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CRAIN’S DETROIT BUSINESS
September 12, 2011
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Video game developers
on brink of film credit win
Legislation, court ruling may score incentives
BY NATHAN SKID
CRAIN’S DETROIT BUSINESS
A win in court and friendly legislation soon
may make it easier for video game developers
to become eligible for film incentives.
Most of the attention surrounding film incentives
has focused on Video: Behind the
movies, but video scenes at game maker,
game production crainsdetroit.com/video
was among the industries Michigan wanted to draw when the incentives were created in 2008.
But when the Michigan Department of Treasury
drew up rules to implement the incentives,
LET GAMES BEGIN
NATHAN SKID/CRAIN’S DETROIT BUSINESS
Nathaniel McClure moved Scientifically Proven
Entertainment LLC from California to Farmington
Hills, hoping to make use of Michigan tax credits.
video game developers were shut out unless
they owned the intellectual property and distribution rights.
Senate Majority Leader Randy Richardville,
R-Monroe, has introduced Senate Bill 569,
which would drop the requirement. And a
game developer, Scientifically Proven Entertainment LLC, has won a court order against the requirement, although the decision is being appealed by the state.
“Michigan needs to be competitive with other states in retaining and attracting new industry,” Richardville wrote in an email to Crain’s.
“It is important that we work to attract and retain new and technologically focused industry
Inside
Heat assistance freeze sends
chill through agencies,
Page 6
House OKs new rules on teen
workers’ hours. Capitol
Briefings, Page 41
Company index
These organizations appear in this week’s Crain’s
Detroit Business:
Ajax Paving Industries . . . . . . . . . . . . . . . . . . . . . 10
Association of Businesses Advocating Tariff Equity . . . 6
Bailey Schmidt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Barbara Ann Karmanos Cancer Institute . . . . . . . . 27
Beaumont Hospitals . . . . . . . . . . . . . . . . . . . . . . . 29
Center for Michigan . . . . . . . . . . . . . . . . . . . . . . . 45
Coalition to Keep Michigan Warm . . . . . . . . . . . . . . 6
Consumers Energy . . . . . . . . . . . . . . . . . . . . . . . . . 6
Crittenton Hospital Medical Center . . . . . . . . . . . . 37
DeNovo Sciences . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Detroit Department of Homeland Security . . . . . . . 44
See Games, Page 42
Detroit Department of Transportation . . . . . . . . . . . 4
Detroit Edison . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Federal-Mogul . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Flagstar Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Ford Motor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Fuller Central Park Properties . . . . . . . . . . . . . . . . 42
Gene Codes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
General Motors . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Greenleaf Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Henry Ford Center for Integrative Wellness . . . . . . 34
Huron River Ventures . . . . . . . . . . . . . . . . . . . . . . 11
International Automotive Components Group . . . . . 21
Kellogg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Mercy Place Clinic . . . . . . . . . . . . . . . . . . . . . . . . 28
Michigan Accelerator Fund I . . . . . . . . . . . . . . . . . 11
Michigan AFL-CIO . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Michigan Department of Transportation . . . . . . . . 10
Michigan Film Office . . . . . . . . . . . . . . . . . . . . . . 42
Team Detroit CEO Satish Korde
expects to apply to Ford lessons he
learned in the real and virtual worlds.
Michigan Hematology Oncology . . . . . . . . . . . . . . . 29
Michigan Infrastructure & Transportation Assoc. . . 10
Michigan Public Service Commission . . . . . . . . . . . 6
Michigan Restaurant Association . . . . . . . . . . . . . 41
Adman has
Ford’s world
in his hands
JOHN SOBCZAK
Drew Schmidt (left) and Peter Noonan of Bailey Schmidt Inc. handled leasing at the Greenleaf Trust Building in
Birmingham, now fully leased at rental rates near $36 a square foot — double the average for metro Detroit.
Napoleon B. Jordan Center for Health Care . . . . . . 34
National Network of Depression Centers . . . . . . . . 26
Patriot Services . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Perrigo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Pixel Velocity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Pixofactor Entertainment . . . . . . . . . . . . . . . . . . . 42
RPM Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Scientifically Proven Entertainment . . . . . . . . . . . . . 3
Shepherd Intelligent Systems . . . . . . . . . . . . . . . . 11
St. Joseph Mercy Health System . . . . . . . . . . . . . . 32
St. Joseph Mercy Oakland . . . . . . . . . . . . . . . . . . . 28
Strive Recreational Therapy Services . . . . . . . . . . . 31
Stryker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
BY JAMIE LAREAU
Surnow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
CRAIN NEWS SERVICE
Synova . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Team Detroit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
“It sends a message that there’s demand for highquality office space, and tenants will pay a premium
for it.”
Greenville, S.C.-based Ogletree, Deakins, Nash,
Smoak & Stewart PC and Finnea Group LLC have
signed leases for office space in the building, joining
the building’s anchor tenant, Greenleaf Trust, to fully
occupy the 27,000 square feet.
With an asking rental rate of $36 per square foot,
according to Washington, D.C.-based CoStar Group,
the building is among the most expensive office
spaces in metro Detroit.
CoStar lists the average rental rate for Class A office space in metro Detroit at $21 a square foot, and
Satish Korde is a Renaissance
man charged with helping Ford Motor Co. complete a renaissance of
its own.
Korde, 61, the new CEO of Team
Detroit, Ford’s advertising agency,
is a chemical engineer by training.
Yet he has spent 30 years in the advertising world, mainly in research and marketing. He has
traveled the world and is at home
in the virtual world of social media.
Ford needs all areas of Korde’s
expertise. The automaker has rebounded in the United States from
financial trials of the past decade,
but it trails rivals in China and
several other markets. Ford will
seek to draw on Korde’s knowledge of mature markets and key
growth markets in the Asia-Pacific
See Greenleaf, Page 42
See Korde, Page 43
Greenleaf fills quickly at top rates
Birmingham success gives hope for similar projects
BY DANIEL DUGGAN
CRAIN’S DETROIT BUSINESS
Just over one year after the Greenleaf Trust
Building in Birmingham was completed, the office
and retail space is completely leased.
And not only does the building hold the honor as
the only speculative office building developed during the recession, it also has set the bar for rental
rates — commanding double the average rate for the
region.
“This is something that will give some hope for
the idea of new construction in the region,” said Peter Noonan, vice president of brokerage services for
Birmingham-based Bailey Schmidt Inc., the real estate
firm representing the landlord in the leasing work.
The Heath and Warmth Fund . . . . . . . . . . . . . . . . . . 6
TI Automotive . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
UAW Retiree Medical Benefit Trust . . . . . . . . . . . . 30
UM Comprehensive Depression Center . . . . . . 26, 31
United Auto Workers . . . . . . . . . . . . . . . . . . . . . . . . 1
University of Michigan-Dearborn . . . . . . . . . . . . . . 45
Urban Land Institute . . . . . . . . . . . . . . . . . . . . . . . 15
Visteon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Warm Training Center . . . . . . . . . . . . . . . . . . . . . . . 6
Whirlpool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Department index
BUSINESS DIARY . . . . . . . . . . . . . . . . 40
CALENDAR . . . . . . . . . . . . . . . . . . . . 38
CAPITOL BRIEFINGS. . . . . . . . . . . . . . 41
CAREERWORKS . . . . . . . . . . . . . . . . . 39
CLASSIFIED ADS . . . . . . . . . . . . . . . . 41
KEITH CRAIN . . . . . . . . . . . . . . . . . . . . 8
LETTERS . . . . . . . . . . . . . . . . . . . . . . . 8
MARY KRAMER . . . . . . . . . . . . . . . . . 11
OPINION . . . . . . . . . . . . . . . . . . . . . . . 8
THIS WEEK @
WWW.CRAINSDETROIT.COM
Cool Places online
See profiles of 10 winners of Crain’s Cool Places
to Work 2011 and info about the November
awards ceremony, crainsdetroit.com/cool
Small-business webinars
Part one of a Comcast-sponsored series is
Sept. 27, focusing on disaster preparedness,
crainsdetroit.com/smallbizwebinars
OTHER VOICES . . . . . . . . . . . . . . . . . . 8
PEOPLE . . . . . . . . . . . . . . . . . . . . . . 39
RUMBLINGS . . . . . . . . . . . . . . . . . . . 46
WEEK ON THE WEB . . . . . . . . . . . . . . 46
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September 12, 2011
CRAIN’S DETROIT BUSINESS
Games: Legislation, court ruling could score state incentives
■ From Page 3
in order to attract and retain our
highly educated residents.”
Carrie Jones, director of the
Michigan Film Office, said the proposed bill will help grow the digital production industry while giving
college
graduates
an
opportunity to find work in Michigan.
“Video game production is an
industry we want to attract to the
state,” Jones said. “Those types of
jobs match perfectly with what we
want to see in Michigan.”
Jones said the Michigan Film
Office is working closely with legislators to draft a new program for
handing out the credits but said
the office has to abide by the current set of rules.
When
Nathaniel
McClure,
founder of Farmington Hills-based
Scientifically Proven, moved to
Michigan in September 2009 from
California, he hoped to be one of
the first video game developers to
take advantage of the credits.
McClure said he wanted to get in
on the ground floor of video game
production here and had an idea to
develop a game centered on the
popular Discovery Channel television show “Man vs. Wild,” which
finds host Bear Grylls fighting the
elements in extreme terrain with
little more than a pocket knife.
McClure pitched his idea to the
Discovery Channel and received
the go-ahead to develop the game.
He entered into a contract with
Newport Beach, Calif.-based Crave
Entertainment Inc., a boutique video
game publisher, to help pay for the
development, but waived distribution rights in doing so.
“You are required to use a firstparty publisher in order to develop
a game for Playstation 3, Xbox 360
or the Nintendo Wii,” McClure
said. “That’s the only way to develop a game and is put in as a quality
check to ensure the video games
meet all of the specifications.”
McClure also said it is unusual
for a production company to own
intellectual property rights, in
part because video games are often
based on movies, toys and other
copyrighted products.
“Michael Bay does not own all
of the intellectual property rights
to ‘Transformers’ ... but he was
given approval to produce the
film,” McClure said. “In the same
way, we don’t own the intellectual
property rights to ‘Man vs. Wild,’
but we were given approval by the
Discovery Channel to develop the
video game.”
The regulations show “a lack of
knowledge about how the industry
works,” McClure said.
McClure said he spent about
$1.5 million developing the game,
but things soured when he was denied nearly $400,000 worth of credits by the film office and the Treasury Department.
McClure filed a lawsuit in Oakland County Circuit Court last July.
In June, Judge James Alexander
sided with McClure in a summary
judgment order that found the law
did not require video game producers to own intellectual property and distribution rights.
Terry Stanton, public information officer for the Michigan Department of Treasury, declined to
comment on the ruling, which has
been appealed.
Meanwhile, the “Man vs. Wild”
video game hit store shelves in
May.
There is good news on the horizon for McClure.
Scientifically Proven’s latest
project, “Ghost Game,” set in a fic-
tional Detroit hotel called the Garrick Arms, was recently approved
for $411,650 in credits.
“We created and wrote the entire storyline,” McClure said. “So
we own all of the intellectual property rights.”
McClure said there will be 25
employees working on “Ghost
Game,” which is expected to hit
stores in October 2012.
Another video game production
company found a way around the
need to fully own intellectual property rights.
It took several
rejected applications
before
Sean Hurwitz,
CEO of Royal
Oak-based Pixofactor Entertainment LLC, and
his team of
lawyers found a
way to get not
Hurwitz
only
a
Ben
Hogan video game approved for
tax credits, but also a related mobile application and an interactive
website as well.
By creating a Michigan-based
company called Ben Hogan Golfing
Game Productions LLC, Hurwitz and
a team of investors were able to negotiate the rights from the famous
golfer’s estate to use his name, film
footage and the book Five Lessons:
The Modern Fundamentals of Golf,
leaving Pixofactor as a vendor on
the project.
“We only needed enough of the
intellectual property to create the
digital product,” said Marc Seyburn, president of Birminghambased Seyburn Knox Law Group PLLC.
“Having that gave us preapproval.”
Hurwitz said it cost about $2.5
million to develop the game, the
mobile application and the website
and required 30 full and part-time
employees.
Hurwitz said he hopes the proposed legislation will clear up
some of the confusion.
“Nothing is black and white that
says, ‘if you meet these criteria
you will be approved for the credits,’ ” Hurwitz said “But right
now, I am optimistic.”
One idea to help grow the video
game industry is to separate the
incentives for live-action film production and digital production.
Chris Stelly, executive director
for Louisiana’s Office of Entertainment Industry Development, a division of the Louisiana Economic Development Corp., said the two
industries are so different they
need separate incentive programs.
One difference, Stelly said, is
that films usually finish shooting
in four to six months whereas
video games take longer to produce and create more long- term
jobs.
“We recognized early on that
each industry is distinct and separate,” Stelly said. “Video games
have more of a drive toward permanence, which means more permanent jobs and a longer commitment by the company.”
In addition to creating permanent jobs, Stelly said, the video
game industry is creating an opportunity for college graduates to
find employment in Louisiana.
“The interactive industry is creating something new for our
young people,” he said. “We are experiencing brain drain in our
state. Recent graduates would
have to go out of the state to work
in fields that were not part of our
traditional economy. This is a way
to get them to stay.”
Louisiana introduced its digital
interactive development tax credit
program in 2005, which offers
video game and interactive production companies a 25 percent tax
credit on production work and an
additional 10 percent credit for labor.
“There is no cap on the amount
of an incentive and they are good
throughout the life of the project,”
Stelly said. “There is not an
amount of money we can’t give
back.”
Louisiana spent about $12.8 million on entertainment industry tax
credits in 2010.
Seyburn said it would be beneficial for Michigan to think about
separating live-action film production and digital production.
“Live-action producers are nomads,” Seyburn said. “They follow
cheap money, but video game productions are bigger full-time projects.”
Hurwitz said he is on the fence
about separating the two industries and does not want to alienate
anyone in Michigan’s fledgling entertainment industry.
Yet he too said dividing the two
groups could provide much-needed stability to the video game production industry, even if that
meant divvying up the $25 million
pot.
“I could see the advantages to
having certain amounts allocated
for video games,” Hurwitz said.
“One major film can easily use
that entire $25 million, but $25 million could make a lot of video
games.”
Nathan Skid: (313) 446-1654,
[email protected].
Twitter:
@nateskid
Greenleaf: Birmingham building fills quickly at top rates
■ From Page 3
$18.25 per square foot for all types
of office space.
The office space on Old Woodward Avenue is ranked as the 31st
most-expensive corridor of office
space in the United States, according to an analysis by Chicagobased Jones Lang LaSalle, with an
average of $26 per square foot and
a top of $36.
At $36 per square foot, the
Greenleaf space was a bargain,
said Ted Fuller, president of Fuller
Central Park Properties, which owns
1 million square feet of real estate
in Birmingham.
“For that building, for that quality, I’d say that’s a bargain,” he
said. “It’s brand new, high quality,
and it’s in a great location.”
With the space fully leased, he
said he doesn’t expect a boost to his
portfolio because the office space
he owns is 100 percent occupied.
That scarcity of space in Birmingham helped drive the high rent
at the Greenleaf building, Noonan
said. In fact, he said, there were interested tenants in line behind both
Ogletree and Finnea, ready to take
the space if those deals fell through.
Driving demand in Birmingham
is it’s uniqueness in being the only
sizeable office market in the region,
TENANT DEALS
In the 12-month lease-up for the
Greenleaf Trust Building, just three
deals filled the office space,
setting a market-high level of $36
per square foot.
South Carolina-based Ogletree,
Deakins, Nash, Smoak & Stewart
PC leased 12,000 square feet,
taking the entire third floor. Randy
Book, a broker in the Southfield
office of Colliers International,
represented the tenant.
Finnea Group LLC signed a
lease for 4,000 square feet on the
second floor. Brendan George, a
broker in the Southfield office of
CB Richard Ellis, represented the
tenant.
Greenleaf Trust uses 9,000
square feet on the second floor.
The next step is leasing the five
apartments in the building, with
monthly rental rates ranging from
$11,000 to as much as $17,500.
other than Detroit’s central business district, with a walkable, urban environment, said Ron Gantner, executive vice president in the
Detroit office of Jones Lang LaSalle.
“In general, opportunities in
this region for office space in a
walkable, urban environment are
limited,” he said. “More specifically, there is a tangible lack of available medium-to-large blocks of
space in these environments,
which opens up the opportunity
for new development.”
Gantner is listing an office project slated to be built just to the
south of the Greenleaf Building
and Peabody’s Dining & Spirits, called
The Balmoral, which would have
80,000 square feet of office and retail space and be developed by Royal Oak-based US Equity Capital LLC.
Approved by the Birmingham
City Council, the building could
break ground as early as this fall,
said Gantner.
The Balmoral would be one of the
only speculative office developments built in recent history. Other
than the Greenleaf Building, Birmingham-based Surnow Co. redeveloped the 19,000-square-foot former
post office building at 320 Martin
St. and leased the entire building.
After announcement of the
Greenleaf Building project, some
in the real estate community were
quietly skeptical about development of a speculative project in the
middle of the recession.
The building was completed in
June 2010. It was developed for
Kalamazoo-based Greenleaf Trust,
a money management firm. Catalyst Development Co., the real estate
holding arm of Greenleaf, is developer and owner of the building.
Development costs have never
been released, but estimates based
on the building’s size and current
construction rates put the cost in
the $20 million to $25 million
range.
The space is high-end by any
measure. Floors are covered with
imported Japanese stone. Molding
around the doors is solid walnut.
Office floors have balcony space
equipped for meetings amid the
plants making up the green roof.
Natural light is designed to enter
most office areas, and the ceilings
are 9 feet tall, much higher than
normal.
The building is also seeking certification under the U.S. Green
Building Council’s LEED program.
Retail space on the first floor
was leased by Greenleaf’s hospitality division with its restaurant,
Zazios.
While the restaurant had a
strong start, it had a summer that
showed a 25 percent decrease in
sales compared to last summer,
said General Manager Fadi
Achour. He said the restaurant,
which seats 220 people, has annual
sales of roughly $3 million.
“But we’re seeing a strong upturn for the fall, based on parties
being booked, and we’re already
seeing a lot of requests for holiday
parties,” he said.
On the top of the five-story
building are two floors of residential space still being built out.
That space will set a high bar as
well.
Rent for the five units will range
from $11,000 to $17,500 per month.
Drew Schmidt, a principal in the
Bailey Schmidt firm, said there is
strong interest for the units, which
will soon be under construction.
One person is interested in two of
the units, he said.
Skepticism about the project is
something that never entered his
mind.
“From the beginning, I knew
this would be a success,” he said.
“A great building, great location
and an unbelievable owner; we
were able to find the right tenants
because it was a recipe for success.”
Daniel Duggan: (313) 446-0414,
[email protected].
Twitter:
@d_duggan