GRAND RAPIDS — A little more than a year after his flagship company removed him as a manager and declared bankruptcy, developer Derek Coppess has re-emerged on the scene with a new real estate venture.
After a year out of the spotlight, Coppess has landed once again as the frontman of an ambitious development company, Grand Rapids-based The Establishment Group LLC. The new firm bills itself an “urban revitalization company” whose expertise is intended to help other local developers realize their visions for projects.
With a promotional video for The Establishment Group, Coppess and his new partners reference the past successes at 616 Lofts LLC, but make no mention that the former company is bankrupt and no longer manages any of its signature properties.
Ever the optimist and the forward-thinker, Coppess also suggests that The Establishment Group will be bigger and better than 616 Lofts.
“Always from the very beginning, I wanted to build a prototype in our city that I could duplicate in different markets because I knew we would run out of old buildings, I knew we’d run out of opportunities,” he says in the promotional video.
In 616 Lofts, Coppess became the face of a well-oiled $100 million development machine that completed seven large-scale apartment buildings and added 300 housing units in Grand Rapids. Creating 616 Lofts helped Coppess “fall in love with leadership and human development,” and the high-profile company is “such an important part of my story,” he says in the video.
In its debut project, The Establishment Group recently partnered with West Michigan developer and investor Brian Papke for a proposed 36-unit mixed-use building in the heart of the Creston Business District at the vacant site of a failed 616 Lofts project first proposed in 2014.
Coppess juggled forming The Establishment Group as he wrestled with mounting legal troubles: In the span of nearly three years, he has faced at least 10 lawsuits involving former investors, some of which have been dismissed or settled.
MiBiz has spoken with more than a dozen former and current colleagues and investors in 616 Lofts and The Establishment Group, and reviewed various court documents since 616 Lofts filed for bankruptcy more than a year ago. From that reporting, a common theme emerged: Coppess’ contribution to the demise of 616 Lofts as well as lingering questions about his past and current ventures suggest he might have ground to make up in regaining trust in the community where he again hopes to develop.
Establishing a vision
For many observers in Grand Rapids’ development community, the bankruptcy of 616 Lofts was unsurprising given what they describe as an unsustainable business model at a company led by a dreamer who eschewed the day-to-day tasks of operating the company.
Coppess relished his role as the frontman, garnering headlines and racking up numerous awards, including 2013 emerging entrepreneur of the year honors from the Grand Rapids Downtown Alliance. As 616 Lofts expanded its holdings, Coppess’ profile grew along with it. Whether in blogs on 616 Lofts’ website or for the Grand Rapids Business Journal, he often spoke about the importance of establishing the so-called “tribe” to the success of his business.
“People don’t buy what you do, but why you do it,” Coppess told MiBiz for a 2012 report. “Knowing the ‘why’ of what you’re doing inspires leadership, and when you have that ‘why’ that helps attract people to you.”
616 Lofts hit the market in Grand Rapids at a time when interest in building new apartment units was seemingly at its highest in the early recovery years after the Great Recession. Buoyed by strong interest in new projects and spurred by investor capital, 616 Lofts went on to produce multiple successful projects, including Lofts on Michigan, Lofts on Alabama, Lofts on Ionia and Lofts on Prospect.
To 616 Loft’s credit, the company did “establish a new mojo” that downtown Grand Rapids was lacking, Mike Corby, executive vice president at Grand Rapids-based Integrated Architecture, told MiBiz last year. The projects from 616 Lofts “brought urban living back to life” in the Grand Rapids market, he said.
Other executives seemed to agree.
“They had a unique approach to property management that embraced the individuals and supported the community,” said Kara Wood, the former managing director of economic development services for the city of Grand Rapids who had reviewed 616 Lofts’ projects on behalf of the city.
“They’ve worked very collaboratively not only with their residents, but with the businesses in the area, encouraging their residents to do business with or frequent the local businesses,” Wood said.
Small business, big consequences
Growing up in Lake Odessa, Coppess began learning about real estate at an early age by helping his father, a schoolteacher, build a spec house each summer. While attending school at the College of William & Mary in Williamsburg, Va., his interest in real estate was further bolstered when he became the self-described “trash boy” for a property management company there.
Coppess left college because of a sports injury and returned to West Michigan, where he went on to launch his first venture. At 21, he formed Coppess Group LLC and began buying duplexes, eventually managing a couple of hundred units. The company would later serve as a launching pad of sorts for 616 Lofts.
Coppess told MiBiz his work at the Coppess Group went well until his main investor and mentor, Murray Hough, died in 2016. Hough was a “tremendously successful” businessman who was the president of RMH Management until his passing, according to his obituary.
The relationship soured when Hough’s widow, Violet Hough, sued Coppess in 2017, alleging he used false pretenses to secure an investment of several hundred thousand dollars in 2009 from her late husband and failed to pay off promissory notes. In total, Coppess Group owed her more than $241,000 in defaulted payments, according to court filings.
According to a settlement from August 2019, Coppess and his wife, Amanda Coppess, were ordered to pay $375,000 to Violet Hough.
At least nine other lawsuits filed against Coppess and affiliated entities reinforce the same theme: Individuals made investments, were kept in the dark about where their money actually went, and were not paid back in the end. Several of the lawsuits allege Coppess was deceptive; others accuse him of falsifying documents to swindle potential investors into putting money into projects that never came to fruition.
In an interview with MiBiz last year, Coppess said the Hough case was emotional for him because Murray Hough, a distant relative and longtime mentor, taught him about business deals via Coppess Group. He claimed Murray Hough refused to take the payments Coppess owed.
“What’s hard is there’s so many times I tried to pay him back because I didn’t need the capital anymore, and he’s like, ‘No, it’s great,’ just because it kept us connected,” Coppess said, calling it “the saddest day in my life” when the lawsuit was filed. “I’d never been in anything like that, so I didn’t even know what it meant, really.”
Building a brand
Through his experience owning and operating duplexes, Coppess said he began seeing the opportunity to fill a growing need for apartments in downtown Grand Rapids.
With an interest in the front-facing side of development, he set out to create a new company where he could focus more on development rather than on operations as he did at Coppess Group, Coppess told MiBiz. He talked of seeing vacant buildings and envisioning what they could become, the community they could create.
The visionary side of Coppess is what led to the creation of 616 Lofts, an umbrella company that did not hold ownership stakes in any of its affiliated properties.
At 25, he began building the team and enlisted his friend Marjorie Steele to help create the brand for 616 Lofts.
Steele, a Grand Rapids-based independent contractor in branding and creative direction, served as creative director for 616 Lofts from 2012-2014, and was for a time involved in The Establishment Group, Coppess’ latest venture.
Reflecting on her experiences at 616 Lofts and elsewhere, Steele said Coppess was creative in the way that he made projects work.
“Look at what he did with (Lofts on) Ionia — that was a brilliant development. The Kendall Building — I am proud of those projects,” she said.
A self-described “maximizer,” Coppess often talked of his tribal leadership mentality, which involved forming a close-knit staff and being passionate about the people behind the work and the “why” behind what they did at 616 Lofts.
In focusing on assembling his tribe, Coppess amassed a staff of around 30 people to run a company that managed seven apartment buildings in and around downtown Grand Rapids.
A former 616 Lofts employee who spoke with MiBiz over the last year on the condition of anonymity said the amount of money being spent on staff and events from 2016-2017 “didn’t add up with revenue generation.” In 2017, staff began “disappearing.”
“Derek was always elusive during this time about how things were going,” the person said. The person in 2017 also gave a loan to Coppess, who missed several payments.
Over the past year, MiBiz contacted numerous people who worked at 616 Lofts or invested in its projects, many of whom did not respond or declined to comment on the record. Another individual said he has since “put that chapter behind me.”
Unraveling begins
According to testimony during the bankruptcy case, investors in 616 Lofts gradually became aware of the company’s financial turmoil starting around March 2017, when a bank contacted one of them to seek payment because Coppess could not be reached.
As well, several of the company’s high-profile projects began to sputter. That included the $14 million Lofts on Wealthy project, in which 616 Lofts proposed turning the former Kregel publishing headquarters into a 75-unit mixed-use development.
“We got paid for everything but the last project, which was the Lofts on Wealthy project, which we were not fully paid on,” said Corby of Integrated Architecture, which worked on several of 616 Lofts’ projects. “I can’t speak for anyone else on any of the other projects, but for the other projects, for the most part, we were fully compensated.”
One executive who stepped in to run 616 Lofts at the request of investors estimated its payroll was about three times the income from management fees that it received, according to testimony during the bankruptcy proceedings. Investors who testified that they had been kept in the dark opted to remove Coppess as the manager of the company, but kept him on as an employee.
Jeff Moyer, the Chapter 7 Bankruptcy Trustee assigned to the case, said the company’s headcount of 30 people seemed out of whack with what was needed to run the business.
“To run seven projects? I guarantee I could run the whole show with maybe four or five people,” Moyer told MiBiz at the time of the bankruptcy.
When it became clear that 616 Lofts was facing serious trouble, Coppess in June 2017 struck a relationship with KMG Prestige Inc., a property management company based in Mt. Pleasant. KMG Prestige now manages the rebranded Lofts of GR, which is made up of some of the 616 Lofts portfolio. The move resulted in some in-house layoffs, with Coppess telling MiBiz at the time that he did the deal so he could focus on other projects.
In late 2018, as investors started filing lawsuits against 616 Lofts and related entities, the creditors and members of 616 Lofts agreed: It was time to declare bankruptcy.
Making things right
Coppess insists he will pay people back the debts they are owed and “make it right.” He has not filed for personal bankruptcy, and told MiBiz last year that he has no plans to do so.
“I was taught you make sure you pay whatever you sign up for and, honestly, this is like the extreme ownership piece of it,” he said. “I’m not gonna play victim on it (and) hide. I’m taking anything that comes at me — good, bad, whatever — and dealing with it. And I’ve been able to learn a ton from it.”
One lesson Coppess learned is that he doesn’t want to be an operator going forward, instead opting to focus on his creative side.
“For me to build a nationwide property management company is not something I’m planning to do,” Coppess said. “It’s more of getting me back to my creative strengths and just getting me in a spot where I can use my creative strengths in development, but also nurture people that also want to get in the same field.”
Instead of designing The Establishment Group with a “Derek-centric” model, Coppess said he instead is surrounding himself with people he trusts, and with whom his values align. In the past, he didn’t think much about alignment, but in this new venture, it’s “hitting me in the face,” something he says he has never experienced before.
Along with Coppess, The Establishment Group is made up of Isaac Oswalt, the founder of 21 Handshake, a digital marketing firm; Arthur Vachon, a real estate agent in Caledonia; and Joel Dunn, who lives in Grandville and appears to be a representative of It Works, a multi-level marketing company that sells body wraps and other products, according to his website.
Neither Vachon nor Dunn could be reached for comment via calls, emails and social media messages.
During her involvement with The Establishment Group until spring 2019, Steele said she saw patterns reminiscent of her tenure at 616 Lofts. The “searing red flag” came about as her invoices went unpaid, which Steele documented in emails and invoices for The Establishment Group and provided to MiBiz. Although she was eventually paid for the branding work, Steele said she has declined to work with The Establishment Group going forward.
New venture
Along with its first project proposal, The Establishment Group paid $1.4 million to acquire a site previously owned by an affiliate of 616 Lofts, which had planned to turn the Creston neighborhood property into a mixed-use project that never came to fruition. The original plans spurred business investment in the surrounding Creston neighborhood, with new business owners excited about the promise of increased activity in the area.
But because of the long-vacant lot and Coppess’ renewed involvement, The Establishment Group also has to rebuild some trust with the neighborhood, according to Megan Kruis, executive director of the Creston Neighborhood Association.
Kruis told MiBiz The Establishment Group was not forthcoming about Coppess’ involvement. Instead, she found out that he was part of The Establishment Group via its promotional video that featured Coppess.
“The fact remains that the current status of that property is not what we want it to remain,” she said. “But I do think the extent to which the previous developer of that property is involved now … there is a lot of trust that would have to be rebuilt in the community.”
Grand Rapids-based Construction Simplified is serving as the general contractor on the newly proposed project, which was designed by Wyoming-based Richard Postema Associates Architects and Engineers PC.
While the success of the project and The Establishment Group remain unknowns at this point, the “super future-oriented” Coppess said he sees it as an opportunity to keep moving forward with his vision.
“We have a super, really cool venture that’s launching that I’m super proud of, so for me it’s more so, let’s leverage anything into the future,” he told MiBiz. “Let’s go.”
