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How local banks kept New Leaf market's expansion going

March 10, 2009

By Jondi Gumz - Santa Cruz Sentinel

Scott Roseman and Rex Stewart can smile now that their expanded version of New Leaf Community Market, a $4 million project, is ready to open on the Westside at 8 a.m. Wednesday.

With their chief financial officer Kimberly Hallinan, they spent sleepless nights after Comerica bailed at the end of September on the locally owned organic market that opened in Santa Cruz 24 years ago.

Santa Cruz Community Credit Union provided a bridge loan of $1.35 million but Roseman and Stewart still needed $5 million to finish the new store, which is three times as large as the old one on Mission Street, and upgrade their downtown market.

That exceeded the lending limit for local banks.

Yet three lenders set aside turf considerations to collaborate on a financing arrangement, something local bankers say they've never seen before.

"Before, people said, We compete. We can't work together,'" said Jill Hitchman, vice president and loan officer at Liberty Bank in Boulder Creek. "We need to look at things differently. Yes, it's a bad economy, but if banks aren't lending to businesses, we're a part of the problem."

A New Leaf customer, Hitchman called Chuck Maffia, a former co-worker now at Santa Cruz County Bank, to see if his bank would take a look.

Then Hitchman and Liberty's director of lending Lowell Hallack, who is based in San Francisco, drove to Santa Cruz to meet with Santa Cruz County Bank's Fred Caiocca, chief credit officer, and vice president Michael Vasquez.

Santa Cruz County Bank took the lead in packaging an offer for a seven-year loan, contributing 40 percent. Liberty Bank put in 40 percent, and 20 percent came from Global Trust Bank, which opened Dec. 3 in Mountain View with $21 million in capital.

"When this opportunity came up, we jumped on it," said David Heald, president and chief executive officer of Santa Cruz County Bank, who counts New Leaf among his top 10 clients. "We think they have a very stable and loyal customer base."

The organic market switched banks, with Santa Cruz County Bank handling payroll and deposits for stores in Santa Cruz and Capitola and Liberty Bank doing the same for those in Boulder Creek and Half Moon Bay.

New Leaf's business plan factored in competition from Safeway, which is building a new store on Mission Street six blocks from New Leaf, and Whole Foods, which will compete against New Leaf on 41st Avenue when it opens in July.

"It's about relationships," Heald said. "Up in San Francisco or Salinas or Texas, they don't know who Scott and Rex are. They don't know the history or how they've grown the business."

Comerica spokesman Barry Holtzclaw said Comerica "has money to lend and is making loans to qualified customers."

Last fall, Hallinan had been counting the days until Oct. 1, when she expected a larger loan from Comerica to come through. When she got a phone call saying existing financing would be renewed with no new funding, "I went into problem-solving mode," she said.

Santa Cruz Community Credit Union offered a bridge loan but by the beginning of December, that money was spent, with months of work remaining at the Westside location.

"We had ordered equipment and put deposits down for the downtown project," Hallinan said. "That project was harder to shut down."

What kept the Westside project going was the willingness of Slatter Construction of Santa Cruz and subcontractors like Hope Electrical, Key Mechanical and Rountree Plumbing to accept partial payments and trust that the rest would be paid.

"We couldn't have done it without them," said Hallinan, who gave Christine Slatter weekly progress reports.

When Roseman and Stewart got financing offers from a regional bank and a national bank, they decided to stay local even though it cost more.

"It was a value statement on our part," Roseman said. "If you preach to a customer shop local,' then go to a national bank -- you have to be able to look at yourself in the mirror."

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