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The bank holding $1 million in debt from the Elm City Market co-op is waiting to hear from the federal government before deciding whether to pursue a “friendly” foreclosure aimed at putting the Elm City market co-op grocery in new hands.
That word came Tuesday from Jeff Klaus, senior president of Webster Bank.
The 2,200-member co-op grocery, which opened on the ground floor of the 360 State St. residential tower in November 2011, recently received default notices from both its landlord (in May) and then its bank (on Aug. 5). It owes around $500,000 to the landlord, Multi-Employer Pension Trust (MEPT); and is behind on a $3.6 million federally-guaranteed loan from Webster.
The co-op’s board, which had already arranged for emergency infusions of cash to stay open earlier this year, had wanted one more shot to remain a co-op: It was negotiating with a national cooperative grocers’ group to obtain a new loan ($700,000 plus another $300,000 from other sources) plus management help. But that deal fell apart Monday, when Robyn Sharder, the head of the association, the National Cooperative Grocers Association (NCGA), withdrew the offer.
That doesn’t mean that the next step is clear yet, according to Klaus. The bank and the landlord can seek liquidation of the assets at a “friendly auction” under Article 9 of the Uniform Commercial Code.
But first the bank needs to make sure it can recoup much of the $3.6 million loan on which the market has defaulted. The U.S. Department of Agriculture guaranteed 80 percent of that loan. Before forcing an auction, the bank is trying to find out whether the USDA is ready to honor that guarantee (or if, for instance, it would seek to have the parties explore other options first).
“We are in dialogue with the USDA. We have obviously pitched that to them. But we need obviously to be on the same page as the USDA,” Klaus said Tuesday.
Webster has been talking with a potential rescuer of the market named Linfield Simon, who uns the not-for-profit charitable RISC Foundation, which has established a subsidiary, called New Haven Investment Fund, LLC, with a mission to help improve New Haven’s economy. Simon said he “indirectly” came up with a plan along with the market’s current managers to have them create a new for-profit entity that would buy the grocery at the Article 9 auction. Simon’s organization would offer the new entity a long-term low-interest loan to both purchase the market’s assets and to start running it. Simon declined to identify the amount of money involved. He said other lenders are also ready to help. (Read all about that, and background on the market’s decline, here.)
Klaus noted that there’s no guarantee that Simon’s organization would obtain the market through a friendly foreclosure.
“There are still too many options for all of this before I say we’re going to go friendly foreclosure. First of all, we don’t have all the control over friendly foreclosure. .. It may have to be a public auction rather than a private auction,” Klaus said. “None of that is decided by the bank.”
“We are really trying to come up with a way that the market can remain open. That is one of our primary goals,” Klaus added.
The co-op’s board wants to convince the USDA to give a second chance to the NCGA rescue plan, which would rely on the national group’s expertise and national buying power.
“I believe as a member of the board of directors, my obligation is to the members who elected me to maintain a coop structure,” board member Diane Polan said Tuesday.
“What happens now, the landlord has indicated it’s not interested in working with the NCGA proposal and that it supports the Article 9 asset sale. The bank has asked the USDA to go along with it. We hope there’s still an opportunity to convince the USDA there is a viable alternative plan, so the taxpayers don’t lose $3 million” Polan said. “They have a viable alternative plan.”
Meanwhile, with the market’s fate in limbo, the shelves at the grocery have gradually emptied in spots as suppliers have hesitated to give the financially troubled market more products.
The co-op’s new board has struggled over the past year to keep alive the market, which was undercapitalized from the start and unlike other co-ops began as a developer’s project that sought grassroots support as opposed to growing from a community-initiated drive. New Haven had a true co-op that began in the Hill in the 1970s and moved to Whalley Avenue, but also went out of business in the 1980s.
So are they still accepting cash only?