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More problem assets exit bank books Number of foreclosed properties owned by most local financial institutions is falling By MICHELLE PARK mpark@crain.com
The volume of foreclosed properties owned by most local banks fell last year by double-digit percentages, in some cases by the steepest rates since the foreclosure
crisis struck — a corner bankers say was turned thanks to an improving real estate market and fewer properties going into foreclosure. Institutions big and small reported that they carried as of Dec. 31 the lowest level of foreclosed property since at least 2010, which ob-
servers say should mean fewer vacant homes in neighborhoods and more lending by banks less burdened by foreclosed assets. “Some of the problems banks have been wrestling with for four or five years are being resolved,” said Charlie Crowley, an investment
banker who works primarily with financial institutions. “It’s good for profitability, and also a sign … that more (consumers) are probably getting their debts under control.” KeyCorp’s foreclosed assets were valued at $22 million as of Dec. 31, down 66% from $65 million at Dec.
INSIDE: A look at the totals of the foreclosed property portfolios for several regional banks. Page 21 31, 2011, and down 83% from $129 million at Dec. 31, 2010, according to public filings. Others shedding problem assets include regional giant Columbusbased Huntington Bancshares Inc., See BANKS Page 21
Moody’s is down on NEOMED expansion Ratings agency criticizes plans, but medical school says new revenue is key By TIMOTHY MAGAW tmagaw@crain.com
ith U.S. garment manufacturing nearly extinct and most American closets lined with a United Nations of shirts, pants, dresses and coats, a Cleveland maker of industrial clothing is growing with workers newly arrived here from Africa, Asia and elsewhere. National Safety Apparel Inc. stands at 150 employees, nearly tripling its head count since 2001, said Sal Geraci, the company’s vice president of operations.
Northeast Ohio Medical University’s roughly $163 million expansion effort continues to draw the ire of a prominent credit rating agency, which for the second time in five months has downgraded the debt rating of the medical school and criticized what it considers a high-risk project. In a report issued this month, Moody’s Investor Services railed against the rate at which NEOMED is piling on debt to finance an extensive expansion effort that’s expected to transform dramatically its rural Rootstown campus by more than doubling its square footage. The project includes a roughly 177,000square-foot health, education and wellness center, a 339-bed apartment complex and a 100,000square-foot research building. Moody’s downgraded NEOMED’s A2 bond rating to Baa1 with a negative outlook and said the $84 million in debt the university took on for the wellness center project “increased
See SEAMLESS Page 8
See NEOMED Page 23
MCKINLEY WILEY
Sal Geraci, vice president of operations at National Safety Apparel Inc., says the company has almost tripled its number of employees since 2001.
SEAMLESS TRANSITION National Safety Apparel Inc. hires workers from refugee resettlement programs to sew and cut clothing
By JAY MILLER jmiller@crain.com
W
PRODUCT PRICING
SPECIAL SECTION
ON THE MONEY
FUTURE OF RETAIL
Northeast Ohio has become a haven of experts who help firms set prices correctly ■ Page 3
Northeast Ohio malls are expanding to meet increasing consumer needs ■ Pages 15-18 PLUS: TECHNOLOGY TRENDS ■ BUYING LOCAL ■ & MORE
Entire contents © 2013 by Crain Communications Inc. Vol. 34, No. 7
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CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
SOME STRIKING FIGURES
COMING NEXT WEEK
The number of strikes or lockouts involving 1,000 or more workers in 2012 held steady from 2011, but those actions affected more employees, according to data from the U.S. Bureau of Labor Statistics. There were 19 such largescale strikes or lockouts in both 2012 and 2011, but last year they involved 148,000 workers, up from 113,000 in 2011. Days idle also rose. Here’s data from the past seven years.
Push in the right direction Today’s academic advisers are much more visible on campus, and they are being recognized as contributors to student and administrative goals. In next week’s Higher Education section, we’ll look at that trend and more.
Year
REGULAR FEATURES Bright Spots ................14 Classified ....................23 Editorial ......................10 Going Places ...............19
FEBRUARY 18 - 24, 2013
List: Private Equity and Venture Capital ...........20 Personal View..............10 What’s New..................24
Work stoppages Workers involved
Days idle
2012
19
148,000
1,131,000
2011
19
113,000
1,020,000
2010
11
45,000
302,000
2009
5
13,000
124,000
2008
15
72,000
1,954,000
2007
21
189,000
1,265,000
2006
20
70,000
2,688,000
SOURCE: U.S. BUREAU OF LABOR STATISTICS, WWW.BLS.GOV
700 W. St. Clair Ave., Suite 310, Cleveland, OH 44113-1230 Phone: (216) 522-1383 Fax: (216) 694-4264 www.crainscleveland.com Publisher/editorial director: Brian D. Tucker (btucker@crain.com) Editor: Mark Dodosh (mdodosh@crain.com) Managing editor: Scott Suttell (ssuttell@crain.com) Sections editor: Amy Ann Stoessel (astoessel@crain.com) Assistant editor: Kevin Kleps (kkleps@crain.com) Sports Senior reporter: Stan Bullard (sbullard@crain.com) Real estate and construction Reporters: Jay Miller (jmiller@crain.com) Government Chuck Soder (csoder@crain.com) Technology Dan Shingler (dshingler@crain.com) Energy, steel and automotive Tim Magaw (tmagaw@crain.com) Health care and education Michelle Park (mpark@crain.com) Finance Research editor: Deborah W. Hillyer (dhillyer@crain.com) Cartoonist/illustrator: Rich Williams Marketing director: Lori Yannucci Grim (lgrim@crain.com) Events Manager/Operations & Logistics: Christian Hendricks (chendricks@crain.com) Events Manager/Promotions & Sponsor Relations: Jessica Snyder (jdsnyder@crain.com) Advertising director: Nicole Mastrangelo (nmastrangelo@crain.com) Senior account executive: Adam Mandell (amandell@crain.com) Account executives: Dawn Donegan (ddonegan@crain.com) Andy Hollander (ahollander@crain.com) Lindsie Bowman (lbowman@crain.com) John Banks (jbanks@crain.com) Sales and marketing assistant: Michelle Sustar (msustar@crain.com) Office coordinator: Denise Donaldson (ddonaldson@crain.com) Digital strategy and development manager: Stephen Herron (sherron@crain.com) Web/Print production director: Craig L. Mackey (cmackey@crain.com) Production assistant/video editor: Steven Bennett (sbennett@crain.com) Graphic designer: Lauren M. Rafferty (lrafferty@crain.com) Billing: Susan Jaranowski, 313-446-6024 (sjaranowski@crain.com) Credit: Todd Masura, 313-446-6097 (tmasura@crain.com)
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Keith E. Crain: Chairman Rance Crain: President Merrilee Crain: Secretary Mary Kay Crain: Treasurer William A. Morrow: Executive vice president/operations Brian D. Tucker: Vice president Robert C. Adams: Group vice president technology, circulation, manufacturing Paul Dalpiaz: Chief Information Officer Dave Kamis: Vice president/production & manufacturing Mary Kramer: Group publisher G.D. Crain Jr. Founder (1885-1973) Mrs. G.D. Crain Jr. Chairman (1911-1996) Subscriptions: In Ohio: 1 year - $64, 2 year - $110. Outside Ohio: 1 year - $110, 2 year - $195. Single copy, $2.00. Allow 4 weeks for change of address. For subscription information and delivery concerns send correspondence to Audience Development Department, Crain’s Cleveland Business, 1155 Gratiot Avenue, Detroit, Michigan, 48207-2912, or email to customerservice@crainscleveland.com, or call 877-812-1588 (in the U.S. and Canada) or (313) 446-0450 (all other locations), or fax 313-446-6777. Reprints: Call 1-800-290-5460 Ext. 125 Audit Bureau of Circulation
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FEBRUARY 18 - 24, 2013
CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
3
Growth at a rate that’s no fish tale
INSIGHT
Catanese Classic Seafood expanding as it reels in more restaurant business By JAY MILLER jmiller@crain.com
RICH WILLIAMS
HERE, THE PRICES ARE RIGHT Demand rises for help in calculating true product costs; many of the top experts in the field are in Northeast Ohio By CHUCK SODER csoder@crain.com
A
decade ago, Ryan White knew one thing about setting prices: Engineers shouldn’t be doing it.
But that’s what was going on at his department within the Lake County offices of Avery Dennison, a maker of labels and packaging materials. Engineers would calculate the cost of a product and use that figure to set a price.
“I was like, ‘Wait a second — you’re an engineer.’ I knew nothing about pricing, but I knew that (the way the company was going about the process) didn’t make a lot of sense,” Mr. White said.
The bustling restaurant trade in Northeast Ohio is prompting a big expansion by the operator of Catanese Classic Seafood in Cleveland’s Flats. The food service distributor to the region’s upscale restaurants is embarking on a $1.3 million project that includes an upgrade of its riverfront fish processing facility and the purchase and renovation of a building across the street from its existing headquarters. A major impetus behind Catanese’s growth is the company’s plan to grow its fish processing business sixfold. The plan also includes growth for ancillary food service supply businesses. Last year, Catanese began buying the catch of Lake Erie commercial fisheries that would dock at the plant on the Cuyahoga River. Company co-owner and vice president John Catanese said the company processed 100,000 pounds of lake fish this past fishing season, but he expects that figure to grow to 600,000 pounds a year once the expansion is completed. See FISH Page 7
See PRICES Page 6
THE WEEK IN QUOTES “Once people get beyond the first year we feel like they really are committed to the organization, committed to sewing. Unless something extreme comes along, like a family move, we see little turnover after the first year.” — Sal Geraci, vice president of operations, National Safety Apparel Inc. Page One
“The reality is that saving money never goes out of style. Businesses’ telecommunications needs are pretty universal.” — Brad Clark, co-president, The SpyGlass Group LLC. Page 9
“We are seeing an increased desire to buy local, and a lot of it is driven by a generational shift of buying patterns. … The younger generations in particular are drawn toward the home-grown independent businesses.” — Michael Deemer, vice president of business development and legal services, Downtown Cleveland Alliance. Page 16
“Malls are not the boring bunkers they once were. … Developers are trying to make malls and shopping centers more symbolic of the communities they are in.” — Annie Dorsey, marketing director, Westfield Great Northern. Page 18
MARC GOLUB
From left, John and James Catanese of Catanese Classic Seafood.
Firms increasingly turn over HR functions to the pros Organizations called PEOs handle benefits, payroll for growing number of companies By CHUCK SODER csoder@crain.com
A growing number of employees in Ohio now work for two companies — one that manages the work they do and another that signs their
paychecks. A practice called coemployment is on the rise in Ohio, according to several people who manage professional employer organizations, or PEOs. These organizations provide ser-
vices that otherwise would be managed by a company’s human resources department. For instance, they process payroll, manage employee benefits and take care of issues related to taxes and workers’ compensation.
In the process, they take on some of the legal responsibilities of an employer. They’re far more prevalent in other states. For instance, in Florida, PEOs in 2010 employed about 900,000 people, which would ac-
count for about 10% of the 8.6 million people who have jobs in the state today, according to statistics from a survey conducted by the Florida Association of Professional Employer Organizations. But they are becoming more popular in Ohio. Existing PEOs are growing. See RESOURCE Page 23
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CRAIN’S CLEVELAND BUSINESS
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Crain’s is Neal Awards finalist for special report on remaking of West 25th Street
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Crain’s Cleveland Business has been named as a finalist in the 59th annual Jesse H. Neal Awards, a national competition that each year honors the best work in business media. Crain’s has been recognized for its April 2, 2012, special report “The Remaking of West 25th Street and the Market District.” The project is one of four finalists in its division for the category of Best Cross-Platform Package, which acknowledges print, online and multimedia components of coverage. “The Remaking of West 25th Street and the Market District” featured extensive online coverage, including video interviews with
business owners, an interactive map and photo galleries. QR, or quick response, codes throughout the print package allowed smart phone users to gain instant access to the online content. The overall package analyzed the transformation of Cleveland’s West 25th corridor, including a look at some of the driving forces behind it, residential growth in the neighborhood, and the work that remains to be done. In addition, it included print profiles and interviews with the owners of some of the more than 20 businesses that had opened in the Market District in the preceding 18 months. The project was spearheaded by
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sections editor Amy Ann Stoessel. Editorial staff members involved with the project were managing editor Scott Suttell and reporters Stan Bullard, Michelle Park and Tim Magaw. Web/print production coordinator Craig Mackey; production assistant/video editor Steve Bennett; graphic designer Lauren Rafferty; and digital strategy and development manager Stephen Herron worked on the project’s graphic and online components. Winners will be announced March 12 at a ceremony in New York City. The entire West 25th project can be found at www.crainscleveland.com/W25th. ■
Researcher: Horizontal shale drilling is much less harmful Kent State professor performs study that shows big decline in wastewater produced
Hays Companies of Ohio 159 Crocker Park Blvd, Suite 400 Westlake, OH 44145
By DAN SHINGLER dshingler@crain.com
phone: 440.385.4291 email: cleveland@hayscompanies.com web: www.hayscompanies.com
Kent State University has a new researcher who has brought with him some surprising information about what’s becoming a critical subject in Ohio — wastewater produced by fracking. It turns out horizontal shale drilling produces smaller volumes of toxic wastewater than conventional wells to get the same amount of gas, according to Brian Lutz, an assistant professor of biogeochemistry at Kent State. Dr. Lutz only arrived at Kent State from Duke University last November, but the Lordstown native spent much of the last few years next door, in Pennsylvania. He has been studying how much wastewater is produced by drilling in the Marcellus shale formation. Dr. Lutz also has looked at how the volume of water used in fracking and other drilling methods, including oldstyle vertical wells, compares with the volume of natural gas produced by those drilling methods. There was no real comparison, Dr. Lutz and his fellow researchers said in a January report. Horizontal shale wells were far more efficient in terms of the amount of wastewater they produced compared to their gas output. “We were surprised,” Dr. Lutz said. “While a shale well produces 10 times as much wastewater as a vertical well, it also produces 30 times as much gas.” Looking only at the wastewater ignores the incredible amounts of gas that are produced by horizontally drilled and fracked wells as opposed to their older, vertical counterparts, Dr. Lutz said.
SUBMITTED PHOTO
Brian Lutz was hired by Kent State last November as an assistant professor of biogeochemistry. Drillers know this correlation, and it’s a key reason that drilling in the shale is so profitable for them. Wastewater, which consists of fracking fluid that was pumped down the well to start its production and naturally occurring brine that already is in the ground, represents a cost to drillers. Each barrel must be recycled or pumped down an injection well at a cost of about $2 per barrel, injection well operators report. Gas, of course, represents revenue, so the higher the gas-to-wastewater ratio, the better for them.
Figuring out the tradeoffs From an environmental position, other effects of fracking can be viewed similarly, Dr. Lutz says. For example, on the surface one shale well is a large undertaking that involves a drilling pad of five acres or so, and a lot of truck traffic. But, Dr. Lutz said, because one shale well produces the same amount of gas as 30 conventional wells, “shale gas wells also likely result in less surface disturbance per unit energy recovered since fewer well pads are needed.” Dr. Lutz and his fellow researchers say policy makers and the public should realize that all forms of oil, gas and coal production have environmental consequences, and
should compare them accordingly. “This is the reality of increasing domestic natural gas production,” said Martin Doyle, professor of river science at Duke University’s Nicholas School of the Environment and co-author of the study. “There are significant tradeoffs and environmental impacts whether you rely on conventional gas or shale gas.” Dr. Lutz noted that coal mining, which in this part of the world often means mountaintop-removal mining in West Virginia, also can have dire economic consequences, including an impact on water. When it rains, a surface coal mine is exposed and much of the water that falls on the mine washes off into the surrounding area, along with whatever it picked up along the way, Dr. Lutz said.
Awash in wastewater Dr. Lutz and other researchers don’t downplay the amount of wastewater produced by shale drilling in this part of the country. And that amount only will increase as more wells are drilled and existing wells continue to produce brine, they say. “Despite producing less wastewater per unit gas, developing the Marcellus shale has increased the total wastewater generated in the region by approximately 570% since 2004, overwhelming current wastewater disposal infrastructure capacity,” Dr. Lutz’s recent report states. Drillers in Pennsylvania are learning to use and produce less water and Pennsylvania is able to manage more than 80% of its wastewater internally, but much of the rest is shipped to Ohio injection wells, Dr. Lutz said. With drilling now expected to ramp up in Ohio, the state’s injection wells might have difficulty keeping up with the amount of water produced, Dr. Lutz said. However, the Ohio Department of Natural Resources again is permitting new injection wells, and more than 30 are planned for Ohio based on pending applications, the department recently reported. ■
Volume 34, Number 7 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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Prices: Some plans lack discipline continued from PAGE 3
A growing number of business executives are experiencing similar epiphanies, and Mr. White and other local pricing experts are out to help them. Today, Mr. White is managing partner of Price for Profit, a Mayfield Heights company that helps other businesses figure out exactly how much they should charge for a product based on information about the buyer, past purchases, market research and other data. Not only is the software and consulting services provider growing — it doubled the size of its staff by hiring 14 people last year — but the popularity of the overall concept of strategic pricing is gaining momentum, too, according to Mr. White and other pricing experts. “Pricing is going to be the next Six Sigma or lean” manufacturing, said Mr. White, referring to two popular process improvement programs businesses use to cut costs. (He holds a Six Sigma Black Belt certification.) Although Mr. White was the most bullish of the pricing experts who spoke with Crain’s Cleveland Business, he isn’t the only one to make big statements about the future of strategic pricing. A report last July from technology research firm Gartner Inc. stated that the price optimization software business “will experience transformational growth in two to five years.” A separate Gartner report from 2011 found executives at businessto-business companies are becoming more aware of the importance of pricing, and they are gaining confidence in pricing software as the number of successful projects
grows. To capitalize on that interest, Price for Profit is developing a simplified version of its software intended to help the company go after smaller businesses that often don’t spend much time analyzing data when setting prices. In addition to adding personnel last year, Price for Profit plans to take another 3,600 square feet of office space at 6140 Parkland Boulevard later this month, which would nearly double the size of its headquarters. “We’re still trying to figure out how to scale faster,” Mr. White said.
Capital city? Mr. White said he wants Cleveland to become known as “the pricing capital of the world.” The region already has a big advantage in that area: An outsized portion of people with pricing expertise live here because the Cleveland office of McKinsey & Co. formerly led the management consulting giant’s pricing practice. Michael Marn, who founded McKinsey’s pricing practice and co-authored a book on the topic called “The Price Advantage,” now is retired in Florida, but he said many people who worked in that practice still live in Northeast Ohio. “The area is still more of a hub (of pricing knowledge) than any other place I can think of in North America,” Mr. Marn said. Among the experts here is Elliot B. Ross, who previously ran McKinsey’s pricing practice. He and fellow McKinsey alum David J. Nuechterlein 13 years ago started their own management consulting firm, MFL Group of Beachwood. A growing number of CEOs in the business-to-business world are coming to understand the importance of strategic pricing, partly because airlines, hotel chains and other consumer-facing companies now are setting different prices based on what different customers will pay, Mr. Ross said. “It’s much more visible now because it’s creeping into the consumer side,” Mr. Ross said, noting that he doesn’t plan to expand MFL Group, which is operating at capacity. Despite Gartner’s report, David Bauders, president and founder of Strategic Pricing Associates Inc. of Shaker Heights, said he doesn’t think there will be “a gold rush” for strategic pricing software, which “can be extremely expensive” to implement. But he agreed that demand for price consulting is growing, especially among smaller businesses, many of which haven’t explored the concept. “The number of companies doing it is going up very quickly,” said Mr. Bauders, who noted that his company helped Parker Hannifin Corp. of Mayfield Heights adopt strategic pricing processes more than a decade ago. Now the producer of motion and control products is considered a leader in the practice, a notion confirmed by other people interviewed for this story.
Small customer conundrum Companies that sell products to other business often leave large amounts of profit on the table by setting prices too low, according to Mr. White and others.
When selling products to their biggest customers, they do more research and tend to have a reasonable if not perfect idea regarding how much to charge for a given product, Mr. White said. But as customers get smaller, the prices they pay can vary widely, he said. To demonstrate, Mr. White showed a chart that mapped out how much one company charged different customers — large and small — for a given product. The data points on the right side of the chart, which represented the company’s largest clients, hovered in the middle, suggesting each paid roughly the same amount for the same product. But the data points on the far left, representing the smallest customers, were all over the place. And those smaller customers often were paying less than the biggest customers, which is a problem, given that most companies want customers that buy more to pay less, Mr. White said. Explosives maker Austin Powder in Beachwood faced that exact problem, said Dave True, president of the Austin Powder subsidiary that sells products to U.S. and Canadian customers. The company started working with Price for Profit a few years ago, after noticing that its profit margins were eroding in some markets. Since then, margins for the company’s packaged products have improved, Mr. True said. Now Austin Powder plans to use the same methods to price its bulk products and services. Austin Powder’s pricing plan lacked discipline because its sales team often was basing prices on hunches, Mr. Bloom said. Plus, sales people have a built-in tendency to set prices too low because they “want to be friends with their customers,” he said.
Incremental approach Price for Profit’s price chart for FFR-DSI Inc. looked like “a shotgun blast,” said Paul Bloom, vice president of marketing for the Twinsburg company, which sells shelves, displays and other products used by retailers. Coming up with a consistent way to price different products for different customers has helped the company improve its profits by several margin points, Mr. Bloom said. Companies that re-evaluate their pricing strategies face a few challenges. For one, if the plan involves raising prices, customers might not be happy, Mr. True said. That’s why Austin Powder is raising prices in increments. Consultants interviewed for this story said few customers will be scared away from a price increase if the product is valuable enough to fetch that price. The new strategy also meant Austin Powder took away some of the leeway sales people had to set prices, but they accepted the change because the company educated them about why it was necessary, Mr. True said. Such a big change is tough, given the demands of other day-to-day projects, but implementing a strategic pricing plan remained a high priority for FFR-DSI because president Stan Burson was a big supporter of the project, Mr. Bloom said. “You really need a champion, ideally at the top of the company,” he said. ■
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Manufacturing is creating optimism Team NEO report shows sector among area’s best for growth By JAY MILLER jmiller@crain.com
The folks at Team NEO, the business development nonprofit, didn’t need President Barack Obama to tell them that manufacturing was making a comeback. Last Tuesday, just hours before the president’s State of the Union speech, in which he praised the return of manufacturing operations to the United States from abroad, a trio from Team NEO, led by CEO Tom Waltermire, briefed a group of Crain’s editorial staffers on its latest quarterly review. That report showed how the manufacturing sector is coming to dominate Team NEO’s business attraction and expansion efforts, as well as how the growth of manufacturing in Northeast Ohio will outpace manufacturing growth in the national economy between now and 2020. However, the Team NEO narrative did not include President Obama’s optimism about the jobs that will accompany the return. The president said the return, often called reshoring, is being accompanied by 500,000 new manufacturing jobs nationwide. Team NEO’s latest forecast, while showing a slight year-over-year growth in manufacturing employment, predicts that manufacturing employment in the region will be flat for the next eight years, at about 260,000 jobs. Manufacturing in Northeast Ohio is a $34 billion annual business, representing 18% of the total economy, according to Team NEO data.
Rounding the curve Team NEO managing director of research Jacob Duritsky said data from economic forecaster Economy.com shows the manufacturing segment of the gross regional product will grow 39% in Northeast Ohio between now and 2020. By contrast, it expects the manufacturing segment of the gross domestic product will increase only 33% over that same period. GDP is the value of all goods and services produced in the country. The gross regional product is the similar marker for the 18 counties of Northeast Ohio served by Team NEO. Mr. Waltermire said he believes Economy.com’s forecast marks a significant turning point after two decades of stagnation in the manufacturing sector. “They are basically calling an inflection point in Northeast Ohio manufacturing,” Mr. Waltermire said, using the mathematical and statistical term for the point on a curve that indicates a dramatic change in direction. “They’re saying this outlook is very different than in the past.” That change in the outlook for manufacturing in Northeast Ohio that the econometrics firm is making confirms what Team NEO has been seeing in the type of compa-
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“All year, manufacturing projects have dominated both attraction and local expansion.” – Tom Waltermire, Team NEO leader nies moving into or expanding in the region. “All year, manufacturing projects have dominated both attraction and local expansion,” Mr. Waltermire said.
Dominant cluster Indeed, 35% of the capital investment by the 169 companies that Team NEO assisted in 2012 came from the 30 projects in the manufacturing sector. Team NEO breaks its work into eight industry clusters. Two of those — advanced manufacturing and the automotive industry — dominated its activity. Of 12 of the biggest attraction wins Team NEO has reported over the last year — companies bringing new operations to the region —five of them were in manufacturing. Likewise, of 32 local businesses Team NEO assisted with expansions of at least $500,000 or that added at least 60 jobs, 12 were manufacturers. That trend emphasizing manufacturing should continue, based on the kinds of companies that are talking to the organization’s staff about the possibility of coming to or expanding in the region. Team NEO received more than 95 inquiries from manufacturers in the fourth quarter. The next most-active group of inquiries came from what Team NEO calls the biohealth cluster. It received 30 inquiries from companies in that category. Team NEO’s economic review shows the manufacturing labor force in its territory grew 3.1% over a year ago, an increase of 7,000 jobs. But Mr. Waltermire said the longterm outlook is not as strong. He said he expects “the headcount will be flat” through 2020 because of dramatic gains in manufacturing productivity at existing manufacturers.
Fish: Expansion could create 30 jobs continued from PAGE 3
“We are so fortunate we have such wonderful chefs here (in Northeast Ohio)” Mr. Catanese said. “As they grow, we grow.” Marlin Investment Group LLC is co-owned by John Catanese and his brother, James, who is president. In addition to the seafood operation, they run two restaurant-related businesses called Chef Cube and Chef2Chef , which import cheeses, spices, oils and products for bakers. The company also sells many of its products at three stands in the West Side Market — The Cheese Shop, Urban Herbs and Catanese Classic Seafoods. John Catanese estimated sales for the three businesses totaled about $20 million last year. The expansion includes the purchase and renovation of a building at 1615 Merwin Ave. in the Flats and an expansion of the current headquarters at 1600 Merwin. The new building will house Chef Cube and Chef2Chef. County property records indicate Marlin Investment paid the Geist Living Trust $155,000 for the building at 1615 Merwin. The brothers opened Catanese
Classic Seafood with one other employee in 2004 on Crayton Avenue on Cleveland’s East Side. The business expanded to the Flats in 2008 when the Cataneses acquired the building and assets of bankrupt State Fish Inc. for more than $1.4 million. Included in the purchase was the 24,000-square-foot building at 1600 Merwin, where a three-story freezer and the fish processing plant are located. That purchase also brought a retail clambake business and a retail shop out front of the wholesaling operation. John Catanese said the company has about 60 employees; the expansion is expected to create 30 jobs.
Reeling in loan money The brothers have been in the seafood business since their high school days. Their father, Dominick, founded Waterfront Seafoods Inc. in 1982 and the family operated that business for nearly two decades. John Catanese said the brothers sold that business and went into the fish importing business in south Florida before starting the current business in 2004. While a sixfold increase in pro-
cessing sounds ambitious, it isn’t overly so. The commercial lake catch is primarily walleye and yellow perch. According to the Lake Erie Committee, a U.S.-Canadian agency comprised of state and provincial fishery managers, the allowable yellow perch catch in Lake Erie in 2012 was 13.6 million pounds, up from 12.6 million pounds in 2011. The walleye allocation, measured in number of fish, grew to 3.5 million in 2012 from 2.9 million in 2011. The company’s expansion is getting some assistance from local governments. Cuyahoga County is providing a $450,000 loan for the $1.3 million project. According to county documents the loan carries a 2% interest rate and a 15-year term. The city of Cleveland is chipping in a $90,000 loan. The company has pledged to the county that the expansion will create 30 jobs. John Catanese said the growth will continue. He envisions, for example, getting back into the business of importing fish for other distributors. “I don’t think we’ll ever be finished,” he said. “It’s exciting growing and this industry is a lot of fun.” ■
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Where are the jobs? In the short run, while he would prefer to see the healthy growth of manufacturing operations matched by a comparable growth in manufacturing jobs, Mr. Waltermire said the region still will need thousands of manufacturing workers because of retirements. Edward Hill, dean of the Maxine Goodman Levin College of Urban Affairs at Cleveland State University, sees the same trend, but with a silver lining. “What we see when we look at the numbers is that there is not going to be a lot of direct job growth” in manufacturing, he said. “But the supply chain of the manufacturers is where you’ll see job growth.” Dr. Hill said he also believes that because production jobs tend to be higher-paying than jobs in much of the rest of the economy, keeping the existing level of manufacturing here — while it declines in other regions — will bolster consumer spending in Northeast Ohio. ■
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Five Seasons club plans to add offices to its recreational space By STAN BULLARD sbullard@crain.com
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Corporex Cos., a real estate developer that through a subsidiary owns Five Seasons Family Sports Club in Westlake, wants to position the property that sits near growing Hyland Software Inc. for potential office use in the busy western suburb. Thomas Deere, executive vice president and chief operating officer for Five Seasons Family Sports Clubs, which is part of Covington, Ky.-based Corporex, has asked the city of Westlake to add “office” as a main use to the “recreation business” zoning for the club at 28105 Clemens Road. Adding office as a main use would allow parts of the building or its grounds to be used for offices, which is not permissible under the current use. Recreation business zoning is the only land classification left in Westlake that does not allow office as a main use. The Five Seasons property includes indoor and outdoor tennis courts and pools as well as fitness equipment in a brick-covered building on an eight-acre parcel. Separate from the clubhouse, the club also owns a three-acre parcel that fronts Clemens Road. Robert Parry, Westlake’s plan-
ning and economic development director, said adding the office term to recreation business zoning would widen the property use without going through a rezoning. Legislation for the change is pending before City Council. The city’s Planning Commission unanimously approved the change at its Feb. 4 meeting. However, Per Nielsen, a Westlake resident who has belonged to Five Seasons since it opened in 1999, registered dissent at the planning commission meeting. “I object to the idea more as a citizen of the community than a member of the club,” Mr. Nielsen said. “This is a city with some vision to set aside land for recreation business such as golf courses and sports clubs,” he said. “I object to business taking over all the land in Westlake if it’s available. I don’t want to see it go the way of other cities with sprawl.” Mr. Nielsen said he does not worry about the club closing, but he has heard nothing from local management about its future. He said he wrote an email to members that tried to address rumors about the club’s future — including a hot one that Hyland Software had bought the property, which is not the case,
according to Hyland and Cuyahoga County land records. Mr. Deere of Five Seasons did not return an email and three phone messages from Crain’s inquiring about the requested change. Ronald Wolfe, the Westlake club’s general manager, did not return a request for a call left Feb. 8 at the club’s main desk or three phone calls. P.J. Carpenter, a Hyland spokesman, said in an email that the company does not own the Five Seasons property; he did not answer questions about rumors of Hyland’s interest in it. Mr. Carpenter said Hyland’s only current plans in Westlake are for recently approved designs to construct a 105,000-square-foot building next to the former Nordson Corp. headquarters, which Hyland has owned since 2009. If Hyland developed an appetite for more land or buildings, the Five Seasons property could not be better positioned to satisfy it. The sports club is on the other side of Clemens Road from Hyland’s headquarters. The club also adjoins the former Nordson property. Corporex is a substantial real estate developer in the Cincinnati area. It has interests in multiple states and has built and owns six other Five Seasons clubs besides the one in Westlake. ■
Seamless: Workers represent 27 countries continued from PAGE 1
Jonathan Mokri
jmokri@cbscuso.com (440) 526-8700
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About 40 of those employees were hired from refugee resettlement programs. Most of those employees work on the production floor, cutting, sewing and packaging the company’s line of protective clothing. The sewing production floor takes up about half the company’s 90,000square-foot building on Industrial Parkway in Cleveland’s West Park neighborhood. With the help of International Services Center — a social services agency in Cleveland that helps immigrants and refugees attain self-sufficiency — and Catholic Charities’ Migration and Refugee Services program, the company has found a steady supply of new employees — refugees from a total of 27 countries. “We were struggling to find people who could sew or were willing to learn,” Mr. Geraci said of hiring difficulties that began a decade ago. “It’s somewhat of a dying art.” That’s when the company hired its first newly arrived worker, a trained seamstress. In 2001, Catholic Charities began formal training programs for National Safety Apparel sewing workers. The International Services Center program began three years ago. At International Services Center’s headquarters on Superior Avenue in downtown Cleveland, new immigrants, who may have been seamstresses in their home countries, learn about industrial sewing and train on stand-up sewing machines donated by National Safety Apparel. It’s part of a curriculum that includes classes in English and in other skills that will help them adjust to life in the United States. “This is a true partnership with National Safety Apparel that can deliver employees,” said Gretchen
Becker, an employment development specialist at International Services Center. “It’s vocational training for an existing job,” Ms. Becker said.
A helping hand International Services Center is supported by United Way of Greater Cleveland. The nonprofit works with the U.S. State Department to assist in refugee resettlement. It also derives income by offering translation services. The center helps refugees with housing and lining up social services. But a key for the refugees is the programs that help them enter the work force. Those training programs begin with learning English and move on to helping them develop job-hunting skills. “Our goal is self-sufficiency (for the refugees) and employment,” said the center’s executive director, Karin Wishner. The federal government considers as refugees people living outside their home country who are unable to return home because of political unrest and racial or religious persecution. A limited number of refugees — less than 100,000 annually — gain entry to the United States. The president sets the limit annually. The State Department works with resettlement agencies to find refugees places to live and to enroll their children in schools. Resettled refugees who pass health and security reviews immediately are able to work in the United States and can become citizens in five years. Ms. Wishner said International Services Center found National Safety Apparel after it began seeing refugees who had done sewing, beading or working with fabrics in their native lands. Now the agency
is looking for other companies that might need the same skills, such as apparel makers Hugo Boss AG and Cintas Corp.
Feeling committed National Safety Apparel makes 8,000 different products at its headquarters and production center on Industrial Parkway. Its products range from the reflective safety orange and fluorescent yellow vests worn by construction workers and cut-resistant jackets and leggings worn by glass factory workers to heat-resistant gloves and suits worn by steelworkers and welders. Shop floor employees work in teams and learn all the skills needed to assemble particular garments; Mr. Geraci called it the “Toyota Sewing System,” which emphasizes teamwork and continuous improvement. (The Toyota Production System, or the “Toyota Way,” has been adapted to many industries beyond autos.) Each pod has a computer that breaks down the tasks needed to complete each garment. The pods also have drawings posted, rather than instructions in English, to assist team members not yet adept in English with garment assembly. Workers are paid about $11 an hour plus incentives for meeting productivity goals. Mr. Geraci said some new workers drop out after 90 days because they realize sewing or the shop floor isn’t for them. The next benchmark is at the end of the first year. “Once people get beyond the first year we feel like they really are committed to the organization, committed to sewing,” he said. “Unless something extreme comes along, like a family move, we see little turnover after the first year.” ■
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By saving clients money, SpyGlass is earning more Westlake telecommunications company is beneficiary of large recapitalization By MICHELLE PARK mpark@crain.com
Armed with millions of dollars of fresh capital, a Westlake-based telecommunications cost consulting firm aims to grow its staff by one-third by the end of this year with an eye toward going nationwide in the next three years. According to the company’s leadership, The SpyGlass Group LLC is the beneficiary of a multimillion-dollar recapitalization involving an investor group led by Crane Investment Co., the investment arm of Crane Group, a private holding and management company in Columbus. Crane Investment typically in-
vests $3 million to $5 million per transaction, and its investment in SpyGlass was in that ballpark, said Randy Fortener, president of Crane Investment Co. Notably, though, Crane was not the only investor infusing money into the company. The other investors were not identified. The deal, facilitated by Clevelandbased investment banking firm Western Reserve Partners LLC, was effective Dec. 31, 2012, but wasn’t announced until late January. SpyGlass, founded in 2001, analyzes clients’ telecommunications expenses, such as phone and wireless bills, to identify ways they can save money and to detect billing
Former CapitalWorks CEO starts new fund Mueller says Partners Private Equity will be unique investing firm By MICHELLE PARK mpark@crain.com
Despite a challenging fundraising environment, a local executive has launched a new private equity firm with plans to invest capital raised from high net-worth families into companies in what he called “under-loved” and “misunderstood” sectors. John Mueller, former CEO of Beachwood private equity firm CapitalWorks LLC, opened Partners Private Equity LLC in Beachwood last Mueller month. He left CapitalWorks after a dozen years to form the new fund, he said, because he has a different investment philosophy he wanted to put to work. Partners Private Equity’s investing style will be more contrarian and “value-oriented,” he said, as it will focus on sectors in which the “crowd” isn’t interested and on situations that are fairly complicated. Mr. Mueller is joined by two partners: Michael David, who most recently was managing partner of Endurance Capital Advisors, a hedge fund; and Andrew Kuhar, most recently president of his own private equity advisory firm, Kuhar Consulting. Partners Private Equity, which has a goal of a $50 million first fund, already is building its deal pipeline, Mr. Mueller said. He expects the firm will gravitate toward established, niche manufacturers with enterprise values of $12 million to $40 million, and will focus mainly on majority-stake investments, though minority investments and financial restructurings are possible, too, he said. Although 2012 saw the lowest
number of private equity funds raised — 112 — since 2003, the amount of money raised by private equity firms increased 13% year over year to $113 billion, according to PitchBook, a leading private equity and venture capital research firm. PitchBook’s data also reveal the formation of new private equity firms in Ohio and nationwide has dropped significantly in recent years. Whereas 344 new firms were formed nationwide in peak years 2007 and 2008, fewer than that — 318 — were formed in the years 2009 through 2012. Between the reduced number of institutional investors in the Cleveland area, increased scrutiny and regulation of private equity and pressure from investors to generate returns quickly, “staying in the private equity community and/or entering it with a new fund is very, very challenging,” said Jeffrey Kadlic, co-founder and managing partner of Evolution Capital Partners LLC, a Beachwood private equity firm. Increasingly, private equity funds are changing their models, and they’re working with family investors and holding investments longer, Mr. Kadlic said. While the private equity fundraising market is challenging, that’s good and bad news for Partners Private Equity, Mr. Mueller maintained. “People want to be invested in Blackstone, as opposed to a lower middle-market fund in the Midwest,” he said, referring to the giant investment fund. “That creates challenges on the fundraising front, but it creates opportunities. Less money coming into the lower middle-market private equity space … reduces the competition that we face for deals.” As for CapitalWorks, Mr. Mueller remains on the advisory board for three of the firm’s portfolio companies, said Rob McCreary III, CapitalWorks chairman. “John is very experienced,” Mr. McCreary said. “He’s had terrific investment performance here. We have nothing but good things to say about him.” ■
Clark
DeAngelo
errors in need of correction. Its clients include public and private companies, government entities, universities and hospitals. “We’ve experienced very significant growth the last few years,” said Ed DeAngelo, co-president. Hiring in 2012 grew SpyGlass’ employee ranks to 60 from 40, and the company in the last year entered five of the nine regional markets in which it operates, Mr. DeAngelo said. Those nine markets comprise 24 states. All but 13 of its employees are in Westlake. More hiring is to come, much of it at its Westlake headquarters and many of them sales positions, Mr. DeAngelo said. He expects SpyGlass to employ 80-plus people by the end of 2013. Adding more cost-reduction services — in and outside the telecommunications realm — also is a goal,
Mr. DeAngelo said. To make room for the coming expansion, the company in 2012 almost doubled its leased space in its Westlake building to nearly 10,000 square feet, said Brad Clark, also co-president. “The reality is that saving money never goes out of style,” Mr. Clark said. “Businesses’ telecommunications needs are pretty universal.”
‘We invest in people’ Mr. Clark and Mr. DeAngelo were co-CEOs prior to the recapitalization and remain significant shareholders of the company, though the investor group now holds a majority stake in SpyGlass. “We still have tons of skin in the game — let’s put it that way,” Mr. DeAngelo said. The two men, both 42, declined to say how much investors infused into their company. They chose to hook up with Crane Investment following a yearlong search for an equity partner partly because Crane would keep the company founders involved and because it has a track record of transforming regional companies into national leaders, Mr. DeAngelo said.
“We are a consulting business, so we are a people business,” Mr. DeAngelo said. “The partnership will help us to deploy more people.” Mr. Fortener, Crane Investment’s president, said his firm invested in SpyGlass because it found its management impressive and its business model very strategic and “scalable.” “For a company of their size, they have more business procedures and systems in place than most companies much larger,” said Mr. Fortener, who directs Crane Investment’s investments and acquisitions. “They really thought the processes out well, and they’re just very smart operators and really good leaders, too.” Crane Investment invests annually in one or two companies on average and currently is invested in 10, according to Mr. Fortener. According to SpyGlass’ co-presidents, Crane gains three out of five seats on the SpyGlass board through the transaction. Otherwise, Mr. Fortener said, Crane plans to “let the team continue to run their business as best they know.” “We invest in people,” he said. “Quite honestly, we are betting on Ed, Brad and their team.” ■
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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
When in Rome
T
he Affordable Care Act — aka Obamacare — is the law of the land. Gov. John Kasich faces up to that fact in recommending that the state expand eligibility under Medicaid so that Ohio grabs its fair share of federal money to cover health care for the poor. Obamcare’s opponents — of which Gov. Kasich, a Republican, has been one — were thrilled when the U.S. Supreme Court ruled last year that individual states could decide whether to expand their Medicaid coverage largely at the federal government’s expense. They have viewed refusal to do so as a way to tell President Barack Obama that he can’t have everything he wants in setting the nation’s health care agenda. But states that try to stick it to the president in this manner are going to wind up with self-inflicted wounds, because big chunks of the Medicaid tax dollars their citizens paid to Washington will go to other states instead. There sometimes comes a point in a political or philosophical battle where principle must give way to pragmatism. That point has been reached in the fight over Obamacare. The president and his backers got their way, with Mr. Obama not only prevailing in Congress, but also winning re-election against an opponent who promised to repeal the Affordable Care Act if he was victorious. Gov. Kasich saying “no” to an expansion of Medicaid coverage in Ohio wouldn’t change the outcome of that battle. Instead, it would cost our state an opportunity to extend health care coverage to more of its people even as other states say “yes” to a boatload of federal dollars. We understand that expanding Medicaid coverage comes with a price. Though the federal government has pledged to pick up the full tab for the first three years of the Medicaid expansion, states that take the money eventually will need to come up with 10% of the cost. However, the alternative of the status quo means individuals and employers who buy private health insurance will continue to subsidize through their premiums the cost of providing care to those people who aren’t extended Medicaid coverage. And without coverage, the uninsured will keep running for treatment to expensive hospital emergency rooms, where they can’t be turned away. Greater Cleveland Partnership, the city’s chamber of commerce group, voiced support for an expansion of Medicaid a week before Gov. Kasich announced he’d seek the Legislature’s approval for broadening coverage. GCP is among the business groups that believe the hidden tax companies pay in the form of higher insurance premiums to offset the cost of caring for the uninsured only will rise if nothing is done. The governor’s proposal has been greeted with silence from members of the Republican-led Legislature. Maybe they’re intimidated by conservative groups that bluster about politicians who don’t support their agendas. They shouldn’t be. Unless a majority of Ohioans is prepared to throw out Obamacare — and it apparently is not — then lawmakers who support the governor should find favor with voters. And that’s all the cover they need.
FROM THE PUBLISHER
Haslam’s wallet gives him rights president John Compton to the CEO’s can’t help but think about Jimmy job at Pilot Flying J, where he will now be Haslam and his recent decision, afshifted to a role as “strategic advisor.” ter just a few months, to take back Hiring away a top exec from a the chief executive’s job at global business — and one who his family truck stop giant, Pilot BRIAN logically would be considered Flying J. by many as a candidate for that Not that he doesn’t have the TUCKER CEO job at some point — must energy — he’s shown all of have been very, very costly. Northeast Ohio that he’s got Usually that kind of hire replenty of that. Same thing with quires an employment confocus — spend some time with tract that includes hefty prohim or hear him speak and you tection for the newcomer if value his business acumen. And things don’t work out. “It’s not he has been oft quoted that he at all about John,” Mr. Haslam doesn’t take vacations or have told the Tennessee newspaper. hobbies. His hobby is work. “It’s more about Jimmy having a change And finally, well, when all is said and of heart in terms of what he wanted to done, he can do anything he darn well do. wants, either with the Knoxville, Tenn.“I realize people will look at it in differbased family company or the Browns. ent ways, but that’s the reality.” He signs the checks. Well, I’m guessing Mr. Compton I read what he told his hometown might be one of those people looking at newspaper about how he missed the it in different ways. Only time will tell — family business. “This is about me realmainly by Mr. Compton staying in place izing my first love is running Pilot Flying at Pilot Flying J — whether this worked J and wanting to return to that job,” the for both men. Knoxville News Sentinel quoted him as ***** saying. LAST WEEK, DRONES were all over The journalist in me wonders how the newspaper pages. National colummuch it cost Mr. Haslam to lure PepsiCo
I
nists were debating the morality of using these unmanned aircraft to deliver lethal tactical strikes against terrorists. Here in our region, the Medina County Sheriff’s Department was displaying and explaining its version, a small, helicopter-like device that helps in aerial surveillance of a crime site that might pose high risks for officers on the ground. Opponents of the military drones don’t like them because they kill civilians in attacks. Critics of the kind of devices used by local law enforcement disparage the potential “Big Brother” infringement of their privacy rights. I have a hard time with both positions. Drone-carrying missiles have killed some of the top leaders of Al Qaeda, an organization that declared its own war against America in the ghastly September 2001 attacks. This is the same organization that likes to hide its operations near schools and mosques, precisely so an enemy is hard-pressed to attack without horrible, yet unavoidable, collateral deaths. As for those overhead surveillance drones, I equate them to traffic cameras. If you’re not breaking the law and driving over the speed limit, why care?
PERSONAL VIEW
Kasich’s decision was the correct one By TOM JOHNSTON
I
am the owner of SearchPath, an executive search firm here in Northeast Ohio. I also sit on the jobs committee of Greater Cleveland Congregations, a coalition of religious congregations and community organizations working together to make our region more just and prosperous. As a business owner, I have always provided my employees with health insurance coverage. It is not only the right thing to do, but it also has been a good business practice, for it has helped me attract and retain excellent employees. I now franchise my business and currently have 30 franchisees, including 12 in Ohio. All of them must purchase
Mr. Johnson is the owner of SearchPath, and a leader in Greater Cleveland Congregations. health insurance for themselves and for their employees. I applaud Gov. John Kasich’s decision to support the expansion of Medicaid in Ohio. This is an issue with a real impact on small businesses, and his decision is the right one. About 600,000 Ohioans who are currently uninsured would be covered by this expansion. As things stand now, they are likely to get their medical treatment at a hospital emergency room. It is the least efficient, most expensive form of medical treatment, but hospitals must treat them.
And it is right that they do so. But hospitals, like small business owners, have a bottom line and cannot simply absorb the cost of this expensive medical care. Who ultimately pays? We all do. These costs get passed along to those of us who have insurance. They increase our monthly premiums from 2% to as much as 10%, by some estimates. In our current business climate, that is a lot of money to add to overhead. A recent independent study estimates that not expanding Medicaid actually will cost employers like me $1.7 billion over the next eight years and will cost my franchisees and other individuals $7.4 billion. See VIEW Page 11
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THE BIG ISSUE
McDonald Hopkins
How would you describe the state of the union?
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I’m not happy with the state of the union. Being a military veteran and hearing about defense budget cuts ‌ kind of upsets me. ‌ The economy is not on the upswing it should have been by now. I think we’re giving too many handouts. There needs to be more accountability for sure on that.
Fleeting. It’s in disarray. Congress and the president can’t come to terms, and it’s not anyone’s particular fault, but it’s both of their faults at the same time.
We’ve made some major transitions within the last six to seven years. I think he (President Obama) still has an uphill battle. ‌ We as a country have to stop the infighting, and I think overall, the state of the union will get better.
Lyndhurst (co-founder of Cash Mobs) Economically, I think obviously there’s a far way that we have to go. ‌ I think socially, we’re being torn apart; it’s a combination of technology and a lack of interpersonal experiences. People are not as used to dealing with each other as they used to be. There’s a lot of space between people.
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Rad Air emphasizes its tire business By KATHY McCARRON Tire Business
Rad Air Complete Car Care has been selling tires for years, but the Northeast Ohio chain recently decided it needed to publicize this little-known fact by expanding its name to Rad Air Complete Car Care and Tire Centers. The Parma Heights-based dealership, which franchises 10 locations in Northeast Ohio, began as a radiator and air-conditioning service outlet in 1975 and expanded into full auto repair service along the way. “We found over the years, as we built up a great clientele, that we never tapped into the tire market,� said Andy Fiffick, president and CEO. “We did sell tires for some clients. But no one shopped us for tires. “We had regular customers who would come and we’d see they had new tires on their cars and we’d ask, ‘Why didn’t you ask us (for tires)?’ And they’d say, ‘I didn’t know you did tires,’� Mr. Fiffick said. He said the simplest solution to build awareness of its tire offerings and service was to tack “tires� onto the company name. “We’re not advertising it and we’re not getting into tire wars� with other tire retailers,� Mr. Fiffick said. But he said he hopes increasing awareness of its tire offerings
and service will bolster the company’s tire sales beyond its current 3% to 5% of total sales. Rad Air offers all major brands of tires, but its main brand is Cooper, because tire manufacturer Cooper Tire & Rubber Co. is based in Findlay, Ohio, he said. The chain also provides tire mounting, balancing and other tire-related services. Rad Air — pronounced “Raid Air� — has been updating tire mounting equipment as needed at various stores and periodically training its staff. Mr. Fiffick said employees are trained through General Motors Co. training programs, and at times a store will close for a Saturday so an outside trainer can teach all the employees at once. He said the franchise group’s biggest competitors are new-car dealerships that are “doing everything they can to keep customers, cradle to grave,� including offering extended maintenance packages to new-vehicle owners. To combat the competition, “we treat customers fairly, we fix what the vehicle needs fixed, we build clients and we take care of them,� he said, admitting it’s an old-fashioned philosophy but one that works. Rad Air has evolved its service offerings since its founding in 1975 as Radiator and Air Conditioning in Parma Heights.
View: Expanding Medicaid is good for state’s economy continued from PAGE 10
On the other hand, expanding Medicaid will bring $17.4 billion of federal money into Ohio’s economy, much of it going to Northeast Ohio, where health care is at the core of our economic growth strategy. Ohio businesses will be more competitive without the burden of higher insurance premiums for covering the cost of uninsured residents. Ohioans who currently are uninsured will get better medical services at a lower cost. And North-
east Ohio will benefit from an economic shot in the arm. To me as a small business owner, Medicaid expansion is just too good a deal to pass up. I am grateful that the governor agrees. Now, to our state legislators as they take up the issue and analyze its costs and benefits carefully, I offer the perspective of someone from the small business community. And I trust they will do the right thing for uninsured Ohioans and the Ohio economy. â–
WHAT IGNITES YOU? E D U C AT I N G P H Y S I C I A N S , P H A R M A C I S T S A N D H E A LT H C A R E R E S E A R C H E R S
In 1986, the company expanded into other high-tech areas of service and updated its name to include complete car care. Radiator and A/C service make up only about 5% of the company’s business today, said Mr. Fiffick, who also owns a Rad Air outlet in Garfield Heights. The company is scouting for three more locations to open stores in the Cleveland area this year, he said. Mr. Fiffick, 56, who owns the franchise with his wife, Elissa, said he tells people he has “over 50 years experience in auto repair� because he grew up watching his father, who was a diesel truck mechanic, tinker with vehicles. ■Kathy McCarron is a reporter with Tire Business, a sister publication of Crain’s Cleveland Business.
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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. ■ Last week was Valentine’s Day, which made it a good time to note that Malley’s Chocolates has just opened its 22nd retail location, in Medina. The store is in a former FirstMerit Bank branch at 4191 Pearl Road. Chairman Mike Malley passed along word that Malley’s is using the bank’s vault to house a giant replica chocolate Easter rabbit “who keeps watch over our gold chocolate coins and famous Gold Cup Chocolate Assortments.” The former drive-through lanes were used Feb. 13 and 14 to sell chocolate-covered grapes and strawberries. ■ Brennan Industries Inc. of Cleveland, a supplier of hydraulic fittings and adapters, said it has expanded its capabilities in Canada by moving into a more efficient distribution center in Mississauga,
Ontario. In the new operation, “Brennan will be able to streamline the distribution process and serve its customers in Canada even better,” said David M. Carr, the company’s president, in a statement. The new distribution center is located, appropriately enough, at 3397 American Drive. Brennan opened its Canadian distribution center in 2009 to provide customers in Canada with time and cost savings because shipments no longer would need time to clear customs or be subject to customhouse brokerage fees. The company has full-service distribution centers in or around Atlanta, Cleveland, Dallas, Los Angeles, Seattle, Toronto and Shanghai. ■ A group of Cleveland State University students won the 2013 Ohio Clean Energy Challenge with a unique wind turbine design. The team, known as Amplified Wind Solutions, won $10,000 in the annual business plan competition in Columbus on Jan. 29. Their wind
JESSE KRAMER
Malley’s Chocolates now has 22 stores after a recent opening in Medina. The new location is a former FirstMerit branch at 4191 Pearl Road. turbine system “produces up to six times more electricity than traditional turbines,” according to a news release from Cleveland State. The team was led by CEO Niki Zmij, an MBA candidate at Cleveland State’s Monte Ahuja College of Business. Its wind amplification system “directs a higher concentration of air molecules into turbines, increasing the velocity and density of the wind stream,” Cleveland State said. “Through its unique capabilities, our Wind Amplification System directly addresses some of the
biggest issues with wind technology today,” Ms. Zmij said. “It is low cost, it uses less space, and because it can operate in low wind speeds, it can make wind power economically viable in previously non-viable locations.” The system was developed by Dr. Majid Rashidi, chairman of the Engineering Technology Department at Cleveland State. As winner of the Ohio challenge, Amplified Wind Solutions earned a spot in the Midwest regional competition to be hosted by the Clean Energy Trust in Chicago on April 4. The winner of that event will receive a $100,000 grand prize and a place in the U.S. Department of Energy’s national competition in Washington, D.C., this summer. The 2012 winner, Northwestern University’s NuMat Technologies, captured the top prize at the national competition and at other events, and has been awarded more than $1.25 million in prizes. ■ Wellsville Carpet Town Inc., a 45-year-old home furnishings retailer headquartered near Buffalo, on Friday, Feb. 15, opened its second Ashley Furniture HomeStore in Northeast Ohio. This one is in a former Linens n
Things, next to Best Buy in Mentor Mall Shopping Center on Plaza Boulevard. It joins an Ashley store that opened last November in Fairlawn. Tom Kane, Wellsville Carpet’s managing partner, said the company has hired 30 people for the Mentor store. He said the company plans eventually to have five stores in Northeast Ohio. ■ It’s an eventful year at Turfscape Inc. The landscaping and snow/ice removal company is celebrating its 25th anniversary in 2013. Turfscape soon will move its headquarters to Bath Township, and it recently opened a branch location at 8357 Cleveland Ave. NW in North Canton to complement existing operational facilities in Hinckley and Twinsburg. “The opening of our North Canton branch is a culmination of five years of planning and continuous growth that we have experienced in the Canton market,” said George Hohman, president of Turfscape, in a statement. Turfscape primarily serves condominium and homeowner associations, as well as commercial and health care facilities.
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employers in the face of injury. Tim Magaw, Crain’s Cleveland Business health care reporter, will serve as moderator for the panel. Registration and breakfast is from 7 a.m. to 8 a.m., with the program running from 8 a.m. to 9:30 a.m. Single tickets are $40, and tables of eight are $275. All tickets must be purchased in advance of the event. Walk-ins will not be accepted. To register, go to www.crainscleveland.com/breakfast.
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INSIDE
16 ‘BUY LOCAL’ MOVEMENT IS GAINING TRACTION.
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FUTURE OF RETAIL
MALLS BUYING INTO TRENDS Retail developers are remodeling and expanding to meet new consumer needs
WESTFIELD GREAT NORTHERN
By KATHY AMES CARR clbfreelancer@crain.com
The 37-year-old Westfield Great Northern has been making improvements to facilitate the hybrid model since The Westfield Group in 2002 acquired the 1.2 million-squarefoot center.
T
he inventory of regional malls in Northeast Ohio may have seemed like a liability during the height of the last decade’s economic doldrums. But today, declining retail vacancy and improving economic conditions are motivating developers to reposition, remodel or even expand older and contemporary shopping hubs to meet consumers’ evolving lifestyle needs. And proof of this activity can be found throughout Northeast Ohio. Malls INSIDE: Don’t expect surrounded to see more mixedby mature, use lifestyle formats populated such as Crocker Park markets are and Legacy Village transitioning in Northeast Ohio in from the oldthe near future, er, traditional some say. Page 18 barbell format — a long corridor of merchants anchored with large department stores on each end — into a hybrid of indoor and outdoor spaces anchored by big-box or department stores. Meanwhile, other malls are undergoing major redesigns or are being recast as “power centers,” at which large retailers such as Wal-Mart and Target support surrounding smaller tenants, all of which are unenclosed. “The successful malls in this region, as well as the older ones, need a booster shot,” said Richard Wilden, senior design architect for Cleveland-based ka architecture. “The older regional malls, especially, will have to change, or they will close.” See MALLS Page 18
SUBMITTED PHOTO
GARFIELD MALL
STEELYARD COMMONS
MARC GOLUB
CHUCK SODER
LEFT: Steelyard Commons, seen here in 2007, the year it opened, is moving forward this spring with its first significant expansion. RIGHT: The conversion of Garfield Mall into Garfield Commons continues as its new owner gives a face-lift to the 250,000-square-foot property, which is anchored by Marc’s, Big Lots and Save-A-Lot.
Web sales mesh with, but don’t surpass, in-store profits Brick-and-mortar locations remain an essential retail tool even as more shoppers turn to the Internet to buy, browse By CHRISSY KADLECK clbfreelancer@crain.com
G
aining traction with its Cleveland-pride apparel, CLE Clothing Co. today has two brick-and-mortar locations in the city that mightily outsell its original web-based business by 40%. “It started very organically online and the online grew to the point
where we were able to have this experience in the store,” said Laura Kubinski, director of operations and wife of Mike Kubinski, CLE Clothing co-founder. “We are seeing a lot of great success having a storefront, and it’s really exciting to have retail downtown doing well.” It’s a similar story in Lakewood where Tamara Racin’s children’s boutique, Paisley Monkey — started eight years ago online — now
reports 80% to 90% of its sales are from its expanding storefront on Detroit Avenue and only 10% to 20% are online. “This really surprised me, I have to tell you,” said Ms. Racin. “But I think, especially in Lakewood, we have what other developers build — lifestyle shopping and dining. Ever since we opened the brickand-mortar store, everybody is really into shopping local.”
“Ever since we opened the brick-and-mortar store, everybody is really into shopping local.” – Tamara Racin owner, Paisley Monkey The sales trajectory of these two local startups might be exceptions to the overall retail landscape, where online sales are expected to grow 10% each year to $279 billion by 2015, Forrester Research predicts. By 2015, it is expected that the web will account for 11% of all
retail sales, excluding groceries. The online marketplace is going to impact categories and retailers differently, said Mary Brett Whitfield, a retail analyst and senior vice president at Kantar Retail, which has an office in Columbus. “Some categories are being purchased online at a much higher rate and have a much faster growth rate, other categories will be slower to move online,” Ms. Whitfield said, noting that women’s apparel tops the list and consumables fall at the bottom. “That complicates planning scenarios because it’s See PROFITS Page 17
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Consumers are invested in spending close to home By KATHY AMES CARR clbfreelancer@crain.com
Throngs of shoppers streamed into the annual Last Minute Market with different holiday gift ideas in mind. Some contemplated handmade soaps, adventurous jewelry, fabric collage art or ceramic spice jars. All sought authenticity. Cleveland Handmade Markets staged its fifth arts and crafts market in December at Lakewood’s Screw Factory, and the traffic was so robust that people risked parking illegally just to access the unique wares designed by more than 100 of the area’s artists and craftspeople. “The first year, we counted like 1,500 people in four hours, and this past year, I couldn’t even tell you how many people we had,” said Lori Paximadis, co-founder of Cleveland Handmade Markets, which represents about 600 local artists. “It’s getting bigger and bigger every year.” So, too, is the “buy local” movement, which is moving beyond an urban grassroots effort into a long-term sustainable shift in consumers’ purchasing habits, small business advocates say. “We are seeing an increased desire to buy local, and a lot of it is driven by a generational shift of buying patterns,” said Michael Deemer, vice president of business
LOCAL BENEFITS According to the American Independent Business Alliance, shopping at locally owned businesses can leverage community funds three times over. For every $100 spent at a local business, $45 is reinvested into the local community. Conversely, for every $100 spent at a corporate chain, only $15 is reinvested into the local economy. development and legal services for the Downtown Cleveland Alliance. “The younger generations in particular are drawn toward the home-grown independent businesses,” he said.
They’re buying it Consumers reoriented their spending during the recession and showed greater interest in supporting the local economy, he said. Lise Anderson, a jewelry maker of 25 years whose clients have included venerable chef Wolfgang Puck and Whoopi Goldberg, noted that even though sales for her Cleveland-based business, Lise Anderson Jewelry, ebbed in 2008 because of the recession, they are rebounding. She said she is experiencing greater interest for her products, which she sells each Saturday at North Union Farmers Market at Shaker Square.
“It’s not just about selling stuff. It’s also a social gathering,” Ms. Anderson said. “It’s almost akin to what church used to be.” The jewelry maker displays vintage and antique glass pieces at other craft shows such as Cleveland’s Bazaar Bizarre, which in December drew about 4,000 visitors, more than its counterparts in Boston and San Francisco, Ms. Anderson said. Downtown Cleveland’s rising apartment occupancy — which currently is 96.2% — reflects a resurgence of dwellers who crave an urban residential experience supplemented with local eateries, entertainment and shopping. Nonetheless, the shuttering in 2012 of local retailer Dredgers Union on downtown’s trendy East Fourth Street illustrates the challenges that some small businesses face in drawing a regular consumer base despite the rising interest in an urban lifestyle. To attract and retain small businesses and foster the “shop local” movement, Downtown Cleveland Alliance and Charter One are conducting a 5th Street Arcades retail development grant competition. The 5th Street Arcades are located in the former retail section of Colonial Marketplace between Euclid and Prospect avenues; developer Dick Pace is behind the project. The competition is a program of the Charter One Growing Communities initiative and will award entrepreneurs with grants ranging from $1,500 to $20,000 to facilitate the opening or expansion of a business in the historic arcades. According to Downtown Cleveland Alliance, the 5th Street Arcades is home to 30 retailers, with the addition of 10 new businesses in the last six months. “What we’re doing is derived from the Dredgers Union experience,” Mr. Deemer said. “That was a great product and consistent with what we are trying to achieve downtown. But it was a little too
MARC GOLUB
Lori Paximadis, left, and Kathy Patton are behind the efforts of Cleveland Handmade Markets. much of a burden to place the lone soft-goods retailer on a street full of destination dining establishments.”
Hungry for more Even the city’s largest institutions it seems are committing to bolster local purchasing. The Cleveland Clinic in 2008 began offering a weekly community farmers market each spring through fall that attracts more than 2,000 employees, patients and other shoppers to its main campus. Meanwhile, Green City Growers, an Evergreen Cooperatives workerowned entity, said Heinen’s, Cleveland Clinic, University Hospitals, Case Western Reserve University and others have expressed interest in sourcing produce from that urban-farm business. Artisan neighborhoods that hug
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the city, such as Tremont, Gordon Square and Ohio City, also are gardens for entrepreneurs. Candra Squire, who in 2011 opened Salty Not Sweet, said sales at her handmade boutique and letterpress studio are up 95% between January 2012 and the like period this year. “We made projections for this year, and we’re already blowing them away,” she said. Ms. Squire partnered with Parmatown Mall to sell her handmade pieces at a craft show in December, but saw minimal interest from mall shoppers who either were disinterested or unfamiliar with local products, she said. Social media has played a key role in fostering customer allegiances with local businesses, which are using tools such as Twitter, Facebook and Instagram to form relationships with customers. And its effect reaches beyond just local retail. Frequent tweeter and food enthusiast Joe Gramc took his interaction to the next level in 2010, when he formed the Cleveland Dinner Club to encourage local foodies with whom he engaged on Twitter to regularly congregate at various independently owned eateries. The Cleveland Dinner Club’s foray into the local food scene began with about 10 people who dined at Dante in Tremont. Now, the group attracts about 15 to 20 patrons who are passionate about expanding their culinary horizons and supporting locally owned restaurants, said Mr. Gramc, who is vice president of finance for Willoughbybased Five Star Trucking Inc. The club’s impact is exponential, as patrons post about their experiences through social media. “I wanted to do something to help support these businesses which in many ways are part of the foundation of a city in the process of redefining itself,” Mr. Gramc said. ■
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Discount offers can Profits: Web business can be ‘tricky’ bring in customers, but often at a price continued from PAGE 15
Companies attempt to win more business by appealing to the bargain-hunting set By JENNIFER KEIRN clbfreelancer@crain.com
In a low-margin retail sector like grocery, the idea of offering $10 off any sale of $20 or more can be a scary proposition. “It was a difficult thing for us to swallow,” says Gabe Nabors, part of the second-generation owners of Mustard Seed Market & Cafe, which last year distributed that offer through Groupon. “If they spend exactly the amount listed on the Groupon, we are losing money without a doubt.” Now the good news: The Groupon enabled Mr. Nabors to promote his business to thousands while only paying per purchase, and some never redeem the Groupons they purchase. Of the 6,000-plus Groupons sold for Mustard Seed, which has locations in Akron and Solon, about 3,400 have been redeemed, with the redemption period ending in early May. Post-redemption surveys show 13% of the Groupon users were first-time Mustard Seed customers, and users were more likely to choose higher-priced items. “People see it like funny money,” Mr. Nabors said. “They may not normally buy a filet mignon, for instance, but they use this as a treat for themselves.” Whether it’s deals of the day through Groupon or Living Social, loyalty programs or even old-fashioned paper coupons, there are more options than ever for consumers whose brains are hard-wired for bargain-seeking. “I can’t think of the type of person who doesn’t love a bargain, but the problem is they don’t know how to calculate what is a bargain,” said Brian Blake, a Cleveland State psychology professor who specializes in consumer behavior. “We have pricing information but we don’t use it,” he said. “We will go on rough hunches when the information is right there. … It isn’t logical.”
A hard sell Dr. Blake said many studies confirm that even today, with price comparison easier than ever, consumers still respond more to discounts on base prices than they do to lower daily prices. But the fathomless discounts on “deals of the day” like Groupon just aren’t sustainable for most retailers and have deflated the sites’ hype, said Jason Therrien of Cleveland marketing firm thunder::tech. He sees a disconnect in how retailers get the right deals to the right consumers. “Nationally, retailers are not doing a good job,” he said. “They are
collecting a lot of data, but the use of that data for the consumer’s sake is much slower than the collection.” Retailers must beware crossing a “creepy line,” he said, where a large amount of data is being tracked — usually through loyalty cards — without the consumer seeing a benefit. That’s a sentiment voiced by many die-hard couponers to Joe Daugirdas, aka “Joe the Coupon Guy.” He’s taught couponing classes for years and estimates that old-fashioned paper still is preferred by about 90% of people in his classes, which are held at locations across Northeast Ohio. “I’m old school, but I appreciate the new way of couponing — to a point,” Mr. Daugirdas said. “Eventually you hit a wall of asking for too much personal information … people are skeptical.” Mr. Daugirdas said that the “stigma of couponing” is gone — there’s even a TLC series called “Extreme Couponing” — and that interest is on the rise across age categories. Meanwhile, Mr. Therrien sees a continuum of preferences ranging from older consumers who will always prefer paper to youth who rely on social media for deals. “Retailers do not have it easy right now, having to appeal to all of those people,” he said. “Make sure you’ve signed up that consumer to receive deals the way they want to receive them … (they’re saying) ‘I let you into my life because you offered me a discount, but please don’t fill up my inbox.’ ”
Beyond dollars, cents For the last two winters, Ohio City bike shop Joy Machines has offered a discount on bike tuneups to attract off-season customers and encourage appointments before the spring rush, said co-owner Alex Nosse. He was disappointed in the 25 responses he got from last year’s Facebook promotion, so this winter he offered a Groupon for 50% off a bicycle tune-up. He’s since sold 150 of them. “The discount given is so great that it’s not the most thrilling option,” Mr. Nosse said. “But the exposure definitely can’t hurt. If we get 10 return customers, then I would say that’s a win for us.” Back at Mustard Seed Market, Mr. Nabors is still on the fence about offering his $10 Groupon again in the future. In the meantime, customers can sign up for deals like a weekly free item — a 6-ounce Liberté Méditérranée yogurt, for example — with any $5 purchase. Tying such deals to emails about Mustard Seed’s educational events has doubled their email open rates. “Yes, we want to give them a reason to try us and think they are getting a good deal,” Mr. Nabors said, “but we’re changing their lives through education. It can never be just about price.” ■
not a uniform impact across categories and across retailers. “It’s clear that shoppers will begin to move more of their spending online as they have been in the last decade, but spending on more things online as well,” she said.
Response time The inconsistencies present in online shopping behavior mean that national and local retailers are responding in different ways, from ramping up online efforts to keeping a more concentrated focus on storefront sales. For Nordstrom, e-commerce is the fastest growing segment of its business, said Colin Johnson, spokesman for the fashion retailer, which has a full-line store in Beachwood and is opening a Nordstrom Rack off-price location at Westlake’s Crocker Park later this year. “In fact, it’s also where we expect the majority of future growth will occur,” he said. “The fact of the matter is people want to shop in different ways. Our in-store business benefits from a strong online business. We really view them as complementary.” Nordstrom has made several internal infrastructure improvements to create a more seamless experience for customers shopping online or in the store, Mr. Johnson said. The retailer integrated its store and online inventories to make more merchandise available to customers shopping on the web. “We were saying yes to the
customer more often,” he said. “We also introduced apps for the iPhone, iPad and Android phones. Our hope there is to provide some intuitive shopping tools for the customer. A customer’s smart phone never leaves his or her body these days. We need to be where our customers are; that’s just being relevant to their lifestyle.” While it’s no surprise that more shoppers are buying products and doing their shopping online, that hasn’t slowed the aggressive growth mode of Hot Mama, a contemporary women’s boutique that is going to expand its footprint to 41 stores nationwide this year, opening 12 new locations, including one at Crocker Park this spring. “E-commerce for us is almost a supplemental channel, it is our way of serving our customer every single day, rather than requiring our customer to come visit us in the store,” said Mike Tamte, chairman and chief financial officer of Hot Mama. “We do not see any dropoff in brick-and-mortar revenues because we have the e-commerce website.” In addition, e-retail sales have not changed how the company is building its stores or its layout and design. If anything, Mr. Tamte said, there is more inventory on the sales floor because the company fills its web orders from its stores, not a warehouse. “Our philosophy is if we have merchandise in a warehouse, no brick-and-mortar customer can see it,” he said, adding that Hot
Mama did have a warehouse for one retail season and decided it was a waste of resources. “Being profitable online is very, very tricky. It took us four years to be profitable online. For the first two or three years we were wondering, ‘Why are we doing this?,’” he said. “It was only in the last two years when we saw a dramatic increase in sales online.”
‘Not within my lifetime’ Mrs. Kubinski of CLE Clothing said her company has a large and loyal following of out-of-state customers who will always choose to shop online because it’s not only easy and convenient — it’s the only option unless they come into town. Even so, the company wants to continue to expand and open new stores under the CLE umbrella. “People still like coming into a store and having the experience of being able to touch and feel the product,” she said. The long-term expectation for e-retail sales is continued, steady growth but nothing that would cripple long-standing, well-established brick-and-mortar brands, Ms. Whitfield said. “Not within my lifetime as a retail analyst, or even during the next generation of retail analysts, will we see the online sales in the aggregate surpass what’s happening in the in-store environment,” she said. “Even though we’re still seeing pretty strong growth from an e-commerce perspective, it’s still a relatively small base when you look at all retail sales.” ■
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Malls: Area retail vacancy declined more than 2% in two years continued from PAGE 15
Keith Hamulak, senior associate for Cleveland-based CBRE Group, said mall owners over the last couple of years have been spending money on aesthetics and making investments for longevity, even if it means partially tearing down a mall and repositioning it according to its community’s retail needs. “There’s a resurgence from retailers investing in mature markets, where population densities exist and the incomes are OK,” Mr. Hamulak said.
Making old new again Parmatown Mall, for example, is undergoing an approximately three-year redesign and redevelopment that calls for a partial teardown of the existing portion that includes Dick’s Sporting Goods and the former 288,000-square-foot Macy’s, which opened in 1960 as The May Co. The sporting goods giant may move into one of six outbuildings planned for the Parmatown site, according to the
Cuyahoga County Planning Commission. The mall, under former owner Parmatown One LLC, had a vacancy of more than 40% when it was placed in receivership. Cincinnati-based Phillips Edison & Co. bought the troubled property in October 2012. Of course, Parmatown is not the only older property getting a breath of fresh air: ■ The conversion of Garfield Mall into Garfield Commons continues as its new owner gives a face-lift to the 250,000-square-foot property, which is anchored by Marc’s, Big Lots and Save-A-Lot. Pittsburgh-based commercial brokerage firm Glimcher Group has spruced up the shopping center and repaired the parking lot to attract new tenants, including a Planet Fitness and an environmentally friendly McDonald’s. The company in 2012 acquired the 39-year-old mall for $5.7 million, according to CoStar Group, a provider of commercial real estate information.
■ In 2011, Mentor-based Great Lakes Mall, which opened in 1961, underwent a multimillion-dollar aesthetic renovation. The redesign of the 1.6 millionsquare-foot property included the modernization of the entrance and food court, work that helped attract new retailers and restaurants, including the women’s boutique store Francesca’s Collections and Chop It Salad Co. The mall also is adding a $3.37 million energy-efficient roof and HVAC project.
Space issues According to Rich Moore, a Solon-based analyst for RBC Capital Markets, retail demand for space is running at a four-year high. Northeast Ohio’s regional retail vacancy has been declining since its peak of 12.49% in 2010. As of August, area retail vacancy stood at 10.3%, and CBRE’s Mr. Hamulak said he expects that number to decline again when the brokerage produces new vacancy numbers in March.
Even so, the fate of some aging centers such as Midway Mall in Elyria remains uncertain as a glut of retail in neighboring Avon and Amherst steer traffic toward newer Lorain County shops. “Avon took over for Lorain” County, CBRE’s Mr. Hamulak said, noting that county’s retail vacancy rate is about five points higher than Northeast Ohio’s, at 15.4%. But Elyria Mayor Holly Brinda said she is optimistic about Midway Mall’s future. The city of Elyria and Ohio Department of Transportation’s planned $22.4 million improvement project to the East 49th Street bridge and state Route 57 entrance to Midway Mall should improve mall access and visibility and make the property more attractive to developers, Mayor Brinda said. Overall, newer large-scale shopping centers, like those competing against Midway Mall, also have benefitted from diminishing retail vacancy. Steelyard Commons is moving
forward this spring with its first significant expansion since the 700,000-square-foot shopping center opened in 2007. Phase I of the 200,000-squarefoot retail center expansion — which shopping center developer First Interstate Properties Ltd. of Lyndhurst said took longer than expected because of the sluggish economy — calls for construction of a Burlington Coat Factory. About 12,000 square feet of the center is currently unleased. “Most retailers there have been experiencing healthy growth year over year since it opened,” said First Interstate president Mitchell Schneider. “It’s a well-designed, suburban-style, value-oriented center in an urban location.” Mr. Schneider’s First Interstate also developed Legacy Village in Lyndhurst. He said that mixed-use shopping destination annually draws at least 7.5 million visitors and experienced its highest traffic volume in 2012. The 610,000square-foot lifestyle center was built in 2003. ■
MARC GOLUB
Legacy Village in Lyndhurst — shown during an art festival in 2009 — was built in 2003 and draws at least 7.5 million visitors per year.
Open-air formats might be a rarity in the future Although the mixed-use lifestyle format continues to attract shoppers to Lyndhurst’s Legacy Village and Westlake’s Crocker Park, which opened in 2004 and is the planned location of a new American Greetings headquarters, don’t expect to see similar formats anytime soon, those who work in the industry say. “The (mall development) trend is moving away from the open-air Main Street concept, or the lifestyle center, to the hybrid of indoor and outdoor concepts,” said Craig Wasserman, executive vice president of ka architecture, which in 2007 renovated Beachwood Place and incorporated elements of the hybrid format. The 37-year-old Westfield Great Northern, for one, has been making constant improvements to facilitate the hybrid model and foster customer experience since The Westfield Group in 2002 acquired the 1.2 million-squarefoot regional shopping center. The mall in recent years has
reinvented itself to cater toward families, with the addition of family parking, play spaces, lounges, a modern dining court and a diversified blend of exterior and interior merchants that make shopping more conducive to an experience, marketing director Annie Dorsey said. “People want it all in a mall,” she said. To that extent, Westfield Great Northern in December is opening a 10-screen Regal Cinemas, three new restaurants and debuting a new main mall entrance. The 55,000-square-foot project will occupy the former food court between JCPenney and Sears. An additional 6,000 square feet of space near Sears will be reconfigured to accommodate new retail, Ms. Dorsey said. “Malls are not the boring bunkers they once were,” she said. “Developers are trying to make malls and shopping centers more symbolic of the communities they are in.” — Kathy Ames Carr
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FEBRUARY 18 - 24, 2013
WWW.CRAINSCLEVELAND.COM
CRAIN’S CLEVELAND BUSINESS
GOING PLACES JOB CHANGES DISTRIBUTION AIR CHARTER SERVICE AIRCRAFT MANAGEMENT
SOMMER ELECTRIC CORP.: Joe DeSalvo to director of marketing and new business development.
FINANCE
DeSalvo
Knotek
Goettemoeller
Sears
Beesley
Vaidya
Hilling
Fanous
FEDERAL RESERVE BANK OF CLEVELAND: Edward S. Knotek II to vice president, economic forecasting. OHIO COMMERCE BANK: Natalie L. French to commercial portfolio underwriter.
FINANCIAL SERVICE BROWN GIBBONS LANG & CO.: Michael Goettemoeller to vice president; Casey Sears and Matthew Beesley to associates; Jay Vaidya to analyst.
GALLOVIC, GRANITO & CO. LTD.: Ann Erich and Sam Calic to partners; Xin Zhu to staff accountant; Dana Orosz to senior accountant/office administrator. GRANT THORNTON LLP: Nick Fanous to federal tax manager. HOBE & LUCAS CERTIFIED PUBLIC ACCOUNTANTS INC.: Lisa M. Matuszny to shareholder. IPLAN GROUP LLC: Kayla Stone to client relationship specialist; Mike Gales to vice president, business development. SS&G: Sarah Halemba, Madeline Newell and Michael Vuraich to associates. SS&G HEALTHCARE: Tammy Vires to billing specialist. SS&G WEALTH MANAGEMENT LLC: Laura Springer to manager.
HEALTH CARE PRIORITY HOME HEALTH CARE INC.: Christina Kirkendall to customer service representative; Terri Hall-Rezabek to marketing coordinator; Ibeliz Tosado to insurance coordinator.
INSURANCE HOFFMAN GROUP: Kim Streicher and Teri Massaro to commercial lines account managers; James Paluf to account executive; Stacy Whitam to personal lines account manager.
LEGAL BAKERHOSTETLER: Gilbert P. Brosky, David A. Carney, Ruth E. Hartman and Kathleen S. O’Connor to partners. MARSHALL DENNEHEY WARNER COLEMAN & GOGGIN: Leslie M. Jenny to shareholder.
Serving Northeast Ohio with four Beechjets and a Hawker
www.FlySkyQuest.com • 216-362-9904
BRUNER COX LLP: Lisa M. Hilling to assurance services partner. BSB PARTNERS, CPAS & BUSINESS ADVISORS: Adam Deal to member, accounting and auditing staff.
Cleveland’s Premier Air Charter Service
Matuszny
Jenny
converting manager.
Albers
Burkhart
John Gallovic, partner, after 20 years.
MARKETING AMG MARKETING RESOURCES INC.: Bill Merchant to consultant. WHITESPACE CREATIVE: Andrea Lewalk to interactive project manager; Annie Murray to copywriter. YOPKO PENHALLURICK LLC: Stephanie Groff to public relations assistant.
Groff
NONPROFIT GREATER CLEVELAND COMMUNITY SHARES: Amy E. Weahry to campaign director.
SPORTS CLEVELAND BROWNS: Sashi Brown to executive vice president, general counsel; Brent Stehlik to executive vice president, chief revenue officer.
STAFFING NOSAL PARTNERS LLC: Caryn Avante to partner. PATINA SOLUTIONS: Lloyd Buckwell to practice director, Ohio market.
Avante
TECHNOLOGY ENCOMPASS GROUP LLC: Gary Mitchell to virtual chief information officer/account strategist; Tom Suhadolnik to lead engineer.
MCDONALD HOPKINS: Katherine E. Wensink to of counsel.
SELECTCARE CONNECT: Kevin Tanner to database administrator; Maryam Palmer to partner, director of engineering.
OGLETREE, DEAKINS, NASH, SMOAK & STEWART P.C.: Ellen Toth to shareholder.
SOFTWARE ANSWERS: Craig Munyon and Steve Reeling to ProgressBook Suite product managers.
TAROLLI, SUNDHEIM, COVELL & TUMMINO LLP: Craig W. Hayden to partner.
BOARDS
VORYS, SATER, SEYMOUR AND PEASE: Matthew E. Albers to partner.
CLEVELAND BUILDING AND CONSTRUCTION TRADES COUNCIL: David J. Wondolowski to executive secretary.
MANUFACTURING
RETIREMENT
CARDPAK: Dave Burkhart to
GALLOVIC, GRANITO & CO. LTD.:
Send information for Going Places to dhillyer@crain.com.
19
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CRAIN’S CLEVELAND BUSINESS
WWW.CRAINSCLEVELAND.COM
FEBRUARY 18 - 24, 2013
OHIO PRIVATE EQUITY AND VENTURE CAPITAL FIRMS Capital under management Geographical (millions) preferences
# of 2012 investments
Minimum investment (thousands)
Preferred project investment (thousands)
Allos Ventures 312 Walnut St., Suite 1120, Cincinnati 45202 (513) 456-1001/www.allosventures.com
$2,000
$3,000-6,000
$45.0
Midwest - Chicago to Software, technologyNashville and St. enabled business services Louis to Pittsburgh
Athenian Venture Partners 340 W. State St., Suite 137c, Athens 45701 (614) 360-1155/www.athenianvp.com
$500-1,000
$5,000
$199.0
United States
$500
$1,000-4,000
NA
Blue Chip Venture Co. 312 Walnut St., Suite 1120, Cincinnati 45202 (513) 723-2300/www.bcvc.com
$1,000
$2,000-5,000
Blue Point Capital Partners 127 Public Square, Suite 5100, Cleveland 44114 (216) 535-4700/www.bluepointcapital.com
$10,000
Bridge Investment Fund LP 11000 Cedar Ave., Suite 100, Cleveland 44106 (216) 658-5470/www.bridgefundllc.com
Name Address Phone/Web site
N.E. Ohio
Industry preferences
Out of area Portfolio companies
Top executive Title
0
1
AssureRx, BidPal, Blue Pillar, Scale Computing
John McIlwraith, Don Aquilano, managing directors; Dov Rosenberg, director
Information technology, health care
NA
3
Manta Media, Comet Solutions, Akebia Pharmaceuticals
Karl O. Elderkin managing partner
Midwest
Low- and mid-tech manufacturing, distribution
NA
NA
Vanner Inc., Conneaut Leather, Omega Sea, C.E. White Co.
Darrell W. Austin managing partner
$218.0
National
Health care, information technology, media and marketing
0
8
Nine Sigma, ShareThis, Juventas, AssureRx
Jack Wyant managing director
$20,000
$815.0
United States
Manufacturing, business services, value-added distribution
0
1
Alco, AWP, Cook & Boardman
David P. Given John F. Kirby partners
$250
$250-1,000
NA
Israel
Medical devices
0
1
Early Sense Ltd., Navotek Medical Ltd., IceCure Medical Ltd.
Michael Goldberg managing partner
CapitalWorks LLC 3000 Auburn Drive, Suite 430, Beachwood 44122 (216) 781-3233/www.capitalworks.net
$3,000
$5,000-9,000
$90.0
East of the Rocky Mountains
Manufacturing, distribution
2
4
Bluffton Motor Works, Gallo Displays, KKSP Precision Machining
Richard R. Hollington III managing partner, CEO
Chrysalis Ventures 6701 Carnegie Ave., Cleveland 44103 (216) 453-1299/www.chrysalisventures.com
$2,000
$2,000-5,000
NA
NA
NA
CerviLenz, MedLab, iSqFt
David A. Jones, chairman; Koleman Karleski, managing partner; Wright Steenrod, partner
CID Capital 4240 Woodhall Road, Columbus 43220 (614) 429-4236/www.cidcap.com
$500
$2,000-10,000
$280.0
CoreNetwork 300 Madison Ave., Suite 1525, Toledo 43604 (419) 697-9696/www.core-network.org
$100
$250
Cyprium Investment Partners LLC 200 Public Square, Suite 2020, Cleveland 44114 (216) 453-4500/www.cyprium.com
$10,000
Desco Capital 7795 Walton Parkway, Suite 175, New Albany 43054 (614) 888-8855/www.descocapital.com
Austin Capital Partners LP 1422 Euclid Ave., Suite 500, Cleveland 44115 (216) 574-2284/www.austincapitalpartners.com
Midwest, Southeast, Health care services and South technology
United States
Life sciences, medical technology, manufacturing technology, software
NA
NA
Axiomed Spine Corp., Redpath Integrated Technologies
Peter G. Kleinhenz managing director
NA
Midwestern United States
None
1
2
TrafficCast, Pump Engineering, Zebra Mobile
Robert J. Savage managing partner
$15,000-60,000
NA
United States and Canada
Generalists
NA
NA
MGS Mfg. Group, Ice River Springs, Gourmet Boutique
John R. Sinnenberg chairman
$2,000
$5,000-15,000
NA
industrial products, Headquartered in the General industrial services United States oil and gas services
1
3
Blackeagle Energy Services, Crown Mats and Matting
Andrew F. Bohutinsky managing director
Draper Triangle Ventures 6701 Carnegie Ave., Suite 100, Cleveland 44103 (216) 363-5300/www.drapertriangle.com
$500
2,000
$125.0
Ohio, Pennsylvania
Information technology, medical devices, communications
3
4
TOA Technologies, CardioInsight Technologies, OnShift
Michael J. Stubler managing director
Early Stage Partners LP 1801 E. Ninth St., Cleveland 44114 (216) 781-4600/www.esplp.com
$500
$1,000
$98.5
Ohio, Michigan
Life sciences, polymers and advanced materials, 17 advanced manufacturing, IT
9
TOA Technologies, Simbionix, Juventas Therapeutics
James M. Petras managing director
Edgewater Capital Partners 28601 Chagrin Blvd., Suite 205, Cleveland 44122 (216) 292-3838/www.edgewatercapital.com
$1,000
$4,000
NA
United States
Specialty chemicals, pharmaceuticals, specialty materials
1
1
Gabriel Performance Products, Turbonetics, Particle Dynamics
Christopher Childres, managing partner; Ryan Meany, partner
Evolution Capital Partners LLC 3333 Richmond Road, Suite 480, Beachwood 44122 (216) 593-0402/www.evolutioncp.com
$1,500
$2,000-8,000
$100.0
United States
Generalist, emphasis in business services and financial services
0
2
Accurate Group, Turf Ventures, Lewellyn Technologies
Brendan D. Anderson Jeffrey D. Kadlic managing partners R. John Fletcher, CEO; Pearson M. Spaght, Linda Tufts, general ptnrs.; Peter Kleinhenz, venture ptnr.
Fletcher Spaght Ventures 180 E. Broad St., Suite 810, Columbus 43215 (614) 429-4236/www.fletcherspaght.com
United States
Health care, IT
3
12
Juventas, SironRX, CardioFocus, Proteus Digital Health
$500
$2,000-6,000
$130.0
Fort Washington Capital Partners Group 303 Broadway, Suite 1200, Cincinnati 45202 (513) 361-7600/www.fortwashington.com
$5,000
NA
$2,300.0
United States then Europe and ROW
Fund of funds diversified across several industries and strategies
NA
NA
TOA, Laboratory Partners, Fortis, ThinkVine
Steven Baker, Joseph Michael, managing directors; Joseph Woods, vice president
Gates Group Capital Partners 6120 Parkland Blvd., Suite 202, Mayfield Heights 44124 (440) 684-9900/www.gatesgroupcp.com
$1,000
$5,000-15,000
$330.0
North America
Parking, transportation and infrastructure
0
0
NA
E. M. de Windt Jr. senior managing director, CEO
$100
$500
NA
Northeast Ohio
Applied technologies, business services, consumer products
3
0
Monarch Teaching Technologies, Neuros Medical Inc., OnShift
Stephen R. Haynes managing director
Kirtland Capital Partners 3201 Enterprise Pkwy., Suite 200, Beachwood 44122 (216) 593-0100/www.kirtlandcapital.com
$5,000
$10,000-20,000
$200.0
United States and Canada
Manufacturing, business service and value-added distribution
0
2
Precision Dialogue, SmartSource, MicroGroup
Thomas N. Littman CEO
Linsalata Capital Partners 5900 Landerbrook Drive, Suite 280, Mayfield Heights 44124 (440) 684-1400/www.linsalatacapital.com
$15,000
$20,000-35,000
$800.0
North America
Aerospace and defense, food and beverage, health care, apparel
0
1
Manhattan Beachwear, Whitcraft, NeuroTherm, Stag-Parkway
Frank N. Linsalata, chairman; Eric V. Bacon, Stephen B. Perry, senior managing directors
Max-Ventures LLC(1) 4400 Renaissance Parkway, Suite 4, Cleveland 44128-5794 (216) 765-2505/www.max-ventures.com
$2,000
$5,000-10,000
NA
United States
Retail, consumer products, service providers to retailers
4
8
Max-Wellness
Michael Feuer CEO, senior managing director
MCM Capital Partners 25201 Chagrin Blvd., Suite 360, Beachwood 44122 (216) 514-1840/www.mcmcapital.com
$3,000
5,000
$100.0
North America
Niche manufactuers of engineered components
NA
NA
Dexmet Corp., RMB Products, StyleCraft Home Collections
Mark E. Mansour senior managing partner
Morgenthaler 50 Public Square, Suite 2700, Cleveland 44113 (216) 416-7500/www.morgenthaler.com
$500
5,000-15,000
$2,800.0
North America
Life sciences, information technology, high-value manufacturing
0
4
NA
Peter G. Taft partner
Mutual Capital Partners Funds 5805 Bridge Ave., Cleveland 44102 (216) 928-1908/www.mutualcapitalpartners.com
$1,000
$3,000-10,000
$40.0
Midwest
None
1
0
Cleveland HeartLab, OrthoHelix Surgical Designs, Hemosphere
Bill Trainor Wayne Wallace general partners
$250
$500-1,000
$14.0
Ohio
Technology companies in life sciences, IT, instruments, controls
5
5
Juventas Therapeutics Inc., AssureRx Health Inc., OnShift Inc.
Claiborne R. Rankin managing member
Peppertree Capital Management Inc. 86 West St., Chagrin Falls 44022 (440) 528-0333/www.peppertreecapital.com
$2,000
$10,000
$150.0
None
Telecommunications infrastructure
1
4
Lightower Fiber Networks, Horvath Towers
F. Howard Mandel president
PNC Erieview Capital 1900 E. Ninth St., 17th floor, Cleveland 44114 (216) 222-2491/www.pncerieview.com
$5,000
$5,000-35,000
$1,000.0
United States
None
1
9
NA
Edward S. Pentecost managing director, president
Glengary LLC 25200 Chagrin Blvd., Suite 300, Beachwood 44122 (216) 378-9200/www.glengaryllc.com
North Coast Angel Fund 5875 Landerbrook Drive, Suite 300, Mayfield Heights 44124 (800) 975-5846/www.northcoastangelfund.com
See LIST Page 22
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WWW.CRAINSCLEVELAND.COM
21
Banks: Foreclosed property portfolios down 16% industrywide continued from PAGE 1
which reduced its portfolio by 27% in 2012 and by 42% in 2011, and tiny Middlefield Banc Corp., which trimmed its foreclosed assets by 16% last year. Similar improvement during 2012 was reported by LNB Bancorp Inc. and Cincinnati-based Fifth Third Bancorp, according to data from SNL Financial. “Overall, the (real estate) market has stabilized,” said Dale Clayton, senior vice president and national manager of the asset recovery group for KeyBank. “We still have consumer mortgages (in foreclosure) … that will continue to be higher than average until employment rates improve, (but) our bank is pretty much through the real estate crisis.” One exception is PNC Financial Services Group Inc., which acquired Cleveland-based National City Corp. in 2008: Its line item for “other real estate owned” — or OREO, the term for foreclosures in bank filings — has increased every year since 2007 and stood at $920 million at Dec. 31, 2012, up 5% from $876 million as of Dec. 31, 2011, and up 10% from $835 million as of Dec. 31, 2010, SNL reported. Industrywide, aggregate OREO stood at $38.5 billion as of Dec. 31, 2012, down 16% from $46 billion the year before and down 27% from $52.6 billion as of Dec. 31, 2010, according to SNL.
Investors pounce The industrywide decline in OREO portfolios largely is the result of the improving housing market, which observers say is firming up housing prices and increasing sales. “This has been mostly a real estate-led recovery as opposed to a jobs-based recovery,” said Tim O’Dell, CEO of Central Federal Corp., the Fairlawn parent company of CFBank. Although the company hasn’t reported its year-end numbers for 2012, Central Federal’s foreclosed assets fell 47% to $2.4 million on Dec. 31, 2011, from $4.5 million as of Dec. 31, 2010. When banks foreclose on properties, they write them down to appraised levels, said Mr. Crowley, a Cleveland managing director for Philadelphia-based Boenning & Scattergood Inc. In recent years, there were not always buyers of the properties even at those levels, and banks “were reluctant in many cases to recognize steeper losses than they had already taken,” which would have happened had they sold properties below their appraised values, Mr. Crowley said. And if the banks’ capital levels were stretched, they were even less inclined to take bigger hits by selling properties, he noted. “Now that the real estate market has recovered somewhat, it is much easier for these banks to sell OREO properties without significant additional losses,” Mr. Crowley said. “Also, as the banks have boosted their capital levels over the last cou-
OREO BALANCE TRENDS A look at the value of the foreclosed assets of various regional banks as of Dec. 31 ($000):
Bank
2012
2011
2010
2009
2008
2007
Huntington Bancshares Inc., Columbus
28,097
38,424
66,804
140,144
122,498
75,271
KeyCorp, Cleveland
22,000
65,000
129,000
168,000
107,000
19,000
LNB Bancorp Inc., Lorain
1,366
1,687
3,119
1,264
1,108
2,478
Middlefield Banc Corp., Middlefield
1,846
2,196
2,302
2,164
1,106
0
NA
2,013
2,351
3,176
5,216
2,416
38.51
46.05
52.61
41.23
26.68
12.13
Ohio Legacy Corp, North Canton Industry aggregate (in billions) SOURCE: SNL FINANCIAL
ple of years, they are able to tolerate additional losses in some cases just to get rid of problems.” Mr. O’Dell agreed that buyers had been scarce. “There were times that, even if you were willing to sell a property at a significant discount, there just weren’t many buyers out there,” he said. “We have seen the return of interested buyers in these properties. It gives us confidence to go out and make new loans.” KeyBank’s Mr. Clayton said there is “significant capital in the market that continues to chase distressed real estate assets.” When investors are buying up more distressed loans and commercial notes, fewer of those distressed assets end up in foreclosure, Mr. Clayton said.
possible,” he said. The decline in foreclosed properties on bank books is a very positive development, said Kevin T. Jacques, who for 14 years worked for the U.S. Department of the Treasury and now is the Boynton D. Murch Chair in Finance at Baldwin Wallace University. “It should mean the worst of that should be over, and we can begin to start to see fewer vacant properties and a stabilization of our neighborhoods,” Dr. Jacques said.
“Is this sustainable? Depends on two things,” Dr. Jacques added. “One, how large is banks’ remaining inventory of OREO, and two, what happens to the national and regional economy in 2013?”
Off the books Contrary to many banks’ balance sheet numbers, Safeguard Properties, a Valley View company that maintains defaulted and foreclosed properties for mortgage servicers, is not experiencing a decline in the
■ The Morning Roundup: The day’s business news from Ohio’s daily papers
– Tim O’Dell, CEO, Central Federal Corp. total number of foreclosed properties and expects volumes to remain consistent for the next couple years, CEO Alan Jaffa said. A decrease in the number of foreclosed properties on a bank’s balance sheet does not necessarily mean the property is no longer an unsold foreclosure, he wrote in an email. That’s because some properties — particularly those with government-sponsored investors and those with government-backed loans — are conveyed to those investors after a foreclosure is completed. “The property may no longer be on the bank’s books, but may be an (OREO) in a different entity’s portfolio,” Mr. Jaffa said. He also noted that Safeguard Properties is not seeing a decrease in default rates and in the number of properties in default 120 days or older, which Mr. Jaffa said often are “predictors of future foreclosure filings.” ■
‘Lenders, not developers’ Fewer foreclosed assets on their books saves banks money, as foreclosed properties are expensive to own, Mr. Clayton said. The average lifetime cost to hold and sell such assets, Mr. Clayton estimated, is 10% to 12% of their value. A bank’s costs include the hiring of property managers and the engagement of brokers to sell properties; all the while, the foreclosed assets aren’t earning the interest they were supposed to glean. A number of institutions noted in their earnings releases last month that their noninterest income increased, in part, because their costs associated with “other real estate owned” had decreased. “We’re not really good owners of real estate,” Mr. Clayton said. “We’re lenders, not developers.” KeyCorp’s other real estate owned portfolio now is at a normalized level, Mr. Clayton said, and that returns capital to the bank for other uses, such as lending. It also means a cut to the related work force: KeyCorp’s full-timeequivalent workout employees — or those who modify and manage nonperforming assets — are down two-thirds from the staff’s height in 2009 and 2010, Mr. Clayton said. Some of those employees are commercial lenders who now have returned to making loans. “The struggle now is how do you reduce staff as quickly as you reduce assets and be as efficient as
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FEBRUARY 18 - 24, 2013
OHIO PRIVATE EQUITY AND VENTURE CAPITAL FIRMS # of 2012 investments
Minimum investment (thousands)
Preferred project investment (thousands)
$15,000
$15,000-40,000
$905.9
United States and Canada
Business services, health care, education
1
2
Cardinal Commerce Corp., Vendormate Inc., Passport Health Communications
Loyal W. Wilson managing director
Redline Investments LLC 2000 Auburn Drive, Suite 200, Beachwood 44122 (216) 378-7617/www.redlinecapital.com
$500
$2,500
$15.0
Midwest
Capital equipment and consummables, niche manufacturing
2
1
Simplimatic Engineering Holdings, Ironhawk Industrial Distribution
Robert Lasser chairman
Reservoir Venture Partners 735 Ceramic Place, Suite 120, Westerville 43081 (614) 846-7241/www.reservoirvp.com
$500
$1,000
$60.0
Ohio and Midwest
Health care, information technology, alternative energy
0
3
CardiOx, ShareThis, Manta, Juventas, NanoStatics
Curtis D. Crocker managing partner
Resilience Capital Partners 25101 Chagrin Blvd., Suite 350, Cleveland 44122 (216) 292-0200/www.resiliencecapital.com
$5,000
$15,000
$320.0
Eastern half of the United States and Canada
Turnarounds, special situations, corporate divestitures
3
11
North Coast Minerals, WT Hardwoods Group, Flight Options, Penda
Bassem Mansour, Steven Rosen, co-CEOs; Michael Lundin, partner
River Cities Capital Funds 221 E. Fourth St., Suite 2400, Cincinnati 45202 (513) 621-9700/www.rccf.com
$3,000
$3,000-10,000
$500.0
Midwest, Southeast, Software as a service, techMid Atlantic, enabled business services, 0 Southwest software
4
OrthoHelix Surgical Designs Inc., Simbionix USA Corp., NineSigma
Daniel T. Fleming, pres., managing dir.; Edward C. McCarthy, J. Carter McNabb, managing dirs.
The Riverside Co. 50 Public Square, 29th floor, Cleveland 44113 (216) 344-1040/www.riversidecompany.com
$1,000
$1,000-200,000
NA
North America, Europe and AsiaPacific
Generalists, specializations in health care, education
2
34
Retail Zoo, Sunless, Reima
Stewart A. Kohl Bela Szigethy co-CEOs
RiverVest Venture Partners(2) 11000 Cedar Ave., Suite 100, Cleveland 44106 (216) 658-3982/www.rivervest.com
$500
$500-6,000
$168.0
Nationwide
Medical devices, biotechnology, specialty pharmaceuticals
1
5
Tryton Medical, IDEV Technologies, Inc., Otonomy, Inc.
Karen Spilizewski vice president
RockWood Equity Partners LLC 3201 Enterprise Pkwy., Suite 370, Beachwood 44122 (216) 342-1790/www.rockwoodequity.com
$2,000
$4,000-10,000
$100.0
North America and Canada
Niche manufacturing, valueadded distribution, business 1 services
1
AFC Industries, AMACS, Brett R. Keith, managing Astrex Electronics, Minco director Technology Labs Joe Merrill, partner
Signet Enterprises LLC 19 N. High St., Akron 44308 (330) 762-9102/www.signet-enterprises.com
$1,000
$5,000-20,000
$100.0
Midwest, Southeast
Manufacturing, distribution, business services
2
0
Sprayroq, Finish Line Binderies, U-Dump Trailers, Advoca Capital
Anthony S. Manna chairman
Sunbridge Partners 3659 Green Road, Suite 118, Beachwood 44122 (216) 360-0151/www.sbpvc.com
$1,000
$2,500
NA
United States
Technology
1
2
Blue Spark, Bloom Energy, Concur-Japan, Zipit Wireless
John Gannon general partner
Midwest, all stages; United States, later stage
Life sciences, medical devices
1
5
Akebia, Aerpio, Tolera, Juventas
John M. Rice, Suzette Dutch, Dennis Costello, Carrie Bates, managing partners; George Emont, venture partner
NA
NA
COMS Interactive, Cleveland HeartLab, YouBeauty.com
Lee Zapis, CEO Rich Bongorno, CFO
Name Address Phone/Web site Primus Capital Funds 5900 Landerbrook Drive, Suite 200, Cleveland 44124 (440) 684-7300/www.primuscapital.com
Capital under management Geographical (millions) preferences
Triathlon Medical Ventures 300 E-Business Way, Suite 200, Cincinnati 45241 (513) 723-2600/www.tmvp.com
$250
$3,000- 5,000
$105.0
Zapis Capital Group LLC 26202 Detroit Road, Suite 300, Westlake 44145 (440) 871-1300/www.zapiscapital.com
$50
$100-500
NA
N.E. Ohio
Industry preferences
Internet, real estate, Northeast Ohio, East Media, elder care, health care, coast marketing
Out of area Portfolio companies
Source: Information is supplied by the companies unless footnoted. Crain's Cleveland Business does not independently verify the information and there is no guarantee these listings are complete or accurate. We welcome all responses to our lists and will include omitted information or clarifications in coming issues. Individual lists and The Book of Lists are available to purchase at www.crainscleveland.com. (1) 2012 investments were add-on investment in existing positions. (2) Capital under management is an estimate.
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NEOMED: Project is a ‘success’ Resource: Out-of-state firms move in continued from PAGE 1
its risk profile relative to its balance sheet resources and revenues and prior debt commitments.” NEOMED contends Moody’s concerns are misguided and that the Moody’s analyst didn’t take into account an infusion of new revenue that will result from the construction projects or its burgeoning medical education partnership with Cleveland State University. NEOMED maintains its total operating revenue will climb by more than 20%, or about $9 million per year, by 2017 as medical student enrollment grows to 650 from 500. “We just felt that we were being painted negative with a brush that didn’t apply to us,” said John Wray, the university’s vice president of administration and finance.
A wary Moody’s NEOMED first spooked Moody’s in September when its trustees signed off on a plan to issue $88 million in debt to finance the health and wellness center — a project that, in an October report, Moody’s said would “severely leverage the university against its small operating base.” Moody’s was worried about NEOMED’s ability to secure subleases for a three-story medical office building slated to be part of the wellness center project. To temper Moody’s concerns, NEOMED borrowed $4 million less than it had planned and nixed, for the time being at least, the medical office building, which eliminated about 40% of the space the university would need to lease to outside organizations. Still, NEOMED’s move wasn’t enough to sway Moody’s. The credit rating agency said in its latest report that the university’s revenue and cash flow projections relied on philanthropic, state and tuition dollars — dollars that, according to Moody’s, are “sensitive to economic factors.” In an interview last Tuesday, Feb. 12, NEOMED’s Mr. Wray expressed disappointment in Moody’s recent report and said medical school officials “thought we had done an awful lot to address the Moody’s issues” since the first downgrade in October. Since the October report was issued, NEOMED has landed a large tenant for the sprawling health and wellness center — Integrated Wellness Partners, a joint venture between Akron General Health System and Signet Enterprises, an Akron-based developer that also is shepherding NEOMED’s housing project. The group will lease 24,550 square feet and open a medical fitness center, which will be geared toward students, faculty, staff and the community at large.
In addition, Akron General plans to sublease independently about 4,000 square feet in the wellness center for therapy services. A lease is expected to be finalized in March. Mr. Wray said when combined with the fitness center, about 60% of the 46,050 square feet available for lease in the 177,338square-foots structure would be occupied. Another 31,600 square feet in the building is reserved for the Bio-Med Science Academy, a STEM (science, technology, engineering and math) high school sponsored by the Rootstown Local School District. “We’ve been in discussions with other hospital partners,” Mr. Wray said. “We believe there will be no problem to find a tenant for all this space. It’s just about trying to make sure the combination of the space works.”
continued from PAGE 3
Fuel to the fire
Organizations from outside the state have opened offices here. And at least one local staffing firm has made a big push to become a player in the business. The PEO division that Cleveland-based Minute Men Human Resources formed three years ago has exploded: Today, that division coemploys about 50,000 people in Ohio, most of whom work for companies between Cleveland and Columbus, said Minute Men president Jay Lucarelli. The “Minute Men Select” division now accounts for most of the company’s revenue. The rest comes from its traditional staffing business, which recruits people, hires them and sends them to work at other companies on a contract basis. By contrast, PEOs take on a company’s existing, permanent employees.
Getting companies interested in handing off their employees to a PEO has been easier lately for a few reasons, according to those interviewed for this story: ■ Businesses don’t want to deal with the complexities of health care reform and other regulations. “We’re seeing a really big push right now because of the increase in government regulations,” said Mike Kahoe, president of Group Management Services Inc., a PEO in Richfield with 14,000 employees under management. ■ Many companies using PEOs are looking for a way to save money on workers’ compensation insurance. Some PEOs are allowed to provide payments to injured workers themselves instead of relying on the Ohio Bureau of Workers’ Compensation. ■ Rising health insurance premiums also have helped drive the popularity of PEOs, because they can pool their clients and shop around for better rates. Milano Monuments of Brook Park started doing business with Minute Men’s PEO division in 2011 and since then has seen its workers’ compensation rates fall, said Jim Milano, president of the company, which designs and makes gravesite monuments. Using a PEO also allowed Milano Monuments to stop worrying about managing the amount of taxes that come out of employee paychecks and other human resource functions, Mr. Milano said. “They certainly saved us a lot of money,” he said. “They made things seamless.” The PEO business isn’t done growing: Mr. Lucarreli of Minute Men said the practice of coemployment “will become much more popular” in Ohio than it is now, because the business has matured and started to make a name for itself. “It’s a much more acceptable business practice now,” he said.
Risk in doing nothing
On the grow
Mr. Wray said NEOMED’s plan to get back into Moody’s good graces includes completing all its construction projects on schedule and on budget, continuing to build its already-strong financial reserves, and securing leases in the wellness center and the housing complex, which is scheduled to open next fall. In order for the housing complex to be self-sufficient, 75% of the space must be leased by next fall — a target Mr. Wray said NEOMED is poised to meet. “We feel we’re fine on that,” he said. “We may not fill up every bed because students have never seen it. We’re building it now and showing them computer images.” NEOMED hasn’t shut the door on the medical officer building it axed to appease Moody’s and could punt the project to a private developer. Signet, which already has its fingerprints all over the NEOMED expansion, has expressed interested in the project, though a deal hasn’t been sealed. “If this is a resounding success, which we are pretty much expecting will happen, there are demands for physicians to take up residence out there,” said Mark Corr, a principal and chief operating officer at Signet. “We’ve got alternate forms of financing that will not compromise the integrity of NEOMED’s balance sheet and financials.” When asked whether Moody’s repeated chidings of NEOMED were of concern to Signet, Mr. Corr brushed off the question and said the entire undertaking was a “transformational project.” “They’re making investments right now, not in the status quo, but in the next 40 years,” Mr. Corr said. “They’re now taking this to the next level, and the rating agencies clearly recognize there’s some risk involved in that, but the risk of doing nothing is far greater.” ■
Minute Men’s PEO division has grown so much that the company has hired more than 100 of its own employees to manage it. And to help house its growing employee base, the company this summer plans to start construction on a new building next to its headquarters at 3740 Carnegie Ave., which is near East 36th Street, Mr. Lucarelli said. The new building will have roughly 60,000 to 80,000 square feet of floor space, making it bigger than Minute Men’s 40,000-square-foot headquarters, which the company will continue using, he said. The growing popularity of coemployment in general has helped fuel the growth of Minute Men’s PEO division, Mr. Lucarelli said. “It’s to the point where people are calling us now,” he said. Insperity, the nation’s largest PEO, opened an office in Westerville, Ohio, three years ago. Now the Houston-based company does “a substantial amount” of business in the Cleveland area, said district manager J.R. McCullough. When the Westerville office opened, one of Insperity’s biggest challenges was educating prospective customers throughout Ohio, many of whom had no idea what a PEO was, Mr. McCullough said. Today, more of them are familiar with the concept, and overall there’s “a lot more activity” in the PEO business, he said. Automatic Data Processing six years ago started providing coemployment services in Ohio; revenue from those services hit $3.2 million last year, up from about $1 million three years ago, said Adrian Spires, who oversees the Ohio and Kentucky markets as vice president of sales for ADP Total Source, the Roseland, N.J., company’s PEO business. The growth of PEOs is just beginning, he said. “The PEO concept is in its infant stages in Ohio,” Mr. Spires said. “Our penetration is very minute compared to what it will be.” A change in senior leadership within ADP Total Source, the country’s second-largest PEO, helped drive its growth, but broader industry trends were an even bigger factor, Mr. Spires said.
Not so fast Still, Steve Oddo worries that the growth will be short-lived. The owner of Diversified Employee Solutions, a PEO in Medina, said he thinks the business will be hurt by Senate Bill 139, which the state passed in December. Among other things, the bill will increase financial oversight of PEOs. Mr. Oddo, who fought the bill for three years, provided a summary from labor law firm Fisher & Phillips LLP, which said the law will result in “additional administrative burdens and costs to Ohio PEOs.” However, the National Association of Professional Employer Organizations backed the bill, as did the Ohio Chamber of Commerce. Mr. Lucarelli supports it, too, saying higher standards will help prevent fly-by-night PEOs from hurting the reputation of the broader coemployment business. “It certifies the fact that this is a legit industry,” Mr. Lucarelli said. ■
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THEINSIDER
THEWEEK FEBRUARY 11 -17 The big story:
Cardinal Health of Dublin, Ohio, plans to buy Twinsburg-based AssuraMed, a provider of medical supplies to patients in the home, for $2.07 billion. The transaction is expected to close by early April, according to Cardinal Health, which distributes pharmaceuticals and medical products. AssuraMed in 2012 had sales of about $1 billion, which includes the sales of the recently acquired Invacare Supply Group. AssuraMed operates Independence Medical and Edgepark Medical Supplies. The company, formerly known as Edgepark Medical, was sold in 2010 for nearly $900 million to two private equity firms.
Cliff diving: Cliffs Natural Resources Inc. reported a loss of $1.62 billion for the fourth quarter, and its board slashed the company’s quarterly dividend by 76%, to 15 cents a share from 62.5 cents. The Cleveland-based producer of iron ore and metallurgical coal also announced plans to sell in two offerings 9 million shares of its common stock and 20 million depositary shares, which each would represent a 1/40th interest in a share of new mandatory convertible preferred stock, Class A. The combination of news drove Cliffs’ stock down 20% in trading last Wednesday. In sync: The Cleveland Clinic soon will be able to share electronic medical records with University Hospitals Health System and other Ohio hospitals. The Clinic has agreed to share electronic records through the state of Ohio’s CliniSync electronic medical record exchange system, said Dan Paoletti, CEO of the Ohio Health Information Partnership, which runs CliniSync. UH announced a similar agreement Feb. 6. The MetroHealth System has yet to sign on but is discussing the idea with the partnership.
REPORTERS’ NOTEBOOK BEHIND THE NEWS WITH CRAIN’S WRITERS
Hey, divas — it’s time to shut up and deal ■ A New York City-based program is coming to Cleveland to teach women to know when to hold ‘em and fold ‘em during poker — and in business. Hosted by ACG Cleveland and Women in Transactions, Poker Prima Divas will present Cleveland Poker Night Feb. 28 at Osteria di Valerio & Al, 408 W. St. Clair Ave. in Cleveland. The event is marketed as “a night of reading the competition, developing your strategic skills and enhancing your ability to negotiate.” “Poker’s a boys club, like corporate America’s a boys club,” said Ellen Leikind, founder of Poker Prima Divas. “We wanted to make sure women are included. Our objective is to let woman have an opportunity to participate, to learn what other people (who are) playing — mostly men — learn. “We’re not trying to create a bunch of vultures, but we are trying to let women recognize that it’s OK to be the bettor, not the caller all the time,” Ms. Leikind added. “It (poker) makes you more assertive. You learn that it’s a game of personalities, not just cards.” Since its founding in 2004, the organization has hosted more than 100 events, including a co-ed program it’s delivered to incoming associates at BakerHostetler for the last five years, Ms. Leikind said. ACG Cleveland contacted Poker Prima Divas after another chapter of the association for M&A and corporate growth profes-
WHAT’S NEW
Back in town: The new Cleveland convention center will get its first consumer show in March 2014. The Cleveland Home + Remodeling Expo will take over the still under-construction convention center on March 14-16, 2014. Show promoter Marketplace Events of Solon said the three-day event will showcase trends in home remodeling and design. This marks the return to downtown Cleveland of the kind of consumer home show that moved to the I-X Center more than a decade ago. A bit of history: The Nordson Corporation Foundation will make the largest single donation in its history with a $1.5 million grant to Second Harvest Food Bank of North Central Ohio. The gift will be paid in installments over the next five years and used as the lead donation for Second Harvest’s capital campaign for construction of a new center to better serve those in the region struggling with hunger.
This and that: Gary Ginstling, general manager of the Cleveland Orchestra since 2008, was named CEO of the Indianapolis Symphony Orchestra, effective March 18. … Jim Foster, executive director of The City Club of Cleveland since 1993, is retiring from the organization. Ratliff & Taylor is directing the search for Mr. Foster’s replacement.
Scott Roulston isn’t M.I.A.; he’s at MAI ■ If MAI Wealth Advisors LLC were to keep growing at its existing clip, the firm’s leader needed some help. So said managing partner Rick Buoncore of his hiring last month of Scott D. Roulston, a former competitor and tenured wealth manager, to handle business development for the Cleveland-based wealth and investment management firm. Between 2007 and this January — “in a less-than-favorable environment” — MAI tripled its assets under management to $3 billion, according to Mr. Buoncore, who said he has handled business development himself since he bought the firm in 2007. “As we get bigger … I’m not going to be able to do this by myself,” Mr. Buoncore said. Mr. Roulston, who last summer launched a fund for Burdette Asset Management of Kirtland Hills that invests in life insurance policies, said he will continue to consult clients on that niche investment strategy, and he remains invested in the fund himself. “My goal … was to take the concept of
(Burdette) and make it a reality, and we did that,” he said. But joining MAI, he said, allows him to put his experience to work for more than one strategy. “It takes advantage of much more of my bandwidth, so to speak,” said Mr. Roulston, now a managing director for MAI. Mr. Roulston, who worked for Burdette since July 2011, previously was CEO of Roulston & Co. and its successor firm, Fairport Asset Management. — Michelle Park
UH serves as model for doing development right ■ A group of national researchers have zeroed in on University Hospitals’ $1.2 billion Vision 2010 construction initiative, which resulted in a slew of new medical buildings, as a model example of how an anchor institution in an urban city can drive economic development. According to the report from researchers at the Massachusetts Institute of Technology and the University of Maryland at College Park, University Hospitals’ targeted approach of hiring local workers, contracting with minority and women-owned businesses and using locally produced materials for the project “set a new standard in the city of Cleveland” for large construction initiatives. “Vision 2010 is the story of what can occur locally when a place-based anchor institution — in this case, a very large, nonprofit hospital system — commits itself to conducting its business in a way that benefits its surrounding community and region,” the report said. — Timothy Magaw
BEST OF THE BLOGS Excerpts from recent blog entries on CrainsCleveland.com.
A Flying leap …:
Cleveland Browns owner Jimmy Haslam returned to his role as CEO of Pilot Flying J, a surprising move the Browns say won’t affect the day-to-day operations of the team. Flying J, a Knoxville, Tenn.-based chain of truck stops and travel centers, hired former PepsiCo president John Compton as CEO last Sept. 11, when Mr. Haslam stepped down to become chairman and focus more of his efforts on the Browns. Five months later, Mr. Haslam is back as CEO, and Mr. Compton will be the strategic adviser to Pilot J, the Browns and the Haslam family.
sionals spoke “glowingly” about the program, said Wendy S. Neal, a local ACG board member and vice president of marketing for Cleveland-based investment bank, Brown Gibbons Lang & Co. Program space is limited to 40 people, and RSVPs are requested by this Friday, Feb. 22. To register or for more information, email admin@acgcleveland.org. — Michelle Park
He’s on the money
COMPANY: Global Lighting Technologies, Brecksville PRODUCT: LED-based ring light Global Lighting, which makes edge-lit, LEDbased light guides for general illumination, has introduced a ring light that it says can be integrated into a variety of products, including desk lamps, vanity mirrors and automotive cup holders and clocks. “The applications are limited only by the imagination of the designer,” says Brett Shriver, the company’s vice president of sales and marketing. The optical portion of the ring light features a two-piece design. An optical light guide incorporating two LEDs aligned on the input edge of the product “evenly distributes the light rays around the ring,” according to the company. An injection molded diffuser plate containing a custom array of optical features is used to create uniform visual light distribution, Global Lighting says. The company says it works with customers to integrate the ring light into their custom product, providing full engineering and prototyping services. For more information, visit www.glthome.com.
Send information about new products to managing editor Scott Suttell at ssuttell@crain.com.
■ When Arun Raha talks — at least about the economy — everyone should listen. Mr. Raha, director of economic analysis at Eaton Corp., was the top U.S. economic forecaster of 2012, according to The Wall Street Journal’s annual rankings. The rankings are based on predictions made last January about how inflation, unemployment, interest rates and economic output would fare over the course of the year, the newspaper notes. Mr. Raha, who was at the Economic and Revenue Forecast Council when he made his predictions last year, “had a near perfect score in the Journal’s methodology developed by economists at the Federal Reserve Bank of Atlanta,” The Journal reported. He took the top spot “due in large part to his pretty much spot-on inflation predictions,” according to the newspaper. “His forecast for 8% unemployment for the fourth quarter was a little higher than the actual of 7.8%, and his 2.1% prediction for year-over-year gross domestic product growth was a little too strong.” The Journal noted that Mr. Raha is making forecasts alongside Eaton colleague Jim Meil. They “expect tepid 1.9% GDP growth this year, and just a slight drop in the unemployment rate to 7.7% by the end of 2013,” according to the newspaper. The consensus of 52 economists surveyed by The Journal is more optimistic, with an average projection of 2.4% growth.
You must read this ■ Cleveland landed at No. 14 on Central Connecticut State University’s annual list of America’s 50 most-literate cities. The study, conducted by university presi-
dent John Miller, is based on data that includes the number of bookstores, library resources, newspaper circulation, Internet resources and educational levels. USA Today noted that for the digital age, the survey expands the definition of reading by counting online book orders, e-book readers and page views on local newspaper websites. Cleveland’s standout quality is library resources, which includes holdings, circulation and staff. It ranks first in that category. “Cleveland may be a Rust Belt city, but it continues to invest in its libraries,” Mr. Miller told USA Today. Among other Ohio cities, Cincinnati is No. 12, Columbus is No. 32 and Toledo is No. 44. The No. 1 city is Washington, D.C.
Dollars go far here ■ Cleveland and Atlanta are the most-affordable big U.S. cities, according to the new Worldwide Cost of Living survey, done every other year by the Economist Intelligence Unit. The survey of 131 cities worldwide — and 16 in the United States — uses New York as a baseline in its international comparisons. Tokyo and Osaka in Japan, Sydney and Melbourne in Australia and Oslo in Norway were listed as the top five most expensive cities in the world on the Economist cost-ofliving list. In the United States, Cleveland and Atlanta offered the most value, both 30% cheaper than New York. Vancouver is the most expensive North American city in which to live.
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