Tuesday, November 27, 2007

VOTE OPTION A!

posted by chicago pop


Mr. Hooper says:

VOTE OPTION A


A faction of the Hyde Park Co-Operative Board wants to pursue a scorched-earth policy.
“To struggle and go down in flames is a more moral decision,” the Maroon quotes one such Board member declaring at Monday night's Board meeting.

The only problem with this Napoleonic delusion is that in taking the Co-Op down, such a policy would take down a good chunk of Hyde Park with it.

Hyde Park doesn't need a Napoleon, a scorched-earth policy, or a rallying of support for "more moral decisions."

Hyde Park needs a supermarket.

Hyde Park needs a financially stable, fully equipped, and modern supermarket. Not six years of Mr. Hooper meets the Battle of Stalingrad, which is what a filing for bankruptcy would bring.

Co-Op members, as we all know by now, face a decision between voting for an Option A, and an Option B. (For a comprehensive list of the specifics in each Option, click on the image below).



What You Get With Each Option (Click to Enlarge)

Option A provides for a very generous buy-out by the University of Chicago and an enormous write-off by Certified Grocers, as well as the structured payment of debts to smaller vendors, all against the background of a speedy handover of the store from the Co-Op to a new operation. Above and beyond this, the University and the new operator would immediately begin investing $5 million in much-needed capital improvements in the 55th Street location.

Option B involves filing for Chapter 11 bankruptcy. This requires first obtaining a significant loan which has so far not materialized. At best, this route would preserve the status quo of a deteriorated building and inadequate facilities for at least 6 years, while the Co-Op squeezes its margins to pay off $6 million in accumulated debt based on just under $1 million annual earnings.

During this time, the slightest failure to meet payment obligations to already leery vendors and creditors could lead to liquidation and the indefinite shuttering of the store.

At worst, and we will know by December 17th, if the Co-Op fails to secure a loan (debtor-in-possession financing or DIP), it will be unable to file for Chapter 11 bankruptcy and will instead go into liquidation. The practical implication of this is that a third-party appointee of the court will be responsible for paying off the Co-Op's most senior creditors by selling off its remaining assets.

This will take time, and could result in a considerable period during which there is no major, central grocer in Hyde Park.

To sum up the challenges the Co-Op faces, we'll quote from the Hungry For Change website, set up by Hyde Parkers who support Option A for a reliable, new grocery store in the neighborhood:

The future of the community's grocery options are at stake, and in your hands. The Co-Op has a negative net worth of $1.8 million. To pay its current bills the Co-Op must borrow over $2.3 million and obtain a $400,000 letter of credit. The Co-Op has continued to operate the past eleven months by deferring payment to its vendors and not paying rent to its landlord, the University of Chicago. The Co-Op owes the University of Chicago over $1.2 million in back rent and it owes its suppliers over $2.3 million. It also owes $685,000 related to the 47th Street store, as well as a $1.01 million loan to Certified Grocers.
So where would the "more moral decision" leave the rest of us?

The version of morality represented by Option B, should it fail at any point or at all, or should Option A be rejected by the Co-Op Board, is likely to lead to greater hardship for the Co-Op's smaller and unsecured creditors, some of which are local and minority-owned businesses that stand a greater chance of payment under Option A.

It will likely lead to greater hardship for employees who stand a greater chance of losing their jobs permanently, together with their pensions.

It will likely lead to greater hardship for nearby retail establishments in a mall that would lose foot traffic from a shuttered anchor.

It will likely lead to greater hardship to even more members of the community who would have to absorb the time and costs of shopping out of the neighborhood while the store was shuttered.

It will likely aggravate the chronic problems of a neighborhood that cannot attract more shoppers because it cannot support retail business.

We don't need heroics at the deli counter, or last stands in the produce aisle. We don't need a scorched-earth policy at 55th and Lake Park.

We need a supermarket that we can rely on.

Vote Option A.

26 comments:

Famac said...

Though I support replacing the Co-Op, I kind of hope option B is the winner.

Why?

I want to see James Winthrow publically disgraced more than I mind driving to Roosevelt Road.

I don't shop at the Co-Op anyway.

Who knows, shuttering the Co-Op might actually improve Hyde Park in the long-run. It will boost the Green Grocer into a full fledged store in a hurry, anyway. And that might help bolster 53rd Street.

I'm not convinced Univesity involvement in the grocery business isn't a huge part of this problem in the first place. All of this nonsense happened while they owned the joint, afterall.

How do we know the next renter won't smell institutional weakness and pull the same tactics?

And if Certified is still the supplier? I want to see them gone for being such a bunch of money grabbing jerks, and I understand they supply Treasure Island. They are enemies of the neighborhood as far as I'm concerned. The University is incompotent, but Certified is actually intent on doing harm.

We need meningful change, not a deck suffle.

chicago pop said...

I have LOTS of sympathy for this line of reasoning, believe me. But I don't think I'm patient enough to wait everything to shake out that way.

chicago pop said...

BTW, did anyone see the little blurb in the Herald editorial last week about how the Herald is a creditor of the Co-Op, and "stands to lose a significant sum in a bankruptcy proceeding" ?

WTF? First of all, thanks for the disclosure dudes! Way to go on the journalistic ethics front!

Secondly, are we supposed to be proud of the Herald for sacrificing its solvency in the name of the hair-brained ideological death march represented by Option B?

I suppose if they are vested in the Co-Op, they have nothing to lose: as the Co-Op will be going down with either Option A or B (whatever Option B supporters may be fantasizing), the Herald will lose advertising cash either way (no more full page ads!!) But then again, Option A would bring in a new grocer that would start advertising relatively sooner, thus shortening the cash drought.

It is a fascinating spectacle, watching serial acts of ritual hiri-kiri on the part of venerable Hyde Park institutions....

Famac said...

The Herald has a chnace to get paid by the University up until that point. Looks like the Co-Op isn't the only business in Hyde Park cutting off its nose to spite its face.

chicago pop said...

As attractive as Option B may be in terms of schadenfreude, it has the major drawback of imposing greater hardship on a number of small vendors, adjacent retailers, and current employees, as well as -- echoing Peter Rossi here -- leaving us with yet another abandoned building to scare away households and business.

It also has the disadvantage of allowing Certified the batten down on 47th St. and discourage for as long as possible a new operation from opening at 55th. In the bankruptcy process they could play very hard (which they obviously like to do) to slow down anything happening on 55th.

That's why I would prefer to see Dominick's come in at 55th, rather than Treasure Island; to keep Certified as far away as possible. But even Treasure Island -- or almost any other grocery store -- would be an improvement over the Co-Op for the simple reason that the latter has had no ability, and would have none under bankruptcy, to invest in capital improvements.

deep throat said...

If that board member believes that a flame-out is morally superior, does this mean that for the Co-Op to exit gracefully from the business via Option A is *immoral*?

I would argue that it is morally irresponsible for any board members to steer folks down the risky path of bankruptcy when there is no accountability on their parts. If the Co-Op pursues Option B, perhaps it struggles for another three years before moving forward with liquidation. At that point, will any of the board members who have advocated Option B be held responsible for that earlier decision? No, of course not.

As we've already seen in recent meetings, the current board has pointed out time and again that it had nothing to do with getting the Co-Op in its current situation -- what's done is done, and they're just trying to clean up the mess. It's not hard for me to imagine that three years into bankruptcy-gone-bad, a new board will be saying the same thing about the 2007 board that moved forward with the bankruptcy decision.

As it is, George Cooley and his Unity Party that pushed for the expansion into the 47th Street location (as well as the purchase of Mr. G's in order to secure right of first refusal to the 47th Street space) are probably still in the neighborhood and keeping a very low profile. Does anyone ever hear from him? Has he ever apologized, tried to make things right, or even publicly taken responsibility for the ill-fated expansion and all its horrible after-effects? Aside from toilet-papering his house or making him parade around the neighborhood in a big dunce hat, there's no way to hold him accountable.

The same goes for Director Stanek, Secretary Withrow, and any other directors who are championing Option B.

I'd need to see this faction put a lot more of their own skin in the game -- say put up their investable portfolios and/or home equity as collateral for the required loan -- to know that they will feel the pain and pay the price if the reorg goes awry. Currently, directors can just walk away from bone-headed decisions without ever paying any price.

Peter Rossi said...

can you folks explain what is so bad about Certified?

I must be missing something here.

chicago pop said...

Here's what's so bad about Certified: their behavior since the construction and leasing of the 47th Street location has been that of an aggressive and predatory monopolist of the kind that we consistently critique here at HPP.

I would go so far as to say that, contrary to the instincts of those who would lay a good chunk of the blame on the University for the current crisis, the "villain", or certainly the proximate cause, is Certified's refusal to cut the Co-Op any slack, from the beginning and the signing of the quarter-century lease with no escape clause, to the insistence on full and timely rent payment each time the subject was raised since 2004.

At no point, at any time and up to now, has Certified been willing to cut the Co-Op any slack, unlike the University.

Certified also has never been very concerned to lease the 47th St. location since its closing, and has occasionally seemed to deliberately frustrate attempts by the Co-Op to find a tenant. The end result is that Certified has been content all the while to siphon off rent payments on an empty store, that effectively helps to strangle a dysfunctional but open one.

At one point, in fact, Certified recommended to the Co-Op that they hire a real estate broker, Laurie Goodfriend, who is a very good friend of Certified but not of the Co-Op. She appears not to have beaten the bushes very hard. Again, in this case, there was very little incentive for her to look too hard for a replacement.

Were the same hardball tactics to prevail on their part during bankruptcy, it would not be unreasonable to speculate that Certified has incentives to frustrate the leasing out of 55th Street. They would be more likely to attract a tenant to the 47th St. location -- which remains a liability and is thus a huge incentive for them -- if 55th remains vacant.

This is all fair play, of course, and Certified is just behaving like an aggressive enterprise (though certainly not a "cooperative" one, despite its cooperative structure). And of course none of this excuses the idiocy and mismanagement displayed by various Co-Op Boards. But it's clear that Certified is willing to let a neighborhood hang by playing one property off another if it can.

None of this may matter if Option A is selected, and Certified becomes the tenant at 55th Street. But if Option B is selected, it could be a major issue. And it is worth reflecting on simply for the irony spectacle of a "cooperative" that does not cooperate with the community.

Say what you will about the U of C; but in their own, sometimes clunky and heavy-handed way, they are trying to improve the neighborhood.

Certified doesn't give a damn, certifiably.

Elizabeth Fama said...

I'm not an expert, but I agree with C-Pop's assessment.

Certified basically siphoned money directly from the U of C by refusing to back down on their sub-let agreement at 47th Street (they would stop food deliveries to 55th Street if the Co-Op ever failed to make rent payments). I believe they also have a supply agreement with the Co-Op that covers more than just grocery items, but also (at least) produce, so that they could in effect hold multiple departments "hostage" in order to control the behavior of the Co-Op.

I suppose Certified has simply behaved in a monopolistic, opportunistic, capitalistic fashion, which isn't bad per se. But they've done it while claiming to be a co-operative-based institution, which is sort of disgusting. And by all appearances, it seemed that they were aware that they were receiving rent payments at the expense of the University losing rent payments, and possibly understood that the U. was only giving in because it cared about the community having a viable grocery store (the implication is that Certified, the glorious co-operative venture, doesn't give a fig).

Sten said...

A couple points that I don't think have been hit hard enough:

By putting Chapter 11 to a vote before they've secured financing, the Co-op board has risked losing the University's buyout option, which could result in a significantly longer period that Hyde Park goes without a major grocery store. This demonstrates the board's continued lack of sound judgement, and a willingness to put ego before the best interests of the neighborhood.

Why doesn't our local paper do some actual journalism? Rather than selectively choose letters to the editor (see today's edition), how about getting off their butts and doing a real survey to generate a real sense of what Hyde Park wants?

chicago pop said...

This demonstrates the board's continued lack of sound judgement, and a willingness to put ego before the best interests of the neighborhood.

Ego? I see no signs of ego on the Co-Op Board.

Now you'll pardon me while I go back to reading James Withrow's full-page, 9 pt.-type, 100,000 word disquisition in today's Herald.

Elizabeth Fama said...

Withrow's Ninety-Five Theses does more damage than good for his cause.

chicago pop said...

Yeah, I tried to read Reverend Withrow's 95 Theses, but it would have required more than the recommended dose of Excedrin, and I'm running low.

bornatreese said...

Certified in the lessee and the Coop is the sublessee. Why aren't you getting on the case of the actually owners of the property at 47th St?

Peter Rossi said...

I"m sorry but I don't see why holding someone to a lease agreement is bad behavior. I also don't see why getting money indirectly from the u is bad either.

The only real villians here are the incompetent Co-Op management that signed the lease.

If you want to get out of your lease, you need to find someone to assume it.

The fact that there are folks out there are more savy than the Co-Op board doesn't make it a crime.

Imagine that HPP owned the 47th street mall. Wouldn't we want our tenants to pay the rent? Why is that greedy or monopolistic?

confused in Chicago

Peter Rossi said...

The national lampoon did a hilarious spoof of a daily midwest newspaper, called the Dacron Daily years ago. In this spoof, the stock price quotes were deliberately blurred.

James' "message" can't be read by most of the Herald's readers.

Those that can read it will see it for a parody of a position statement. Who knows what it means and who cares? It's not going to get a loan or bring customers back to the failed business

Doug said...

If Co-Op members select B, what's to stop the U of C from giving the deadbeat Co-Op the boot from 55th? In Chapter 11, can the judge force the U of C to allow the Co-Op to remain at 55th even if they are not paying rent? Maybe the U of C could pre-empt a Chapter 11 filing by giving notice of eviction.

Seems to me that if the Co-Op turns down the generous offer A, U of C should just kick them out to forestall all of the terrible consequences of B. The Co-op could go occupy their space at 47th, and all of their wonderfully loyal patrons could follow them there.

One other thing: if Treasure Island comes in, won't we get the same crappy produce and meat as the Co-Op because it's served by Certified? It's not like Treasure Island has significantly better bargaining power than the co-op.

I'm rooting for Dominick's.

chicago pop said...

An entertaining take on the Co-Op's inglorious demise that readers might enjoy.

The Beachwood Reader

Famac said...

Rossi - you are right -- nothings wrong with holding someone to a lease. But Certified is a cooperative, and the Co-Op is a member. Aren't these guys supposed to be friends?

chicago pop said...

Peter Rossi writes: The only real villians here are the incompetent Co-Op management that signed the lease.

To be clear, I couldn't agree more; none of the discussion of Certified, as interesting as it is, should distract from the fact that the Co-Op ran itself into the ground.

But for those who claim that a "for profit" business will take less care of the community than a cooperative, I think it is something worth mulling over.

And a further reason why, when dealing with folks who really know how to play hard-ball (like Certified), we leave things to professionals who can handle it.

Elizabeth Fama said...

Peter, I have a vague memory that Certified also rejected a potential grocery store sub-sub-letter in the 47th Street space, because the grocer wasn't supplied by Certified, and Certified didn't want competition in the neighborhood, so the Co-Op was restricted to looking for tenants like Office Max and Starbucks. (I think a U of C official told me this a few years ago, but since my memory is blurry I won't name the person.)

Again, that's not illegal, but also not "real helpful" as Kenneth would say on 30 Rock.

LPB said...

Based on General Manager Bruce Brandfon's letter to the Herald's editor, he claims to have made many pricing adjustments to bring the Co-Op closer in-line with competition.

Well, last week I went to the Co-Op and saw that Earth's Best organic baby food is priced at $1.49 per 4oz. jar. I get the exact same brand at Target on Elston for 62-cents each. Hmmmm. That still seems like a considerable price disparity to me. I would perhaps be willing to pay 70-cents per jar at the Co-Op, but certainly not $1.49.

ktp said...

Apologies is this has already been reported: According to the Co-op's website (http://coopmarkets.com/), the NCB refused the debtor in possession financing...

(Thanks for this blog. It's helping me keep my sanity living in Hyde Park.)

Famac said...

There's never been a worse time to borrow money. The sub-prime mortgage crisis has long tentacles, and no one is looking to book risky ventures.

The Co-Op is finsished unless Withrow can get Jesus to float him a loan, and he's not to fond of the money lenders.

Richard Gill said...

ktp is correct; the Co-op website does indeed say that debtor in possession financing for Option B has been refused by the National Co-operative Bank. The Co-op's statement also says November 29, 2007 is a Monday, but let's not even get into that.

Famac said...

It looks like the University of Chicago is in full bail-out mode. Not only are they offering to make the Co-Op whole after numerous financial misteps, but Dr. Wax is now becoming a tenant.

According to the Herald, Hank Webber considers Dr. Wax an important member of the community, though he clearly exempted himself from that definition.

I'm writing him a letter, it goes a little like this:

"Dear Hank

I bought a condominium in Hyde Park. I didn't know I had to pay the assessments to live there, and I certainly never thought they would go up. With the holidays approaching, I was wondering if you could put that attractive red hat and beard on one more time, and help a brother out. I promise not to picket your house if you comply.

Sincerely,

Your Friendly Neighborhood famac

PS: Sweep your court."

(That's an inside joke.)