Board members at Holden Arboretum voted Thursday afternoon to push forward with the merger, which would create the 13th largest public garden in North America and would wipe out the Cleveland Botanical Garden's debts.
CLEVELAND, Ohio -- The Cleveland Botanical Garden and Holden Arboretum, two venerable Northeast Ohio nonprofits with more than 80 years of history, intend to merge in a deal rooted in the recession and developed over the last nine months.
Board members at Holden voted Thursday afternoon to push forward with the merger, which would create the 13th largest public garden in North America and would wipe out the botanical garden's debts. A financial settlement might close within weeks, but it could take much longer for the nonprofits to meld into a single entity, with one foot in Lake and Geauga counties and the other in the city.
A partnership with Holden would end six years of struggles for the garden, which has seen its endowment - the buffer money in the bank, essentially - dwindle thanks to stock-market losses and a subsequent debt default. For Holden, which oversees a 3,600-acre property devoted to trees, merging with the garden promises higher visibility, stronger ties to urban education and the prospect of more visitors.
"This is an idea that has come up periodically," said Clement Hamilton, the arboretum's president and chief executive officer. "It's one of those things that, on the surface, makes a lot of sense - and, at this point, well below the surface, as well."
Some garden donors and board members have suggested for years that combining the region's urban garden with its more bucolic counterpart might help both organizations. The nonprofits toyed with the idea from time to time, but they never felt much pressure to make a move. Last year, though, urgency set in.
The cash-strapped garden needed to repay or refinance $11.1 million in debt, a loan left over from a 2003 expansion project that added a glass conservatory to the nonprofit's University Circle building. In October, a small group of board members and executives from the two institutions started to talk.
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Clement "Clem" Hamilton is president and chief executive officer of the Holden Arboretum in Kirtland. "We were exploring lots of options, potentially, with other partners," said Natalie Ronayne, the garden's president. "We said 'If you're interested, Holden, now would be the time.' ... I think the fact that we're a public garden, that we do education, that we do conservation, people would expect there to be lots of likely dance partners. But really, Holden was always the number one choice."
Neither party will discuss financial terms of the deal, beyond saying that Holden, the garden, three lenders and community foundations are involved. The garden and arboretum have committed to raising more than $5 million - and are halfway through that fundraising - to cover transition costs.
For visitors and members, the short-term impact appears to be minimal. The merger, which could take a year, won't disrupt weddings, events or Saturday afternoon strolls. Eventually, leaders say, there will be a single organization with a stronger local presence and a greater national profile.
An outgrowth of the Garden Club of Greater Cleveland, the garden opened in December 1930 in a renovated boathouse on Wade Lagoon. The arboretum was established in 1931, after benefactors donated 100 acres in Kirtland to the study of horticulture. Both institutions emphasize education, including the arboretum's science curriculum for elementary-school students and the garden's urban-farming program for teenagers.
But Holden studies trees and woody plants in a rambling, natural setting, while the garden curates collections of flora in themed outdoor plots and indoor exhibits. With miles of trails, the arboretum attracts hikers and wanderers, while the 10-acre garden hosts soirees, cooking demonstrations and seasonal events.
The nonprofits' operating budgets are comparable. Their staffs are roughly the same size. Yet Holden is sitting on a $120 million endowment. The garden, by contrast, has about $9.9 million invested- a third of what it had 10 years ago.
"The garden's operating performance is doing great, but we lack sufficient capital," Ronayne said, adding that the nonprofit's financial situation has been holding it back and causing some donors to think twice about large gifts.
"There was no crisis until we had to refinance at the end of 2013," she added, "and that began to be a crisis. And you never waste a good crisis."
Garden tells a recessionary tale
To help pay for its expansion and the Glasshouse addition in the early 2000s, the garden raised money from private donors and worked with the Cleveland-Cuyahoga County Port Authority on a $20 million, 30-year tax-exempt bond deal. Allied Irish Banks issued a letter of credit - a payment guarantee - to support the bond transaction.
The new conservatory didn't hike traffic or memberships as much as the garden and its consultants had hoped. But the big blow came in 2008, when major bank failures and the housing collapse roiled the stock market. The garden, like many nonprofits, businesses and American households, lost a chunk of its savings. And that endowment drop - about 24 percent - put the garden in violation of some of the rules in its agreement with Allied Irish.
To get back into compliance, the garden had to pay off half of its $20 million debt, plus fees. That payment, in two installments in 2009 and 2010, came out of the endowment, further depleting the garden's cushion. Nonprofits draw interest income from their endowments, typically pulling out 5 percent or so annually to supplement donations and revenues from programs and events.
"What really hurt the garden was when that endowment dropped so significantly, from $30 million to $10 million," said Kenneth Sinchak, the garden's vice president of finance. "That represented $1 million in cash that the garden was losing every year."
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Natalie Ronayne is president at the Cleveland Botanical Garden in University Circle. Ronayne cut staff and shaved expenses. The garden refinanced its debt, replacing the bond financing with a traditional loan shared by Huntington Bank, FirstMerit Bank and Allied Irish. To compensate for the loss in endowment income, the garden focused on revenue-generating opportunities like its revamped Glow holiday event.
Leaders also tried to boost donations, but they faced fierce competition for donor dollars and a philanthropic preference for giving to specific projects rather than general endowment funds or debt repayment.
Membership hit new highs. So did visits. Fundraising continued. But those successes didn't equate to a long-term solution. The garden has been paying close to $900,000 a year in principal and interest on its debt, which was due in full in late 2013. Without a heftier endowment to generate spinoff income, the financial outlook was bleak.
"We just weren't able to meet the goals that we needed to financially to be able to cover all the expenses," Sinchak said. "It was like a sort of noose around our necks, or an albatross that wasn't going away."
The merger with Holden offered an escape route - one with much more than a financial upside. For the past six months, the garden has been able to extend its loan maturity while working through the early stages of the merger process. The recent board votes indicate that both parties are willing to keep going, though they don't know for sure what a combined organization will look like, how it will be governed or what it will be called.
"What I would be looking for, for this to be successful, is a full-bore integration," Hamilton said. "The first-person plural pronouns 'we' and 'us,' the sooner they turn into referring to the whole shebang, the better."
Merger promises a higher profile
Holden has been raising money for new gardens and capital projects, with the goal of attracting more visitors, researchers and scientists. A new rhododendron garden, spanning 4.5 acres, blends beauty with education and tips for home horticulturalists. Other potential projects include a 500-foot elevated canopy walkway, providing views of the forest and a Pierson Creek tributary.
An urban outpost in University Circle would give Holden chances to play with upcoming projects in different ways. A planned educational display about how to grow healthy trees in the city, for example, might be better situated in Cleveland than it would in Kirtland, Hamilton said. And the arboretum's large property could provide places to grow plants for exhibits at the garden, which currently has to lease space off-site when it's preparing for a special showcase.
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Fall foliage attracted walkers and hikers to the Holden Arboretum in November. "It just continues to advance our vision of Northeast Ohio, of green and healthy communities and well-conserved forest and children engaged with plants," said Paul Abbey, Holden's board chairman and the founding partner and chairman of Fairport Asset Management in Cleveland.
"Frankly," he said, "being in University Circle is a pretty nice spot. ... We can be even more impactful there."
The arboretum's far-flung location is one of its charms, but it's also a challenge, Hamilton said. Merging with the garden could put Holden in a stronger position to participate in discussions about storm water management, vacant properties and neighborhood revitalization - topics that affect the entire region. And a bigger, more diverse public garden would have a louder voice, better hiring prospects and, potentially, a broader donor base.
"This gives the botanical garden the possibility to become even more relevant to Northeast Ohio," said Victoria Broer, the garden's board chairwoman and a program officer at the Burton D. Morgan Foundation. "The joint organization and the joint work that Holden and the botanical garden can do together is really significant. It can be a regional model. It can be a national model."
Though there's considerable work to do, she added, both boards already have jumped over the toughest hurdles.
"The fact that we are strategically aligned and that this is something that people were comfortable with is very important," Broer said. "I think the trust that has been built between the two boards will allow us to move forward and hammer out the details in a way that works for the new entity. We'll move forward as quickly as is reasonable."