Project Stage II: Preparing for Leasehold Improvements/Construction

blocks-bwNow that your co-op has declared its intent to expand its current location, relocate to a new and larger site, or add an additional store, how you proceed with those grand plans will help to determine the long-term success of your co-op. The co-op has extensively researched the concept, committed to the plan and achieved alignment with membership and key community members (usually without disclosing the specific site) that the growth plan is coming at the right time and place. You’ve managed to skillfully maneuver through the many challenges of Stage I, the Feasibility Stage, culminating in the major decision point of signing the lease or purchase agreement (likely with contingencies—for example: contingent upon the co-op securing full financing for the expansion project) for the new space. Building on the momentum and hard work of this first planning stage, you are ready to see some concrete results of crossing those T’s and dotting the many I’s.

The next stage (Stage II) of the Expansion/Relocation process is called “Preparing for Leasehold Improvements or Construction,” as described in “The Expansion Toolbox,” written by Bill Gessner, a consultant with Cooperative Development Services (CDS). This resource is available at the Cooperative Grocer website at www.cooperativegrocer.coop and describes in detail all of the stages of this important phase in the life of your co-op. This has been a very useful and popular guidebook for co-ops since it was first published in 2000.

Stage II can last from two to 12 months, but four to six months is a typical time frame. It may seem like one huge project, but it is useful to view it as the two related tracts of finance and design. During this time, actual designs and related bids are formulated and you prepare to go to the bank with these paper plans and concepts. This pre-construction time involves site and facility design, development bids and financing. The major decision point of this planning stage is to close on the financing along with removing any remaining contingencies. Once this major step is complete, you’ve reached the point of “no turning back” and are on your way of seeing those walls go up and watching the next part of your co-op’s life begin.

At the beginning of Stage II some general managers hire a project manager or designate an existing employee to assist with the expansion/relocation. There are pros and cons for both options. If you hire a new employee or consultant, you incur added costs that need to be factored into the overall project budget. On the other hand, if the person you hire specializes in the type of project you are undertaking, that expertise can save time and money in the long run. If the general manager or other co-op employee assumes the duties and responsibilities, you have added tremendously to their workload. They must somehow integrate these new activities into their daily duties and determine what drops off and who picks up the slack. The current employee may not have any experience in this type of project management and will be trying to play catch-up.

Once you’ve secured the new site or determined how your existing site will be enhanced, you have to find and hire the design and construction professionals to make your dream a reality. There are two general avenues for getting the right people to do the work. One, is to hire a company to handle all of the design/construction work which can be an efficiency advantage by dealing with one company. This is commonly referred to as Design/Build. Two, is to hire an architect to lead you through a full design and bidding process, culminating in hiring a general contractor to coordinate all of the aspects of the construction including hiring the subcontractors, etc. With the latter option, you may get more competitive bids since you are not dependant on one company and their particular cost structures. (Note: In both of these options the refrigeration contractor is usually hired separately and directly by the co-op.)

Denise Chevalier, a CDS consultant who specializes in project management and new co-op development, says that “finding a general contractor or project manager can be a challenge for co-ops, especially those located in small towns or rural areas.” Wherever you are located, you must try to find the best fit for your particular situation. Other businesses and co-ops in your region can help you locate competent professionals.

No matter what path you choose, it is critical that a project team is assembled to oversee all phases of the project. This team usually consists of the store’s general manager, a store planning consultant, architect, contractor and other essential players such as the refrigeration contractor. Organizing a project team is a common practice to handle the abundance of details and unexpected challenges that are part of the territory of large projects. “No matter how the expansion/relocation is organized, the general manager is ultimately responsible for the project,” says Bill Gessner, CDS consultant. That means it is more imperative than ever for the GM to have a competent team in place to assist in making crucial decisions and offer support when obstacles occur. Anyone who has survived even a minor home renovation can surely sympathize with the co-op’s GM during this hectic time.

Last, but by nowhere least, the many financial pieces of the project puzzle must come together in this phase. As in any costly and potentially risky endeavor, the co-op must be cautious and creative in its approach to finding the necessary funds to see the project to its fruition, while not jeopardizing the daily operations of the store. There are various ways to fund the co-op’s expansion/relocation, but experience has shown that the primary sources of bank/credit union and direct membership support have worked very well for many co-ops. Member loans to the co-op are an “extremely important and healthy method” of financing, noted Bill Gessner.

He went on to say that the loans are not secured, typically have a $1,000 to $2,000 minimum and a term of 4 to 8 years. Food co-ops are currently raising between $300,000 and $1,500,000 in member loans to support expansion projects. Planning for a member loan drive needs to happen in Stage I, so that the member loan drive can be launched at the beginning of Stage II when the site is publicly announced. Some co-ops sell preferred shares to fund the expansion project and these can be advantageous for reasons of balance sheet presentation and pay back flexibility.

The bottom line is that with substantial financial support from the co-op’s members investing in the project, other types of financing will come more readily. Indeed, without the co-op’s own funds to bring to the project, a lending institution may not even be willing to loan the money. The on-going member commitment, both as owners and as shoppers, is what separates the co-op from the grocery store down the street.

With the vision, talent, capital and systems in place, you have assembled the necessary ingredients to launch the building phase of your new and improved store. When you break ground take time to appreciate all that has been accomplished. Be sure to celebrate the outstanding collective achievement as you ready for the new challenges and opportunities that a larger store will surely bring.

FavoriteLoadingAdd to favorites
By |May 30th, 2008|Categories: Solutions|Tags: , , |

Leave A Comment