Despite the vociferous protests of Alderman Coleen Burrus, 9th Ward, at proposed $100,000 City loan to the Heartwood Center passed out of the Economic Development Committee easily on Aug. 22. The proposed loan, which will be secured by a lien on the Heartwood building, 1818 Dempster St., with an appraised value in in excess of $1 million, now proceeds to City Council.
Heartwood Center for Mind Body and Spirit is a holistic health services center, said Nancy Floy, to its founder and the owner of the building in which it is located. Heartwood occupies about half the building and provides office space to about 40 practitioners of acupuncture, massage therapy, psychotherapy and other holistic healing arts.
The other half of the building is primarily unfinished, unheated warehouse space occupied by the Rebuilding Warehouse until last weekend. The relocation of the Rebuilding Warehouse forced Ms. Floy to make a decision – either find another warehouse tenant, an unlikely prospect given current conditions, she said; renovate the warehouse space into useable office space, and expensive prospect; or sell the building and relocate the Center.
Ms. Floy told the RoundTable she always planned to renovate and expand the Heartwood Center, but she expected the expansion to occur two or three years down the road. The decision by RW to leave moved the timetable up considerably. But with a wait list of more than 40 practitioners looking to get into Heartwood, the renovated office space can be fully leased, she said.
According to estimates Ms. Floy has received, buildout will cost about $250,000. Fifth/Third Bank has agreed to lend approximately $100,000 toward construction costs, and Ms. Floy has obtained private funding for another $50,000. A gap of about $100,000 remains, and Ms. Floy approached the City’s Economic Development Committee, seeking a loan to bridge the gap according to staff memos and Ms. Floy.
At the Economic Development Committee meeting on Aug. 22, Alderman Ann Rainey, 8th Ward, called the loan proposal exactly the type of effort the City should support. “One of our priorities is to help businesses expand,” she said, “It is absolutely essential that we show our support.” She said that loans were better than outright gifts, such as the recent grant to Now We’re Cookin’ (which Ald. Burrus supported) and the proposed grant to the Technology Innovation Center (story on page 3), because as loans are repaid the funds can then go out to other businesses.
Ald. Burrus protested from the start, saying she viewed the loan as she would investing her child’s college fund. “I don’t see how the loan gets repaid,” she said, citing the lack of a financial history sufficient to repay the loan. She argued that because the bank would not lend the full $200,000 due to underwriting standards, the City should not make the loan, either.
After the meeting, speaking with the RoundTable, Ald. Burrus said she did not see Council approving any grants going forward, but instead envisioned more loans. She said that she viewed Now We’re Cookin’ as more of an incubator, spinning off businesses that then landed in the Evanston community.
Ms. Floy, also speaking with the RoundTable, said she viewed Heartwood as an incubator as well. “We don’t have non-compete,” agreements that would legally prohibit businesses from relocating close to the Center, she said. Heartwood encourages its businesses to grow, leave the Center and establish themselves in the Evanston community, she said. She cited several businesses that had done exactly that.
Dorrie Flores of Fifth/Third said the underwriting standards required a cash flow history, and given the fact that the Heartwood Center’s cash-flow history with 40 tenants could not pay more than the amount of the Fifth/Third loan, the benk could not lend more. Ms. Floy’s projections, based upon the 40 current tenants plus 40 more currently on the waitlist, showed more than enough cash flow to cover all loans. The bank, Ms. Flores said, is not allowed to rely upon projections, even if there is a waitlist practically guaranteeing tenants and rent payments.
“We are comfortable with her projections,” Ms. Flores said, but underwriting requirements mean that “we can’t rely on her projections.”
Ms. Flores also pointed to the collateral. Total loans on the property will add up to about $600,000, while the property’s appraised value after construction will be about $1.3 million, equating to a 43 percent loan-to-value ratio. (Banks generally expect an LTV ratio of 75 percent or greater.) Even if the loan “goes completely south,” she said, there is more than enough value in the property to pay back all loans. “There’s more than enough collateral here” to pay off all loans, she said.
Ms. Floy, Alderman Peter Braithwaite whose Second Ward contains the Center, and residents spoke about the value the Center adds to the City. Ms. Floy said the Center provides free counseling to victims of sexual abuse, the homeless and cancer survivors. She said a new program starting soon will provide services for veterans returning from Iraq and Afghanistan. The Heartwood Center is a community of small businesses, some of which outgrow the space and relocate in Evanston. Ald. Braithwaite called the center a real small business incubator.
None of the information provided was enough for Ald. Burrus. Calling herself a fiscal conservative seeking the best return for the City, she was never convinced despite projections showing ample cash flow to pay the loan and a professional appraisal showing more than twice the amount of collateral needed to cover the loan.
The measure passed easily, 6-2, with only Ald. Burrus and member-at-large Raymond Zenkich voting “no.”