Written by John Galligan

What do boarded-up, economically distressed, and even contaminated inner-city land sites have in common? You might say crime, unemployment, and abandonment. Take another look. Remarkably, they are the new destinations for businesses seeking bottom-line results and, while they are at it, making their mark to improve the neighborhood.
What forces are driving large and small businesses to discover that locating business operations in central cities can be profitable? The real-estate maxim "location, location, location" oversimplifies the reasons, but it is at the heart of what is transforming the most unlikely parcels of land into corporate profits and community development.
Two companies, one a small community bank… illustrate an approach to doing business that counters this nation's half-century trend of businesses moving out of central cities. Here are their stories, providing tangible reasons to follow in their path and also reminding us of the complex fabric of urban living, which can be confounding even for pioneers.

Moving in Successfully

The ribbon cutting ceremony officially opened the new Pilsen processing facility.

Robert A. Klamp is a banker with a vision. For the past nine years, Klamp has been focused on the task of creating a customer base for his three branches of International Bank of Chicago (IBC), located in working-class Hispanic and Asian neighborhoods of inner-city Chicago. His asset base is $86 million and growing. His bank neighborhoods have the feel of the hard-working immigrant communities of Hartford, Providence, and Worcester.

Klamp understands what makes the neighborhoods tick and you can feel it as you walk down the street with him. He knows a secret that most business people haven't figured out yet - that people with low incomes can be great money managers. His goal is to tap his customer's basic level of financial expertise to help them create personal wealth by saving money, buying homes, or opening small businesses.

While doing this, Klamp wants his bank to make enough profit to allow for product and service expansion. Klamp purposefully brought his vision to places with significant obstacles because, he says, "That is where the greatest needs exist". His determination and intuition have proven the naysayers wrong. Driving through the neighborhood, Klamp can proudly point to properties and describe their profiles before and after his bank branches arrived in the neighborhood. "see that place - it used to be boarded-up, now it's a thriving small business. We gave them a business loan. See that place it was known in the neighborhoods a magnet for illegal activity; we had it torn down, now it's going to be a community center", by bringing financial services to people who have not had access to them, Klamp restores dignity to a neighborhood while making a profit.

A Vision Comes True

A year ago, Klamp's vision became more expansive. His idea was to establish a partnership with a large financial institution so that he could support the institution's check processing services. By securing such a partnership he could create an employment hub in the center of a low-income neighborhood where he wanted to expand his bank's financial services. He planned to hire neighborhood residents to work in the check processing center. The business idea had a lot of community development potential. And then he got his big break.

Opening the facility offers an employment hub in this low-income neighborhood.

Klamp met with an official from a large Chicago bank to describe his small bank's capabilities and to seek out partnership opportunities. He chose this bank because it had recently merged with another large Chicago signature bank. In dreaming big dreams, Robert's desire was to partner with this newly formed bank. A number of meetings later, International Bank of Chicago formed a partnership with this bank to share responsibility for a brand-new check and data processing project. Goliath partnered with David.
As the prime contractor, the partner bank of IBC has oversight responsibility for performance of the processing work. It assumed management oversight expenses and funds settlement expenses, with hiring and capital expenses handled by IBC on a reimbursable basis, thus relieving the partner bank of the day-to-day operations. In addition, the partner bank qualifies for Community Reinvestment Act credit by investing in an underserved neighborhood through its partnership with IBC, this bank also demonstrates its commitment to the Federal Minority Bank Deposit Program, a program dedicated to strengthening minority banks through the infusion of business.

For most business owners, the thought of securing facilities, retrofitting them to specifications, and hiring dozens of employees - all within a two-month period - would be overwhelming at best. Although it was an incredible challenge, Klamp knew that his formula for success in opening three branches in the prior nine years would be applicable to this endeavor. Before embarking on the business venture, Klamp reviewed the seven principles he has relied on when creating and funding businesses in the inner city. He believes that these principles will work in Chicago, New England, or anywhere in America and can be instructive for variously sized companies figuring out how to do business in the inner city.

Principles in Action

IBC President and CEO Robert A. Klamp is given an award for his outstanding work in the Pilsen community at the grand opening of the IBC Processing Corporation.

With the above principles in mind, Klamp hit the streets to get working on the project. To find the right location, he scouted a neighborhood in Chicago called Pilsen, seven miles south of the world-famous "Chicago Loop" where rents range up to $70 per square foot. There he found an abandoned yet structurally sound building in the midst of a struggling community with the feel of Boston's Roxbury neighborhood. He worked closely with community leaders to assure their support for moving into the neighborhood. Though he is hopeful that tax incentives for locating in this neighborhood will be forth-coming, they are not currently available for the type of business Klamp opened. Klamp, however didn't make that a show-stopper and he closed the deal.

Chicago Alderman Danny Solis gives a speech at the opening of the IBC data processing facility in the Pilsen community on the southwest side of Chicago.

To make transportation convenient, Klamp chose a processing site located near subway and bus stations. This is advantageous for the 70 percent of his employees who commute via public transportation. For the 30 percent who arrive by car, the bank acquired an abandoned parking lot in the neighborhood, secured it, and provides escorts to and from the lot when requested by employees. Because some gang activity makes crime a concern, Klamp hired a local security company employing several off-duty police officers to secure the processing center's premises. Additionally, he included a security system with 40 cameras monitoring the inside and outside of the building as part of the renovation. Klamp wants to ensure that his employees feel safe.
Thanks to the bank's relentless attention to detail and Klamp's networking efforts with neighborhood association, especially the small business community, the neighborhood has warmly welcomed the new processing site. Workers are buying lunch from the local merchants, shopping for household needs at the corner markets, and acquiring health care services from the local clinic. The opening of the processing site has had a tremendous impact on the community, but it would not have happened without International Bank of Chicago's attention to social responsibility.
Once the new processing site is fully operational with three eight-hour shifts later this year, Klamp hopes to open another bank branch in the neighborhood. After that, he plans to begin offering financial counseling to the wider neighborhood, complete with home-buyer seminars to encourage homeownership within the neighborhood. At the same time, he will turn his attention to gang intervention techniques, which include financial literacy and a focus on building hope for gang members' future.

Robert Klamp's Principles for Locating in the Inner City #1. Use available building stock and don't tear anything down. The inner cities have plenty of outstanding buildings waiting to be given a second chance. Look carefully during site selection and you'll find what you need. #2. Fit yourself into the community and don't force relocation of any people or overwhelm the neighborhood with your presence. Inner-city communities have strong family and neighborhood bonds, so be respectful of these ties. The character of a neighborhood has been fashioned over decades, so become a part of it instead of trying to redefine it all at once. #3. Hire every potentially employable person from the neighborhood before looking elsewhere. Spreading the wealth around you strengthens your business and makes it a place that the community wants to embrace and protect. #4. Don't rely on government incentives to make the numbers work. Though tax abatement and other location-specific incentives can make the numbers look attractive, don't make those your only criteria. By taking a chance on an area you may become the catalyst that leads to tax abatement incentives, so don't be afraid to be first. #5. Make security a top priority in everything that you do. Technology exists to make your site secure regardless of the apparently unsafe aspects of the property. Spend the money on this. #6. Make transportation as convenient as possible. In the competitive urban employment world, ease of transportation tops many people's job requirements list. Locate close to subway and bus lines. #7. Establish and maintain relationships with neighborhood associations and local politicians, which will keep all lines of communication open. Candid communication is a prerequisite to success.

The views expressed are not necessarily those of the Federal Reserve Bank of Boston or the Federal Reserve System. Information about upcoming events and other organizations should be considered strictly informational, not as an endorsement of their activities.