Dollar signs blind co-op anti-capitalists
Higher sale price supplants goal of grocery store
In the year after Food Front shuttered its doors, members agreed on two things:
They wanted a grocery store there, even if a Food Front comeback was not in the cards.
Money was secondary. Few cared about getting a return on the $150 each paid for an ownership share.
Last month, the board of directors asked members to approve a sale of the property to a company that intends to find a retail tenant, hopefully a grocery store, for the vacant building. The board spurned consideration of an offer by Market of Choice to put in a grocery store.
Why was a surefire grocery store turned down for the mere possibility of one?
The board said it was the higher sale price. Market of Choice offered $1.9 million, while a family-owned property management company, K-5 Urban Holdings LLC, offered $2.55 million.
When did it become all about the money?
Perhaps when that became the only demerit to hold against Market of Choice, a company the board loathed irrationally.
Food Front Treasurer Mark Douglas, who was appointed to the board in June, made his strongest case against the Oregon-based healthy food chain. Selling to K-5, he said, would put an extra $600,000 in the hands of members compared to the Market of Choice offer. Assuming there are 1,000 active co-op members, he told co-op members at the July 16 meeting, that would come to $6,000 for each of them.
“Would each member be willing to add their $6,000 just to get a store in there?” Douglas conjectured. “If that’s true, and if a majority were there, we’d put it to a vote. I am certain if you told the members that you’re going to subsidize a for-profit business just so you can have a store, [they would not say it is] worth $6,000 per member to have a store.”
The hypothetical rests on a stack of spurious assumptions. Such a skimpy membership estimate has never been mentioned before. In April, board President Roman Shvarts said with surety that the membership roster has about 14,500 names.
Another problem is Douglas’ math: $600,000 divided by 1,000 is $600, not $6,000. Correcting for the two categories of bad data, the bonus to each member for accepting K-5’s offer would be about $40.
Perhaps more disturbing, Douglas assumed he could read the minds of members and spare them from choosing when there is only one correct answer.
“I’m a little apoplectic,” member Susan Stone said. “The bylaws say all questions must be decided by members. We got an offer last year from Market of Choice to put in a grocery store, which is exactly what members wanted.
“You guys have said the money is not the objective. We all know that. We’ve all agreed to that. We all wanted a grocery.
“We did a straw poll in December. For some reason board members really had a problem with Market of Choice. They’ve ignored them. They have dissed their offer.
“I strongly object to the board sending out their recommendation,” she said. “We need to be able to vote on Market of Choice. We should have done this six months ago.”
Douglas said Market of Choice was asked to raise its offer in light of later bids but refused to up the ante.
“You don’t vote on something that’s a bad deal,” he said.
“But it wasn’t your decision to make,” Stone replied.
Dan Anderson, a member since the 1980s, agreed with her.
“I think you need to put all serious proposals before membership and not selectively edit them,” Anderson said. “If you fail to include a proposal from that which the members are asked to formally consider, it fails the smell test.”
That theme reverberated throughout the 70-minute meeting, which was attended by 47 members. Attendance would have been greater, but the board terminated the memberships of former board chair Toren Orzeck, Brent Douglas and me “for cause” earlier in the month. (See sidebar.)
Unopposed ballot
Members may have the final say on the proposed sale, but K-5 will be the only candidate on the ballot. The voting began July 25 and ended Aug. 1.
No one from the Keppinger family, which owns K-5, attended the July co-op meeting, at which the board shared information provided by Angelina Keppinger, the senior family member head of the company.
Three generations of the family have owned property in the neighborhood, beginning in the 1920s. That includes three adjacent houses directly north of the Food Front parking lot.
“We have never sold any property we’ve owned,” read a statement submitted by Keppinger.
The sale and reacquisition of two of the houses on 23rd Place apparently doesn’t count.
The board was sold on the family’s story.
“They are a highly regarded property owner in every neighborhood where they are found,” Douglas said. “They refurbish, they update and they look for good, long-term tenants. The Keppingers have a proven track record, and we have been able to verify a commitment to the neighborhood.”
Kate Fulton, a newly appointed board member who works as assistant director of finance for All Good Northwest, a nonprofit providing services to homeless adults, said K-5 has accepted clients referred by her agency.
“I have nothing bad to say about them,” Fulton said. “We often face obstacles with housing folks who may have had a less than ideal rental record or spotty income, etc.”
Members had many questions about K-5 and its plans.
Member Steve Mayes wanted to know how many properties the company has and what might be revealed in tax and court records. He found it hard to believe that the family had never sold a piece of property.
Anderson said the board had not adequately researched the buyer’s background.
“You’ve asserted that they own more than 50 properties, and you’re aware of five specific ones. What about the other 45?” Anderson asked. “This isn’t rocket science. It’s taking the time to do due diligence.”
“We’re not idiots here,” Douglas retorted. “We’ve done basic checks. … You’re basically saying we’re trying to deceive you.”
Nevertheless, the board promised to provide a full list of properties owned by the company.
Shvarts promised the information would be distributed at least a week before ballots are due, but nine days later, the ballots were sent and the promised report was not.
“I think it’s really dismissive to tell a member: Go do your own research,” Mayes said. “You have a financial and fiduciary duty to do your due diligence and not to tell the members: You go find out what they own.”
Suspicious surveys
Another indictment against the board has been circulating all year. Critics say a December member survey indicating “overwhelming” preference for Market of Choice was buried, while a March survey showing narrow 52-48 preference for a partnership with Skylab principal Jeff Kovel was all the evidence needed to move toward a final deal.
Skylab, however, pulled out of the proposed partnership. Soon K-5 and Por Qué No?, a Mexican restaurant with two Eastside locations, came in with offers higher than Market of Choice’s.
No matter how many contenders appeared, Market of Choice always seemed to come out in last place.
Shvarts grew testy over reactions to the surveys.
“That was not a vote,” he said of the December survey. “That is really frustrating to have to rehash things that have been rehashed multiple times. It was a feedback survey. That was all that it was. People can’t choose the survey they like and say that survey needs to be used.”
But the March survey was much more than general feedback. It was treated as a qualifying round to reach the final ballot—a primary election, in effect.
Why the antipathy toward Market of Choice?
An ideological bent against private businesses was evident.
Douglas, although his resume boasts positions with major international corporations, made three derogatory references at the July meeting about the “for-profit” nature of Market of Choice.
“I can’t support us giving away $600,000 for a for-profit store that thinks they can get away with low-balling us,” he said. “They’ve made it frankly clear in the communications we’ve had. They know what it’s worth to them, and that’s all they’re willing to pay. That to me is not a partner.”
Douglas claimed Market of Choice stores close, on average, after four or five years, an assertion that even Shvarts admitted was specious in that the board was aware of only one Market of Choice outlet that failed. The second-generation company, founded in 1979, has 11 stores.
Kovel’s Skylab is also a for-profit business, but Kovel consistently referred to seeking a partnership with Food Front.
Board member Sanela Fusionary has spoken bitterly about Market of Choice since CEO Rick Wright presented a purchase offer last November. She called the Eugene-based family company no better than a multinational corporation.
“The Market of Choice offer was highly divisive among the membership,” board member Collin Ferguson said at the July meeting. “I even had interaction with other members who just actively hated the idea of selling to Market of Choice.”
What would K-5 do?
Douglas claimed, incorrectly, that no legal mechanism exists to require the buyers to put in a grocery store. A deed restriction could do that.
Because the building is “already set up as a grocery store,” he reasoned that keeping it as such would be the easiest course.
“Their plans for the building could be anything,” Mayes said. “It could be a grocery store. It could be a restaurant. It could be a tear down and build a four-story apartment building with no parking. … When we sell it, it’s out of our hands.”
A few days after the meeting, Anderson advanced a theory in a thousand-word email sent to the board.
The higher price offered by K-5 may be illusory in that the deal does not close until the buyer exercises its due diligence period, during which K-5 may inspect the property and weigh zoning, environmental or other impediments to plans before committing to the purchase. If this period is drawn out, the buyer gains an advantage in that the seller would be hard-pressed to find another buyer at the eleventh hour. (The looming deadline is particularly pertinent in this case because Food Front has a hard-money loan requiring full payoff sometime in 2024, though the board has never shared those terms with members.)
Anderson also raised an intriguing pattern that may suggest another motive for K-5’s interest:
Keppingers bought 1821 NW 23rd Place in 2019.
They bought 1835 NW 23rd Place in 2022.
They have owned 1831 NW 23rd Place for many years.
The ensemble gives them a quarter acre of contiguous land adjacent to the one-third-acre Food Front site.
The story the family shared with the Food Front board explained these recent acquisitions as driven by nostalgia for homes owned by their forebears.
But might they be part of assembling a major parcel suitable for redevelopment, eventually leading to the feared four-story apartment building raised as a boogeyman; the worst-case scenario feared by Food Front members of all persuasions?
The Examiner asked K-5 principals for assurances that this is not a possibility. There has been no answer.
Longtime member, neighborhood resident and business owner Ed Carpenter is vexed by Food Front leadership’s decision-making. Why they are prioritizing the highest sale price, for instance?
“They’ve got it backward,” Carpenter said. “They’re focusing on the income, not the outcome. “Food Front should supposedly be about its mission.
“As long as debts are paid off, the sole objective should be to insure that a sale results in a grocery store for the neighborhood. I cannot imagine a single member who is holding out for their share of the sale. Insist on a guaranteed grocery, not a ‘wise business deal.’
“What are they going to do with the money?” he asked rhetorically.
The most probable answer is to give it away, although again, the board has outlined no plans for what to do with the surplus, while repeatedly decrying the logistical nightmare of sorting out its outdated and seriously flawed membership list of somewhere between 1,000 and 20,000 members.