Role of MATC in incubators called into question
The Hispanic Chamber of Commerce of Wisconsin is looking for a new home in the wake of a December vote by Milwaukee Area Technical College’s (MATC) board of directors to terminate a low-cost lease arrangement for office space in the Milwaukee Enterprise Center (MEC) South, one of two business incubators run by the college.
While media attention surrounding what could be the end of a relationship between the Hispanic Chamber and MATC has focused on racial issues, financial and legal matters – and a disagreement among board members regarding MATC’s mission – have more direct impact on the impending fallout.
The chamber had been leasing its offices for $1 a month for the 10 years since MATC took over payments on the National Avenue building the chamber had bought from the former Square D.
MATC’s board voted down a proposal that would allow the chamber to expand the office space from 700 square feet to 1,950 square feet, with lease payments increasing to $10 a month. MEC officials say the additional space the chamber would use is currently a corridor and is otherwise unusable.
The Hispanic Chamber would be responsible for building out its own space to the tune of $250,000, and would retain responsibilities for brokering space in the incubator.
Proponents of MATC’s involvement in MEC South at 816 W. National Ave. – and MEC North at 2821 North 4th St. — say the relationship between MATC and the Hispanic Chamber is more of a partnership than that of a landlord and tenant, and that denial of the lease renewal ignores the contribution the chamber makes to recruiting businesses and securing funding for MEC South. They also fear the move may signal a desire the technical college or its board members may have to divest MATC of the business incubators entirely.
Tenant or partner?
While the Hispanic Chamber has paid next to nothing for its 700 square feet of office space, Brian O’Malley, who manages both MECs for MATC, said the Hispanic Chamber has been entirely responsible for recruiting businesses to MEC South and has also driven business to MEC North.
"We have about 90 tenants at MEC North, give or take a few – MEC South has about 25," O’Malley said. "Each of them pays a rent. We create an invoice every month for rent and services. All the income goes to MATC to offset expenses. Those things are segregated from the rest of MATC’s revenue."
O’Malley said MEC South’s bottom line is affected to the tune of more than $187,000 a year in revenue from firms recruited by the chamber for MEC South alone.
O’Malley said the two incubators are more than a real estate operation, and that they are not costing MATC money.
"We have all the same expenses that anybody would have who operates a piece of real estate," O’Malley said. "Because we are a business incubator, we do a lot more. We have a full-time staff person who does business counseling. I do a lot of business counseling myself. Those staff costs plus the cost of running 330,000 square feet of real estate are aggregated into our budget, and we offset that with rent revenue. Overall, income and expenses are at a break-even."
It is hard to deny that the presence of the Hispanic Chamber has a positive impact on MEC South – but the fiscal value of the partnership is harder to pin down. Chamber President Maria Monreal-Cameron said the vast majority of tenants in MEC South not only were referred by the chamber but are chamber members. But once the chamber generates the lead, the site visit and the rest of the transaction are handled by O’Malley. Monreal-Cameron was not able to identify specific measures the chamber took or an amount of staff time devoted to recruiting tenants for the MECs.
Based on the MECs’ printed space rates of $3.50 to $8 per square foot, the Hispanic Chamber’s lease for its current offices could be as little as $25,000 a year – which is still significantly more than what a traditional leasing agent would be able to make for brokering a similarly-sized building with such an affordably-priced space.
But Monreal-Cameron said that in addition to lease revenue, the chamber has landed grant revenue to improve the building site. Monreal-Cameron estimated the value of those grants at $2 million.
O’Malley said the figure was more like $1.7 million, including funds from the US Department of Transportation’s Congestion Mitigation and Air Quality program, which went to build a park-and-ride lot on the grounds. Other funds came from the Milwaukee County Economic Development Fund and the Department of City Development Economic Development Fund.
Financially self-sufficient?
Supporters and detractors of the MECs differ on whether or not the incubators are in fact financially self-sufficient.
"My concern is that MATC is really heavily invested in that center," MATC board member Julian Jasper Sr. said. "A lot of those dollars are over and above what we take in rent. At the same time, we have a policy that those centers are to be self-sufficient."
But according to MATC Vice President of Finance Joel Poppe, Jasper misunderstands the type of financial self-sufficiency required of the MECs.
"All of our enterprise centers — including the MECs, the college’s food service, bookstores and daycare centers — are to be self-sufficient for operational purposes," Poppe said.
Expenses involving capital purchases – things such as purchase prices of real estate and buildings, depreciation on equipment and durable improvements to buildings — are not considered when it comes to operational self-sufficiency, according to Poppe.
Included in MEC-related expenses would be the operating salaries of people working in the facilities, operating expenses such as maintenance, utilities, snow removal and other line items.
MATC carries no debt on the real estate housing the MECs, but if there were a mortgage on either property, those expenses would not be counted against operational costs either, according to Poppe.
Determining which building-related expenses are operating costs and which are capital costs is relatively simple.
"It is usually by the nature of the expenditure that we segregate things from operation," Poppe said. "Things that have a long-term life, typically more than two years, would be things we would segregate from operating cost."
Therefore, the replacement of windows at MEC South – to the tune of $56,000 – is a capital cost.
For the fiscal year July 2001 through June 2002, MATC will cover $180,000 in capital expenses for the MECs. Apart from the $56,000 window replacement, $125,000 will go for general build-out for facilities for new tenants.
Dueling board members
The vote to deny the lease arrangement was close – five to four. And board members have characterized the discussion as "lively" and "spirited."
One board member who voted against renewing the lease said the Hispanic Chamber does not deserve a "sweetheart deal" on its lease.
MATC board member A. Paul Pedersen, president of the Mequon insurance consultancy firm Pedersen Associates, said the board could not play favorites.
"I can’t give them a $1 a year lease and then turn down the African Chamber," Pedersen said. "It wouldn’t make any difference what organization it was. It is what we would refer to as a sweetheart deal. When MATC took over that building, the Hispanic Chamber was in bad financial shape. There are organizations out there that do far more for the community that we don’t give sweetheart deals to."
Board Chairperson Lauren Baker, director of the Milwaukee Graphic Arts Institute, disagreed.
Board member Jasper said he would prefer to see the chamber take on either ownership or management of the building – or accept some other well-defined responsibility.
"I would like to see the Spanish (sic) Chamber have goals and objectives that are measurable," Jasper said.
"Obviously people have very different views," Baker said. "I do believe that the people who looked at this reasonably realize that this (partnership with the Hispanic Chamber) was a wonderful opportunity for MATC. The Hispanic Chamber has played a role well beyond the value of the lease dollars we would have gotten. They have brought in a lot of dollars to do renovations … bringing in the kinds of businesses they have."
The value of the MECs in general to the financially struggling school was also raised as a concern.
"Those MECs were designed to provide educational opportunities," Pedersen said. "There would have to be an educational mission. There is no educational mission, and no one has yet put one on the table. MATC is running a real estate venture. It is not a very good one because we are not making any money at it. I would just as soon we sold that building, take all the money and use it to bail out the public television station."
"Certainly our counseling component would be (an educational mission)," O’Malley said. "And we sponsor and have other business development organizations in the community sponsor all kinds of activities. We have conference rooms at both locations that are used by the larger community."
Baker said MATC’s mission does in fact encompass involvement in the MECs.
"Our educational mission is a broad mission that has to do with operating the facilities and programs necessary to provide economic opportunity for people," Baker said. "Remember that we run two television stations – and we do a lot more with that than put on University of the Air. We run child-care centers. Is that part of our educational mission? Absolutely, providing the childcare necessary to allow our students to attend classes and training childcare workers – yes, that is an educational mission."
Pedersen was critical as well of the type of businesses MEC South was housing.
"I hardly consider Allen-Edmonds a start-up business. I don’t consider Ameritech a start-up business. These people are successful entrepreneurs. From a fiscal perspective, they wanted a $10 a month lease and no educational mission."
Baker said the role of larger tenants in MEC South spoke to a larger, economic development-related mission.
"The MEC has become a vibrant center with smaller tenants — plus some larger tenants that serve as anchors," Baker said. "There is an employment agency. Allen-Edmonds – you wouldn’t think of them as an incubator tenant. But that arrangement has brought relatively high-paid jobs to an area that badly needed them."
Baker pointed to the fact that Allen-Edmonds, as a result of its experience in MEC South, plans to build a new facility in the Menomonee River Valley so it could continue to access the same work force.
Complicated history
The fate of the MECs at the hand of a potentially unsupportive board would be questionable. While on paper they belong to MATC, a significant amount of grant money has gone into the structures, and one building was donated directly to MATC.
MATC’s ownership stake in the two MECs came about separately, but neither building purchase could be considered an arms-length transaction. The complexity of the processes by which MATC acquired the two buildings would make it difficult for MATC, as Pedersen suggests, to sell the facilities.
MEC North was created when the City of Milwaukee, the Wisconsin Technical College System Foundation and MATC took over a 195,000-square-foot building donated in 1985 by the Nunn-Bush Shoe Co. The coalition secured grants to execute an initial phase of remodeling necessary to operate a business incubator on the site. Since then, MEC North has graduated 17 firms. MEC North is located on Fourth Street just south of Locust Street.
MEC South came about five years later in a deal with the Hispanic Chamber, which had purchased the 135,000-square-foot Sorgel Electric manufacturing facility of Square D. Funding for the acquisition and an initial phase of renovation came from the Hispanic Chamber, Milwaukee County, the State of Wisconsin and the U.S. Department of Transportation. MEC South has graduated seven firms.
"Remember that 12 years ago this was our building," Monreal-Cameron said. "We were the owners, and Square D was an anchor tenant for 18 months — which allowed us to get revenue connected with this large facility. But once they left, we knew we needed to get a partner. We entered into an agreement with MATC. They would purchase the building with us." MATC took over the chamber’s loan, which amounted to $400,000.
The appraised value of the MEC North building in the condition it was donated in was placed at $450,000.
Chamber’s fate in the air
While the Hispanic Chamber’s lease will expire in June, negotiations are still under way with MATC’s new president, Darnell E. Cole, to arrive at a lease agreement that will be amenable to both the chamber and MATC’s board of directors.
"We definitely have instructed the president of the college to continue negotiating with the Hispanic Chamber," Baker said.
In the balance, Monreal-Cameron said her board is keeping its options open.
"One option that we have considered is to continue as we are right now but also manage the building," Monreal-Cameron said. "But we don’t have the staff. The other option is to buy the building. When Dr. Birkholz left, we decided as a board to ask MATC to sell us the building for $1," she added, referring to former MATC president John Birkholz.
The idea of selling the building back to the chamber for a negligible sum was not received favorably by board members on either side of the aisle.
Pedersen laughed out loud at the proposal.
Baker was concerned both about the financial investment MATC had in the building and the importance of the chamber to MEC South’s success.
"MATC has had a financial commitment way beyond that in personnel costs and facility costs," Baker said of the $1 buy-back idea. "I believe a partnership between the Hispanic Chamber and MEC South and MATC is still important. For those on our board who have been worried about the financial issues in this, the financial crisis we would be in if the Hispanic Chamber would leave would be tremendous. As long as we are interested in maintaining the MEC, we should really be interested in maintaining the relationship."
DISPLAY – Who voted which way
At the December 18th MATC board of directors meeting, three votes were taken on the matter of the Hispanic Chamber of Commerce’s lease in MEC South. A resolution to return the lease renewal to committee for further discussion – and a second resolution to change the lease agreement to a one-year commitment rather than 10 years, — were both voted down two to seven.
A vote to renew the lease as requested on a 10-year contract was voted down five to four.
FOR renewal of Hispanic Chamber of Commerce lease:
Lauren Baker, Milwaukee Graphic Arts Institute
Peter Earle, attorney
Jeannette Bell, City of West Allis
Mark Meierle, International Union of Operating Engineers
AGAINST renewal of Hispanic Chamber of Commerce lease:
Mae Killebrew, Briggs & Stratton
Julian Jasper Sr., United Way of Greater Milwaukee
A. Paul Pedersen, Pedersen Associates
Sheila Cochran, Milwaukee County Labor Council
Elliott Moeser, Nicolet High School District
Sidebar – More on the MECs
Milwaukee Enterprise Center – North
Brian O’Malley, Director, Entrepreneurial Development
Small Business Development
2821 N. Fourth St.
Milwaukee 53212
414-372-3609 Fax: 414-227-4152
Eligibility: Firms must write business plan for eligibility.
Advantage: The center offers a full range of basic office support services, including small business development services and referrals of loan requests to traditional lending institutions or alternative financing sources.
Tenants Include:
Acme Muscle Scooters
African World Festival
Alpha Impressions
Ampak
American Design
Anadata
ACM/Aspii Contracting of Milwaukee
At Your Service
BASICS
Beauty Center
Ber-Muh Fashions
Booker Distribution
C-3 Enterprise
4-Cs – Community Coordinated Child Care
C.A. Reid Construction
CSL Image Consulting
Center for Teaching Entrepreneurship
Collaborative Effect/Vivid Pictures/Inspired Media
Data Base
D&E Transportation
Delta Sigma Theta
Digital Impressions/Minority Graphic Arts Organization
Digital Solutions
Dino’s Contracting Service
Dwight’s Home Improvement
Edel’s Enterprise
Efficient Movers
Enrichment Opportunities
Family Faith Homes
Fiber Tech Specialists & Remodelers
Flagg Projects
Grotta & Company
Haneall Design
Hartland Book Services
Harvey Magazine
Helix Biotech
Hotep Children & Family Services
I Am Events
J.B.A.C. & Associates
Jackson Practitioners Group
Johannsen-Talsky & Assoc.
Kate’s Gifts/Donuts-N-Such
Laserforce
League of Martin
Left, Right & Center
Linear Pump Corporation
LOC-OIC
M.D. Environmental
Managod Fitness
Manhyia Home Gallery
Massive Communications
Milwaukee Empire Knitting
Milwaukee Jobs Initiative
Munger Technical Service
NAVALA
New Hope
OLO II Graphics & Gifts
Omega Psi Phi
Peacemakers
Phoenix Electric
Planned Packaging
Power Core Engineering
Proactive Safety Consultants
Project Respect
Resource Printing Service
Rotary Storage & Retrieval
Self Discovery Outpatient Clinic
Shared Care Research & Education Consulting
Shecar, Inc.
Siker Financial Services
Speedy Quick Delivery Services
Star One Communications
Stepfuon Transportation
Step Industries
Substiwood
T. Ruth Designs
T.S.W.
Tempesta & Associates
United Energy
Unity Health Care/C. Ross
Universal Removable Insulation
Webb & Assoc.
White Glove Janitorial Services
Wild Woman’s Wear
Wind Propelled Sculptures
Wisconsin Business Resource Center
Woody Woodcrafters
Yendor Productions
Milwaukee Enterprise Center – South
Miguel Berry, Facility Manager
816 W. National Ave.
Milwaukee 53204
414-645-0880
Eligibility: Retail businesses not eligible. Prefer new or expanding small businesses.
Advantage: This is a full-service incubator especially suitable for manufacturing. Provides assistance in obtaining financing for tenants and neighborhood businesses. Some services are included in rental agreement; some are provided at nominal fee.
O’Malley 227-4152
Tenants Include:
ACO Trucking
Affiliated Home Health Care
Allen-Edmonds Shoe Corp.
Antiques Decorative Arts/Design
Global Systems Management
Hire Center
Hispanic Chamber of Commerce
Hispanic Yellow Pages
Inspired Artisans, LTD
LOR & Associates
Maejor Tooling
On-Site Transportation
P.C. Innovations
Sites Temporaries, Inc.
Spy-U Enterprises
Thomas A. Mason Warehouse
Ultra Sense
Vision Express
McCormick Welding
Hawkins Clayworks
Arttig Art Products
Brian Maichle Woodworks
Sidebar – MATC vote comes in time of budget crisis
A freeze in aid from the State of Wisconsin and declining property values in its district are putting a financial squeeze on Milwaukee Area Technical College (MATC).
A warning was issued in December of 2001 by the national rating agency Moody’s Investors saying MATC badly needed more help from the State of Wisconsin.
Despite the warning, the organization allowed MATC to retain a favorable bond rating for the sale of $500,000 in bonds the college wanted for remodeling projects.
February 15, 2002 Small Business Times, Milwaukee
