September 08, 2019

SHERRI WELCH

1. Project has attracted investments from three high-profile investors

2. Will establish Detroit's first commercial-scale hydropronics grower

3. Expected to sow and harvest first crop, baby leaf lettuce, in August 2020

After working for more than a decade to launch its first social enterprise, RecoveryPark is poised to break ground in November on a commercial-scale hydroponics greenhouse that will create jobs and eventually, equity ownership for Detroiters facing employment barriers.

The $10 million project on East Palmer Street near Chene will bring farming — albeit a different type — back to a part of the city that was once home to flower and vegetable seed producer D.M. Ferry & Co. and establish Detroit's first commercial-scale hydroponics grower.

It's attracted three high-profile investors: Stephen Polk, CEO of Birmingham investment company Highgate LLC.; Jim M. Nicholson, co-chairman, PVS Chemicals Inc.; and Walter Tripp Howell, retired international director of Jones Lang LaSalle in Washington, D.C., and an ex-pat of the Detroit area, who learned of the project during the 2018 Detroit Homecoming.

Detroit-based Nextek Power Systems is also considering an equity investment, its CEO Paul Savage confirmed.

Those investments will make up about a third of the $12.5 million raised to cover bridge operational funding for the nonprofit RecoveryPark over the past several months and construction and startup costs for the climate-controlled greenhouse operation, which is set to launch in August 2020, RecoveryPark CEO Gary Wozniak said last week.

A 28-year loan backed by the U.S. Department of Agriculture and U.S. Small Business Administration and a 10-year loan backed by the U.S. Small Business Administration, both made through the Greater Nevada Credit Union's Greater Commercial Lending arm to for-profit company RecoveryPark JV LLC, are set to close in October, rounding out funding, Wozniak said.

Wozniak projects the greenhouse operation, run by the for-profit company, will yield $6 million in revenue its first year and $18 million annually within four years with two planned expansions that will triple its "acres under glass."

RecoveryPark has already proven the business model through pilot hydroponics and high-tunnel or soil-based growing operations a couple of blocks away near its headquarters on Chene, Wozniak said. It has contracts to supply lettuce to Detroit wholesale distributor Del Bene Produce that produced $180,000 in revenue last year and are set to do about the same this year.

It's now in talks with retailers including Nino Salvaggio and Meijer, Wozniak said.

Next to tomatoes, leafy greens are the second most in-demand vegetable, he said. And recent romaine lettuce recalls have spurred demand for hydroponically grown lettuce and greens even more.

The greenhouse will help RecoveryPark achieve its social mission, said Wozniak, who is himself a recovering addict and ex-offender.

"Our mission is to create jobs for people with barriers to employment: people coming out of prison and/or drug treatment programs," Wozniak said. "Our vision is to do that by creating jobs in the food industry and eventually we'll transfer majority ownership to the workforce in those businesses."

The new greenhouse will also help change the way consumers view food by establishing local, hyper-fresh options and local accountability for the quality of that food, he said.

Joint venture

RecoveryPark JV will be jointly owned by the nonprofit RecoveryPark as minority owner and the equity investors holding a combined 70-percent stake. RecoveryPark will look to buy back equity from the investors over 10 years, before transitioning ownership to employees, Wozniak said.

Automotive and manufacturing veteran Charles Motley has joined the new company as COO.

Motley, 47, brings 25 years of experience at manufacturing companies, most recently serving as vice president of manufacturing at Wixom-based gun sight manufacturer Trijicon Inc.

With his experience and expertise in construction and team management, process flow, lean systems and continuous improvement skills, "he's taking us from being a church committee to being a real business," Wozniak said.

Motley, a native Detroiter, said he was attracted by the opportunity to give back at this point in his career.

"We're committed to taking ... not just the greenhouse (but) the whole area ... from being blighted to being a stronger economic centerpiece for the city," he said.

Beyond their investments, each of the equity investors brings specific expertise and is helping mentor the startup greenhouse company, Wozniak said. Polk has given advice on managing the stress of pulling together financing for the greenhouse while balancing operational and funding needs for the nonprofit. Nicholson was instrumental in driving to hire someone like Motley to lead the greenhouse operations. Howell has brought an understanding of the farm-to-table movement and marketing for the food industry.

The RecoveryPark greenhouse venture has a lot of interesting facets and is a good approach to helping Detroit, Polk said. "It's early on, (but) we're excited about it."

When you look at the neighborhood where the new greenhouse will be located, it's a tough area to build a food economy, he said. But RecoveryPark's plan will reclaim land and put it to good use.

The goal of helping people come back from addiction and other challenges is also a beneficial project for Detroit, Polk said.

And the opportunity to turn it into a profitable venture is also interesting. "They've had a good start getting their products from the existing test facility into local restaurants. People like the homegrown aspect of it," he said.

"With the local food scene in Detroit, I think the drive for local produce will continue to grow."

Howell said he's been interested in agriculture since he was growing up in Grosse Pointe. That interest and his desire to make a difference in Detroit drew him to the RecoveryPark greenhouse project.

"I've been an investor in a series of restaurants in the Washington, D.C., region, and I've found that the lettuce product is hard to get a hold of, expensive, and when we receive it on the East Coast, there's so much that's thrown away," he said.

The opportunity to have something grown locally, harvested locally and consumed within days of being harvested is attractive, he said.

Coupled with that, "I think the fact that the Department of Agriculture is getting involved in a farm that's in an urban setting ... is a next-generation move," Howell said.

"The way the social side meets the for-profit side is just a good model for so many things. I really want to see this succeed."

Demolition of a former Kroger store and former potato chip manufacturing building at 2259 East Palmer St. near Chene, about two miles north of Detroit's Eastern Market, is underway to make room for the new, 2-acre greenhouse. Site preparation is set to begin Nov. 1.

The hydroponics greenhouse will be located in an Opportunity Zone, but the deferment of capital gains tax associated with those low-income zones was not a factor in attracting the initial investments to the greenhouse project, Wozniak said.

The greenhouse itself will be assembled from a kit shipped here by Netherlands greenhouse manufacturer Gakon Horticultural Projects.

Hamilton Anderson Associates is the local architect on the project and O'Brien Construction as general contractor.

Next summer, Motley said, he'll look to hire and train 12-15 people coming out prison and/or drug recovery programs. Through a contract with the nonprofit RecoveryPark, they'll be lined up with supportive services like transportation.

The greenhouse will operate year-round with a continuous growth cycle, with seeding at one end of a large pond of water and trays of plants slowly moving across the water over 12-14 days for harvesting on the other end.

Motley projects the annual costs to operate the greenhouse will run about $800,000.

RecoveryPark will get three cents of every dollar of revenue from the joint venture as a royalty, he said, projecting that will be about $350,000 the first year and increase with each expansion. The joint venture company will also pay a set amount each month per employee to RecoveryPark to provide wrap-around support services.

By the time the greenhouse has 6 acres of crops, RecoveryPark should be receiving about $1 million each year from the for-profit joint venture, enough to be self-sustainable, Wozniak said.

While the greenhouse takes shape, Motley is working with Detroit companies Skidmore Studio and Nebulous Concepts LLC on brand development and marketing. He believes it's important to include RecoveryPark's mission on packaging, if possible, to help people understand why buying the product is important, he said.

The new company plans to take taste testing of its leafy product — possibly under the "RecoveryPark Farms 313" brand — directly to retail locations in January and hopes to have contracts with retailers in place by about the end of the first quarter, Motley said.

"We're building brand awareness through wholesale, (but) expect to see retail sales really be a big part of the growth."

Initially, the greenhouse will focus on growing baby leaf lettuce "but we're doing a lot of research over the next three or four months to say 'OK, these are other options that consumers are looking at that might fit our portfolio,'" Motley said.

Going forward

As Motley takes on oversight of the greenhouse operations, Wozniak and RecoveryPark will look to new pastures.

The nonprofit will look to shift the high-tunnel growing it's done in recent years to a niche farming business or education and community gathering program, Wozniak said.

The nonprofit will shrink to four to six employees. It will focus on providing support services for greenhouse employees and developing other social enterprise pilots such as new lines of tomato seeds, an indoor fish farm and/or a small greenhouse to grow starter plants for other growers.

RecoveryPark currently operates on a $1.2 million budget with nine full-time employees after laying off employees last year when it shut down the high-tunnel growing operation to save money on heating costs over the winter and let the ground regenerate.

Part of moving forward will be settling old debts.

"We've got a lot of debt on our balance sheet and are looking for creative ways (to settle it)," Wozniak said.

RecoveryPark has pitched the idea of converting debt to stock ownership in RecoveryPark Farms, the nonprofit's holding company for the social enterprises, and is working on deals to convert $1.8 million of debt into stock ownership in the holding company. If it's successful in those conversions, it will be left with 57-percent ownership in the holding company.

The Max M. and Marjorie S. Fisher Foundation, which made a $400,000 program-related investment loan to the nonprofit in 2016, is in the process of looking at the conversion terms, said Meredith Freeman, who is serving as interim executive director of the Fisher Foundation while Executive Director Doug Stewart is on sabbatical.

"I really applaud them for their commitment not only to the city and the neighborhood but to keeping that social aspect in place around making sure they are employing those who have challenges to employment. ... they've never let that go," she said.

"It could have been easier business-wise to let that go, but they made that commitment, stuck to it, and we are really happy to support that."

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