Shelterforce The journal of affordable housing and community building

Summer 2008 » June 23, 2008

Salvaging Success from Failure

While the case of Chicago's El Mercado marketplace project illustrates the kinds of false assuptions that get community development organizations into trouble, it can point the way toward sound decision-making By Bob Brehm

Community, political, and business leaders—and in particular those with what are thought to be strong entrepreneurial skills—are often praised for their visionary leadership. This typically refers to their ability to see a future that is better than the present, in ways that others cannot. This ability enables such leaders to guide their enterprises in directions whose benefits are not readily apparent to those around them, but which nonetheless prove to be the right course of action. Such leaders can often steer their groups in significantly new or risky directions, without the level of scrutiny typically applied to ideas that are generated by those with less of a visionary reputation.

As the executive director of a community development corporation in Chicago in the early 1990s, I led the CDC, Bickerdike Redevelopment, in the development of a risky community economic development project that represented a radical diversion from what was then commonly accepted practice in the field. Our group had a well-deserved reputation as a CDC that was bold, progressive, and ready to challenge both conventional wisdom and the political power structure, and that consistently developed and managed its projects well. The new economic development project, while ultimately turned around into a highly successful venture, failed in its initial format. Did it, perhaps, fail because my colleagues and I let my visionary leadership win over my eyes-wide-open management and risk-assessment track record?

The Northwest Community Organization (NCO) established Bickerdike in 1967. Development in the community was stagnant after more than 40 years of neglect by the public and private sectors. In the late 1960s, the racial composition of the area was changing from primarily first- and second-generation European immigrants to Latinos and African-Americans, which occasionally spurred friction among residents.

NCO was one of the original community organizations set up by famed organizer Saul Alinsky in the 1950s and 1960s. He and his disciples practiced community empowerment through grass-roots organizing and challenging the power structures on issues ranging from crime to education to affordable housing and jobs. Bickerdike was created to enable the community to act in its own behalf with regard to the development of the physical community, and in particular affordable housing. At the time, and to this day, many in community organizing felt that becoming a developer—even a community-controlled nonprofit developer—was anathema to the spirit and culture of activist organizing. Alinsky-inspired groups like NCO felt that they should spin off and control the outcomes of community development groups, but not get mired in the actual operation of those spin-offs. Bickerdike’s work has resulted in the development of several hundred units of affordable housing.

Bickerdike had long recognized the importance of putting local people to work on its development projects. The group realized that its development activity represented a potential source of employment, and in an area of increasing joblessness and underemployment it seemed to make sense to address both the jobs and housing issues in the same projects. That notion summed up its understanding of “economic development”: that for area residents to benefit from economic growth there had to be access to both affordable housing and well-paying jobs. One example is its subsidiary, Humboldt Construction, which for more than 25 years has been providing union construction jobs and contracting services for the organization and others.

The group adopted a two-pronged approach to expanding its work on economic development. It would continue to be active with others in the community on an organizing and advocacy level, working to stem the loss of jobs and to try to achieve the maximum benefit of new developments in the area for local residents. And when it undertook a development project designed to have a direct economic impact, it chose projects that had the potential to catalyze additional positive development and demonstrate the benefits of community control and action.

Planned as a variation on a traditional Latin American marketplace, El Mercado was the group’s first project under those criteria. Neighborhood residents—who by the early 1990s were over two-thirds Latino—would be able to purchase fresh produce, meats, and prepared foods, local entrepreneurs would be able to have successful small businesses as operators of booths in the marketplace, and local residents would be hired to work those booths.

Bickerdike’s guiding criteria determined much of the pre-development planning for El Mercado and later became factors in the organization’s reluctance to alter its direction even when it became clear that it was floundering. El Mercado represented a significant deviation from the type of economic development efforts typically sponsored by CDC’s in Chicago and elsewhere. While there are many exceptions—and among those some of the most interesting projects to consider—most CDC-sponsored economic development projects are essentially real-estate ventures: the CDC develops the real property in much the same way as it develops housing, but in the case of economic development projects the tenants or end-users of the property are businesses that are expected to provide an economic stimulus to the area by creating employment or business start-up opportunities. Less common are projects where the CDC operates the business activity, itself becoming the direct agent for job-creation or business start-ups.

At El Mercado, there was a clear real-estate development aspect to the project with capital to be raised and spent in rehabbing it and a budget to be met to operate it. Bickerdike also placed a priority on creating a local benefit.

As initially envisioned, El Mercado would be a success only if it met several broad goals:

• Area residents were the overwhelming majority of beneficiaries of economic opportunities within the project, including both micro-businesses and jobs.
• Neighbors benefited from the availability of ethnically oriented fresh and prepared foods (which was hard to get in the community).
• The community achieved a sense of pride in its accomplishment, in the ability of a community-controlled project to do well and stand as a model, and from that sense came a renewed confidence in and commitment to the area.

El Mercado Public Marketplace was a great idea and represented an incredible creative and development effort. Nevertheless, as originally structured, it failed to achieve all three goals.

During El Mercado’s predevelopment phase, Bickerdike did very little market research beyond obtaining data on supermarket gross sales and an estimate of the sales volume for the site’s prior occupant. Based on those figures, Bickerdike estimated sales projections for the stalls that, if achieved, could easily have supported 30-40 successful small businesses. Staff conducted extensive community outreach, which provided ample anecdotal evidence of community interest and support, but did not more formally assess the interest and capability of area entrepreneurs.

El Mercado was funded through a mix of federal grants and equity Bickerdike had raised from successful multi-family housing developments. Had those resources not been available, Bickerdike would have had to seek private bank financing and the project would have been subjected to a more rigorous underwriting process. Potential lenders would have asked for evidence of community interest in the project—to validate expectations of sales and marketability of the booths. Ironically, Bickerdike’s ability to finance the project without debt let the organization get away without having to prove those expectations reasonable to anyone.

In order to enable start-ups to open booths in El Mercado, Bickerdike provided significant financial and technical assistance. It partnered with the Women’s Self-employment Project (WSEP), a group well respected for its support of start-ups by women. WSEP provided direct technical assistance to the businesses and helped administer a start-up loan fund. Because almost none of the potential vendors were bankable, Bickerdike capitalized the loan fund itself.

Bickerdike also helped each business build its stall. El Mercado was designed as an open market, with 48”-high partitions delineating the 37 booths. Each booth had its own utilities, and there were walk-in coolers for the fresh-food stalls. Beyond that, vendors had to supply counters, display cases or coolers, and workspace. Working with Bickerdike, and with some help from Humboldt Construction, vendors built out their booths, in many cases using plywood counters and displays made on site.

El Mercado had a rousing opening week, complete with a full front-page color picture and story in the Chicago Sun-Times, the city’s tabloid daily, and crowds in the hundreds for four straight days of opening celebrations and entertainment. After that, sales were miniscule and flat.

The community clearly knew about the project, and there was no trouble attracting hundreds of people to El Mercado for entertainment or cultural events. And shoppers came but ultimately they spent very little money. Some came for a jibarito sandwich for lunch or a tropical shake, enjoyed the sunlit atmosphere, and left without doing any shopping for fresh food. The small branch of a local bank with which Bickerdike had done business for years selling dairy and other goods subsidized through the Special Supplemental Nutrition Program for Women, Infants, and Children did well and attracted customer traffic.

Still, several of the small businesses failed, each one leaving Bickerdike with unpaid loans and rent and El Mercado with yet another gaping hole. Bickerdike took over a few of the booths and ultimately did a restructuring to bring in a local mid-sized business to operate a dry-goods business occupying about 40 percent of the space. The grocer paid rent to Bickerdike regularly, unlike many of the smaller businesses, and sales picked up a little. Still, the project was losing money every month for Bickerdike, and the group knew it could not sustain those losses indefinitely.

El Mercado first opened in November 1992. By the time I left Bickerdike in February 1995, it was clear that something drastic had to be done with this failing project—it was no longer reasonable to continue the same strategies, hoping that eventually customers and small businesses would materialize and the project would become viable.

In October 1995, under the direction of its new executive director, Joy Aruguette, Bickerdike restructured the project. Proposing to eventually abandon the concept of having many booths operated by independent small businesses. Instead, the building would be leased to a mid-sized grocer, who would pay Bickerdike rent under a net lease. This adaptation—avoiding a long-term failure and producing a successful project—was possible for a number of reasons. The sponsor and its federal grant agency were both willing to pursue the modification. The underlying economics of the real-estate project were sound, even if the public market use was not. And the CDC itself was strong enough to sustain the project through the lean years without being forced to abandon it.

What were Bickerdike’s mistakes on the El Mercado project? Among the most significant were several bad assumptions:

• Everyone would love to shop at a public market. Although there was no modern history of public markets in Chicago, Bickerdike expected El Mercado to catch on and succeed.
• Local residents of limited means would be willing and able to open and successfully operate small businesses. The decision to favor small businesses owned and operated by low-income area residents meant that in practice, most of the vendors would be novices. They had limited experience, very little capital, and limited technical knowledge of business planning and operation.
• Bickerdike could achieve multiple goals through one project. From the outset, the organization wanted to develop a project that would have an impact beyond the tangible outcomes: jobs and economic opportunities for area residents on the one hand and choice and quality of products on the other. We were trying to make a statement—about culture, economic opportunity, democratic economic structures, and community control—all the while expecting to generate significant economic activity and benefit to consumers. This was simply too much to ask of one project.
• Bickerdike’s competencies would easily transfer to success with El Mercado. Bickerdike’s current director, Joy Aruguette, the leader responsible for the project’s successful turnaround, says: “We see the same thing in our new mixed-use rental development. People think that just because we do residential property management that means we can do retail property management as well—and it just isn’t that simple. You’re dealing with different sorts of people and they bring different issues to the table.”
• The executive director will pull this off. I brought to the role a good set of skills, drive, and a commitment to Bickerdike’s values of community control, honesty, integrity, and doing things well. Unfortunately, I also brought to El Mercado an unflinching commitment to the project’s multiple goals. It took my departure, and the work of a new director who has comparable values, skills, drive, and commitment—but not the emotional attachment to this particular vision—to guide the organization through a successful restructuring of the project.

Bickerdike embarked on El Mercado largely because of its uniqueness and potential for benefiting the community. When the project was restructured, many elements of its original qualitative metrics were retained. Jobs have been created for local residents. A mid-sized minority entrepreneur flourishes there. Also, fresh products appealing to the area’s ethnic groups are readily available; and financial gains are shared by the community institution— Bickerdike—through rent of the space. That makes the project relatively distinctive from a CDC economic development project, and it still benefits the local economy. Yet it lost the more substantive ways in which it was distinctive—the public-market concept and the local economic empowerment through micro-business development.

No one at Bickerdike considers the project a “failure,” and my sense is that the community at large feels the same way. The group should be commended for turning the project into a success, with as many community benefits as it has to offer. Still, it raises the question of how many “successful” CDC projects differ significantly in terms of concept or beneficiaries from their original plans. Is the CDC community—including government and private funders, associations, and CDCs themselves—prepared to put a project into the “failure” column if it deviates from the group’s purpose? My sense is that there are many, many such projects out there, and that those projects are not considered failures unless there is a loan that goes unpaid or the property is abandoned to another use entirely.

What are the most important take-aways from the El Mercado project? For me there are three.

First, some the best ideas of those of us working in community economic development never should get beyond the early planning stages. We should continue to dream, plan, and get enough funding for feasibility studies, undergirded by a realistic assessment of the risks. And if the risk assessment doesn’t lead to a reasonable expectation of success, the organization should drop the project. Why? There is just too much to lose.

Second, if we apply rigorous planning to innovative new initiatives, maybe we’ll do a better job of setting them up. For El Mercado, Bickerdike should have had an anchor tenant giving small businesses a chance to succeed surrounding a well-run grocery and meat store.

And third, we shouldn’t abandon our non-development strategies for changing the local economic landscape, such as organizing and advocacy on policy changes. Whether the issue is protecting good jobs, or better education and increased access to the jobs that are available, there is no shortage of activist strategies that may have the potential for greater impact on the local economy than even our most successful development projects. For those of us who are committed to the notion that community development can play a critical role in the struggle for community empowerment, we need to chose our development strategies carefully and assess our success or failure based on whether or not our efforts have served that broader mission.

Bickerdike made several key mistakes in the planning and operation of El Mercado. On reflection, I have come to believe that if we had done a better job and avoided those mistakes, this project would still have failed in its original format. What we should have done was to take a closer, more critical look at the business model during the planning phase.

I am just as committed today as I was in 1990 to the notion that community development makes sense only if there is an agenda that entails using the development activity to support organizing for community empowerment. The experience of El Mercado has not changed my perspective on that notion—however, if the development project we undertake does not succeed, it can provide no community-empowerment gains and in fact the organizing agenda suffers for that failure.

Published by the National Housing Institute