Category Archives: Investing

Baker Hughes, A GE Company

A compelling, transformational combination

 The best partner to Oil & Gas customers … offering solutions based on
complementary equipment & services technology across the full spectrum
of the oil and gas value chain

 More innovative solutions to market faster and more cost effectively …
Baker Hughes’ leading products and services with GE Oil & Gas highly
differentiated manufacturing capabilities

 Best-in class physical + digital technology … combine Baker Hughes
domain expertise, technology and culture of innovation with GE Store and
GE industry-leading Digital Platform

 Value creation for customers and shareholders … positioned to weather
short-term volatility and participate in industry upcycle

Impact for Baker Hughes shareholders

 Ongoing ownership in a stronger, more competitive
business

 Cash dividend of $17.50 per share equal to 30%+ of
undisturbed share price

 Participation in substantial value creation through
synergies

 Revenue growth driven by increased customer touch
points

Deal overview

Merge GE Oil & Gas with Baker Hughes … GE owns 62.5%, new Baker Hughes owns 37.5%
+ Create new, publicly traded company with separate investor base
+ GE to contribute $7.4B to fund cash dividend to Baker Hughes shareholders upfront
+ Close expected mid-2017 … ~$.04 accretive to GE EPS in 2018

Combination of GE Oil & Gas & Baker Hughes establishes a new industry leader
+ 2x scale, complementary capabilities, more diversified
+ Can weather the cycle in short term & over time; significantly levered to recovery

Platform is positioned to deliver substantial customer value
+ Technical solutions  productivity
+ Best digital platform
+ Global execution

Synergy opportunity is substantial … cost and revenue
+ ~$1.6B synergies (~$1.2B cost & ~$0.4B revenue)

Disciplined capital allocation … O&G long-term fit for GE
+ Essential industry & fits GE Store

Efficient transaction structure using like-for-like equity with modest cash outlay
including disposition proceeds

See More about this transaction

How Would You Like To Buy A Railroad Called “Cowboy Substation Line”?

The Oklahoma Department of Transportation (ODOT) has issued a request for proposals to seek buyers or operators for two state-owned rail routes: the Cowboy Substation and Blackwell Northern lines. Proposals are due Aug. 17.

The 22-mile Cowboy Substation Line runs between Pawnee Junction and Stillwater, Okla. In 1998, the state of Oklahoma purchased the route from BNSF Railway Co. as part of an asset preservation effort to save as many rail lines as possible from being abandoned and dismantled after several Class Is went bankrupt or merged.

ODOT then sought short-line operators to lease the line to keep it operational and eventually entered into a lease agreement with Stillwater Central Railroad Inc. The department amended the agreement with Stillwater Central — which is owned by Watco Cos. LLC — in January 2013, and the pact is scheduled to expire on Dec. 31, 2017, unless it’s terminated earlier or extended.

The 17-mile Blackwell Northern Line runs between Hunnewell, Kan., and Blackwell, Okla. The Blackwell Industrial Authority (BIA) and ODOT acquired the line from Central Kansas Railway LLC in 1997. ODOT then entered into a lease agreement with the South Kansas and Oklahoma Railroad Inc., which in 2002 subsequently assigned all of its lease and operating rights to Blackwell & Northern Railway Co. Inc. (BNGR).

In December 2010, ODOT, BIA and BNGR renewed the lease agreement, which expired in November 2015. Owned by US Rail Partners Ltd., BNGR continues to operate the line under the terms of the expired pact, currently using the route primarily for rail-car storage.

CDPQ Infra proposes 41-mile light-rail system in Montreal

CDPQ Infra, a subsidiary of the Caisse de depot et placement du Quebec, late last week unveiled plans for a 41-mile light-rail system to connect the Greater Montreal region with the city’s downtown and airport.

Known as the Reseau Electrique Metropolitain (REM), the system would have 24 stations and operate 20 hours a day, CDPQ Infra officials said in a press release.

The project is expected to cost $5.5 billion (in Canadian dollars), with the Caisse committing $3 billion. The proposed financial structure would also require investments from the governments of Quebec and Canada.

When completed, the REM would be the third largest automated transportation system in the world after Dubai and Vancouver.

“A network as significant as the one we are proposing could potentially add more than $3 billion to the Quebec GDP over four years. We also expect close to $5 billion in private real estate developments along the chosen route,” said Christian Dube, executive vice president for Quebec at the Caisse.

CDPQ Infra will consult with stakeholders in the coming weeks. Public information sessions also will be held in areas affected by the new network.

CDPQ Infra officials anticipate submitting the project to the environmental impact hearing process by summer’s end.

The Caisse de depot et placement du Quebec is an institutional investor that oversees public pension plans and insurance programs in the province.

Yorkville Bets on the Second Avenue Subway

The eastern Upper East Side, a subway desert, is about to see the end of its drought. In December, nine years after construction of the initial phase began — and decades after it was first proposed — the Second Avenue subway is scheduled to open.

For Yorkville residents, who have endured dust, explosions and barricades while workers burrowed tunnels under their feet, and who make long slogs to Lexington Avenue trains, that moment will probably be joyous.

But those who live in apartment buildings between Third and York Avenues, as well as those developing new ones, may already be celebrating: Their property is enjoying new attention and price premiums, a trend that doesn’t bode well for buyers in search of bargains.

“The subway has totally changed things,” said Michael Lorber, an associate broker with Douglas Elliman Real Estate at the Azure, a 128-unit condop at 333 East 91st Street and First Avenue, which began sales in 2008, the year the subway project started. In fall 2014, when Mr. Lorber and his team took over sales at the 34-story high-rise, developed by the DeMatteis Organizations and the Mattone Group, there were 25 unsold sponsor units. By late last month, he said, just three were left, at an average list price of $1,600 per square foot.

The condop, which sits on leased land and was the site of a fatal crane accident in 2008, was hindered by other issues, Mr. Lorber said, but buyers were deterred, in particular, by its relative remoteness. “If the building were built today,” he added, “it would sell right away.”

Measuring the precise effect of the subway construction on property values is difficult, because while the construction has caused a number of inconveniences (including the closing of parts of sidewalks and streets), it also coincided with a massive housing downturn. And this part of the Upper East Side has been falling out of favor for years, brokers say. But anecdotal evidence suggests that prices for co-ops and condominiums here dropped about 20 percent — a discount that is long gone, according to most brokers. Moreover, the prices of many apartments now reflect a subway bonus of about 10 percent, they say.

“The post-subway premium is already in effect,” said Itay Gamlieli, the owner of GZB Realty, who often works on the Upper East Side and lives there as well.

The modest blocks east of Third Avenue have long had lower prices than the fancier parts of the Upper East Side, known as the Silk Stocking District. But the new subway stations at East 72nd, East 86th and East 96th Streets, and the expanded one at East 63rd, seem to be having an equalizing effect on prices in what used to be more of a cotton socks district. (Initially, those stations will offer access to an extension of the Q line; later, they will service the T train as well.)

Consider the Kent, a 30-story, 83-unit brick, limestone and metal-paneled condo from the Extell Development Company rising at 200 East 95th Street, at Third Avenue. Prices for its spacious two- to five-bedroom apartments, which have up to 15-foot ceilings, marble-lined baths and Miele appliances, will start at about $2.4 million, or $2,500 a square foot, when sales begin in May, said Gary Barnett, Extell’s president.

The average price for condos in Yorkville — excluding East End Avenue, which is often considered an upscale submarket unto itself — was about $1,700 a square foot in late March, according to StreetEasy.com.

Mr. Barnett is hardly a builder-come-lately to the neighborhood. He began acquiring his blockwide site, made up of seven lots, when the subway was still in planning mode in 2005. But improved transportation was on his mind: The subway expansion “gave us confidence that we could invest and do a beautiful product, and that people would pay for it,” he said of his project, which will have a lobby fireplace, a courtyard garden and a pool.

More market-rate Extell projects are planned for the area, Mr. Barnett added, although he declined to provide specifics.

If the Kent will test the ceiling of the market, Carnegie Park, a 30-story brick rental-to-condo conversion at 200 East 94th Street and Third Avenue, from the Related Companies, might indicate the market’s velocity. In about 15 months, the condo has sold 85 percent of its 277 one- to four-bedrooms, which have Caesarstone counters and KitchenAid appliances, according to a spokeswoman for the project, and prices are averaging $1,700 a square foot, with one-bedrooms starting at $980,000.

While the Carnegie Park website doesn’t mention the coming subway — perhaps because the Lexington Avenue line is a block to the west — other developments are more explicit. On the site for the Charles, a new 27-unit, 31-story condo from Bluerock Real Estate at 1355 First Avenue near East 73rd Street, a map shows the future Q and T stop at East 72nd. The building, which has six remaining units, is getting an average of $2,400 a square foot, said R. Ramin Kamfar, Bluerock’s chief executive.

Another building expected to benefit from the Second Avenue line is 389 East 89th Street, at First Avenue, a 31-story rental that the Magnum Real Estate Group is converting into a condo with 156 one- to three-bedrooms. Sales began in February, with prices averaging $1,600 a square foot, a project spokesman said, and one-bedrooms starting at $880,000.

While Second Avenue has improved since 2010, when dozens of businesses were closed, it’s hardly back to its old self. There are still shuttered storefronts between East 93rd and East

94th Streets, and cranes remain visible. But most buyers realize these are temporary inconveniences, said Victor Setton, a salesman with Weichert Rockefeller Center: “They’re taking a long view.”

This month, Mr. Setton is listing a one-bedroom co-op at 301 East 87th Street and Second Avenue, where concrete barriers give the street a work-in-progress look. But the $815,000 price, he said, includes a premium of about $50,000 for the future subway stop around the corner.

Some remain skeptical that the subway, which was originally proposed in the 1930s and has broken ground a couple of times since then, will open on time. The first phase, after all, is being delivered with a bigger price tag — $4.451 billion — than promised, and at a later date. “Who knows when it will ultimately be finished?” said Jay Solinsky, the president of Classic Marketing, which is helping to sell 300 East 64th Street, a 99-unit condo conversion at Second Avenue developed by RFR Holding.

For Elizabeth Dean, the subway can’t arrive soon enough. Ms. Dean, who moved into a one-bedroom in Carnegie Park from a studio in Hell’s Kitchen this winter, commutes to her financial services job in Midtown using the 6 train, though that line is often crowded at rush hour.

The Q train might relieve some of that congestion, she hopes, and drop her closer to work; the Metropolitan Transportation Authority estimates that the trip from East 96th Street to Times Square will take just 13 minutes.

Do Any Of Our Readers Remember AGWAY?

(Pictured above is Cooperstown & Charlotte Valley number 100 making a delivery to the Milford, NY AGWAY. Photo by Michael Bates from Gino’s Rail Blog.)

WHAT WENT WRONG AT AGWAY
by Bruce L. Anderson and Brian M. Henehan
On October 1, 2002 Agway filed for Chapter 11 bankruptcy.  Many people are still asking what went wrong. This is a hasty attempt by the authors to analyze the situation. We hope that this short article will provide valuable lessons for other cooperatives and organizations.
First, a little history. Agway was formed in 1964, the result of a merger between GLF(Grange League Federation) and Eastern
States Farmers’ Exchange. A year later the Pennsylvania Farm Bureau Cooperative merged into Agway. The result was a very large
agricultural supply and marketing cooperative that covered 13 states, spanning from Maryland to Maine to Eastern Ohio.
Historic Factors: Provide Members A Secure Market
Cooperatives are often formed to provide members a secure source of inputs and markets for their products. However, sometimes this motive can go to extremes. GLF (i.e. Agway), together with other New
York agricultural organizations, provided the leadership in establishing a radio network, Rural Radio Network, in 1946 to serve the radioneeds of farmers and rural residents. It was sold in 1959 when it had an accumulated deficit of $970,000 and total debt to GLF (i.e. Agway) of $1.36 million.
In 1946 GLF also bought approximately a 40 percent share of Mohawk Airlines,  the forerunner of USAirways, in the name of providing air transportation to Upstate New York. In this case, they fortunately saw their investment more than double before it was sold.
Another example was Agway’s attempt to provide services to members was its operation, together with Southern States
Cooperative, of Texas City Refining. The purpose was to provide
members a secure source of petroleum products. This proved extremely advantageous and profitable during the oil shortages of the early 1970’s.  However, the petroleum market eventually changed and Texas City proved a costly investment. It was sold in 1988 at a loss of $110 million.
In 1961, GLF helped form Curtice-Burns, a vegetable and fruit processing company, headquartered in Rochester, N.Y. Curtice-Burns was a combination of what were at the time two struggling vegetable processing companies. Over the years, the company was very successful, but in 1993 Agway announced that it’s controlling interest in Curtice-Burns was up for sale. The sale brought in a solid return, and this was one of the first indications that Agway needed cash to fund its other operations.
Emphasis on Size
In the 1970’s and 1980’s, Agway was the largest cooperative in the
U.S., with sales of over $4.1 billion in 1984. At the time there was
an emphasis on cooperative size.  Agway being on the Fortune 100
list of U.S. companies was often mentioned in publications and meetings.
We believe that any organization that places primary importance on size over profitability can likely run into problems. We would argue that this is a malady that also eventually caused Farmland Industries and Ocean Spray their financial problems.
Ability to Manage Many Types of Businesses
There was a longstanding attitude at Agway, and predecessor organizations, that they could manage any type of business, even when other people could not.
Two major examples come to mind in Agway’s history.
The first was an effort in 1941 to get into the retail food business by starting the Cooperative Producers and Consumers Markets, today a Northeast grocery retail chain called P&C. The purpose was to assist New York farmers market meat from their livestock. Ownership interest in P&C was finally sold in 1961 following several years of unprofitable operations.
A more recent example was the purchase of H.P. Hood, a fluid dairy company, bought in 1980. A driving motivation was to help members of Northeast dairy cooperatives maintain a reliable and stable market for their milk, which was at risk. The fluid milk business has always
been very competitive, and operates much differently than an agricultural supply company.
Agway had no prior experience running a fluid milk business. In 1995, H.P. Hood was sold due to less than projected returns on their
investment and mounting financial losses. Another interesting aspect of this example was that right up to their purchase of H.P. Hood, Agway had a strict policy that they would not become involved in dairy processing.
Corporate Culture
We are sure some readers are already wondering why several of the above examples dateback to the 1940’s. We firmly believe there is significant historical momentum in all types of organizations. This is often embodied in what today is called “corporate culture”. Agway
instilled a lot of corporate culture in their directors, management, and employees. In fact, we remember when every Agway meeting or at any meeting that an Agway representative spoke at started with a recitation of the Agway mission. However, many of Agway’s old traditions and strategies may have out lived their usefulness or detracted from their willingness to change.
A $25 Equity Investment
To become a member of Agway, all a farmer needed to do was buy one share of common stock for $25. And that is all the investment many members have in the cooperative. We firmly believe there is a strong link between how much money members have at risk in a cooperative, and the interest they take in their cooperative, as well as the success of the organization.
Use Of Tax Paid Retained Earnings
Since equity was not coming from members, Agway used Tax
Paid Retained Earnings as their primary source of equity. Depending on this source of equity means that a cooperative needs to consistently generate positive Net Income. It is also an expensive source of equity, because corporate taxes must be paid by the
cooperative reducing the total funds available to build equity. In addition, when a cooperative becomes dependent on Tax Paid Retained Earnings, there is a greater tendency for the
cooperative to become “management controlled” rather than “member controlled”, given that member equity does not grow and most members have little equity at risk.
Heavy Use of Debt
Agway has always been highly leveraged. If compared to their competitors in almost any business, they would likely be one of the most heavily leveraged companies. During the entire 1984-2002 period Agway’s highest Equity to Total Asset ratio was 20.6%. From
1998-2001 Equity to Total Assets averaged 12.6%. Our general
rule of thumb is that when equity to total assets drops below 15% an organization is suffering severe financial problems. At one point it time, Agway had a goal of using one-third bank financing, one-third
subordinated debentures and one-third equity, primarily tax paid
retained earnings. During the entire 1984-2002 period, this goal was never achieved.
Subordinated Debt
Most of Agway’s debt, especially in latter years, was subordinated debt, also known as “junk bonds” because they are not secured by
assets. While the level of the company’s subordinated debt has remained relatively level over the past 5 years, operating cash flow to
support that debt became inadequate and deteriorated. As of it’s bankruptcy filing, the largest single owner of these subordinated debentures was Agway’s employees through pension fund and 401-K investments. They total approximately $35 million out a total of $425 million in subordinated debt. Members and public security holders own the remaining amount.
Limited Patronage Refunds
Except for 1987 and 1988, Agway has not paid a patronage refund to members since 1980. The primary reason is that sufficient Earnings were not being generated from the patronage business, i.e. their
agricultural supply operations. Most of Net Income came from
non-patronage businesses such as petroleum, leasing, insurance and produce distribution.
Excess Capacity
With the largest market share for feed and many other input supplies in the Northeast, Agway has been prone to carrying excess capacity, which is typical of a market leader. At the same time there was a major change in market conditions. In terms of feed, more farmers started mixing their own feed using direct purchased commodities, and moved away from the use of pelletized feed. This meant that many of Agway’s feed, and other input supply plants, were operating at significantly less than full capacity. This has a negative impact on per unit costs and can often lead to cut throat price competition.
A Triple Delivery System
For most of it’s existence, Agway had a triple delivery system with:
1) Agway Inc. owned corporate stores,
2) independent local cooperative stores, and
3) franchise representative stores.
There was a period when Agway tried to convert their corporate
stores into representative stores.
Then in the early 1990’s a decision was made to buy out all the independent local cooperatives to consolidate the delivery system. Financial performance did not improve because market
conditions continued to change.
Beginning in 1999, Agway sold or closed all its remaining company owned stores and sold their warehouse system to Southern States Cooperative. These moves were made because returns on these assets were chronically inadequate. Today most store customers do not realize that the cooperative no longer owns any assets related to the store distribution system. However, Agway remains a supplier to dealers and retains rights and revenues related to use of the Agway name.
Recent Issues and valuable tables are included in the full version of this report.

Mother’s Market & Kitchen Expansion

Editors Note: WholeFoods Magazine recently reported on a new partnership between Mother’s Market & Kitchen and Mill Road Capital investment firm. Our very own merchandising editor Jay Jacobowitz provides some insight on the potential of this new partnership and what it means for the supernatural retail space.

This is a significant event in the natural organic products retail space. Costa Mesa, California-based Mother’s Market & Kitchen, founded in 1978, and now with seven supermarket-size locations in Southern California, possesses some of the most valuable real estate in the nation. By this I mean household quality and demand potential for natural organic products is extremely high; among the best in the country according to our Retail Insights’ Retail Universe for Natural, Organic Food, Supplement and Personal Care Sales database. In addition, the stores are first-rate operations, with excellent food service offerings, dynamic merchandising, beautiful facilities, and the highest ingredient standards in the industry.

Coupling with Greenwich, Connecticut-based Mill Road Capital (MRC) should be a wake-up call for all supernatural competitors. MRC Senior Managing Director, Thomas Lynch, handled the private equity business for Blackstone Group, which manages over $300 billion in investor funds. Lynch has borrowed a page from Blackstone, locking up investor capital for 10 years; a requirement of investing with Blackstone and MRC. By doing so, MRC can take the long view with its investment portfolio, allowing it to mature companies at their own intrinsic growth rates, and inoculating them from transient external factors, such as economic shocks or sector slowdowns.

Certainly, Mother’s Market could have attracted private equity capital long ago, in the 1990s for example, as Austin, Texas-based Whole Foods Market was executing its “roll-up” strategy of buying the most significant supernatural competitors around the country. But Mother’s Market did not take this route, content instead to focus on its regional trade area and build an unequaled brand identity of superior quality.

I predict the acquisition by MRC signals management intends to continue to pursue the long game, waiting patiently for ideal real estate before signing leases, and being careful to maintain reasonable proximities between stores to maximize distribution efficiencies. The growth plan may resemble the Cheesecake Factory, which chooses its real estate extremely carefully, only opening stores with optimal locations, and never settling for suboptimal real estate. I suspect Mother’s Market & Kitchen will do something similar as it builds out from its Southern California base.

MTA to sell $500 million in ‘green’ bonds to fund infrastructure upgrades

It is ABOUT TIME. The stock market gave us the New York Central Railroad, the New Haven Railroad and the NY Subway system.

The Metropolitan Transportation Authority (MTA) on Feb. 17 will issue its first-ever “green” bonds to raise funds for infrastructure renewal projects at New York City Transit, Long Island Rail Road and Metro-North Railroad.

The agency expects to net $500 million in proceeds from the bond sale, MTA officials said in a press release. The money will go toward projects on the three railroads that began during the MTA’s 2010-2014 capital program.

Also known as climate bonds, green bonds provide a means for raising capital for climate-friendly projects, including transit.

“By leaving their cars at home and embracing mass transit, New Yorkers play a dramatic role in reducing carbon emissions,” said MTA Chairman and Chief Executive Officer Thomas Prendergast. “These bonds recognize the ways in which mass transit and commuters work together to keep carbon out of the atmosphere.”

The MTA’s green bonds were certified by the Climate Bonds Initiative, an international not-for-profit organization that supports financing for projects aimed at mitigating the impacts of climate change. To be certified, a bond offering needs to meet “rigorous criteria” regarding reporting and transparency and the environmentally-friendly characteristics of underlying assets, MTA officials said.

Eligible projects funded with the bonds need to be clearly identified, and sellers must set up internal processes and controls to ensure tracking of proceeds. Additionally, the issuer must commit to ongoing annual reporting of assets funded with green bond proceeds.

Today, the MTA is launching a targeted marketing campaign aimed at encouraging New Yorkers to consider purchasing the bonds.

The sale of “green” bonds is becoming more prevalent in the transit industry. Earlier this month, the Ontario government issued its second green bond and raised $750 million (in Canadian dollars) to support environmental friendly projects, including two transit-rail initiatives. And in August 2015, Sound Transit sold nearly $1 billion worth of the bonds to fund transportation projects in Seattle and neighboring regions.

CP ‘disappointed’ in UP CEO’s comments on proposed NS merger

Canadian Pacific officials today said they were “surprised and disappointed” to learn that Union Pacific Railroad‘s chief executive is reportedly working behind the scenes with other railroads to prevent consolidation of the Class I rail industry.

They reiterated their view that a CP merger with Norfolk Southern Corp. would enhance competition and is in the public’s interest. They noted that UP itself has been the product of numerous mergers that “created one of the largest route networks in North America.”

“It is unfortunate that UP would try to use political pressure to co-opt the regulatory process and prevent other railroads from enjoying these same benefits and becoming more effective competitors to UP,” CP officials said in a press release.

UP Chairman, Chief Executive Officer and President Lance Fritz was quoted by the Journal of Commerce as saying a CP-NS merger is not in the best interest of the rail industry or customers. Fritz was speaking to attendees of the annual winter meeting of Midwest Association of Rail Shippers, according to the Journal.

A CP-NS merger would damage competition and set off a string of consolidations that would present challenging headwinds to the North American rail industry, the Journal reported.

There are a lot of risks in front of us. I’ve outlined a lot of them,” Fritz said, according to the Journal. “But, job 1, from our perspective, is to stop a Class I merger from occurring.”

CP officials responded to the reported comments by adding that Fritz’s “attempts to rally support for the status quo among the other Class Is demonstrate a disregard for competition, the processes of the STB, and the needs of shippers and the broader economy.”

The Hipster Hardware Store That Has Home Depot Scared

Jason Ballard remembers the time some guys from Home Depot came poking around in TreeHouse, his eco-conscious home-improvement store in a strip mall in southwest Austin. They were wearing suits and trying to act nonchalant, a ruse undercut by their questions to Ballard’s employees. How much of this does the business keep in inventory? How much of that did it sell last week?

“So I marched up and said, ‘Hey, I’m Jason! How can I help you?'” Ballard recalls. With a little small talk, he got them to say they were in town from Atlanta. Then he asked where they worked. They admitted they’d come from the big-box home-improvement giant. Ballard wished them well and cautioned his employees to say nothing more.

A wafer-thin 33-year-old with a deep East Texas drawl and boyish grin, Ballard doesn’t look like a threat to Home Depot. So far, TreeHouse has only the one location. It is on track to do about $10 million in sales this year, compared with Home Depot’s $83 billion.

But many of the most innovative brands in smart-home technology and sustainable design have embraced TreeHouse in a big way. TreeHouse is reportedly the largest single retailer of Nest products, for instance. It was among the first retail partners and is by far the largest of the much-admired Kentucky company Big Ass Fans. Perhaps most impressive, TreeHouse will be Tesla’s sole retail partner for the launch of that company’s highly anticipated Power Wall home battery.

TreeHouse’s biggest investor, Container Store co-founder (and fellow Texan) Garrett Boone, is fond of telling Ballard, “If TreeHouse doesn’t end up working, there is no truth in the universe.”

Boone, Tesla, and TreeHouse’s other fans like its earth-friendly mission: The bourgeois-bohemian goal of creating a Whole Foods for the DIY set. They are also impressed by an innovative approach that turns the superstore model inside out. Instead of a huge, warehouse-like facility with a vast product assortment, the company operates in a highly curated showroom with lots of space for consumer education, collaborative planning, and project-management. It’s less do-it-yourself than let’s-do-it-together. And TreeHouse’s prices are increasingly competitive with the big-box guys.

Like some of the disruptive brands it carries, TreeHouse harbors world-changing ambitions. Austin, with its wealthy neighborhoods and progressive politics, is a natural origin city for the business. But it is just ground zero for what Ballard envisions as a much larger company. “We will either be a multibillion-dollar business or we will go bankrupt,”he says. “Just like Tesla is not looking to be a boutique car company, we don’t want to be niche. This should become the new normal.”

Advice from a bishop.

Ballard, who grew up “behind the pine curtain” in deep East Texas bayou country, is the first to admit that his business philosophy is built on idealism and naiveté. It is those traits, he says, that have made him successful so far, despite long odds and high hurdles.

Ballard’s family comes from “the kind of poverty most Americans don’t know exists,” he says. “There are lots of people in my family who, part of their regular dinner involves possum and raccoons.” The biggest influence on Ballard growing up was his grandfather (“Paw-Paw”), a lifelong oil-refinery worker. Paw Paw lives simply —
“like Moses,” Ballard says. A kind of default conservationist, Paw-Paw has electricity and running water but otherwise lives largely off the land.

The first in his family to attend college, Ballard studied biology and ecology at Texas A&M. After graduating, he became preoccupied with the wastefulness of standard building practices. Homes in the United States are responsible for more energy and water consumption, landfill waste, and human exposure to toxins than almost any other source. With no idea what to do about the issue, Ballard started working construction for sustainable builders in Colorado — just “swinging a hammer,” as he puts it. He thought about becoming a builder. Then another possibility presented itself.

“Everyone I worked for had the same problem,” says Ballard. “There was no one-stop marketplace for everything you need. It took a lot of time and diligence to find a good product. And then it would arrive and the color on the wall would look different than it had on a computer screen.” In addition, buying sustainable materials was expensive because builders often buy for one project at a time.

Ballard lacked formal business training or experience. But he saw the solution clear as day. Why not start a company that does a ton of product research, sources the materials, buys them at sufficient scale to bring down prices, and educates homeowners and builders?

He sent his idea to a close college buddy, Evan Loomis, who had worked on Wall Street. Loomis ran it past some colleagues, and they deemed it a no-brainer. If Ballard didn’t do it, someone would. Loomis quit his job, signed on as a co-founder of TreeHouse, and set out to raise money for the launch.

This was 2009, and the home-building industry was in shambles. It took more than two years to get traction; several times they almost gave up. Ballard seriously considered going to seminary and becoming an Episcopal priest. But when he consulted his bishop, the bishop told him to finish what he’d started. “Jason, it may well be that TreeHouse is your calling, and I want you to be open to that,” the bishop said.

Investors told Ballard and Loomis repeatedly that they didn’t want to back two twentysomething upstarts with no experience in the industry. Eventually, the pair recruited a pair of industry veterans — formerly of Home Depot — to become co-founders as well.

Treehouse finally opened in late 2011 with Ballard as a vice president and Loomis as CEO. It promptly missed all of its sales targets. From there, things got worse. Ballard’s wife was diagnosed with cancer and his daughter with epilepsy. Then the board let all the co-founders go, including Loomis, and installed Ballard as the new CEO. As Ballard turned 30, his entrepreneurial dream and his family’s health were failing. On the line to save his business, he turned to his faith. “It helped me keep fear under control,” Ballard says. “I just knew that, even if the worst happens, in the ultimate sense I was going to be OK. That allowed me to make some decisions that were very unorthodox.”

Bye-bye hammers. Hello Nest.

The original strategy, honed with the help of Ballard’s more experienced co-founders, was to be a kind of green Home Depot or Lowe’s, with long aisles of light bulbs and hammers and power tools stocked deep on tall metal shelving units. But “there was too much Home Depot influence in the beginning,” says Boone. The industry veterans on the team “were great guys, but we need to be a totally different kind of store.”

Boone, who is TreeHouse’s chairman, says it was Ballard’s vision that turned around the company. Rather than organizing the store around types of equipment, Ballard split TreeHouse into three “lands” based on performance, design, and the outdoors. Performance includes things like smart-home technology and solar power; design comprises flooring and paint; and outdoors is everything from organic fertilizers to rainwater barrels.

More important, most of the tall shelving is gone. The TreeHouse experience is now less about wandering the aisles looking for that one thing you need and more about discovering new things by interacting with the staff and products. Borrowing a page from the next-gen menswear company Bonobos, TreeHouse mostly avoids inventory in the store. It keeps only the bare minimum on hand: small items like light bulbs that customers need immediately. Everything else ships from the supplier. That frees up room for spacious product displays and explanatory placards, tables, and chairs for design or project-management consultations, and lots of natural light.

Emily Tanczyn, Big Ass Fans’ vice president of residential sales and marketing, explains that her company traditionally has relied on direct-to-consumer sales because it allows the kind of close contact with customers that ensures a deep understanding of the products. TreeHouse, she says, comes as close as it gets to replicating that relationship through a third party. As a result, “they sell tenfold what we find with other partners,” she says.

“Jason has this wonderful ability to simplify complex buying decisions for customers,” says Boone. “That’s the biggest barrier to buying home solutions.” He points to solar panels as an example. When TreeHouse opened, solar panels were stocked on a shelf in the traditional style. Customers failed to notice them or relied on installers to find the right products. Ballard switched things up, including in-store consultation and home installation in the price of the panels, plus simple financing and help with permitting. Now customers see not an intimidating product but a smart, simple way to save money. “He made it as easy as buying a refrigerator,” says Boone.

Another big change was product mix. Ballard dropped most of the basic tools and hardware — the hammers and nails — and focused on curating his ideal assortment of energy-saving, resource-conserving, and toxin-reducing products. Nest, the Bay Area maker of smart-home devices like intelligent thermostats and smoke detectors, was exactly the kind of brand TreeHouse should carry. But Nest — started by an Apple veteran and now owned by Google — worked with just four retail partners: Apple, Amazon, Best Buy, and Lowe’s. It wouldn’t even return Ballard’s calls.

Relishing the challenge, Ballard put a recurring notice on his calendar to call Nest the second Tuesday of every month at 9 a.m. After more than a year of rejection, he sent employees to buy Nest products at chain stores and document their experiences. Most of the chains’ salespeople knew almost nothing about the product or why it was worth $249. Ballard sent Nest a Power Point documenting those results and closed with a proposal for how his store would do it differently: He would work with Nest to tell the company’s story in full, provide project management to demystify the installation process, and turn TreeHouse into Nest’s largest volume retailer. Within a year, he had done just that. This success led to the Tesla relationship and others. Overall, store sales have grown an average of more than 40 percent a year since Ballard took charge.

Huge is the only option.

Ballard points out that his early options — to start TreeHouse or go to seminary — were more alike than one might think. Both were about doing good for people. And both were somehow “transcendent.”

“We just have got to find a way to shelter ourselves without permanently harming the world around us and ourselves,” Ballard says. “It’s an existential problem.” Ballard likes to say he doesn’t have a business but a goal. Building a business happened to be the best way to achieve that goal.

But a single-store, lifestyle business is not enough. To achieve a goal so ambitious, Ballard needs TreeHouse to be huge. Over the summer he raised $16 million in a second round of funding, led again by Boone. “We avoided venture capitalists altogether,” Ballard says. “I was very honest. I told people that if they needed their money back in three years, they should not invest. I said, ‘You are investing in a company whose CEO is more interested in achieving his goals than getting a quick exit for investors.'”

The money will fund the launch of at least two more stores in the next two years, in Texas and elsewhere in the West. To grow even faster, the company is considering hiring project managers in other cities, establishing networks of installers, and building a digital home-improvement platform.

Ballard is determined to avoid a Whole Foods-like reputation for high prices. That won’t be easy. Green products are often more expensive than traditional ones. And even when TreeHouse sells the same products as big-box chains, it can’t command the same prices from suppliers because its volume is so much lower. To compete, Ballard has opted to take slimmer margins, making up some of the difference by launching smaller stores, which his lean inventory model makes possible. Still, retrofitting a home tends to involve big projects, and that favors customers with means. An affluent clientele undercuts TreeHouse’s mission to be a store for everyone. The work continues.

TreeHouse is also “developing relationships with manufacturers and convincing them the only way we can all establish higher volumes is by being price-competitive,” says Boone. He points to Ballard’s doggedness with Nest as evidence of his effectiveness in such negotiations. “He’s incredibly persistent and fearless,”says Boone. “He’ll call anyone. He’ll call the president if he has to.”

While TreeHouse may still take a wrong turn or simply fail to meet its own expectations, Ballard has settled comfortably into the driver’s seat. His wife has been cancer-free for four years. She works in the store most days with her husband. And their daughter no longer has seizures.

TreeHouse’s original inspiration, Paw-Paw, has yet to visit the store. Austin is too long a drive for someone his age, he says. But Ballard recently learned that the 82-year-old widower has been traveling three hours to see a new girlfriend. “I’m proud of him,” Ballard says. “But I said, ‘If you can drive to see a woman, you need to get your butt in a car and come see TreeHouse before you die.'”

GE to sell tank-car leasing, rail-car repair facilities to Marmon; remaining rail-car leasing to Wells Fargo

GE announced yesterday that it has reached separate agreements to sell its tank car fleet assets and rail-car repair facilities to Marmon Holdings Inc., and its remaining rail-car leasing business, General Electric Railcar Services LLC, to Wells Fargo & Co.

Terms of the transactions were not disclosed.

The tank car assets sale closed yesterday. The sale of the rail-car repair facilities is expected to close in the fourth quarter. Sale of the remaining rail-car leasing business is subject to customary regulatory and other approvals, and is expected to close by the end of first-quarter 2016, company officials said in a press release.

When completed, the rail transactions — which represent about $4 billion of ending net investment — will contribute $1.3 billion of capital to the overall target of $35 billion of dividends expected to GE under the plan, subject to regulatory approval, they said.

“These transactions are another example of the value generated by GE Capital’s strong businesses and exceptional teams as we continue to demonstrate speed and execute on our strategy to sell most of the assets of GE Capital,” said Keith Sherin, GE Capital chairman and chief executive officer. “We expect to be substantially done with our exit strategy by the end of 2016.”

GE Railcar Services leases a broad range of rail cars, as well as locomotives to shippers and railroads across North America.

“We’re pleased to sell our railcar business and, separately, our tank car fleet and railcar repair shops, to buyers that are long-term players in the industry committed to expanding the businesses,” said Sherin.

The announcement comes as GE continues to embark on a strategy that focuses on its industrial businesses, while selling most GE Capital assets, company officials said in a press release.

The company will retain the financing “verticals” that relate to its industrial businesses.