Wednesday, November 7, 2007

Webber's Co-Op Proposal: Buy-Out or Bankruptcy


posted by chicago pop


Ahead of the membership vote on the Co-Op's future, Hank Webber has circulated a memo to University staff and faculty making the University's position clear.

From the University's perspective, it comes down to two options: either the Co-Op Board agrees to let the University buy it out, and pay off the Co-Op's creditors in the process, allowing the University to then try to bring in a new grocery store; or, as Webber says, "the chances of bankruptcy are very high."

Translation: the University may not stand by if the Co-Op membership decides to follow the Herald's advice (outlined in a delusional editorial today, November 7, 2007 ) and initiate a capital campaign, or any other, Terri Shiavo-esque life-support efforts. It would take a lot of folks throwing good money after bad to make up what the Co-Op owes, but that's beside the point.

Webber's letter (appended below) makes it clear that the University wants a functioning (and modern, clean, well-stocked) grocery store in the neighborhood, partly so that it won't lose faculty and students to competing Top 10 institutions that can offer these things. Bankruptcy is the long road to this goal. Debt consolidation is the short road, but it means the Co-Op membership has to sign on.

If they don't, chances are they'll help even more people lose even more money.

****

To: The University Community
From: Hank Webber, Vice President for Community and Government Affairs
Re: Hyde Park Co-op

You may be interested to note a story in today’s Hyde Park Herald ( http://www.hpherald.com/) about the future of the Hyde Park Cooperative Society. The story outlines a set of extremely challenging financial circumstances that threaten the Co-op’s ability to continue to operate its grocery store at 55th Street.

The Co-op’s Board of Directors has been in discussions with the University about a possible solution to these serious financial troubles. The board has spent many months considering various options. One of the options under discussion is an agreement among the Co-op, its creditors and landlords that would result in the Co-op closing, payments to its creditors, and a new grocer opening a store in the same location. The board also is looking at the possibility of obtaining a loan and the potential for bankruptcy if neither of the first two options proves feasible.

The University is supportive of the board’s efforts because we believe our community deserves to have a high-quality grocery store. If the Co-op cannot fulfill this role, then we are committed to facilitating a new grocery store coming to the 55th Street location.

Access to high-quality grocery shopping has a direct impact on the quality of life for our faculty, staff and students, and thus our ability to attract people to our community and retain them once they are here. In fact, when we surveyed our students earlier this year on their retail needs, the most frequently cited desire was for “improved grocery store service.” Having a successful store in this location would keep shoppers and businesses in the neighborhood and bring new business to surrounding retailers.

The University is the landlord for the Hyde Park Shopping Center which includes the 55th Street store. The Co-op currently owes the University approximately $1.2 million in unpaid rent. As part of the proposed agreement, the University has indicated its willingness to forgive most of the unpaid rent and to supply additional funds in order to substantially repay local vendors to whom the Co-op is in debt. These actions would permit the Co-op to close without the costly process of bankruptcy proceedings and allow a new grocer to begin operations within two weeks of closure. All current Co-op employees would have an opportunity to interview for jobs in the new store as part of the arrangement with a new grocer.

These actions will not happen unless all interested parties, including the Co-op board and its other major creditors, can come to an agreement on the terms. If an agreement is reached, the board has indicated its intention to put the proposal to a vote of the shareholders. If an agreement is not reached, the likelihood of bankruptcy is very high. In either event the University will remain committed to having a new, high-quality grocer at this site.

The Co-op board will discuss its final recommendation at a town hall meeting at 2 p.m. on Sunday, November 18, at the Hyde Park Neighborhood Club, 5480 S. Kenwood Avenue, Chicago. We expect there to be robust community dialogue about the board’s proposed course of action. More information will be available at www.coopmarkets.com.

16 comments:

Elizabeth Fama said...

You're saying that the University is willing to gallantly pay off the Co-Op's creditors (in addition to forgiving $1.2 million dollars in rent) in order to hurry a new, clean grocery store on that site?

The University has incredible patience -- we've all seen it in its building plans, which take an incredibly long (decades) view. And as the landlord of the Co-Op the University has been maddeningly slow to react, in spite of years of outcry from the community that the Co-Op wasn't serving its needs.

I just don't understand why all of a sudden the University is willing to shell out vast sums of money to quickly smooth out a transition that it knows would happen anyway. It's not the University's M.O.

Maybe I'm misunderstanding something, and I'd appreciate any comments others might have.

Famac said...

There are some curious timing issues here that might explain your question: Webber's resignation, followed by this ultimatum.

Perhaps the University is worried it can't hire anyone into Hank's job with so many loose ends floating around. Who knows, maybe Hank quit for this very reason.

In my jojb, it often takes a guy leaving in disgust before things he wanted to do get done, as unproductive and wasteful that is.

It will be interesting to see when our usual radicals interject themselves in this hopeless case.

If they haven't already.

PS: I don't understand why the University can't evict the Co-Op and save itself a ton of cash!

Perhaps they are worried the suppliers would boycott a new store because it was perceived to be a shill for the University.

chicago pop said...

Hank Webber is the one who's saying that the U of C is willing to buy out the Co-Op. I'm sure they have been for a while; they may have been waiting for a verifiable shift in local opinion in their favor.

I'd also suggest that this problem has not appeared "all of the sudden". Rather, many people have all of the sudden become aware of it, in no small part because of poor communications on the part of the Co-Op Board. But the fact remains that this financial situation has been building for nearly a decade. So if the U of C does indeed act on a time-frame of decades, then it is still within it's MO in this case.

The other possible interpretation, supplmentary to the preceding, is that Hank Webber may be thinking of his legacy. This is a strategic conjuncture where he can really make his mark and solve an old, festering problem by making a firm stand. Going into bankruptcy would slow this down, take more time, involve more lawyers, negotiations, etc. Some would say that going down *that* route is not the University's MO.

But the question of the costs to the University is sobering, especially for those of us who support it in one way or another financially.

Famac said...

Okay, I'm going to go waaaay out on a limb on this one.

Let's say you are Certified Grocers. You're sitting there looking at the Co-Op; watching them mark the heck out of groceries with monopoly power in Hyde Park.

How can you get in on the action?

They can fire you as a supplier, so you can't raise prices; you have to get in bed with them.

So how do you do it?

You convince them to expand -- with Certified as the landlord. You take the University's monopoly model, and you replicate it at 47th Street.

If the thing goes bust, you still have a ladel in the pot -- because you talked them into an idiotic lease. So with one simple stroke, you either get the rent or you get the Universities rent -- or some of it. (I'm sure Certified will be paid off.)

You see, I think the shrewd Certified folks outsmarted everyone at the University and the Co-Op Board with this simple scheme -- and its cost the University a fortune.

Certified was "inside" the Co-Op to know management was clueless -- they were also inside enough to know the University was too slow moving to stop the scheme from unfolding.

LPB said...

Maybe Neo and his Peapod folks should prepare for a major influx of business during the transition time between the Co-Op closing and the new grocer opening.

It seems like there is finally enough public momentum for the University to come out and press for regime change, without seeming like the heavy. The Co-Op board turned over this summer, but up until that point, the previous board was still in denial. To the current board's credit, they've finally begun to do some hard wrestling to address the Co-Op's overwhelming issues.

chicago pop said...

Another reason the University might prefer to buy out the Co-Op flat out is to shut it up: any bankruptcy proceeding is going to require negotiations between the U. and the Co-Op -- which ultimately means all its members. This could take a long, long time, and the results would not be certain.

When you consider that the current Board is asking the membership to vote on life-or-death issues that it has not done a terribly good idea educating them about, this does not bode well for any court supervised negotiations involving membership input. If the lunatic fringe decides to dig in their heels somewhere along the line, well then it could just take forever and get nasty.

Better to fork up the cash right away and be done with it.

I can see Webber and the U wanting to avoid that scenario entirely, and spare themselves the headache of negotiating with die-hards.

Elizabeth Fama said...

It all goes back to famac's question about why the University can't just evict the Co-Op and save cash. The fact is, the University COULD do that, and might have have done it months or years ago...except for NIMBY-ism.

Yes, the University is afraid of the NIMBY outcry -- just as developers are, just as park district officials are, just as aldermen are. And so the University is sending a message to the board: we'll forgive the rent, we'll fork over hefty funds to pay your bills, but that's it. Persuade your members to take the money off the table now, and go quietly.

The SAVE THE POINT vitriol went a long way toward ruining thoughtful dialogue in this community. And this is further proof.

nate said...

This is exciting. I think this is the most interesting part of his letter:

In either event the University will remain committed to having a new, high-quality grocer at this site.

Re: the University not just evicting the co-op, I agree that it's probably part fear of NIMBY reaction, but also the fact that the University has done a lot of work to overcome the bad blood in the neighborhood over its own bad behavior not that long ago. I think it, more than the various outside developers, is more vulnerable to criticism of trying to remake the community without any involvement.

But whatever, just get the Co-op OUT! :D

Otto said...

The purported NIMBYism or fear thereof in this case is completely opaque to me. What not in my back yard? A less prolonged absence of a grocery store?

The university has every reason to try to expedite a transition. (Does the sign in the window of the former Mr. G's still advertise a particular season in which the produce store will be arriving?)

Elizabeth Fama said...

Otto, my question was why the U of C didn't "expedite a transition" (as you say) sooner -- that is, years ago, when the rest of us thought the Co-Op was a failure and the U of C was busy renewing the Co-Op's lease. I think they did fear the "community" reaction to the loss of a Cooperative. (In fact, we've come to learn that the "community" is sometimes just a few very loud individuals.)

I used the term "NIMBY" loosely (and not quite correctly). Yes, it means Not in My Back Yard, but I used it in the Hyde Park "Nothing Must Change" sense. Maybe I should call that sort of person a "NUMCY" instead.

Otto said...

Otto, my question was why the U of C didn't "expedite a transition" (as you say) sooner

I see. I think the answer is still that it would have been far more disruptive to try to pull out the rug. (Just off the top of my head, how many people live in I-House?)

If the board just plain insists on being squirrely for as long as possible, having a two-week plan in one's back pocket doesn't seem like such a bad idea. More interesting, perhaps, is how long it's been there.

deep throat said...

famac has raised a really good point about Certified. Now that the University has gone on record with its point-of-view, the one voice that I'm most curious about is Certified, arguably the one entity that the Co-Op is most obligated to for its inventory, rent payments, and out-right long-term debt.

If anyone has insight into Certified's perspective, we'd love to hear it.

Otto said...

TINW, search as one may.

In any event, rather than speculating, I merely offer the opinion that a two-week closure of the Co-op followed by a re-encounter of the full panoply of Country's Delight products strikes me as a grim prospect indeed.

Elizabeth Fama said...

Otto is clearly a more with-it blog participant than I am: I had to look up what the acronym TINW stands for!

Personally, I'm hoping that when Hank says the U of C is committed to putting a "high-quality" grocer in that spot, he means a Trader Joe's. Not everyone will agree with me, but I can dream.

Peter Rossi said...

I don't understand how the members can vote about anything. How can the Coop possibly secure a loan? So we are talking about the option of "debt work" out or bankruptcy.

I'm sure many NIMBYs will come and they will "vote" for keeping the Co-op.

It appears this IS NOT an option.

It is disgraceful and irresponsible how the Co-op boards have kept the truth about the financial condition of the Co-op from it's membership.

This is the true scandal. Well-intentioned community volunteers (often, but not always, with little business experiences) cannot run a grocery store! The Co-op asks it's board to do financial planning and management tasks that no for-profit organization would. So there is something rotten with the structure not just the particular incompentent board members who voted for expansion to 47st street.

Peter said...

sorry no trader joes!

the coop footprint is way too small. I believe the Co-op is less than 50,000 sq ft. (around 35)

In fact, don't look for any national chain to be very interested in this small store with inadequate parking.

Too bad folks didn't think this thru when they rebuilt the Hyde Park Shopping Center. This left us with an unworkable location for a desirable store.