Chicago’s largest black-owned grocery store opened just over a year ago in Back of the Yards, a South Side neighborhood.

BEYAH: This produce section actually takes up 28 percent of the square footage in the store.

The owner is a former dairy wholesaler named Karriem Beyah. He says he wants his store, Farmers Best Market, to help reduce obesity in the neighborhood.

BEYAH: Because there are not viable grocery stores where the consumer can buy healthy products—fresh head of lettuce, fresh dairy, fresh meat.

But Beyah’s produce section is empty. He sold down his perishables a month ago and locked the store’s doors. He’s out of money.

BEYAH: At this size, in this area, you need seven figures— a million or more.
MITCHELL: How much did you have?
BEYAH: I had about a quarter of that.

Beyah says many of those dollars came from a line of credit against his house. He says that discouraged other lenders from stepping up.

BEYAH: ‘It’s liened against your home? Well, we want that cleared before we can loan you money.’ Well, I need that. That’s how I’m making it.
MATANKY: When your tenants can’t get financing, it just throws another monkey wrench at the deal.

James Matanky, Beyah’s landlord, develops strip malls. He knows how to make them work, even in low-income areas. He brings in tenants ranging from dress shops to health clinics, restaurants to post offices.

But the recession has changed Matanky’s relationship with tenants, including anchors like Beyah’s grocery store.

MATANKY: We put money into his operation, which we’ve never done before.

Matanky says he can’t prop up the supermarket forever.

MATANKY: We will bring another grocer in. But it’s an expensive process. Any new grocer coming in right now is going to be signing a new lease during these economic times as opposed to a couple years ago, where the economy hadn’t tanked. So our rents are going to be lower.

A storm is gathering over Chicago’s retail real-estate market. The area’s unemployment remains higher than the national average. Retail sales in the city have fallen more than in the country as a whole. That’s pushed down retail occupancy and rents in many neighborhoods. So the landlords have less money to pay the mortgage on their property. Retail real-estate loans tend to be short-term, and many end with a balloon payment. Banks are not helping the owners refinance like they used to. And credit for new projects has tightened.

Matanky says his company will survive. But the future for some developers may look like this:

ambi: Gravel

MITCHELL: I’m walking through almost 30 acres of gravel with knee-high weeds and empty bottles of cheap booze. This eyesore borders Chicago Lawn, a Latino and black neighborhood on the city’s Southwest Side. Just a couple years ago, one of the nation’s largest shopping-mall owners had big plans here. Chicago-based General Growth Properties was going to turn the lot into a 300,000-square-foot retail development. General Growth spent millions on the project, then suddenly walked away. The company blamed its troubles on the lending crisis. It said it had no sources of credit to replace maturing mortgages. General Growth filed for bankruptcy this April.

BAUM: We have an interesting problem.

David Baum runs a Chicago retail-brokerage firm.

BAUM: We have developers that no longer have cash. We have lenders that don’t want those loans on the books. The lenders can foreclose—and they don’t want to be in the real estate market because: Who are they going to sell it to? Or they can be the owner of real estate, which they’re not equipped to do.

To an extent, retail reflects other segments of commercial real estate, like industrial and office. In the Chicago area, that reflection is ugly. California-based First American CoreLogic says Chicago and its suburbs have more than 1,500 commercial properties in default. That’s more than any other U.S. metropolitan area.

But retail stands out among commercial-property types in at least one respect. Baum says a lack of quality stores can devastate working-class areas.

BAUM: Despite the fact that there is buying power in those neighborhoods, that buying power leaks out to other places that do provide those services. And that causes a plethora of problems beyond just convenience.

For one, food deserts that make healthy eating difficult.

McKim Barnes of the real-estate firm Draper and Kramer says some people are packing up and moving. Barnes heads a research team and looks at census tracts across Chicago. Outside a few central neighborhoods, he says, most tracts have lost residents since 2000. Barnes attributes the exodus partly to a decline of manufacturing employment.

BARNES: Population loss inevitably leads directly to sales loss.

But Joel Bookman says there are ways to shore up Chicago’s retail base. He’s with a nonprofit community-development group called the Local Initiatives Support Corporation.

BOOKMAN: If the federal government and the regulators can encourage lenders to put money out on the street instead of just improving their balance sheets, financing will be available for small businesses.

Bookman points to another ingredient: employment.

BOOKMAN: We need to be in tune with the 21st century economy. We have to create the kind of jobs that will have some future growth potential so that people have money in their pockets to spend on retail.
MITCHELL: Like what?
BOOKMAN: Green industries, energy efficiency and efforts to save people money on the energy costs in their homes, in their cars, in their businesses, jobs in transportation, logistics because Chicago is still a hub for transportation around the country, and it will include technology and health care.

Those industries require a well-trained workforce and solid infrastructure—both challenges for Chicago.

Meantime, the city says it’s trying to attract retailers to neighborhoods and convince residents to shop near their homes.

And, last month, the City Council approved $3.2 million to stimulate loans to small businesses from locally based banks and credit unions. Bina Patel of the Chicago treasurer’s office says the city will start choosing the lenders within weeks.

PATEL: Because your small business owner can walk in and establish a better relationship with the lender, can get to know them, and the decisions are made more locally about who’s approved and who isn’t, we know that we’ll start seeing money flow through in the form of working capital to our small businesses again.

The loans could be as large as $150,000.

But the treasurer’s program won’t reach everyone who needs the credit. And it’s not clear the loans could propel businesses the size of Karriem Beyah’s supermarket through the recession.

ambi: Shelves

BEYAH: You putting shelves up here?

A few of Beyah’s employees have stayed on for some remodeling projects as he looks for financing to reopen. Beyah’s eyelids droop, like he hasn’t been getting enough sleep.

BEYAH: I haven’t totally given up. That’s the type of person I am. I’m a fighter. I keep going. But it still remains to be seen.

A lot could be riding on Beyah’s fight: his house, the landlord’s shopping center, the neighborhood’s health.