Crain's Cleveland Business

LOOK BACK | BANKING

What’s in store for AAU, youth sports? PAGE 2

After consolidation reshaped the industry, Northeast Ohio isn’t the financial powerhouse it was decades ago. PAGE 19

CRAINSCLEVELAND.COM I MAY 11, 2020

COPING WITH COVID-19 | EDUCATION

COLLEGE CHOICE

BALDWIN WALLACE UNIVERSITY

Costs add up as universities work to meet safety, academic needs

BY RACHEL ABBEY MCCAFFERTY

Institutions of higher education have faced financial challenges in recent years as costs rose and the population of traditional undergraduate students shrunk.

Now, amid a historic global pandemic, there are choices to make.

Colleges and universities lost revenue as they closed campuses and canceled events, and they’re prepared to take on costs for cleaning and protective equipment in order to, hopefully, teach students safely this fall.

“THE HARDEST PART IS THE UNCERTAINTY MOVING AHEAD.” — Dick Fletcher, senior vice president at Baldwin Wallace University

Those costs are compounded by a certain drop in state support and a feared drop in enrollment. The

HEALTH CARE

CARES Act helps, but that funding is temporary. The budget cuts announced by the region’s public, four-year schools have been making headlines, but no type of institution is exempt.

“The hardest part is the uncertainty moving ahead,” said Dick Fletcher, senior vice president at Baldwin Wallace University.

At private liberal arts university

Baldwin Wallace, cancellations, closures and refunds for services like housing have contributed to a sizable loss of revenue. The impact on just this year’s budget could reach $7 million, though cost reductions and the CARES Act have already helped mitigate that, Fletcher said.

See COLLEGES on Page 18

TECHNOLOGY

Virus pushes digital patient care mainstream Startups are standing up Virtual doc visits and remote monitoring skyrocket during pandemic to challenges of COVID-19

BY LYDIA COUTRÉ

As hospitals in mid-March considered converting units, relocating patients or creating temporary surge hospitals, Dr. Peter Pronovost, chief clinical transformation officer for University Hospitals, had another idea to mitigate the anticipated surge of COVID-19 patients: monitoring them from home.

A few years ago, while working at Johns Hopkins Medicine, Pronovost helped develop Doctella, a mobile

platform with remote patient-monitoring technology that could collect health data from various sensors, such as a FitBit or a medical device.

Medical technology company Masimo (NASDAQ: MASI) bought the technology about two-and-a-half years ago.

When COVID-19 reached Northeast Ohio, Pronovost called the CEO of Masimo to ask about the status of Doctella.

Serendipitously, the company’s scheduled hearing with the U.S.

NEWSPAPER

VOL. 41, NO. 18 l COPYRIGHT 2020 CRAIN COMMUNICATIONS INC. l ALL RIGHTS RESERVED

Food and Drug Administration to approve the use of the technology was just three days away.

Pronovost joined that call to make the case for its use during the Pronovost pandemic, and Doctella was quickly approved.

See VIRTUAL on Page 17

BY JAY MILLER

Standing up a new business is never easy. There’s convincing investors and/or lenders to buy in, then corralling a few people to embrace the idea that a paycheck might turn into a payoff down the road and then convincing skeptical business owners to be customers. After that, whether the business is a hair salon or an app, the entrepreneur has to deliver on all those promises.

And now, of course, there’s working around a pandemic that’s choking the economy.

Young businesses are struggling.

Entrepreneurs who thought they had raised enough money to last until the next plateau was reached are having to revise their plans. The key for many, said one investor, is stretching the amount of time a company has until it runs out of money.

See STARTUPS on Page 17

FOCUS | REAL ESTATE  Virtually yours: Real estate pros are adapting in response to the coronavirus, with a combination of online innovation and safety precautions. PAGE 10 Lesson learned: Mortgage firm on pace for record receipts despite pandemic. PAGE 12

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SPORTS BUSINESS

Travel basketball organizations face ‘very difficult’ path during pandemic Seasons have been delayed or canceled; camps could be next

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Normally, Dru Joyce II would have been working extra-long days and feeling the stress of hosting a youth basketball tournament that was expected to bring in more than 500 teams and 25,000 spectators over a three-day span.

Instead, when the fourth weekend in April arrived, Joyce was no longer on “pins and needles.”

The reason: The annual tournament that bears his name was canceled because of the COVID-19 pandemic, during a year in which it was slated to be played under one roof — at the I-X Center — for the first time.

The Dru Joyce Classic, which features boys and girls from second through 11th grade and serves as an annual showcase for college recruits, was supposed to be played on 58 courts and was expected to produce an economic impact of $3.5 million, according to the Greater Cleveland Sports Commission.

Like so many other events the last couple of months, Joyce — who has led the Akron St. Vincent-St. Mary High School boys basketball program to five state titles, including one featuring LeBron James — and the tournament must now look ahead to 2021 and hope that things will soon return to some semblance of normal.

“It’s been really hard to deal with, especially for the high school players that really miss out on a whole recruiting cycle this spring and summer,” said Joyce, who recently completed his 19th season at St. Vincent-St. Mary.

The pain has been felt throughout youth sports, an estimated $15 billion-plus industry in which parents spend thousands annually on leagues, club teams, travel, equipment and more.

For travel basketball, the timing is particularly terrible, since seasons typically are played in the spring and the lucrative camp circuit most often takes place in June and July.

“When you watch your business go from something to nothing, it’s never easy,” said Tucker Neale, who founded Score More Athletic Club (SMAC), a Northeast Ohio-based company that is one of the nation’s largest travel basketball operators.

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Joyce’s Northeast Ohio Basketball Association also runs AAU programs that play under the Nike banner.

The irony in that, he points out, is his teams can’t play in his annual classic — a tournament he started to show what the region has to offer in hoops — because they’re making the rounds on the Swoosh circuit.

Neale’s SMAC, along with the Eastlake-based The National Basketball Academy (TNBA), are two of the largest AAU organizations in Northeast Ohio.

Neale, a former Strongsville High School standout who is Colgate University’s all-time leading scorer, has been running camps, leagues and tournaments for more than two decades.

In addition to SMAC, he operates OhioBasketball.com (his tournament business) and Team First Travel, which arranges housing for the companies’ events.

Shane Kline-Ruminski’s The National Basketball Academy has 70 boys and girls travel teams, and his Big Leaf Sports hosts leagues for about 500 teams in the region. | CONTRIBUTED

His two basketball companies have 11 full-time employees. About 140 teams play under the SMAC and OhioBasketball. com umbrellas, and Neale operates tournaments Joyce in nine states.

One of those states, Indiana, has a projected start date of June 14 for youth sports tournaments. That could be well ahead of Ohio and many other states with varying timelines during the pandemic.

“There’s all these different things, and as you know, when business doesn’t have a very clear path, it makes it very difficult,” Neale said.

The Strongsville resident also runs NCAA-certified basketball showcases. Those, too, have gone dark.

Shane Kline-Ruminski, who operates TNBA with his partner, Steve Vega, has also made quite a name for himself as a trainer and operator of youth teams, leagues and tournaments.

Kline-Ruminski, a member of the Bowling Green State University Hall of Fame, and Vega have 18 full-time employees in five states. TNBA has 70 boys and girls travel teams in Northeast Ohio, and their Big Leaf Sports hosts leagues for about 500 teams in the region.

Kline-Ruminski said about 45% of his revenue stems from travel teams and tournaments, and summer camps account for another 35%.

“So about 80% of our business, we’re stuck right now,” he said.

TNBA, which launched in 2003, is doing virtual training, including free daily workouts on Instagram, and Kline-Ruminski said individual workouts, once they’re deemed safe, could follow.

His group received a loan under the federal Payment Protection Program, which Kline-Ruminski said “allowed us to operate here, pay our guys for the next two months and see where it goes.”

‘Hands are tied’ Eric Flannery, the head basketball coach at St. Edward High School in Lakewood, and Danny Gallagher, the hoops coach at Magnificat High School in Rocky River, have a much smaller AAU operation.

Their Cleveland Old School Athletics (COSA) has 15 to 20 travel teams for boys and girls in fourth through eighth grade. Flannery started the or-

ganization, which he said operates at a small profit, because he wanted to coach his kids.

But it’s basketball camps — teambased events at St. Edward in June and the more individually oriented Flannery Basketball Academy in July — that provide the largest supplement to the decorated coach’s income.

Flannery is assuming June will be a wash, and being allowed to hold events at schools in July is far from a given.

“It’s impacting every youth sports organization that’s out there, whether it’s basketball, baseball, lacrosse, volleyball, you name it, they’re shut down,” he said. “Their hands are tied.

“For me personally, financially, I rely heavily on our camps,” he added.

“That’s a big hit to us and our families because, quite frankly, that’s kind of what has kept me at St. Ed’s, being able to do those things.”

When asked what they miss the most during all of the unwanted down time, Joyce, Neale, Kline-Ruminski and Flannery all had the same answer: the kids.

“It’s always been about the young men that we have an opportunity to be involved with, to help in some way to realize their dream as far as sports are concerned,” said Joyce, whose son, Dru III, was part of a stellar class with James at St. Vincent-St. Mary and is now an assistant coach at Cleveland State University.

When the local organizations can start working with kids in team settings is uncertain, as is how social distancing measures will be enacted for participants and spectators.

Neale, who is part of an Ohio task force that is working on all of the particulars necessary for youth sports to return, is hoping for a mid-June return to competition, but others aren’t as optimistic.

Contact tracing, in which people who might have come in contact with someone who has COVID-19 are identified, will be a key piece, Neale said. Schedules will also have to be rearranged, with more back-to-back games being played to limit the number of people at a facility at a given time.

“That’s way different than in the past,” the SMAC executive director said. “Before, you left a tournament and it was over.”

Now, said Kline-Ruminski, TNBA’s president, “There are so many questions.”

Kevin Kleps: kkleps@crain.com, (216) 771-5256, @KevinKleps

2 | CRAIN’S CLEVELAND BUSINESS | MAY 11, 2020

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FINANCE

Why banks should fare better in this economic downturn Preceding the coronavirus recession was the financial crisis of 2008.

That plunged the country into the Great Recession, which resulted in hundreds of bank failures as piles of loans turned sour.

That wave of failures washed over the country, stripping markets like Northeast Ohio of some prominent, longtime financial institutions.

Think of National City Corp., whose pivot to subprime mortgages sealed its inevitable downfall in 2008, positioning it to be acquired by Pittsburgh’s PNC Financial Services Group — which financed the deal using TARP funds previously denied to National City itself. Then there’s AmTrust Bank, which was placed in receivership by the Federal Deposit Insurance Corp. and eventually sold to New York Community Bank in 2009, where it was rebranded as Ohio Savings Bank.

Referencing Ohio bank failures, particularly National City and AmTrust, Scott O’Donnell, a retired state superintendent of financial institutions, told Crain’s in 2009 that the “prominence of the state has diminished significantly.”

So what are the odds of a repeat of what happened during and postGreat Recession, when 465 banks failed from 2008-12? Is Ohio at risk of losing other major banks? Could KeyBank, the only regional bank still headquartered in Cleveland, be the next National City?

While the future is uncertain, failures similar to the 2008 financial crisis are unlikely. And KeyBank, thanks to leadership by recently retired CEO Beth Mooney, is in particularly good shape.

For one, U.S. banks combined have more capital on hand today to weather a downturn, something that has been imposed on them by regulators post-financial crisis. A November report by the Federal Reserve System shows banks brought close to twice as much capital reserves coming into 2020 as they had in 2007.

Meanwhile, the latest Fed stress tests, which evaluate firms’ capacity to survive severe economic downturns for nine quarters, show the country’s largest banks generally have the financial backstops today to absorb a recession.

On top of that, most banks are making smart defensive moves, such as canceling share buybacks to retain capital while building up loan-loss reserves, as evidenced in various first-quarter earnings reports. All this helps buffer banks against the impending effects of another downturn.

Requirements to build up capital and revise risk-management controls were pieces of heavily politicized bank regulation — which came much to the chagrin of financial institutions — implemented via legislation such as the Dodd-Frank Act. In retrospect, it’s evident those measures have helped steer banks to the positions of strength they enjoy today.

Some have prudently gone even further than what’s expected of them.

KeyBank, for example, is required to have a total capital ratio of 8%, but it came into 2020 with a ratio of 12.8%.

“We now have a situation where banks aren’t coming to the government for bailouts, but the govern-

ment is going to banks to help distribute relief programs through (the Paycheck Protection Program).

They’re allowing these mortgage forbearances,” said Peter Winter, an analyst with Wedbush Securities covering Midwest banks, including Key. “I think there is no question that DoddFrank was the right thing for the bank industry.”

Banks are better diversified in their investments today as well, and that certainly applies in Ohio, said James Thurston, a spokesman for the Ohio Bankers League. Some institutions in

markets like Oklahoma and Texas, for instance, are heavily exposed to oil and gas, a sector getting hammered in today’s market. Taking Key as an example, its loan portfolio is only 2.6% in oil and gas, and just 5.1% is in consumer behavior-related industries such as the restaurant, sports and entertainment sectors.

This diversification is one of many things that has Winter and other investors feeling good about banks like Key in particular.

See BANKS on Page 18

First-quarter earnings reports show U.S. banks increasing loan loss reserves in anticipation of loans going bad amid a pandemic-induced recession. KeyBank, for example, increased those reserves by 54% in Q1. $1,359M 250%

$1,400M

215%

200%

$1,200M

150%

161%

$1,000M

100%

$883M

$800M $600M

SOURCE: KEYBANK

50% 2Q

3Q 2018

4Q

1Q

2Q

2019

3Q

4Q

1Q 2020

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Phoenix Solutions was prepared to help when pandemic struck

BY DAN SHINGLER

While most companies have either closed down or struggled through the current pandemic and economic downturn, there’s a company in Canton that found itself with the right product at the right time.

Phoenix Solutions was formed in 2018 to help property managers via its job management software that finds and schedules contractors specializing in restoration and recovery work after incidents like hurricanes. It was formed after CEO Ray Bertka went to help after Hurricane Harvey hammered Houston in 2017 and found a lack of organization and communication among those who provided cleanup services and those desperate to find them, said Phoenix chief operating officer Christopher Cutter.

Working with its Chicago partner, Disaster Kleenup International, Phoenix has established relationships with more than 600 contractors on its platform, Cutter said. Users can log in anywhere in the country and the system will match them with a contractor who is certified in the services they need and able to respond quickly.

Call it luck or prescience, but when COVID-19 struck, many of the contractors working with Phoenix were certified in sterilization procedures, including working with a system called SteraMist. The product initially was developed for the Department of Defense and is now made by California’s TOMI Environmental Solutions.

SteraMist uses “binary ionization” to activate and ionize a strong hydrogen peroxide-based solution that kills bacteria and fungal spores, while also neutralizing viral cells, the TOMI website says.

As you might guess, that last bit about neutralizing viral cells has become important in the past couple of months. Contractors not already using SteraMist have become certified to do so, and Cutter said Phoenix has been on fire with new business.

By keeping up on the news, Phoenix saw COVID-19 coming way back

“WE DON’T WISH IT ON ANYONE, BUT PEOPLE NEED SOME HELP AND WE’RE HAPPY TO BE THE ONES TO PROVIDE IT.” — Christopher Cutter, Phoenix chief operating officer

A contractor disenfects a client site using the SteraMist system. | PHOENIX SOLUTIONS

in December, he said. In January, the company already was talking to local governments and other entities in Texas and California that were experiencing presumed cases of the disease and in need of sterilization.

At first, Phoenix used traditional cleaning methods, focusing on hightouch surfaces with strong disinfectants. But when the EPA approved SteraMist specifically to kill coronavirus, things took off, he said.

“Once it was approved by the EPA, we said, ‘Light ’em up, guys.

Let’s roll,’ ” Cutter said.

It’s been rolling ever since. Phoenix spent April signing up new customers all over the country and helping more of its contractors become certified to use SteraMist and other disinfectants.

“It’s definitely increased the amount of jobs we do threefold,” Cutter said. “We’ve had to hire one person already just to manage this silo: to do the response and coordinate these jobs. And it’s really increased awareness for us among large local customers.”

Local EMS crews, ambulance operators and fire departments have begun using Phoenix to find sterilization services. Phoenix also has worked with companies like Tim-

kenSteel on preparedness plans.

While Phoemix already had done well with large national customers, such as retailers, the new exposure has helped here at home, Cutter said.

“Some of the first local contracts we’ve had were for COVID work,” he said.

Now Phoenix needs to do two things, Cutter reasoned: continue to perform as clients need more COVID-19 work and then capitalize on the new relationships it’s building to keep clients after the crisis wanes.

Cutter thinks people going back to work will give Phoenix a chance to prove itself so it can cement those relationships.

“People are going to want to know the facilities they’re going back to have been cleaned properly,” he said.

The company wants things to return to normal, Cutter said. It’s been fortunate so far in that none of its people have gotten COVID-19.

For now, the company is glad to have a role in the fight.

“We don’t wish it on anyone, but people need some help and we’re happy to be the ones to provide it,” Cutter said.

Dan Shingler: dshingler@crain.com, (216) 771-5290, @DanShingler

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4 | CRAIN’S CLEVELAND BUSINESS | MAY 11, 2020

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FINANCE

A recession could accelerate Stratos Wealth Network’s expansion BBY JEREMY NOBILE

As a pandemic-induced recession hits various sectors of the economy, for Jeffrey Concepcion’s ever-growing financial advising network, market volatility is not so much a cause for concern as a promising catalyst for growth.

The founder and CEO of Beachwood’s Stratos Wealth Holdings — a family of financial advisory firms that includes registered investment adviser Stratos Wealth Partners (ranked No. 16 in Barron’s top RIA firms for 2019), Stratos Wealth Advisors, Stratos Wealth Management, Stratos Wealth Enterprises and Fundamentum, all of which collectively oversee about $14.5 billion in brokerage and advisory assets — has a goal of rolling up independent affiliates across the U.S. in a new city every month, with Stratos offering those firms and their advisers resources and back-office support.

Financial advisers tend to see an uptick in work during recessions. Clients naturally grow more anxious and needy amid a period of economic uncertainty, fretting over the future of their wealth. Those are the times when advisers really prove their worth, rather than the years of stable economic growth.

“This job was easy for a long time,” Concepcion said, referring to the record economic expansion the U.S. had riding for the past decade. “It’s not hard to look good in front of the client when the economy is good. But people who are just coasting by get

called out in an environment like this.”

Market chaos and the pressure that places on advisers could spur those near retirement in an already-graying in- Concepcion dustry — the average age of advisers is 55, with roughly a fifth 65 or older, according to J.D. Power — to queue up to exit the business.

That’s where Concepcion’s Stratos network is positioned to take advantage.

“So many advisers in the last six weeks have said, ‘You know, I think I’m done,’ ” Concepcion said. “This volatility can be a catalyst because every day is a grind. Clients are concerned and (advisers) don’t always have the answers. It’s terribly stressful to talk to clients who are worried about money and stability. So this event dislodges people who were complacent, who were content with chugging along and who don’t want to go through a downturn again.”

That’s not to say every adviser wants to stop working with their closely held clients when times get tough. But when clients need more attention, some advisers may prefer to focus squarely on them versus the other elements of running a firm — elements that a backing organization like Stratos can manage for them.

Of course, advisers who sell their book of business in partnership with Stratos and plan to keep working will get a better price than those who want to immediately cash out and retire, so there are perks to staying involved. Concepcion tends to prefer good people with sticky clients over the value of a book anyway.

This is why a recession could play into Stratos’ business model with its focus on expansion. Even if some worried clients may want to pull some capital out of investments because of market chaos, the firm’s advisory assets can continue to grow with the volume of independent advisers Stratos rolls up.

Adding wind to Stratos’ sails is Emigrant Partners of New York. One of the wealth management industry’s largest investors, Emigrant takes nonvoting minority equity stakes in traditional and alternative asset management firms. It’s now invested in at least 15 firms representing $50 billion in aggregate AUA. Emigrant struck a deal with Stratos in April for a minority stake. It’s the first time Concepcion — who says he has reserved 35% of earnings every year since founding the first piece of Stratos in 2008 to either save or reinvest in the company — has ever taken on debt for the previously underleveraged Stratos network.

“Wealth management firms in general have been resistant to downturns.

RIAs in general tend to get bigger during a great financial crisis,” said Em-

igrant CEO Karl Heckenberg. “What we find is clients very much realize they need more than just investment management, but financial planning.”

People are hesitant to change financial advisers in good times when everything is rosy. So a tumultuous period can present opportunities to onboard new clients in general, presenting a tailwind for good advisers with room for capacity.

Stratos has the added benefit of a business model engineered to roll up and support smaller firms, something Heckenberg sees picking up.

“A lot of advisers swore off going through a market environment like this after 2008. Well, nobody was expecting a 10-year historic bull market, so a lot of people put off selling or transitioning equity,” Heckenberg said. “Now, some are realizing they don’t have the infrastructure they need.”

That infrastructure might be as simple as a system for meeting with clients digitally in a world of social distancing. Older advisers who want to ride into the sunset of their careers focusing purely on clients and not other pieces of the business are top prospects to sell or otherwise partner with firms like Stratos in this climate, which naturally translates to more size, more clients and more revenue.

And that’s without raising fee rates, which Concepcion says he has no intention of doing right now.

“I think there’s a massive opportunity for all RIAs in this environment, but particularly for Stratos,” Heckenberg

said, adding that Emigrant itself has invested more in companies through the first five months of 2020 than it did in the last eight years combined.

The partnership will provide more than an investment of capital for Stratos’ expansion plans, but also leads on firms to acquire. Concepcion said Stratos was already looking at 10 targets in April, and Emigrant queued up another four or five.

As of the end of April, Stratos reported at least 70 support staff in its Beachwood headquarters (though everyone is working remotely amid the pandemic), with about 800 total employees across all Stratos brands, including 300 advisers. It’s been rolling up an average of about 25 affiliates a year and has a presence in more than 100 cities, covering about half the states in the U.S. The size of advisers it brings on range in asset size from $50 million to $1 billion.

The overall company has posted a compound annual growth rate of 36% over the last eight years.

At its current growth rate, Stratos is on track to reach $20 billion in total AUA by the end of 2021.

Asked whether he could’ve just sold the company outright, Concepcion said he’s not interested in getting out of the business. He added the capital from Emigrant will help Stratos become an even “better, stronger business on a stronger trajectory.”

Jeremy Nobile: jnobile@crain.com, (216) 771-5362, @JeremyNobile

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 À 9    

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Businesses, insurance companies are in showdown over lost revenues Cleveland attorney says about 90% of companies’ claims are being denied

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Ohio businesses have experienced massive losses due to shutdowns because of public health orders designed to halt the spread of the coronavirus.

Some of the affected businesses, bars and restaurants in particular, are looking for insurance companies to pay for revenue losses on their business interruption policies.

“These businesses have no way of generating revenue to pay employees, rent, utilities and necessary expenses, so they turn to collect on their business interruption coverage, and the insurance companies are denying their claims,” said Nicholas A. DiCello, a partner at the law firm of Spangenberg Shibley & Liber.

DiCello’s firm, along with the law firm Rutter & Russin, filed multiple lawsuits — including a class-action suit against Ohio-based State Auto Mutual Insurance — against insurance firms that have denied business interruption claims for losses incurred during the state’s closure of businesses deemed nonessential.

Business interruption coverage, DiCello pointed out, is a common component of most commercial property policies. Retail businesses include this particular coverage to protect against loss of income from a disaster, whether the closure is caused by the event itself or as a result of rebuilding or repairs afterward. The “all-risk coverage” replaces lost revenues and pays for extra expenses resulting from a

shutdown or a substantial slowdown in operations.

Business owners expected that would apply to losses resulting from the Ohio Department of Health ordering all nonessential businesses closed in March. Whether claims are covered, however, depends on the specific language in the insurance policy — many policy agreements have express exceptions for viruses and pandemics.

Claims are being filed and, according to DiCello, about 90% are being summarily denied. Reasons given vary based on exclusions and language in the policies.

“Half or more of the policies I have looked at do not have a virus exclusion, but the general denial is alleging that coronavirus or the civil authority order does not cause any physical loss or damage to the property, and that is going to be the issue that is going to be litigated,” DiCello said.

A counter-argument runs that because the coronavirus can “attach” to surfaces, there is direct physical damage to property, leaving the policy terms up for interpretation.

“It is up to the court to interpret according to legal precedent,” DiCello said. “The facts that are being presented are rather new. You cannot point to the last pandemic and say, ‘Here is what the court did last time a virus swept through Ohio and everybody was shut down.’ Here is damage or loss to these properties, and it is our position that COVID-19 certainly causes it.”

DiCello is urging all of his clients to

file claims even if insurers and agents have told them their policy will not pay. That way, if the courts rule against the denials, businesses will have standing to collect. Those business could have a claim not just for what was entitled under the policy, but also a bad-faith claim that would entitle them to possible future profits.

Restaurants have been particularly hard hit by the shutdown orders, making these policy payout denials an existential threat, said John Barker, president and CEO of the Ohio Restaurant Association (ORA).

“We do a survey each week of the restaurant community and we have really good data,” he said. “In our most recent survey, 51% of the restaurant respondents are completely closed, and that is pretty devastating.

“If you are a pizza restaurant, you can maybe shift 100% of your sales to takeout,” he added. “If you are making a fine dining that comes with a whole experience, you cannot replicate it.”

Carryout represents just a fraction of overall business for most restaurants, Barker noted. Those in the ORA survey are reporting losses of anywhere from 20% to 90% of sales.

“Sales are down and profits are worse, because the fixed costs like rent and licenses have not changed,” he said. “There is a pressure for these business owners that is nearing a calamity stage because the bills are due and they have no cash flow.”

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By making it their business to not only develop great properties but also provide great experiences for the people who live, work, visit and shop there, Stark Enterprises has grown to become one of the nation’s premier real estate developers. It’s not surprising that Bob Stark and his team choose Benesch for that same high-quality experience. From urban planning to acquisitions, contracts to litigation, finance to tax, Benesch brings the broad and deep capabilities, meticulous attention to detail, and national reputation that helps keep Stark Enterprises going—and growing—strong.

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FROM THE EDITOR

RICH WILLIAMS FOR CRAIN’S CLEVELAND BUSINESS

Veteran reporter Michelle Jarboe to join Crain’s

EDITORIAL

Budget crunched W

e knew this was coming. But that doesn’t reduce the pain.

Ohio Gov. Mike DeWine last week announced big cuts in state spending to offset the impact of plunging tax collections stemming from the coronavirus pandemic. The bottom line: a $300 million reduction in K-12 public school funding, $210 million from Medicaid spending,$110 million from college and university funding, and $100 million from state agencies, including the governor’s office. The only big-ticket item from the state’s $32.4 billion annual budget that was spared was corrections, as Ohio contends with COVID-19 raging through its prisons.

It’s early in this crisis, and the numbers already are staggering. The state’s Office of Budget and Management released preliminary April revenue data showing that total General Revenue Fund tax receipts finished the month $866.5 million, or 35.3%, below estimate. A year that had been going well, tax-collectionwise, has flipped fast. The OBM reports that fiscal year tax receipts through April are below estimate by $777 million, or 4%, and are $540.9 million, or 2.8%, below total tax IT’S MUCH HARDER TO receipts through the like peCOLLECT INCOME TAXES riod last fiscal year. It’s much harder to collect income WHEN PEOPLE ARE taxes when people are losLOSING THEIR JOBS, ing their jobs, and sales taxwhen commercial activity AND SALES TAXES WHEN es is stifled.

COMMERCIAL ACTIVITY The budget holes are serious, and they lead to IS STIFLED. tough choices. But cutting $210 million in Medicaid spending in the middle of a pandemic that is far from under control? That’s hard to understand and even harder to justify, given that Ohio has a rainyday fund of $2.7 billion. DeWine said the state will not tap into that fund for now, arguing that he anticipates the money will be needed in the future.

If ever there was a time, though, to tap the rainy day fund, it’s now, because it’s pouring. The Medicaid cuts represent less than 8% of the rainy day fund. The fund should at the very

least be deployed to avert the Medicaid cuts and help mitigate what could be an even greater health disaster. (K-12 spending cuts on top of months of missed classroom time won’t help our state, either.)

DeWine’s focus on the budget’s future is not misplaced.

Ohio is taking baby steps this month to reopen its economy, but tax receipts are going to be depressed for a long time. As much as we all hope for a V-shaped recovery that gets the economy humming again quickly, most economists say that’s unlikely.

The state constitution requires Ohio to balance its budget by the end of each fiscal year, which ends on June 30. Next year’s budget hole, though, can’t be addressed primarily by cuts to education and programs for the most vulnerable members of society. It’s time to get serious about ending some tax giveaways.

Last September, the liberal think tank Policy Matters Ohio released a report showing that for the fiscal year starting July 1, 2020, “Ohio will forgo nearly $9.8 billion in state tax exemptions, credits and deductions known as tax expenditures. The value of revenue lost to tax breaks will grow by $1.3 billion in 2020-21 compared to the prior two-year budget period, and will have grown by 18% over the decade between 2012 and 2021, adjusted for inflation.” It found that Ohio at present “gives away more state resources in the general revenue fund in tax breaks than lawmakers spend on health and human services.”

Not all of the state’s tax breaks are created equal. As Policy Matters noted, “Some tax expenditures help nearly everyone (prescription drug sales tax break, personal exemption from the income tax), some help a targeted group (the manufacturing sales tax exemption, the sales tax exemption for churches and nonprofits), some help certain individuals (the sales tax break on timeshares of private jets, which helps people who can afford to fly on private jets) or groups of companies (sellers of alcohol products who pay their taxes on time).”

The state, though, will have to examine all tax break measures closely to determine which provide true value and which serve a privileged few. If we’re all in this together, sacrifices will have to be made all around.

Publisher and Editor: Elizabeth McIntyre (emcintyre@crain.com) Managing Editor: Scott Suttell (ssuttell@crain.com) Contact Crain’s: 216-522-1383 Read Crain’s online: crainscleveland.com

You’ve read, and we’ve reported, about the unprecedented number of job losses during this global pandemic. So this bit of news may come as a surprise: We’ve added to our reporting staff at Crain’s Cleveland Business.

Michelle Jarboe, the longtime real estate reporter at the Plain Dealer, will be joining Crain’s on May 18 as an enterprise reporter, Elizabeth where she will cover real estate, economic McINTYRE development and general business news.

When opportunity knocks, even as we maintain social distancing, you’ve got to open the door. And hiring a reporter of Michelle’s caliber, to join the 14 other dedicated journalists in Crain’s award-winning newsroom, was an opportunity too good to pass up.

Like many in Cleveland’s business community, I have long admired Michelle’s work at the Plain Dealer as she covered commercial real estate, development and the housing market. She pays attention to detail, puts the news in context, and has earned the trust of the professionals she covers and the readers she informs.

When Michelle was laid off by the paper on April 10, I heard from several readers suggesting Crain’s hire her.

Here’s an example of one of the emails I received: “I think it would be fantastic if you were able to bring her on at Crain’s. (In my humble opinion), she’s the most respected and best connected reporter on real estate dealings and new development in our area. Her stories are always positive and appeal to Cleve- LIKE MANY IN land’s civic pride. Just think she would be a natural fit with your CLEVELAND’S already stellar journalists.”

BUSINESS I couldn’t agree more — about Michelle and about the COMMUNITY, I HAVE stellar staff she joins.

LONG ADMIRED If you don’t know Michelle, let me tell you a little bit about MICHELLE’S WORK. her. A University of North Carolina-Chapel Hill grad, she joined the Plain Dealer in 2007 after a stint at The News & Record in Greensboro, N.C. An award-winning journalist, she has covered real estate and development for 12 years at the PD. She also is a former president of the National Association of Real Estate Editors. She lives in Cleveland with her husband and young daughter.

And that stellar staff she joins is a crew of award-winning Crain’s journalists who cover all aspects of business in Northeast Ohio, including Senior Reporter Stan Bullard.

Stan has reported on commercial real estate, development and construction markets in Cleveland for years, having joined Crain’s in 1986. He is connected and respected.

He’s an authority on his beat.

With Michelle and Stan on our staff, Crain’s solidifies its position as the preeminent source for development and real estate news in Northeast Ohio.

The pandemic has all of us trying to find new ways to conduct business, serve clients and fulfill our missions. It has brought, and likely will bring in the future, huge financial pressures. We’re navigating those along with you, and we’re here to help by doing what we do.

We’re committed to finding advertising and custom content solutions for your evolving businesses and our journalists are committed to covering all aspects of business in Northeast Ohio.

Businesses always need trustworthy information to make good decisions, perhaps more so now than ever before. Michelle, Stan and our entire team will be working hard every day to get you the information you need.

Write us: Crain’s welcomes responses from readers. Letters should be as brief as possible and may be edited. Send letters to Crain’s Cleveland Business, 700 West St. Clair Ave., Suite 310, Cleveland, OH 44113, or by emailing ClevEdit@crain.com. Please include your complete name and city from which you are writing, and a telephone number for fact-checking purposes.

Sound off: Send a Personal View for the opinion page to emcintyre@crain.com. Please include a telephone number for verification purposes.

8 | CRAIN’S CLEVELAND BUSINESS | May 11, 2020

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E g h

El

M

OPINION

Frank Zibert

PERSONAL VIEW

Hiedi Winston

Estimating the local economic impact of the COVID-19 pandemic

WELCOME

BY JIM NIEBERDING

A recent article (“Cancellations create massive ripples,” The Plain Dealer, April 18) warned that “total damage could well exceed $1 billion dollars” to the Greater Cleveland economy due to the elimination of our professional sports seasons and the continued closure of local venues such as Rocket Mortgage FieldHouse, the Rock Hall and Playhouse Square.

Estimates were cited from previous economic impact studies of the benefits to our region of these institutions along with a calculation of revenue generated from Cavs games. Used in reverse, such benefits might be viewed as the costs of canceling these sporting events or not having these institutions open.

However, to the extent the underlying studies equate increased local spending with expanded economic activity and ignore relevant opportunity costs, they will have overstated economic benefits. Therefore, an estimate of decreased economic activity based on them also will be inflated.

The key principle at issue is revealed in the classic example from economics known as the “broken window fallacy”.

One might argue there is an economic benefit if a business has its windows broken as the owner must pay a glazier to fix them, who will then re-spend that income elsewhere in the economy, and so on, creating a ripple effect of direct and indirect economic benefits. However, such logic fails to take into account the opportunity cost of the broken windows.

The opportunity cost of an action is the value of the next best alternative when a decision is made, and it reflects the tradeoff between what is done and what is given up. Had the windows not been broken, the owner would have spent the repair money on something else (e.g., a capital investment, an additional worker, tickets to sporting events). Recipients of this income would have spent it elsewhere in the economy creating the same ripple effect of economic benefits. As a result, broken windows do not create new economic activity, just different economic activity. The opportunity cost of broken windows is the “unseen” spending that did not occur, as the money paid to fix them is no longer available for other uses.

This issue frequently arises when cities propose to build new sports arenas. Economic impact studies show significant economic growth due to such investments based upon a variety of “indirect” and “induced” spending flowing from the initial direct spending. However, opponents frequently argue that such a project will not create substantial new revenue if the arena’s revenues merely are redirected monies

that local fans would have spent elsewhere in the city. Moreover, the public and private monies used to build new stadiums will no longer be available for other uses such as infrastructure or education that have the potential to increase productivity and promote economic growth. Concentrating only on the “visible” spending aspect of such a project fails to acknowledge the opNieberding portunity costs at work. is principal and Similarly, a consideration of opporfounder of tunity costs should dispel any notion North Coast Economics LLC. that lost revenues due to canceled regional events or certain business closures are equivalent to decreased regional economic activity. Consider this statement in the article, “Greater Cleveland’s economy will lose nearly $2 million unless the NBA season resumes during the coronavirus crisis and the Cavaliers play five remaining home games.” This is calculated using 18,000 fans spending $21 per game multiplied by 5. But this estimate of lost revenue to the Cavs is not equivalent to the drop in regional economic activity if these games are not played. The “visible” reduction in spending at Cavs games by Northeast Ohio residents will be redirected (maybe completely) to alternate uses in Northeast Ohio, which will expand as the regional economy gradually reopens.

Regional spending by residents on one activity is largely redirected from spending on another regional activity (that which is “unseen”). That is, while one may trade an evening dining at Shaker Square or enjoying the Cleveland Orchestra for an evening spent downtown at a Cavs game, doing so represents a shifting of money within the local economy. Therefore, to the extent money spent by residents at a Cavs game is diverted spending rather than “new” spending, the nearly $2 million loss to Greater Cleveland’s economy is an overestimate.

The point to consider is that spending by local residents at sporting events, museums and restaurants is easy to see because it is visible and measurable. What is “invisible” is how these same residents would have spent their dollars otherwise. It is this aspect of local spending that typically is unaccounted for in economic impact studies that tabulate the benefits of regional projects, sporting events or institutions (perhaps because opportunity costs are difficult to quantify). Consequently, using them to estimate the decrease in regional economic activity due to COVID-19 should be discounted accordingly.

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Looking for opportunities to create a strategy for a different tomorrow

BY MARK RANTALA

The last eight weeks have revealed a great opportunity demonstrating that Northeast Ohio could compete again — with any community anywhere, especially now when every community has been disrupted and all are back at the starting line.

The tragedy of off-shoring as a policy was exposed with the disruptions caused by dependence on the Chinese supply chain. It also revealed two of Northeast Ohio’s greatest strengths: an incredible medical community and a legacy of advanced manufacturing that together can be foundational in a national reshoring effort and a revival of Northeast Ohio. We need to combine these two resources and use them to compete by attracting supply chain components to Northeast Ohio.

For the last five years, all of the economic development community in Northeast Ohio has wisely invested significant resources to an increased BRE (Business Retention and Expansion) program, understanding the needs of our existing businesses and how to support them. We need to use all that we have learned as a launching pad to

bring complementary supply chains back to Northeast Ohio.

First, the philanthropic community needs to provide the resources, direction and leadership for a combined campaign to identify the specific opportunity components that already exist in Northeast Ohio in the next 90 days.

Second, all of the economic deRantala is the velopment community needs to founder and launch a “blitzkrieg” to make an acpresident of celerated round of BRE calls and anEconomic swer three questions in the next 90 Development days from as many companies as Opportunity possible. We need to identify opporAdvisors LLC. tunities and expose obstacles. Our focus should be on the medical technology, pharmaceuticals, PPE supply chain and advanced manufacturing sectors.

See RANTALA on Page 18 MAY 11, 2020 | CRAIN’S CLEVELAND BUSINESS | 9

REAL ESTATE

“GUIDANCE IS COMING FROM A LOT OF DIFFERENT SOURCES AND WE’RE GETTING GOOD INFORMATION FROM REALTORS.” — Re/Max Crossroads Properties broker-owner Linda LaFleur

VIRTUALLY YOURS Challi Kieffer of Re/Max’s Cuyahoga Falls office conducts a virtual tour of a listing in Portage Lakes.

Realtors look for creative ways to show properties during the pandemic

| BY DOUGLAS J. GUTH

Re/Max Crossroads Properties broker-owner Linda LaFleur got an early taste of how the COVID-19 pandemic will affect the residential real estate business when one of her agents showed a house online to an out-of-state buyer.

The agent hosted a videoconference with the California-based buyer, fielding detailed questions about hardwood floor smoothness and how well the home fit on the lot. At her client’s request, she even brought the camera to carpet level for close inspection of the pile.

“The showing took much longer, which was no problem, but you have to scrutinize the property tightly,” said LaFleur. “The client asked if the agent could hear traffic noise, or if the basement smelled musty. Normally, the buyer would have flown here to look at the house.”

Like all industries worldwide, real estate is modifying operations in response to the coronavirus, utilizing a combination of online innovation and guided safety precautions.

Cleveland realtors and apartmentbuilding owners have the daunting task of keeping clients safe while moving the housing pipeline forward, a challenge they believe they’re prepared to meet.

Real estate is deemed an essential service in Ohio, with all related business activities ordered to observe protective measures such as social distancing, handwashing and disinfecting. The National Association of Realtors (NAR) provides further

guidance, while local brokers are gathering remotely to discuss best practices.

“At the beginning, it was about watching Gov. (Mike) DeWine for the freshest news,” said LaFleur. “Now, we’re talking to each other and talking to agents to find out what they’re doing to make a difference.”

The early days of the pandemic had agents questioning not only their own safety, but that of buyers and sellers as well as photographers shooting homes for listings. LaFleur said a balance has since been reached, involving liberal sanitization of viewed homes, use of face coverings and leaving shoes on the front stoop to be replaced by disposable booties. Sellers leave lights on and closet doors open, so visitors can tour an entire apartment or home without touching anything other than the front door.

“Guidance is coming from a lot of different sources and we’re getting good information from realtors,” LaFleur said. “Our state group, the Akron Cleveland Association of Realtors, is sending out information as well.”

pres Apa whi prot up a “A for p drop McG key St tour iden Euc pera with wip chie “O ty,” have like any ing Bott eryt app V ope liab purc sinc said the vide walk “W ever she selle ing Tho lowe

Getting creative The necessity of remote showings has gotten agents familiar with videoconferencing solutions such as Zoom and FaceTime, noted Kristine Burdick, Midwest market president at Howard Hanna.

Livestreams and virtual home tours can be scheduled through Howard Hanna’s social media platforms. Drone photography, a growing high-tech option in recent years, is gaining even more ground within the industry as the pandemic continues, Burdick added.

Ralph McGreevy, executive vice

ME

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president of the Northern Ohio Apartment Association, said that while rental offices are closed, new protocols let would-be tenants pick up a key and tour a space alone.

“A lot of buildings have unique codes for people to come in, get a key and drop it in a dropbox back in the office,” McGreevy said. “It’s one way of getting a key without face-to-face interaction.”

Stark Enterprises is staggering live tours of The Beacon, its high-rise residential apartment building at 515 Euclid Ave. Visitors have their temperature checked upon entering, with common areas thoroughly wiped down throughout the day, said chief operating officer Ezra Stark.

“Our projects are not high-density,” noted Stark. “At The Beacon, you have 10 units per floor, so you feel like you have the place to yourself anyway. It’s a combination of following guidelines and common sense.

Bottom line, we will comply with everything the government says, and apply other policies suggested to us.”

Virtual home viewings have opened discussions about potential liability, though buyers have been purchasing properties sight-unseen since long before COVID-19. Burdick said language should be included in the purchase agreement stating a video tour is no replacement for a walk-through with a home inspector.

“We don’t want buyers relying on everything from a virtual showing,” she said. “It’s between a buyer and seller, and some inspectors aren’t doing (live) inspections right now.

Those that do are the only ones allowed inside the property, which is

“IT’S A COMBINATION OF FOLLOWING GUIDELINES AND COMMON SENSE. BOTTOM LINE, WE WILL COMPLY WITH EVERYTHING THE GOVERNMENT SAYS, AND APPLY OTHER POLICIES SUGGESTED TO US.” Stark Enterprises leasing agent Matt Lofgren conducts a tour of an apartment in The Beacon wearing mask and gloves.

actually working out OK.”

Finding a way Some agents are requiring prospective buyers to complete a virus screening questionnaire before presenting a home. A “COVID-19 Showing Addendum” from the Ohio Realtors trade group asks sellers to employ safety measures recommended by the Centers for Disease Control and Prevention before an in-person visit, further requesting disclosure of anyone at the property

exposed to or recovering from the virus. NAR, the national industry group, said in its recommendations that seller self-reporting should not replace social distancing or other precautions, as some individuals with the virus are asymptomatic or don’t realize they have symptoms.

However, someone in the home having COVID-19 does not create a stigmatized property as governed by state law. Generally defined as a property found undesirable due to events such as murder or suicide, stigmatization does not apply to the

| CONTRIBUTED

coronavirus, as there is no evidence it survives on surfaces after cleaning and disinfection per CDC protocols.

As different areas of the country are experiencing varied restrictions on daily life, NAR suggests consulting local and state health departments for limitations affecting real estate closings. Howard Hanna offers in-person closings at select offices, aided by masks, proper social distancing and, in some locations, Plexiglas barriers.

NAR also recommends asking lenders how they are addressing refinancing applications and any workflow is-

— Ezra Stark, Stark Enterprises COO

sues taking place at short-staffed underwriting offices. Meanwhile, an escrow or title company will share if a local recorder’s office is equipped to record a deed electronically.

“Some counties are going down to two days a week for filings,” Burdick noted. “If the process is delayed, we’ll figure out a way to get people their keys. We’re still selling houses while working with listing services to get properties into the market.”

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MAY 11, 2020 | CRAIN’S CLEVELAND BUSINESS | 11

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FOCUS | REAL ESTATE

Nations Lending has learned resilience Lessons from previous disruptions put firm on pace for record receipts amid COVID-19

BY JUDY STRINGER

2019 was a banner year for Nations Lending Corp.

The Independence-based lender funded more than $2 billion in home loans, a 20% increase from its 2018 volume and the largest annual total in its 16-year history. It also picked up 15 new branches last year, bringing its national footprint to 83 locations, and recruited key operations positions that, CEO Jeremy Sopko, said, allowed him and co-founder Bill Osborne Jr. to rise above the dayto-day and start thinking about the future.

“We finally were freed up to look out on our big, audacious goal of becoming a top-10 independent mortgage banker by 2024,” Sopko said,

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“and then COVID-19 hit. Immediately, you go from growth mode — from seeing 12 months out, from seeing two years out — to worrying about what is happening in the next 30 days.”

Fortunately, much of the anxiety was contained to the early onset of the novel coronavirus, according to Sopko. April, in fact, was Nations Lending’s best month on record. The company closed 1,523 loans last month for a total financing volume of $368 million, he said, with many employees working from home.

The April volume was nearly $100 million more than its previous onemonth high mark and only about $30 million shy of the four-month total of roughly $400 million in loans Nations Lending financed between January and April 2019.

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Co-foundersJeremy Sopko (left) and Bill Osborne Jr. say Independence-based Nations Lending was up more than $1 billion in loan volume through April. | CONTRIBUTED

“By comparison, through April of this year, we are up over $1 billion in volume,” Sopko said. He added that purchase applications began to rebound during the last half of April after a brief COVID-driven decline and are supplementing an unanticipated spike in refinancings. “I don’t think anybody was expecting, before this year, the refinancing pace the mortgage industry is experiencing.”

The CEO credits Nations Lending’s swift recovery in part to a newly organized operations division, which optimized capacity to move applications quickly through the pipeline.

Led by executive vice president of operations Jim Collier, who joined the company in October, “we closed over 1,500 units this past month,” Sopko noted, “whereas last year, our highest amount of loans closed was maybe 1,000 in a month.”

Nations Lending’s status as a direct lender has been helpful as well.

Because the company does not have to rely on banks to underwrite its loans, it can accommodate applicants who don’t meet stiffer credit scoring and down-payment requirements imposed by large financial institutions. It also doesn’t run the risk of being backlogged with applicants awaiting a third party’s approval.

There’s also added business resulting from its growing cohort of satellite agents. Sopko said the gains in 2019, for example, reflect “maturation”

among independent brokers and retail mortgage offices that joined Nations Lending in 2018. He explained it can take mortgage agents up to a year to rebuild their deal pipeline after moving to a new company.

“So this year we are seeing the maturity of branches that we brought on

“WE FINALLY WERE FREED UP TO LOOK OUT ON OUR BIG, AUDACIOUS GOAL OF BECOMING A TOP-10 INDEPENDENT MORTGAGE BANKER BY 2024, AND THEN COVID-19 HIT.” — Jeremy Sopko, Nations Lending Corp. CEO

last year come to fruition, as well as continued growth of the ones we acquired earlier,” he said.

Still, Sopko does not diminish the key role that experience is playing in Nations Lending’s ability to stave off a virus-induced downturn. In 2010, the fledgling company laid off 24 people — half of its workforce at the time — in the wake of the burst housing bubble. After rebounding and growing to more than 200 employees, it suffered another setback in 2013, cutting nearly 50 employees due to a sudden rise in interest rates and a

slump in home purchases.

Those “dark days,” Sopko said, solidified the necessity of “keeping money in the bank for rainy days” and gaining more control over the business by transitioning from a mortgage broker to a direct loan seller/servicer. The company currently retains servicing rights on more than 95% of the home loans it originates.

“We wanted to take the experience from being transactional to being service-based, to having a relationship with that consumer,” Sopko explained. “So when rates decline the way they are, we are able to go back after those clients and get them into a better situation.”

Today, Nations Lending employs roughly 800 people, including nearly 200 at its Independence headquarters. If the company closes north of $3 billion worth of home loans this year, which Sopko said he believes is within reach, annual revenue will approach $180 million.

The coming months, however, will not be free of “bumps and bruises,” he said. The new Coronavirus Aid, Relief and Economic Security Act, for one, allows borrows with federally based mortgages to postpone monthly payments if they are experiencing financial hardship as a result of the pandemic. Those requests are already flooding in, and while Ginnie Mae said it will fully cover advances that servicers like Nations Lending have to pay bondholders — even if they aren’t collecting mortgage payments — cousins Fannie Mae and Freddie Mac are not expected to include taxes or insurance in their advances.

“When those taxes and insurance come due, we are going to owe, and there will be monies out there from a cash perspective that we are not getting back until those borrowers return and start making their payments,” Sopko said.

“But for us, we’ve always been well-capitalized. That’s one thing we learned. You have always got to have equity, you have got to have capital — because as soon as you think things are going well, something is going to be around that corner that is going to knock you down.”

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Real estate lease payments or mortgage obligations are often one of the largest expenses for small businesses, right behind payroll. Such financial obligations can’t be laid off or furloughed like employees or voluntarily reduced like inventory.

Can a small business that received a Paycheck Protection Program (PPP) loan use the proceeds to pay its rent or mortgage? The short answer is yes, but with significant limitations and restrictions. Rent and interest on mortgage obligations — but not principal — are allowable uses for the loan proceeds, but for the loan to be forgiven, the amounts used toward those real estate-related obligations are very limited and come with significant strings.

In response to the economic impact of the coronavirus pandemic, the federal government rushed to create the PPP to provide relief to small businesses and keep their workers employed.

It is a massive undertaking to create a program to provide $650 billion in loans, let alone to do so in a matter of weeks. Consequently, there has not been the usual volume of regulations or guidance from the Small Business Administration (SBA) on the specifics of the program.

The SBA has issued Interim Final Rules and FAQs and has been regularly updating those as issues or interpretations evolve. However, among other things, it has not provided the actual forgiveness applications yet, so some of the specifics are yet to be determined. Consequently, when analyzing an issue where the SBA hasn’t provided specific guidance, it’s important to keep the ultimate goals of the PPP program in mind: to provide relief to small businesses and keep workers em-

ployed by those businesses.

PPP loans are not grants but actual loans that are subject to repayment to the lending institution.

PPP loans come with a very low in- Lum is a terest rate of 1% principal in the and a two-year real estate maturity. Interest practice group of payments on the Cleveland-based loans may be de- McCarthy, Lebit, ferred for six Crystal & months and pos- Liffman. sibly longer. However, if the funds are used for the proper purposes and in the proper timeframe, the loans, including accrued interest, are subject to forgiveness in part or in whole.

In order to apply for and receive forgiveness of the PPP loan, the proceeds must be used within eight weeks of the lender’s disbursement of the loan. Amounts not used within that period will not be forgiven. In addition, the funds must be used for the following purposes: 1. A t least 75% must be used on payroll costs. Payroll costs include all cash compensation (under $100,000 annualized) paid to employees and all noncash benefits. Payroll costs also include vacation, parental, medical and sick leave; however, they exclude qualified sick leave under the Families First Coronavirus Response Act, for which a tax credit is allowed.

2. No more than 25% may be used for nonpayroll costs, including: rent on leases dated prior to Feb. 15, 2020; interest (but not principal) on mortgage obligations incurred prior to Feb. 15,

2020, as well as for utility payments.

Consequently, rental obligations and mortgage interest (subject to the 25% cap) are specifically allowable uses of PPP funds. However, and this is where the significant strings come in, there is a reduction in forgiveness based upon any reduction in the number of employees. Forgiveness will likewise be decreased by reductions in employee salaries in excess of 25% (for those salaries under $100,000 annualized). If a small business reduces its employee headcount or significantly reduces employee salaries, the PPP loan will not be fully forgiven, even if the loan is used for authorized purposes.

These restrictions provide a practical limitation on use of the PPP loan proceeds for real estate obligations because the small business must keep its employees employed and maintain their salaries, leaving very little loan proceeds left for authorized nonpayroll purposes.

Until the SBA issues final guidance on the forgiveness requirements, it’s imperative that borrowers keep detailed and accurate records on receipt and use of the loan proceeds.

Pay close attention to the 75/25 split on use of the proceeds and understand that any employee or salary reductions will affect forgiveness.

Best practices would dictate that the loan proceeds should be deposited in a separate account and fully depleted within eight weeks for payroll costs first and, second, for approved nonpayroll costs including rent, utilities and interest on mortgage obligations.

Loan proceeds that are used for unauthorized purposes will have to be repaid. Further, if a borrower knowingly uses loan proceeds for unauthorized purposes, the borrower may be subject to additional liability, including charges for fraud.

LIST ANALYSIS

Sale of Tyronn Lue’s former home tops list He’s one of many sports figures on our Largest Home Sales of 2019 list

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BBY CHUCK SODER

People below a certain age might like “baller” to describe the residence at the top our of Largest Home Sales of 2019 list.

It would be appropriate: former Cleveland Cavaliers coach Tyronn Lue used to live there.

The lakeside Bay Village home — which includes a tennis court, a fitness center, a spa and a theater, according to Realtor.com — was acquired in June 2019 for $3.65 million by Englewood Real Estate LLC, a company tied to Codonics CEO Peter Botten.

The seller, however, was not Tyronn Lue, who the Cavs fired in October 2018.

About six years ago, the two-parcel property was acquired by two LLCs tied to Wael K. Barsoum, CEO of Cleveland Clinic Florida. Barsoum signed the deed that transferred the properties to Englewood.

This list often includes sports executives and players, who not only make good money but often change cities when they change jobs.

The full digital list, which includes

Former Cleveland Cavaliers coach Tyronn Lue previously lived in this Bay Village home, which tops our Largest Home Sales of 2019 list.

The home includes a tennis court, a fitness center, a spa and a theater. | REALTOR.COM

use 11:03 a word 4/20/20 AM

91 Northeast Ohio home sales over $1 million, includes homes sold by Juliet Korver (wife of former Cavs player Kyle Korver), former Browns head coach Hue Jackson and former Browns offensive coordinator Todd Haley.

And though Alec Scheiner stepped down as Browns president in 2016, he still lives here. He and his wife Nadya acquired the Shaker Heights home at No. 60 on the full digital list for $1.2 million.

A few people appear in both the

buyer and seller columns, including Elliott Dean Fisher, ex-husband of billionaire Nancy Lerner, daughter of the late Al Lerner.

Fisher in July sold a home on Avalon Drive in Rocky River for $1.95 million, which ties it for No. 11 on the list.

Then, a week later, he bought a bigger home along the lake in Bay Village for $2 million, putting it at No. 9.

Chuck Soder: csoder@crain.com, (216) 771-5374, @ChuckSoder

THE LIST

Largest Home Sales of 2019 Ranked by price ADDRESS

SALE PRICE

BUYER

SELLER

SQUARE FEET YEAR BUILT

1

24524 Lake Road Bay Village, 44140

$3,650,000

Englewood Real Estate LLC

24524 Lake Road LLC and 24528 Lake Road LLC

2

1709 Berkshire Road Gates Mills, 44040

$3,500,000

Matthew J. and Elizabeth J. Horvitz

3

671 Club Drive Aurora, 44202

$2,650,000

4

31964 Lake Road Avon Lake, 44012

5

RANK

SALE DATE

COUNTY

9,073 2004

June 13, 2019

Cuyahoga

Robert Jay and Jennifer Lynn Davisson

11,054 1994

Aug. 2, 2019

Cuyahoga

7545 Cottonwood Trail LLC

John Norman (trustee)

8,464 2008

May 28, 2019

Portage

$2,635,000

Allison McMeechan

Sandra Haas

17,432 2003

Oct. 30, 2019

Lorain

31810 Lake Road Avon Lake, 44012

$2,590,000

John Blair and Nicole Bickerstaff

Calvin Booth

11,477 2002

July 9, 2019

Lorain

6

30336 Lake Road Bay Village, 44140

$2,395,000

Bay View Enterprises LLC

30336 Lake Road LLC

5,570 2000

July 29, 2019

Cuyahoga

7

200 Aspenwood Drive Moreland Hills, 44022

$2,250,000

Sundaram and Anandhi Nagarajan

Charles L. Immel

7,467 2015

Sept. 6, 2019

Cuyahoga

8

19200 South Park Blvd.

Shaker Heights, 44122

$2,200,000

M. Lily Datta and Alan Peyrat

Zoya Reyzis

6,746 1929

April 15, 2019

Cuyahoga

9

31012 Lake Road Bay Village, 44140

$2,000,000

Elliott Dean Fisher

John P. Lanigan Jr.

5,869 1910

July 19, 2019

Cuyahoga

10

31700 Fairmount Blvd.

Pepper Pike, 44124

$1,975,000

Parkwood Trust Co. (trustee)

Mark J. Saltzman (trustee)

3,834 1957

Sept. 12, 2019

Cuyahoga

11

20942 Avalon Drive Rocky River, 44116

$1,950,000

Andrea Kerzner and Jeremy Thompson

Elliott Dean Fisher

4,040 1929

July 12, 2019

Cuyahoga

12

19001 South Park Blvd.

Shaker Heights, 44122

$1,900,000

Michael and Brett Glotzbecker

Patrick Tournoy and Maria Teresa Tejada

8,858 1923

June 27, 2019

Cuyahoga

12

29202 Lake Road Bay Village, 44140

$1,900,000

David M. and Elisha F. Yin

Thomas W. and Marianne B. Stockett

4,451 1995

Oct. 30, 2019

Cuyahoga

14

2531 Deer Hollow Hudson, 44236

$1,875,000

Matthew Kaulig

Bryan A. Weber (trustee)

8,415 1986

Feb. 5, 2019

Summit

15

24458 Lake Road Bay Village, 44140

$1,850,000

Scarlett BV LLC

Martin C. and Ann K. Tarr

3,962 1916

Dec. 16, 2019

Cuyahoga

15

32434 Lake Road Avon Lake, 44012

$1,850,000

Mary and Steve Lasky

Edward Gary and Mary Lynn Laughlin

7,247 2001

July 8, 2019

Lorain

15

665 Hardwick Drive Aurora, 44202

$1,850,000

Nykole J. Morgenroth (trustee)

Dean K. Ganzhorn (trustee)

8,983 2005

Oct. 4, 2019

Portage

18

12325 Lake Shore Blvd.

Bratenahl, 44108

$1,800,000

Aurn D. and Annapurna Singh

Safa Iranpour

6,601 2004

July 31, 2019

Cuyahoga

18

32000 Lake Road Avon Lake, 44012

$1,800,000

Todd Walker Stultz and Allison Therese Videmos

Laura and Michael Cancelliere

8,650 2012

Jan. 22, 2019

Lorain

20

7650 Deerfield Road Gates Mills, 44040

$1,791,178

Clara Hale LLC

Wilkinson Hale LLC

4,906 1963

May 24, 2019

Cuyahoga

21

3364 Bradley Road Westlake, 44145

$1,765,000

Sean W. and Teresa B. Hardy

Edward G. Ptaszek (successor trustee)

8,669 2002

Aug. 13, 2019

Cuyahoga

22

2925 Som Center Road Hunting Valley, 44022

$1,705,000

Todd E. and Ann Intili Gardiner

Hewitt J. and Alison McCloskey

7,084 1999

June 12, 2019

Cuyahoga

23

24559 Eagle Pointe Court Columbia Station, 44028

$1,617,500

Daniel Davillier

Christopher Snakovsky

8,064 2011

Sept. 6, 2019

Lorain

24

358 Lake Park Drive Bay Village, 44140

$1,600,000

Katherine A. Rotuno (trustee)

Susan Zanetti and Chris Zirafi

3,430 2013

Dec. 17, 2019

Cuyahoga

24

552 Club Drive Aurora, 44202

$1,600,000

Steven J. Baltas and Tricia A. Salupo

Prestige & Premier Cos.

4,174 2017

May 9, 2019

Portage

24

6578 Chestwick Lane Hudson, 44236

$1,600,000

Natalie E. and Jeffrey B. Chaney (cotrustees)

James Edward Rodgers (trustee)

5,410 2010

Nov. 14, 2019

Summit

27

13025 Lake Shore Blvd.

Bratenahl, 44108

$1,570,000

13025 Lake Shore LLC

13025 Bratenahl LLC

4,566 2001

Sept. 27, 2019

Cuyahoga

27

7325 Calley Lane Novelty, 44072

$1,570,000

Calley Lane LLC

Diane E. Waxman (trustee)

7,191 1992

Nov. 1, 2019

Geauga

29

1169 State Route 43 Suffield Township, 44260

$1,553,015

James & Gaynor Dunlop Real Estate LLC

Mogadore BTS Retail LLC

1,195 1910

Oct. 18, 2019

Portage

30

5 Lake House Lane Hunting Valley, 44022

$1,550,000

Lake House Lane #5 Holdings LLC

Karen A. Miller (trustee)

4,419 2007

Aug. 28, 2019

Cuyahoga

31

560 Bristol Drive Aurora, 44202

$1,525,000

Steven T. and Barbara A. Benz (trustees)

William T. and Theresa A. Averitt

5,783 2014

April 15, 2019

Portage

32

21475 Avalon Drive Rocky River, 44116

$1,500,000

Heidi and John Petz

R. Scott Thomas

5,058 1998

July 1, 2019

Cuyahoga

33

4722 Kingsbury Trail Richfield, 44286

$1,470,000

Thomas J. and Michelle R. Depolo

Stuart T. Wise

5,913 2017

Sept. 24, 2019

Summit

34

22011 Avalon Drive Rocky River, 44116

$1,425,000

Carlin Holdings LLC

Justin Borra

4,839 1941

May 29, 2019

Cuyahoga

35

22158 Lake Road Rocky River, 44116

$1,400,000

Gordon R. and Cara M. Daily

Christopher R. Hill (trustee)

5,424 1957

Sept. 11, 2019

Cuyahoga

RESEARCHED BY CHUCK SODER: CSODER@CRAIN.COM

To get all 91 homes sales on this list in Excel format, become a Data Member: CrainsCleveland.com/data

This list includes individual home sales over $1 million for Cuyahoga, Summit, Geauga, Lake, Lorain, Portage and Medina counties. Data is from county records. The list excludes vacant land sales, sheriff's sales and non-arms-length transactions (sales categorized as "not valid"). Send feedback to Chuck Soder: csoder@crain.com.

May 11, 2020 | CRAIN’S CLEVELAND BUSINESS | 15

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CRAIN’S CLEVELAND BUSINESS

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S E P T E M B E R 3 - 9 , 2 018

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AKRON HEALTH CARE

Consolidus switches gears to provide protective equipment When crisis disrupted its business of branded products, firm turned to procuring masks, gowns “WE WERE FORTUNATE IN THAT WE HAD SOME OF OUR KEY SUPPLIERS, WHO HAVE BEEN LONG-TIME PARTNERS, THAT STARTED TO MAKE OTHER PPE PRODUCTS. THE SAME WAY WE WERE MANEUVERING AS A DISTRIBUTOR, OUR SUPPLIERS WERE ALSO MANEUVERING AS SUPPLIERS.”

BY DAN SHINGLER

Based in Akron’s Bounce Innovation Hub, the firm Consolidus specializes in helping its clients manage their brands, especially in terms of keeping messages, logos and trademarks consistent on branded promotional items they use at events like conferences and trade shows.

But, of course, during the COVID19 pandemic, no such events are taking place.

So Consolidus took a step back and realized one of its core competencies was procurement and that a good chunk of its customer base consisted of health care and senior living businesses. The company started finding them personal protective equipment (PPE) that was in short supply.

Consolidus founder and CEO Jeffrey Jones knew how important PPE is from his former career as an Akron firefighter. He also knew how to find it and knew he had 20 employees with not enough to do. Jones said the company had built some cash reserves, but he knew they’d run out at some point if he didn’t find a source of new revenue.

“That was only going to take us so far, so we had to prioritize finding new service and sales opportunities,” Jones said. “Right away, we knew we were going to do whatever it took to keep our staff working full time.”

If you’ve attended a trade show or conference and picked up a branded

— Jeffrey Jones , Consolidus founder and CEO

water bottle, T-shirt or other giveaway item with a logo on it, you might have gotten a product Consolidus supplied. That was the bulk of the company’s business before it dried up in February, Jones said.

“We experienced an immediate decline in orders,” he said. “We started tracking it on Feb. 24. … What we saw was the cancellation of orders coming in, and this is consistent with our industry now. Buying was down about 80%.”

Jones thought about how he could keep his business intact, serve his clients and bring in some revenue. On top of its 20 existing staffers, Consolidus had recently extended job offers to two more candidates whom Jones

didn’t want to lose. The firm had grown recently, so it was investing in new people, he said.

Some of that growth was in the form of new clients in the health care arena. At the beginning of the year, Consolidus won the business of the National Association of Community Health Centers (NACHC), a Bethesda, Md.-based trade organization that works with and represents more than 1,400 community health care providers.

On top of that, Consolidus had other clients already in similar industries, including LeadingAge Ohio in Columbus, an association representing more than 400 long-term care and senior living facilities across the state.

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LeadingAge Ohio and other clients badly needed PPE. Many of the people their members care for are older or have pre-existing conditions that can make COVID-19 a deadly threat.

But the organizations haven’t been getting PPE. “There remains a widespread shortage of protective gear — such as surgical and N95 masks, goggles and gowns — which has made it difficult for health center staff to safely screen patients for COVID-19,” said Amy Simmons, director of communications for NACHC, in an email.

“Health centers are getting PPE supplies where they can — from local and national businesses, veterinary practices, construction companies and relief organizations, even schools and art reconstruction companies.”

Consolidus went to work to help fill that gap in March, Jones said. Its first project was to get hand sanitizer to its clients, and that was fairly easy, he said.

“Hand sanitizers had been a popular item in our industry for years … and we knew immediately that product was available and we quickly began offering that,” Jones said.

But hand sanitizer wasn’t going to fully help Consolidus’ clients or bring in the new sales Jones needed. So, he started contacting other vendors, especially those who made textile items.

“We were fortunate in that we had some of our key suppliers, who have been long-time partners, that started to make other PPE products,” Jones said. “The same way we were maneuvering as a distributor, our suppliers were also maneuvering as suppliers.”

Instead of shirts and banners, Jones found his vendors were making masks, face shields and surgical gowns. Consolidus began offering those items, and they were a hit, he said.

A month or so into the process, in late April, the company even began offering some of the items with branding, meaning a client could get gowns or masks with its logo on them.

Finding and selling PPE is what Consolidus is primarily doing now as it waits for the crisis to pass. The business likely will go away when traditional supply chains for PPE recover, but in the meantime, Jones said he’s keeping his business afloat.

He’s even been able to follow through on the two new hires he agreed to make, and those new employees are part of the PPE effort, he said.

Jones is also hoping the work helps cement his reputation as a reliable supplier with existing clients and possibly brings in new ones. That appears to be what’s happening.

“They’ve always been really helpful to us in getting branded material before, but it was really helpful when they made that shift to PPE,” said Patrick Schwartz, director of communications for LeadingAge Ohio.

In normal times, LeadingAge doesn’t get very involved in its members’ supply chain issues. It has partners that provide some PPE and other supplies, and members often buy from them.

But the traditional supply chains for PPE were broken, Schwartz said, so help was sorely needed.

“The whole system has been under pressure because of this situation. …

So when any new opportunity to get PPE pops up, everyone is interested,” Schwartz said.

Consolidus isn’t going to replace traditional PPE supply chains, nor does Jones want to do that. He wants to get back to his traditional business, but the company’s efforts have helped.

“It helps put out fires when you have outfits like Consolidus help our members. Every little option is helpful,” Schwartz said.

Consolidus will be happy to go back to its original business, Jones said. But, he added, if some clients want to continue buying branded PPE in the future, he might have another stream of revenue to boot.

Dan Shingler: dshingler@crain.com, (216) 771-5290, @DanShingler

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16 | CRAIN’S CLEVELAND BUSINESS | MAY 11, 2020

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COPING WITH COVID-19

VIRTUAL

From Page 1

Within days, the Doctella software, paired with a single-patient-use pulse oximeter, was in the hands of the first of more than 100 UH patients who have since used the technology to monitor their symptoms from home.

For years, Pronovost said, digital health options like virtual visits and remote patient monitoring were “more of a hobby” than a core way of operating. Systems had technology available through pilots or limited programs but didn’t implement it broadly largely due to reimbursement and regulatory limitations, along with a lack of significant patient demand.

“It was more still viewed as an innovation rather than routine operations, and that changed radically with COVID,” he said.

As nonessential services were postponed and Ohio's stay-at-home order enacted, providers scrambled to rapidly expand remote care options for patients. Virtual visits with doctors skyrocketed and remote patient monitoring became a priority.

Cleveland Clinic worked with Epic, its electronic health record vendor, to create and launch a home monitoring program for COVID-19 patients. MetroHealth ordered kits to send patients home with an iPad and a selection of different Bluetooth-connected devices to track symptoms at home. And local biotech companies quickly stepped up to offer their own solutions.

Remote monitoring has been around in some form for years, with patients monitoring their blood sugar levels or taking their blood pressure from home. The technology progressed with features like Bluetooth capability and the option to track historical averages to signal when a metric is out of a patient’s normal range.

Over time, the tech has become less expensive and easier to use, said Dr. Nick Dreher, medical director for population health at MetroHealth.

In recent years, remote patient

STARTUPS

From Page 1

It’s not all bad news. Some young companies are growing and hiring. It also appears that the new-money spigot hasn’t been turned off entirely as the economy soured.

There are several venture firms and small business advisers in the region that can help companies over this hump if they need it, said Todd Federman, managing director of North Coast Ventures, an investment fund that focuses on early-stage companies.

“There are two different worlds for startup founders right now,” he said.

“For some, it’s just been a destabilizing event, personally and professionally, and it’s taken them drastically off course as far as accessing capital, continuing with their plans to build and sell a product. And for others, for various reasons, it’s just been a little speed bump.”

Federman said that while one company in the North Coast Ventures portfolio has seen sales drop 95%, another portfolio company had its sales double from March to April.

“There are companies where their customers need them more and there are companies where customers need them less,” he observed.

“One of our (portfolio) companies, Remesh, for example, does webbased focus groups. So if you’re a

monitoring has been an option used to care for patients who may not be sick enough for an admission, but who doctors don't want to send home without support. Instead of these patients spending a night in observation or hours in the emergency department, technology allows doctors to monitor them remotely — an approach accelerated by the pandemic, Dreher said.

It also helps doctors feel comfortable discharging patients a bit earlier.

MetroHealth recently sent its first two patients home with an iPad and Bluetooth-connected thermometer, blood pressure cuff and pulse oximeter. The system purchased various devices that can be added as needed, such as scales, stethoscopes and cameras. MetroHealth initially purchased 15 kits but plans to have 50-60 in total in the coming weeks.

In partnership with Epic, the Clinic designed and launched a tool that surveys patients about their symptoms and alerts clinicians to new or worsening issues.

Patients can enter some symptoms without any sort of device (are they experiencing nausea, weakness or company and you want to put together a focus group, you’re not going to get 15 people in a room right now, but you can have a Remesh focus group tomorrow.”

Another encouraging story comes from Monarch Teaching Technologies Inc., based in Cleveland’s Midtown. Growing out of a nonprofit that assists children with autism, Monarch has developed an app, Vizzle, for online learning for students in special education. It raised money from JumpStart and others in 2017 for product development and to bolster its sales and marketing program.

“Now that schools are closed, teachers were scrambling to find digital solutions specifically for special needs children,” said Hardik Desai, a senior partner for investing at JumpStart, in a telephone interview at the end of April. “Literally in the last four to six weeks, they have added 4,000 teachers, double the number of teachers on the platform.”

Another JumpStart portfolio company, Wisr, also is in the online education space. Wisr’s technology helps college and university admissions departments stay in touch with admitted students, and Desai said it’s hiring. “(Wisr) is seeing great, great growth in the current environment because its product is suited for remote communication, but they were a small team and they needed to

University Hospitals has partnered with Masimo, a medical technology company, to pilot a remote patient-monitoring option that is designed to help clinicians care for patients remotely with a finger sensor and phone app. | CONTRIBUTED

shortness of breath?), but getting specific metrics for other symptoms isn’t as simple.

While many people may have access to a thermometer at home, other tools, Dreher such as a pulse oximeter or blood pressure cuffs, aren’t common household items. For the past few weeks, the Clinic has offered such options when discharging some patients, said Dr. Eric Boose, the Clinic’s associate chief medical information officer.

Automating patient check-ins frees up staff who would be manually calling individuals and also allows those who engage with the tool far more regular contact with the health care team.

“They would be able to engage on a daily basis and be more in tune with what’s going on with them much

Desai

Jeans

have more people,” he said. “Our talent team jumped in and started recruiting for Wisr, and we filled a couple positions on the software side for them in a very short period of time.”

Not every young company, though, has a product that the current climate nurtures. Desai’s team at JumpStart, as at other venture funders, is working to advise struggling companies and find ways to help them survive.

“We are trying to be honest, we are trying to be upfront with them, that we are here as a resource to do anything and everything we can to help them,” he said. “In a handful of cases, the management teams have begun doing reductions in payroll, particularly beginning with the leadership teams, and they are working on interim bridge funding working with their investors. The other thing we have done is we have looked at the federal programs and if any of our companies can benefit from them. A handful of them do and they have applied.”

Diener

D’Anza

more than having, let’s say, a telephone-call touchpoint a few weeks or a few months at a time,” Boose said.

In January, Dr. Brian D’Anza, president and CEO of SmartDocMD, started seeking a way his Cleveland company could respond to COVID-19. It already had an algorithm that could screen patients for various acute issues, such as a sinus infection, yeast infection, cold or cough.

SmartDocMD teamed up with GeneratorWorks, an Akron portfolio of several health care companies, to modify the algorithm and create SeAlthough the economy is not likely to brighten soon and investors may be more wary than usual, they haven’t stopped writing checks.

In a JumpStart webinar on April 23, “Raising Capital in the Midst of COVID,” investor Morris Wheeler, founder and principal of Drummond Road Capital in Shaker Heights, offered encouragement to entrepreneurs who are looking for money to extend the time they have to turn their startup into a revenue generator — what the investment community calls “runway.”

“There are a number of new deals that have been placed, and the deal flow has been, I would say, typical to strong in terms of the number of deals that we’re seeing,” said Wheeler. “If there is anything that makes a company feel better during a period of uncertainty, it’s runway. I would guess that probably like 20% or 30% of our existing portfolio companies that are still in early stage are going back out to the markets to try to build additional runway.”

The advisers also have recommended that some of their portfolio companies pursue forgivable Paycheck Protection Program (PPP) loans, under the federal Coronavirus Aid, Relief and Economic Security (CARES) Act. Desai said several have gotten federal money, while several others have not.

However, Michael Jeans, president and CEO of Growth Opportunities

curePassDX, which can screen patients with a two-and-a-half-minute survey that provides risk information and suggests next steps for care.

Employers can also use the tool to check how their employees are doing over time with their symptoms, which can help them determine who needs to stay at home and who can come into work, said D’Anza, who’s also medical director for telehealth at UH. As COVID-19 hit, Emanate Wireless, a Cleveland health care technology company with technology that monitors cold storage equipment, found it harder to deploy its product as hospitals began limiting vendors, and pilots it had scheduled this year for new technology were slowed. Neil Diener, Emanate CEO, said a local health system asked the company to find a way to monitor patients recuperating at home.

Drawing on motion-detecting technology in phones, Emanate developed an app to measure users’ respiratory rate. Patients can lie down, rest a phone on their stomach and let it measure the up-and-down movements of breathing. The app is still under evaluation by the health system and not currently live.

Chad Zimmerman, executive-inresidence at BioEnterprise, said that as patients try out different digital health options, they’re warming up to the technology. He added he expects consumers will want to continue having such tech as an option in the future, but reimbursement models, which have historically favored in-person visits, will determine whether health care systems can continue to offer it.

Boose said the pandemic has been “transformational” in how care will be delivered in the future.

“Going forward, when things are settling down and we’re opening up to see patients in person, I will see sort of a hybrid state that will be permanent, where we see some patients face-to-face and other patients virtually for years to come,” he said.

Lydia Coutré: lcoutre@crain.com, (216) 771-5228, @LydiaCoutre Partners, is cautioning the businesses he works with to be careful to adhere to the requirements of their PPP loans.

The nonprofit is a JumpStart offshoot that offers lending and coaching assistance to companies — from hair salons to small manufacturers — with the potential to grow but that have been unable to secure funds from traditional banking sources.

Business owners, Jeans said, must be sure their paperwork indicates that they have allocated 75% of the loan money to payroll expenses. Anything less — for example, spending too much of the loan proceeds on rent or utilities — could mean the PPP money would have to be repaid.

More broadly, Jeans sees a silver lining for some companies in the current economic slowdown.

“This is the perfect time for business owners to retool themselves, to adjust, to take the online class, to follow the curiosity of learning about how to do a thing better or smarter or faster,” he said. “I can’t point to many instances when these opportunities make themselves available, and I can point to thousands of scenarios and conversations when people have wished and hoped for time to strategize. A lot of time is spent doing, but they are hardpressed to find time to blue-sky.”

Jay Miller: jmiller@crain.com, (216) 771-5362, @millerjh May 11, 2020 | CRAIN’S CLEVELAND BUSINESS | 17

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COLLEGES

From Page 1

Fall is the “great unknown,” said C. Todd Jones, president and general counsel of the Columbus-based Association of Independent Colleges and Universities of Ohio.

Jones isn’t too concerned about a precipitous drop in enrollment. Current students will be motivated to complete their studies, he said, and it would be difficult to work or travel during a “gap year.” But a recession could diminish families’ ability to pay for tuition.

And social distancing measures will lead to more costs for colleges and universities. For example, to make classes smaller, a school may run more sessions, which could mean they need to hire more adjuncts, he said.

At Hiram College, leaders will promote social distancing by giving all students their own dorm rooms, but that comes at a cost.

The small liberal arts school has a large campus and a lot of facilities, which president Lori Varlotta said gives it an advantage in terms of being able to safely space out. To offer all students their own rooms, Hiram will make use of residence halls that it had temporarily stopped using or that it was using in a diminished capacity as it prepared to renovate them. Traditionally, students share a room with a roommate or pay extra for their own room. To make up the lost revenue, the college will rely on external grant funding and philanthropy, Varlotta said.

Cuyahoga Community College plans to start slowly bringing staff back when the state’s Stay Safe Ohio Order expires, with a current goal of early June, said David Kuntz, execu-

Hiram College has a large campus, giving it an advantage in safely promoting social distancing for students and faculty. | HIRAM COLLEGE

tive vice president of administration and finance.

That means planning — and purchases — have already begun for different possible phases. The college has installed floor markers and dividers where appropriate, and removed and spread out furniture from study areas. It has plans to distribute PPE and to move classes to larger rooms.

In the past couple of months, Tri-C has spent about $1 million on these kinds of additional expenses, Kuntz said. And it expects to spend about the same in additional costs over the next fiscal year.

The costs of the pandemic could add up to $6.6 million by the end of the current fiscal year on June 30, Kuntz said. The vast majority of that would be from lost revenue in areas like state funding, tuition, facility rentals and contract training.

Advertising Section

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Vitamix announces Steven C. Laserson as its first-ever chief commercial officer.

In this newly created position, Laserson will provide the leadership to drive business growth and increase market share for Vitamix. He’ll oversee the successful integrated process of bringing product innovations to market and ensure all aspects of marketing, brand, sales, product management and engineering are working together to propel the overall Vitamix strategy and deliver on company goals.

At Kent State University and Youngstown State University, committees are working on plans to help safely reopen their campuses.

Youngstown State’s groups include one on “financial realities,” which ac-

“PRESIDENTS HAVE BEEN KICKING THE CAN DOWN THE ROAD, AND NOW THEY’RE IN A CUL-DE-SAC.” ——Ned Hill, professor of economic development at Ohio State University

cording to a news release will include a focus on the best use of resources for the university’s future. Kent State’s board of trustees already has passed cost-cutting measures to lower or freeze salaries for many of its employees, and the university will offer a vol-

BANKS

From Page 3

Bad banks bear the responsibility for enabling the last downturn with shady lending and business practices, whereas today’s downturn is rooted in a public health crisis. While the Great Recession necessitated a change in how we thought about banking, today’s pandemic necessitates a revamping in how we think about public health.

So while this recession evokes memories of the last, it’s fundamentally different when viewed through the lens of the financial services industry.

At the same time, uncertainty is the theme of today’s world and the recession it’s causing. While risk-management models are much tighter today, none of them accounts for massive unemployment, which soared to a rate of 14.7% this month, noted Kevin Jacques, a former economist with the U.S. Trea-

RANTALA

From Page 9

These are three key questions: 1) What faults have been exposed in your supply chain during the crisis? And what opportunities have been presented?

2) Assuming a national policy to encourage reshoring (there are already several bills working through Congress to help with reshoring efforts), what U.S. companies with Chinese facilities are targets to be relocated? Which of those fit with the resources of Northeast Ohio? What regulatory or other obstacles do you see?

untary separation incentive program.

The University of Akron’s plans have been among the most drastic announced thus far.

In late April, the university announced that it would shrink the number of colleges it had, refine its research mission and trim the athletics program.

In some ways, this work had begun well before the pandemic. In late 2018 and early 2019, prior to president Gary Miller joining the university, Akron had started looking at potentially reorganizing its colleges.

After feedback from the community, that plan was put on hold.

“President Miller initiated a strategic planning process last fall meant to achieve a stabilized financial position in three years,” an email from the university said. “As was mentioned in his video message last week, the in-

tention was to present a full strategic plan to the Board of Trustees at its June 2020 meeting. We were well on our way to achieving that goal, but the pandemic has put that process on hold while accelerating the need to address revenue losses, the impact of the pandemic on our students and our redesigned path forward.”

According to a recent video from the University of Akron, revenue could drop by $65 million a year. The latest reorganization plan would see the university cut its colleges from 11 to five. Notably, the proposal would move the university’s existing education and polymer colleges into new structures instead of leaving them as standalone colleges.

The university email noted that Akron has lost funding from room, board and fee refunds; NCAA payments and other athletics revenue; campus space rentals and E.J. Thomas performances. Philanthropy is also down, and enrollment is expected to drop by 20% in the fall.

The financial issues higher education institutions are facing during the pandemic don’t exist in a vacuum.

Ned Hill, professor of economic development at Ohio State University, said regional state colleges, like the University of Akron, have been struggling financially for at least the past five years. They’ve faced changes to state funding and demographics, but he also thinks some of the changes they’ve made to attract residential students caused them to over-expand. The COVID-19 pandemic and a potential recession just expose and expound on these existing issues.

“Presidents have been kicking the can down the road, and now they’re in a cul-de-sac,” Hill said.

Rachel Abbey McCafferty: (216) 771-5379, rmccafferty@crain.com

sury and current Boynton D. Murch Chair in finance at Baldwin Wallace University. Today's unemployment levels are not factored into current models, he said, meaning there's potential for significantly more loan losses than what banks have been planning for.

Couple that with petering commercial and consumer loan demand during a downturn, and the low value of loans made at a time when interest rates have fallen back to rock bottom. Bank profitability undoubtedly will suffer for an unknown period of time, and pockets of existing loans inevitably will go bad.

To counter this, the Fed has taken crisis-related steps to support bank liquidity, which is something unique from the last recession.

The greatest uncertainty, however, is how long this pandemic will last. An economy reopening too soon without proper testing or vaccines could have the countereffect of causing a fresh wave of illness that could force states

to return to shelter-in-place orders that shut businesses, keep consumers at home and stall economic growth.

“Obviously, an extended shutdown of the economy, a resurgence of the virus leading to a second shutdown, may have grave consequences for some businesses,” said James Gasior, president and CEO of Cortland Bank. “However, I personally do not envision broad bank failures to occur throughout the industry."

Ohio banks generally are in solid shape, but with the future uncertain, that situation may change.

“Our banks are in great position to sustain several months of issues caused by deferments and so on,” Thurston said. “If this lasts just two to four months, the picture is going to be looking pretty good. Banks can absorb that. But if it really stretches out, there’s where we are going to run into problems.”

3) Assuming a timeline of three to five years, what talent/skills do we need to address to prepare for these new opportunities? How do we address the loss of additional retiring baby boomers? And what training programs do we have to ramp up now? Can those programs help close the inequality income gaps in the minority communities?

Third, we need to assemble a fund to use as seed money for a deal closing fund to bring these deals to Northeast Ohio. These funds can come from the philanthropic community, JobsOhio and the business community. The opportunity zone sites should be of value as well.

Fourth, we need to assemble five

dealmaking strike force teams; one each for medical PPE, medical technology, pharmaceuticals, advanced manufacturing and workforce/training. The teams will aggressively pursue the opportunities identified by the responses to these three questions.

We should be prepared to identify and pursue these prospective businesses by the fourth quarter of 2020.

The ability to get a plan in place immediately is critical. Too often communities get lost in “analysis paralysis”.

One of my favorite quotes is from George S. Patton, who said, “A good plan executed today is better than a perfect plan implemented tomorrow.” Let’s get started now.

Jeremy Nobile: jnobile@crain.com, (216) 771-5362, @JeremyNobile

18 | CRAIN’S CLEVELAND BUSINESS | May 11, 2020

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5/8/2020 1:37:35 PM

CRAIN’S CLEVELAND LOOK BACK | BANKING

Consolidation has reshaped industry Northeast Ohio’s rich banking history stems from its heyday as an epicenter for commercial and industrial business. While still a major metro, the Cleveland area — which saw the founding of The Standard Oil Co. and the development of a massive steel industry that has waned in modern times — isn’t the economic powerhouse it was decades ago. As the region has evolved in just the past 40 years, so has its banking sector, which is consolidating growing assets among fewer players, presenting both pros and cons for the people and companies that use them. — Jeremy Nobile

``THE HISTORY

``WHY IT MATTERS TODAY

From mergers spurred by the collapse of the real estate market in the 1980s and the financial crisis of 2008, to key strategic buys by dominant firms like JPMorgan Chase, consolidation is the main chisel that’s shaped the face of banking Northeast Ohio knows today. Where some deals are plays for capital and market share, others, especially in recent years, are often motivated by add-on benefits like technology platforms or income-generating businesses or processes.

Federal Deposit Insurance Corp. data show that in 1994 (the furthest back its online database goes), Ohio had 437 active banking institutions holding $127 billion in deposits. As of mid-2019, there were 217 banking companies in the state managing a deposit market of nearly $370 billion.

In other words, three times as much deposit capital is now controlled by half as many banks compared to 25 years ago. This has made the surviving companies even more powerful and profitable while widening the gap between the largest companies and smallest community banks. Big banks have grown even bigger, exponentially faster, than their smaller counterparts.

Those trends have created the major banking players the market knows today, from KeyBank, Cleveland’s only locally based regional

Ohio overall, and Cleveland in particular, was at one time a crowded and exceptionally competitive banking market, its bustling financial services industry an endorsement of the wealth and business activity generated here.

That’s changed some over the last 40 years. The market is still fragmented, to be sure, especially compared to neighboring states. There’s still plenty of competition among banks large and small.

At the same time, the market isn’t what it once was. Local names have steadily given way to out-oftown owners, chipping away at some of the civic pride that comes with homegrown brands. The loss of National City in particular was a blow to Cleveland’s corporate identity, its fall from grace a microcosm of a Rust Belt city’s experience working to elevate itself from a being perceived as a “mistake on the lake.”

Beyond shaping Cleveland’s identity, in practical terms, fewer banks today — especially fewer locally based institutions — means less focus on the city and its people. There’s value to having executives based in a particular market, making business and credit decisions locally and funneling charitable efforts to the institution’s hometown. Fewer boards of directors and CEOs in the region means less attention to the market itself.

Sure, all banks are active philanthropically. And a larger bank can cover larger loans for larger companies while purportedly offering better service via its sizable back office and total resources.

But the local connectivity is missed. It means less competition for loans, mortgages and deposits — competition that tends to benefit customers — and gradually less focus on the region itself.

In that sense, the market is worse off today than in decades past.

KeyBank has had an impact on a lot more than just Cleveland’s skyline. | DAVID KORDALSKI

bank — a mark of pride for a city that lost other big names, like National City and AmTrust — to

groups like PNC and Chase that are among the dominant banking companies in the market.

``IN THEIR OWN WORDS “We were worried about our business in 1995 and 1996. We saw a shrinking market for banks, with increased competition, and we didn’t think we could grow our business solely with expense reduction.”

——Victor Riley, chairman of KeyCorp during its acquisition of Society Corp., discussing motivations of the deal. The New York Times, 1993

CLAIMS

From Page 6

The association’s position is that the federal government should create a financial backstop for the industry: a Pandemic Risk Insurance Act — similar to the Terrorism Risk Insurance Act enacted after the 9/11 attacks — that would help insurance companies cover business losses.

Rather than have funds flow through banks, Barker said insurance companies are better situated to investigate losses, determine loss amounts and process business interruption claims.

“The insurance companies are already set up for this,” he said. “They have deep relationships, know the businesses — and if it was just the restaurant industry to start, it would not be such a massive undertaking.”

Pointing to federal bailouts for the

“Lovely deal. They would command a wider geography and they could cross-sell products more easily. A combination would be better than the sum of the parts.”

——Michael Stead, who managed a Wells Fargo fund that owned shares of Bank One and JPMorgan Chase, commenting on their merger. Reuters, January 2004

banking, automotive and, most recently, the airline industry, Barker said he believes it the restaurant industry should be next.

“This is going to be critical to the rebound of the economy,” he said.

As more and more companies sought business insurance claims in March, more than a dozen members of Congress wrote a letter to insurers, urging them to “work with your member companies and brokers to recognize financial losses due to COVID-19 as part of policyholders’ business interruption coverage.”

State Rep. Jeffrey Crossman, D-Parma, is the primary sponsor of House Bill 589, which would require insurers offering business interruption insurance to cover the losses as a result of “viruses and pandemics” for businesses with 100 or fewer fulltime employees.

“I think that a lot of people thought

“The prominence of the state has diminished significantly.”

—Scott — O’Donnell, retired state superintendent of financial institutions, commenting on the loss of banks like AmTrust and National City, among others, and its impact on Ohio. Crain’s Cleveland Business, December 2009

that interruption insurance would cover them in a situation like this and people are finding out for the first time that it would not, and that has people upset,” Crossman said.

He said there needs to be a conversation regarding insurers’ role in the state’s economic recovery.

“The insurance industry is sitting on $800 billion in reserves, and they will say that is money set aside in case of a hurricane or a wildfire, but we don’t have hurricanes and wildfires in Ohio,” Crossman said, adding that the legislature should weigh in on whether it’s acceptable for insurance companies to exclude pandemics from coverage.

“I think unless there is national or state legislation, it could be a caseby-case or a policy-by-policy decision and people will have to get recourse in the courts, which is going to be much more costly for business

in the long run,” Crossman said.

Insurance groups have pushed back on any pressure, legislative or otherwise, that would force payment on policies not designed or priced to provide coverage against communicable diseases such as COVID-19.

Insurers will have the opportunity to debate the merits of HB 589.

On an earnings call in April, Evan Greenberg, chief economic officer of global insurance company Chubb Ltd., addressed the issue of COVID-19 claims, saying that any legislative measures forcing insurance companies to pay for exempted claims would be unconstitutional. He cautioned that the economic cost would strain the industry’s earning and capital positions.

“This event will be the largest event in insurance history,” Greenberg said.

Kim Palmer: kpalmer@crain.com, (216) 771-5384, @kimfouroffive

crainscleveland.com

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May 11, 2020 | CRAIN’S CLEVELAND BUSINESS | 19

P019_CL_20200511.indd 19

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Over $50/mo. in FREE Internet features=

The Price You See Is the Price You Pay. 200Mbps INTERNET

49

$

99 /mo. when bundled for 1 year*

BUSINESS PHONE

+

$

19

99

/mo. per line when bundled for 1 year**

NO ADDED PHONE TAXES. NO HIDDEN FEES.

SWITCH TODAY AND GET MORE VALUE FOR YOUR BUSINESS. Claim your special offer today. Promo code A26N.

844-923-0831

SBIZ-GEN200-0511

Business.Spectrum.com