottery to produce a windfall for primary and secondary schools across the state. It didn’t work out that way. Rather than layer the lottery profits on top of the money that had been designated for education in the state’s general fund budget, the Legislature steadily reduced the percentage of the budget it earmarked for schools as lottery proceeds grew. The big windfall for education never materialized; instead, lottery profits became a partial substitute for redirected general fund money that went to other parts of the budget. Now along comes Gov. Kasich with his proposal to expand the authority of the Ohio Turnpike Commission so that it can sell bonds for highway and bridge projects that aren’t connected to the turnpike. The pitch is that future toll revenues could be used to finance the sale of $1.5 billion in bonds, with the state using that money to secure matching federal funds. The sweetener for the northern half of the state is that most of that money supposedly would pay for projects in these parts, such as the second Inner Belt Bridge in Cleveland. In a guest column submitted to media outlets statewide, Ohio Department of Transportation director Jerry Wray said the governor’s plan “will free up other funds to accelerate badly needed highway projects statewide — delivering more projects faster.” But will Northern Ohio still receive its fair share of state highway transportation dollars from the gasoline taxes its residents pay? Or will the cash generated from any sale of turnpike bonds reduce in full or in part the amount of money from the gas tax that flows into the region for bridges and highways? If the answers to the previous questions are “no” and “yes,” respectively, then the use of turnpike tolls for non-turnpike roadway investments won’t be the bonanza for this part of the state that it may seem. There are other ways to create more revenue for transportation projects. One would be to adopt a suggestion we made 12 months ago: Apply Ohio’s commercial activity tax to the first $1 million in annual taxable gross receipts brought in by a business, rather than collect just $150 on that first million, and dedicate those added dollars to infrastructure. Another would be to raise the gasoline tax. Each could yield hundreds of millions of dollars a year in new money without risking a repeat of the lottery sleight of hand with the turnpike.
FROM THE PUBLISHER
Stop this double dipper in his tracks
O
done in City Council. The aforemenne thing is certain about Clevetioned Mr. Polensek, the senior member land City Councilman Mike of the body, is collecting a pension and a Polensek: He’s always direct, salary, but he did so by “real” retirement regardless of whether you agree and then running for — and winning — with him. re-election to his Collinwood seat. And on this one, it’s impossible to He believes Mr. Johnson should do the disagree with him. His colleague, Ken same thing. No way will he vote to Johnson, must not be allowed to appoint him to his old seat. By “double dip” his way into a paid asking to be appointed, Mr. “non-retirement.” BRIAN Johnson “puts council in a Councilman Johnson retired TUCKER terrible position,” Councilman in late 2012 at age 65 — in the Polensek was quoted as saying. middle of his term — so that he “I’ve protected that institution could guarantee himself an for 35 years, and I will not vote annual cost-of-living increase for anything that violates the that gets eliminated this year for public trust.” public employees. He was quoted Mr. Johnson worked in the last week in The Plain Dealer as city recreation department for saying he wanted his council 15 years before being first elected colleagues, who have the authorto council in 1980, and by most accounts ity to appoint his successor, to choose him. has done a good job serving his ward. That way, he would collect his retireNow, he should simply do the right thing ment check and keep his $74,000 annual again, by enjoying his retirement until council salary as well. It happens all the he’s able to again run for election to his time with school principals and superinold council job. tendents, he reasons, so why not a coun***** cilman? MANY EYEBROWS WERE RAISED Well, for one reason, it’s never been
when The Wall Street Journal recently published a story that said extractions of America’s shale oil deposits could turn our country into the world’s largest oil producer in a short seven years. That’s right: a bigger producer than Saudi Arabia. And the production of such plentiful deposits of natural gas is causing atmospheric toxic emission levels to drop as electric utilities and other manufacturers switch from coal. Imagine the impact of such a shift in industrial polluters such as China and India? The job projections are stunning as this new industry develops, but even shale pioneers such as Houston’s George Mitchell know we need a sensible balance between adequate regulation and the promise of an economic boom. That’s one reason we’re including a panel discussion on the topic as one of four afternoon breakout sessions at Shale Summit 2013 on Feb. 5. It will be a day-long, in-depth program with our public broadcasting partners at ideastream and will be held at Executive Caterers at Landerhaven. Details are on both crainscleveland.com and ideastream.org. ■
PERSONAL VIEW
Changes benefit injured workers in state By STEVE BUEHRER
T
wo years ago, Gov. John Kasich asked me to lead the Ohio Bureau of Workers’ Compensation with a simple aim — make the system better for Ohio’s injured workers and businesses. In traveling the state he had heard a common complaint; the system is too difficult to navigate and its costs were a barrier to business growth. Since then, we have made great progress in improving the system, both for our injured workers as well as Ohio’s businesses. Through better management and strong investments we’ve been able to reduce costs so Ohio businesses can invest more in growth. Rate reductions over the past two years have saved private businesses an
Mr. Buehrer is administrator and CEO of the Ohio Bureau of Workers’ Compensation. estimated $130 million and public employers an estimated $40 million. In fact, the collectible rate for private employers (the amount BWC actually collects after various discounts and adjustments) is the lowest in 24 years. And for public sector employers, it’s the lowest since at least 1983. We’re also helping new businesses. In its first year, our Grow Ohio program has saved 21,000 new businesses more than $3 million. These efforts are beginning to make a difference in how Ohio stacks up against the rest of the country. An example is the 2012 Oregon Premium Rate Ranking Study, a biennial review of each state’s base rates that is widely used as a national
benchmark. In the study, Ohio dropped from 17th to 28th in premium costs compared to 2010. Even better news is that these improvements go hand in hand with improvements that are benefiting Ohio’s workers. Everything we do at BWC can be thought of in terms of prevention and care. Working together, these two concepts ensure we are creating safer workplaces to reduce accidents and getting injured workers healthy and back on the job more quickly when accidents do happen. Consider how some of these changes benefit both workers and business: ■ Our first formulary, centralized drug utilization reviews, and a pharmacy management program are ensuring See VIEW Page 9
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Ancora adds Michigan office, first outside Ohio
THE BIG ISSUE What do you think was the biggest news story of 2012?
By MICHELLE PARK mpark@crain.com
BOB KROSKY
DANA QUINONES
FORMADO ESPERTO
CHRIS ARNOLD
North Olmsted
Parma
Cleveland
Berea
I would probably guess the presidential election, because that’s all I heard about for a year.
Sandy Hook. It just involved children. It was devastating.
(President Barack) Obama being elected, because that affects the next four years.
I think the catastrophic events that just (shook) the nation: the Sandy Hook Elementary School shooting, Hurricane Sandy, the shooting at the movie theater (and in) Chardon.
➤➤ Watch more people weigh in by visiting the Multimedia section at www.CrainsCleveland.com.
Survey: Temp employment will rise in ’13 By STAFFING INDUSTRY ANALYSTS
More companies will hire temporary and contract workers in 2013, according to a new survey by online job site CareerBuilder. CareerBuilder found that 40% of employers plan to bring in temporary and contract workers next year, up from 36% in last year’s survey and 34% in the survey two years ago. In addition, 42% of employers plan to transition some temporary workers into full-time, permanent employees over the next 12 months. Employers also plan to increase hiring of full-time permanent employees, with 26% saying they intend to boost hiring in 2013, up
from 23% in 2012 and 24% in 2011. The survey also charted three trends to watch in 2013: ■ Employers scouting talent at other organizations: Nineteen percent of workers reported they have been approached to work for another company in the last year when they didn’t apply for a position with that organization. Sales workers were the most likely to report being courted, with 33% saying they were contacted. Professional and business services workers came next, with 31% saying they were contacted. ■ More employers willing to increase compensation: Seventytwo percent of employers plan to increase compensation for existing
employees — up from 62% last year — while 47% will offer higher starting salaries for new employees, up significantly from 32% last year. Most increases will be 3% or less. ■ Employers creating the right candidate instead of waiting for one: Thirty-nine percent plan to train people who don’t have experience in their particular industry or field and hire them for positions within their organizations, up from 38% last year. The survey was conducted online within the United States by Harris Interactive on behalf of CareerBuilder among 2,611 hiring managers and human resource professionals and 3,991 workers. ■
View: Return-to-work remains focus continued from PAGE 8
prescriptions intended to help recovery don’t lead down the dark path of addiction. These changes have shown early promise with a 12% reduction in prescription narcotics and an estimated 2012 savings of $12 million. ■ A new grant is helping businesses start their own employee wellness program, and an expansion in scope and funding of local safety councils is ensuring more Ohio companies can focus on preventing workplace accidents. ■ A new program called Destination: Excellence is estimated to save businesses up to $41 million annually by rewarding them for creating safer workplaces and programs to transition injured workers back onto the job. More challenges remain as we head into 2013. For years, the number of injured workers returning to their jobs has been declining. This trend hurts workers and businesses alike, but it’s a trend we’ve begun to reverse. In the coming year, we will redouble our efforts to address return-towork by engaging with businesses to help them understand their role in preventing workplace accidents and helping get those who are injured back quickly. We’ll be working with our managed care organizations to
clearly define roles and responsibilities and emphasize care over bureaucratic processes. And we’ll work with our providers to ensure accountability for working toward a speedy recovery and return to work
for those who are injured. While there is certainly room for improvement, I’m confident that by working with all our stakeholders we will continue in the right direction. ■
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Ancora Advisors LLC, one of Northeast Ohio’s largest investment advisory firms, is opening 2013 with a second office and the launch of a new mutual fund. Beachwood-based Ancora is leasing office space in Birmingham, Mich., a Detroit suburb, that will be staffed initially by Dan Thelen, who joined the firm in September to launch and manage a fund that will invest in small and mid-cap companies. The new location is the first nonOhio office for Ancora, which was founded in 2003. Ancora CEO Fred DiSanto aims to grow the Michigan office to four or six people, including additional analysts, over the next 12 to 18 months. Led by Mr. Thelen, who left investment firm Loomis Sayles & Co. in late 2011 and now is senior vice president and head of small-mid cap strategy for Ancora, the new fund will invest in the stocks of companies with market capitalizations of $100 million to $10 billion. It was launched Jan. 2. Ancora executives, including Mr. Thelen, will have skin in the game: They are investing more than $1 million into the new fund themselves, Mr. DiSanto said. He expects to have $10 million to $20 million invested in the fund within the first 30 to 60 days. Many local investment advisers invest clients’ money into national funds; this new fund will be managed locally, Mr. DiSanto said. With more than $1.5 billion in assets under discretionary management, Ancora is Northeast Ohio’s largest independent investment advisory firm, according to Mr. DiSanto. Its
Thelen
DiSanto
clients include high-net-worth individuals and institutional investors such as pension funds and endowments. Most of the assets Ancora manages are for Ohio clients. The new mutual fund is Ancora’s fifth mutual fund and will be benchmarked against the Russell 2500, which measures the performance of the small to mid-cap segment of the U.S. equity universe. “We were able to attract a very talented manager who came from a well-known firm where he was managing assets in this style,” Mr. DiSanto said of Mr. Thelen. And Mr. Thelen’s track record of outperforming the market with lower risk is “tremendous,” Mr. DiSanto said. According to data from InteractiveMetrics and Bloomberg, the Russell 2500 produced annualized returns of 4.85% over the five-year period that ended Dec. 31, 2010, while the accounts Mr. Thelen managed at Loomis produced annualized returns of 9.65% over the same period. Mr. Thelen’s strategy for the new fund will involve investing in stocks that fall into one of three buckets: companies with a competitive advantage that are mispriced temporarily; those that receive little or no Wall Street research attention; and companies undergoing some type of corporate restructuring. ■
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executive director, marketing and communications.
and Chris MacLaren to senior managers; Michael Maimone and Megan Howell to managers; Gordy Jones and Todd Pence to senior staff accountants.
ENGINEERING
COLLIER, PETRAS & ASSOCIATES: April R. McMain to financial adviser.
TECHNICAL ASSURANCE: Jackie Spector to database administrator.
GDK & CO.: Quinn E. Parker and Rodney L. Strata Jr. to associates.
FINANCE
MCMANAMON & CO.: Kyle A. Sonnen to senior associate.
GOING PLACES JOB CHANGES ARCHITECTURE GPD GROUP: Darrin Kotecki to president.
BIOTECHNOLOGY GANEDEN BIOTECH: Erin Miller to marketing manager.
CONSTRUCTION RUHLIN CO.: Tim Newberry to superintendent; Paul McCutcheon to licensed professional surveyor; Ryan Berkhouse to assistant safety director; Dave Ellenberger to information technology manager. TRI-C CONSTRUCTION: Eric Scherr to manager of business development. VISCONSI COS. LTD.: Alan D. Prince to chief financial officer.
DISTRIBUTION JENNE INC.: Ryan Jozwiak to services business development manager.
EDUCATION
WWW.CRAINSCLEVELAND.COM
CHARTER ONE/RBS CITIZENS: Sandy Centa and Jeremy Green to vice presidents; Eric A. White to credit analyst. FIFTH THIRD BANK, NORTHEASTERN OHIO: Warren P. Coleman to senior portfolio manager, Fifth Third Private Bank. OHIO COMMERCE BANK: Kristi L. Beeman to vice president, commercial lender.
FINANCIAL SERVICE BCG&CO.: Matt Klemann and Timothy J. Spencer to associates; Michelle Davis, Dan Leffler and Sara G. Lucas to senior associates. CBIZ INC.: Andy Dambrosio to corporate controller.
CASE WESTERN RESERVE UNIVERSITY: Bob Sopko to director, Blackstone LaunchPad.
CENTURY FEDERAL CREDIT UNION: Ronald Hongosh to chief operating officer and executive vice president.
CUYAHOGA COMMUNITY COLLEGE: Kimberly Pleasant to
COHEN FUND AUDIT SERVICES LTD.: Aly Cottam, Lisa Downing
JANUARY 7 - 13, 2013
Miller
Newberry
McCutcheon
Pleasant
Beeman
McMain
Parker
Strata Jr.
Vozar
Mariano
Overy
Cook
Thomas
Lubline
Habe
SS&G: Ross Vozar to associate director. WALTHALL, DRAKE & WALLACE LLP CPAS: Richard L. Zahratka, James J. Czarney, Jon A. Briggs and Scott Preising to principals. WESTERN RESERVE PARTNERS: David P. Mariano to director.
HEALTH CARE ELIZA JENNINGS SENIOR CARE NETWORK: Kathleen Overy to clinical RN liaison. PARMA COMMUNITY GENERAL HOSPITAL: David A. Cook to senior vice president, chief financial officer; Michael Mainwaring to vice president, physician alignment and business development; Sharon K. Thomas to vice president, chief nursing officer. PRIORITY HOME HEALTH CARE INC.: Donna Berry to assistant administrator. SUMMA HEALTH SYSTEM: Dr. Susan M. Hong to medical director,
Berkhouse Ellenberger Scherr
radiation oncology; Dr. Charles Kunos to medical director, radiation oncology and director, brachytherapy/ radiosurgery, Summa Akron City Hospital. THE WEILS: Evan Lubline to administrator.
INSURANCE THE HOFFMAN GROUP: Laura Noyes and Christine M. Podlogar to account managers, commercial lines.
MANUFACTURING INTERLAKE INDUSTRIES INC.: Lisa M. Habe to chairman. PRESSCO TECHNOLOGY INC.: Dave W. Cochran to chief financial officer. SPECTRUM DIVERSIFIED DESIGNS: Jeffrey R. Dolan to chief operating officer.
AWARDS AMERICAN ASSOCIATION FOR THE ADVANCEMENT OF SCIENCE: Jun Qin (Cleveland Clinic) to fellow. NATIONAL CENTER FOR ADOPTION LAW AND POLICY: Betsie Norris (Adoption Network Cleveland) received the Champion Award.
RETIREMENT ALCOHOL, DRUG ADDICTION & MENTAL HEALTH SERVICES BOARD OF CUYAHOGA COUNTY: Cassandra Richardson effective Dec. 31, 2012. GPD GROUP: Dave Granger, after 39 years of service.
Send information for Going Places to dhillyer@crain.com.
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ECONOMICOUTLOOK BEYONDTHEELECTION As much as the candidates themselves, the economy took center stage this past year during the election. However, the spotlight on money matters didn’t fade with the closing of the polls. All eyes were on the nation’s capital as a last-minute compromise was worked out to avert a fall off the fiscal cliff. While always intertwined, politics
FINANCE By MICHELLE PARK mpark@crain.com
D
on’t expect firms that are sitting on piles of cash to invest in growth just yet. Many Northeast Ohio business advisers are not optimistic that companies, a number of which are flush with capital, will spend that cash on hiring, capital equipment and other expansion in 2013 because they expect political and economic uncertainty to persist. “Of course you’re going to sit on cash,” said Kevin T. Jacques, who for 14 years worked for the U.S. Department of the Treasury and is the Boynton D. Murch Chair in
Finance at Baldwin Wallace University. “Why should I start deploying my cash now if my customers aren’t going to be there in 2013?” If consumers end up paying higher taxes this year, they’re likely to spend less, Dr. Jacques said. All the while, economic growth is slow, and other countries’ economies remain weak, so a business isn’t likely to justify investment on the expectation of robust exports. “At the end of the day, demand for corporate production has to come from somewhere, and the big question for 2013 is where?” Dr. Jacques said. “Where is the demand for businesses’ products going to come from?”
2013
and the economy seem to be linked even more dramatically in today’s post-recession world. From taxes and health care reform to activity on the state level, politics will continue to play a leading role in Northeast Ohio’s economy as business leaders, health care executives and higher education officials work through uncertain times. A recent KeyBank survey echoes his pessimism. When pre-election survey results are compared with postelection survey results, they reveal the percentage of middle-market business executives planning on increasing cash reserves nearly doubled, the bank’s latest Middle Market Business Sentiment survey revealed in mid-December. Pre-election, 23% of responding executives said they planned on increasing “already robust cash reserves,” KeyBank found. That figure increased by 23 percentage points, to 46%, in post-election results. The survey also revealed that more than two-thirds of middlemarket executives — defined as those with $25 million to $4 billion in annual sales — have a fair to poor outlook for the U.S. economy in the next 12 months. Only 16% of those surveyed said they were
STATE OF AFFAIRS Quotes from each of our six other Outlook stories: ■ “Hospitals have been working pretty aggressively how to respond to what is most certainly going to be a declining resource pool or at least a resource pool not growing as fast as they’re used to.” — Bill Ryan, president for the Center for Health Affairs, an advocacy group representing area hospitals ■ “How do you (change the formula) in a way where you don’t impact negatively on institutional quality?” — Ronald Abrams, president of the Ohio Association of Community Colleges
more confident in their businesses’ potential to thrive post-election. “The middle market will continue to sit on cash reserves and delay investment until there is proof positive that our government can pull together and create a plan for robust and sustainable growth,” said Cindy Crotty, KeyBank executive vice president and head of KeyBank’s commercial banking segment.
Cash rich Some of Northeast Ohio’s publicly traded corporations reported significantly more cash on hand at the end of the third quarter of 2012 than they had a year earlier, according to data from S&P Capital IQ. Aerospace supplier TransDigm Group Inc.’s cash and equivalents as of Sept. 30 totaled $440.5 million, up from $376.2 million a year See FINANCE Page 12
■ “If things go well, growth will likely exceed 2012, at least in some sectors.” — Dan Berry, president of the Cleveland-based manufacturing advocacy and consulting group Magnet ■ “My best thought on 2013 real estate in Northeast Ohio is for a very modest increase in the number of units to be sold and sales prices to be flat.” — Carl DeMusz, CEO of NORMLS ■ “I think small business owners are really fearful. What’s happening in Washington really has small business members concerned.” — Roger Geiger, vice president and Ohio executive director for NFIB ■ “You have to grow the entire economy to be venture-capital friendly, and there are significant obstacles appearing.” — Howard Bobrow, partner in the Cleveland office of law firm Taft Stettinius & Hollister who advises private equity funds and VC firms
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HEALTH CARE By TIMOTHY MAGAW tmagaw@crain.com
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ith President Barack Obama’s re-election and the U.S. Supreme Court’s affirmation of the bulk of his hallmark health care reform legislation, many had expected the choppy waters guiding health care providers over the last few years to calm. Not so much, say local health care administrators and observers, as the industry’s finances over 2013 will continue to be strained in the face of likely reimbursement cuts from government and commercial payers. In addition, political gridlock in Washington and Ohio’s reluctance to move forward with major prongs of President Obama’s health care overhaul continue to complicate matters for providers who say it’s becoming increasingly difficult to maintain their slim operating margins in the face of such turmoil. “The status of the economy and the potential for lack of consensus in Washington could have a lot of chaotic results that are much more ominous because they are really unknown,” said Dr. Michael Nochomovitz, president of University Hospitals Physician Services. “There’s nothing to plan for. There is more unknown in 2013 than there’s been in health care for many years.” The fiscal cliff negotiations, for example, threw a wrench into hospitals’ planning for 2013, as many anticipated for multimilliondollar cuts to the Medicare program. If Congress and the president couldn’t hash out a deficit reduction deal by the start of the year, an estimated $10.7 billion in automatic Medicare cuts were poised to take effect. The move would have dinged the Cleveland Clinic, for instance, about $22 million. Medicare, for one, often accounts for 30% to 40% of a hospital’s revenue stream. Because Medicare reimbursements already fall short of covering the cost of providing care, hospital officials say any cuts
to the program — no matter how small — are a cause for concern. Federal regulators already plan to withhold a portion of Medicare payments — starting at 1% last year and rising each year — for hospitals with 30-day readmission rates that are above the national average for patients with certain chronic conditions. The pressure on the program is only expected to intensify as the feds look to rein in costs. “Right out of the box, and clearly over the last two or three years, hospitals have been working pretty aggressively how to respond to what is most certainly going to be a declining resource pool or at least a resource pool not growing as fast as they’re used to in order to care for Medicare patients,” said Bill Ryan, president for the Center for Health Affairs, an advocacy group representing area hospitals.
A state of issues While the health care sector has been a political football of sorts on Capitol Hill, the at-times contentious debate over the merits of Obamacare has swept its way into policy discussions on the state level. Republican Gov. John Kasich and his administration have waffled on whether they’d move forward on the expansion of Medicaid eligibility in 2014 — a key component of President Obama’s health care overhaul that the U.S. Supreme Court ruled last year individual states could sidestep. The Kasich administration has argued such a move would expand coverage to somewhere between 250,000 and 319,000 — something state officials contend they can’t afford. Under the health care reform legislation, however, the feds say they will pick up the bulk of the bill for the expansion in its first few years — “a pretty good deal,” according to John Begala, executive director of the nonprofit Center for Community Solutions. In a recent report, the Center estimated a total of 178,000 would
FINANCE continued from PAGE 11
before and from $234.1 million two years earlier. Likewise, diversified manufacturer Eaton Corp.’s cash totaled $425 million as of Sept. 30, up nearly 53% from $278 million a year before. “It’s really the trend that’s been building over the last couple years,” Ms. Crotty said. “They’re deleveraging and they’re sitting on more cash. We would have thought at this point of the cycle that we would have seen more investment in employment or expansion, or in plants or in acquisition. The economy hasn’t rebounded as it typically would coming out of a recession.” And that situation puts the country at risk for another downturn, said Mark A. Filippell, managing director of Western Reserve Partners LLC, a Cleveland invest-
ment banking firm. “If corporations don’t put this money to work, we cannot have a substantial recovery and we might flip back into a recession,” Mr. Filippell said. “It’s less jobs. It’s less growth. It’s less taxes. It’s less economic activity. Those assets, those economic resources, are sitting on the sidelines.” Everyone from shareholders to the unemployed has a stake in corporate spending, or the lack thereof, local advisers say. If money stays on balance sheets, it’s not used to pay dividends or to hire, let alone to build bigger facilities or to expand through mergers and acquisitions. If uncertainty continues, Jerry Kelsheimer, who leads Fifth Third Bank’s Northeastern Ohio affiliate, predicts more of what’s already happening: companies using capital
POLITICS AT PLAY The political wrangling over to what extent the government should foot the bill for the nation’s health care has been and will continue to be a hot talking point through the year. Health care officials anticipate the rate their institutions are reimbursed by the government for health care services will continue to dwindle and, as such, they’ll continue to cut costs from their operations. Adding to the turmoil on the federal level, Ohio hasn’t indicated whether it will go forward with the Medicaid expansion as outlined in President Barack Obama’s health care reform legislation. The U.S. Supreme Court ruled last year states could forego the program’s expansion. Local health care leaders suggest foregoing the Medicaid expansion could negatively impact their bottom lines. Many had suggested the Medicaid expansion would extend coverage to thousands of uninsured patients already coming to them for care and allow them to be paid somewhat for the care they provide. — Timothy Magaw
enroll were the expansion to take place. If the state doesn’t move forward with the expansion, Mr. Begala and other observers say the cost of paying for health care for the uninsured ultimately would be passed on to employers through premium hikes. Should Gov. Kasich ultimately nix Ohio’s Medicaid expansion, Northeast Ohio hospitals will continue to stomach millions of dollars in bad debt brought on by providing care for the uninsured. Moreover, reductions in subsidies for hospitals that care for a disproportionate volume of uninsured payments are expected to dry up under Obamacare. So, should the Kasich administration choose not to play ball with the feds, local hospitals could go without those subsidies or the additional Medicaid dollars. The still-dismal economic situation already has led to a surge in high-deductible health plans and steeper co-pays, for which patients
to buy back their own stock. “(It’s a way) to create value in market cap, in overall stock price, without … putting capital at risk,” Mr. Kelsheimer said.
Staying active A number of companies accelerated into 2012 some of the dividend and share repurchase activity they otherwise may have done in 2013 to take advantage of tax clarity in 2012. That development leads Randy Paine to anticipate that both activities may drop slightly in 2013. Mr. Paine, executive vice president and head of corporate and investment banking at KeyBanc Capital Markets, expects merger and acquisition activity — another method of deploying capital — this year will be in line with the activity of 2012, or slightly up. The value of announced M&A deals in the United States for the first three quarters of 2012 was down 28% from 2011, according to Thomson Reuters. However, the total deal value of transactions in October and November 2012 was
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often can’t pay. “That becomes a challenge for us because we have to collect those co-pays and deductibles from the patients, many of which are having financial hardships themselves,” said Cleveland Clinic CFO Steve Glass. Hospital leaders also fear the Kasich administration’s decision to punt and ask the federal government to set up an online marketplace, or exchange, where Ohioans can shop for health-care coverage instead of the state crafting its own could delay many uninsured patients from securing insurance. “We’re for anything that gets people insurance,” Mr. Ryan said. “We’re a little concerned about that and how the feds will respond in spitting out these exchanges.”
Building burnout? Northeast Ohio’s health systems have spent hundreds of millions of dollars in recent years on new facilities and overhauling their existing digs, though many system officials and industry observers expect construction to slow over the coming years. “In Cleveland and Akron, the health systems seem to have the infrastructure in place they need for probably the next five to seven years. I don’t anticipate any significant build out,” Mr. Ryan said. “You can never account for the fact a donor could come to your door with $100 million and expect a new building.” Mr. Ryan said further consolidation in the market, however, is expected. Summa Health System, for one, already has said it was open to selling off a minority stake of its enterprise totaling roughly $1.6 billion in annual operating revenue. Akron General Health System’s CEO Tim Stover said in an interview with Crain’s this fall it was inevitable the health system he steers would become an arm of a larger health system. “I think the more likely occurrence than more building over the next five years is some more consolidation,” Mr. Ryan said. “If Cleveland is having a tough time finding the population to sustain its infrastructure, what about the health systems in Akron? We talk about it all the time. Smaller hospitals continue to partner up.”
HIGHER ED By JAY MILLER jmiller@crain.com
O
hio’s colleges and universities — public and private — are going into 2013 with Gov. John Kasich and his plan to change the way public colleges are funded at the top of their New Year’s watch lists. In November, the governor unveiled a state college funding plan that will reduce the amount of state aid to Ohio’s public colleges and universities. It also will dramatically change the way the state calculates how much aid a school will get, taking into account graduation rates and other indicators of student success. “That probably trumps everything else on people’s minds right now,” said Ronald Abrams, president of the Ohio Association of Community Colleges. “How do you (change the formula) in a way where you don’t impact negatively on institutional quality?” The University of Akron’s president, Luis Proenza, like his colleagues across the state, gave his approval to the governor’s proposal. But he expects to spend the early months of 2013, as the Legislature shapes the new plan as part of the next budget, watching carefully the criteria that will be used to measure university success. Currently, most state aid is based on enrollment; the more students a school has, the more state money it gets. The public schools rely on state financial support for as much as one-third of their annual budgets. That will change. Under the Kasich plan, which was devised with input from Dr. Proenza and the other presidents of the state’s higher education institutions, half of all state funding would be based on student success. Currently, graduation or other measures of a school’s ability to produce successful students affects only 20% of a school’s state aid formula. “It’s about completion. It’s not about rewarding people for being warm bodies,” said Ohio State University president Gordon Gee,
POLITICS AT PLAY One local investment banker compares companies’ hesitance to spend their cash to a consumer’s hesitance to buy new tires without knowing whether the forecast calls for snow, rain or ice. There’s more to corporate America’s wait-and-see attitude toward investing in growth than the fiscal cliff that loomed large at the end of 2012. There’s another federal debt limit looming in February, the federal budget deficit, the risk of hyperinflation and health care regulation, to name a few, insiders said. Tax rates are a driving force. If a up 31% over October and November 2011, so the full-year drop shouldn’t be as dramatic as the first nine months implied, Mr. Paine noted. “The issue has not been capital to finance deals,” he said. “The issue has been buyers’ and sellers’ confidence to enter into transactions, given the economic and other uncertainties … we are expe-
new budget policy results in a significant difference between capital gains tax rates and dividend tax rates, corporations are likely to respond in a manner that returns capital to shareholders in the most tax-efficient manner. And increased regulation continues to be a glacier for the finance sector to watch, as there are still many rules dictated by recent reform that have yet to be written. All the while, the sector is grappling with those that already have been implemented and the costs of compliance. — Michelle Park riencing in the U.S.” Some advisers are predicting companies will spend their cash on more mergers and acquisitions this year, in large part because internal growth is hard to achieve with consumer demand and gross domestic product growth so anemic. “I can’t imagine 2013 not being a
at a news conference announcing the new policy. “It’s about rewarding people for completing what they’ve done and for us then making a bright future for them.”
What is success? But neither Gov. Kasich nor Dr. Gee, who led the university presidents’ group advising the governor, elaborated on how success would be measured, and that is where Dr. Proenza will be watching. The plan will be a part of the new budget the governor will submit in February to the Ohio General Assembly. Drs. Proenza and Abrams hope the plan that comes out of the Legislature will look beyond the traditional completion yardstick used when success was less important. The traditional rule of thumb is the percentage of students who complete a degree within six years of their first admission. “The measure that the state and federal government are using is highly flawed,” Dr. Proenza said, who is wary about the Legislature’s ability to fine-tune the method by which success is measured while taking into account the nuances of urban schools such as Akron. “We gave the governor a pretty comprehensive understanding, and I’m not going to suggest that the Legislature understands what we gave the governor.” He said at urban colleges, only 16% of the students are what he calls “first-time, full-time” students — those who enter the college and are expected to finish at the same school in six years. Most are from other schools, will transfer to other institutions before they get a degree or simply may not be able to afford to finish school in six years. “For the federal government and the state to assume that (not graduating in six years) is an indicator that we are bad or that our students aren’t as good as those at Miami (University) is nonsensical,” Dr. Proenza said. Dr. Abrams said community colleges haven’t necessarily focused on completion. Many of their students transfer out quickly to other institutions or they are in
pretty robust year for M&A,” said Mark Mansour, senior managing partner of MCM Capital Partners, a Beachwood private equity firm. “The organic growth is not sufficient to drive any significant internal investments, whether it’s capital investments or people.” Mark B. Bober agreed there’s a desire by strategic and financial buyers to pursue acquisitions. But, he noted, “the acquisitions have to make sense.” “There’s a lot of cash on the balance sheets, there’s a lot of capital within private equity groups looking to be deployed, but the challenge is finding high-quality deals,” said Mr. Bober, partner in charge of transactions and valuation services for Bober Markey Fedorovich, an Akron-based accounting firm. Similar to the way some companies accelerated into 2012 dividends and buybacks they might have done in 2013, some companies sped up mergers and acquisitions, too, so Mr. Bober anticipates there will be a lull in transaction activity at least early in 2013.
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POLITICS AT PLAY Gov. John Kasich intends to include a revamping of the state’s higher education funding formula in the biennial budget bill he submits to the General Assembly in February. He will ask the Legislature to tie half of all college and university funding to the schools’ success at graduating students, not simply on the number of students enrolled. The Ohio Board of Regents allocated about $1.8 billion to the state’s 61 college campuses in the 2013 fiscal year. Until this proposal, 80% of the “state share of instruction,” as the funding is formally known, was based on the number of students
programs that lead to certificates, not degrees. Still others are just dropping in to polish specific skills. But, he said, community colleges will work within the new system. “More and more (community) colleges are rethinking their traditional missions to embrace success in addition to access,” he said.
On the chopping block In addition to changing criteria, though, the schools very simply will be facing cuts in state aid. Cleveland State University spokesman Joe Mosbrook said CSU is looking at the prospect of losing $2 million a year as soon as 2015 as the governor’s reimbursement formula changes from counting warm bodies on campus to counting graduates. Mr. Mosbrook said to avoid any deeper cuts, the school is raising the stakes for admission, hoping to improve its graduation rate — its incoming freshmen will have a higher grade point average and higher test scores than in the past. At least one private college president has accounted for the need to keep students through graduation. Tom Chema, president of Hiram College, said private colleges like his have understood the need to keep students through graduation for some time. “Retention is a big deal, economically for institutions like us in the private sector; that’s something that’s not new,” he said. “We know, from an economic standpoint, that it is cheaper and more efficient to keep students and to have them graduate than it is to recruit
who completed courses with grades of D or better. Schools also would be rewarded for keeping out-of-state students in Ohio after graduation. The college presidents also have been told to expect their piece of the state funding pie to be smaller than in the past. The governor will have to send to the Legislature a replacement for Ohio Board of Regents chancellor James Petro. The former state attorney general and native of Brooklyn on Cleveland’s West Side announced he would retire Feb. 1 from the post. — Jay Miller
somebody to take their place.” Mr. Chema is looking even further ahead at demographic data that show an annual decline in the number of 18-year-olds through 2017. “There are 4,200 (nonprofit) colleges, and I don’t think all of them are going to survive this demographic downturn, at least not in their current form,” he said. “I think we’re going to see mergers and consolidations and schools doing things they traditionally haven’t done.” Those new things include online courses, with which many schools are experimenting, and shared courses and even shared services. Dr. Proenza said he would like to expand a program with Lorain County Community College. Not only do the schools share classes — Akron offers its accounting classes at LCCC — but they share services, such as information technology, financial services and human resources. Stark State College in North Canton recently joined the collaboration. And while financial issues often take center stage, John Carroll University president, the Rev. Robert L. Niehoff, noted in an emailed statement that colleges and universities have much more to watch for in the coming year. “We offer more global programs than ever before; our athletics department just hired a new head football coach and JCU’s first varsity lacrosse coach; and our campus community continues to build on its commitment to community service,” he said.
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ECONOMICOUTLOOK2013 POLITICS AT PLAY
MANUFACTURING By DAN SHINGLER dshingler@crain.com
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f you liked 2012, you’ll probably be happy with 2013 as well — assuming you’re the type that thinks slow growth is better than none at all, especially given the economy of the last four years. So say area manufacturers as they watch an economy in which some sectors are growing, others are merely treading water and still others show little signs of rebounding any time soon. Adding to the uncertainty going into the new year, they say, is concern over future tax rates and whether the government can continue to spend on things like defense. “I’m cautiously optimistic about prospects for manufacturing in 2013,” said Dan Berry, president of the Cleveland-based manufacturing advocacy and consulting group Magnet. “If things go well, growth will likely exceed 2012, at least in some sectors,” he predicts. Among the bright spots important to Northeast Ohio, the automotive sector is expected by most observers to continue its comeback in 2013. Growth won’t be tremendous, they caution, but the sector is expected to produce about 14.4 million cars this year — nearly as many as it was producing before the recession. “This will be good for Northeast Ohio because of the Ford and General Motors presence — especially if Ford adds market share as projected,” Mr. Berry said, referring to Ford’s large presence in and
around Cleveland. What’s good for the automotive sector tends to be good for the region generally since, as private equity investor Steve Rosen points out, “it’s hard to have a manufacturing company here in the Midwest without some exposure to automotive.” Via his role as managing partner at Beachwood-based Resilience Capital Partners, Mr. Rosen is an investor in several manufacturing companies, including Wisconsinbased Penda Corp., which makes parts for automakers. He believes continued pent-up demand for new cars and trucks, as the nation’s existing fleet continues to age, will buoy the auto industry in 2013.
Fuel to the sector Another source of growth for area manufacturers is the oil and gas industry. As energy companies continue to find more hydrocarbons and come up with new ways to extract them from shale deposits and other geologic formations, it’s creating an opportunity for manufacturers who supply drillers, gas processors and the rest of the oil and gas industry. The effects often are indirect, too. For example, in Mentor, Roll-Kraft Corp. doesn’t sell its roll-forming equipment directly to energy companies, drillers or even oilfield service companies. But it does sell tube-forming equipment to companies that make piping and other materials for the oil and gas industry. As a result, it’s seen annual growth of about 15% for
REAL ESTATE By STAN BULLARD sbullard@crain.com
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ust do not screw this up. That sums up the sentiment the region’s real estate sector is expressing toward government types as the fog lifts from the 2012 election and worries set in about possible changes in tax policy related to home ownership and capital gains. The sentiment arises as the real estate business finally shakes off the effects of the Great Recession and achieves a semblance of normality for the first time in a half-decade, though the volume of activity remains at paltry rates compared to normal times. Consider the plight of residential real estate agents. In 2012, their worry in some communities became finding available homes for sale — a big change after years of slow sales. Sales volumes and prices started climbing out of the cellar, although at a slower rate than record-low mortgage interest rates would have provided in the past. So what happens? The long-sacred deduction on home mortgage interest gets in the sights of federal budget cutters, a move that would undercut the tax benefit of home ownership. Although the deduction made it unscathed through the lastminute federal tax deal, the rise of serious risk to it adds another chal-
lenge to the once-sacred value of home ownership. Howard “Hoby” Hanna IV, Ohio president of the Pittsburgh-based residential brokerage of the same name, said the risk to the mortgage interest deduction was considered serious enough that industry trade groups hoped it would just get nicked. The tax scrutiny surfaced as the housing market is starting to regain its footing. An analysis of Northern Ohio Regional Multiple Listing Service (NORMLS) data show unit sales of homes in five Northeast Ohio counties had plunged 34% to 13,561 units in 2011 from a peak of 20,524 in 2005. In 2012, unit sales through October had climbed for the first time since 2005, to reach 15,842 in the first 10 months of 2012. “The downturn was worse than we thought,” said Carl DeMusz, CEO of NORMLS, who looked at data from Cuyahoga, Geauga, Lake, Lorain and Medina counties. Mr. DeMusz’s forecast: “I just hope we can ride the momentum we gained in 2012. My best thought on 2013 real estate in Northeast Ohio is for a very modest increase in the number of units to be sold and sales prices to be flat.”
Taxing issues Meanwhile, government action — or inaction — produced a level of uncertainty in the commercial
JANUARY 7 - 13, 2013
those products over the last year or so, said company president Chuck Gehrisch. A lot of companies are enjoying growth from oil and gas, assuming they can find a way to sell into that industry. Mr. Rosen, for example, includes among his firm’s portfolio companies one that mines and sells sand used in hydraulic fracturing or fracking. For that product, growth has been very strong as drillers have continued their march into the nation’s various shale gas and oil deposits, and demand should continue to be strong in 2013, Mr. Rosen said. “It might slow down, but I don’t see it shutting down,” Mr. Rosen said of the shale gas and oil sector. “The Utica alone is enough to drive Ohio’s economy for some time.” Mr. Berry agrees. “In Northeast Ohio, expect to see continued growth in companies that are developing products and equipment for the shale oil and gas market,” he predicts.
Not-so-stable foundation But other sectors, such as construction, either are lagging behind or very spotty in their growth, say manufacturers. And one of Northeast Ohio’s most important areas of manufacturing — the making of equipment, tooling and other stuff used by the makers of end-products — might be among the most susceptible to seeing growth curtailed by government policy. That’s because too many businesses are putting off capital
market, particularly as favorable tax treatment for capital gains was due to expire Dec. 31. The commercial market includes office, industrial, retail and apartment properties. Several observers expected to see a rush of sales concluded by the end of 2012 as some property owners, particularly of smaller properties that have held them for years, try to sell rather than risk a higher capital gains rate, which looked to rise to 20% from 15% for high-income filers under the last-minute federal tax pact. Michael Glass, vice president and Ohio regional manager of the Marcus & Millichap brokerage, which has an office in Independence, said uncertainty over capital gains and a sense that federal taxes will rise in the future made more owners interested in selling in 2012. David Browning, managing director of CB Richard Ellis’ Cleveland office, said he believes tax concerns were motivating several sellers in 2012, which is a change from quiet Decembers the last few years. The bottom line, Mr. Browning said, is the recovery remains fragile when it comes to real estate. “My gut reaction is that in 2012 we saw a return to what I consider a normal level of activity,” he said. “Not the exuberance of 2006 to 2008 or the downturn since, but the market of 2005.”
Tenants on the move The change in activity is filtering down to users of space, too. Tom West, director of office services at the Cresco brokerage in Independence, said any moves by office tenants the last few years “were
There are a number of hot-button political issues that manufacturers will be watching closely in 2013. Among them are: ■ Future tax rates that could curtail business spending, especially on capital equipment made here for other producers. ■ Cuts that could affect defense contractors and those with whom they do business. ■ Regulations or environmental equipment purchases due to uncertainty about not only the economy, but about government tax policies and regulations, they say. Roger Sustar, owner of Mentorbased Fredon Corp. and a manufacturer of everything from defense system components to medical devices, said he recently bought $400,000 worth of equipment for his new plant — but he made his purchase largely to take advantage of tax benefits that expired at the end of 2012. Looking forward, he’s less than certain about the environment in which he’ll have to work. “National debt at $16 trillion is only the beginning — what happens when the Federal Reserve raises rates? Right now it’s almost zero. (There is) too much uncertainty for the future right now,” Mr. Sustar said. “I, plus millions of other business owners, have no idea what’s going to go on except we will pay more taxes.” Mr. Gehrisch also worries about future taxes and regulations, but he said he’s come to believe the real pain won’t begin until 2014, while 2013 will bring some growth, even if it is slower than in really good times.
defensive rather than optimistic.” “Two years ago, everyone was going into a hole and pulling the grass over the opening behind them,” Mr. West said. “Now, users are looking for opportunities to move, update their space, reorganize their businesses and update their communications. There is a big difference in the market.” Bob Garber, a principal at Cresco who works in industrial real estate, said the industrial market has tightened up so much that prospective tenants are making multiple offers daily for competitive buildings, a switch from the recent past.
Presidential slowdown In years past, real estate agents and property owners traditionally looked forward to presidential election years as good years: interest rates would stay low and things would get done. Conversely, Vicki Maeder, a longtime investment sales vice president at CBRE, said the closer the election got, the more things slowed down. She blames uncertainty as the culprit. Yet while federal tax issues have muddied real estate’s waters, local developments have improved them. With the opening of Cleveland’s casino last year, completion expected next spring of the first multitenant office building in Cleveland in 20 years with the Ernst & Young Tower at the Flats East Bank project, and the advent next summer of the new Cleveland Medical Mart and Convention Center, Geoffrey Coyle, CEO of Ostendorf-Morris Co., is excited about 2013. He expects it to be a better year
policies that could curtail oil and gas drilling, which has become a major source of business for many manufacturers. ■ Interest rates that many believe eventually will rise, especially if the government does not rein in its debt. ■ A lack of confidence on the part of businesses, due to fear of increased regulations and taxes. — Dan Shingler “I think 2013 is going to be a steady year, but I don’t see that it’s going to be a major uptick,” Mr. Gehrisch said. Mr. Gehrisch said he’s resigned to seeing taxes go up and probably for government spending to be cut, given the nation’s deficit — and expects both of those factors to limit growth for years to come. Mr. Sustar also worries about the debt, but as a defense contractor perhaps worries more about spending cuts in defense next year, which he says would “hurt everyone.” PNC Bank economist William Stone might have summed things up best with his 2013 outlook, which he titled, “Living at Stall Speed.” “Heading into 2013, we believe the theme of fighting headwinds is appropriate, and the year is likely to be one of continued rolling crisis,” he warns. “But the U.S. economy has come far and is on much firmer footing than it was in 2008. It is our view that the U.S. economy will continue on a path of recovery through 2013. Still, we recognize the need for investors to be agile and diligent,” he wrote in December.
POLITICS AT PLAY ■ Property owners in areas served by the Northeast Ohio Regional Sewer District will start paying fees as of Jan. 1 to handle the drainage of storm water. The authority has a link on its website to determine how much an affected property owner owes at http://www .neorsd.org/stormwaterfeemap.php ■ The Financial Accounting Standards Board in spring 2013 again will take up proposed FASB 13. The rule change may alter the way some companies, particularly public ones, treat real estate leases and personal property leases. Companies may need to capitalize the cost of the lease up front rather than over time. Cleveland attorney Norman Gutmacher dubs FASB 13, “Fiscal cliff II.” ■ The $465 million Cleveland Medical Mart and Convention Center will open after two years of construction. With its first conventions in the fall, the 1 million-square-foot property is designed to resurrect downtown’s convention business. ■ Cuyahoga County government will continue planning to streamline its property portfolio and update its headquarters. ■ Northern Ohio will gain video gaming venues at Thistledown race track in North Randall and at Northfield Park in Northfield. — Stan Bullard than its predecessor. You heard few real estate types say that the last few years, even when the feds were trying to stimulate the economy.
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SMALL BUSINESS By GINGER CHRIST gchrist@crain.com
I
n looking ahead at the coming year, small business owners hope No. 13 isn’t as unlucky as most think. But they’re not optimistic. That’s because in 2013 they are in for a year of higher taxes, health care costs and levels of regulation, local experts say. And, while many businesses are on firm financial footing, they fear decisions made in Washington will hurt their bottom lines. “Economically, firms are more confident about their own prospects,” said Steve Millard, executive director of the Council of Smaller Enterprises, a small business advocacy group in Cleveland. “Those who made it through (the recession) have made it through some very difficult times. They feel good about their ability to withstand some very difficult times.” But they’re also worried the big government approach in Washington will hurt their opportunities to succeed, those in the sector say. Their concerns are evident in the National Federation of Independent Business’ Small Business Optimism Index. Apart from readings in the last recession, the index in November 2012 recorded its lowest monthly reading since 1986 — an indication the confidence of small business owners is at its lowest level in 26 years. Roger Geiger, vice president and Ohio executive director for NFIB,
attributed that fear largely to the results of the presidential election. “I think small business owners are really fearful,” Mr. Geiger said. “What’s happening in Washington really has small business members concerned.”
It’s all in the details Mr. Geiger said the Obama administration has pushed through a “tremendous” amount of new regulations for business owners, with new rules on the books of government bodies ranging from the Environmental Protection Agency and the Occupational Safety and Health Administration to departments within the Department of Labor. Many of those regulations are crafted as one-size-fits-all measures, meaning small businesses must comply with the same standards as big businesses, which have more resources, he said. Mr. Geiger estimated that small businesses generally spend $50,000 per year on processing federal paperwork, a figure that doesn’t even include compliance. He said small businesses typically pay 20% to 25% more than their larger counterparts in compliance costs simply because they don’t have the inhouse staff to handle the regulations. Russ Masetta, owner of Nature Stone, a stone and epoxy flooring company based in Bedford, said he overall is “cautiously optimistic” about his business’ prospects in 2013. However, he also said the future remains uncertain given the
TECHNOLOGY By JOEL HAMMOND clbfreelancer@crain.com
I
n the mid- to late 1990s, when the region’s manufacturing base had all but bottomed out, a shift to a technology-based economy, rooted in the region’s wealth of research institutions, was under way. And while massive gains have been made and many bright spots have appeared in the intervening years, an impatience with the development of Northeast Ohio’s tech economy has some investors and stakeholders a bit concerned heading into 2013. The maturation of companies such as OrthoHelix Surgical Designs of Medina, a medical device maker that was sold in August to a Dutch company for $135 million, point to a ripe climate for more exits for those businesses that have entered the later stages of the “ecosystem” to which so many in the industry refer. But some local investors worry that the expiration of some financing sources could limit the ability of other young startups being nurtured in Northeast Ohio to follow the path of OrthoHelix; it had raised about $21 million in venture capital since 2005 from sources including Cleveland-based Mutual Capital Partners. Among the most prolific venture capital sources is the state-established Ohio Capital Fund, which is done making investments from its $150 million pot and has hit a road
block in the Ohio Senate for continued state support. Plus, the Ohio Technology Investment Tax Credit, a $45 million program that gave investors in tech-oriented firms a credit on state income tax returns, also apparently won’t be extended. “The development of a venturereceptive economy is beginning here, but it takes a substantial amount of time,” said Howard Bobrow, a partner in the Cleveland office of law firm Taft Stettinius & Hollister who advises private equity funds, venture capital firms and startups. “You have to grow the entire economy to be venture-capital friendly, and there are obstacles appearing,” Mr. Bobrow said.
The half-full glass Officials from JumpStart, the Cleveland-based nonprofit that supports early-stage companies in the region, acknowledge its portfolio companies have benefited from the Ohio Capital Fund. But the group and officials connected to the Ohio Third Frontier program nonetheless are bullish on the climate for later-stage deals in 2013. JumpStart president John Dearborn said “companies that are 3, 4 or 5 years old are gaining strength and resources” and as a result are less risky for investment. He and others cite the Third Frontier’s Pre-Seed Fund Capitalization Program as evidence of programs filling the gap. Under that program, Case West-
infighting in Washington. “If both sides don’t stop their continuing politics of business as usual, and their outright refusal to compromise for the good of the country, then I believe we will continue to be negatively impacted and the downward spiral will continue,” said Mr. Masetta, whose company employs about 40. During the fiscal cliff negotiations, one of the big sticking points between the president and Republicans was the level at which Bush-era tax rates would be applied to individuals. In the deal, lawmakers voted to increase the income tax rate from 35% to 39.6% for individuals annually making $400,000 and married couples earning $450,000. The decision impacts many small businesses because a number of small business owners operate their businesses as pass-through entities, whereby the income of the business, when it comes to income tax, is considered the income of the owner. So, even if a small business owner’s actual salary is less than the level determined by legislators to be subject to higher tax rates, the owner still will be forced to pay more in taxes because of the company’s income. On top of the higher taxes, small businesses also are worried about the cost of implementing the federal Patient Protection and Affordable Care Act. Starting in 2014, businesses with 50 or more employees will be required to offer health insurance
ern Reserve University, the Cleveland Clinic, Lorain County Community College Foundation and JumpStart, among others, raised funds that then were matched by state money. “These new funds are springing up and growing on their own, without direct encouragement from the state,” said Lisa Delp, executive director of the Ohio Third Frontier. Biotechnology continues to be a leader locally, as BioEnterprise, a nonprofit that advises and attracts health care companies to the region, reports record deal growth. Interim BioEnterprise head Aram Nerpouni said health care deals have grown from five to 10 in 2009, to 30 to 35 in 2012, with a five-fold increase, to about $150 million, in investments in the industry. Outside of biotech, that institutional wealth, along with an improving economy also has afforded JumpStart’s clients more opportunities for development collaborations, Mr. Dearborn said. Private-sector companies more often are approaching JumpStart with requests for assistance from tech startups that can help fuel a larger company’s core competency with new and innovative ideas. It’s another form of less obvious financing. An important piece to the financing continuum is outside or followon dollars: Firms such as Edison Ventures, Arboretum and RiverVest Venture Partners each received Ohio Capital Fund money and hired Ohiobased representatives to oversee investments in the state, but without a fund renewal, those funds’ future investment in Ohio are uncertain. And venture capital funds and venture-backed companies are anticipating a more difficult fund-
CRAIN’S CLEVELAND BUSINESS
POLITICS AT PLAY ■ Small business owners are concerned about changes in Bushera tax rates in 2013. Many owners operate their companies as passthrough entities, and will be subject to higher income tax rates, as outlined in the deal reached by legislators. ■ After the presidential election, it became clear to small businesses the Patient Protection and Affordable Care Act would be enacted as planned. That means businesses with more than 50 employees will need to choose to provide health insurance to their employees or pay penalties for failing to do so. ■ Small businesses are watching closely to see what new regulations the federal government decides to roll out. New regulations on environmental, labor and safety issues are costly to implement for smaller companies and could play a big role in how well a company can perform in 2013. — Ginger Christ
to all their employees or pay a penalty to the government. Because of that threshold, some companies that are close to 50 employees are looking at strategies of how to keep their employment below that level, Mr. Millard of COSE said. “I do think that a lot of small businesses will begin to turn to the individual markets to provide solutions,” rather than offering health insurance in-house, Mr. Millard said.
The more, the merrier Jerry Grisko, president of CBiz Inc., an Independence-based provider of accounting and other business services to small and
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mid-market companies, said there’s generally less optimism among his clients in Northeast Ohio than at this time last year. But he attributes that situation mainly to the fiscal cliff, which — until a deal was reached — left many business owners unsure of what to expect in the coming year. Despite the prevailing sentiment, Mr. Grisko said, small businesses are in a position to do better in 2013 than in 2012 because unemployment levels are down, consumer spending is up and the housing and manufacturing sectors are improving. Meanwhile, more would-be entrepreneurs as of late have been taking the plunge into business ownership as the economy’s recovery continues to be slow, creating a bevy of new small businesses, Mr. Millard of COSE said. Through November 2012, 81,093 new businesses filed to operate in the state, according to the Ohio Secretary of State’s office. That’s an increase of 6.5% from the like period in 2011, when there were 76,138 new business filings. “Technology is a great enabler of people to take almost any idea and do something they couldn’t do before,” Mr. Millard said. The U.S. Small Business Administration also for the last two fiscal years has been guaranteeing loans at pre-recession levels. In fiscal 2012, which ended Sept. 30, the SBA guaranteed 1,423 small business loans totaling $430 million, down only slightly from the 1,434 loans totaling $444 million it guaranteed in fiscal 2011. “This is an indication that the economy in Northern Ohio continues to grow,” Gil Goldberg, district director of the SBA’s Cleveland district office, said in a statement.
POLITICS AT PLAY Congress’ ongoing negotiations potentially could have a big impact on NASA Glenn Research Center and the research budgets at area universities. Even as President Barack Obama and Congress agreed to a deal, big cuts still could be implemented. At NASA Glenn, the sides’ failure to agree would have meant $70 million in cuts — about 10% of NASA Glenn’s budget — and that reduction would need to be implemented in the last three quarters of the research cen-
raising climate in 2013: Among the respondents to a mid-December National Venture Capital Association/Dow Jones VentureSource survey, 44% said they expected a market contraction, with another 42% expecting a concentration of capital raised by fewer funds. That concentration is something Dan Berick, a partner at law firm Squire Sanders who advises venture capital firms, also has seen. But Mr. Berick said the infrastructure already in place will help in withstanding that trend locally. “The fund formation climate is a difficult one because the market is heavily weighted in bigger and more established venture funds,” he said. “It’s harder for first-time fund guys to raise capital, as opposed to bigger VC names.” Still, investors say any concentration in bigger venture capital funds — coupled with the loss of established programs such as the Ohio Capital Fund and the Ohio Technology Investment Tax Credit — could send the wrong signal to outsiders.
ter’s fiscal year, which began Oct. 1. At the area’s higher education institutions, meanwhile, research mostly is financed by federal dollars, meaning cuts to those programs could result in graduate student layoffs and, at worst, shutting down entire research projects, university officials said. “There’s no question that this is scary,” said Walter Horton, vice president for research and dean of graduate studies at NEOMED. — Joel Hammond
“In early-stage investing, West Coast and East Coast investors want to have local venture partners to work with that they know and trust,” said Mike Stubler, managing director of Draper Triangle Ventures LP of Pittsburgh, which received Ohio Capital Fund cash. Mr. Stubler noted that when similar Pennsylvania programs were not renewed, there’s was a decline in the number of active investment firms, which weren’t able to raise new funds. In Pittsburgh, Mr. Stubler said, early- stage investing is at “historic lows.” But area stakeholders cite the pre-seed capitalization program and the Third Frontier program itself as evidence of the region’s place in the venture capital world. “That’s very impactful,” JumpStart’s Mr. Dearborn said. “It’s a signal to entrepreneurs that the state has stepped up and we’re evolving in a direction that’s very positive. We’ve created an area that’s very attractive (to other investors).”
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Vacancies: Eaton departure poses challenge
ON THE WEB
Story from www.CrainsCleveland.com.
Calif. outfit buys Richfield solid waste specialist
continued from PAGE 3
Tetra Tech Inc. of Pasadena, Calif., said it has acquired solid waste management specialist American Environmental Group Ltd. in Richfield. Tetra Tech did not say what it paid for American Environmental Group, which provides environmental, construction and maintenance services to solid and hazardous waste, energy, utility and industrial clients. The company has more than 500 employees and approximately $95 million in annual revenue. American Environmental Group is joining Tetra Tech’s Remediation and Construction Management segment. Tetra Tech anticipates that the acquired company will contribute about $50 million in revenue and, after intangible amortization and integration costs, 1 cent to 2 cents to diluted earnings per share in fiscal 2013.
Migrating from the ‘burbs
2011, Newmark Grubb estimates. Moreover, Mr. Nosal added, “This is the hottest I’ve seen the downtown office market since the 1990s.”
A combination of attractive rental rates and a desire among employers to help their recruiting by locating near entertainment and downtown apartments attractive to younger employees is boosting downtown’s currency with business owners, Mr. Nosal said. Newmark Grubb estimates office vacancy in downtown Cleveland slid to 20.25% at the end of 2012 from 21.25% on Dec. 31, 2011. The volume of vacant downtown office space dipped 5%, sitting at 4.4 million square feet as 2012 ended versus 4.6 million square feet a year before. The drop was no surprise, as moves downtown from the suburbs by firms such as relocation specialist Dwellworks, insurance broker Britton-Gallagher and digital marketing firm BrandMuscle made headlines last year. Moreover, several downtown tenants laid plans to move and expand in 2013. “The growing attractiveness of
“This is the hottest I’ve seen the downtown office market since the 1990s.” – Bob Nosal, Newmark Grubb Cleveland downtown offices to tenants did not just happen,” Mr. Nosal said. “It’s the culmination of a lot of planning and investment in downtown sports and entertainment districts.” Reflecting a much stronger performance than in the past, Newmark Grubb reported 218,166 square feet of office space downtown was occupied by new or expanding tenants last year compared with 282,009 square feet in the suburbs. The amount of available office space downtown also came down, as some building owners decided to exit the high-vacancy office market to tap into downtown’s hot apartment market, where the occupancy rate is 94%. At year end, the Hanna Building Annex was undergoing conversion to apartments, as are five floors of the Rosetta Building, 629 Euclid Ave., and most of the four-floor Chester Commons Building, 1120 Chester Ave. Bigger conversion projects, such as the one envisioned for
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the 1717 E. Ninth St. Building, once the East Ohio Gas Co. headquarters, are in the planning stages.
The Eaton acid test Although there are positive developments downtown, challenges loom. A big one is the pending exit of Eaton Corp.’s headquarters from downtown to a new office campus in Beachwood. The shift will put 300,000 square feet at Eaton Center, 1111 Superior Ave., on the market. However, Jeffrey Cristal, who heads Newmark Grubb’s Cleveland office practice, noted Eaton Center’s high-rise floors have terrific views of the lake and city. “They have always been occupied by Eaton,” Mr. Cristal said, so its departure will offer the market something new. ■
IN THE MARKET A look at office and industrial real estate data for 2012 and 2011:
Office
2012
2011
Downtown
20.3%
21.3%
Market
20.3%
21.4%
Industrial 2012
2011
Northeast
10.8%
11.4%
Northwest
18.7%
18.8%
S. central
11.7%
12.0%
Southeast
9.2%
11.3%
Southwest
11.6%
13.1%
Market
10.6%
11.8%
Tax: Revenue losses could be in millions continued from PAGE 3
HB 601 would have imposed a set of uniform rules on municipalities that tax income and would have created a standard definition of what income is taxable for businesses and individuals. It also would have established a uniform method for how employers file employee withholding payments and it would have created a standard municipal income tax form. The push for state legislation to bring uniformity to local taxation has been led by the Municipal Income Tax Uniformity Coalition, which includes the Ohio Chamber of Commerce, the Ohio Society of CPAs and NFIB/Ohio, an affiliate of the National Federation of Independent Businesses. The coalition argued that HB 601 would have made municipal tax filing requirements less onerous for businesses. In hearings before the House Ways and Means Committee, representatives from coalition members complained that Ohio — unlike the other nine states that allow cities to tax income — allows communities to create their own definitions of income and set all other regulations for municipal tax filing. Because nearly 600 communities have their own muny tax laws, it is unnecessarily expensive for even small businesses to comply with each community’s law, they argued. However, the bill drew strong opposition from many municipalities that maintained the measure was not revenue-neutral.
Counting the cost In a Nov. 12 memo to member communities of the Central Collection Agency, a city of Cleveland agency, tax administrator Nassim Lynch estimated that the changes mandated by HB 601 would have cost Cleveland $1.6 million annually. Other communities have offered similar analyses. The losses would come from subtle changes in the way wages are taxed. As an example, HB 601 had set a limit on the maximums that can be charged as penalties and interest for late filing and late payment. It set the interest rate on unpaid taxes at 10%. Many communities now charge
more. A number of communities across the state, including Brunswick, Cleveland Heights and Lakewood, have passed resolutions opposing the Legislature’s muny tax plan. In its analysis of HB 601, the Ohio Legislative Service Commission, a nonpartisan arm of the state Legislature, said various provisions of the bill would have resulted in income gains for some municipalities and losses for others. But, the commission said in its Nov. 27 fiscal analysis, “Though total revenue losses to municipalities are undetermined, they may be significant, potentially millions of dollars annually.”
Divided over uniformity Daniel Navin, assistant vice president of tax and economic policy for the Ohio Chamber of Commerce, testified before the House Ways and Means Committee last May 23 on the need for the uniformity HB 601 would have provided. “(T)here is confusion, inconsistencies and unclear responsibilities emanating from essentially 550plus, locally imposed taxes … and from state laws that only partially address or clarify the compliance duties of employers and taxpayers for those local income taxes,” Mr. Navin said. “The solution must ultimately come from a single, uniform set of rules applied to all municipalities statewide.” They also argued that this thicket of muny tax laws is making the state unattractive to businesses scouting locations for new operations. Mayor Summers, putting on his businessman’s hat, said he would like to see some uniformity; he agrees with the legislative intent to create standardized municipal tax forms and filing deadlines. Kent Scarrett, a spokesman and lobbyist for the Ohio Municipal League, which will be quarterbacking the opposition to a new bill, said he hopes there will be a greater level of compromise in the new bill than he saw in HB 601, though he isn’t expecting substantive changes. “They (lawmakers) know exactly where we are,” Mr. Scarrett said as to what the municipal league’s members would find acceptable. “It’s just whether they are willing to get there.” ■
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BRIGHT SPOTS Bright Spots is a period feature in Crain’s highlighting positive business developments in the region. To submit information, email Scott Suttell at ssuttell@crain.com.
means Visual Evidence will be able to “offer clients a new, state-of-the-art videoconferencing room that can accommodate 20 attendees, as well as free parking,” said Manfred Troibner, principal and co-founder of the firm. In addition, “our new location offers easy access to clients throughout Northeast Ohio as we serve pre-eminent law firms in Akron, Canton and Youngstown, as well as in Cleveland.” Company principal Daniel D. Copfer Sr. added, “Our staff of nine, as well as our trial evidence production studios, has moved to facilitate the continued expansion of services we offer our litigation clients. We outgrew the space we were sharing, and will now be able to deliver more services to legal teams preparing for trial.” A sister company, VeDiscovery LLC, is remaining downtown at its current West Ninth Street location.
■ Jergens Inc., a Clevelandbased tooling components maker, is growing — in Ohio and Illinois. The company on Dec. 31 acquired John M. Allen Co. of Brook Park, an industrial distributor, and purchased a 15,000-square-foot building near Chicago to expand the manufacturing operations of its subsidiary, Acme Industrial Co., an Illinoisbased manufacturer of precision machined components. Terms of the deals were not disclosed. Jergens by the end of this month will fold the eight-person John M. Allen into its JIS (formerly Jergens Industrial Supply) operations on South Waterloo Road in Cleveland. While he wasn’t yet sure how many people would transfer to Jergens, Jack Schron, president of Jergens, said a number of employees would make the move, including senior leadership. Added Matt Schron, general manager of JIS and the son of Jack Schron, “The biggest thing that attracted us to the company was the opportunity for us to really expand our sales.” Matt Schron said the company’s technical sales staff and local customer base were attractive selling points. The acquisition is the division’s second in two years. The company in December 2010 purchased the industrial supply division of The George Whalley Co. “We are continuing to look for acquisitions,” Matt Schron said. “We continue to want to grow our business.” JIS will look for other companies both in Northeast Ohio and outside the area, he said. Jergens’ building purchase in Carpentersville, Ill., is the start of what likely will be a continued expansion, Jack Schron said. The acquired building is adjacent to Acme Industrial’s 40,000-squarefoot building and will give the company the ability to merge the two structures. Acme Industrial will move administration space and automatic retrieval warehousing to the new building and expand its manufacturing operations in the open space at its existing location. In the future, Acme Industrial could expand its building to 70,000 or 80,000 square feet, Jack Schron said.
■ Scott Rolf, chief information officer of Cleveland law firm Tucker Ellis LLP, was named the 2012 “Emerging Technologies Champion” by the International Legal Technology Association (ILTA) at the organization’s third annual awards ceremony in Washington, D.C. The honor is one of ILTA’s “Distinguished Peer Awards,” recognizing ILTA peers “who have delivered great business value and transformational impact through their innovations and implementations or have been champions in specific areas of focus for their organizations,” according to the law firm. The “Emerging Technologies Champion” recognizes an individual who provides value to his or her organization in managing or administering emerging technologies and new trends and technologies, including cloud technologies, Enterprise 2.0 and open-source software and standards. Mr. Rolf received his degree in electrical engineering technology from Fairmount State University. He is a captain of ILTA’s Conference Committee. ■ Goodman Real Estate Services Group LLC of Cleveland said it completed a deal to bring Gold Guys to Montrose Center III in Copley Township. Gold Guys is a precious metal dealer that offers instant compensation for gold jewelry, scrap gold and gold coins. It’s based on Akron and has grown to five locations in Northeast Ohio. Separately, Goodman announced it represented Nicole Kay’s in the leasing of 3,000 square feet at Midway Market Square in Elyria. Nicole Kay’s is an upscale women’s boutique specializing in fashion accessories, including jewelry and handbags.
■ Visual Evidence Corp., a trial presentation and courtroom evidence firm that has done business in Northeast Ohio for more than 27 years, has moved its offices to Valley View from downtown Cleveland. The move to 4,200 square feet at 8555 Sweet Valley Drive, Suite A,
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“Save 10 times the cost of the class in reduction of scrap, downtime, returns, and rework.” – Dan Sommers, Six Sigma Master Black Belt.
Six Sigma and Lean Training Six Sigma Green and Black Belt training programs begin in February at Lorain County Community College. To learn more about Six Sigma and Lean certification training, join us for a FREE breakfast presentation from 7:30-9 a.m., Thursday, January 31 at Lorain County Community College’s Entrepreneurship Innovation Center. For information or to register for the free information breakfast, call 1-800-995-5222 (extension 4301) or visit www.lorainccc.edu/sixsigma LCCC is conveniently located in Elyria and is easily accessible from interstates 90, 480 and the Ohio Turnpike. 1005 N Abbe Rd, Elyria, Ohio 44035
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Steel: Other components can be lighter Racing: Trailer series is key continued from PAGE 1
“It’s definitely CAFE standarddriven,” said Mark Kovach, ArcelorMittal’s Cleveland division manager. “By 2025, it’s on the books that the average car will have to get 54 mpg. In order for us to get to 54 mpg, a couple of things have to happen — you have to lighten the weight of the car and change the powertrain. Where we come in is in lightening the weight of the car.” Steel often has competed with other materials, such as plastics and composites, as automakers have sought to make more components out of lighter materials. That’s not new, and the plastics industry expects that trend to continue, to its benefit. But not all that is automotive can be plastic, because plastic can’t be easily stamped the way steel can and it does not generally have steel’s toughness, which is important in many automotive uses. So, ArcelorMittal wants to bring to market a product that is still steel, with all its benefits, but a lighter steel than currently is available. And not just a little lighter, either. “Twenty five percent (lighter) is the number we’re putting out there,” said Blake Zuidema, ArcelorMittal’s director of automotive product applications in Southfield, Mich.
Chain reaction That reduction means the weight of the body panels that typically
make up about one-third of a vehicle’s weight can be reduced by onefourth. But, just as importantly, it means many other parts of the vehicle can be made lighter in turn, Mr. Zuidema said — something called “secondary mass decompounding” in the auto industry. The industry phrase means that, because the vehicle itself now is lighter, it requires less power to make it go and less braking power to make it stop. As a result, engines, transmissions, brake systems and other components can be downsized and made lighter as well. If all goes as planned, ArcelorMittal’s new steel not only will sell well for traditional uses, but also could compete with other materials that once beat out steel because of their lighter weight, Mr. Zuidema said. The new steel is the result of tens of millions of dollars of investment into the Cleveland Works by ArcelorMittal over the last few years. It is the result of metallurgy that produces a lighter, stronger alloy, combined with new heat-treating and galvanizing lines installed at the plant, Mr. Zuidema said.
Happy union boss It’s too early to say how well the product will sell, but if ArcelorMittal’s claims are accurate, the lighter steel has a chance of being an important new product for automakers, said Ed Gonzales, owner of Cleve-
land-based Ferragon Corp. As a steel toll processor, Mr. Gonzales’ company treats and cuts steel for customers ranging from steel mills to end users, including some in the automotive industry, where he said lighter is almost always better. “If they can make something lighter and stronger, that’s what automakers need,” Mr. Gonzales said. “That’s a great thing for Cleveland.” On top of the weight savings, ArcelorMittal has another selling point for its new steel — it can produce more parts per ton. That’s because steel is sold by the ton and shipped in rolled coils. Because ArcelorMittal’s new steel can be rolled thinner while possessing the same strength as older, thicker steel, more car doors, hoods and other parts can be stamped from each coil, Mr. Kovach said. The Steelworkers’ Mr. Granakis is happy because the new steel should mean job security for his more than 1,100 members who work in the Cleveland mill. The union does not expect the mill to hire more people; it’s pretty much at full staff and, with each ton of steel only requiring one manhour of labor, the Cleveland Works is one of the most efficient plants in the world. However, the product should keep the plant busy and should help avoid slowdowns and layoffs in the future, Mr. Granakis predicts. ■
continued from PAGE 3
Revenue dried up, and the company slashed its work force to four in mid2009. The company in September 2009 formed a joint venture with Kentucky Trailer, a Louisville-based business that for years had produced the body shells for Bruce’s racing trailers, in order to weather the economic storm. The plan was to build trailers in Kentucky — where labor and tax costs were lower — and to operate a service center at its 85,000-square-foot building on High Tech Avenue in Painesville. By 2011, it was clear to Mr. Hanusosky that the partnership wasn’t working because he was fielding complaints about quality. He sold Kentucky Trailer the naming rights to High Tech Performance Trailers and exited the venture, ready to launch Bruce High Performance Transporters in Northeast Ohio.
On the right track To relaunch his company, Mr. Hanusosky took to the road and went door to door marketing the business, just like he did more than 30 years ago, when he founded the company. But this time, he had a new product up his sleeve. Using the money he received from selling the old likeness of his company to Kentucky Trailer, he was able to finance research and development efforts to design a new trailer series. Bruce High Performance Transporters in January 2012 introduced the trailer series, the Stealth Series, to
the marketplace. The Stealth, unlike typical trailers, features a completely welded body shell, which is more labor-intensive to manufacture but more resistant to rust. In addition to innovating on the racing trailer front, Mr. Hanusosky found other ways to attract sales. He introduced a line of smaller enclosed trailers that can be used as municipal command centers; started producing full-size and small trailers for corporate customers such as Parker Hannifin Corp. in Mayfield Heights, which takes trailers full of valves and components to manufacturers nationwide to showcase its products; and vertically integrated his company, bringing in-house a number of functions it had contracted out. The company began making furniture and interior décor for commercial customers, extending beyond the trailer world. And it began producing its own vinyl graphics and adhesives, which are used both on the trailers and awnings it sells. “The economy is a little better, but not great,” Mr. Hanusosky said. “I think diversity helped a lot.” The auto racing segment already is down to 80% of the company’s overall sales, and Mr. Hanusosky anticipates that percentage will continue to fall as the company develops and markets its new offerings. “The industry as a whole is on the rebound, showing growth across most types of trailers,” said Jeff Sims, president of the Truck Trailer Manufacturers Association. ■
REAL ESTATE CLASSIFIED Phone: (216) 522-1383 Fax: (216) 694-4264 Contact: Denise Donaldson E-mail: ddonaldson@crain.com AUCTIONS
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38.77 Acres Parcel # 20-025800 Court Ordered Geauga County Sheriff’s Auction 38.77 Acres - All inclusive: Gas and Oil rights, Timber rights, Surface rights. Thursday January 10th, 2013 at 10:00 am Geauga County Common Pleas Court House 100 Short Street Chardon, OH 44024 1st Floor Lobby by the doors of the court house Q & A on Sheriff’s Sales: http://www.sheriff.co.geauga. oh.us/Divisions/Civil/ SaleAnswers.aspx
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LEGAL NOTICE PUBLIC NOTICE REQUEST FOR PROPOSALS (RFP# 26143) The Cuyahoga County Department of Public Safety & Justice Services is now soliciting proposals from agencies and organizations interested in providing a Next Generation 9-1-1 equipment upgrade to Cuyahoga County. Vendors are also encouraged to register with the County’s BuySpeed Vendor Registration Program on the Internet at www.opd.cuyahogacounty.us to receive notices of future bid opportunities [Phone: (216) 443-7200]. Awarded Contractors must be registered with the Cuyahoga County Inspector General. Information can be accessed on the Internet at www.inspectorgeneral.cuyahogacounty.us The RFP must be obtained directly from the Cuyahoga County Office of Procurement & Diversity. Obtaining documents from any other source does not make the vendor a plan holder of record. Responses received from vendors other than plan holders of record will be deemed non-responsive. Completed proposals must be submitted to the Office of Procurement and Diversity, County Administration Building, Room 110, 1219 Ontario Street, Cleveland, Ohio 44113, no later than 11:00 a.m. on January 18, 2013. Lenora M. Lockett, Director Office of Procurement & Diversity Publish in Crain’s Cleveland Business on Monday, January 7, 2012 This notice may also be viewed at the following Cuyahoga County Internet Web Site: www.opd.cuyahogacounty.us
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THEWEEK DECEMBER 31 - JANUARY 6 The big story: DDR Corp. announced the acquisition during the fourth quarter of two shopping centers in North Carolina for $151 million and the sale of seven of what it termed “non-prime operating assets” for $255 million, of which DDR’s share was $62 million. The real estate investment trust bought Carolina Pavilion in Charlotte, N.C., from Blackstone Real Estate Partners VII for $106 million. The 852,000-square-foot shopping center is 94% leased. Poyner Place in Raleigh, N.C., was purchased for $45 million. The 434,000-square-foot shopping center is 96% leased. Tooling around: Lincoln Electric Holdings Inc. acquired Tennessee Rand Inc., a privately held manufacturer of automated welding systems and tooling that’s based in Chattanooga, Tenn. The Euclidbased producer of welding equipment and supplies did not disclose what it paid for Tennessee Rand, which has annual sales of about $35 million. Lincoln Electric said Tennessee Rand serves a wide Mapes range of automotive and metal fabrication customers. “Tennessee Rand strengthens our already strong position as a market leader in welding automation in North America,” Lincoln Electric CEO Christopher L. Mapes said.
Moving up: DDR Corp. said senior executive vice president and chief financial officer David J. Oakes was named president of the real estate investment trust, effective Jan. 1. Mr. Oakes will remain CFO of the company and continues to report to Daniel B. Hurwitz, DDR’s chief executive. Mr. Oakes joined DDR as executive vice president of finance and chief investment officer in April 2007. He was promoted to senior executive vice president of finance and chief investment officer in December 2008, and CFO in February 2010.
REPORTERS’ NOTEBOOK BEHIND THE NEWS WITH CRAIN’S WRITERS
Four presidential terms later, a change at Taft
firm’s lawyers build their books of business. — Michelle Park
■ For the first time since 1996, the Cleveland office of the Taft law firm has a new partnerin-charge. Effective Jan. 1, Kevin Barnes replaced Stephen M. O’Bryan, who led the office for 16 years and will continue practicing as a partner with the firm. Appointed to his new role by Taft managing partner Thomas Terp, Mr. Barnes will oversee the operations of the local office, which employs nearly 100, including 53 attorneys. Barnes Mr. Barnes joined Taft as a partner via the 2008 merger of Kahn Kleinman LPA into the firm. He received his law degree from Harvard Law School in 1979 and has practiced for 33 years with a focus on finance, international transactions and mergers and acquisitions. Mr. Barnes is no stranger to leadership roles: He filled a role similar to his new one at Kahn Kleinman before the merger, and continues to lead as board president of Hiram House Camp, a nonprofit that works to enrich the lives of children through camping. Early goals, Mr. Barnes said, are to continue the growth of Taft in Cleveland and to raise the visibility of the Taft name in the business and legal communities. He also aims to attract attorneys to the firm and help the
A cool reason to sleep with your smart phone
WHAT’S NEW
BEST OF THE BLOGS Excerpts from recent blog entries on CrainsCleveland.com.
This business is going up
Way to go: Timken Co. purchased Wazee Cos., a Denver-based provider of motor, generator and industrial crane services to end markets that include oil and gas, wind, agriculture, material handling and construction. The Canton-based producer of bearings and steel did not disclose what it paid for Wazee, which had trailing 12month sales through December 2012 of $30 million. Wazee operates out of four locations — two in the Denver area, one in Pasco, Wash., and another in Casper, Wyo. It has more than 100 employees.
In control: CBiz Inc. bought certain assets of Diversified Industries Inc., which does business as Payroll Control Systems. The Independencebased provider of accounting and other business services did not say what it paid for Payroll Control, which is headquartered in Brooklyn Center, Minn., and provides payroll and human resources services to more than 1,400 small and midsize clients. CBiz said the acquisition is expected to add 37 employees and about $6 million to its annualized revenue.
Rush job: Rush Enterprises Inc. of San Antonio said it acquired various commercial truck and bus dealerships owned by The MVI Group in Ohio for $107 million. MVI Group operates commercial truck and bus dealerships in Ohio under the names of Miami Valley International, Center City International, CCI North Coast and Buckeye Truck Centers. The acquisition by Rush includes MVI Group locations in Akron, Cincinnati, Cleveland, Columbus, Dayton, Findlay and Lima. For a month-by-month look at Northeast Ohio business news in 2012, please visit www.Crains Cleveland.com/2012review.
■ Snow and ice in the forecast? You might want to keep your cell phone on the nightstand. The days of the beloved “phone tree” could be on their way out, as Northeast Ohio employers increasingly use text messaging to notify their employers of closures or delays due to inclement weather. According to new data from Employers Resource Council, a human resources service organization in Mayfield Village, 20% of Northeast Ohio companies surveyed notify their employers of delays or closures by text message — an increase of 11 percentage points from 2010’s numbers. In addition, 29% of those surveyed notify employers by email, an increase of seven percentage points since 2010. “These methods help employers notify employees more quickly, hopefully preventing people from travelling unnecessarily during dangerous weather and hazardous road conditions,” said Margaret Brinich, ERC’s manager of surveys and research, in an email. Still, braving the snow-covered roads likely isn’t going to garner you much other than the potential for an accident or a thankful nod from your supervisor. Only about 17% of companies surveyed offer those strongwilled employees braving the weather perks
THE COMPANY: The Garland Co., Cleveland THE PRODUCT: WhiteKnight Metal Primer coating Garland describes the coating as “an allpurpose aromatic urethane with non-lifting properties that make it an ideal primer for urethane topcoats.” The primer “is very durable and offers excellent adhesion to properly prepared metal surfaces,” according to the company. Its resistance to mild industrial fumes and light chemical conditions make it particularly suitable for aging industrial roofs in need of restoration, Garland says. It’s designed for application to stainless steel, galvanized metals, Galvalume-coated metals, copper, aluminum and Kynar-coated metal roof systems. When applied under a WhiteKnight top-coat, White-Knight Metal Primer coating “provides a durable foundation for a sustainable roof system that is easily maintained,” according to Garland. The company says long-term benefits associated with the primer include lower life cycle costs and energy savings. For information, visit www.garlandco.com. Send information about new products to managing editor Scott Suttell at ssuttell@ crain.com.
■ The pace of skyscraper construction is soaring, Bloomberg reported, and a Cleveland company noted that this trend means good things for the elevator industry. Bloomberg reported that as many as 24 skyscrapers approaching 1,000 feet may be completed in 2013, compared with nine in 2012, according to the Council on Tall Buildings and Urban Habitat. The recovery in skyscraper demand is good news for companies that make elevators. Bloomberg said Cleveland-based researcher Freedonia Group estimates the global elevator market will grow 6.4% annually to $90 billion for five years ending in 2015.
A winning formula ■ Why can’t more U.S. companies emulate Euclid-based Lincoln Electric Co.? That’s the question posed in a Motley Fool piece that notes the maker of welding products on Dec. 14 announced the 2012 bonus for its roughly 3,000 American employees — something it has done for 79 straight years. The average 2012 bonus was $33,915 per worker, the average employee earned $82,300 (including the bonus), and no one at Lincoln was laid off in 2012, The Fool said. Since February 2010, Lincoln and its former CEO, John Stropki, have been profiled by The Wall Street Journal, NPR, Harvard Business Review and many others. Despite that exposure, The Fool said, “no one at (Mr. Stropki’s) elite level of American business — or lower, for that matter — has
such lunch or gift cards. — Timothy Magaw
Far off the beaten path ■ Diversification really is key at The Bruce Cos., a Painesville company known for producing hulking automotive racing trailers. The company, which this past year rebranded itself as a maker not only of racing trailers but also of awnings, interior décor, and vinyl graphics and decals, also houses two other disparate companies within the walls of its manufacturing operation on High Tech Avenue in Painesville — Bod Shotz and Nature in the Nude. Bod Shotz produces life-size wall appliqués and cardboard cutouts (think Fatheads) by teaming up with local photographers. The company doesn’t sell licensed products, instead catering to high school sports teams and the wedding market. Bruce Hanusosky, president of The Bruce Cos., said Bod Shotz, which he launched last summer, gives the company stability in case its vinyl graphics sales slow down. Nature in the Nude is an enterprise run by Mr. Hanusosky’s daughter, Caity Hanusosky. Using a tucked-away lab in the building, Nature in the Nude makes a line of seven all-natural men’s and women’s skin care products. The 2-year-old company already has products in grocery stores, salons and yoga studios in one-third of the country, and Ms. Hanusosky within the year plans to have products across the United States and in Canada. — Ginger Christ
asked him a single question about Lincoln Electric’s phenomenal track record.” “Why haven’t CEOs besieged Stropki by phone or dropped by his Cleveland office?,” The Fool asked. “His matter-of-fact answer is that running a company with a no-layoff policy is hard and big firms would have a hard time changing their operating stripes.” The piece concluded that Corporate America “is suffering from a near-criminal lack of imagination. Lincoln Electric presents convincing and reassuring evidence that it is possible to run a very profitable, very large multinational business in North America by respecting your customers, employees, investors, and society at large. All of them.”
Hot in Cleveland ■ Enjoying the increasingly freaky weather brought on by global climate change? Get used to it, because more is on the way, and Cleveland will be among the U.S. cities most affected by the changes. So wrote TheAtlanticCities.com in a piece based on data from a recent study by researchers at the University of Tennessee, published in the journal Environmental Research Letters. The study “used a high-resolution climate modeling system to project bad news down to an impressively local level, examining what we might see in the 20 largest cities east of the Mississippi come the late 2050s,” according to the website. The researchers calculated that heat waves in New York City could be 3.58 degrees Celsius hotter in intensity than they are now, with the average one lasting nearly two days longer. Cleveland “has it the worst, with a heat wave temperature increase of 3.71 degrees Celsius,” TheAtlantic Cities.com noted, followed by Philadelphia (3.69).
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