Crain's Cleveland Business

VOL. 39, NO. 2

JANUARY 8 - 14, 2018

Source Lunch

Akron Kent Displays’ stylish Blackboard appeals to new crowd. Page 16

CLEVELAND BUSINESS

Natalie Leek-Nelson, Providence House CEO Page 19

The List The top SBA lenders in the region Page 15

GOVERNMENT

Firms trying to get up to speed on tax law By JAY MILLER

jmiller@crain.com @millerjh

Not surprisingly, Northeast Ohio business owners and their tax professionals are still assessing the impact of the federal Tax Cuts and Jobs Act passed by Congress and signed by President Donald Trump late in December. The largest change in federal

tax law in decades will take months to sort out, though some businesses may have decisions to make before spring. But business owners are already making some broad judgments. Kevin Johnson, co-owner of Glenwood Management Co., is skeptical that his businesses will see a benefit from the tax overhaul. Glenwood operates several businesses, Johnson said, the largest of which is Visiting

Inside A look at the key changes. Page 17

Angels of Cleveland, which provides home health services to seniors and has about 70 employees. “Is this tax law going to enable us to hire more people? Or is it going to enable us to grow our businesses?” he asked in a telephone interview.

“The former? I’m not seeing it. The latter? We’ll have to wait and see.” Johnson’s businesses pass through their profits — as do more than 90% of the country’s businesses — which land on his personal income tax filing. So the new, low corporate tax rate that tops off at 21% doesn’t apply to his business income. It’s taxed at the higher personal income rates. The new law, though, does allow him to shield the

first 20% of the income from federal tax. Johnson also said he was disappointed the new law offers no incentive for worker training. “If you are a big business, you have certainty. You know what you’ll be doing with funds overseas, and with the (lower) tax rate,” he said. “If you’re not a big business, you don’t know what you’ve got.”

SEE LAW, PAGE 17

REAL ESTATE

Spinoff is last step in DDR’s reversal

SMALL BUSINESS

On the rise

By STAN BULLARD sbullard@crain.com @CrainRltywriter

Cleveland’s Phoenix Coffee launches new branding and a cafe that’s only a stone’s throw from the Warehouse District location it shuttered in 2011. Focus, Page 11

Ken Blaze for Crain’s

DDR Corp.’s proposal to spin off 50 properties in a new public company is not only the last step in CEO David Lukes’ turnaround plan, but a big U-turn in how the shopping center owner and manager spins its story. Gone is the Beachwood public company’s prior focus on power centers, a term for big-box centers that have suffered as bricks-and-mortar retailing takes a beating from retailer overexpansion and the rise of e-commerce. Indeed, ousted former CEO David Oakes liked to refer to the real estate investment trust’s massive centers as “fortress retail.” On the conference call with analysts and investors after DDR announced the strategic transformation plan on Dec. 15, Lukes tried to directly ditch its reputation in the shopping center industry as “the power center company. But this moniker became outdated some time ago and glosses over important portfolio diversity.” SEE DDR, PAGE 17

Entire contents © 2018 by Crain Communications Inc.

Inside: The Youngstown Business Incubator opens its fifth building. Page 3

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CRAIN’S CLEVELAND BUSINESS

Marijuana insurance biz finding ‘niche’ By JEREMY NOBILE jnobile@crain.com @JeremyNobile

When a friend in San Diego asked Patrick McManamon about securing general liability insurance for a marijuana dispensary in 2009 at the behest of his landlord, McManamon was incredulous. The industry for growing, processing and selling marijuana sales was young and quasi-legal (it still is as far as the federal government is concerned), especially in the unregulated California landscape at the time. It didn’t help that several operations were raided and shut down during President Barack Obama’s first term. “I just thought, this is crazy. I thought it wasn’t realistic. There’s no way you could sell weed out of a store,” said McManamon, despite long supporting marijuana decriminalization and patient access. “I knew nothing about it and it just didn’t make any sense to me.” A lot has changed since then for McManamon. Eight years into running Cannasure, one of the only insurance businesses in the country specializing in the cannabis industry, McManamon is now in position for explosive growth. “We have an enormous, enormous way to go,” he said. “But I feel like we are just finally starting to get where we want to be.” McManamon was working for his father’s insurance agency, McManamon Insurance in Westlake, at the time his friend called. They had never worked with anyone in the marijuana world before. And medical marijuana was only approved in a few states at the time, but sales weren’t happening. While skeptical of the legitimacy of the business and leery of getting involved in something that could get him arrested, his curiosity was piqued. Motivated to help his friend, who was looking at setting up what would become Green Flash Medical Cooperative (which is now closed), McManamon flew out west to learn more. Once back in Ohio, McManamon tried to secure insurance for the upand-coming dispensary. It wasn’t easy as McManamon was met with the same incredulity he confessed initially having himself. “If I call anyone on this side of the Mississippi, they would just say, ‘This sounds illegal. What you’re talking

Patrick McManamon started Cannasure eight years ago, despite his early reservations. (Peggy Turbett for Crain’s)

about?’ ” McManamon said. “People would laugh and hang up.”

Inception of Cannasure It took about four months of work before McManamon was able to secure a general liability policy for that dispensary through Lloyd’s of London. That really set the plans for McManamon’s niche insurance business in motion. Fully engaged in the marijuana space and emboldened by the lack of insurance players there, he began attending conferences, building out a network of marijuana businesspeople not just out west but across the country. He looped in other friends and colleagues for support, like Walter | Haverfield’s Kevin Patrick Murphy, who would become one of the Cleveland market’s early lawyers to actively learn about the marijuana industry. “My father would say, and I would come to learn over time, that niche insurance was a way for us to be successful,” McManamon said. “I made no money at it at all then. But I thought, we’re at the very, very beginning of this and if we do this right, we could have a large market share and really be thought leaders in the space.” As his network grew through various contacts and his visiting numer-

ous marijuana conventions beginning in fall 2010, McManamon took more tours of facilities out west, particularly in Colorado. He toured Harborside Health Center, a dispensary in Oakland, in early 2011. There were security guards, locked vaults filled with cannabis plants, patient education, scientists looking at product through microscopes — all the things a legitimate business should have. But McManamon was still worried. “Am I doing something federally illegal? Will I go to jail? I saw one person walk in with a bag that would probably put you in jail for 25 years,” he recalled. “I will not deny the first time I walked through that dispensary, I was waiting for the doors to get kicked down.” McManamon incorporated as 420 Insurance Group in 2010 — a name he would eventually change to Cannasure. He wanted an entity separate from Mcmanamon Insurance not just out of interest to run his own business independent from his father, but to ensure a clear line between the two firms in the event he’d draw any legal trouble. As time ticked on from 2010, McManamon sold a policy here or there, but wasn’t really making money. Most

of his business was in California. It wasn’t long before his work took him to Colorado, where he felt more at ease. California was largely unregulated, which was different from the Centennial State that would approve marijuana policies in late 2012, which included a process for issuing state-approved permits for doing business. “You see the background isn’t a bunch of hippies in tie-dye,” McManamon said. “They’re young, aggressive, hungry businesspeople who are trying to create something they believe in and I believe in myself.”

A bumpy road McManamon drew his first investor, Dennis O’Brien, owner of Golden Eagle Title Agency (a client of McManamon Insurance) in late 2011. He gave McManamon an injection of money “in the mid-six figures.” McManamon, who then changed the firm name to Cannasure the following February, was still doing all the work himself. The money lasted several years. McManamon’s biggest expense came in hiring Cleveland consultant Risk International to evaluate risks at those marijuana businesses out west to help determine exactly what insurance should be covering.

McManamon was looking for underwriters through all of this, which proved incredibly challenging. One group was on board, then backed out when San Francisco U.S. Attorney Melinda Haag said she would go after every marijuana business she could, starting with McManamon’s friends at Harborside. Nothing ever happened. The Department of Justice was just blowing smoke. But it still frightened insurance companies. By 2012, Cannasure was operating as a retailer. McManamon and his team lobbied the liquor department in Washington to include mandates for general liability and product liability insurance as part of the permitting process — and the state took his side. “When that happened, the phone started ringing an awful lot from Washington,” McManamon said. “We went from writing a couple hundred thousand bucks to writing a couple million pretty quickly.” Between 2013 and 2014, local agents were calling Cannasure to help place business, so the firm lined up its paperwork to be a wholesaler. The only other wholesaler at the time was Lloyd’s, which narrowed the field on who these marijuana businesses could work with. That led to more growth and helped Cannasure draw not just business, but recognition in the market. By 2014, McManamon had three people working for him. But then came another setback. Cannasure was working with Lloyd’s to get their own program going, which is hard when you have no underwriting experience, you’re a startup and you’re dealing in marijuana. “That’s pretty much three strikes against you,” McManamon said. Nonetheless, they negotiated their own line slip in just seven months. He signed it in February 2015. Three days later, he got a call from the insurance company CEO who was the lead on the slip: Lloyd’s was about to pull out of the marijuana business. And the slip was canceled. “There was nothing I could say or do. I spent $250,000 and nine months of life at a minimum doing that. I was devastated,” McManamon said. “I remember driving home and just wanting to pull off to the side of the road and cry. We were there. And now it’s gone again. I wondered if I was doing the right thing, if I was wasting my time.” Yet, he persisted. SEE NICHE, PAGE 17

Cleveland Foundation ‘refines’ structure By LYDIA COUTRÉ lcoutre@crain.com @LydiaCoutre

The Cleveland Foundation is announcing two new hires and a restructuring of its program staff in an effort to streamline the process and serve as a better resource for grantees. The foundation has two main areas of grantmaking: board-directed grantmaking, which includes initiatives and longer-term projects tackled in collaboration with partners, and community-responsive grantmaking, which is where organizations request funds for their work. Previously, program officers under the community responsive grants were generalists, without specific areas of focus.

Anglin

Beckford

To better align both forms of grantmaking under the new structure, the program staff will be specialized in the following areas: leadership development; youth and social services; education; neighborhood revitalization and engagement; economic and workforce development; arts and culture; and environment and health, according to a news release.

Kaszei

Lee

“This can be very beneficial to build deeper capacity-building with grantees where needed, build deeper relationships across the program areas for the foundation and the grantees, and create other opportunities to work with external partners,” said India Pierce Lee, Cleveland Foundation senior vice president, program. The change will mean that grantees will have access to a program offi-

cer and a program director, which is more of a resource for organizations. The new structure will not change the grantee process or the timing of any grants. As part of the realignment, the foundation has hired Dale Anglin, who officially joined the foundation in October as program director for youth & social services, and Nelson Beckford, who is returning to the foundation on Monday, Jan. 8, as program director for neighborhood revitalization and engagement. Beckford worked for the Cleveland Foundation between 2008 and 2014, but has spent the last four years at St. Luke’s Foundation, where he served as the senior program officer for the “A Strong Neighborhood” program area. He received both his bachelor’s and master’s degrees from Cleveland

State University. Anglin served as a consultant for the foundation since May 2017 before being formally hired in the fall. A graduate of Smith College, Anglin earned her master’s degree at the Goldman School of Public Policy at the University of California, Berkeley, according to the release. The foundation also announced it is promoting Diane Kaszei, who’s been with the foundation since 1990, to director of grants management. “Refining our grantmaking team structure not only reflects how the needs in Greater Cleveland have evolved over time,” Lee said in a statement, “but it also better leverages the strengths of our program directors and officers to apply their expertise with community partners and our donors to have an even greater impact.”

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Proforma head starts staffing biz By RACHEL ABBEY McCAFFERTY rmccafferty@crain.com @ramccafferty

This entrance at the Youngstown Business Incubator’s new space provides access to Vista AST, which is one of the incubator’s portfolio companies. Vista is an educational technology and curriculum company for STEM education. (Corey Patrick)

YBI sharpens industry scope Incubator’s focus on manufacturing picks up steam with building addition By RACHEL ABBEY McCAFFERTY rmccafferty@crain.com @ramccafferty

The Youngstown Business Incubator isn’t just an incubator anymore. Nor are its services focused solely on Youngstown. About 10 years ago, the established incubator was focused on supporting software startups, but its board realized it needed to tie its mission into manufacturing if it wanted to have a “greater impact” in the Youngstown region, said CEO Barb Ewing, who took on that role last May. It wasn’t until 2012, when America Makes, the National Additive Manufacturing Innovation Institute, joined the incubator’s campus that the efforts started to solidify and take off. Today, the incubator is poised to serve as a central location for companies in and out of Ohio that are interested in additive manufacturing, whether they want to make equipment for the growing field or take advantage of the technology as part of their supply chain. Just last month, the incubator opened a renovated building focused on additive manufacturing, reflecting its expanded area of focus. The building, its fifth, is 65,000 square feet and used to belong to the Youngstown Vindicator. There soon will be three additive manufacturing companies in the building at 29 Vindicator Square, with another already planned to join them in the coming months. “Until the new building opened, we were bursting at the seams in here,” Ewing said, which was going to restrict the number of new companies it could attract. The incubator offers programs for entrepreneurs — including one specifically for women — in technology and advanced manufacturing, namely additive manufacturing or 3D printing, and boasts more than 60 portfolio companies. It recently was named a Minority Business Assistance Center and may soon begin working in the industrial Internet of Things space. The budget and staffing for the Youngstown Business Incubator are evenly split between software and additive manufacturing, Ewing said. In total, they have 12 employees, but also work with contractors. Despite the name, the incubator doesn’t just serve Youngstown anymore. For example, it offers services through Jumpstart Inc. to a 21-county service area; for its work as a

“Until the new building opened, we were bursting at the seams in here.” — YBI CEO Barb Ewing

Minority Business Assistance Center, its coverage area runs from Ashtabula County to Monroe County. That approach makes sense because Youngstown isn’t competing with cities like Cleveland or Pittsburgh when it comes to economic development opportunities anymore. The whole region is competing with far-flung locations like Chicago, Austin and Shanghai, Ewing said. “None of us have as good of a story to tell individually as we do collectively,” she said. When the incubator started its work in additive manufacturing, the original assumption was that companies would be interested in using it as a step in their supply chain, making low-volume, customized products, Ewing said. But instead, the startups attracted to the programs have primarily been interested in making additive equipment and supplies for others to use. The new building will house startup companies but also will provide support to companies that want to learn about additive manufacturing, in partnership with institutions like America Makes and Youngstown State University. The building will have a variety of equipment, like a new XJet ceramic and metal printer, to help companies better understand how they can use additive manufacturing in industrial applications, Ewing said. “But it’s always our goal to get companies to get their hands dirty,” Ewing said. “We want to teach them how to use the pieces of equipment, to understand the design parameters, to actually understand additive at a higher level.” The incubator’s first big step in this space was through an America Makes project related to the 3D-printing of sand cores for foundries. It worked with partners like Humtown Products in Columbiana to help others in the industry understand the new technology and how it would work. “And from that first award, we’ve really developed deep capacity,” Ewing said. “I think we probably understand that technology and its applications as well or better than anybody else in the world.” The next projects took on so-called hybrid

manufacturing, which involves printing a product but then using traditional manufacturing processes to get it to the appropriate tolerances, and the production of low-volume tooling using additive. The incubator also has played a significant role in the Northeast Ohio Additive Manufacturing Cluster, which aims to make the region a recognizable hub for 3D printing, and recently was part of an award granted by the Burton D. Morgan Foundation to better provide commercialization services for additive manufacturing technology. But it wasn’t until a team from the incubator visited Israel that Ewing fully realized the “value proposition” it could offer additive manufacturing companies. She was speaking with a startup in Israel that’s developed an electronic ink that can be used in screenprinting and 3D printing, telling the company about the services the incubator provides and the additive ecosystem in the region. Ewing said the company told her they wished they had that kind of support system in Israel. In October, the incubator announced a formal partnership with The Junction, an Israeli business accelerator, designed to help technology startups there enter the U.S. market. Tim Fahey, vice president for industry and innovation at Team NEO and an entrepreneur in residence at the incubator, said Ewing has done a good job establishing the incubator as an all-service center for additive manufacturing for companies in Northeast Ohio and for companies in that space that want to establish a location in the United States. Fahey said he recently spoke with some international additive manufacturing startups at a conference. They didn’t have a U.S. presence, and the existence of the incubator gave him something to point to. He said he wishes there were more spots in the region that could offer a “soft landing spot” for startups and entrepreneurs like the incubator. Ewing said she wants Northeast Ohio to become the “Silicon Valley” of additive manufacturing. “I have always said that this can’t be just a YBI story,” Ewing said. “We need every player on the field. We need every economic development organization to understand how it can play a role. Every chamber of commerce preaching the gospel. Every school, every university. So we can facilitate. We can connect. In some instances, we can even implement. But if it weren’t for our partners at Team NEO and America Makes and Magnet and YSU and Case, we wouldn’t be anywhere.”

For decades, Greg Muzzillo has enjoyed growth at the helm of printing and packaging company Proforma. But he knew the company’s franchise model could be applied to other industries. Enter his new business, ProTalent. ProTalent will be a franchise network of staffing companies, an industry Muzzillo, the company’s founder, sees growing. Businesses today are less inclined to want to add people to their payrolls, he said. They don’t want long-term commitments because so much modern work is project-based, and bringing someone on fulltime also means dealing with legal issues like insurance and unemployment. Plus, he said, companies never know when the Muzzillo next downturn will come. All of that adds up to employers looking to staffing companies to help fill roles in different industries, Muzzillo said. Steve Berchem, chief operating officer of the American Staffing Association in Alexandria, Va., said the biggest trend in the labor market at the moment is a “lack of talent.” There are a lot of vacancies employers are struggling to fill, but the same goes for staffing agencies. In a recent survey, the association found that U.S. staffing agencies employed an average of 3.22 million temporary and contract workers per week in the third quarter of 2017, a news release stated. That was essentially flat when compared with the like period a year ago. But Berchem said the staffing industry grows when the economy does, so the mood in the staffing industry is still pretty positive overall. (ProTalent is a member of the American Staffing Association.) Muzzillo said ProTalent would begin offering franchises on Jan. 1. The company will be national, though Muzzillo said he plans to start with states with simpler staffing regulations, like Ohio and Florida, where the company has operations. ProTalent, like Proforma, will follow a conversion model of franchising. Muzzillo helped start Proforma in 1978 and began franchising it in the mid-1980s. Today, Proforma is a franchise network of printing, packaging and promotional products distributors with total annual revenue of about $500 million. In a conversion model, franchisers sign on people who are already in the business in some form, as opposed to people who would need additional training to enter a market. Muzzillo said that could be a small business owner who wants to take their business to the next level, or sales representatives who want to own their own business. ProTalent will be seeking staffing sales professionals to join its team, at least at the beginning. These will be individuals who already have a book of business and clients, Muzzillo said, but who need help with the “significant burden” that can be backend support. “Starting your own business can be very complicated with lots of moving parts,” Muzzillo said. Much of the services offered to ProTalent franchisees will be the same as those offered to Proforma franchisees: services like invoicing customers or paying suppliers. But since ProTalent’s business will be people, the company will also offer all the services needed for hiring and managing employees, from payroll and billing to taxes. There are no up-front fees for franchisees to sign on, but Proforma and, in the future, ProTalent, collect ongoing services fees. For now, ProTalent will share resources with Proforma, Muzzillo said, but the plan is to hire more people to support it as it grows. Both companies are headquartered in Independence, and Muzzillo’s wife, Vera Muzzillo, serves as CEO of both. The couple moved to Tampa, Fla., about five years ago, adding to Proforma’s staff in technology and recruitment, but leaving Independence as is. The company has more than 100 employees in Independence, 50 to 60 in Tampa and another 40 to 50 offshore.

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CRAIN’S CLEVELAND BUSINESS

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Business Intelligence A Dallas investor group is the latest owner of the huge Rockwell Automation Building in Mayfield Heights. (Costar Group)

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A Texas investor group has lassoed the distressed, massive Rockwell Automation Building in Mayfield Heights. The $52 million deal allowed the prior owner to escape a foreclosure proceeding. Through Mohr-Mayfield LLC, Dallas-based realty broker and investor Bob Mohr on Dec. 18 bought the 462,000-square-foot complex at 1 Allen Bradley Drive from the prior owner, Norman Rockwell LLC of Poway, Calif., according to Cuyahoga County land records. That same day, Norman Rockwell and C-III Special Servicing, which represented loan trustee US Bank, entered a settlement agreement accepted by Cuyahoga County Judge Joan Synenberg to dismiss the common pleas court proceeding that US Bank had filed April 4, 2017. The lender was suing to secure ownership of the property because Norman Rockwell LLC had been un-

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gear related to factory operations and related businesses. The business is the successor to legacy Cleveland-based firm Allen-Bradley Co., which became part of what’s now Rockwell Automation Inc. of Milwaukee, upon its 1994 purchase of parent company Reliance Electric Co. Corporations often shed corporate-owned real estate and lease back the property as a way to free cash for other purposes. Rockwell originally sold the property to such an investor group, Chicago-based FR Allen-Bradley LLC, in 2005 for $55 million. Although the value of the complex of big three-story buildings has climbed and dipped through the decades, it remains a prized property, as it’s leased to a substantial public company. For property tax purposes, Cuyahoga County assigned it a market value of $38 million prior to the most recent transaction. The county’s market value for it had plummeted over the years from a peak of $60 million in 2006.

Walker & Weeks Apartments goes to California buyers By STAN BULLARD

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able to repay a $52 million loan when it came due. Norman Rockwell had assumed the loan, then $52.7 million, when it paid $65.4 million to buy the property from a prior investor on July 24, 2006, according to land records. Mohr now operates Mohr Capital, an investment concern based at the headquarters of Mohr Partners in Dallas. Mohr became chairman emeritus of Mohr Partners when he sold the multinational real estate services firm last April in a management buyout. Mohr founded the realty firm in 1986. It grew to 18 offices in the United States serving clients in 70 countries at the time of its sale, according to the firm’s website. Mohr-Mayfield LLC used a $37 million loan from Dallas-based Frost Bank to finance the acquisition of the Rockwell Automation property, land records show. The property, built in 1994 on a 36acre site in Landerhaven Corporate Park, houses hundreds of Rockwell Automation workers who design and sell sensors and systems and other

Walker & Weeks Apartments, a five-floor building home to one of Cleveland’s best-known architecture firms from the 1920s to the 1950s, has been sold to an Oakland, Calif.,-based investor group by an affiliate of local developer John Ferchill. The structure, with substantial architectural details and striking red window sashes at 2341 Carnegie Ave., towers over the nearby Innerbelt. Asked why he shed the property, the latest in a trio of downtown Cleveland sales, Ferchill said simply, “We got a good price. But no one remembers all the effort involved.” A purchase price for the 36-suite property, now marketed as student housing, was not disclosed in the Dec. 18 transfer from the Ferchill-led Carnegie Prospect Limited Partnership to California-based Carnegie Prospect Partners LLC.

Cuyahoga County property records also don’t disclose a market value the county assigns the ornate building with distinctive arched windows because it is still under the city’s tax abatement for residential developments. The company that now owns the building, according to the property’s deed, is led by James Perkins of Oakland, who could not be located. Walker & Weeks is now managed by Lakewood-based Vanguard Properties. However, Vanguard executives did not return two calls about the ownership. Vanguard both manages apartments and owns a healthy portfolio of older apartments, most in Lakewood and the Edgewater neighborhood of Cleveland. The building takes its name from Cleveland architecture firm Walker and Weeks, which designed it and occupied its top floors. The bottom floor was a car dealership when the structure opened in the 1920s. Walker and Weeks was known as a designer of bank buildings, but its draftsman penned drawings for everything

from the Federal Reserve Bank to the first building of Cleveland Public Library at its main branch downtown and Cleveland Public Auditorium. Ferchill originally tried to market the properties as condominiums after taking over the building’s ownership in 2006 from a prior developer who ran into financial troubles while still converting the long-dormant building to apartments. A Cuyahoga County Court judge oversaw completion of the building project in 2003. However, the property later took wing as student apartments thanks to its proximity to Cleveland State University. Tom Yablonsky, executive vice president of Downtown Cleveland Alliance and a nonprofit guide for many downtown projects, said the restoration was so well done that when the Historic Gateway Neighborhood, which he also heads, had it on its Walk and Dine tour in the mid2000s, visitors were reluctant to leave it. “It has spectacular views of the city,” he said.

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Q&A: Kevin Jacques

Former economist with the U.S. Department of Treasury With a career that includes 14 years with the U.S. Department of the Treasury and a decade as a bank regulator, Kevin Jacques has claimed a seat among national experts on banking, financial and governmental policy. Having spent much of his time advising administrations of former presidents Bill Clinton and George W. Bush on banking and financial regulations, Jacques — the Boynton D. Murch Chair in Finance at Baldwin Wallace University — has witnessed and navigated the intersections of politics and policy. In October 2016, Jacques spoke with Crain’s about how bankers were viewing the presidential election between Donald Trump and Hillary Clinton and the approach either would likely bring to reforming banking regulations once in the White House. As a followup to that, Crain’s recently sat down with Jacques to discuss Trump’s first year in office from the banking industry’s perspective, how Trump is influencing the sector despite not yet achieving any legislative changes curbing the regulatory burden — like a repeal of the Dodd-Frank Act — and why 2018 could be a make-or-break year for regulatory relief. — Jeremy Nobile There was a lot of optimism in the finance world that a Trump administration would make rolling back banking regulations a top priority in 2017. A year later, we’ve seen an overhaul of the tax code, but little else, and little talk about regulations. As we embark on 2018, has that optimism about regulatory relief waned? There was a lot of optimism after the election, and I think some of that optimism is probably lessened today. But we still have an industry fairly optimistic about what is likely to come forward. We had talked about how if Trump wins, and you get a Republican House and Senate, then that control would bode well for changes in the regulatory environment. We saw the Republicans take the White House, the Senate and House. But regulatory relief has not panned out yet, as far as some optimists may have believed.

That means even some people who helped write Dodd-Frank see parts that need to be modified, like the definition of what is a Systematically Important Financial Institution (SIFI). Dodd-Frank says it’s $50 billion in asset size, but legislation would raise that to $250 billion. That’s one of the easy things Congress is talking about in this reform bill. There is also some simplification of capital requirements they’re talking about. There seems to be agreement on both sides of the aisle that for smaller community banks and even some regional banks, some parts of Dodd-Frank are just more than necessary.

One of Trump’s promises was to kill the Dodd-Frank Act. Will that ever happen? It’s not going to be repealed. That was a campaign promise, but at the same time an overly optimistic one by the president, even with a House and Senate with Republican control. Part of the problem there is it’s so enormously difficult to actually repeal a lot of these kinds of laws. What we have seen is the tone soften up. Now it’s about making changes to Dodd-Frank.

So when it comes to regulatory relief, did Trump really achieve much of anything in 2017? Well, I’ll give you the classic economist answer: yes and no. You have a president who said he wants to repeal Dodd-Frank. And now 12 months later, the closest thing we have is a piece of legislation trying to work its way through Capitol Hill that could tackle some of the relatively easier issues and give some relief for small and midsize banks. In the legislative dichotomy, you can say the president hasn’t done much, and you’d be right.

Are any of those changes getting traction? In June 2017, the Treasury put out a report on changes they want to see. It’s not a repeal, but it’s the Treasury saying here are the things we’d like to do, which are aimed at weakening Dodd-Frank. In December, the bipartisan Senate banking committee passed legislation that would reform parts of Dodd-Frank.

Yet, as you’ve pointed out, he’s shaping the banking sector’s approach to regulation through agency appointments, right ? The president does have the ability to indirectly influence the banking sector, and he has done that in a number of key regulatory agencies. You have the gentleman in charge of the Federal Reserve appointed by Trump and a brand new comptroller

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of the currency, who regulates national banks, appointed by Trump. He’s going to appoint a new head of the FDIC and has an opening to do the same at the CFPB (Consumer Financial Protection Bureau). So on the legislative side, Republicans have done very little so far. They’re running on optimism. But the president has otherwise had a huge impact on the banking sector. In 2018, you have four of the most important individuals who will determine the nature and tone of banking regulations and supervisions going forward who are all Trump appointees. Is there any greater sense of urgency to achieve actual regulatory reform in 2018? I think 2018 will be a crucial year, and here’s why. There’s a midterm election in November. Historically, the party in the White House often will lose some seats in the House or Senate. Depending on how the races go, if Republicans lose seats in the House or Senate, that job of reform will become much more difficult in 2019 and 2020. Therefore, the best opportunity the Republicans are going to have probably is in 2018. So they need this to be a productive year legislatively. If what they want is to modify Dodd-Frank legislatively, they’ve got to do it in 2018. So will reform actually happen? I think what you’re going to find is a hodgepodge. I think some parts of what we see in Dodd-Frank will be amended. Some regulation reducing the burden and oversight on small community banks and some regional banks, I think some of that gets

through because that’s something the Republicans and Democrats agree on. Then there’s the Volcker Rule, which the Treasury thinks could be hurting liquidity in certain financial markets. Some argue this is how banks got into trouble, though, so you have opponents on both sides of that. That’s something to keep an eye on. Other parts of the Republican wish list, though, don’t stand a chance. Republicans would love to get rid of the CFPB, for example. That’s part of the entire argument to dismantle or repeal Dodd-Frank. The belief the CFPB will be gone as a result of the 2016 election is a pipe dream. That didn’t stand a chance then and doesn’t stand a chance now. In terms of the climate surrounding regulatory relief, any final observations about 2017? What 2017 showed us is even though you have a House and Senate controlled by the same party as the White House, we have a very divided Republican party. As much as we might like to take economics and divorce it from the politics that is Washington, D.C., in reality, you can’t do that. Politics just have too big of an impact, even when one party controls the agenda. So now you see why 2018 gets to be so important. Some things could go through, some things won’t, and there are some things in the middle. The midterm election has potential to change the structure of the House and Senate as it relates to who controls it. Depending on which way the pendulum swings with that, the process of dismantling Dodd-Frank could become a whole lot more complicated in 2019.

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Verso Craft Kitchen and Bar resides in Spin Bowl Independence. Owner-chef Ed Ripepi tweaked the menu and name, and moved the business from its longtime home of Parma. (Contributed photo)

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Fans may have noticed the empty storefront at 5869 Broadview Road in Parma, home to the l o n g popular Verso Restaurant. Verso closed Joe several weeks Crea ago, seemingly disappearing into the netherworld of once successful restaurants. Turns out, the casual Italian restaurant has found a vibrant new life in another former destination. The new Verso Craft Kitchen and Bar is now located in Spin Bowl Independence, which generations of Clevelanders have known as Cloverleaf Lanes or Cloverleaf Bowling Center. Chef-owner Ed Ripepi said that in remaking Cloverleaf, the new owners were seeking a complete transformation of the 1957 bowling alley’s interior — right down to the kind of food being served. At the same time, Ripepi said, he was seeking a continuing growth trajectory for his business. “When I opened Holiday Pizza in 2001, I knew I wanted to eventually expand into a full-service Italian restaurant, but I knew the space wouldn’t accommodate it,” Ripepi said of his first property at 5350 Broadview Road, just south of Brookpark Road. So in 2008, Ripepi headed south about three-quarters of a mile on Broadview and opened Verso. The snug, rock-’n-roll-themed dining room held about 60 diners and drew a loyal following. They came in for moderately priced portions of Italian classics, sandwiches and many of the pizzas that were mainstays on the old Holiday menu. “But my ultimate goal was to grow more: to get onto Rockside Road or nearby, and I wanted a patio and I wanted a liquor license — neither could I have on Broadview,” he said. When the opportunity to move to Independence arose, Ripepi instant-

there’s always someone in the building,” he said. “The audience is never-ending. Even in a downpour or snowstorm, we’re pretty much always going to have somebody here — and always someone buying food or having a drink,” Verso owner Ed Ripepi added additional finger foods, he said. such as street tacos, to the menu to cater to the Even during a more casual crowds at Spin Bowl. (Contributed photo) serious snowly saw the potential: expanded seat- storm a couple of weeks back, “we ing, a patio with a view of downtown still had 300 people in the bowling Cleveland’s skyline and that coveted alley,” he added. The chef adapted his original Verso liquor license. Transforming the space was a menu to serve a more casual crowd. “I had to add more appetizers to drawn-out process, he admitted. “For me, the biggest lessons were serve our patrons,” he said. “We cut staying patient through construction, back on some of the traditional Italand that you have enough equity to ian dishes, then added street tacos survive during the slow times,” Ripe- and other finger food, nachos, loaded fry baskets, a jumbo Bavaripi said. Summertime is a bad bowling sea- an-style pretzel — kind of a soft pretson, he explained, and during the pe- zel on steroids — and Pinzone’s Fresh) Meats’ sauriod from roughly Feb. 1 to Oct. 16 of (Market last year the entire alley was gutted. sage-stuffed hot peppers, breaded As is all but inevitable in a total-redo provolone triangles and spinach artiof a roughly 60-year-old building, ev- choke dip.” A half-dozen “large plate” entrees, ery corner turned meant a new chalwhich include choice of soup or sallenge and added costs. Alley owner Diamond Properties, ad and Ripepi’s popular garlic knots based in Mount Kisco, N.Y. (it oper- bread rolls, are joined by an expandates Spin locations in New York, ed list of appetizers, burgers, calPennsylvania, and both Kent and Ak- zone-style “fold-overs” and other ron), applied its concept of creating sandwiches. The bar offers several diverse entertainment centers to the beers on tap as well as bottles and liformer Cloverleaf. The 48 lanes were quor. Was the move, including the long reduced to 36. In decreasing the number of lanes, test of patience, worthwhile? “I’d say so,” Ripepi said modestly. the remodel left room for an expansive laser tag court (slated to open in “Over the initial months, we’ve had a late spring) and a pair of “escape bump of 60% in sales over what we rooms” for gamers who want to pit were doing at our old location.” “But tell you what,” he added, their wits against traps. Results? The remodeling yielded a sweeping an arm in a display of pride state-of-the-art facility more in keep- for his new home, “if you walked in ing with modern gaming centers like here right now you’d go, ‘Whoa! This Corner Alley and Punch Bowl Social. sure isn’t my grandfather’s bowling As for Ripepi’s business, “it meant alley!’ ”

CRAIN’S CLEVELAND BUSINESS

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PA G E 7

Survey finds microbusiness ‘mismatch’ Companies with owners as the sole employee are less likely to apply or receive financing By JUDY STRINGER clbfreelancer@crain.com

When Angelina Pata decided to open an Ohio City boutique in early 2014, she applied for small business loans at three well-known banks. All three turned her down, despite Pata and her husband’s high credit score, a promising business plan and a secured location. “It was ridiculous because we really had all the criteria we needed,” Pata said, “yet we kept getting the door slammed in our faces.” Pata eventually received a $25,000 loan from ECDI, a Small Business Administration lender, and opened Blackbird Fly Boutique in September 2014. Her struggles to finance the fledging company, however, are all too common for owners of the country’s smallest businesses. A recent report from the Federal Reserve Bank of Cleveland and the Federal Reserve Bank of Richmond found that so-called microbusinesses — firms in which the owners are the sole employee or employ fewer than four people — often face more financial challenges than firms with five or more employees. Microbusinesses, according to the report’s nationwide survey of nearly 16,000 employers, also are less likely to apply for financing, and when they do, are less likely to be approved. “And, microbusinesses are more reliant on the personal finances of their owners than larger firms,” said Ann Marie Wiersch, a senior policy analyst at the Cleveland Fed and one of the authors of the report. Wiersch said this is the second year the Fed has taken a microscope

to ultra-small businesses, which include the self-employed and make a compelling study because of their numbers. Microbusinesses account for about nine in 10 firms and roughly 34.9 million jobs in the United States. “When you look at them all together as a large group, they make up a significant share of firms and a significant contribution to our economy,” she said. Much of the survey’s findings are not all that surprising, according to small business experts. It found nonemployers — businesses that employ no one outside the business owner — are especially prone to challenges with profitability. Nearly 60% of firms with five or more employees said they were operating “at profit” at the end of 2015, compared to just 40% of nonemployers, who also were just as likely to be operating “at a loss” (38%). That is likely a function of the fact that a larger percentage of nonemployers “are newer and not as well established,” according to Wiersch. In addition, banks denied loans or lines of credit to 60% of nonemployer and 48% of small employer (one to four employees) applicants between late 2015 and late 2016, compared with only 32% of larger employer (five or more) applicants. Microbusinesses (nonemployers and small employers combined) were twice as likely to apply for personal loans to fund operations as larger employers. Again, some of this has to do with the maturity — or rather, lack of — said Steve Millard, president and executive director of the Council of Smaller Enterprises (COSE). Startups, in particular, lack the cash flow

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The microbiz challenge: By the numbers A look at a few highlights from a recent report from the Federal Reserve Banks of Cleveland and Richmond on microbusinesses:

34.9 million JJJobs

that microbusinesses — firms in which owners are the sole employee or employ fewer than four people — account for in the U.S.

60

40 JJPercentage

of firms that employ no one outside of the owner that said they are operating “at profit.”

38 JJPercentage

of the one-employee firms that are operating “at a loss.”

60, 48

JJPercentage

of firms with five or more employees that are profitable.

JJPercentage

of banks that denied loans to nonemployer and small employer applicants, respectively.

and revenue histories needed for business loans and, therefore, turn to personal loans and lines of credit. Even then, financing is not a sure thing. “It is really hard to borrow in this space if you don’t have great credit and you don’t have hard collateral for someone to put their hands on if you don’t perform,” Millard said. Drilling down into the findings, however, can provide clues on how to bolster this substantial portion of the economy. For instance, the survey found that 45% of the microbusinesses seeking financing applied at banks with at least $10 billion in total deposits in their home state. Yet, they reported low loan approval rates (about 40%) relative to larger firms (66%) and were much less satisfied with their experience once approved. Fewer than 35% of microbusinesses said they were satisfied, compared to 53% of larger companies. “What that tells us is there is a bit of mismatch in terms of where nonem-

ployers and small employer firms are seeking financing and where they are most likely to be approved and where they are most likely to have a more positive experience,” Wiersch said. Application approval rates for microbusinesses were higher at smaller banks or through online lenders, credit unions or community development financial institutions (CDFI), like Cleveland-based ECDI, the lender that helped Blackbird Fly Boutique get off the ground. In fact, 69% of nonemployers and 74% of small employers in the survey said they got some or all of their ask when they applied to a CDFI. ECDI Northern Ohio executive director Carrie Rosenfelt said ECDI partners with conventional lenders (i.e. large banks) to leverage their assets with other sources, minimizing their risk in loaning to companies that have not yet proven themselves. The nonprofit also provides education and technical assistance, which can be an invaluable resource to companies just getting off the ground

or scaling, according to Millard. “Sometimes just having access to the funds can disservice people,” he said, “because they start spending money without really having a plan, and when they get in trouble, they do not know where to go.” In other survey findings, about one-third of the microbusinesses respondents said they did not seek financing because they were “discouraged” by the prospects of approval, and microbusinesses were somewhat more likely to seek financing from online sources than their larger counterparts (26% vs. 17%). “As (online lending) become more mainstream and more recognized, that is something else we’d want to watch, in terms of how that affects those very small firms,” she said. In the meantime, the latest findings can guide accountants, lawyers and other service industry professionals advising entrepreneurs and small business owners on when and where to find capital, Wiersch said, as well as policy makers considering regulations that may impact this group. Millard believes the biggest takeaway for microbusinesses is that there are a number of financing options out there, and owners should not be discouraged from seeking the capital they need to grow. CDFIs, for instance, can be great places to obtain “launch loans,” he said, and begin to establish that business credit history bigger banks look for. “You move up because you have shown that when you take on debt, you will pay it back,” he said. “That is a really important piece of helping people establish higher levels of credit over time.”

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CRAIN’S CLEVELAND BUSINESS

Opinion From the Editor

Winding career paths can call for tough moves

Editorial

Metro on the prowl Since Dr. Akram Boutros’ arrival as CEO of MetroHealth, he has worked tirelessly to erase any preconceived notions Cuyahoga County residents might have about what it means to be a public hospital. Just because it’s the safety net hospital, for example, doesn’t mean its patients aren’t entitled to top-notch care on par with the region’s largest health systems. Also, MetroHealth shouldn’t be looked at as a third-tier option for those seeking care. Boutros didn’t make MetroHealth great. He largely brought out the best in its employees — and the health system’s positively trending finances are reflective of that. Still, that hasn’t been enough to weather the rough waters of health care in 2018 — something that certainly hasn’t been calmed by Washington. As such, MetroHealth last month announced it was exploring a “strategic partnership” with another health system aimed at enhancing services and reducing costs. In an interview with Crain’s, Boutros described the move this way: “Unlike other hospitals that only seek partnerships when they are in trouble, we are looking at this at the height of MetroHealth, which I think is a prudent thing to do from a board and management standpoint,” he said. It’s a surprising move for a system that regularly touts its independence, but certainly reflective of the unpredictability of the health care sector at large. But as he’s proven since his arrival, Boutros’ gut feeling that this is what is needed for MetroHealth should be trusted. So far, he’s given us few reasons to doubt his leadership. Any infusion of resources or expertise from another health care organization would most definitely allow MetroHealth to more aggressively compete for market share in Cuyahoga County — and competition, we believe, is healthy. But as MetroHealth grows bigger and mightier, we are hopeful that the health system doesn’t turn its back on caring for Cuyahoga County’s most vulnerable citizens. In fact, we are hopeful this possible partnership only strengthens that commitment.

Keep in contact

Cleveland’s bid for the Amazon HQ2 project is essentially like buying a lottery ticket. It’s a long shot, but one with such transformational potential that it’s worth taking. Far less sexy, but far more important to Northeast Ohio’s long-term economic development prospects, is an initiative being undertaken by JobsOhio, the state development nonprofit; Team Northeast Ohio, the regional JobsOhio counterpart; and the Greater Cleveland Partnership. Crain's Jay Miller reported last week that the organizations “are escalating their efforts to find businesses in Cuyahoga, Geauga and Lake counties that are thinking of expanding, to make sure they do so here.” To help do that, the groups expect to add as many as a dozen staffers to call on local companies to identify those evaluating location/expansion strategies. By being more proactive and offering a personal touch, the organizations hope, they can be in a better position to make site suggestions and offer financial incentives that will keep growing companies here. Attracting companies from outside the region, whether it’s a behemoth like Amazon or more modestly scaled operations, gains a lot of attention but is a relatively small part of economic development. Northeast Ohio has far more to gain from making sure that the companies already committed to the region make their next-level investments here. For as much as we like to think of Cleveland as being in a renaissance, we’re not very good at generating jobs. The Bureau of Labor Statistics’ most recent report noted that for October, of the country’s 51 largest metropolitan areas, Cleveland-Elyria had the highest jobless rate, at 5.2%. The leaders — Minneapolis-St. Paul and Nashville — had rates of 2.3%. The JobsOhio-led effort is smart. Even better would be making this a two-way street in which local businesses reach out routinely to economic development officials to discuss ways to make expansion plans a reality. Every little bit counts.

Publisher and Editor: Elizabeth McIntyre (emcintyre@crain.com)

CLEVELAND BUSINESS

CLEVELAND BUSINESS

Managing Editor:

Scott Suttell (ssuttell@crain.com)

Sections Editor:

Timothy Magaw (tmagaw@crain.com)

Contact Crain’s:

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I got the email sometime after 9 a.m. the Monday after Thanksgiving. “Let me know when you have about 10 minutes to chat this morning.” Well, so much for the glow from the long holiday weekend. I’ve managed people for most of my career, so I knew what that email from our advertising sales director likely meant. My heart sank. A valued employee was probably leaving us for a new job. I could only hope that we might be able to work something out. As I sat across from Nicole Mastrangelo, I could see in her eyes that her decision was made. There was no “likely” or “probably” about it. She’d thought about this a long time and made her decision: She was reElizabeth signing, and there wasn’t anything I could McIntyre do about it. I knew how difficult this decision was for Nicole. In a lot of ways, she had grown up at Crain’s, starting here just a few years out of college. She went from an account executive 11 years ago to leading the sales team in just five short years. And what has made Nicole such an invaluable mentor, colleague and friend to many in our office is her ability to listen — and it’s what made her such an asset to our advertising clients. What are you, as a business, trying to accomplish? Nicole would drill down on that question, and then unleash her creativity to find the best marketing solutions to help clients grow their business. Ultimately, for Nicole, she made the decision that was best for her and her family at this point in her career. So often, people — especially when they’re younger — view career paths as straight lines, when in fact, they rarely are linear. Career paths twist and turn for many reasons. Downsizing happens. Parents get sick. Children are born. And decisions need to be made about what’s best for your career. Sometimes you stay in the job and other times, you decide to move on. My path involved two extended maternity leaves and several job changes. I’d imagine yours has taken a few turns, too. As much as I selfishly hoped Nicole’s path would continue to include working with me and serving our clients here at Crain’s, I knew as I listened to her that she was making the right decision for the right reasons. I was genuinely happy for her, though, as any manager knows, sudden change forces you to take quick action to assure that clients and customers are cared for in the transition. Change is hard, but it can’t be hard on those you serve. It’s your job to make it as seamless as possible. We broke the news to Nicole’s staff and to the rest of the Crain’s team and they, of course, were sad to hear she’d be leaving. But another sign of her good work as a manger was her advertising sales team’s resolve to continue their good service, and to take up any short-term slack her departure presented. Like Nicole, they’re great listeners and creative problem solvers. We immediately began our search for a new advertising sales director. In the meantime, I’ll be stepping into the role of interim advertising sales director. Please feel free to call or email me, or one of our account executives, if you would like to discuss how Crain’s can help your business thrive.

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

CRAIN’S CLEVELAND BUSINESS

TAX LIENS The Internal Revenue Service filed tax liens against the following businesses in the Cuyahoga County Recorder’s Office. The lien is a public notice to creditors that the government has a claim against a company’s property. Liens reported here are $10,000 and higher. Dates listed are the dates the documents were filed in the Recorder’s Office.

LIENS FILED  Cirque Du Kids LLC 8706 Garfield Blvd., Garfield Heights Date filed: Oct. 6, 2017 Type: Annual tax return, unemployment, corporate income Amount: $117,809.59

Rod Iron Crew Inc. 5281 Engle Road, Brookpark Date filed: Oct. 6, 2017 Type: Employer’s withholding Amount: $95,234.51 

 Victory Solutions LLC 19571 Progress Drive, Strongsville Date filed: Oct. 25, 2017 Type: Employer’s withholding, unemployment Amount: $79,935.54  U.S. Bowling Congress 14950 Snow Road, Suite 100, Brook Park Date filed: Oct. 25, 2017 Type: Employer’s withholding Amount: $55,875  JVDC Inc. 27825 Detroit Road, Apt. 302, Westlake Date filed: Oct. 25, 2017 Type: Employer’s withholding Amount: $43,744.97  Danstud Inc. 7818 Cambridge Drive, Brecksville Date filed: Oct. 25, 2017 Type: Employer’s withholding Amount: $33,440.22  Rybak & Associates Inc. 21821 Libby Road, Suite 101, Bedford Date filed: Oct. 25, 2017 Type: Unemployment, corporate income, employer’s withholding Amount: $30,486.92

Northeast Plumbing & Mechanical LLC 1630 Lincoln Ave., Lakewood Date filed: Oct. 25, 2017 Type: Employer’s withholding, unemployment Amount: $30,431.97 

 HJL LLC 31300 Solon Road, Solon Date filed: Oct. 6, 2017 Type: CIVP Amount: $25,483.96  G. Scott Pratt DDS Inc. 2200 Augusta Court, Westlake Date filed: Oct. 25, 2017 Type: Employer’s withholding Amount: $19,527.00  AKE Environmental & Construction Services Inc. 503 Broadway Ave., Bedford Date filed: Oct. 25, 2017 Type: Employer’s withholding, unemployment Amount: $16,051.61  Little Inspirations Childcare Center 5454 Broadway Ave., Cleveland Date filed: Oct. 25, 2017 Type: Employer’s withholding Amount: $14,119.11  Suburban Veterinary Hospital 5257 Warrensville Center Road, Maple Heights Date filed: Oct. 25, 2017 Type: Employer’s withholding Amount: $13,418.84

LIENS RELEASED TMG Services Inc. (three liens released) 8100 Grand Ave., Suite 100, Cleveland Dates filed: Sept. 6, 2016; Aug. 16, 2017; April 26, 2017 Date released: Oct. 25, 2017 Type: Employer’s withholding Amounts: $253,962.29; $24,691.19; $17,027.98 

1360 W. Chestnut St. LLC 161 Crocker Park Blvd., Apt. 303, Westlake Date filed: Sept. 13, 2016 Date released: Oct. 25, 2017 Type: Partnership withholding Amount: $116,204.06 

 T&A Construction Inc. 8954 Broadview Road, Broadview Heights Date filed: Aug. 16, 2017 Date released: Oct. 25, 2017 Type: Employer’s withholding Amount: $66,551.87

return Amounts: $23,539.89; $16,972.11

Pinkney-Perry Insurance Agency Inc. (two liens released) 526 Superior Ave. E., Suite 910, Cleveland Dates filed: April 7, 2011; Feb. 9, 2016 Date released: Oct. 6, 2017 Type: Employer’s withholding Amounts: $50,999.95; $19,940.80

 Timmy O. Enterprises Inc. 11876 Friar Post, North Royalton Date filed: Aug. 18, 2017 Date released: Oct. 25, 2017 Type: Employer’s withholding, failure to file complete return Amount: $13,637.47

 BTA Collision LLC 27500 Lorain Road, North Olmsted Date filed: Feb. 7, 2014 Date released: Oct. 25, 2017 Type: Employer’s withholding, corporate income Amount: $45,243.13

B.B.O. Inc. (dba Bucci’s Brick Oven) (two liens released) 13373 Smith Road, Middleburg Heights Date filed: July 14, 2017 Date released: Oct. 6, Oct. 26, 2017 Type: Employer’s withholding Amount: $11,737.26; $10,955.32



 Dunecraft Inc. (two liens released) 19201 Cranwood Parkway, Warrensville Heights Dates filed: Sept. 13, Oct. 19, 2016 Date released: Oct. 6, 2017 Type: Unemployment, employer’s withholding, failure to file complete

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 Joseph Victor Hair Salon Inc. 4177 Mayfield Road, South Euclid Date filed: March 12, 2008 Date released: Oct. 25, 2017 Type: Employer’s withholding, unemployment Amount: $10,925.40

PA G E 9

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Spectrum Home Health Care Inc. 2000 Auburn Drive, Suite 200, Beachwood Date filed: Aug. 19, 2014 Date released: Oct. 25, 2017 Type: Employer’s withholding Amount: $20,493.53

 Falcon Trucking Ltd. 1564 Chesterland Ave., Lakewood Date filed: Jan. 28, 2008 Date released: Oct. 25, 2017 Type: Failure to file complete return, employer’s withholding Amount: $15,086.43

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CORPORATE-LIKE OFFICE SUITES

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 Avon Pizza LLC (dba Coleone’s Pizza & Subs) 1260 Smith Court, Rocky River Date filed: Sept. 3, 2015 Date released: Oct. 25, 2017 Type: Employer’s withholding, unemployment Amount: $18,989.64

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CRAIN’S SIGNATURE EVENTS 2018 EVENT CALENDAR

FAMILY BUSINESS FORUM Tentative Date: April Join Crain’s for a welcoming, educational and supportive event that will allow family businesses to walk out with actionable information, connections and ideas to improve their businesses.

CRAIN’S HEALTH CARE FORUM Tentative Date: June Industry experts will examine some of the top issues facing health care.

CRAIN’S TWENTY IN THEIR 20s Tentative Date: June Crain’s Cleveland Business singles out 20 up-and-coming professionals who haven’t turned 30 yet.

WOMEN OF NOTE AWARDS Tentative Date: July Crain’s honors the dedication and achievements of Northeast Ohio’s top female business leaders who enrich our region with their professional talents and unique perspectives.

ARCHER AWARDS Tentative Date: August A tribute to Northeast Ohio’s leading human resources professionals who are building companies with the best people, talent, development and culture.

MIDMARKET PERSPECTIVES Tentative Date: August Learn how middle market companies can flourish in today’s ever-changing world.

MANUFACTURING ASSEMBLY Tentative Date: October Educational manufacturing assembly with presentations and breakout sessions.

FORTY UNDER 40 Tentative Date: November A tribute to the next generation of rising stars who have taken a leading role in our business community.

C-SUITE GALA Tentative Date: December Northeast Ohio's top executives are honored for their contributions, community commitments and outstanding professional performances.

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CRAIN’S CLEVELAND BUSINESS

Focus SMALL BUSINESS

Phoenix Coffee’s Warehouse District space is at the former home of D’Vine Wine Bar on West St. Clair Avenue in Cleveland. (Ken Blaze for Crain’s)

Phoenix is making a caffeinated comeback Coffee company has new spot in Warehouse District, along with revamped brand, in effort to spark sales By DOUGLAS J. GUTH clbfreelancer@crain.com

Phoenix Coffee — pardon the cliche — is on the rise. With a new downtown location and an ambitious rebranding that champions its comfortable cafes and redefined coffee offerings, the local company is trying to differentiate itself from corporate juggernauts like Starbucks. Phoenix recently unveiled a refreshed brand with a new logo and color scheme, headlined by a menu update at all five retail locations. Phoenix’s newest cafe in Cleveland’s Warehouse District on downtown’s western rim is the forerunner for the revised branding and logo, said director of coffee Christopher Feran. The 650-square-foot cafe is nestled within the former D’Vine Wine Bar in the Worthington Building on West St. Clair between West Sixth and West Ninth streets. Phoenix operates additional shops in Ohio City and East Ninth Street downtown, along with two locations in Cleveland Heights. A cafe the company had on West Ninth — a stone’s throw from its newest shop — shuttered in 2011. “It’s somewhat symbolic to launch a brand a block away from our old location,” Feran said. “This may not be a flagship store at 650 square feet, but it’s designed to be a cafe that lives in the neighborhood.” Feran and finance guru Shane Hinde run Phoenix’s operations, part of an internal restructuring that had CEO Sarah Wilson-Jones scale back her day-to-day involve-

“It’s somewhat symbolic to launch a brand a block away from our old location.” — Christopher Feran, director of coffee, Phoenix Coffee, on the company’s new Warehouse District location

ment. Under new leadership, Phoenix streamlined its branding with help from Cleveland design company Type Twenty Seven, while Lakewood-based architecture firm AoDK designed the Warehouse District shop’s interior. The company had been scouting locations since 2014, landing on the Warehouse District for its emergence as one of Cleveland’s most vibrant and populated neighborhoods. The district boasts 3,000 residents and 4,000 workers, according to the Historic Warehouse District Development Corp. “The neighborhood has evolved and changed,” Hinde said. “There’s more people than ever moving there, and a lot of energy to add more amenities.” Downtown Cleveland is not overburdened with coffeehouses: Phoenix’s only immediate competition on the west side of Ontario Street is a Starbucks located on West Sixth Street. Feran said his company separates itself from the ubiquitous Seattle chain through a focused coffee menu and creation of warm, inviting spaces that inspire positive interaction and a critical mass of returning patrons. SEE PHOENIX, PAGE 14

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CRAIN’S CLEVELAND BUSINESS

SMALL BUSINESS Adviser: Laura Sheridan

Eight marketing mistakes you should avoid in ’18 Marketing mistakes are inevitable and can be costly. We test, measure and refine in search of the greatest ROI and customer experience. Learn from others and avoid these eight common pitfalls in 2018.

Mistake No. 1: Evaluating creative on your computer Is email marketing part of your 2018 marketing plan? Then it’s important to know that in 2017, 54% of all emails were opened on a mobile device. What does that mean for you?

Sheridan is president of Viva La Brand, a brand and marketing strategy and ad agency search firm.

Delivering a fabulous mobile experience is no longer a brand differentiator. It’s table stakes. Today’s consumer digests media on

multiple screens. So, when your agency sends you creative to approve, don’t just look at it on your computer, review it on all your devices.

2. Hiring the wrong team The effectiveness of your marketing efforts is dependent on the quality of your talent. We live in a fast-changing and uncertain environment. Your marketing team needs to be made up of analytical, agile, curious types who are passionate about your customer. They need to embrace the notion of

being a support function for sales and have the company’s goals imprinted on their foreheads. Is the leader of your marketing team strategic, analytical and proficient at digital marketing? Have any “B” players on the team? 2018 is the year to trade up. Hire superstars. That’s what it takes to win.

of marketing materials are not used by sales, and salespeople spend 30 hours a month searching for and creating their own marketing materials. Marketing’s job is to help an organization meet its goals. Sales’ job is to help an organization meet its goals. Imagine if they worked together? Enough said.

3. Marketing decides on the marketing materials

4. Changing your logo because board is bored of it

Sitting down? According to the American Marketing Association, 90%

When your board and internal colleagues beg you to change your logo or colors, give high fives all around. If you’re doing it right, internal stakeholders who see your logo and colors all the time should be sick of them. Your customers, on the other hand, don’t stare at your logo or see your colors every day. Repetition and consistency are fundamental to building and maintaining a healthy brand.

5. Not engaging influencers

Stronger Together

2017 was the year for ad blockers, ad-free movies, and other ways consumers have found to avoid commercials. Influencer marketing, however, is an effective ad-free and authentic way to reach your target audience. Messages from influencers such as niche bloggers (think moms and sport bloggers) are far more powerful than paid ads. 90% of consumers trust peer recommendations, while only 33% trust advertisements. Find the right influencers in your niche, and your influencer marketing will deliver a far better ROI than paid ads.

6. Not including video in your marketing plans Did you know that YouTube is now the second-largest search engine? How about that adding a video to your website can increase the chance of a Google result by as much as 53 times? While video marketing is frequently an afterthought, its value demands a front-runner position in your marketing plans.

7. Creating great content just for your website

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Social media platforms are increasingly exploring ways for companies to move beyond simply sharing content by allowing them to publish their own content. LinkedIn has been growing in popularity as a publishing outlet, as companies have been using the platform to boost their B2B marketing via expert articles. Snapchat and Instagram now offer features that allow users to swipe to read articles. Content marketing is no longer just about creating great content for your website. It’s about getting your content in front of customers where they are. Using social media as a publishing outlet is an effective way to do so.

8. Using customer research from last year Reread the other seven mistakes above. Note the theme? Consumer media habits are changing faster than ever, so you need to make your decisions on this year’s reality, not last year’s. Avoid these eight mistakes in ’18. Learn from others and increase your marketing ROI.

CRAIN’S CLEVELAND BUSINESS

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PA G E 13

SMALL BUSINESS Tax Tips: Peter A. DeMarco

Benefits of tax law for biz owners are complicated The Tax Cuts and Jobs Act contains a significant tax break for small business owners, but a deeper dive reveals hidden complexities that may chip away at that benefit for many. Passed by Congress and signed into law just before Christmas, the Tax Cuts and Jobs Act provides substantial tax relief for entities organized under any of various “pass through” structures. Those are business entities like S corporations, limited liability companies, partnerships, and sole proprietorships where income passes through the business entity directly to any shareholders for taxation at their respective individual rates. The new tax law provides that business income passing through such an entity to an individual shareholder is taxed at the individual tax rate, with a deduction of up to 20% of that income. With the lower individual tax rates included in the new tax law, plus this 20% deduction of passthrough business income before it is subject to those lower rates, the reduction in tax liability could be significant. At the highest levels under current tax law, the “effective rate,” or the ultimate tax rate after various deductions and exclusions are applied, is 39.6% for shareholders in passthrough entities. Under the new tax law, the highest effective rate will be 29.6%. That’s a 10-percentage-point reduction in the effective rate, which is a tax cut of historic proportion. No such tax reduction would be complete, however, without exceptions and limitations — and the Tax Cuts and Jobs Act offers plenty around this particular tax benefit. Shareholders in pass-through entities are accustomed to engaging in some careful tax planning to strategize how they will be paid to minimize their ultimate tax liability. Current rules that permit distributions to shareholders, stacked against the tax implications of taking wages from a pass-through entity, lead to some careful calculation of how best to draw compensation out of a passthrough entity in the most tax-friendly way possible. The new tax law attempts to do away with that strategizing by putting limitations on the applicability of the new 20% deduction. In so doing, the tax law creates complexities that make it difficult to arrive at broad generalizations about how any individual shareholder will be affected by the new tax structure. For example, the deduction is not available to an owner’s taxable income above $415,000 in most service businesses, such as health care, law, accounting, performing arts, consulting, financial services and any other service where the principal means of generating revenue is based on the skill or reputation of one or more employees. The notable exceptions are for service businesses in engineering and architecture. For businesses outside those affected service professions, the deduction is still available, even if the owner’s taxable income is above the $415,000 level. For relevant taxable income from $315,000 to $415,000, the deduction is available on a phased-in basis, so

DeMarco is a senior tax adviser at Meaden & Moore, headquartered in Cleveland.

that produces limitations on how the deduction will apply to income that falls between those income levels. Above the $415,000 income level, the deduction also is limited based on

the outcome of a complicated equation involving qualified business income, taxable income, W-2 wages of the business and investment in certain depreciable assets. On the simplest end of the spectrum, an individual in a manufacturing partnership with income of $100,000 will see the 20% deduction reduce the taxable income from the entity to $80,000. At the highest effective tax rates, that individual will pay roughly 30% tax on that $100,000 under the new tax rules, compared with 39.6% un-

der today’s tax rules. In that simple example, that means the new tax law will result in a tax liability of approximately $30,000 (37% of $80,000), while the liability under today’s rules would be closer to $40,000. That’s a significant difference that can’t be disputed. When layering on the complexities, however, the tax liability is much less clear. If the individual is a physician or an attorney, for example, where incomes often easily exceed the

$415,000 threshold, the magnitude of the benefit will be zero. If an individual owns stakes in more than one pass-through entity, the equation is even more complicated, as the new rules apply on an entity-by-entity basis. While the new deduction for small business owners is an exciting development for taxpayers, enthusiasm may be tempered until shareholders have an opportunity to dig into the details to determine how it will ultimately apply to individual fact patterns.

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CRAIN’S CLEVELAND BUSINESS

SMALL BUSINESS

PHOENIX

CONTINUED FROM PAGE 11

Though Phoenix’s brand retooling aligned the overall company, each shop is tailored to fit its particular location. For example, the Ohio City cafe has bar seating and a large community table ample for meetings and use as an individual workspace, said Feran. “It’s full in the morning with people journaling, reading or working on computers,� he said. “We intentionally created different elevations and zones of seating to accommodate different uses and placed power outlets to direct those uses.� Phoenix’s two Cleveland Heights locations, meanwhile, match a different breed of clientele. The Coventry cafe incorporates barnwood and other found materials, and is decorated with fresh-cut flowers from a nearby flower shop, as well as toy dinosaurs hidden throughout the space. “In Cleveland Heights, we have two cafes within a mile-and-a-half of each other,� Feran said. “Coventry has a quirkier ‘hippie’ feel that matches the people that come in there. Every Phoenix cafe is adapted to its neighborhood, and now we’re bringing more intentionality to that.� The company is also pursuing a renewed commitment to positive environmental impacts. A new pollution-free roaster produces tasty java sourced from climate-friendly growers. Even Phoenix’s coffee sleeves are made from post-consumer recycled paper and use less paper than a traditional double-walled cup. The company’s coffee reflects these trends, complemented by pastries and other baked goods supplied by local outfits, including Cleveland Bagel Co.. “Some customers who’ve been ordering the same beverage for 20 years are hesitant to change, but they like our ethically sourced beans,� Hinde said. “It’s been a slow transition, but it’s worth it because we’re maintaining those customers.� Phoenix updated its branding during the leadership changeover, switching from its previous circle logo to an abstract rendering of the

Phoenix Coffee barista Matt Schleckman makes a cappuccino at the company’s Warehouse District cafe. (Ken Blaze for Crain’s)

mythical phoenix in flight. The new design symbolizes the coffeehouse’s recent transformation while paying homage to its 27-year-old legacy. “The history of the company matches the mythology of the name,� Hinde said. “We wanted to express the idea that the phoenix is reborn.� Dan Cox, founder and president of Coffee Enterprises, a Vermont-based coffee business consultancy, said Cleveland’s smaller market size and downtown regeneration make it a promising center point for additional independent cafes. In addition to a handful of Start-

bucks, downtown Cleveland boasts other independent coffee shops like Erie Island Coffee Co. on East Fourth, Pour Cleveland on Euclid Avenue and Rising Star Coffee Roasters in The Arcade on Superior Avenue. “Cleveland is a pretty hip market,� Cox said. “There is still room for (new shops) as long as you have a point of differentiation.� Operators like Phoenix must continue to nurture their relationship with the community, he said. Cox suggests creating proprietary beverages related to local sports teams and making appearances at arts and athletic events. “Get your name out there any way you can,�

Cox said. “There’s still room for savvy retailers if they do their homework.� Finding and keeping good employees is a constant challenge for the industry, but Phoenix has retained its individual cafe staff for an average of two years and seven months. Friendly, knowledgeable staff, ethical business practices, cool new digs and good coffee will keep the company riding high into a lucrative future, its leaders believe. “The best thing we can do is give customers an incredible experience when they’re in our cafes,� Hinde said. “That interaction will make them want to come back.�

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CRAIN’S CLEVELAND BUSINESS

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PA G E 15

THE LIST

Northeast Ohio's Top SBA Lenders Ranked by dollar value of 7(a) loans in fiscal 2017 THIS COMPANY NAME YEAR HEADQUARTERS

VALUE OF APPROVED LOANS FISCAL 2017

VALUE OF APPROVED LOANS FISCAL 2016

% CHANGE

NUMBER OF LOANS FISCAL 2017

NUMBER OF LOANS FISCAL 2016

% CHANGE

1

Huntington National Bank Columbus

$149,537,300

$134,278,100

11.4%

1,145

1,091

4.9%

2

KeyBank NA Cleveland

$38,795,400

$14,693,900

164.0%

82

54

51.9%

3

Byline Bank Chicago

$10,282,000

ÑÑÑÑ

ÑÑÑÑ

8

ÑÑÑÑ

ÑÑÑÑ

4

Live Oak Banking Co. Wilmington, N.C.

$9,244,000

$12,219,000

-24.3%

11

14

-21.4%

5

United Midwest Savings Bank De Graff

$8,099,000

$9,077,000

-10.8%

4

6

-33.3%

6

Citizens Bank Providence, R.I.

$8,038,300

$4,493,100

78.9%

60

54

11.1%

7

Newtek Small Business Finance Inc. Lake Success, N.Y.

$7,240,000

$13,855,000

-47.7%

6

12

-50.0%

8

Fifth Third Bank Cincinnati

$7,056,700

$8,293,100

-14.9%

34

40

-15.0%

9

Consumers National Bank Minerva

$6,959,400

$4,569,700

52.3%

25

19

31.6%

10

Chemical Bank Midland, Mich.

$6,521,800

$347,500 (1)

1,776.8%

11

2 (1)

450.0%

11

U.S. Bank Minneapolis, Minn.

$6,443,000

$21,068,600

-69.4%

41

87

-52.9%

12

First Utah Bank Salt Lake City

$5,935,000

ÑÑÑÑ

ÑÑÑÑ

2

ÑÑÑÑ

ÑÑÑÑ

13

Celtic Bank Corp. Salt Lake City

$5,236,000

$2,886,800

81.4%

12

14

-14.3%

14

First Western SBLC Inc. Dallas

$5,115,000

$6,958,000

-26.5%

3

4

-25.0%

15

NOA Bank Duluth, Ga.

$5,110,000

$1,400,000

265.0%

3

2

50.0%

16

Middlefield Banking Co. Middlefield

$4,415,000

ÑÑÑÑ

ÑÑÑÑ

10

ÑÑÑÑ

ÑÑÑÑ

17

First Bank Southern Pines, N.C.

$4,308,800

ÑÑÑÑ

ÑÑÑÑ

2

ÑÑÑÑ

ÑÑÑÑ

18

Paragon Bank Memphis, Tenn.

$4,229,000

ÑÑÑÑ

ÑÑÑÑ

1

ÑÑÑÑ

ÑÑÑÑ

19

Customers Bank Phoenixville, Pa.

$3,848,600

ÑÑÑÑ

ÑÑÑÑ

1

ÑÑÑÑ

ÑÑÑÑ

20

Grow America Fund Inc. New York

$3,739,000

$1,572,000

137.8%

4

3

33.3%

21

First Home Bank Seminole, Fla.

$3,455,000

$1,950,000

77.2%

14

9

55.6%

22

CNB Bank (dba ERIEBANK) (2) Clearfield, Pa.

$3,118,000

$514,100

506.5%

3

2

50.0%

23

PNC Bank Pittsburgh

$3,040,000

$3,369,000

-9.8%

33

24

37.5%

24

State Bank and Trust Co. Defiance

$3,025,000

$3,858,900

-21.6%

5

10

-50.0%

25

First Commonwealth Bank NA (3) Indiana, Pa.

$3,000,000

ÑÑÑÑ

ÑÑÑÑ

2

ÑÑÑÑ

ÑÑÑÑ

26

West Town Bank & Trust North Riverside, Ill.

$2,678,300

$4,731,000

-43.4%

3

5

-40.0%

27

Stearns Bank NA St. Cloud, Minn.

$2,561,600

$3,740,200

-31.5%

9

17

-47.1%

28

Radius Bank Boston

$2,547,000

ÑÑÑÑ

ÑÑÑÑ

3

ÑÑÑÑ

ÑÑÑÑ

29

JPMorgan Chase & Co. New York

$2,490,300

$3,702,600

-32.7%

26

25

4.0%

30

BankUnited N.A. Miami Lakes, Fla.

$2,402,700

$1,645,800

46.0%

3

1

200.0%

31

Growth Capital Corp. Cleveland

$2,311,700

$4,273,000

-45.9%

34

49

-30.6%

32

Hantz Bank Southfield, Mich.

$2,300,000

ÑÑÑÑ

ÑÑÑÑ

1

ÑÑÑÑ

ÑÑÑÑ

33

Independence Bank East Greenwich, R.I.

$2,220,000

$300,000

640.0%

20

2

900.0%

34

First IC Bank Doraville, Ga.

$2,200,000

ÑÑÑÑ

ÑÑÑÑ

1

ÑÑÑÑ

ÑÑÑÑ

35

Wells Fargo Bank NA Sioux Falls, S.D.

$2,064,200

$2,730,400

-24.4%

6

8

-25.0%

RESEARCHED BY CHUCK SODER (CSODER@CRAIN.COM)

Want the full version of this list Ñ and every other Crain's list? Become a Data Member: CrainsCleveland.com/data The full digital list includes more than 80 banks. Source: Cleveland District office of the U.S. Small Business Administration. Numbers are for fiscal years ended 9/30/2017 and 9/30/2016. The Cleveland District covers 28 northern Ohio counties. Send questions, suggestion and corrections to Chuck Soder: csoder@crain.com. (1) These loans were made by Talmer Bank and Trust, which was acquired by Chemical Bank in August 2016. (2) Formerly Lake National Bank, which was acquired by CNB in July 2016. (3) First Commonwealth entered the

Northeast Ohio market in December 2016 when it acquired 13 branches from FirstMerit Bank.

PA G E 16

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CRAIN’S CLEVELAND BUSINESS

AKRON

Power sector sees big drop in carbon output By DAN SHINGLER dshingler@crain.com @DanShingler

A funny thing happened while Ohio was freezing its renewable energy requirements and giving the oil and gas industry almost carte blanche access to drill in the Utica shale. The state’s No. 1 source of carbon pollution, its electric power sector, cut its carbon pollution by 50 million metric tons a year between 2005 and 2015, the most recent year for which data is available, according to information from the U.S. Energy Information Administration (EIA). Akron-based FirstEnergy Corp. played a major role in the reduction, too — whether it wanted to or not. While it has continued to operate its two nuclear plants that don’t emit any meaningful carbon, the company closed several dirty coal plants in Ohio and boosted its use of renewable energy. Still, the magnitude of the drop surprised a lot of people, including environmentalists. “I was very surprised, to be quite honest,” said Dick Munson, Midwest director for the Environmental Defense Fund, which ranked the states’ carbon cuts from EIA data. “I had known there had been a good number of coal plant closures, but to see Ohio at the top of the list, by far, was a surprise.” The next closest state in carbon reductions was Indiana, which trimmed its annual carbon output by 34.9 million metric tons over the same 10-year period. That’s nothing to sneeze at, but Ohio topped that by 43%, as the Buckeye State’s annual carbon output for the period dropped from its peak of 132.6 million metric tons in 2005 to 82.6 million metric tons in 2015, according to the EIA’s

FirstEnergy’s shuttering of coal-powered plants has helped decrease the state’s carbon output, but if the company closes some of its nuclear plants, such as the Perry Nuclear Power Plant in Lake County, pictured here, and power they provide is replaced by fossil fuels, the state’s carbon output will increase. (FirstEnergy)

website. The biggest reason for the decline, according to watchers, is the advent of shale gas drilling in Ohio. The shale drilling boom’s cheap gas has caused new natural gas power plants to come online in Ohio and nearby states that sell their power into Ohio on a shared electricity grid. That’s all while companies like FirstEnergy have shuttered coal plants that can’t compete economically — or environmentally — with natural gas-fired plants. Public Utilities Commission of Ohio chairman Asim Haque said he expected to see a drop of some sort. “I’d not seen that, but it makes sense. We’ve retired quite a bit of coal in the state of Ohio,” he said. In 2005, Ohio was getting about 88% of its electricity from coal. Now it's closer to 50%, Haque said. All told, FirstEnergy generates

about 5,000 megawatts of power in Ohio. That’s more than half of the state’s total electricity production of 9,795 megawatts, according to EIA data from September. But FirstEnergy has shed a lot of coal-plant capacity, company spokeswoman Jennifer Young said. The company has closed 10 plants since 2010, including the former Lakeshore plant in Cleveland and large sites in Ashtabula and Eastlake. “In Ohio alone, we have reduced our carbon emissions from 2005 by 71%, and almost all of that is from plant retirements,” Young said. FirstEnergy is not alone, either. Munson said Ohio has seen more than 60 generation units at about 20 coal-fired plants shuttered since 2010. There’s also a question mark hanging over FirstEnergy’s nuclear plants in Perry and Oak Harbor. FirstEnergy

has said it will likely close the plants unless they are given regulatory relief that would increase their revenue, something being considered by federal regulators but far from a done deal. If those plants close and the power they provide is replaced by fossil fuels, even natural gas, the state’s carbon output will no doubt increase, Young said. Either way, more gas-fueled power coming online to replace coal-fired electricity is a trend that’s likely to continue. That’s the main reason FirstEnergy has chosen to get out of the unregulated generation market and instead focus on its power distribution business, according to Young. The company always makes money by charging to deliver power, and it gets a guaranteed return from regulators on investments it makes in its distribution system.

Another reason the power sector’s carbon pollution is down is a lot less upbeat, however. The state has lost population and businesses. So companies like FirstEnergy are selling less electricity today than they were in 2005. “We’re still not selling as much power as we sold before the recession,” Young said. There are some positive reasons for the decline, too, though, including more efficient homes and appliances, and an increase in renewable energy generated and used in the state. It’s still a tiny percentage. For instance, only about 2% of FirstEnergy power is renewable, and that’s the 100 megawatts it gets from the Blue Creek wind farm in Northwest Ohio that came online in 2016. But that’s still an improvement over zero, environmentalists say. Munson worries though, that the state will backslide, especially after Ohio in 2014 froze its renewable portfolio standard, requiring that some of the state’s power come from sources like wind and solar. Now the state Legislature is considering whether to renew them, kill them or, most likely, to make the requirements voluntary. Of course, a voluntary requirement is not a requirement at all, which is why folks like Munson fret over the course the state will take. But he also said he has faith in markets. He thinks that if markets are allowed to dictate energy policy, more coal plants will be shuttered as more natural gas plants and renewables come online. He said, though, that he worries the state or federal regulators will do something to subsidize coal plants. “That’s my biggest fear, that we’ll waste a lot of money on the old stuff instead of investing in the new technology … I like markets,” Munson said.

Kent Displays makes B2B push with new product By JUDY STRINGER clbfreelancer@crain.com

Fourteen months after Kent Displays Inc. launched a unit to drive B2B sales, CEO Albert Green said the company is “encouraged” by sales of its new Blackboard e-writer, the first product that — according to Green — “fits squarely” into that market. Kent Displays is best known for its pioneering consumer e-writing tablet, the Boogie Board. The battery-powered notebook allows a user to write on it, much like a normal sheet of paper, but then touch a button to erase everything on the screen. Since the first Boogie Board was launched in 2010, the Kent-based company has introduced several iterations, including e-writers with multicolor displays or ones that save content and sync to other devices. The company has sold just over 11 million Boogies Board units to date, about half of those in the last two years, it said. Blackboard, however, represents an expansion of — rather than an addition to — the Boogie Board franchise, Green explained. “The idea behind Blackboard, from the technology that is in it and how we are promoting it and market-

crystals, positioned into reflective layers with pressure on the screen, provide what the user sees. But the Blackboard, which retails for $45, is bigger than conventional e-writers — the biggest on the market, in fact. Boogie Boards, for example, range Kent Displays’ new Blackboard is aimed at a more from pocket-size adult and professional demographic than its other units that are e-writer products. (Contributed photo) about 4.5 inches ing it to a lot of its features, is that it is tall to tablet-size devices that are really intended to appeal to an older about 8 to 9 inches. They also range or more adult demographic,” he said. in price from about $30 to more than “It is more of a utilitarian tool in $100, according to Kent Display’s terms of the kinds of things you can website. Blackboard dimensions equal that do with it and also how it incorpoof a standard piece of paper — 8.5 by rates into your everyday life.” The Blackboard e-writer retains 11 inches — which, Green said, was key attributes of Boogie Boards, such by customer demand. In addition, the writing surface is as the pen-on-paper feel and the ability to operate for years without semi-transparent so users can insert needing to be plugged in or charged. lined paper, grids or any sort of temThe devices only use power to erase plate behind the screen as a guide. so they can run off a small coin cell Architects or mechanical engineers battery for five to seven years. Liquid might prefer a grid pattern; basket-

ball coaches, an outline of the court. And users can erase portions of the screen without wiping it completely clean. “You just flip over the stylist and rub out what you don’t want just like a pencil eraser tip,” he said. Those traits are what Green and his team hope will fuel e-writer growth beyond its current audience. “This is really a business kind of offering,” Green said, “and in that context, it makes more sense of why Blackboard is so important to us.”

Beyond Boogie Boards Electronic display industry watcher Ken Werner, principal of Norwalk, Conn.-based Nutmeg Consultants, said Boogie Boards are used mostly by kids either at home or at school, or by adults for minor tasks such as note-taking or list making. “I believe the Boogie Board family will stay in its current niches based on functionality and price. The question is whether the additional functionality and increased size of the new product can establish it as a semi-professional and professional product,” Werner said. Kent Displays marketing communications manager James Alay said early indications are good. As part of

the October launch, the company took Blackboard on a five-city tour, setting up demonstration booths in business districts in Cleveland, Chicago, Washington, Los Angeles and Nashville and letting passersby try the product. Photos and videos of their experiences and reactions were shared widely on social media. “What we discovered is that people love the semi-transparency of Blackboard,” Alay said. “I think that is a big part of the reason why it exceeded our projections and we are sold out.” The private company of roughly 90 employees does not share sales or revenue information, but Green said Kent Displays “had a good year” based primarily on sales of products in the Boogie Board portfolio. The impact of Blackboard will be better to judge once the company calculates numbers from holiday sales, he said. Still, Green, like Alay, is encouraged by the early uptake and feedback. His team is already working on a whiteboard version of Blackboard. In the end, he noted, the new e-writer is not intended to replace the company’s flagship Boogie Board portfolio. “It’s a new platform that will appeal to new users,” Green said.

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DDR

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Although the remaining DDR portfolio will consist of 93 wholly-owned assets and another 143 joint venture assets, the dream DDR that Lukes seeks will consist of properties with stronger financials and growth opportunities, such as filling spaces emptied in the retail earthquake or using its ground in high-income areas for additional development. It will give DDR a growth story, and the spinout offers a vehicle for investors who seek quick income from property sales. It's similar to the way mall magnate Simon Properties in 2016 spun off its enclosed shopping centers and Great Lakes Mall to what's now Columbus-based Washington Prime Group. The transition to more need-driven shopping is best shown in the emphasis on food-oriented retail in what’s termed “the new DDR.” An investor presentation shows that 40% of the trimmed portfolio will be assets with traditional and specialty grocers. Viewed more broadly, especially since so many of today’s mass marketers such as Target and Walmart sell food, 70% of the slimmed-down portfolio, including grocers, is tied to food. Prior management sold multiple grocery-anchored properties since the real estate collapse in 2008 as it tried to right its finances and reduce leverage. That mix may be reflected in which local assets DDR is shedding and which it's putting into the spinout, to be called Retail Value Trust. Thus Great Northern Plazas, which has a Marc’s in its 631,000 square feet of selling space in North Olmsted, and Uptown Solon, which has the Cleveland store of Akron-based Mustard Seed Market & Cafe in its 182,000 square feet of selling space, are bound for RVT. Meantime, DDR will retain West

Bay Plaza in Westlake, where it’s doubling down on food by adding a Fresh Thyme Farmer’s Market new to the West Side in a new building where it razed a former Kmart store. And that center already has a Marc’s store in its 115,000 square feet of selling space. Joseph G. Padanilam, a former DDR executive who DDR Corp. is replacing an old Kmart in now buys grocery-anchored Westlake with a new building that will house shopping centers for his own a Fresh Thyme Farmers Market. (Stan Bullard) account through Auro“You can replace a retailer,” Kuiper ra-based Optimus One LLC, said the Lukes plan reflects how much success in said, “but the demographics of your Wall Street is not only about financials center are more important than that.” The spinout increases the average but “ultimately about positioning” and household income of market areas how a company’s portfolio is perceived. Chris Kuiper, an equity research ana- surrounding DDR properties by 17% lyst at New York City-based CFRA, likes to almost $100,000, Lukes said on the the DDR strategy of spinning out the December conference calls. A supplement on the transformation plan properties and trimming its portfolio. “This accelerates DDR’s large-scale shows that 19% of the properties that disposition program and, as a result, DDR sees as redevelopment targets we see DDR with more flexibility to will have incomes above $111,000 focus on redeveloping properties in post-spinout, compared to 8% with a higher growth areas, boosting net op- $108,000 average household income erating income,” Kuiper wrote in a among redevelopment properties in its current portfolio. December note. The stock market seems to like the Emphasizing the food merchants “is a positive,” Kuiper said in an inter- Lukes plan. DDR stock last Thursday, view with Crain’s. “It’s important be- Jan. 4, closed at $8.89 per share, up cause grocers see more customers on from $7.96 on Dec. 13, the day before a weekly basis and reduces some of the plan was unveiled. However, it’s the disruption in retailing from the still far below the $15.47 it closed at internet.” He raised his rating of DDR on Jan. 5, 2017, before a rocky year in to buy from hold since the spinout retail-oriented real estate. Lukes noted that the spinout, plan was unveiled. DDR also accomplishes many other which DDR hopes to accomplish by mid-year, also concentrates DDR goals with the proposed spinout plan. Lukes said the plan allows DDR to holdings in fewer markets more to the “pivot” to more development, rede- liking of investors. Padanilam said the focus on stronvelopment and opportunistic acquisitions. The plan also capitalizes on ger retail markets in major metropolithe appetite of private real estate in- tan areas, primarily on the coasts, vestors and developers to own power suits what he views as the ultimate centers. It also focuses the company goal of DDR’s transformation: getting it ready for sale. in areas with better demographics.

Key changes The Tax Cuts and Jobs Act makes a number of key changes in business taxes. Among the most important, according to Northeast Ohio tax professionals, are:

business skills of one or more of its employees and can’t be claimed for single filers with taxable income above $157,500, and $315,000 for joint filers.

The corporate income tax rate drops. The rate for traditional, so-called C corporations, falls to a flat 21% from the current range of 15% to 35% and the corporate alternative minimum tax (AMT) is repealed.

Faster depreciation of capital property. 100% of the cost of qualified property would be able to be fully and immediately expensed, rather than depreciated over a period of years. Property eligible for immediate expensing will now include any property if it is the taxpayer’s first use, not just property purchased new. So newly acquired, used property will now be immediately expensed, including property that is part of a merger or acquisition.

A low tax on profits stockpiled overseas. The tax-overhaul bill sets two discounted rates — 15.5% on income held as cash or cash equivalents and 8% for other assets. Limits on business interest deductions. Prior law generally allowed full deductions for interest paid by a business. Under the new law, interest expense in excess of 30% of “adjusted taxable income” cannot be deducted. Treatment of pass-through income changes. With some limitations, taxpayers with income from sole proprietorships, partnerships, LLCs or S corporations will be able to deduct, or shelter, 20% of their pass-through income — through the 2025 tax year. This is designed to bring taxes paid by these pass-through businesses — paid on the owner or shareholder’s personal income tax return where rates are as high as 37% — in line with the lower rates that the larger, C corporations will pay. The 20% deduction is not available to owners of firms where the principal asset of the business is the professional or

Deductions for entertainment and some employee fringe benefits are reduced or eliminated. Business will still be able to deduct 50% of the cost of business meals, but they no longer will be able to deduct 50% of the cost of an activity considered entertainment or recreation, such as rounds of golf or sports skyboxes. The new law also eliminates the business deduction for providing employee commuting transportation unless, for example, a car service is necessary for an employee’s safety. More use of cash accounting. Until passage of the new law, businesses with annual revenue of more than $5 million needed to use accrual accounting. Now businesses with fewer than $25 million in annual sales can use the simpler, cash method of accounting. — Jay Miller

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Roger Sustar, CEO and owner of Fredon Corp., a Mentor manufacturer of precision machined parts and assemblies, is more optimistic. “There are good things for us to look forward to,” he said in an email from his winter home in Florida. “I remember we paid over $25,000 last year, or the year before, to replace (our) office roof and had to write it off over 20 years. Now it will be a writeoff in the year it’s done. Plus, depreciation on equipment has moved up.” Sustar was referring to the ability to expense capital investments immediately and not depreciate it over a period of years. Steve Peplin, CEO of Talan Products Inc., agrees with Sustar. “It does encourage capital expenditures and anything like that. That’s good for manufacturing; it’s good for Cleveland,” he said. “So yeah, I’m happy.” President Trump may have described the tax overhaul as a Christmas gift to taxpayers. But for business operators and tax professionals, the late-in-the-year dramatic changes in federal tax law has meant a lot of holiday homework. “This (past) month, even though it was the holiday season, became very busy,” said Jonathan Ciccotelli, vice president of the tax services group of Meaden & Moore, an accounting firm headquartered in Cleveland. “We’re trying to analyze (clients’) situations for them and give them the information they need to make an educated decision.”

NICHE

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‘We’re on our way’ In 2015 and 2016, Cannasure was pretty much flat despite growing quickly just the years before. The momentum had stalled. McManamon would go on to meet another insurance company in California — who wants to remain unidentified — that would provide more funding in 2015, more than $500,000, and take an equity stake in the business. Members of the board of that company, however, said they didn’t want the reputational risk of working with a marijuana-based insurance business as an underwriter. And McManamon hit another setback. Then, in October 2016, McManamon and that CEO revisited their plan. The state of California was funding marijuana research at a state university, and there was a sense sentiments on marijuana were further changing. There were also some new board members. A deal between them was inked in spring 2017. And Cannasure, now a wholesaler and managing general agent, was back on track. The firm hasn’t sold a policy in its program yet, but expects to very soon. McManamon is rolling out that policy in phases in states across the country, selectively choosing which companies to work with. And it already has at least one policy in all 30 states (and Washington, D.C.) where marijuana is legal in some form, though about 70% of their business is in Colorado. McManamon estimated that of the $1.4 billion a year in marijuana sales there, Cannasure insures about one-third of it. Beyond the headline-grabbing reduction of the corporate tax rate from 35% to 21%, the 1,097-page act will push businesses to re-examine and perhaps change their corporate structure and give them the opportunity to lower their cost of capital. They also will be looking at changes in the tax consequences of a number of business expenses. “This got passed quickly and there are some things in the bill that aren’t fully developed yet,” said Mike McGiveny, a tax partner with the Cleveland accounting and consulting firm Cohen & Co. “I think our clients are prudent enough to sit back and say, ‘Let’s sit back and do the right analysis.’ ” While some decisions can be put off until it’s time to file a 2018 tax return, both Ciccoletti and McGiveny are asking many clients to re-examine their ownership structures soon. They will have to make any changes relatively quickly, as soon as March 15. Most U.S. businesses avoid being taxed as corporations and, instead, pass through business income untaxed to owners where the income is taxed as personal income. But the reduction in the maximum rate of corporate income tax, to 21%, may make a move to a so-called C corporation attractive. That’s because the personal income tax rate could be as high as 37% (though the new law allows passthrough businesses to deduct 20% of their pass-through income.) McGiveny said the clients he and his Cohen colleagues have been talking to have been most interested about three aspects of the new law. At the top of his list was the deductibili-

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PA G E 17

The rest is split between those other states, though California is slated to be a big growth market. McManamon said he has a big plan for the state he’s not ready to disclose yet. Ohio eventually will be a big market, McManamon said, but he doesn’t expect to see premium growth here until about 2020. Cannasure now expects to write more than $1 million a month in premiums in 2018 thanks to the new program. McManamon, 40, said he plans to hire eight or nine more people and move to the Ohio City area in the second half of this year, finally vacating the space he’s sharing with his father’s firm. “We want to shore up the relationships we have now and attack markets where we don’t have much business,” McManamon said. “All these Eastern seaboard states, the Midwest states, we want to dominate those.” McManamon declined to share his finances but said Cannasure saw revenues grow 60% in 2017. They’ve grown 350% since 2014. And McManamon now targets at least 40% growth annually “for the next several years, and that would be conservative.” So 2018 is expected to be a pivotal year for Cannasure and McManamon himself, who also happens to own a piece of the cultivation center that Standard Wellness LLC will be building in Sandusky County. “We’re not even close to where we want to be, but we’re on our way,” McManamon said. “People judge success on money. Of course that’s part of it. But there is an enormous amount of people who have suffered in this space because they can’t access marijuana because of governmental policy and federal agencies. I think we are not truly successful until those things are actually stopped.” ty of business meals and entertainment. “That’s a very big issue,” he said. Also on the list were the passthough issues — “much of our client base is pass-throughs” — and how the new law treats professional service firms. Some businesses also might be considering a switch from accrual to cash accounting, said Laura Culp, a partner in the Akron office Sikich LLP, a Naperville, Ill.-based accounting firm. “If (a business) is a contractor, there are some changes in the rules about percentage of completion,” she said, referring to how contractors allocate revenue and profit for projects that carry over from one year to the next, which required accrual accounting. “For many taxpayers, if they could qualify for the cash method, then their cash flow would correspond with their tax return (which must use cash accounting). It makes it easier from a cash-flow standpoint when you’re matching up cash-basis income with taxes.” The changes are also altering the terms of business deals in progress. Jeffrey Walters, managing director of for the Northeast Ohio region of CBIZ MHM LLC, a national accounting firm based in Independence, said he was working on an acquisition as the tax bill was moving to final passage in which the sales price was dependent on how depreciation was calculated. “They had to get the deals ready to close, and we needed to know how (the new capital expensing) would apply to them, and it looks like it does and the deal should be closing in the next couple of weeks,” he said.

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Aaron Hill Principal

Bialosky Cleveland Bialosky Cleveland announces the promotion of Aaron Hill, AIA to Principal. Throughout his career, Hill has directed and designed many high-profile institutional buildings, including the ultramodern LEED residence halls at University Cincinnati, Scioto Hall and Morgens Hall. At Bialosky Cleveland, Hill leads diverse project teams for government and higher education work, including Fenn Hall Phase II at Cleveland State University and the NASA Glenn Research Center in Cleveland.

weatherhead.case.edu

FINANCIAL SERVICES

Eugene Esser

Nancy Williams

Recently Retired

Financial Advisor

OHM Advisors

Carver Financial Services, Inc.

OHM Advisors congratulates Gene Esser, former principal, on his December 2017 retirement and 44-years of service to northeast Ohio communities. During his career, he served two elected terms as Summit County Engineer (96-03) and founded three successful companies, including Krock Esser Engineering Inc., which merged with OHM Advisors in 2015. He was also the City Engineer for 12 communities, including Twinsburg for seven years, Broadview Heights, Village of Reminderville, and the City of Huron.

Nancy Williams recently passed her CFP exam and was promoted to Financial Advisor at Carver Financial Services, Inc. Nancy joined the Carver team in 1997 as a sales assistant after working at the Federal Reserve Bank and Huntington National Bank. She has a bachelor’s degree from Miami University in finance. Nancy maintains a Series 7 license as well as a life, health and annuity license. She is also a Leadership Team member and a part of the Investment Committee for Carver Financial.

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Michael J. Frantz, Jr.

Melissa A. Jones

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Partner

Frantz Ward LLP

Frantz Ward LLP

Frantz Ward LLP is proud to share that Michael J. Frantz, Jr. has been elected Partner. Mike is an experienced attorney in the firm’s Construction Practice Group with extensive experience in the insurance and surety industries. Mike received his B.A., with High Honors, from Michigan State University and his J.D. from Villanova University School of Law.

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Frantz Ward LLP is proud to share that Melissa A. Jones has been elected Partner. Melissa focuses her creditor’s rights practice on commercial credit management, complex collection and default remedies. She also regularly aids clients within the construction industry to preserve, perfect, and enforce payment claims. Melissa received her B.A., with Honors, from The Ohio State University and her J.D. from Cleveland-Marshall College of Law.

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Natalie Leek-Nelson

CEO, Providence House

Providence House was always in Natalie Leek-Nelson’s orbit. The organization’s founder — Sister Hope Greener — was a teacher at Saint Joseph Academy, Leek-Nelson’s high school and ultimate employer. And while running the marketing shop at the Cleveland-based all-girls school, many of her students volunteered at the crisis nursery. And after a stint in the corporate realm, Leek-Nelson’s consulting business took on a familiar client — Providence House. After initiating a turnaround of the sleepy nonprofit, Leek-Nelson was encouraged to apply for the top job. That was 16 years ago. “Donors were saying, ‘Don’t tell me a story that’s going to make me cry. Tell me what my ROI is,’ ” she said. “Outcomes? Outputs? It was like a foreign language. I came out of this ROI-driven, publicly traded company. The transition was quick.” Today, the beloved crisis nursery is often called upon to lend its experience to others doing similar work. — Timothy Magaw

Five things Bucket list? Aside from raising teenagers — two of her own and a foster child — this Cleveland Institute of Art grad wants to start showing her artwork again.

Tool time Growing up, her boys would ask why she was the one always working with the tools. She’s done complete rehabs and renovation work.

Most important quality for a leader? “Tenacity. If you get knocked on your ass, get right back up and keep going.”

Favorite Cleveland spots Cleveland Museum of Art, the restaurants, the theaters, Cleveland Metroparks

Bookworm She’s a voracious reader who will plow through three or four books a week. She’ll have four or five books going at any one time.

Lunch spot Le Petit Triangle 1881 Fulton Road, Cleveland

The meal One ordered the mushroom crepe on buckwheat with a side of sautéed kale. The other ordered the roasted chicken croissant.

The vibe Modeled after a true Parisian cafe, this quaint and versatile Ohio City eatery is suitable for a quick lunch or a satisfying dinner with imaginative cocktails.

The bill $30.92 with tip

What’s the biggest challenge you saw when you started working at Providence House? In general in the nonprofit sector, the biggest challenge is the speed of business. Boards are big and hard to move. I could get into all the crazy stuff. The interim executive director and I used to joke, “Did you find a bomb or skeleton today?” The care of the kids was wonderful. The work was good. It was the business. The challenge was creating a mission-driven business. What was the biggest change you brought to the organization? The mission stated that we cared for abused and abandoned children. But if they were abandoned, why were we giving them back to their parents? The thought was that these were bad parents who did bad things. We wanted to change the thinking. These were families in bad circumstances who need our help and have chosen to get their children to safety. Some people in the organization thought we were here just to rock these babies. It was a big shift organizationally. We needed to do everything we could to help these families who have chosen to break a cycle. For 20 years, we were a shelter for kids. Now we are this amazing, two-generation program. We had to re-educate the entire community. I’m sure it can be emotionally draining to work with these kids and their families. What’s kept you going for the last 16 years? Part of the reason I still love it is because it is such an innovative organization. If I had to just manage what was there when I walked in, I’d be no good at this job. I always say I’ve had five different CEO jobs in the 16 years I’ve been here. There was the rebuilding, innovating around new programs, expanding, becoming an advocate for families. Now we’re this phase of growing again. We’re talking to places all over who want this program. I imagine you could have just stayed the course once the turnaround was complete. Why keep innovating? We have to respond to the community need. We’re always reading the research and trying to understand how to communicate the value of why the community should invest in us. We have to be responsive and agile. We’re dealing with the kids that

get affected by this change. As we scan the landscape, not just local nonprofits, but programs trying to help kids, we’re energized because we believe we’re pioneering something that isn’t happening anywhere else. Most nurseries in the U.S. are still rocking babies. They’re emergency shelters. They’re not looking at this by asking, “How can we save a family and rebuild communities?” That’s our headspace all the time. Are you still fighting that perception that you’re just here to rock babies? Yes, and we do so much more than that. We even have donors who love the work we do with these kids but still believe these are all bad parents and say they should stop having kids or have their kids taken from them. We work so hard to change the thinking around that. How has the opioid epidemic hit your organization? We see a mom who’s using who needs treatment and has no one to watch their kids. We’ll work with that treatment provider. Then, we see referrals for babies who we were born addicted. We’re also seeing a lot of single dads in this population where the mom just walks, and you’ve got a dad who isn’t using take that responsibility. We put them through our parent program. We’ve had some pretty amazing families reunited where dad stepped up. Opioids are scary. They can break that maternal bond. It’s really tough. You obviously can’t do everything to help these families. How do you ensure you’re not just handing off these kids? There is so much redundancy in the nonprofit sector. There are these siloed systems where agencies think they can do everything. But, do they do it well? Last year, 99 different organizations were connected to our families in Cuyahoga County — drug treatment, housing programs, hospitals, job training and more. Our core competency is holistic care of children and strengthening families. We know what we do well. Do I have families with behavior health or mental issues and addiction issues? Yep, but guess what? I’m going to leverage a network who can do this work really well — way better than I can. Honestly, the funding community appreciates that.

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