CharityVillage® Research: Carrot Common Corporation --- a case study in social investment

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Carrot Common Corporation --- a case study in social investment
May 1, 1996; Canadian FundRaiser

Carrot Common is the name of a neighbourhood shopping mall located in mid-town Toronto and built at a cost of $6 million in 1988. It is owned by Carrot Common Corporation, a unique partnership structured as a joint venture with the following partners:
The Big Carrot & Carrot Cache 35%
David & Margaret Walsh 33%
Cooperative Resource Pool of Ontario 7%
Carena Bancorp 15%
Jesuit Centre for Social Justice 5%
Citizens for Public Justice 5 %
This partnership owns Carrot Common mall which includes 17 stores; 15,000 sq. ft. of office space, storage and common areas; and 33 parking spaces. The mall has a central courtyard which has become a very popular neighbourhood gathering space and a busy pedestrian area. The partnership is unusual in the way it combines the talents of:

a worker co-op and its expertise with organic foods,
a co-op venture capital group,
a private developer interested in community goals,
a merchant banker, and
local community advocacy groups.
The ownership of the development is held so that over 50% of its profits will flow to community based organizations, 23% go to Carrot Cache, a non-profit corporation set up to fund new worker-owned cooperatives and small organic farming projects, 7% to a venture capital fund operated by the Cooperative Resource Pool of Ontario, 10% to the Jesuit Centre and Citizens for Public Justice, and about 12% to a fund that supports social justice and community economic development initiatives. Carrot Common has worked well, and there has been general consensus among the partners. The operating success of the mall has been due in large part to the nature of the Big Carrot and its role as an anchor in the mall. The work of the developer has been important in the management of the mall. The community groups will benefit as they share in the profits.
Equity treated as loans
Any equity money invested in the project has been treated as loans for accounting purposes. Thus, because of the project's high debt, it has taken eight years for the mall to reach a profit. As the first mortgage and loans are paid down, however, the profits will increase substantially.
The Big Carrot Natural Food Store, the anchor store in Carrot Common, was founded in 1984 as a worker co-op by four women. They established a very successful store across the street from the present location, and after three years were interested in expanding, which Carrot Common has made possible.
The ground floor of the mall also has a number of other very successful "alternative" stores, including an environmental products store. The second floor has been developed as a natural health centre, and a home for Bread & Roses Credit Union, which supports community economic development projects. The partners have subsidized the rent of this community credit union and several other community based groups. Finally, a large roof deck is available to community groups to hold social and fundraising benefits.
Carrot Common is a demonstration of how different types of partners can successfully create a project that can have community development as one of its major goals, and at the same time build a successful business venture and promote organic foods. The real benefits will become more visible in the long-term when the project generates higher profits to support community economic development and other community causes. In preparation for that time, the partners are continually examining ways of using the property for innovative ideas, such as creating a craft market for vendors and working in partnership with the Evergreen Foundation to create a "wild garden" on the property.
While many commercial real estate developments have faced difficulties during the recession, Carrot Common is thriving. The character of the development gives it a unique relationship with the community and it is much talked about as an alternative to standard shopping malls.
Attracted by the community spirit
The partnership began when the Big Carrot approached David Walsh for help in purchasing a car dealership site located across from their previous store. The members of the Big Carrot were experiencing considerable difficulty borrowing money since banks and credit unions are reluctant to lend to a worker co-op, especially one with few tangible assets. The original store had been financed on a shoe-string budget, with members mortgaging their houses.
The Big Carrot contributed $100,000 as its share of the financing of the mall, and spent an additional $500,000 on its store improvements. It raised part of this capital by selling to local investors a total of $264,000 in Class A, non-voting preferred shares in units of $10,000; and by arranging a loan of $250,000 from the Federal Business Development Bank, which wanted everything except the kitchen sink for collateral. Suppliers extended favourable credit for about $150,000 to help finance the store's expanded inventory.
Walsh was attracted by the community spirit of the Big Carrot and realized it would make an excellent anchor for a neighbourhood shopping mall. He was also interested in ways the project might support other community development groups or causes.
The partners set out to develop the concept of the mall with the idea that Walsh would raise most of the monies and act as the developer, and at the same time consult closely with members of the Big Carrot on how the project would proceed. The form of the partnership was not defined entirely at the beginning, but rather it evolved over a period of two years as the project came together. For example, Carrot Cache was not formed until two years after the project began, and its mandate evolved for another two years.
Making it happen financially
The property was purchased in July, 1986 for $2,350,000 with the Vendors assuming a mortgage for $1,850,000. To finance the purchase of the property and the cost of the renovations, Walsh contributed $600,000 and personally guaranteed a second mortgage with Carena Bancorp for $1,800,000. The Big Carrot contributed $100,000 and the Co-op Venture Pool $60,000.
As the development proceeded, the market for stores indicated demand for higher quality space with correspondingly higher rents than originally anticipated. This led to additional costs, and because of delays in construction, an additional $1 million was required. Walsh contributed $400,000 and Carena increased its second mortgage by $600,000. The final cost, including financing charges during construction, was approximately $6 million.
The development was completed in September, 1987. The following July, when the building was fully leased, a new first mortgage of $5.4 million was arranged. With this money, all loans were repaid except those of David Walsh and the Co-op Venture Pool.