With the acquisition this year of a Charlevoix-based defense contractor, Grand Traverse Economic Development is executing on the initial steps of its investment strategy to diversify revenues for the Grand Traverse Band of Ottawa and Chippewa Indians away from gaming.
If all goes to plan for Traverse City-based GTED, the sovereign tribe’s non-gaming commercial investment arm intends over the next decade to build a $1 billion portfolio of companies, almost entirely focused in some way on government contracting.
After three decades of running tribal gaming operations, Michigan-based Native American tribes have started to leverage their casino revenues to launch economic development corporations and diversify their economies. The tribes say the moves are necessary to ensure their economic sustainability and benefit tribal members for generations to come.
“It doesn’t make any sense for us to do anything but federal contracting given the competitive advantages we have,” GTED CEO Thomas Wilbur told MiBiz.
GTED’s investment strategy capitalizes on tribally-owned entities’ minority status, whether in pursuing federal contracts set aside for disadvantaged businesses or leveraging incentives specific to Native American enterprises.
That includes programs such as the Department of Defense’s Indian Incentive Program, which provides a 5-percent rebate to prime contractors for using Native-owned subcontractors.
Wilbur cites the Indian Incentive Program as one possible opportunity to grow the book of business for Bay Shore Steel Works LLC, a Charlevoix-based steel fabricator that GTED acquired in January. Bay Shore Steel, which employs 40 people, has worked for years as a defense subcontractor making armored plating for products such as the Stryker Assault Vehicle and M1 Abrams Tank.
GTED invested $500,000 in upgrades to the plant, including $250,000 in new equipment, and is in the application process for the U.S. Small Business Administration’s 8(a) disadvantaged business certification, which would unlock opportunities for the company to compete for sole-source and set-aside federal contracts.
[CASE STUDY: GTED builds portfolio to tap into government contracting]
After three decades of running tribal gaming operations in some cases, Michigan-based Native American tribes have started to leverage their casino revenues to launch economic development corporations like GTED and diversify their economies. The tribes say the moves are necessary to ensure their economic sustainability and benefit tribal members for generations to come.
While other tribes nationally have deployed business investment strategies longer than the local diversification efforts have existed, West Michigan tribes have benefited from those best practices and others’ expertise in building their own portfolios, all without having to repeat the same mistakes. That’s helped eliminate some of the growing pains and allowed the Michigan tribes to quickly deploy capital into revenue-generating ventures they can reinvest to continue growing their portfolios.
“I’m a believer in non-gaming activity,” said Wilbur, a member of the Oneida Nation of Wisconsin and a long-time federal contracting executive. “We all know that the gaming market is getting saturated and there’s concern about what might happen to gaming revenues when online gaming comes to fruition. That’s why we look to diversify, and the best alternative for that is federal government contracting.”
In addition to GTED, other active non-gaming operations in West Michigan include:
- Grand Rapids-based Gun Lake Investments (Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians)
- Manistee-based Little River Holdings LLC (Little River Band of Ottawa Indians)
- Mount Pleasant-based Migizi Economic Development Co., (Saginaw Chippewa Indian Tribe)
- Dowagiac-based Mno-Bmadsen (Pokagon Band of Potawatomi)
- Petoskey-based Odawa Economic Development Management Inc. (Little Traverse Bay Bands of the Odawa Indians)
- Grand Rapids-based Waséyabek Development Company LLC (Nottawaseppi Huron Band of Potawatomi)
In seeking to diversify their revenue streams away from gaming, Michigan tribes have gone back to their entrepreneurial roots in many ways, according to Levi Rickert, editor of the Tribal Business Journal and the founder of Grand Rapids-based Native News Online LLC, an online publication.
“You can really argue that we’ve always been entrepreneurs. We’ve sold beadwork, we’ve sold baskets, we’ve sold a lot of things,” said Rickert, a member of the Prairie Band of the Potawatomi, noting that tribes had varying degrees of success with their early investments. “I think the learning curve started soon after gaming came to Michigan. … As we matured and gaming came about, I think some of the hard lessons have been learned.”
That includes tribes failing to develop a cohesive economic development strategy before starting to deploy their funds, trying to place tribal members who didn’t fit with the organization into management roles, or getting caught up in the political crossfire by not separating their tribal council from their business ventures.
Larry Romanelli, the ogema or chief for the last 12 years of the Little River Band of Ottawa Indians in Manistee, has seen his tribe’s thinking evolve when it came to economic development. When he first took office, the tribe had just purchased a series of businesses, including a restaurant, “and almost every one of them failed.”
“There was a feeling that if you buy a business, it’s just going to go on its own,” Romanelli said. “The focus was more on providing jobs for tribal members, but what I realized when I looked at the books is that they’re spending a significant amount quarterly to make this business run. Matter of fact, it was more than what we could have just given (the tribal members) as checks and not done anything. We had to make some real serious decisions.”
In January 2018, the Little River Band formalized the creation of its non-gaming holding company, Little River Holdings LLC, which includes capital management, development, real estate management, and government contracting entities. The development entity is involved in the 300-unit Odeno housing project in Fruitport Township in Muskegon County.
The company also owns Ayaa Ventures LLC, a Traverse City-based operation that makes nutraceuticals and supplements for the meat processing industry that the tribe acquired in 2016.
As the tribe seeks to diversify its economy, the lessons of the past remain top of mind for Romanelli, who stressed the need for the holding company to perform due diligence in vetting leads.
“Every week, I have four or five people that want to get together and discuss what they think they can do for the tribe or what we can give them,” Romanelli said. “We have to be careful because they think you have deep pockets, and in some ways, that’s not always the case.”
In adopting best practices from older tribal economic development entities across the Midwest and from the Alaska Native corporations, many West Michigan-based tribes have shortened the learning curve in successfully developing their non-gaming entities.
As well, most tribes have leveraged the wealth of research at the Harvard Project on American Indian Economic Development in setting up their investment operations, said Tanya Gibbs, managing partner of the Grand Rapids office of Rosette LLP, a majority Native American-owned niche law firm that works exclusively with tribal clients nationally.
She cites as an example Gun Lake Investments, which has grown from one person in 2017 more than 500 people throughout its portfolio of companies. GLI also co-invested on a deal with Blackford Capital, a Grand Rapids-based private equity firm.
As well, Waséyabek has invested in four commercial real estate deals and has acquired Baker Engineering LLC, a Nunica-based precision machining manufacturer with specialties in racing engines and research and development work for Department of Defense projects. Waséyabek also owns a 60-percent stake in Grand Rapids-based DWH LLC, a succession planning, turnaround management and financial consulting services provider that also contracts with the federal government.
“With Gun Lake Investments and Waséyabek, I think they are really leaders nationally for a couple of reasons, the first being that they’ve been able to be really successful in a very short period of time,” Gibbs said.
Late last year, Gibbs relocated the Michigan headquarters of Rosette to Grand Rapids in part to be closer to its client GLI, as MiBiz exclusively reported in October.
Gibbs also serves on the board of directors for Odawa Economic Development Management Inc. (OEDMI), the non-gaming arm of the Little Traverse Bay Bands of Odawa Indians, from which she is a descendant.
[CASE STUDY: OEDMI turns vacant site into new mixed-use development]
While GLI, Waséyabek, Mno-Bmadsen and now GTED have focused their investment strategies on acquiring existing businesses, Gibbs said her tribal government has taken a different approach hinged on real estate development. That’s “not good or bad, it’s just different,” she said.
“The folks that are following the Harvard model really have been successful because they’ve had some good financial support from their tribal governments through their gaming entities,” Gibbs said. “They’ve also really focused on the corporate governance from the beginning. They had those first few years to really figure out what their strategy is, what their goals are, and then put together some of those foundational policies or procedures or structures they have in place to make sure that the board and their management can operate the way they need to. I think all of those things help those folks be successful and really become front runners nationally.”
Kurtis Trevan, CEO of Grand Rapids-based Gun Lake Investments, credits other tribes’ openness and willingness to share as contributing to his firm’s early progress.
“One of the best things about Indian Country is that there’s an open door with nearly every other tribe,” Trevan said. “We’re all willing to help each other out. So we’ve been able to learn from the other tribes that have been doing this for decades now at this point.”
In the Lower Peninsula, tribes’ economic development efforts are focused mostly in the western and northern part of the region, with a growing concentration of activity centered in downtown Grand Rapids.
Both Gun Lake Investments and Waséyabek Development Co. based their headquarters offices in downtown Grand Rapids, and have invested in real estate and other acquisitions in the metro area.
Other niche service providers to the tribes and tribal businesses also have developed in the city. That’s especially true for legal service providers: In addition to Rosette, Grand Rapids-based Varnum LLP also has an American Indian Law division, and four members of the Barnes & Thornburg LLP Native American Law and Policy team — two of whom are tribal descendants — practice out of its Grand Rapids office.
In many ways, the addition of more service providers comes as the tribes are starting to find their footing when it comes to economic development efforts. Over the last eight years, Tom Durkee, business development manager for the Michigan Economic Development Corp. (MEDC) who works as the organization’s point person with the tribes, has seen the tribes develop “a more serious approach to economic development (that) allows a certain amount of freedom for them to pursue the strategic plans that they have developed.”
Since the MEDC started its tribal business development grant program in 2010, Durkee has seen the tribes’ projects and investment strategies gain in sophistication. The $1.3 million program, funded by tribal gaming revenues, goes to support tribally-owned entities for investments in equipment and machinery, workforce training and infrastructure.
[CASE STUDY: Mno-Bmadsen targets $25M EBITDA by 2022]
Durkee credits the tribes’ “methodical and thoughtful … long-term approach” to their non-gaming investments as contributing to their building momentum in recent years.
“There has been a more sophisticated level of projects that we’ve seen come across our view in that there’s more layers of financing involved,” he said. “There’s a little bit more depth to the qualities that the projects have and job creation and sustainability and developing some other revenue streams outside of gaming.”
Deidra Mitchell, president and CEO of Waséyabek Development Co., said the West Michigan-based tribes have “a real advantage” in learning about economic development best practices from all the tribal entities that have come before them.
Mitchell previously worked for Alaska Native corporations and helped hone Waséyabek’s three-pronged buy-and-hold investment strategy focused on commercial real estate, federal contracting and commercial operating companies.
“I think Western Michigan tribes are doing a really good job of watching other tribes. We have now started to build EDCs that are more agile, that are more responsive, that are more in tune with their culture and the opportunities out there,” she said.
Trevan at GLI agreed, but acknowledged that tribes do not get into economic development for quick wins or short-term gains — call it an extension of tribes’ traditional seven-generation approach to thinking about how their actions today will affect descendants years into the future.
“We’ve only been doing this for a few years, so it’s way too early to say that we’re going to be successful at this,” Trevan said. “But I do believe that if we continue to take that long-term approach, then we will get there.”