Michigan Environmental Firm Helps Move Tough Deals Forward
by BILL PERRY
PM Environmental Leadership Team: Nathan Gillette, Michael Kulka, and Peter Bosanic
When Michigan developer Paul Glantz decided to open a “party palace” in downtown Royal Oak, he and his staff had a pretty good idea what would appeal to city residents. After all, Emagine Entertainment, the company he founded and helms, has enjoyed the distinction of being named “Best Movie Theatre” for several years running by the The Detroit Free Press, The Detroit News, and WDIV. What Glantz didn’t know was how he would raise all $19 million required to bring his boutique bowling center and movie theatre to fruition—he’d been able to raise most of it, but there was still a deal-killing gap—particularly at a time when financing was hard to come by.
Given that the project was slated to be built in the so-called City of Trees, the answer, when it came, was satisfyingly fitting. Glantz, with the help of some clever lenders, added a green element to the deal—renewable energy generation—which allowed him to secure support from the U.S. Small Business Administration. “With the SBA component of the capital structure funds, the senior lender will only be exposed at 50 percent loan to cost,” says Glantz. “The movie theatre component of the project, which is what we know best, will easily cover debt service on the senior debt.” This option was discovered in a joint effort between Len Dillon of Woodward/Birmingham Financial and Susan Leithauser of Charter One Bank.Emagine Royal Oak/Star Lanes will open in May. The project, which wouldn’t exist if it weren’t for the “green” funding, is a win for the developer, his lenders, and the state, which will collect $360,000 in annual property taxes in addition to enjoying the creation of over 100 full-time-equivalent jobs, plus the hundreds that were created during the construction phase (and the hundreds more during the pre-construction phase that went to the legal community, jokes Glantz.) In another bonus for the city, Glantz says he plans to showcase work from established area artisans and students from the College for Creative Studies, and he’ll raise $250,000 for local charities in connection with the grand opening preview celebrations this spring. Green Deals on the RiseEmagine’s environmentally savvy approach comes as no surprise to Mike Kulka, P.E., co-founder of PM Environmental and subsidiary, Energy Finance Analytics, the firm that conducted the analysis of renewable energy and wrote the report the SBA relied on to underwrite the project. EFA and its parent company, PM Environmental, have been helping Michigan lenders and companies evaluate environmental issues, which in turn allow them to make sound business decisions, for years. Indeed, Kulka co-founded Lansing-based PM Environmental in 1992 to help property investors and their lenders assess potential soil and groundwater contamination at commercial and industrial properties. Nearly two decades later, the firm is listed among the nation’s top 25 Phase I environmental site assessment providers by Milford, Connecticut-based Environmental Data Resources, whose market research arm tracks U.S. Phase I ESA market share.PME’s primary focus is environmental due diligence, particularly bank due diligence. Active in relevant industry groups including the Environmental Bankers Association, the Risk Management Association, and Turnaround Management Association, PME is the only area firm that has two former environmental risk officers on staff, which gives the company a competitive edge, according to Kulka, because “we understand loan structure and credit process.”The decision to specialize in bank due diligence also eventually helped shape the company’s future direction.In 2008, a major national bank asked Kulka and his partner Bosanic to participate in a pilot program with other environmental due diligence firms to evaluate bank branches and data centers for energy efficiency opportunities. Although PME’s core business did not include evaluating energy efficiency in commercial buildings, the company did have employees with extensive building science backgrounds, and so was able to participate in the pilot program, ultimately evaluating four bank facilities in Michigan.PM Environmental’s team was pleased by the results of the surveys. “There were a number of inefficiencies in 1960- and 1970s-era buildings” he says. “My partner and I saw substantial opportunity, and agreed with bank’s sustainability officer’s prediction that this service was going to be huge.”A Division is Born.
Kulka and Bosanic set to work developing relevant services. In 2009, they formed a new division of energy and sustainability services they called Energy Finance Analytics, and immediately initiated a nationwide search for a suitable candidate to lead the venture. Making the short list was Nathan Gillette, a Grand Rapids native with a lengthy history in green building technology and development. A licensed architect, LEED Accredited Professional and Certified Energy Manager with a master’s degree in architecture, Gillette had been involved with the design, construction oversight, and LEED documentation of nearly a dozen LEED-certified buildings, including PM Environmental’s own corporate headquarters in Lansing and the company’s regional office—a brownfield redevelopment—in Detroit. (A cheery, light-filled space that Kulka converted from an abandoned tool and die shop into a state of the art professional office, the Detroit space is his “pride and joy”; PM Environmental is currently pursuing LEED-EB Silver for the property.)With the unanimous support of Kulka and Bosanic, Gillette took the reins of EFA in late 2009, just as the green building movement was taking off in Michigan and across the country.
EFA Today In 2010 Kulka decided EFA should be a stand alone entity, which would allow him to better market and brand the energy services that were quite a bit different from PME’s core services in environmental consulting. Today, with the support of its parent company and its deep ties to the lending community, the company is flourishing. “In tough economic times, more business owners are looking at cutting their operational costs any way they can,” explains Gillette. “Being energy efficient and ‘green’ helps businesses in many ways. The most obvious is that they reduce utility costs, but there are intangible benefits too. Studies have shown that green buildings are more comfortable for employees, who take fewer sick days and are more productive as a result. Business is booming.”Today, EFA employees conduct Green Property Condition Assessments for the U.S. Department of Housing and Urban Development (HUD) nationwide. They are also participating in a pilot program for energy efficiency lending for Comerica Bank clients, and they’re in talks with several other national banks to do the same. In addition, the company provides energy audits to private companies and municipalities under the Energy Efficiency and Conservation Block Grant (EECBG) program, which Gillette says involves LEED gap analysis to determine what needs to be done minimally to obtain LEED certification—a new, important service he says few other firms are offering as part of green building due diligence.EFA has also been actively involved in the ASTM E50 WK24707 workgroup, whose members developed a standard for Building Energy Performance Analysis Disclosure in Real Estate Transactions (BEPA). The standard, which was recently approved, will become the industry tool used for disclosing energy use as part of regulatory and non-regulatory real estate transactions. EFA’s early involvement means the company is ahead of the curve, which in turn means it can better serve clients who are interested in building energy performance.Going Green: What’s in it for Lenders?
Gillette says every lender should be recognizing the “immense business opportunities” in energy efficiency. “It’s not difficult to understand that businesses are still facing tough economic times,” he says. “Cutting operational costs and running lean operations will be the norm for a long time to come. One of the easiest ways to cut operational costs is to become energy efficient, which businesses can do on several levels. At the building level they can evaluate lighting, heating and cooling, and insulation; at the operational level they can evaluate process loads and energy used in manufacturing.”EFA’s services complement a number of government loan programs related to energy efficiency. “There are many attractive loan products offered by the U.S. Small Business Administration and the United States Department of Agriculture that require energy audits,” says Kulka, who adds that EFA’s offerings are yet another way his companies’ breadth of professionals are helping banks get deals done. “Whether you are green or not, whether you believe in global warming or not, this line of business simply makes economic sense,” he says. “The less energy you waste the more money you save.”Although it hasn’t been around quite as long as its parent company, which, in addition to offices in Michigan has locations in Alabama, Florida, Tennessee, and North Carolina, Energy Finance Analytics is poised to become every bit as successful.Glantz, for one, was happy he was introduced to Kulka and Gillette. His environmentally-friendly development not only allowed his company to fill in a crucial gap in funding—“Absent the energy finance component of the capital structure, the project would have died on the drawing board,” he says—but it is also giving the company a marketing edge with its key demographic, 15 to 45-year-olds. “The project is an ‘in-fill’ development in a vibrant urban/suburban environment, and it does not contribute to urban sprawl,” he says. “Young people, in particular, support businesses that are good stewards of our natural resources. The business is an absolute standout.”