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Kummer Selling HBE to Employees, Investing $100 Million in Company
As reported in the St. Louis Business Journal, June 6, 2008 -

Key employees at HBE Corp. will soon be adding a new title to their resumes: co-owner. Fred Kummer is spinning off the main portion of HBE's business - the design and construction of healthcare facilities - into a new company and launching an employee stock ownership plan. Kummer and his family currently are the sole owners of HBE Corp., a company that Kummer founded in 1960 and built to be one of the largest private companies in the region.

Kummer and his wife, June, are making a $100 million capital investment to launch the new company, to be known as HBE Design-Build. Over the next four years, key personnel at the company will have the opportunity to buy into the firm. "In four years, I would expect the employees to have a very substantial ownership stake," Kummer said, although he does not anticipate the company being 100 percent employee-owned. The changes are being made to provide a method for management succession at the company, where Kummer, who is 79, is chairman, president and chief executive. "It's just spinning this off so it will be a sustaining enterprise for years to come." Current managers at HBE include Chief Operating Officer Lonnie Lange, Chief Information Officer Scott Berlinger, Vice President of Operations Richard Lalonde and Vice President of Development Gary Maier. Kummer is still in the process of assembling and naming additional members of his management team for the new company. He said an operating board of directors also will be formed to "take over a lot of the functions of guiding this company." One hundred to 125 employees may participate in the shareholder plan, Kummer said. HBE has more than 400 employees companywide, including architects, engineers and construction experts. In addition to the shareholder plan, HBE also is launching a profit-sharing plan for all HBE Design-Build employees, a first for the company. Employees participating in the shareholder plan will be able to re-invest their profit-sharing earnings back into the company to finance their ownership stake, Kummer said.
"The earnings of the company as it goes on will be the source of the funds that buy the stock for the employees," Kummer said.
The formation of the new entity will be effective July 1. Following the spinoff, the remaining HBE Corp. will consist of the Kummer family holdings such as the Adam's Rib Ranch, a 1,600-acre resort community, and the Adam's Mountain Country Club, both in Eagle County, Colorado. Kummer said HBE Corp. likely will be renamed Kummer Enterprises. Health growth - The healthcare design-build business is the main operating unit of the current HBE Corp. The company previously operated the Adam's Mark hotel chain, which consisted of more than 20 properties across the country. Kummer gradually sold off all the hotel properties over the past decade, including selling a package of eight hotels to Morgan Stanley and Pyramid Advisors LLC of Boston for $236 million in December 2003. In February, the deal closed to sell the final five Adam's Mark Hotels, including the downtown St. Louis location. San Francisco-based Chartres Lodging Group LLC, formerly known as Oxford Lodging Management, paid $71 million for the 910-room downtown hotel, which has been rebranded as the Hyatt Regency St. Louis Riverfront. In addition to operating the hotels, HBE also formerly operated a construction unit that built financial facilities. The company exited that market in 2007 to focus solely on design-build in the healthcare industry. HBE has been able to capitalize on the health growth within this industry niche. The company, which has estimated revenue of $410 million, currently has more than $1 billion in backlog business, according to Kummer. The company recently landed its largest contract ever - building a $195.5 million, 621,000-square-foot replacement hospital in Wallkill, N.Y. HBE broke ground on the project in April, with completion expected in January 2010. Nationwide, healthcare construction spending has been booming. According to a report compiled by Green Bay, Wis.-based consulting firm Wipfli, healthcare construction spending topped $40.2 billion in 2006, a 43 percent jump since 2002. Philip Warner, a research consultant with Raleigh, N.C.-based FMI, expects the healthcare construction market to continue to grow by an average of 8 percent nationwide over the next five years. He forecasts that $49.1 billion of healthcare construction projects will be under way by 2009.

The growth is prompted in part by the increasing demand for healthcare services as the baby boomer generation ages and by the number of aging hospitals that are in need of renovation, replacement or expansion, Warner said. "We work with construction firms across the country that have a large component of healthcare related work, and most, if not all of them, are doing well," Warner said. "As things (in the economy) slow down, in a lot of areas, people can readily move into somebody else's market, but in healthcare, because it's so complex, it doesn't happen so easily." HBE's current portfolio includes 23 medical facilities under construction and a record number of proposals in the pipeline, according to Mark Ames, vice president of advertising and marketing at the firm.

Building Business - Large HBE design-build projects currently under way: Orange Regional Medical Center in Wallkill, N.Y.-$195 million Communtiy Memorial Hospital in Ventura, Calif. - $180 million Four hospitals for McLaren Health System based in Flint, Mich. - $120 million San Antonio Community Hospital in Upland, Calif. - $110 million Enloe Medical Center in Chico, Calif. - $100 million Goleta Valley Cottage Hospital in Santa Barbara, Calif. - $80 million Montgomery General Hospital in Olney, Md. - $30 million Southeast Georgia Health System in St. Marys, Ga. - $25 million - BY ANGELA MUELLER This e-mail address is being protected from spam bots, you need JavaScript enabled to view it  
 
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