Feds Green-Light Co-Op Market Auction

Say good-bye to the Elm City Market food co-op — and, most likely, hello to a new version of the market owned by its current managers.

That’s the fallout from a decision made Friday by the U.S. Department of Agriculture (USDA).

The loan committee of the USDA’s regional office approved a liquidation plan for the 2,200-member co-op grocery on the first floor of the 360 State Street residential tower at State and Chapel Streets, according to Jennifer Lerch, the office’s director of business and cooperative programs.

Lerch said the USDA OK’d the liquidation plan presented by the bank.

That allows Webster Bank, which submitted the liquidation plan, to proceed with a foreclosure auction of the market’s assets to recoup some of the $3.6 million loan on which the market has defaulted. The bank had to wait to see whether the USDA would approve the plan, under which the USDA follows through on a guarantee to cover 80 percent of the losses. (The final tab to the taxpayers won’t be known until after the auction; the USDA will cover 80 percent of what losses remain after the bank deducts the receipts from the auction.)

Jeff Klaus, Webster’s regional president (pictured Friday with Vice-President Scott Smith, with whom he has worked on the market plan), said the bank pursued the foreclosure with a single goal: ​“to keep the market open.”

The bank has arranged a plan to do that with a local philanthropist named L. Linfield Simon. A group of Elm City Market managers is forming a worker-owned company to reopen the market with loans from Simon’s not-for-profit charitable RISC Foundation, which has established a subsidiary, called New Haven Investment Fund, LLC. The co-op’s board had hoped instead to keep the market open as is with an infusion of $1 million in new investment and the help of a national co-op grocers’ group. The co-op’s creditors — Webster Bank and the landlord, Multi-Employer Pension Trust (MEPT) — concluded that the market has a better shot of surviving if it can wipe clean all its debts and reconstitute under the new company ownership.

The bank now plans to issue a notice next week to its creditors of the pending auction. The auction can take place after 10 days following the issuance of that notice. It was unclear Friday afternoon whether the auction will be private or public; either way, Klaus said, the sale will be aimed at keeping the market going.

Klaus said the USDA’s letter to the bank Friday describing its decision leaves open some key details still to be analyzed concerning whether a private or public sale takes place. Lerch said the committee did not include any special restrictions on the approval of the plan.

The key to the process has been the landlord’s agreement to draw up a lease with Simon’s group, according to Klaus. (The landlord did not return calls for comment.)

“This is a good thing. The important thing to us is saving the market and saving” the approximately 70 jobs there, Simon told the Independent Friday. ​“The jobs were what got us involved initially and continue to be driving what it is we wanted to be involved.”

“From my standpoint, this is not a victory. There was never in my mind a context. I didn’t think there was another viable plan. If there was a contest, it was a contest to save the market, not a contest with the board. I think they viewed as a contest. I didn’t,” said Simon, whose foundation had given the co-op two loans in an ultimately unsuccessful attempt to keep it financially afloat.

The co-op’s board planned to meet Friday evening to discuss the latest developments.

“I don’t like the plan,” co-op member Pedro Soto said earlier, speaking on his own behalf. ​“It may prevent the market from reaching its full potential. We need operational help. There are a lot of very hard-working people there. But I’m a business owner. I know when to ask for help when I need it and reach out to people.”

[Update: The board issued the following statement Saturday morning: Although the Elm City Market Board of Directors has yet to be notified by either Webster Bank or the USDA of the USDA’s decision to support Webster Bank’s liquidation plan, as reported in the New Haven Independent and New Haven Register yesterday, we wish to express how deeply disappointed we are by this news. While jobs may be saved and the city may still have a market it comes at an extremely high cost- a cost which we believe could have been avoided. The NCGA plan was sound, and informed by the NCGA development team’s years of knowledge and expertise in the grocery industry; the Board remains fully confident that this was the plan with the highest likelihood of success. If Webster’s liquidation plan proceeds as approved, there will be many losers: over 2200 member-owners of the cooperative, our preferred shareholders, the cooperative grocery movement, and the American public, which will pay for a $3,000,000 loan guarantee from the USDA to Webster Bank. We are saddened that it may cease to be a community-owned coop and are incredibly thankful for the outpouring of support from our member-owners this week.]

Simon said that four current managers will be principals in the new company forming to own the reconstituted market. The company plans to hire a new general manager, a position that has been unfilled as the grocery has struggled to pay its suppliers, he said. He called it ​“unfair” to blame current management for the market’s woes. ​“The initial lease was too expensive. Between that and the bank loan it was unsustainable,” Simon said. The Article 9 foreclosure will wipe out over $4 million in total debts.

Dwayne Moore (pictured), a ​“produce associate” who was stocking avocados at the market Friday, said he has no opinion on whether the market should remain a co-op or transfer to a worker-owned company.

“That this place stays alive — that’s what’s most important to me,” Moore said.

Attorney Michael Dolan (pictured), a co-op member, echoed the sentiment. ​“I’m OK with it,” he said of the new plan for the market, even though he, like other members, stands to lose the $200 he invested to join and help the co-op launch in November 2011. ​“I’m willing to forgo my $200 as long as it stays open. I consider it a donation for the betterment of the community.”

The co-op has struggled financially practically since its opening. In May the landlord declared the co-op in default for owing what’s now over $500,000 in rent. Webster followed suit with a default notice on Aug. 5.

One question that was never resolved — and will face the new owners — is the market’s basic identity.

On the one hand it has held up Burlington, Vermont’s bustling City Market as a model — a member-engaged co-op with rows and rows of often higher-priced organic produce and packaged foods and healthful specialty items as well as bulk grains and nuts and dried fruits.

On the other hand it has aimed to serve the basic shopping needs of people who live downtown. But basic items like milk are far less expensive elsewhere, including at a new Dollar Tree a block away. And the selection of natural foods has been anemic compared to that offered by outlets like Edge of the Woods, or even sometimes conventional supermarkets — even before the default scared away suppliers and shelves grew bare.