www.crainsdetroit.com Vol. 30, No. 11
MARCH 17 – 23, 2014
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Hotel squabble booked for court Owner, operator battle over former Dearborn Hyatt
Missing the links? That’s what local courses hope JOHN SOBCZAK
BY SHERRI WELCH
CEO gives students $100K to prove investment thesis As Lansing legislates, Detroit loses $25K a day to metal theft’s corrosive impact
Keyed up: Music college planned for downtown
CRAIN’S DETROIT BUSINESS
The former Hyatt Regency in Dearborn, one of the largest hotels and conference centers in the region, may soon see yet another change in its name and operator. Royal Realties LLC, a group of undisclosed Israeli investors that owns the hotel, is attempting to terminate its management agreement with Atmosphere Hospitality Management Services Inc., which has operated it under its own brand as the Adoba Hotel Dearborn/Detroit
since fall 2012 while negotiating to buy it. The Jan. 22 notice terminating the contract and other alleged breaches of contract spurred Atmosphere Hospitality a day later to file a lawsuit against the hotel’s ownership group in U.S. District Court in Detroit to block the termination and enforce other obligations that include a contract to manage the hotel for a period of time if the sale didn’t go through. U.S. District Judge David Lawson is scheduled to hear arguments March 17 on Royal’s emergency motion to allow it to terminate the contract and to order Atmosphere Hospitality to cooperate in transitioning the hotel to a new, unnamed management company Royal Realties says it has lined up, among other things. See Hotel, Page 15
BY TOM HENDERSON AND NATHAN SKID CRAIN’S DETROIT BUSINESS
Farmington Hills-based Beringea LLC will invest $3 million in a new music college that will open this fall in one of Dan Gilbert’s buildings in downtown Detroit. Detroit’s reputation as a city on the mend hit just the right note with the music educators behind the plan. The Detroit Institute of Music Education — or DIME — was founded by three veterans of the British music industry: Kevin Nixon, Sarah Clayman and Bruce Dickinson. DIME came about after the partners passed on an opportunity to work on a music education effort with “American Idol” and instead were sold on what they call Detroit’s “clean slate” status for this kind of venture. “This is a business model that was perfected in the U.K., and the founders of that business were looking for a spot in the U.S. to take it,” said Rothstein Charlie Rothstein, Beringea’s senior managing director. “And Detroit is the per-
The former Hyatt Regency is now the subject of a dispute between Royal Realties, which owns the hotel, and Atmosphere Hospitality Management Services, which has operated it as the Adoba Hotel Dearborn/Detroit since 2012.
See Music, Page 17
COSTAR GROUP INC.
High-quality heart surgery no longer a numbers game New certificate-of-need rules for Michigan hospitals deemphasize the number of surgeries as quality measurement for open heart surgery, Page 9. On the Web: The online version of this story links to a searchable database of open heart programs at more than 30 Michigan hospitals. See crainsdetroit.com.
Demand drives office/flex construction in west suburbs BY KIRK PINHO CRAIN’S DETROIT BUSINESS
Very low vacancy for specific types of modern flexible or office spaces in western Wayne and Oakland counties is tipping off a wave of new construction. Developers and real estate brokers point to a revived pipeline of build-to-suit building plans. The latest: Southfield-based Etkin LLC announced last week that it plans a 54,000-squarefoot build-to-suit office/flex building at Victor East, located at Seven Mile Road and Victor
COURTESY OF ETKIN LLC
Etkin LLC plans to build Victor East along I-275.
Parkway off I-275 in Livonia. All tallied, at least 318,000 square feet of new office or flex space is planned by developers. That number is expected to grow when South-
field-based developer Redico LLC identifies tenants and specific plans for up to 60 acres of Northville Township land. Flex space is what it sounds like: It’s a mix of office or showroom space in combination with areas that can be set up for labs, manufacturing operations or warehousing distribution. The cost of the Etkin project is estimated at $8.5 million; a tenant or tenants have not yet been identified, said Josh Suardini, vice president of Etkin. Construction would take no more
Last year, our dealmakers had some great stories to tell.
What did it take to close the top M&A deals of 2013? Find out at Crain’s M&A Awards.
April 16 | 5-9 p.m. | Troy Marriott | Register at crainsdetroit.com/events
See Office, Page 17
March 17, 2014
CRAINâ€™S DETROIT BUSINESS
MICHIGAN BRIEFS Chemical Financial buys bank serving northwest Michigan Midland-based Chemical Financial Corp. will pay $120 million in cash to acquire Traverse City-based Northwestern Bank, the Traverse City Record-Eagle reported. Northwestern employs 374 and has 25 branches in 11 northwestern Michigan counties. The merger comes two months after Northwestern emerged from a consent agreement with federal regulators because of failures in some of its commercial loans in 2012. In September 2013, the Federal Deposit Insurance Corp. alleged that former President Harry â€œScrubâ€? Calcutt and two other bank executives tried to hide more than $38 million in loan defaults by the bankâ€™s largest borrower from the bankâ€™s board and government regulators. Calcutt denied wrongdoing. The governmentâ€™s case against him is pending.
Snyder: Benton Harbor no longer under financial emergency Gov. Rick Snyder says Benton Harborâ€™s financial emergency has been resolved and he has appointed a transitional board to work with local leaders, The Associated Press reported. Snyder accepted the recommendation of Emergency Manager Tony Saunders â€” the subject of a June 10 profile in Crainâ€™s Michigan Business â€” to
Lansing stadium rehab would let you live near outfield Urban baseball as urban renewal? Thatâ€™s the plan in the state capital, where the ballpark of the Lansing Lugnuts could undergo a publicly funded renovation that would add 80 apartment units and a restaurant next to the outfield, MLive.com reported. The $22 million proposal calls for $11 million in publicly funded improvements to Cooley Law School Stadium along with an $11 million mixed-use project led by Lugnuts owner Tom Dickson and Lansing developer Pat Gillespie. Lansing Mayor Virg Bernero proposed issuing bonds to build a surface parking lot and make stadium improvements. The Lugnuts would contribute a $1 million scoreboard. Lansing owns the stadium and has a contract with create an advisory board to â€œensure continued financial stability and growth.â€? The city has a healthy fund balance and made all annual pension payments for the first time in a decade, Saunders said. He has been the emergency manager since February 2013, when the city had a $2.7 million deficit.
Grand Rapids gets pep talk to create â€˜maker movementâ€™ school A panel of experts told a crowd in Grand Rapids last week that the city appears to be right place at the right time to launch the nationâ€™s first elementary or high school based on the so-called maker movement. (Crainâ€™s Feb. 10, Page 19.) â€œYou guys are the
the team to maintain the building. â€œUnder that contract, I have to put major bucks into the stadium,â€? Bernero told MLive. â€œI could take the minimalist view and argue with the team and put in as little as possible, or I could take the value-added approach.â€? The stadium, originally called Oldsmobile Park, opened in 1996 and cost $12.8 million. Attendance for the Lugnuts, an affiliate of the Toronto Blue Jays of Major League Baseball, averaged about 5,200 at 64 home games last year. The city is set to pay off stadium bonds next year. The new plan would extend bond payments at the current $800,000 a year or lower for 15 years. The plan needs the approval of the Lansing City Council.
right sizeâ€? to host a school that fuses technology with traditional skills to physically build projects, said Sylvia Libow Martinez, an education expert and a senior scientist who helped develop global positioning system technology. Dale Dougherty, who many consider a founder of the maker movement, and Gene Eidelman, president of Mosaica Education Inc., joined Martinez to discuss what it would take to launch a public maker school. â€œYou have manufacturing in your DNA,â€? said Dougherty, who first visited Grand Rapids in 2010 to raise the profile of Maker Faire Detroit. Still, Eidelman cautioned that itâ€™s up to the community to get the ball rolling, not an outside organization.
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MICH-CELLANEOUS äĄ˛ Producers of apples, cherries, peaches and plums voted 181-72 to tax themselves to fund the Michigan Tree Fruit Research & Development Program, The Associated Press reported. The state says the program will support research and technical
support for growers. äĄ˛ Construction on a 142-room, five-story Hampton Inn & Suites hotel along the Medical Mile in Grand Rapids will begin this spring, Grand Rapids-based Third Coast Development said in a news release. Last summer, the $27 million project qualified for a $3 million low-interest loan from the Michigan Economic Development Corp. äĄ˛ The new medical school at Western Michigan University will be called the Homer Stryker M.D. School of Medicine, in honor of the founder of Kalamazoo-based Stryker Corp. Ronda Stryker, Homer Strykerâ€™s granddaughter, and her husband, William Johnston, gave $100 million to launch the school. The first class of 50 students starts in the fall. Find business news from around the state at crainsdetroit .com/crainsmichiganbusiness. Sign up for Crain's Michigan Business e-newsletter at crains detroit.com/emailsignup.
CORRECTIONS äĄ˛ A story on Page 19 of The Michigan Deal print supplement, which ran in the March 10 issue of Crainâ€™s, should have said Visteon Corp.â€™s acquisition of an electronics division of Johnson Controls Inc. was announced in January but has not yet closed. Additionally, a story on Page 24 should have said AgriSight Inc. has nine employees. An incorrect number was given. Also, a story on page 30, should not have identified attorney Michael Melfi as co-founder of Fundington.com.
CRAIN’S DETROIT BUSINESS
March 17, 2014
The average opening date for The Majestic at Lake Walden is March 25 – or less than three weeks after this photograph was taken.
Remember spring? Short sleeves. Sunscreen. Golf? The state’s golf course operators hope winter’s white noise won’t make the coming season one long unplayable lie.
BY VARTAN KUPELIAN SPECIAL TO CRAIN’S DETROIT BUSINESS
Eager for green
ill Fountain, operating partner/general manager of The Majestic at Lake Walden, answers the phone these days with this greeting: “Ready for spring.” It’s not whimsical. Fountain, like everybody in Michigan’s golf industry, really is ready to put the most severe winter in many years behind him. Playing the ball as it lies is an imperative in golf. Mulligans, not so much. But if Michigan’s courses could take a mulligan on the winter of 2013-14, they certainly would. That’s not going to happen, so it will be back to Rule No. 1: The ball will be played on turf conditions that won’t be determined until the mountains of snow are finally gone.
Michigan has nearly 850 golf courses employing some 58,000 people. The economic impact of $4.2 billion annually makes golf a key industry in the state’s economy. How successful any golf season can be in Michigan is dictated to a great extent by weather and turf conditions. The anticipation of getting out on the courses, normal at this time of year, has been supplanted by guarded optimism because delays to the start of the season are always costly for an industry looking for a fast start and early revenue flow. “I think the pent-up demand will be there,” said Jim Dewling, who has been involved in Michigan’s golf industry for more than five decades as a PGA professional, course owner and operator. See Golf, Page 18
Kickstarter gives designing duo a leg up, Page 4
Company index These companies have significant mention in this week’s Crain’s Detroit Business: Adoba Hotel Dearborn/Detroit . . . . . . . . . . . . . . . . 1 Amson Dembs Development . . . . . . . . . . . . . . . . . 17 Beaumont Hospital Royal Oak . . . . . . . . . . . . . . . . 11 Beaumont Hospital Troy . . . . . . . . . . . . . . . . . . . . 11 Beringea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Burton Katzman . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Chrysler Group . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Colliers International . . . . . . . . . . . . . . . . . . . . . . 17 Crittenton Hospital Medical Center . . . . . . . . . 10, 11 Detroit Institute of Music Education . . . . . . . . . . . . 1 Detroit Medical Center . . . . . . . . . . . . . . . . . . . . . 10 EcoMotors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Economic Alliance for Michigan . . . . . . . . . . . . . . . 9
Etkin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Floyd Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Ford Motor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 General Motors . . . . . . . . . . . . . . . . . . . . . . . . . . 16
As Lansing delays, metal theft costs Detroit, schools $25,000 a day
Harper University Hospital . . . . . . . . . . . . . . . . . . 11 Henry Ford Hospital . . . . . . . . . . . . . . . . . . . . . . . 11 Henry Ford Macomb Hospital . . . . . . . . . . . . . . . . 11 Henry Ford Wyandotte Hospital . . . . . . . . . . . . . . . 10 Hotel Investment Services . . . . . . . . . . . . . . . . . . . 15 LJPR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Leon LaBrecque, CEO of the Troybased money management firm
LJPR LLC, turned over $100,000 of his own money to students in the Walsh College Investment Club to test his theory that by investing in Michigan-based companies, you can beat market benchmarks. So far, so good.
BY CHAD HALCOM CRAIN’S DETROIT BUSINESS
Theft of scrap metals could be costing Detroit and Detroit Public Schools together well over $25,000 a day — and it will be several more days until Lansing takes further action on a bill that local officials hope can stanch the bleeding. A compromise version of House Bill 4593, which expands regulations on scrap metal dealers and creates new tools for law enforcement to identify stolen goods and those who sell them, was briefly expected to return to the House on Thursday in amended form for a vote, said Rep. Paul Muxlow, the bill sponsor. But the House and Senate adjourned with no further action on it, meaning the soonest they can take it up again is Tuesday. Both chambers of the Legislature passed the bill in differing forms late last year and must agree on a common version before it can advance to Gov. Rick Snyder’s desk. Meanwhile, Detroit’s Public Lighting Department continues to cope with thefts citywide, including an attempt to harvest copper wiring that started a fire beneath its Stanton Substation building along Lawton Street last Monday night. See Theft, Page 16 Video: A firsthand look at the fight against copper theft, crainsdetroit.com/video
Loomis, Sayles . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Majestic at Lake Walden . . . . . . . . . . . . . . . . . . . . 3 McLaren Macomb Hospital . . . . . . . . . . . . . . . . . . 11 McLaren Regional Medical Center . . . . . . . . . . . . 11 Michigan Golf Course Owners Association . . . . . . . 18 Michigan State Medical Society . . . . . . . . . . . . . . 12 Michigan State University . . . . . . . . . . . . . . . . . . . 18 Northern Equities Group . . . . . . . . . . . . . . . . . . . . 17 Oakwood Hospital . . . . . . . . . . . . . . . . . . . . . . . . 11 Phimation Strategy Group . . . . . . . . . . . . . . . . . . . . 4 Providence Hospital . . . . . . . . . . . . . . . . . . . . . . . 11 Quantum Medical Concepts . . . . . . . . . . . . . . . . . 12 Redico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Regional Transit Authority . . . . . . . . . . . . . . . . . . . . 5 St. John Hospital and Medical Center . . . . . . . . . . 11 St. John Macomb-Oakland Hospital . . . . . . . . . . . . 11 St. Joseph Mercy Ann Arbor . . . . . . . . . . . . . . . 10, 11 St. Joseph Mercy Oakland Hospital . . . . . . . . . . . . 11
Walsh students beat benchmarks with state-focused investment fund BY TOM HENDERSON CRAIN’S DETROIT BUSINESS
Leon LaBrecque, CEO of LJPR LLC, a moneymanagement firm with $636 million under management based in Troy, has put his money where his mouth is. He’d been blogging that it makes sense, now, to invest in Michigan-based public companies. To prove the thesis, he turned over $100,000 of his own money to a team of students at Walsh College for what is dubbed the Michigan Alpha Project. LJPR comes from the first letters of the last names of the four founders — LaBrecque, Fred Jackson, Terri Price and Brian Roehl.
The team began investing the $100,000 in January solely in companies with headquarters in the state, and so far, the thesis is correct: The fund has outperformed its benchmarks. For the month of January, a down month for the market, the Michigan Alpha Project fund lost 2.02 percent, compared to a loss of 3.52 percent for the Standard & Poor’s 500, a loss of 2.23 percent for a composite of iShares exchange-traded funds and a loss of 2.37 percent for the Bloomberg Michigan Index. As of March 12, the alpha project was still outperforming its benchmarks. It was up by 1.39 percent, compared to 1.38 percent for the See Students, Page 18
Schostak Bros. & Co. . . . . . . . . . . . . . . . . . . . . . . 17 Sinai-Grace Hospital . . . . . . . . . . . . . . . . . . . . . . . 11 University of Michigan . . . . . . . . . . . . . . . 10, 11, 18 Walsh College . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Department index BANKRUPTCIES . . . . . . . . . . . . . . . . . . 5 BUSINESS DIARY . . . . . . . . . . . . . . . . 13 CALENDAR . . . . . . . . . . . . . . . . . . . . 13 CAPITOL BRIEFINGS. . . . . . . . . . . . . . . 5 CLASSIFIED ADS . . . . . . . . . . . . . . . . 15 KEITH CRAIN . . . . . . . . . . . . . . . . . . . . 6 LETTERS . . . . . . . . . . . . . . . . . . . . . . . 6 MARY KRAMER . . . . . . . . . . . . . . . . . . 6 OPINION . . . . . . . . . . . . . . . . . . . . . . . 6 OTHER VOICES . . . . . . . . . . . . . . . . . . 7 PEOPLE . . . . . . . . . . . . . . . . . . . . . . 14
THIS WEEK @ WWW.CRAINSDETROIT.COM
Michigan: Red state or ... blue? One senator wants to make the cherry the state fruit, while another backs the blueberry. Cast your vote and read Chris Gautz’s blog at crainsdetroit.com/blogs. ISTOCK PHOTO
RUMBLINGS . . . . . . . . . . . . . . . . . . . 19 WEEK ON THE WEB . . . . . . . . . . . . . . 19
March 17, 2014
CRAINâ€™S DETROIT BUSINESS
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Kyle Hoff (left) and Alex O'Dell inspect a Floyd Leg off the production line at their Floyd Design LLC in Detroit. The newly invented legs can create a table out of a flat surface.
Kickstarter campaign gives makers of table legs a big jump on sales B UILT
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BY DAVID HALL SPECIAL TO CRAINâ€™S DETROIT BUSINESS
Kyle Hoff and Alex Oâ€™Dell set out in early January to raise $18,000 on Kickstarter for a simple invention called the Floyd Leg â€” a minimalistic set of table legs and clamps that can transform an old door or plank into a table. The pair would have been happy raising just enough money to fulfill 100 orders. Instead, they raised $256,273 and multiplied sales tenfold. A Floyd Leg set comprises four all-steel table legs at either 29Â˝ inches long for a full-size table or 16 inches for a coffee table. Each set sells for $189 and comes in black or white. A piece of repurposed wood can be fitted into the F-shaped bracket at the top of each leg and fastened with the built-in threaded bolt. The design is the first product of the newly formed Detroit-based Floyd Design LLC for co-owners Hoff, 26, and Oâ€™Dell, 23. The pair enlisted a handful of local companies to handle production. The steel is supplied by Warren-based American Steel LLC, fabricated at Clinton Townshipbased Macomb Sheet Metal Inc., assembled and powder-coated by Detroit-based Airtech Corp. and shipped by Warren-based FulEx LLC. â€œItâ€™s much easier to communicate and get things done when your manufacturer is five minutes away,â€? Oâ€™Dell said. Although their production leapt to 1,500 sets from the original goal of 100, itâ€™s still low volume, something that small-scale manufacturers can easily accommodate. It was important to Hoff and Oâ€™Dell to meet their promised de-
have to grow fast. Take more â€œ They donâ€™t time to think about selling and get more predictable when it comes to selling or retail. If theyâ€™re smart enough to see if the manufacturer is delivering on quality, theyâ€™ll be fine.
Dave Haviland, Phimation Strategy Group
livery by April, so they put $15,000 on their credit cards to get production rolling by the beginning of February. Although all the Kickstarter sales were residential, Hoff and Oâ€™Dell say that since the campaign ended, they have received interest from retailers and corporations looking to build out office spaces. Theyâ€™ve also transitioned to an online store through their website, thefloydleg.com. Hoff said itâ€™s too soon to know how much, if any, theyâ€™ll have to increase production to meet future demand. For now, he said, theyâ€™re focusing on catching up with Kickstarter orders and building an inventory of about 1,000 sets. But if they find that demand increases to, say, 15,000 to 75,000 sets, Hoff and Oâ€™Dell will face a number of challenges associated with scaling a physical product to a growing company. Dave Haviland, founder and principal of Ann Arbor-based business consulting firm Phimation Strategy Group, said itâ€™s important to have a plan ready for larger production be-
fore the actual demand sets in. One major concern is entering a middle ground â€” between high-volume production in the hundreds of thousands and their current lowvolume production, where options are fewer and manufacturers may not be flexible. â€œMy advice is that they donâ€™t have to grow fast. Take more time to think about selling and get more predictable when it comes to selling or retail,â€? Haviland said. â€œIf theyâ€™re smart enough to see if the manufacturer is delivering on quality, theyâ€™ll be fine.â€? Finding the right fabricator for the prototype was a crucial learning experience, Hoff said. He shopped around Illinois and Ohio and settled with COW Industries Inc. in Columbus, Ohio, to manufacture the first set of four legs for $550 in 2012. â€œGoing to all the different fabricators helped me envision the project on a larger scale and learn the economy of materials, since I wanted to keep the cost low,â€? Hoff said. â€œBy the time I had the first prototype See Next Page
CRAIN’S DETROIT BUSINESS
March 17, 2014 From Previous Page
fabricated, my thought was that it could be a potential product.”
A leg up from Kickstarter O’Dell said he and Hoff started the company with about $5,000 in pooled money. But in the summer of 2013, they made plans to prove their concept through Kickstarter. “Ten years ago, we would have had to take an expensive risk,” O’Dell said. “But with Kickstarter, it gave us a chance to test the market before becoming heavily invested. It also makes us available to a larger market.” If all goes well, Hoff said, the company could generate $700,000 in revenue in 2014. But getting the word out doesn’t happen by accident. By creating a multimedia strategy in advance, Hoff and O’Dell were able to engage more people. Part of that campaign was a video and an online catalog illustrating various uses of the Floyd Leg — an approach that keeps it from being seen as a gimmick, Hoff said. “Being able to reach people and tell the story effectively was wildly important,” he said. “I think without that multimedia element, these projects can drown in the world of crowdfunding.” Although the vast majority of pre-order sales were in the U.S., Hoff said, 20 percent of sales were international, with strong interest from Europe and Japan.
Nomadic inspiration Hoff was living in Chicago in 2012 when he started designing the Floyd Leg. He recently had graduated from the University of Michigan with a master’s degree in architecture and took a job in the Windy City with Dearborn-based Ghafari Associates LLC. “The Floyd Leg was born out of my own interest of creating something versatile for a more nomadic lifestyle, since I’d spent the last few years living in five different places,” Hoff said. “I wasn’t convinced that people would want it until I showed it to a few of my friends.” Hoff said he named the device in honor of his father, grandfather and great grandfather, all of whom were steelworkers named Floyd in Youngstown, Ohio. Last summer, Hoff moved to Detroit to help launch a business incubator in Corktown called Practice Space. That’s where he and O’Dell met. O’Dell graduated from UM in 2012 with a bachelor’s degree in technology policy. “I knew Alex’s abilities from working together in Practice Space, and at some point I showed him the legs and we started talking about a Kickstarter,” Hoff said. “But it takes a lot to create a Kickstarter, so it became a great partnership because his ability to create multimedia helped us build a product.” Whether Hoff and O’Dell can maintain their initial success depends on why they did well to begin with and whether those same tactics will continue to work, Haviland said. “It’s a matter of knowing if they succeeded because they managed Kickstarter really well or if they really knew their niche market,” he said.
Lawmakers take RTA funding for slow ride When lawmakers last are debating. The state’s week approved the confiscal year begins Oct. 1. tents of Senate Bill 608, “I’m disappointed it a supplemental spenddidn’t make it in the ing bill, it appeared the supplemental, but I’m Regional Transit Authority relieved there is a plan had again been unable to come up with the to make its case for money,” RTA Chairman funding to the LegislaPaul Hillegonds said. ture. When combined with Gov. Rick Snyder had other MDOT grants and requested approval of $2 the initial $250,000 the million in startup costs RTA received from the Chris Gautz for the RTA, but the state, the authority has House and Senate could not agree about $630,000 available in its on whether to do so. A six-mem- budget, Hillegonds said. ber conference committee conSince last April, he said, the vened to iron out the differences RTA has spent only about $30,000. on this issue, and others, ultiMost of that has mately left out the RTA funding. been for legal Since the RTA was created legbills associated islatively in 2012, after about four with the organidecades of trying, the Legislature zational startup had given the organization only and liability inan initial $250,000. surance for the But it was not all bad news for board. RTA. After the unanimous vote Because state by the conference committee, lawfinancial supmakers involved in the committee port has been talks said the RTA would get its $2 Hillegonds lacking, virtumillion — just not all in one fell ally all the work done has been swoop. board-driven, with interim staff The Michigan Department of support from the governor’s ofTransportation is expected to free fice, MDOT and the Southeast up $900,000 in its Comprehensive Michigan Council of Governments, Transportation Fund to give to Hillegonds said. the RTA. That fund is for transit Once the RTA can hire a full and rail projects. staff, he estimates annual expensThe other $1.1 million will be es will be about $900,000. If the $1.1 inserted into the state’s upcoming million in additional funding is fiscal year budget that lawmakers included in the state budget, the
Capitol B r i e fi ng s
RTA would have funding in place to get it through 2016, he said. “This will be about having the certainty to attract a staff over the next couple of years,” Hillegonds said. In January, John Hertel announced he was stepping down as the authority’s CEO, a job to which he had been named in August but for which he did not have a signed contract. A SEMCOG official told Crain’s in December that Hertel didn’t want a contract until the RTA had secured additional administrative funding for staff and operations. The RTA is looking for a new CEO and is taking applications through March 28, with interviews by the board to take place April 16. The whole funding ordeal between Lansing and the RTA has been a bit of a chicken-and-egg scenario. Ari Adler, press secretary for the House Republicans, said House Appropriations Chairman Joe Haveman, R-Holland, a member of the conference committee, was not comfortable including the full $2 million request into the supplemental bill. Haveman felt the RTA was not quite ready to accept that much money. But he is open to looking at including more funding in the upcoming budget. However, Hillegonds said without the money to employ a full
staff, the RTA has not been able to do the studies, reports and other behind-the-scenes work to make it a success. It also delayed a potential millage campaign this year to fund the RTA, Hillegonds said. Without the staff and the work it needs to do, the board decided it did not have everything in place, but will seek that millage request in 2016. Hillegonds said that with a state funding plan in place, the new CEO and staff will have the time and resources they need. “We need to do more work on the master planning and show more coordination on local bus service,” he said. Chris Gautz: (517) 403-4403, firstname.lastname@example.org. Twitter: @chrisgautz
BANKRUPTCIES The following businesses filed for protection in U.S. Bankruptcy Court in Detroit March 7-14. Under Chapter 11, a company files for reorganization. Chapter 7 involves total liquidation. Associated Community Services Inc., 29777 Telegraph Road, Suite 3000, Southfield, voluntary Chapter 7. Assets and liabilities not available. Schulman & Associates PC, 500 Griswold St., Suite 2340, Detroit, voluntary Chapter 11. Assets: zero; liabilities: $101,398.48. — Anjana Schroeder
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March 17, 2014
CRAIN’S DETROIT BUSINESS
RTA needs funding to get it on track D
etroit’s Regional Transit Authority suffered what looked to be a setback this week when the Legislature omitted $2 million in startup costs requested by Gov. Rick Snyder from a supplemental spending bill. But help may be on the way. As Capitol Correspondent Chris Gautz reports on Page 5, it looks as if the money will come from other sources: $900,000 from a Michigan Department of Transportation fund for transit and rail projects and the other $1.1 million from the state’s fiscal 2015 budget, which goes into effect Oct. 1. If it all comes through, that would give the RTA about two years’ worth of budget, which provides some measure of the stability needed to recruit staff, including a CEO. Some concern exists among legislators about whether the RTA is ready to accept money. But as Gautz points out, that’s a chicken-and-egg kind of argument. A lot of things depend on the RTA’s getting initial funding, including a millage vote to support transit operations. Southeast Michigan’s long and frustrating history with mass transit is well-documented. It’s time to move forward.
MARY KRAMER What’s driving images of women? Do media shape our images of what women can — or can’t — do? I think of that mostly when I’m irritated by news media fascination with such things as the color of General Motors CEO Mary Barra’s nail polish, the headbands and hairstyles of Hillary Clinton or talk-show clucking about Yahoo CEO Marissa Mayer’s decision to return to work just two weeks after giving birth to her son. Media like Crain’s Detroit Business can take that seriously in looking for story subjects as well as subject experts. Are we balanced? Do we fairly represent business in Southeast Michigan? It matters. Last month, I watched “Miss Representation” as part of a panel for a discussion on gender stereotypes, sponsored by a community outreach group within Comerica Bank. The documentary, at times preachy, showed the barrage of denigrating images of women in film, on TV shows and in violent video games. Independent statistics support
the documentary’s main points: Academics at the Annenberg School for Communication and Journalism at the University of Southern California studied speaking characters in the top 100 grossing films for each of the years 2007 to 2012. Only 28 percent of the speaking characters were women. Most were in the sex-kitten category. OK, so maybe the movie targets are teen boys and young men. Or maybe international audiences. Then look at who’s behind the camera: 17 percent of the 1,228 directors, writers and producers of those same films were women. Are we sliding back to a “Mad Men” sensibility, with a womenas-accessories theme? And how does this play out in the business world, where women already occupy a tiny percentage of top slots at companies or on company boards? “By deciding who gets to talk, what shapes the debate, who writes and what is important enough to re-
port, the media shapes our understanding of who we are and what we can be.” So says the website of the Women’s Media Center, founded by successful Hollywood women. On a personal level, all this gender talk is one reason I’m rooting for the film “Veronica Mars” to be a box office hit. Kristen Bell, the Huntington Woods native who created the teenage sleuth character on a cable TV series, helped raise more than $5 million in a Kickstarter campaign to bring Veronica to the big screen. One review compared Bell to the smart and sassy actresses of the 1930s, like Jean Arthur, Barbara Stanwyck, Katharine Hepburn, Myrna Loy and others. That period seems like a golden era now. So, is it audience preferences shaping what we see now or the people behind the cameras? A good debate, in media and in business. Mary Kramer is publisher of Crain's Detroit Business. Catch her take on business news at 6:10 a.m. Mondays on the Paul W. Smith show on WJR AM 760 and in her blog at www.crainsdetroit.com/kramer. E-mail her at firstname.lastname@example.org.
New Detroit report a lesson plan New Detroit Inc. issued its first Metropolitan Detroit Race Equity Report this week, and it relays the disheartening news that gaps persist in educational achievement, income and home and business ownership. The most disadvantaged overall may be metro Detroit’s Hispanic population, a greater percentage of whom do not have a high school diploma or GED when compared with other racial groups. That is assumed to be in part because of language barriers, particularly among recent immigrants — but the racial divide exists in many ways across the region. One statistic that may be surprising to some: AfricanAmericans in the city of Detroit have higher attainment of high school and some college than any other racial group. There are barriers to completing higher education, however: A third of Detroit African-American adults have some college, but only 11 percent have a bachelor’s degree. New Detroit hopes to use the report as a benchmark to measure progress in the future but also wants the results to influence policy discussion around topics that include transportation and business ownership. The nonprofit should lead in helping policy shapers and creators make the connection between the results and appropriate action to identify and correct the “whys” of inequity. The report is also available for everyone to read at newdetroit.org.
MHS misleads on ‘no-kill’ Editor: In the March 10 article “Humane Society CEO search reignites euthanasia debate,” MHS Vice Chairman Paul Huxley misleads your readers when he says “anyone who works for our organization or on our board would love to get to a no-kill place” but that MHS’ role as a shelter of last resort, given its policy to accept all animals, is at odds with that concept. Nothing could be further from the truth. No-kill shelters can be public or private, humane societies or municipal agencies, “limited admission” or “open admission.” And there are plenty of no-kill animal control shelters and communities that prove it. Reno, Nev.; Austin, Texas; Marquette;
Crain’s Detroit Business welcomes letters to the editor. Letters will be considered for publication if they are signed and do not defame individuals or organizations. Letters may be edited for length and clarity. Write: Editor, Crain’s Detroit Business, 1155 Gratiot Ave., Detroit, MI 48207-2997. and Shelbyville, Ky., are a few. An open admission shelter does not have to — and should not — be an open door to killing. In fact, using the term “open admission” for kill shelters is misleading. Kill shelters are closed to people who love animals and want to help save their lives. They turn these people and their animals away, refusing
to provide the service paid with tax and philanthropic dollars. In the end, “open door” does not mean “more humane” when the end result is mass killing. We hope the new CEO at least understands that much. Nathan Winograd Executive director No Kill Advocacy Center
MHS needs change Editor: Crain’s March 10 article “Humane Society CEO search reignites euthanasia debate” has shed some light on issues related to animal sheltering and pet euthanasia; however, some context may help your readers understand See Letters, Page 7
KEITH CRAIN: We might as well go for the record We are not that far from setting an all-time record for snowfall this winter, so since we are a very competitive bunch in Detroit, let’s break a record that has stood since 1880-81. I understand that we already have the record for the coldest winter, which sort of denies global warming, and now all we have left is snow. Not only do we have a chance for this to be a record year, think of all the businesses that have been setting records this year as well. The guy that does my driveway is probably going to be able to put
his kids through college on this year alone. I have always paid by the plow rather than the season, and any plowing company that did it by the season is probably out of business. And won’t this be the year to be selling snowmobiles? I imagine that they are out of inventory for the season. And I am sure that profits have been very good all winter. Now they can pull all the motorcycles out of the
basement. I would guess ski resorts have had a great year. They probably didn’t have to spend much on electricity to run those snow-making machines, and I am sure that they sold plenty of lift tickets as well. And if you have lots of snow, then you’d be selling lots of skiing equipment, even if they were off to the West. And although we don’t have a lot
of outdoor rinks, there has to be plenty of hockey equipment being sold. Outfitting a child for hockey is not an inexpensive pastime. When you stop to think of all the businesses in Michigan that are dependent on the winter weather, you realize that there are plenty of folks who cheer every time the temperature drops and the snow falls. And who among us isn’t waiting with mixed emotions for the orange barrels that will signal the start of repairs of all the thousands of potholes? I only hope that whoever pays
the bills understands that it’s simply not smart to do a quick fix on our roads that will not last and will have to be done again. I only wish some folks would take a quick trip to Europe so they can see the cost and the right way to repair a highway. It’s not cheap, but it lasts for decades. That makes it a good investment, when you realize the cost of lost man-hours waiting in construction lines. Yes, it’s been a long winter. And yet for plenty of folks in Michigan, it’s been a very profitable year.
CRAINâ€™S DETROIT BUSINESS
March 17, 2014
OTHER VOICES: A plan to meet Detroitâ€™s skilled-trades needs are underway to prepare a In response to the pipeline of workers. March 10 editorial â€œNew Eleven percent of the arena another chance for federal dollars earmarked local jobs,â€? the message to for the M-1 Rail project M-1 Rail and Olympia Demust go to certified mivelopment has been delivnority businesses, women ered, and the opportunibusiness enterprises and ties are not being ignored. Detroit-based certified As the city of Detroitâ€™s businesses. workforce agency, Detroit We know that local Employment Solutions Pamela Moore businesses hire local talCorp. staff members have been engaged with M-1 Rail and ent. And thanks to the Downtown Authority, the Olympia Development manage- Development ment teams for many months. We Olympia concession management understand that Detroit will have agreement stipulates adherence to challenges meeting the skilled- ordinances that require local hirtrades demand; however, efforts ing and incentives that support
and benefit training programs, such as our Detroit-registered apprenticeship program (D-RAP). Under Mayor Mike Dugganâ€™s leadership, our federal, state, community and union partners are working alongside our efforts to serve Detroit businesses and expose Detroiters, including youths, to apprenticeships. In response to the projected increase in labor demand for skilled trades, D-RAP is partnering with training institutions and skilledtrades organizations to provide training in construction, demolition, asbestos and lead abatement, and worksite safety training.
LETTERS CONTINUED â– From Page 6
the debate. Only 2 percent of Michiganâ€™s pet dogs and cats are homeless. That doesnâ€™t jibe with the idea of an overpopulation problem. Animal sheltering is undergoing transformational change. Veterinarians are graduating with expertise in shelter medicine, universities offer programs in shelter management, and research is challenging what have been lifedetermining shelter practices. With this knowledge and employing best business practices, changes are sweeping across Michiganâ€™s shelters. For example, in 2007, 118,369 cats and dogs were killed in state shelters; in 2012, 58,002 cats and dogs were killed. The number of counties that saved 90 percent of homeless pets went from 10 in 2011 to 19 in 2012. Where voluntary change has not occurred, there have been advocacy movements in Livingston, Macomb, Oakland, Saginaw, Lapeer, Genesee and other counties. Michigan Humane Society shelters 13 percent of Michiganâ€™s homeless animals and kills nearly 25 percent of all cats and dogs killed in the state. As other Michigan shelters embrace change, MHS makes minimal improvements, saving only 37 percent and killing 13,821 cats and dogs. The Michigan Pet Fund Alliance has offered our expertise to MHS, as we have with other shelters, which recently resulted in a $200,000 grant from Pet Smart Charities to Macomb County and All About Animals. That offer still stands. Until then, we will shine a light on poor performance and press for accountable leadership at MHS. Deborah Schutt Chairwoman Michigan Pet Fund Alliance board of directors
OCC faculty lost focus Editor: Regarding Crainâ€™s Feb. 17 Page 1 story â€œOCC chancellor, faculty at odds,â€? the issue discussed seems to be another example of a faculty union having lost sight of its primary goal, to provide value to students. Kudos to Chancellor Timothy Meyer for keeping the studentsâ€™ interests in focus and challenging the faculty union to step into the 21st century. Joel Bussell West Bloomfield Township
Additionally, we are developing a 240-hour curriculum focused on preparing Detroiters with the skills needed for a career in carpentry, plumbing, electrical and other apprenticeable occupations. As we prepare to break ground for M-1 Rail, expand I-96, begin demolishing and rehabbing 100,000 commercial structures and singlefamily homes, construct the Olympia Entertainment Center and clear land for the New International Trade Crossing, Detroit will be watching. These projects will develop welltrained journeymen with the credentials needed to construct the
bridge to Canada. Five years from now, we will be evaluated by our collective efforts and must ask ourselves: Did Detroit businesses and residents benefit from the infrastructure projects? Were lives changed? We have supplied more than 720 trained employees to Detroit Manufacturing Systems, and there are many more qualified and ready-towork Detroiters where those came from. It is imperative that we hire Detroiters; in order to build Detroit, we must build Detroiters. Pamela Moore is president and CEO of Detroit Employment Solutions Corp.
To all individuals and businesses that accept American Express cards: Notice of a class action settlement. Si desea recibir esta notiďŹ caciĂłn en espaĂąol, llĂĄmenos o visite nuestra pĂĄgina web. Notice of a class action settlement authorized by the U.S. District Court, Eastern District of New York.
Settlement Agreement by calling the toll-free number below.
This notice is authorized by the Court to inform you about an agreement to settle two class action lawsuits that may affect you. The cases - In re American Express Anti-Steering Rules Antitrust Litigation (II), No. 11-MD-2221 and Marcus Corp. v American Express Co. et al., 13-CV-07355 - are in the U.S. District for the Eastern District of New York. These cases allege that certain rules applicable to merchants that accept American Express cards violate antitrust laws and resulted in merchants paying excessive fees. The Court has not decided which side is right because the parties agreed to settle.
You do not need to ďŹ le a claim to receive the beneďŹ ts of the rule changes provided for by the settlement. If you want to seek monetary damages related to American Expressâ€™s existing merchant rules, you can pursue those claims consistent with the dispute resolution provisions contained in your card acceptance agreement. No money will be distributed to the class.
Whoâ€™s included? The settlement applies to a class comprised of all merchants that accept American Express cards at any location in the United States (including at a physical merchant location, online or via a mobile application) as of or after February 12, 2014, onward.
What are the Settlement terms? The settlement will require American Express to change its rules to allow merchants who accept American Express cards to charge customers an extra fee or â€œsurchargeâ€? if they pay with an American Express credit or charge card under certain conditions including that any such surcharge apply to all credit and charge card transactions. The speciďŹ c rule changes and terms of the settlement are explained in detail in the court-approved, longform notice (â€œNoticeâ€?) and the Class Settlement Agreement, which are found at the case website (www.AmexMerchantSettlement.com). You should review these documents carefully. Your legal rights are affected even if you do nothing. You can also obtain copies of the Notice and Class
Your options. You may object to the settlement by June 6, 2014. The Notice available at the case website explains how to object. Regardless of whether you object, if the settlement is ďŹ nally approved, you will be bound by the Courtâ€™s ďŹ nal judgment and the releases explained in the Class Settlement Agreement, which is available at the case website.
Court hearing about the Settlement. The Court will hold a hearing on September 17, 2014 to consider whether to approve the settlement and the request by the attorneys for the class for attorneysâ€™ fees, expenses, and service awards up to a maximum total of $75 million. You do not need to appear at the hearing or hire your own attorney. But you can if you want to, at your own cost. The Court has appointed Friedman Law Group, LLP, Reinhardt, Wendorf & BlanchďŹ eld, and Patton Boggs LLP to represent the class.
Questions? For more information about the settlement you should visit the website (www.AmexMerchantSettlement.com) or call 1-866-686-8694.
WWW!MEX-ERCHANT3ETTLEMENTCOM s 1-866-686-8694
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CRAIN’S DETROIT BUSINESS
EcoMotors revs up engine operations with M&A BY DUSTIN WALSH CRAIN’S DETROIT BUSINESS
Time is everything these days. Precast is the answer. Production during excavation so product can be installed in a snap.
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EcoMotors Inc. is using M&A activity to commercialize its engine concept on two continents. The Allen Park-based engine startup acquired Clinton Township-based Katech Inc. last week. In April 2013, it signed a $200 million deal to build the engines in China through a joint venture. Terms of the Katech deal were not disclosed. However, the two deals were executed to give EcoMotors stronger capabilities in North America and Asia. Katech, which develops high performance engines for the Corvette Racing Team and others, will also provide significant research and development expertise, Amit Soman, EcoMotors COO, said in a news release. Soman “The purchase of Katech will significantly grow (EcoMotors’) ability to bring things from design to life at a rapid pace, taking us further down the path of redefining how the world is powered,” Soman said in the release. EcoMotors’ joint venture partner, Zhongding Power, will build a plant in China’s Anhui province and will sell EcoMotors’ opposedpiston, opposed-cylinder engines to its customers. The plant will have capacity to build 150,000 engines a year, with high-volume production scheduled to begin this year. The engine technology was designed by founder Peter Hofbrauer, former head of powertrain development at Volkswagen AG. The reciprocating internal combustion engine, where each cylinder has a piston at both ends, and no valves or camshafts, among other parts, is designed to produce about 30 percent fuel economy gains over current engine designs. The engine isn’t limited to automobiles; it could be used in engines for generators, marine technology or for just about any other purpose, the company told Crain’s in a previous interview. EcoMotor’s customers include Illinois-based Navistar, a manufacturer of diesel engines and medium and heavy trucks; Wisconsinbased Generac, a manufacturer of generators; and Chinese auto company Jiangling Motors Co., which is investigating the engine for use in passenger cars. Since 2008, the Khosla Ventures-, Bill Gates- and Braemar Energy Ventures-invested company has raised $66 million in three funding rounds.
March 17, 2014
CRAIN’S DETROIT BUSINESS
March 17, 2014
People 䡲 Stephan Morse, D.O., former chairman of the Department of Radiology and Medical Imaging at Botsford Hospital in Farmington Hills, has become a member of the Botsford Foundation board of directors following his Morse retirement after more than 47 years at the hospital. 䡲 Beaumont Health System has renewed the board of director appointments of three members: Richard Astrein, president and owner of Birmingham-based Astrein’s Creative Jewelers; William Goldsmith, founder of Bloomfield Hills-based Nantucket Capital Management LLC; and Stephen Polk, president and CEO of Birmingham-based Highgate LLC. Beaumont appointed five trustees: Stephen Eisenberg, president of Dearbornbased Kenwal Steel Corp.; Joseph Kaiser, formerly of Troy-based Gallagher-Kaiser Corp.; Terry Theodore, a partner at Bloomfield Hills-based Wynnchurch Capital Ltd.; Stefan Wanczyk, CEO of Royal Oakbased Hour Media LLC and Shelby Township-based Lauderdale Development Corp.; and Howard Wolpin, owner and president of Detroit-based Great Lakes Beverage Co.
“Volume is not a surrogate for quality anymore,” says Frank Fazzalari, M.D., chief of cardiothoracic surgery at Crittenton Hospital Medical Center in Rochester Hills.
Adjusting the volume New CON rules de-emphasize open heart surgery numbers as quality measurement Pasky
䡲 Gov. Rick Snyder made the following
local appointments to the Michigan Board of Medicine: James Sondheimer, associate professor of medicine at Wayne State University School of Medicine; and Terri Tahnoose, vice president of global product marketing for Lear Corp. Cindy Pasky, CEO of Detroit-based Strategic Staffing Solutions Inc. was reappointed. 䡲 Ernesto Drelichman, M.D., medical director for the inflammatory bowel disease center at Providence Hospital and Providence Park Hospital, was elected by the Michigan Cancer Consortium to a three-year term as Drelichman co-chairman of the organization’s board of directors. 䡲 Herman Gray, M.D., executive vice president of pediatric health services for the Detroit Medical Center, will received the Diabetes Champion Award for his dedication to the American Diabetes Association at the Gray ADA in Southeast Michigan’s 22nd annual Commitment for a Cure event on March 29.
BY JAY GREENE CRAIN’S DETROIT BUSINESS
ichigan last year became one of the first states in the nation to approve certificate-ofneed regulations governing hospital open heart surgery programs under which the volume of procedures was connected to the quality of care. The new regulations apply to applications for new open heart programs and also potentially to the 13 state programs, seven of which are in metro Detroit, that currently don’t meet the requirements of their license. That typically means they aren’t performing the annual volume of procedures required at the time they were licensed. For most, that’s 200 or 300, depending on when their program started — although some systems with older programs are grandfathered in without volume requirements. But early last year, the Michigan Certificate of Need Commission began hearing testimony and looking at proposals to change the 21-year-old volume requirement, used as a proxy for quality because one contributor to good out-
comes is adeptness built on repetition. Last September in SEE STARS a 10-0 vote, the CON Michigan’s new Commission approved quality reporting system for open new standards that heart surgery dropped the minimum regulations uses number of procedures a three-star system created by to 150 for new proa surgeons’ grams or existing progroup, Page 11 grams seeking new licenses. Those programs also would have to meet new quality standards. Programs that fall below 150 procedures for three straight years would have to file a plan with the Michigan Department of Community Health. In the past, health systems could be fined for falling below the minimum number of procedures. But the new regulations provide a way for Community Health officials to slowly relicense most of the programs that are currently below their required minimum numbers by using requirements to improve quality. “Quality standards give the state some backbone. The state can’t have low volume and low-quality programs,” said Dennis McCafferty, director of health
policy with the Novibased Economic Alliance for Michigan. Tulika Bhattacharya, Community Health’s manager of the CON evaluation unit, said the new regulations with the quality standards give McCafferty the department more options when reviewing an open heart program for regulatory compliance. If a hospital is in violation of its license for low procedure numbers, Bhattacharya said, “We would start a discussion with the hospital about how they are doing on the quality metrics. We could propose an improvement plan, and they would voluntarily agree to come under the new regulations.” Bret Jackson, president of the Economic Alliance, said his group supports the new open heart regulations, although it wanted tougher standards. He said the alliance argued for minimum volume standards of 200 procedures and more public disclosure of data measuring quality. See Heart, Page 10
CRAIN’S DETROIT BUSINESS
March 17, 2014
Heart: New CON rules adjust volume ■ From Page 9
In the past, Community Health was reluctant to move too strongly against hospitals that fell below minimum volume requirements because hospitals might complain that lack of access to heart surgery could jeopardize public health, Jackson said. “We are not calling for programs to close,” Jackson said. “We just want the state to enforce its rules.”
Quality data, high-quality programs
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James Falahee, chairman of the CON Commission, said public reporting of quality standards will increase competition among programs to improve outcomes and patient safety. “It brings Michigan open heart services Falahee programs into the 21st century with the most current emphasis on quality data and maintaining quality programs,” said Falahee, who also is senior vice president of legal and legislative affairs at Kalamazoo-based Bronson Healthcare Group. For many years, studies had shown that higher-volume open heart surgery programs produced lower mortality and complication rates, said Richard Prager, M.D., project director of the Michigan Society of Thoracic and Cardiovascular Prager Surgeons’ Quality Collaborative, which is partly funded by Blue Cross Blue Shield of Michigan. But recent studies have begun to show that because of new technology and greater medical experience, lower-volume programs also could produce comparable quality, said Prager, who also is a director of the Samuel and Jean Frankel Cardiovascular Center at the University of Michigan. “Volume is not a surrogate for quality anymore,” said Frank Fazzalari, M.D., chief of cardiothoracic surgery at Crittenton Hospital Medical Center in Rochester. “We are focusing more on outcomes and have the data on individual hospitals. We don’t need a surrogate anymore because we have the data.” Twenty-five states have regulations governing open heart surgery, but Michigan is at the forefront of including quality measurements as a factor in licensure, Prager said. All of the state’s 33 open heart programs, including 16 in Southeast Michigan, have agreed to participate in the state’s new quality data public reporting system even if they are hitting their volume targets. The public now can view quality data on the programs on two websites: that of the Chicago-based Society of Thoracic Surgeons or the Michigan Society of Thoracic Surgeons Quality Collaborative. Later
this year, the Department of Community Health will post 2013 quality data on its website. Elsewhere, Maryland is beginning the legislative process to revise its open heart CON regulations to include quality. New Jersey has been publishing quality data on its 22 heart programs for more than 20 years and has tracked a 55 percent decrease in mortality rates. “There is a growing recognition now that volume is not the only surrogate to success in cardiac surgery,” Prager said. A good cardiac surgery team, he said, can perform fewer surgeries and still have good outcomes.
Does volume speak volumes? While hospitals agree about adding the quality standards, not every cardiac surgeon agrees that Community Health should have dropped the minimum procedure numbers. “Speaking as a cardiac surgeon, the literature is replete that programs with higher volumes and surgeons with higher volumes have better quality,” said Manak Sood, M.D., section head of cardiothoracic surgery at St. Joseph Mercy Ann Sood Arbor, one of 10 hospitals in Michigan owned by Livonia-based CHE Trinity Health. “The higher volumes have a lot of resources available to us that lower-volume programs don’t have,” Sood said. “We can (spend more money) to reduce readmission rates, reduce (hospital-acquired) infections, and we can hire more experienced staff.” But McCafferty said Community Health needed to give low-volume programs a reason to reapply under the new standards. “The department said, how can we get folks to apply for a new CON and hold them accountable for quality?” he said. “They could have kept the standard at 300, but why would anyone apply? They needed an incentive to get them to comply with the quality measures.” Denise Brooks-Williams, a CON Commission member who joined the board last September, said the new regulations will help improve quality. “As with anything, it was a bit Brooks-Williams of a compromise,” said Brooks-Williams, who also is CEO of Henry Ford Wyandotte Hospital. “The combination of the number of procedures (150) plus the quality standards is something that all the organizations could agree on.”
A slump in surgeries Most programs have seen de-
clining surgery volume because the number of open heart surgeries in Michigan has dropped more than 45 percent since 2000. In 2012, hospitals in the state performed 10,296 open heart procedures, 3.3 percent fewer than 10,642 in 2011 and 12 percent less than 11,526 adult cases in 2009, Community Health said. Reasons for the decline include the increased use of statin drugs, which lower cholesterol, and the expansion of angioplasty and stents to open clogged arteries. “With the numbers of heart (surgeries) declining, what options do these programs have available?” Sood said. In 2012, Community Health fined two hospitals for low volume. Crittenton (118 adult procedures in 2012) and the Detroit Medical Center’s Sinai-Grace Hospital (94 in 2012) paid $350,000 fines, Bhattacharya said. “We fined these hospitals for a combination of low volume and other problems” related to operational performance, Bhattacharya said. Conrad Mallett, chief administrative office of the DMC, said the health system is evaluating whether to pursue relicensing for Sinai-Grace and Harper University Hospital, which also has low volume. The DMC hired thoracic surgeon Scott Henry, M.D., away from Henry Ford Health System in January as director of cardiovascular surgery care uniformity to “thrust the program forward,” Mallett said. Fazzalari of Crittenton said his hospital was fined solely because it fell below the minimum number. “We have low volume, but we are a three-star (quality) hospital,” according to the Society of Thoracic Surgeons, said Fazzalari, who also is a professor of surgery at the University of Michigan Medical School. Under its original 2002 CON, Crittenton is affiliated with UM for its heart program. Allegiance Health in Jackson also is affiliated with UM under its license, Prager said. Falahee said that affiliation with larger programs, in addition to fines, is a goal for settlement with programs that violate licensure standards. The addition of quality standards could be an incentive for smaller but successful programs to reapply under the new standards, Fazzalari said. “It would benefit us because we have always had high quality,” he said. “The hope is other programs will use (the new regulations) as an incentive to improve their quality.” He said, though, that it’s too soon to know whether Crittenton would do so. Fazzalari said programs with lower volume and lower quality could benefit by sharing best practices and resources with larger programs, such as UM. “This is the future,” he said, “the movement to high-acuity health care with high-volume, high-quality programs working with lower-quality programs.” Jay Greene: (313) 446-0325, email@example.com. Twitter: @jaybgreene
March 17, 2014
CRAIN’S DETROIT BUSINESS
Stars align under society’s rating system Michigan’s new quality reporting system for open heart surgery regulations is based on the Chicago-based Society of Thoracic Surgeons’ three-star quality reporting system. The society began collecting quality data from hospitals and heart surgery medical groups in 1989. Its online database now includes more than 1,000 heart hospitals, representing about 94 percent of the nation’s adult cardiac surgery centers, and 1,100 surgical practices, accounting for more than 90 percent of such groups. Quality data collected annually covers four categories — death rates, avoidance of complications, appropriate use of medications and success in using preferred grafting procedures — and encompasses 11 measures. A fifth category — overall composite score — is calculated using the 11 measures. About 70 percent of hospitals score an average composite rating of two stars. About 15 percent rate one star and only 15 percent are at three stars, the highest rating. In Southeast Michigan, five hospitals received three composite stars for July 2012-June 2013: St. Joseph Mercy Hospital, Ann Arbor; St. John Macomb-Oakland Hospital, Warren; Henry Ford Hospital, Detroit; Henry Ford Macomb Hospital, Clinton Township; and Crittenton Hospital Medical Center, Rochester Hills. The other hospitals in Michigan that received three stars: Spectrum Health, Butterworth Hospital and the Fred and Lena Meijer Heart Center, Grand Rapids; McLaren Bay Region, Bay City; McLaren Northern Michigan Hospital, Petoskey; Borgess Medical Center, Kalamazoo; and Genesys Regional Medical Center, Grand Blanc. In Michigan, only the Detroit Medical Center’s Harper University Hospital scored one composite star. The remaining 22 hospitals received two stars for composite scores — including the University of Michigan Health System, the largest open heart surgery program, with 1,100 procedures in 2012. Harper’s results are a combination of low volume and very sick patients, said Scott Henry, M.D., director of cardiovascular surgery care uniformity for the DMC. Henry, who joined the DMC in January from Henry Ford Health System, said Harper conducted only 57 surgeries in the period covered by the rating and only 42 in 2013. “That right there makes it more difficult,” he said. Surgeons around the state, Henry said, recognize that “our particular cohort is the sickest and hardest to treat.” The society’s ratings are riskadjusted, but Henry said he thinks the risk is underestimated because it doesn’t take into account medication noncompliance, IV drug use and a history of liver failure or insufficiency, among other factors. The DMC is participating with the Michigan Society of Thoracic and Cardiovascular Surgeons’ Quality Collaborative, and Harper also has its own initiative to decrease postoperative renal failure. Beyond that, though, Henry
THE HEART OF THE MATTER Southeast Michigan programs required to perform 300 open heart surgeries annually along with their quality ranking, as determined by the Society of Thoracic Surgeons’ Composite Star Rating System.
Crittenton Hospital, Rochester Hills Harper University Hospital, Detroit Henry Ford Macomb, Clinton Township St. John Macomb-Oakland, Warren Sinai-Grace, Detroit Beaumont Hospital, Troy
91 245 313 194 171 299
118 149 225 181 94 318
Southeast Michigan programs required to perform 200 annual open heart surgeries:
McLaren Macomb, Mt. Clemens Oakwood Hospital, Dearborn Providence Hospital, Southfield St. Joseph Mercy Oakland, Pontiac
369 772 325 218
137 468 252 178
Grandfathered Southeast Michigan programs with no volume requirements: 2005 2012 Quality surgeries surgeries ranking Henry Ford Hospital, Detroit McLaren Regional Medical Center, Flint St. John Hospital and Medical Center, Detroit St. Joseph Mercy Ann Arbor University of Michigan Health System Beaumont Hospital, Royal Oak
590 508 544 794 821 1,046
362 272 284 592 1,100 704
HIGHLIGHTS OF MICHIGAN’S NEW OPEN HEART SURGERY REGULATIONS Number of procedures
䡲 New standard: Existing programs seeking new licenses must operate at an annual level of 150 adult open heart surgical cases or 100 pediatric open heart surgical cases by the end of the third year. 䡲 Old standard: Minimum depended on when the hospital began its program. Starting in 1993, for example, 11 programs were licensed with a minimum volume of 300 procedures. From 1979 to 1993, 10 hospitals were licensed with a minimum of 200 procedures. The remaining 12 hospitals were grandfathered in with no volume requirements because they had open heart surgery programs before certificate-of-need regulations began in 1979. 䡲 Continuing standard: An applicant proposing to initiate adult open heart surgery as a new service must demonstrate that it will conduct 300 adult open heart surgical cases and must affiliate with an active program that performs an average of 400 annual procedures over three years. Physician standards
䡲 New: Each physician credentialed by the hospital to perform adult open
heart surgery must perform at least 50 surgeries a year in any hospital or combination of hospitals. 䡲 Old: 75 minimum
Other new standards
䡲 All hospitals licensed under the new regulations must participate in a data
collection network established by the Michigan Department of Community Health or its designee. Data include annual budget; costs; operating schedules; patient demographics; diagnostic, morbidity and mortality information; and the volume of care provided to patients from all payer sources. 䡲 Hospitals must participate in the Society of Thoracic Surgeons’ Composite Star Rating System, a data registry of more than 1,100 hospitals and surgery groups nationally that is available online at sts.org/quality-research-patient-safety/sts-public-reporting-online. 䡲 If the program receives a one-star rating in any composite metric — death rates, avoidance of complications, appropriate use of medications and success with preferred grafting procedures — the hospital must submit a report explaining the reasons for the unsatisfactory rating. 䡲 If the program receives two one-star ratings in a row in the same metric, it shall submit an action plan to Community Health detailing specific actions to rectify the program deficiencies. The program has two years to obtain a minimum two-star rating. 䡲 Hospitals must accept Medicaid and not deny open heart services to anyone regardless of ability to pay. Source: Certificate-of-need review standards for open heart surgery services, CON-2008, Michigan Department of Community Health
said, the key to a better rating is more volume driven by referrals. To that end, he has been visiting primary care doctors to reverse
“the talk of lackluster results in the past that caused providers to send their cases elsewhere.” — Jay Greene
FRI, MAR. 28 • 7:30 PM
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March 17, 2014
New Michigan Medical Society fund’s target: 2-3 startups a year BY TOM HENDERSON CRAIN’S DETROIT BUSINESS
A new fund has been created by the Lansing-based Michigan State Medical Society to invest in earlystage medical-device and technology companies around the state. The fund, Quantum Medical Con-
cepts, will look to invest up to $250,000 in each of two or three startups a year, according to Ben Louagie, the medical society’s COO. There is no fixed pool of money in the fund to invest from. For now, investments will be made as-needed from the medical society. Eventually, the society would like to have a
dedicated pool of money. “We wanted to start slow and see how it goes. We’d like to do something more formal with a dedicated fund in the future,” said fund manager Tom Stewart. In addition to providing capital, the fund will offer management help to the startups and their
founders through an affiliation with Lansing-based Common Wealth Enterprises LLC, a consulting firm run by Stewart that provides services to startups. Common Wealth also runs the Center for New Enterprise Opportunity business incubator in Lansing. “A lot of times, entrepreneurs and
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inventors don’t understand business and how to grow an idea into a profitable business,” said Stewart. “By offering support for those management functions that the founders lack, Quantum can increase the likelihood of success and minimize the investment risk.” Medical businesses funded by Quantum will undergo a needs assessment that analyzes their proficiency in such core business areas as accounting and finance, human resources, operations and product development. Based on that assessment, Quantum will design a program for each company to guide its growth. Louagie said that one likely source of portfolio companies will come from medical society members, some of whom hold patents for devices that have designed for their own medical practices but haven’t commercialized. Stewart said entrepreneurs can apply for funding at www. quantummedicalconcepts.com, a site that is under construction and should be live soon. Tom Henderson: (313) 446-0337, firstname.lastname@example.org. Twitter: @tomhenderson2
Referral fees honored on contingency fee cases
950 West University Drive, Suite 300 Rochester, Michigan 48307
CON Report The following are selected filings for a certificate of need from Feb. 10 through March 13: Letters of Intent: 䡲 William Beaumont Hospital, Troy: Add two operating rooms within the surgical services department; $800,000. 䡲 Oakwood Hospital-Southshore, Trenton: Add a second catheterization lab and replace and move existing lab to second floor; $5.1 million. Applications received: 䡲 Surgical Center of Southfield LLC, Southfield: 10-year lease and renovations to open a new freestanding surgical outpatient facility with one operating room; $1.9 million. Decisions: 䡲 WOS Skilled Nursing, Shelby Township: 30-year lease to open a 70-bed nursing home; $13.8 million. Withdrawn. — Bridget Vis
WEBINAR SERIES TO TAKE THE PULSE OF MEDICAID REFORM Medicaid expansion passed last year, but April 1 is when it starts to take effect. If you’re a doctor, an insurer, health system or other health care provider, this will affect you. Are you ready? Crain’s Detroit Business and the Greater Detroit Area Health Council approach health care reform in 2014 with the HealthFacts webinar series. The first part of a two-part installment looks at the impact of Medicaid reform on the health care providers of metro Detroit. Date: Noon-1 p.m. March 26. To register: crainsdetroit.com/webinars.
CRAIN’S DETROIT BUSINESS
March 17, 2014
BUSINESS DIARY ACQUISITIONS
Federated Railways Inc., Farmington Hills, an affiliate of Federated Capital Corp., agreed to acquire the assets of Rail Logistics LC, including its “Cold
Train” express intermodal service. The subsidiary will be called Federated Cold Train LLC and will conduct business as Cold Train. The company will maintain its current management and staff and retain its headquarters in Overland Park, Kan. Websites: federatedcapital.com, icoldtrain.com.
CONTRACTS Visteon Corp., Van Buren Township, and Autonet Mobile Inc., San Francisco, an Internet-based telematics and app service provider, entered into an agreement for Visteon to integrate Autonet’s telematics technology into Visteon products for vehicle manufacturers. Visteon will lead design and integration efforts with manufacturers, and Autonet will provide software, Internet protocol and network operation services. Visteon expects to begin manufacturing in the second half of 2014. Websites: visteon.com, autonetmobile.com.
Tanner Friedman Strategic Communications LLC, Farmington Hills, was selected to provide public relations for a new locally launched music app, Ourtunez. Website: tannerfriedman.com. Qualitech, Bingham Farms, a technology integrator and software reseller, was selected by Sachs Waldman PC, Detroit and Madison Heights, to upgrade its computer network. Website: qualitech.net. Penske Automotive Group Inc., Bloomfield Hills, signed a letter of intent with Porsche Cars North America to construct a new Porsche dealership in Davie, Fla. The dealership is expected to be completed in the second quarter of 2015 and will be named Porsche of West Broward. Websites: penskeauto motive.com, porschewestbroward.com. MiPro Consulting LLC, Milford, specializing in implementing and upgrading Oracle’s PeopleSoft suite, was retained by Children’s Hospital Colorado, Aurora, Colo., to conduct a PeopleSoft financials and supply chain management upgrade that began in November 2013 and is slated to go live in fall 2014. Website: miproconsulting.com.
bers, $55 guests of members, $75 nonmembers. 11:30 a.m. speaker reception open only to board, life and gold members. Contact: Detroit Economic Club, (313) 963-8547; email: info@ econclub.org; website: econclub.org.
FOCUS ON WORKPLACE
AIAG Supply Chain Summit. 8:30 a.m.6:30 p.m. General Motors Co., Chrysler Group LLC, Toyota Motor Corp., Honda Motor Co., Magna International Inc., QAD Inc. An opportunity to discuss issues, updates and solutions surrounding supply chain disruption and recovery. With keynote speaker David Cole, chairman, AutoHarvest; and Michael Robinet, managing director, IHS Automotive Consulting. $250 AIAG members, $300 nonmembers. Contact: Shannon Osburn, (248) 213-4642; email: email@example.com; website: aiag.org.
WEDNESDAY MARCH 19 Manufacturing in America. 8 a.m.-5 p.m. March 19-20. Electro-Matic Products Inc., Siemens AG. An event for executives, technology leaders and innovators in the manufacturing industry to explore how technology is driving a manufacturing resurgence in the United States. Ford Field, Detroit. Free. Contact: Amy Sorkin, firstname.lastname@example.org; website: electro-matic.com.
DATA SECURITY Join business leaders, corporate counsel, compliance officers and human resources professionals in learning to navigate information and data security in the workplace. Workplace Law Symposium: Information and Data Security takes place 1-6 p.m. April 2 at the Townsend Hotel, Birmingham, hosted by Jackson Lewis PC. The keynote speaker is Barbara McQuade, U.S. attorney, Eastern District of Michigan, and the following members of Jackson Lewis PC Detroit and Grand Rapids offices: Maurice Jenkins, managing shareholder; Katherine Van Dyke and Lawrence Shulman, of counsel; Roderick Gillum, shareholder; Joe Lazzarotti, shareholder and national co-leader of the privacy, ecommunication and data security practice; and Marlo Roebuck, shareholder. Tickets are $50. To purchase and for details, call Maggie Olschanski, (248) 936-1923, email her at email@example.com, or visit jacksonlewis.com/events /locations/view/2474.
Detroit: What Happens Now? Noon1 p.m. March 25. Mount Clemens Public Library. Veteran journalist Jack Lessenberry, area head of journalism faculty, Wayne State University; contributing editor and columnist, Metro Times, Traverse City Record Eagle and The Blade, Toledo; and political commentator, Michigan Radio, will discuss Detroit’s future after bankruptcy. Mount Clemens Public Library, Mount Clemens. Free. Contact: Deborah Larsen, (586) 469-6200; email: firstname.lastname@example.org; website: mtclib.org.
Women’s Power Happy Hour. 5:30-7:30 p.m. March 26. Gleaners Community Food Bank of Southeastern Michigan. In celebration of 21 years of powerful women supporting Gleaners’ work, benefactors will join Happy Hour supporters for networking and a sampling of food, wine and spirits. Northern Lakes Seafood Restaurant, Troy. $150; sponsorship levels $250$10,000. Contact: Suzette Hohendorf, (886) 453-2637, ext. 243; email: shohen email@example.com; website: gcfb.org.
MARCH 20 A Taste of Leadership Oakland. 4:307 p.m. Leadership Oakland. With Oakland County Executive L. Brooks Patterson, keynote speaker. Meet Leadership Oakland graduates and alumni and discover how the Cornerstone Program has helped them become contributors to their businesses and communities. The Townsend Hotel, Birmingham. $28. Contact: Chris Scharrer, (248) 952-6880, ext. 2; email: cschar-
firstname.lastname@example.org; website: leadershipoakland.com.
UPCOMING EVENTS Detroit Economic Club Meeting. 11:30 a.m.-1:30 p.m. March 24. With Mary Sue Coleman, president, University of Michigan, discussing her role since 2002 as UM’s 13th president. Westin Book Cadillac Detroit. $45 DEC mem-
Inside the CEO Mind. 8-10 a.m. March 27. Detroit Regional Chamber. With Sandy Pierce, CEO, FirstMerit Bank. REDICO Conference Center, Southfield. $20 DRC members, $50 nonmembers. Contact: Marianne Alabastro, (313) 596-0479; email: malabast@ detroitchamber.com; website: detroitchamber.com.
Women’s Power Breakfast. 7-9 a.m. April 2. Gleaners Community Food Bank of Southeastern Michigan. Bene-
fit to raise funds to provide 1 million meals for hungry children in the region. With Maggie Steber, photographer, National Geographic. Gleaners Detroit Distribution Center, Detroit. $120; table sponsorship $1,200; other sponsorship levels $250-$10,000. Register by March 18. Contact: Suzette Hohendorf, (886) 453-2637, ext. 243; email: email@example.com; website: gcfb.org.
Women Lighting the Way in the D. 11:30 a.m.-2:30 p.m. April 2. Jewish Women’s Foundation of Metropolitan Detroit. With Mary Kramer, publisher, Crain’s Detroit Business, as moderator; Faye Alexander Nelson, president, DTE Energy Foundation, and vice president, public affairs, DTE Energy Co.; Cindy Pasky, CEO and president, Strategic Staffing Solutions; Laura Trudeau, senior program director, community development, The Kresge Foundation; and Jackie Victor, founding partner and vice president of retail, Avalon International Breads. Waterview Loft at Port Detroit, Detroit. $50. Contact: Pat Mayer, (248) 203-1519; email: firstname.lastname@example.org.; website: jwfdetroit.org.
Crain’s M&A Awards. 5-9 p.m. April 16. Crain’s Detroit Business, Association for Corporate Growth, Detroit chapter. Event honors companies and executives in the categories of Best Small Deal of the Year, Best Large Deal of the Year, Dealmaker of the Year – Adviser, Dealmaker of the Year – Buyer/Seller, and Lifetime Achievement. Select award winners will share best practices and inside stories from their top deals. Troy Marriott, Troy. $75 ACG members or nonmembers in groups of 10 or more, $80 individual sales to nonmembers. Contact: Kacey Anderson, (313) 446-0300; email: email@example.com; website: crainsdetroit.com/events.
SCHECHTER INVESTMENT ADVISORS, LLC L
FEV North America Inc., Auburn Hills, is expanding the consulting arm of FEV Consulting Inc. with a practice in Auburn Hills. FEV North America and FEV Consulting are part of the FEV Group, an international power train and vehicle engineering company. Website: fev.com.
BERNIE KENT JD, CPA, PFS
Schechter Wealth, an investment advisory and advanced life insurance design ﬁrm, is expanding its investment services and
we’re happy to welcome Bernie Kent and John Stein to lead the team.
Gateway Community Health relocated its headquarters from 3011 W. Grand Blvd., Suite 2000, to 1333 Brewery Park Blvd., Suite 100, Detroit. Website: gchi.org.
Nationally renowned ﬁnancial planner Bernie Kent spent 32 years at PricewaterhouseCoopers, where he was the Midwest regional
NEW SERVICES Atlas Oil Co., Taylor, launched Atlas FuelonDemand, an online tool providing customers access to pricing in any region and the ability to execute fixed-price contracts at their desired price. The first phase encompasses customers in Texas, Oklahoma and parts of Michigan. Phase two will expand to customers in other states, and March 31 is the target date for appearing in all other sales markets. Website: atlasoil.com.
partner in charge of the personal ﬁnancial services group. John Stein, BERNIE KENT JD, CPA, PFS Chairman, Senior Advisor Schechter Investment Advisors
a former director of PwC’s Investment Advisory Practice, has more than 17 years of investment advisory experience.
JOHN STEIN MBA, CFA CEO, Senior Advisor Schechter Investment Advisors
STARTUPS Vanguard Community Development Corp., Detroit, is opening its first Footprints to Prosperity early learning community hub at Oakland Avenue Missionary Baptist Church, 317 Harper Ave., Detroit. Website: vanguardcdc.org.
NEW YORK, NY
W W W. S C H E C H T E R W E A LT H . C O M
For information about registration status and business operations, please consult Schechter Investment Advisors’ Form ADV disclosure documents, available on the SEC’s Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov.
March 17, 2014
CRAIN’S DETROIT BUSINESS
PEOPLE president and office manager, Security Credit Union, Detroit, from home care
director, SEIU Healthcare Michigan, Detroit.
Bryan Marx to senior vice president and chief accounting officer, Flagstar Bank, Troy, from senior manager, banking and capital markets assurance, PricewaterhouseCoopers LLP, Detroit. Also, Matthew Irey to first vice president, information technology, from Americas executive, business management transformation, Hewlett-Packard Enterprise Services LLC, Pontiac. James Housler to partner and senior adviser, Tele-
Paul Dwaihy and Patrick Winters to shareholder, from associate, Plunkett Cooney PC, Mt. Clemens and Bloomfield Hills, respectively.
MANUFACTURING Jose Ivorra to vice president of commercial and program management, SRG Global Inc., Warren, from director of business development and sales for European operations, Valencia, Spain.
mus Capital Partners LLC, Ann
Arbor, from vice president and banker, J.P. Morgan Private Bank, Ann Arbor. Freddy Polanco to assistant vice
IN THE SPOTLIGHT
Terre Herro to di-
The Charles H. Wright Museum of African American History, Detroit, has named Ted Canaday chief marketing and communications officer. The position had remained vacant since Tony SpearmanLeach left the museum in 2010. Canaday had been the museum’s marketing director. Canaday Canaday, 40, was a 2008 Crain’s Detroit Business 40 under 40 honoree. He earned a bachelor of arts in music from Wayne State University and has been involved since 2010 in the Capacity Building: a Detroit arts management training and consultation program administered by the DeVos Institute of Arts Management at the Kennedy Center in Washington, D.C.
MARKETING Brian Bleau to senior account executive, Quell Group Inc., Troy, from account executive.
rector of sales and business development, Hospice of Michigan, Detroit, from regional sales manager, hospital market and large accounts, Blue Cross Blue Shield of Michigan, Detroit. Also, Lora Cabarios to philanthropy director for major gifts,
Hospice of Michigan Foundation, Detroit, from senior associate director of development, Beaumont Foundation, Troy. Moira Mahoney to director of special Mahoney events, Capuchin Franciscan Province of St. Joseph, Detroit, from assistant dean, development, University of Detroit Mercy, Detroit.
agement. Also, Scott Wallace to senior regional manager, from regional manager; Al Montalvo to regional manager, from senior regional manager, Midwest region, GlassRatner Management & Realty Advisors LLC, Detroit; Mike Kelly to assistant regional manager, from executive property manager, Village Green Cos., Farmington Hills; Wendy Barnabei to assistant regional manager, from executive property manager, Village Green, Ann Arbor; and Rae Lynn Iaquinto to assistant regional manager, from executive manager, Village Green, Rochester
SERVICES Wendy Robins to project manager and performance consultant, Innovative Learning Group Inc., Royal Oak, from performance consultant, Alteris Group, Southfield. Marianne Napp to account director, d.Diversified Services, a technical staffing company, Bingham Farms, from senior technical recruiter. Robert DeWolf Jr. to president, Wright & Filippis Inc., Rochester Hills, from COO.
Sarah Girand to vice president, multifamily management, Broder & Sachse Real Estate Services Inc., Birming-
Rob Hempel to vice president of sales and marketing division, Denso International America Inc., Southfield,
ham, from director of apartment man-
from director of Chrysler sales group.
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CRAIN’S DETROIT BUSINESS
March 17, 2014
Hotel: Owner, operator booked in court over ex-Dearborn Hyatt ■ From Page 1
The place to meet The Hyatt Regency Dearborn was built in 1976 and became the epicenter of all things important in the suburban Detroit hotel world, said Ron Wilson, CEO of Troybased Hotel Investment Services Inc. With 772 rooms and 62,000 square feet of meeting space, the 14-story, contemporary design hotel located across from Ford Motor Co.’s global headquarters was the place to make a statement with a conference, corporate meeting or wedding, he said. But by 2009, Dallas-based owner Ashford Hospitality Trust, which had paid $40 million for the hotel in 2007, was in default on a $29 million mortgage. Royal Realties bought it in 2011 for $10 million. The hotel continued to operate as a Hyatt until Oct. 31, 2012, when Hyatt pulled its flag after it couldn’t come to terms with the ownership group on a new management agreement. Atmosphere Hospitality got the contract the following month, after a deal with Minnesota-based Carlson Rezidor Hotel Group to operate the hotel as a Radisson fell through. The relationship between Atmosphere Hospitality and Royal Realties went bad almost immediately. Jennifer Zbytowski Belveal, a partner at Honigman Miller Schwartz and Cohn LLP, representing Royal Realties, declined to comment last week, and Gerald Gleeson II, principal at Miller, Canfield, Paddock & Stone PLC, which is representing Atmosphere Hospitality, declined to comment on specifics of the case, but a collection of court filings outline a litany of disagreements and accusations of bad faith. Atmosphere Hospitality, which previously operated one other hotel under the Adoba flag in South Dakota, took on management of the former Hyatt with plans to acquire it by the end of 2012 for about $25 million. The hospitality company claims Royal Realties breached its contract almost immediately, provid-
ing only $375,000 of the $700,000 it was contractually required to provide initially for operations, among other things. Royal Realties agrees it ceased funding operations just weeks into the agreement, but one reason was that Atmosphere Hospitality was issuing checks of more than $5,000 without written consent, as required under the agreement. Some of the checks, Royal Realties alleges, were made out to Adrienne Pumphrey, global head of the Adoba brand and a principal of Atmosphere Hospitality. Also at issue were new signature cards that blocked Royal Realties’ access to the hotel’s operating account, and Atmosphere Hospitality’s failure to provide financial reports as required. The companies also disagree on how the hotel performed, with Atmosphere Hospitality claiming it initially turned around the nearempty hotel, filling hundreds of its rooms and attracting numerous events, and Royal Realties alleging it performed below expectations. Other challenges included the lack of liquor licenses, which Atmosphere Hospitality claims were withheld and Royal Realties said were delayed because of Michigan Liquor Control Commission requirements it needed to meet and a desire to acquire some ownership of the escrowed licenses in case the management company changed. Atmosphere Hospitality used outside caterers to serve liquor, but it said the lack of licenses ultimately took a toll on conference, meeting and social events bookings. Atmosphere Hospitality said it fronted at least $750,000 for operations, believing it would be reimbursed under the contract, but ultimately assumed responsibility for covering costs because Royal Realties claimed it was broke and would have to close the hotel. In its complaint, Atmosphere Hospitality alleges that claim was fraudulent because Royal Realties was “flush with cash” from a $25 million mortgage on the hotel pro-
vided by Panama-based Feralto Trading Co.
Deal breakers Throughout all of the issues, both companies said they continued to negotiate the sale of the hotel. But Atmosphere Hospitality said it eventually came to the belief that Royal Realties never planned to consummate the deal. For one, a promised investment of $10 million to help Atmosphere Hospitality buy the hotel from a person presented as a Royal Realties investor never materialized. And later, when other investors had been lined up, Royal Realties wouldn’t provide the appraisal needed to complete the sale. Atmosphere Hospitality, which has first rights of refusal to buy the hotel as part of the management agreement, believes Royal Realties has found another buyer and is terminating the current agreement in order to pursue it. Royal Realties said that’s not true, and said the issue is that by mid-January, after more than 14 months of negotiations, “it became painfully obvious that Atmosphere did not have the financial wherewithal to consummate the purchase.” The last straw, Royal Realties said, was when Atmosphere Hospitality blocked it from taking part in the insurance settlement of a $4 million to $6 million claim stemming from two burst pipes at the hotel in January. That prompted the 30-day notice on Jan. 22 to terminate the management agreement. As of the end of February, the hotel had $1.2 million in outstanding payables, according to Royal Realties attorneys. They said the owner fears that necessary vendors such as utility providers will stop providing services, shutting the hotel down. Royal Realties said the hospitality company responded to the termination notice by banning it from its own hotel, saying it would not pay hotel vendors in ordinary
course, nullifying addendums that Skelton told Crain’s last year. had been made to the management That could help increase occuagreement and filing the lawsuit. pancy and event bookings, but it’s Also named in not likely the hothe lawsuit are tel could fill Royal Realties atenough of its torney Ieshula rooms even then, Ishakis, the regisHospitality Mantered agent for the agement Service’s company and RoyWilson said. al Realties ManageHotels like the ment Co. LLC, and Adoba are small a company he cities and are founded, Mashka very labor intenRon Wilson, LLC, as defendants sive to maintain, Hotel Investment Services for interfering in he said. Additionthe fulfillment of the management ally, it’s too costly to operate them contract. outside of major gateway cities, given room rates and the number of outside entertainment venues that exist in most markets. Consultants question whether “The cost to bring a hotel like the hotel can even be profitably op- this back on line is staggering, and erated at this point. the market and price points for it To get the property back to Hy- have passed,” Wilson said. att’s standards, it would take about Sherri Welch: (313) 446-1694, $50 million in investment, Ann Ar- email@example.com. Twitter: bor hospitality consultant Charles @sherriwelch
The cost to bring “ a hotel like this back on line is staggering.
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March 17, 2014
CRAIN’S DETROIT BUSINESS
Help wanted: Auto industry restocks for recovery BY MARK RECHTIN, MIKE COLIAS AND LARRY VELLEQUETTE CRAIN NEWS SERVICE
After a recession and restructuring that sent tens of thousands of workers to the curb, the U.S. auto industry’s recovery has depended heavily on lean workforces toiling long hours. Now, it appears, relief is on the way. Showing increasing confidence in the pace and durability of the recovery, automakers are spending to restock depleted departments in core areas, such as sales, marketing, distribution, and product planning. They’re also building up competency in fields such as information technology and digital marketing, and scouting for talent on college campuses and at nonau-
tomotive businesses. Last fall, Ford Motor Co. said it plans to add more than 5,000 U.S. workers — including 3,300 salaried employees — in 2014, a big step in the effort to backfill some of the automotive jobs that vanished during the recession. General Motors Co. is amid a hiring binge that will add some 10,000 workers to its IT workforce. And Chrysler, whose productplanning department was nearly depleted in the lead-up to its 2009 bankruptcy, is bringing in summer interns by the hundreds. The automotive segment, including manufacturers and dealers, is still far below prerecession employment levels, according to data from the Bureau of Labor Statistics, and some companies remain conservative with their hiring plans. But the recession-era mindset of “keeping your job is the new
raise” is giving way to a strong upward trend in hiring, with openings in a variety of sectors. The auto industry is “recalibrating,” said executive headhunter Steve Parkford. He sees digital communications, captive finance and regional dealer-facing positions as hot areas for job seekers. “The auto companies are acquiring more midlevel executives, having staffed or reshuffled their senior ranks in the last couple of years,” said Parkford, principal of Parkford & Associates in Long Beach, Calif. “Field organizations have turned over, and fresh blood is needed.” In Detroit, white-collar and techsavvy workers are back in demand. GM is hiring a wave of tech workers under its plan to move 90 percent of its IT operation inhouse, from the largely outsourced
model that it has had in place for nearly 20 years. Under the initiative that began in 2012 under Chief Information Officer Randy Mott, GM plans to hire close to 10,000 software and hardware engineers, database experts, application developers, project managers and other IT professionals. GM’s IT staff numbered just 1,500 before the effort began. A spokeswoman said the hiring is about 60 percent complete. Some of the new workers are being assigned to help with the rollout of in-vehicle 4G LTE wireless broadband on most of GM’s 2015 models beginning this summer. In 2013, GM’s North American workforce grew 8 percent, to 109,000 salaried and union workers, according to its annual report filed with U.S. regulators last month. GM added about 4,000 workers for the IT in-
sourcing effort, and another 3,000 were brought in to handle a heavier vehicle-launch schedule and manufacturing volume, the company said. At Chrysler Group LLC, corporate head count has recovered to more than 50,000 workers in the U.S., but has not yet returned to the prerecession level. At the end of 2006, when Chrysler had more plants in the U.S., it had 64,750 workers. “Obviously, you need more people to produce more vehicles,” said Georgette Borrego Dulworth, Chrysler’s director of talent acquisition and diversity. As with other automakers, the largest share of openings at Chrysler is in engineering and design — 244 of the 660 openings listed on March 13 on the company’s hiring website, chryslercareers.com. From Automotive News
Theft: As Lansing delays, metal theft costs city, schools $25K a day ■ From Page 3
Thieves apparently severed six primary distributor feeds from an access point under the substation that carry as much as 240,000 volts of current, including some lines that arced electricity after being cut, said department interim Director Beau Taylor. That was just the latest in what looks like a series of break-ins and thefts over the past six months on the same site. Taylor estimates the city-owned lighting and electrical distribution grid is losing between $500,000 and $1 million per year worth of copper infrastructure to theft, or about $1,350 to $2,700 per day on average. That’s just the value of materials. “This is a power distribution issue,” he said. “Materials is one thing, but I don’t look at everything just as a direct cost. Say there’s three (of our) feeds going into a school. You take one and there’s two more. But then if they take out another feed, and another, you have nothing left. Now, what’s the opportunity cost of a kid not learning science for a week or (more)? And there’s the expense of … fielding a crew, and equipment.” The department, which purchases power from DTE Energy Co., distributes electricity through its grid to 135 commercial customers, including Wayne State University, the Detroit Medical Center campus in Midtown, the Detroit Institute of Arts, Cobo Center and the Frank Murphy Hall of Justice. It is also responsible for powering Detroit’s more than 86,000 public streetlights, a challenge Taylor said is getting more difficult as theft escalates. At the Stanton Substation, thieves over the past six months have dismantled a $200,000 transformer and removed several hundred feet of cable and other copper fixtures inside the substation building, even pulling out a water meter. The thieves were likely taking the cables to a nearby house to strip them of insulation, he said. Copper, which closed at $2.92 a pound Thursday on the Commodity Exchange division of the New York Mer-
“That’s just a huge drain, not only on our ability to educate but in time and resources,” she said. “Add to that the food that’s been lost, because we’re focused on fresh food. When a school goes down, a certain amount is lost food in the refrigerator. So the cost just snowballs.” Zdrodowski did not have breakouts of the estimated cost of a makeup school day or for food losses.
Water loss, too
DAVID HALL/CRAIN’S DETROIT BUSINESS
Beau Taylor, interim director of Detroit’s Public Lighting Department, estimates that the city-owned electrical grid loses to theft up to $1 million a year in copper infrastructure.
cantile Exchange, can be worth about 80 cents more in bare form than insulated copper, according to industry trade publications. Last November, the department decided to move away from purchasing more copper. Instead it is systematically replacing copper wiring, which sells regularly for $2.50 a pound on the scrap market, with aluminum conductor steel reinforced cable, which Taylor says can sell for less than 10 cents a pound, providing a deterrent to thieves. In the past four months the city has replaced several miles of copper wiring with the steel cable, but its grid includes more than 1,400 miles of overhead cable. The aluminum is being used even to replace wiring lost to weather or degradation, but Taylor said he expects most thieves will see the new material at replacement sites and move on. “I assume a certain level of sophistication among the people that are doing this. When they see it (the new material) up, they know that’s not what they want. It’s quite obvious to tell, it’s not like fool’s gold.”
Lost instruction days The lighting department is the
electrical provider to most school buildings operated by Detroit Public Schools, and Taylor said the school district has lost about 200 school days’ combined (two schools closed on the same day equals two days lost) — the majority of those closures due to power outages caused by copper theft. The department is adding new security measures to its infrastructure to counteract future theft, Taylor said, but he declined to give details. “It really is mind-boggling how often we have thieves strike, and how much they take,” he said. “And it’s getting worse and worse, not better and better.” Michelle Zdrodowski, chief communications officer for DPS, said the school district counted 160 total days across all its schools lost to power outages as of the end of January. That’s compared with 39 days lost to outages all of the previous academic year. That will likely mean days added to the end of the school year to make up for lost time, she said. It also has led to unforeseen expenses — the Mason Elementary-Middle School on Fenelon Street has had 10 days of outages, for example, and recently rented a generator to repower the school for $30,000 over two days.
The Detroit Water and Sewerage Department also did not have current figures on how much it loses in scrap metal theft per year, but Public Affairs Manager Mary Alfonso said recent reports indicate the department loses about 27 percent of the total treated water that goes into its massive and aging network of water lines. The department puts about 610 million gallons, or 81.6 million cubic feet, of water from its treatment plants into the network every day. At a 27 percent loss rate, that’s just more than 22 million gallons unaccounted for, but Alfonso said it is lost in several different ways — seepage into the groundwater table, “nonrevenue water” or illegal water line hookups, and water losses due to vandalism or theft of scrap metal at abandoned buildings. At a standard $18.90 per 1,000 cubic feet that the department bills to city residential customers after their first 3,000 cubic feet (one of the lowest price points within its billing structure) that would come out to nearly $417,000 worth of treated water lost per day. It isn’t immediately clear how much of that loss is due to scrap metal theft or vandalism versus the other causes. Alfonso said the Board of Water Commissioners in January approved an amendment to a comprehensive water audit contract, for Detroit-based civil engineering firm Tucker Young Jackson Tull Inc. to help DWSD identify problems and potential investments to curtail water loss.
That review is not complete, she said. But the department also reported 63 service calls last week alone to sites of water loss at abandoned buildings and that were likely due to theft or vandalism, and officials believe that may be a below-average weekly figure due to cold weather. Open water lines from theft sometimes don’t get reported for days, so if even 5 percent of total unaccounted water leaves the system in flooding at buildings targeted by thieves, that would be nearly $21,000 worth of treated water lost per day to DWSD. The department is occasionally a target itself of theft, for brass manhole covers as well as brass threads and operating nuts on its fire hydrants, over and above the water loss from metal theft at private property. For a while those hydrant components were disappearing at a rate of 10 to 15 per week, said Public Affairs Manager Bill Johnson, but those became somewhat less frequent after a group of suspects was arrested last year. Muxlow, R-Brown City, said he originally took interest in bringing new regulations to the scrap metal dealer market because of copper theft from turbines on wind energy farms in St. Clair County, within his district. But he is keenly aware of the meaning those new regulations would have on Detroit. At issue in the Legislature is whether a compromise bill would require a three-day delay in payment for scrap metal sales as proposed by the House version of the bill, or simply rely on a database to track scrap metal sales as proposed in the Senate version. “There is a possibility of bringing it back Tuesday, and as soon as we come up with something reasonable, I’m willing to give the OK on it for my part,” Muxlow said. “I live outstate now, but I lived in Detroit (before) and I get the problem. Now is a great opportunity to deal with it.” Chad Halcom: (313) 446-6796, email@example.com. Twitter: @chadhalcom
CRAIN’S DETROIT BUSINESS
March 17, 2014
Office:Demand drives construction in west suburbs ■ From Page 1
than six months and would “kick off once we have a sizable tenant or tenants,” he said.
The demand Driving the new projects are tenant requests for more modern spaces to lease. It’s similar to what’s taking place in the industrial real estate market, and is focused in certain geographic submarkets. “We are seeing very significant demand from a variety of automotive suppliers that find the area to be an excellent place to locate between the major auto manufacturers and their technology centers in Ann Arbor and near the airport,” said Etkin Principal Doug Etkin. Other developers planning office or flex space in the western suburbs include Redico, on 27-59 acres of land in the Northville Technology Park; and Farmington Hills-based Northern Equities Group, which is planning the 54,000-square-foot Adams North Technology Centre building in its Haggerty Corridor Corporate Park in Novi. Northern Equities finished the 57,000-square-foot Adams South Technology Centre building there in December. In addition, Livonia-based Schostak Bros. & Co. is constructing an outpatient care building for the University of Michigan Health System in Northville Township on part of the land where the former state-owned
CONSTRUCTION PROJECT DETAILS Large office/flex real estate projects in the western suburbs of Wayne and Oakland counties: 100,000 square feet for a University of Michigan outpatient care facility on the northeast corner of Seven Mile and Haggerty roads in Northville Township Developer: Schostak Bros. & Co., Livonia. Cost: $39 million. Status: Under construction, opening in July 54,000 square feet of office/flex space at Seven Mile Road and Victor Parkway at Victor East in Livonia. Developer: Etkin LLC, Southfield. Cost: $8.5 million. Status: Seeking tenants Two buildings, one of 50,000 square feet of flex space and one of 60,000 square feet of flex space at Beck and West roads in the Beck North Corporate Park in Novi. Developer: Amson Dembs Development Inc., Novi Cost: Part of $25 million in development at Beck North between 2013 and 2014. Status: Project ground-breaking by May for smaller building; construction by the end of summer for larger one. 54,000 square feet of office/flex space north of 13 Mile Road, west of Haggerty Road in the Haggerty Corridor Corporate Park in Novi. Developer: Northern Equities Group, Farmington Hills. Cost: $5.5 million. Status: Construction to begin by June Sources: CoStar Group Inc.; Schostak Bros. & Co.; Etkin LLC; Northern Equities Group; Amson Dembs Development Inc.
Northville Regional Psychiatric Hospital operated. Amson Dembs Development Inc. plans two build-to-suit flex buildings totaling 110,000 square feet in Novi this year at the Beck North Corporate Park. Ryan Dembs, a principal with the Novi-based company, said tenants are lined up to fully lease each building but would not identify them.
Brisk dealmaking Jeff Schostak, director of corporate real estate services for Schostak Bros., said recent dealmaking has absorbed much of the
available space in the area. For example, vacancy rates for flex space in the area near Detroit Metropolitan Airport have been at 2 percent or below for the past three quarters, according to data from Colliers International. In the lakes area of western Oakland that includes Walled Lake, Wixom and West Bloomfield Township, flex space was 7.4 percent vacant last quarter. Livonia had an 11.7 percent vacancy, and the Farmington and Farmington Hills market had 14.6 percent. The western Wayne and Oakland suburbs have a total of 13.8 million square feet of existing flex
space in the market, according to Washington, D.C.-based real estate information service CoStar Group Inc. Of that, 12 percent is vacant. Office vacancy rates in western Oakland fell from 15.7 percent in the first quarter of 2010 to 12.6 percent last quarter, according to Colliers. In western Wayne, they dropped from a four-year high of 16.7 percent at the end of 2011 to 14.7 percent last quarter. Matthew Sosin, president of Northern Equities, said Michigan’s improved economy is driving much of the new construction. “We are all seeing the effects of people being more optimistic about the future and ready to move forward,” Sosin said. However, don’t expect much speculative office/flex construction, where developers begin construction without tenants yet secured, in the western suburbs for another year or two. That kind of building won’t happen until lease rates increase enough to justify such projects, said Peter Burton, CEO of Burton Katzman LLC. The average lease rate for office space in the western suburbs was $18.51 per square foot and $8.38 for flex space at the end of last year, according to Colliers data. “If your (spec) building hit the market today, you might have some trouble,” Burton said. Kirk Pinho: (313) 446-0412, firstname.lastname@example.org. Twitter: @kirkpinhoCDB
Music: Beringea, industry veterans plan institute ■ From Page 1
fect place to take it. “We’ve known the founders for a number of years through our London office ... we’re really excited to be able to provide them some growth capital.” Clayman, who has a background in managing tours and artists, said Detroit is a test market for a larger concept that eventually could lead to schools in other markets, such as New Orleans; Memphis, Tenn.; and Chicago. “People are starting to look forward in Detroit,” Clayman said. “It’s like a clean slate. And the music history is amazing.” Crain’s interviewed Clayman and Nixon on Friday afternoon about 10 miles outside of Austin, Texas, as they prepared a young, London-based band called Wildflowers for a first prime-time gig at the South by Southwest festival. Next up: Traveling to Detroit for a media event Thursday announcing the music school plans, which will be housed in a pop-up space at 1520 Woodward Ave. The Gilbertowned building will serve as a temporary admissions office and performance space. Rothstein said the plan is to enroll 150 students the first year and eventually boost that to 1,000. Capital will be provided by DIME management and Beringea, a venture capital firm. Gilbert’s investment arm, Detroit Venture Partners LLC, won’t invest, but Gilbert will be heavily involved.
The DIME pop-up space, equipped with a stage and sound system, also will feature regular entertainment events. Bands and artists interested in performing in this space should contact the admissions office to secure a booking. The college will formally open in September, when renovations are complete on the historic Bamlet Building, which was built in 1896 and is owned by Gilbert’s Bedrock Real Estate Services. DIME will occupy 15,000 square feet of the seven-story, 36,000square-foot building at Griswold Street and Grand River Avenue in Capitol Park. Students will be able to choose a bachelor’s degree or a diploma in creative music performance or sign up for part-time and summer music education programs. It’s envisioned as a high-end music academy where local would-be musicians can learn everything from how to master their instrument to business skills. A model to truly aid students in long-term career planning is what sold the school’s founders to work with Beringea on the plans instead of “American Idol.” “We decided what we do and what ‘Idol’ does is entirely different. We are about long-term career planning,” Clayman said. “These television singing contests are short and fast.” Nixon said that because the music industry is a complicated busi-
ness, and learning by experience can be a long route, the idea is for DIME to help expedite students’ success. “We have survived 40-year careers in this industry, the most amazing careers,” said Nixon, a former artist, songwriter and record producer. “We want to share that.” The partners, both sporting Detroit-made Shinola watches, told Crain’s during Friday’s interview that Detroit offered the opportunity to build something significant in a city in the midst of rebuilding. This was a big selling point. “We want to build a music community,” Nixon said. “We took to Detroit because of the amazing positive energy. In England, the story is all about the worst, the bankruptcy and violence. When we got here, we thought the city was brilliant.” Mike Jbara, president of ADA Worldwide, a division of Warner Music Group, said news of the music school is evidence of Detroit’s reemerging cachet in the industry. “This is great. It’s funny; as I travel and I hear people who are not from Detroit react to great developments like this, I wonder if I take the incredible depth of Detroit’s arts culture for granted,” he said. “To me, no other city right now has the potent mixture of inspiration, focus and just the right hint of swagger that Detroit has.” Nixon said DIME musicians will be playing in bands and working
on career development by meeting industry professionals, mastering technique, promoting their own shows, developing their brand and arranging songs. There are two types of degree programs: one is accredited through Falmouth University in Cornwall, England, while the other is not. All students must audition. “This is not for kids who got a guitar for Christmas,” Clayman said. The nonaccredited track runs about 12 months, costs $6,500 and requires about 12 hours of class time a week. It is a performancebased education in which students will hone their skills on bass, drums, guitar, vocals and music entrepreneurship. The accredited track costs $12,999 a year, takes three years to complete. Nixon said credit hours from this track can be transferred to other American universities. Nixon, Clayman and Dickinson, a guitarist and songwriter who has worked with bands such as Van Halen and Aerosmith, founded the Brighton Institute of Modern Music in England in 2001 and opened a campus in Bristol in 2008. They sold the institute in 2012. It now includes campuses in London; Manchester, England; and Dublin. Last December, the three formed E-Mu in partnership with Falmouth University to offer bachelor’s of music degrees online at emuedu.com.
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March 17, 2014
CRAIN’S DETROIT BUSINESS
Golf: Operators ready for spring, even if courses may not be ■ From Page 3
“If the weather turns, we could be in great shape by April 1.” Kevin Frank is an associate professor and extension turf specialist at Michigan State University. His areas of expertise include turfgrass nutrition and winter injury. “This year certainly has the potential to be one of the worst for turfgrass coming out of winter,” Frank said. “It’s fair to say we’re going to have dead grass. How much, we won’t know.” Frank bases that assessment on how long ice has covered the greens and fairways. “Our No. 1 concern is always the putting greens,” he said. “They have been under ice in many cases now for 60-some days. Next week, it will be 70 days. The week after, 80 days. Many of our courses have poa annua (annual meadow grass) putting greens. The low end of how long they can live under ice is 30 days; the high end is 80, 90 days. We’re in the middle of those ranges, if not getting to the higher end. “People have drilled through to get (turf) samples and it’s been a mixed bag. We’ve done it at Michigan State at about 40 days, 50 days and 60 days. (The samples) smell like rotten fish and are not growing. I’m trying to remain really optimistic at this point, but it’s getting more challenging.” The severe weather has been a
The snow level measured high earlier this month for Bill Fountain, general manager of The Majestic at Lake Walden in Hartland. CARTER SHERLINE
focal point this winter, but what comes next will be equally telling. Steve Cook, director of agronomy at venerable Oakland Hills Country Club in Bloomfield Hills, doesn’t try to anticipate weather. “I would assume that the frost is going to be very deep, and it would take several nights in the 50s to get the frost out, and it might take a week of temperatures above 40 degrees to melt the snow,” he said. “If this weather pattern holds, I don’t see being open until earliest April 1, and I can see mid-April.” Cook said the sequencing of the weather conditions this winter was the imperfect storm for golf courses. “Snow, big meltdown, turning to ice, snow on top of that — it could not be worse,” he said. Fountain is hoping for the best — and an early opening for The Majestic, located in Hartland. Fountain is treasurer of the Michigan Golf Course Owners Association, and he and Dewling serve on the
organization’s board of directors. “Our average opening in recent years has been March 25,” Fountain said. “That’s the typical time we will open, and I haven’t given up on that.” Fountain has had a chance to check on some of his greens. “There’s lot of buzz around superintendents this last month as what’s the best approach to take — leave the snow on or take the snow off,” he said “The biggest concern for everybody is ice. The snow isn’t too bad. If there’s ice underneath there … ice takes oxygen out of the ground. That’s the worst-case scenario. We didn’t see too much ice. “What really happens these next couple of weeks will tell us.” Fountain said any additional maintenance expense due to the snow and ice will take a back seat to the lost revenue from greens fees if there is a dangerously late start to the season. “From a financial standpoint, if
you remember (2012) was the earliest spring ever, and we had a really good year,” he said. “It was 80 degrees in March, and it was an anomaly. “To average that out, last year we didn’t open until the 10th of April and then had an awful lot of rain. We lost all of last spring, then had a great summer from May 15 to October 15. Then the bottom dropped out and we went from 2,000 rounds to 400 rounds.” The National Golf Foundation, in its 2014 overview of the industry, shows that the game is recovering at a slower pace than the overall U.S. economy. In 2013, the key metric of rounds played dropped 4.9 percent. That makes a strong early start important, especially in Michigan with its abbreviated season. Over the past decade, 5 million golfers left the game, according to industry sources. It’s interesting to note th at despite such a staggering statistic, the number of rounds played in 2012 was up a rousing 5.7 percent. That was credited to outstanding weather conditions across the country, as noted by Fountain. The weather turned sour for golf last year, and the gains were immediately offset. PGA PerformanceTrak reported a nearly 7 percent drop in “playable days” in 2013, or 23 fewer days than 2012. Rounds played dropped in 45 of the 50 states, including Michigan.
In January, industry leaders painted a gloomy picture at the annual PGA Merchandise Show in Orlando, Fla. “We’re leaking golfers,” said Joe Beditz, executive director of the National Golf Foundation. “We’ve lost 5 million golfers over the last 10 years — that’s out of 30 million.” What golf needs is a vibrant spring to jumpstart the season. Dewling is optimistic because he figures the odds are in favor of it. “Last spring was terrible,” he said. “I don’t think it can be worse than that.” According to the Michigan Golf Course Owners Association, there are 450 daily fee courses, 85 municipal courses and 50 resorts, many of them with multiple courses. There are about 100 private courses, and 35 which are semi-private, allowing limited outside play. Within the past decade, roughly 50 courses have been closed. At one time in the mid1990s, Michigan had 950 courses. Michigan’s prominence on the national golf scene is unmistakable. Golf Digest, a leading national golf magazine, lists Michigan No. 4 on its list of Best Golf States, based on the number of top courses per capita. Golf Digest describes “top courses” as those rated at least four stars. Only Hawaii, South Carolina and Nevada are ranked ahead of it which, given Michigan’s climate, represents a major kudo.
Students:Walsh team beats benchmarks with state-focused fund ■ From Page 3
S&P 500, 0.32 percent for the Bloomberg Michigan Index and 0.99 for the iShares composite. “I’ve written blogs on Michigan being a great emerging market. Companies here have beat the S&P 500 by 25 percent since 2009,” said LaBrecque, who helped start Walsh’s master of science in finance program in 1986 before leaving academia for the private sector. “At some point, I said, ‘Let’s do a Michigan-only portfolio.’ ” He may also be doing two more Michigan-only portfolios. Since launching the alpha project fund, he has heard from several affluent Walsh alumni who want to invest, too, so a second account has been started for them and for a possible investment from the Walsh Foundation. LaBrecque said he hopes to have $1 million raised from alumni and the foundation by the end of the year, to be divided into funds for two other two-student teams to manage. LaBrecque said he has an ulterior motive, beyond making money, in starting the program. Watching students manage the fund is a great way to assess them as possible hires when they graduate, he said. “What a great way to test the waters,” said LaBrecque. He said his firm has 20 investment professionals, and two of his last three hires have been Walsh College graduates. “Right now, a lot of Walsh graduates leave the state. This could help some of them stay here,” he said. “Thumbs up to Leon. We don’t have enough investment managers in Michigan building portfolios,” said David Sowerby, the portfolio
manager in the Bloomfield Hills office of Loomis, Sayles & Co. “We need more investment firepower in Michigan.” Sowerby said LaBrecque’s thesis has held true in recent years. The numbers vary year by year for the number of public companies in Michigan, as companies get bought or go public, but of the average of 70 companies he has followed, state companies have outpaced the S&P 500 in recent years. Over the past 12 months, he said, Michigan stocks are up an average of 29 percent, compared to 22 percent for the S&P; over the past three years, state companies are up 50 percent, compared to 42 percent for the S&P; and over five years, they are up 229 percent, compared to 148 percent. It is a different story over the past 10 years, primarily because of the inordinate hit that state companies took in 2007-08, during the recession. Over the past decade, state stocks are down 58 percent, compared to a gain of 64 percent for the S&P. Would-be student teams of money managers applied to LaBrecque in November to manage the first fund, with a five-person team calling itself the Strategic Investment Team Advisory Group being selected in December and starting to invest in January. Mark Lashbrook is the portfolio manager, with Michael Manetta, Elsa Chaar, Esther Stevens and Jahnise Parks serving as analysts for various sectors. Lashbrook is the only full-time student, getting a master’s degree after spending 20 years in real estate in St. Clair County. The others have
full-time jobs and go to school at night and on weekends. The team divided the money into three buckets, with 60 percent in what it called alpha stocks, companies it would hold for a longer term; 30 percent would go into so-called beta stocks, which the team would buy and sell more frequently; 5 percent would go into the nano pool of generally small, promising hightech companies; and 5 percent would remain in cash.
Jumping in too slowly? Alpha companies include Midland-based Dow Chemical Co., Southfield-based Lear Corp., Detroit-based General Motors Corp., Grand Rapidsbased Mercantile Bank Corp., Kalamazoo-based Stryker Corp., Taylorbased Masco Corp., Ann Arbor-based Con-way Inc., and Plymouth-based Rofin-Sinar Technologies Inc. Nano stocks include Wixombased Rockwell Medical Technologies Inc., Plymouth Township-based Esperion Therapeutics Inc., Detroitbased Covisint Corp., and Aastrom Biosciences Inc. and Advanced Photonix Inc., both in Ann Arbor. Beta stocks include … ah, there’s the rub. As of the investment team’s first monthly meeting with LaBrecque in late February, the team had yet to invest any of that 30 percent in beta stocks. LaBrecque and two investment professionals, James Duronio and George Bundy, held the feet of Lashbrook and his team to the fire over the slow pace of getting the money deployed.
The point of a student-run team, after all, wasn’t just to give them some money to invest, it was to assess them monthly what they are doing right and what they are doing wrong. To teach them. Having a lot of cash on hand, sitting there in a zero-interest environment nearly two months into the investment cycle, was a big no-no. Lashbrook, who is in a joint MBA/MSF program, explained that stocks the team had identified for the beta pool had gone up in share price before it could buy them, and he was waiting until they lost some of their gains. “I don’t want to chase them,” he said. “I want to wait until they come down a bit.” Duronio said that if LJBR had been given $100,000 to invest by a client and nearly two months later had $35,000 still uninvested, it would expect to be called onto the carpet. Bundy, LJBR’s business development officer, told Lashbrook and his analysts they were making the mistake a lot of investors made in 2013: They sat on the sideline, not wanting to invest in stocks that had gone up, preferring to wait until they came back down. “And they never did come down. Those investors missed out on a yearlong run-up,” he said. LaBrecque questioned the wisdom of not investing in stocks you thought would appreciate until they lost money first. “You think they’re going to go up, but you want them to lose money first? You’re trying to time the market. You need to get the money invested,” he said.
But LaBrecque praised the team for the investments it had made in what was a very tough month for the market, particularly for the decision to invest in Dow, which they bought at $43.25 and was at $45.51 on Jan. 31. On March 5, the team invested the $30,000 in the beta pool, buying shares in PulteGroup Inc. and Taubman Centers Inc., both in Bloomfield Hills; Monroe-based La-Z-Boy Inc.; Rockford-based Wolverine Worldwide Inc.; Zeeland-based Gentex Corp.; and Ann Arbor-based Tecumseh Products Co. The strategic investment team is under added pressure from LaBrecque, designed to mimic the real world, where customers can shift their money to other managers. He has a shadow team at Walsh that is managing an imaginary portfolio of $100,000. If its performance outpaces the SIT team’s at the end of June, he said he will turn over the real portfolio to the shadow team to manage. He said that if his thesis proves out and Michigan companies continue to outperform benchmarks, the Walsh teams could seek funding from institutional investors and municipalities. The University of Michigan’s Ross School of Business has three student-run funds, the Social Venture Fund, Zell Lurie Commercialization Fund and Wolverine Venture Fund. They take equity stakes in startup and early-stage companies and don’t invest in public companies. Tom Henderson: (313) 446-0337, email@example.com. Twitter: @tomhenderson2
CRAIN’S DETROIT BUSINESS
March 17, 2014
WEEK ON THE WEB FROM WWW.CRAINSDETROIT.COM, WEEK OF MARCH 8-14
Group hopes ‘Detroit Dollar’ pays off for biz or the second time since the Great Recession, Detroit may have its own currency. Al Bogdan, consultant and head of AAB Development Strategies LLC, is hosting a community meeting at the downtown Park Bar on Wednesday to discuss the idea. The goal of the group, dubbed Detroit Dollar Co., is to recruit 1,000 Detroit businesses in two years to use the Detroit Dollar to promote a “buy local” mentality. The group hopes to have $1 million worth of the currency in circulation in the next two years. The Detroit Dollar is designed to operate as an electronic payment system from smartphones and computers for use in Detroit, Highland Park and Hamtramck. To spur the program, users will be offered a 10 percent discount on Detroit Dollars. In other words, $100 is worth 110 Detroit Dollars. John Linardos of Motor City Brewing Works, Tim Tharp from Foran’s Grand Trunk Pub and Jerry Belanger of Park Bar funded a 2009 effort to get the local currency called Detroit Cheers off the ground, but that effort didn’t get momentum. The most-successful local currency is the Ithaca Hours in Ithaca, N.Y., which has been in circulation since 1991. As many as 900 businesses and individual service providers accept Ithaca Hours.
Rochester Hills has app to report on potholes What’s the most efficient — and tech-savvy — way for a city to manage complaints from its residents about potholes? If you’re the city of Rochester Hills, you build an app for that. The city’s app, which features a calendar of events, meeting agendas and trail maps, launched this week for Apple and Android devices. A “Report a Concern” icon allows users to snap a photo of a pothole (or other problem) and immediately send it to city headquarters. The photo is geo-tagged with the user’s location. Mayor Bryan Barnett unveiled the app at his annual State of the City address last week. The city spent about $5,000 on the app, designed by Manhattan, Kan.-based CivicPlus. Matt Bach, director of media relations for the Michigan Municipal League, called the app “an innovative way to assist residents” and expects more cities to consider similar apps.
League backs exchange Speaking of the Michigan Municipal League, it’s one of the biggest proponents of state crowdfunding legislation signed by Gov. Rick Sny-
der last year, and a new companion bill, House Bill 5273, to create a state stock exchange. So why is the lead advocacy group for local municipalities spending so much time supporting the creation of a Michigan-based stock exchange and allowing residents to invest in local businesses? “Part of what we see as the assets of 21st century communities are those that can attract entrepreneurs and those with talented ideas,” said Summer Minnick, director of policy initiatives and federal affairs for the league. “We see (the stock exchange legislation) as a big component of that.” She said the MML sees the crowdfunding law signed last year and HB 5273 as complementary. Both topics will be part of the MML’s Capitol Conference, which takes place at the Lansing Center on Tuesday and Wednesday.
BITS & PIECES Lorna Utley, president and CEO of Goodwill Industries of Greater Detroit, received the Matthews Entrepreneurial Award from Goodwill Industries International. The award recognizes a CEO for demonstrating entrepreneurial spirit in the development of new revenue sources and jobs for people with barriers to employment. Nonprofit Beyond Basics will honor several local leaders at its Women Coming Together for Children luncheon Wednesday at The Colony Club. Among them: Mary Callaghan Lynch, founder and artistic director of The Motor City Lyric Opera; Saunteel Jenkins, Detroit City Council member; Juanita Moore, president and CEO of the Charles H. Wright Museum of African American History; and Susan Sherer, CEO of The Heat and Warmth Fund.
TOUR THE GLOBE Renovation of the former Globe Trading Co. building on Detroit’s rivefront began last spring and construction is ramping up to turn it into a 43,000-square-foot outdoor activity center for the Michigan Department of Natural Resources. Read about and see the progress that Detroit-based contractor Walbridge Aldinger Co. has made at crainsdetroit.com/section/blogKirkPinho.
ASG Renaissance buys Engineering Laboratories
earborn-based marketing, consulting and staffing company ASG Renaissance LLC acquired Troy-based Engineering Laboratories Inc., which provides engineering and information technology staffing to the automotive industry. Terms of the deal, which closed this month, were not announced.
ON THE MOVE CEO David McGuffie, who is leaving Detroitbased cloud-based services provider Covisint Corp., was replaced in the interim by Sam Inman, former president and CEO of Californiabased Comarco Wireless Technologies Inc. McGuffie had been CEO since 2012 and president since 2008. No replacement for president was named. Douglas George, Canada’s ambassador to Kuwait, will become Canadian consul general in Detroit on April 21, succeeding Roy Norton, who took the same post in Chicago. Timothy Fischer was named chief administrative officer and Nicole Brown was hired as community relations manager at Detroit’s M-1 Rail. Fischer, 38, was deputy policy director at the Michigan Environmental Council; Brown, 36, was communications and partnerships manager for Excellent Schools Detroit. Livonia-based supplier Tower International Inc. elected Tony Brown, 58, former group vice president of global purchasing at Ford Motor Co., to its board of directors, effective April 1.
COMPANY NEWS The Ford Motor Co. Fund will award $1 million in automotive design scholarships over the next 20 years in honor of the late William Clay Ford Sr., the former company vice chairman and Detroit Lions owner who died of pneumonia March 9 at age 88. The fund will award five automotive design students $10,000 per year each under the scholarships. Ford’s 88year-old widow, Martha Ford, assumed ownership of the Lions. As the National Football League free-agency signing period began, the Detroit Lions signed former Seattle Seahawks wide receiver Golden Tate, 25, to a fiveyear, $31 million contract, and re-signed running back Joique Bell, 27, to a three-
101 DEALS, $45 BILLION In case you missed it, Crain’s comprehensive look at mergers and acquisitions was the highlight of our Michigan Deal supplement and report March 10. Of special note to execs interested in M&A: a searchable database. Take a look at the biggest mergers and acquisitions in Michigan for 2013 in a datadriven visualization of deals by industry, value of transaction and more. Visit crainsdetroit.com/ bigdealdata. year pact reportedly worth $9.3 million. Quest Diagnostics of Madison, N.J., announced an agreement to acquire Novi-based Summit Health. Terms of the sale, expected to close the first half of the year, were not disclosed. The downtown Royal Oak Barnes & Noble will close April 5, but managers at eight other metro Detroit locations said their stores will remain open. Thomson Plastics Inc. expects to create 46 new jobs over the next two years at the $4 million plant it opened in January in Howell Township. Revenue for Detroit’s three casinos totaled $110.6 million last month, down 0.6 percent from February 2013 but up 15 percent from January 2014 numbers, according to the Michigan Gaming Control Board. McDonald’s Corp. employees in Detroit and elsewhere sued the restaurant chain, claiming they’re idled without pay for periods at work when demand slackens, in violation of U.S. and state labor laws, Bloomberg reported.
OTHER NEWS The Detroit Public Schools said a 27-acre farm planned on the site of the former Kettering High School will provide produce for the district’s students. The city of Detroit is seeking development proposals for the vacant, 526,000-square-foot former Herman Kiefer Health Complex. The state’s effort to move to a new statewide Medicaid reimbursement rate for its 10 regional mental health authorities is causing budget shortfalls for Wayne, Oakland and Macomb counties, which saw funding cut by about 5 percent, or $48 million, for
the fiscal year that began Oct. 1, directors said. Wayne State University Law School moved up to No. 87 in the U.S. News & World Report 2015 Best Law Schools list from its 2014 ranking of 105. Michigan State University College of Law tied with WSU, dropping from a No. 80 ranking. A new report from New Detroit Inc. documented long-held gaps — and others not commonly known — between racial and ethnic groups in Wayne, Oakland and Macomb counties in areas such as education, income levels, home and business ownership. Joann Braggs, owner and president of Southfieldbased Beth Harold Home Health Care Inc., could face up to five years in federal prison after pleading guilty to a felony for spending more than $1.2 million of withheld employee income taxes on herself. Braggs, 61, will be sentenced June 18. According to a semiannual economic survey by Walsh College of school alumni, confidence in Michigan’s long-term economic health has grown by 94 percent in six months, while up just 18 percent for the country as a whole. “Parker and the Man” will return to WDFN 1130 AM on March 24, hosted by Rob Parker and Mark Wilson, who began the sports talk show on the station in 1998. The show, from Royal Oak-based Woodward One Media LLC, will be brokered airtime. Charities using professional fundraisers to raise money in Michigan received only 38 cents of every dollar raised through those campaigns last year, according to the state’s second annual Professional Fundraising Charitable Solicitation Report. But that reflects a 3 percent increase from 2012, said Attorney General Bill Schuette. The Pure Michigan campaign attracted 4 million out-of-state travelers who spent $1.2 billion last year, according to Travel Michigan, the state’s tourism marketing arm. That equates to $6.66 for every $1 spent, up from $5.76 in 2012. The state this year will spend $13 million on cable TV advertising and $2 million on network TV ads. Michigan’s life sciences sector is growing but would benefit by a more coordinated approach, panelists said at the Business Leaders for Michigan leadership summit in East Lansing. Production limits for Michigan microbreweries would double from 30,000 barrels to 60,000 barrels a year under legislation expected to reach Gov. Rick Snyder soon, AP reported.
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Published on Mar 17, 2014
Crain's Detroit Business is the premier source of business news in Southeast Michigan. This is the issue for March 17, 2014.