Lyon & Healy was founded in Chicago in 1864, but after more than a century of doing business here, the harp manufacturer almost left the city after being acquired in 1985 by a Swiss firm that makes harps in Italy and Switzerland.
According to Janet Harrell, president of Lyon & Healy, the decision soon was made that three plants were too expensive to maintain. ”And then the question became, Do we move the Swiss facility to Italy or Chicago, or do we move the Chicago facility to Europe?” she recalled.
”We approached the new management and said: `Bring the mechanism to Chicago. We`re efficient and have unlimited resources for parts, and we have the space.` What we didn`t have was the funds or cash flow.”
Lyon & Healy solved its problem in part by becoming one of the businesses that in 1992 qualified for a low-interest loan package from the city in return for keeping its operations here. It will use the money to renovate its building at 168 N. Ogden Ave., purchase new equipment and hire and train 35 new workers over the next two years.
”I know that 35 jobs sounds like nothing when you`re looking at a company like Spiegel exiting the city with thousands of jobs, but it`s still a 50 percent increase for us,” said Harrell.
Indeed, the much-publicized decision of Spiegel Inc. to move its distribution operations, and 2,200 jobs, out of Chicago in 1994 has left the city open to criticism that it does not do enough to retain jobs, escpecially in manufacturing, and encourage the redevelopment of outdated or vacant industrial property.
And Spiegel`s decision will add to that list of property. The company, which is moving to a one-story, 1 million-square-foot facility on a 190-acre site in a suburb of Columbus, Ohio, works out of 21 buildings clustered at two sites: 35th and Morgan Streets, and Pershing Road and Wolcott Avenue. Spiegel cited the age of the buildings, some of which date back a century, and the fact that many are several stories high as factors in its need to relocate.
But city officials say the departure of such a high-profile operation overshadows their success in keeping small to medium-size businesses in the city or enticing others to relocate here-and the beneficial effect that has had on industrial property in Chicago.
According to city statistics, between April 1989 and November 1992, the city granted more than $34 million in loans and infrastructure assistance to more than 222 small (less than 100 employees) and medium-size companies
(between 100 and 500 employees) doing business in Chicago, creating 5,807 jobs. According to figures provided by the companies in their loan
applications, the city`s assistance has helped retain 13,818 jobs.
At a recent ribbon-cutting ceremony for just such a company, National K-9 Security, Mayor Richard Daley underscored the city`s push to provide incentives for small and medium-size businesses.
”By participating in the city`s loan program, K-9 has been able to expand its operations and bring over 100 jobs to Chicago,” Daley said at K-9`s new training facility at 2916 W. Lake St. ”We invested in them by lending them over $300,000 to grow. In turn, they`re investing in us with nearly $1 million. They`re bringing growth and development to the city`s West Side.”
The city`s program to help industrial businesses and developers can include low-interest loans; business infrastructure assistance; facade rebates; incentives such as sales tax exemptions on building materials and job tax credits for locating in one of the six state-designated enterprise zones in Chicago; tax increment financing, which uses the increased tax revenue generated by new companies to pay off the bonds floated to build the project; and tax reactivation programs, by which the city is able to obtain title to tax delinquent property.
According to Marla Kaiden, deputy commissioner of the Department of Planning and Development, dozens of businesses are assisted each year, and many receive benefits from more than one program.
”This year we received $3 million in (federal) Community Development Block Grant (CDBG) money, and we`ll have almost all of it committed by (the end of the year),” Kaiden said.
Because of strict rules that accompany the disbursement of federal money, Kaiden said the department can make only low-interest matching loans of up to $350,000.
Here`s how it works: The city matches a conventional loan made by a private lender. If the lender provides a loan of $100,000 at competitive interest rates, the city can match that $100,000 but charge only 3 percent interest. In one of the six enterprise zones, the matching loan ceiling rises to $500,000.
Kaiden said that the bulk of the city`s low-interest loans are for $150,000 or less, adding that the city can lend up to $20,000 at low interest rates to businesses that don`t meet the requirements for the matching loan program, which are mostly tied to how many and what kind of jobs will be created.
To a small or medium-size business, those dollars can go a long way toward encouraging a company to stay in or move to Chicago.
Ask William Taylor, president and owner of National K-9 Security Inc., which last year moved from Northbrook to West Lake Street.
Taylor founded National K-9 Security in 1969 as a kennel in Northbrook where guard dogs were groomed and trained, but four years ago his company was hired to patrol the Chicago Transit Authority`s elevated and subway lines, a program the city says has been enormously successful in lowering the crime rate.
Two years into the contract, Taylor realized the company was spending too much time shuttling dogs from one location to another-”We go to the extremes of the city,” Taylor said-and began looking for a building that would house his expanding operation.
The building at 2916 W. Lake St. seemed perfect, especially because it was a block west of the California ”L” stop. Taylor reasoned that the security patrols could in some cases walk to the stop, get on and fan out from there.
That stop has since been shuttered, Taylor says, shrugging his burly shoulders. ”Like any place, the city has its ups and downs.”
The old 17,000-square-foot brick building Taylor chose needed extensive renovations, including a complete rehab of the interior, a new addition at the rear of the building and a new roof. The purchase of and renovations to the property cost $950,000.
Though Taylor`s business falls into the service category, rather than manufacturing, his mortgage broker put him in contact with the city.
”(The city) was receptive. I had a good background and had been in business for a considerable length of time. I had a viable contract with the CTA,” said Taylor, who employees 100 people.
”But a lot of it has to do with the fact that we moved into a redlined district. Ninety-three percent of our employees are minorities and we`re offering security training at a much lower price than most schools are charging. We`re giving them opportunities to meet people because after they`re through with the class, we invite other security companies in to interview and hire them.”
Unlike National K-9, Lyon & Healy wasn`t looking for a new building. They had owned the property at 168 N. Ogden Ave. since 1923, though the manufacturing operations didn`t move there until the early 1980s.
Harrell, who joined the company in 1984 and has been president for three years, said the tough part was convincing the new parent firm that the Chicago location was the better choice financially.
”Because of the package the city put together, we were able to persuade our Swiss parent to stay here,” said Harrell, whose company wound up with a $1.5 million in loans-$500,000 each from the city, a private lender and an equity line of credit. ”The Swiss manufacturing facility will be shut down, although the company will retain its corporate headquarters there. We will make and assemble all of the mechanisms for export.
”If we didn`t get the additional money to hire 35 people, we would have probably lost about 35 people. The swing is actually 70 jobs,” Harrell explained. ”We would have still manufactured harps here, but the size of the operation would have been cut in half. It was critical that we get this money. ”The biggest factor working in our favor was that we were up against the very real possibility that we would be moving to Italy. And because there is a recession in Europe, the Italian government was offering certain incentives, like refunds on employee wages, low interest money for the building and tax incentives.”
Harrell said the process was similar to applying for a conventional loan. Valerie Jarrett, director of the Department of Planning and Development, says that`s because two years ago the city revised and privatized its loan program. Now private lenders do nearly all the paperwork, providing an efficient service for her department.
”We`re not down to getting the loan (approved) in 10 days, which is how fast a private lender can do it (alone), but we`re down to four or five weeks,” Kaiden said.
”I`m not sure what the city`s guidelines are for approving loans, but the number of jobs added was a key factor,” said Harrell.
Jarrett concurs.
”There is a sliding scale, a ratio between jobs and money. We can give $10,000 to $20,000 per job created (up to the cap of $350,000), but the company must demonstrate the need for public financing,” she said. ”They must demonstrate a real need for below-market interest rates. It also has to do with the quality of jobs they`ll create. We generally require participation from a private lender, otherwise the most we can give is $20,000.”
In addition, Lyon & Healy worked with several nonprofit organizations to receive funds through the Illinois Training Program, as well as money from federal programs that provide funds to hire displaced workers. In addition, the company is benefiting from a sales tax credit for materials purchased locally for renovation.
Though the city`s program has benefited a number of companies, many still have a healthy fear about going into business with the government.
”I had a lot of apprehensions, like a lot of people do, about dealing with the city. That they`ll drive you crazy and it will be too late to get the money,” said Dennis Hack, president of Standard Steel and Wire Corp., which distributes steel sheets and coil.
Hack, whose grandfather went to work in the local steel business in 1926, said his family took over bankrupt Standard Steel and Wire, then at 1900 N. Southport Ave., in 1981.
”That building was built in 1920. We needed more room, and the plant facility was obsolete. It had five-ton cranes and only had 25,000 square feet of space and relatively low ceilings,” Hack said.
”A lot of guys are in a similar situation with an older building in a neighborhood that was getting yuppified pretty rapidly. Clybourn Avenue hadn`t happened yet, but everything was getting more expensive, which meant the chances of buying the building were slimmed down because of market pricing,” he added.
Hack said he spent two years looking at every crane building in Cook County. In the same time, he got involved with the Local Economic and Employment Development Council, or LEED, a grass-roots coalition of businesses and people. The LEED Council is also a city delegate agency, meaning that the city gives the council a percentage of its budget in return for the council acting as a liaison to the local business community.
Meanwhile, a suitable location turned up in Franklin Park, which offered to float $1 million of low-interest industrial revenue bonds to entice the company to move from the city.
”We were ready to take our 26 jobs and go to Franklin Park,” Hack said. Through the LEED Council grapevine, the city was made aware of Standard Steel and Wire`s situation. A representative from Jarrett`s department came out to discuss possible alternative locations.
That`s when Hack discovered funds were available to keep the company in the city. He applied for a $300,000 loan through his private lender, and through the lender applied to the city`s low-interest loan program. The city offered to kick in $150,000 at 3 percent interest, or half of what Hack needed to expand his location. The blended rate of the total loan is approximately 6.7 percent.
While Hack admits today`s low rates make his package sound less spectacular, he said the blended rate was ”a tremendous advantage. Compared to where rates were two years ago, our deal was a real eye-popper.”
With the city`s help, Hack found a suitable location with room for growth at 2450 W. Hubbard St., which had been vacated by a company that moved its 100 jobs to Whitewater, Wis. Standard Steel and Wire moved into the 90,000-square- foot building last January.
”The building was vacant when we moved in, so the city now receives real estate taxes (on the property),” Hack said.
Hack, Taylor and Harrell all say there has been red tape and snags along the way, but each was impressed with the city`s responsiveness.
”The people I dealt with at (various) city offices and the local offices of government agencies handled everything efficiently,” Harrell said.
”I`ve got no complaints. They`ve been extremely helpful to me whenever I`ve had a problem,” Taylor added.
