Financial crisis at Heartland Alliance leads to furloughs, program cuts and an attempt to sell hundreds of affordable housing units
One of the city’s leading social service organizations, beset by a pair of financial crises that last year engulfed its housing and health care divisions, could be on the verge of splitting up.
The turmoil at the Heartland Alliance, a sprawling nonprofit encompassing five divisions providing a vast array of social services, threatens to upend important safety net programs at a time when Chicago is experiencing an influx of migrants, many of whom need help with health care and housing.
Heartland Alliance’s housing division, which grappled with inflation and declining rent collections during the pandemic, ceased operations last spring and needs buyers for the roughly 1,000 affordable units it operated in Chicago and Wisconsin.
Heartland’s health division, struggling to cover escalating health costs and expenses associated with a surge of migrants in its shelters, indefinitely furloughed more than 150 employees between September and November and cut back programming. It’s now considering spinning off into an independent organization, according to a written statement from Mary Kay Gilbert, interim executive director of Heartland Alliance Health, and Chief External Affairs Officer Ed Stellon. Health care centers in Englewood, Uptown and the Near West Side remain open.
“(Heartland Alliance Health) is considering a variety of options and no final decisions have been made at this time,” Gilbert and Stellon wrote.
“Heartland Alliance as an entity will cease to exist,” said Michael Brieschke, a Heartland Alliance case manager and unit chair of the union representing many of its workers. “It will be broken up into pieces. It’s a fact now.”
Longtime Heartland Alliance President Evelyn Diaz announced her resignation in August and interim President Don Laackman took over. Heartland officials declined to be interviewed and Gilbert and Stellon would only answer questions in writing.
Heartland’s new leaders said their top priorities include selling Heartland Housing’s properties to groups with the capacity to maintain the buildings and ensuring that health care services for those at risk of homelessness are not interrupted.
Founded in the 19th century as Travelers and Immigrants Aid by legendary reformer Jane Addams, Heartland Alliance’s five divisions employed about 1,700 by 2021 and served up to 500,000 people annually.
In addition to Heartland Housing and Heartland Alliance Heath, Heartland Alliance also includes Heartland Alliance International, a small nonprofit that helps survivors of torture from many countries. Heartland’s two largest divisions — the Heartland Alliance for Human Needs & Human Rights and Heartland Human Care Services — provide services such as education, legal help and employment counseling to war refugees, survivors of trafficking, and many others.
Heartland Human Care Services appears financially secure and will become independent, said Brieschke, who spoke with Heartland leaders about the transition.
Heartland Alliance Health
It wasn’t until last fall, Heartland Alliance leaders said in their written statement, they realized their health care group faced a cash flow crisis.
“It came out of the blue, and there was no explanation for why this was happening,” said one furloughed social worker who wished to remain anonymous because they are searching for a new job.
The health care and housing divisions were separate nonprofits within the alliance, so their financial troubles are unrelated, according to a written statement from Gilbert and Stellon. The health care group was hit by staff vacancies and escalating health costs in the wake of the pandemic. At the same time, the surge of migrants to Chicago strained Heartland’s shelters, and the nonprofit’s contracts with agencies such as the Chicago Department of Public Health to run shelters required huge upfront costs, Gilbert and Stellon wrote.
“To ensure we are able to continue to provide health care to Chicago’s most vulnerable people, (Heartland Alliance Health) has had to make some tough decisions,” Gilbert and Stellon wrote.
“For instance, we had to reduce the scope of our shelter-based care program and enact a furlough of staff in order to preserve cash. Neither of these choices were easy, especially the decision to furlough staff.”
Although they got the 10-day notice required by their union contract, Heartland’s furloughed therapists and social workers still say it wasn’t enough time to ensure struggling clients, including many refugees with medical problems, had new therapists and other care.
“It was not possible to wrap up the program with such short notice,” said a Heartland therapist, who also wished to remain anonymous. “I begged them to give us more time, but the answer was no, and it was impossible to find transition plans for my participants. It was crazy; everyone was working so late to finalize everything. It was just chaos and the impact on our participants was huge.”
The therapist is looking for a new job but said Heartland’s troubles haven’t diminished their commitment to serve others.
“We don’t work for money,” they said. “We work because we are passionate about what we do, and we are also refugees and immigrants who care about the people we serve.”
Brieschke said any shutdown of so much mental health care by therapists, social workers and case managers was unlikely to go smoothly, but added that Heartland Alliance Health leaders are trying to ensure that, whatever happens to the organization, the services are picked up by other groups instead of just vanishing.
“There was acknowledgement by leadership that there could be unfortunate consequences for our participants,” Brieschke said, “but I do think they want to see as much preserved as possible. I will give them credit for that.”
Heartland Housing
Heartland Housing notified the city of Chicago in April of 2023 that its ”affordable housing portfolio was in distress and at risk of collapse,” Department of Housing spokesperson Rima Alsammarae said in a written statement.
The nonprofit’s housing arm effectively shuttered soon after. The city filed a motion asking Cook County Circuit Court to appoint a receiver to manage the Heartland Housing properties. The court handed the responsibility of managing Heartland’s assets so that services, staffing, and security were not disrupted to Community Initiatives, which runs the city’s Troubled Buildings Initiative, Alsammarae wrote.
Heartland’s housing portfolio included Hollywood House, a 12-story building for seniors at 5700 N. Sheridan Road in Edgewater, San Miguel Apartments at 907 W. Argyle St. in Uptown, and several Wisconsin properties.
Heartland buildings include many units where residents at risk of homelessness receive services such as mental health care and substance abuse counseling, according to Stacie Young, president and CEO of Community Investment Corp., a nonprofit lender.
“These particular buildings house a vulnerable population and some of the buildings are in high-cost markets, so that makes them even more important to preserve,” she said. High-cost markets are neighborhoods where it would be costly to rebuild or replace lost units.
Heartland’s troubled finances were the subject of a heated Milwaukee City Council committee meeting in June, with members demanding answers soon after Heartland Housing announced it could no longer operate its properties, including several in Milwaukee.
Laackman told Milwaukee council members that eviction moratoriums during the pandemic cratered rent collection, and Heartland Alliance had to give its housing arm $2.4 million in 2022 to fill that hole.
But it wasn’t enough.
“In November (2022) they informed us that $2.4 million would not be sufficient to get them through their (fiscal) year,” Laackman told the committee. “In fact, they now had losses exceeding $6 million.”
Former 48th Ward Ald. Harry Osterman, who represented Chicago’s Edgewater neighborhood and fielded many complaints about poor service from Hollywood House residents, said Heartland should have told Chicago officials about the deficit much earlier.
“They were not forthcoming,” he said. “Heartland Housing never came out and said, we’re in trouble, until it was too late.”
Community Initiatives Inc. brought in new property managers, brought back security officers and began hunting for groups willing to permanently take over the buildings.
Heartland Housing originally wanted its portfolio taken over by NHP Foundation, a New York City-based affordable housing provider.
But NHP analysts found a portfolio in deep distress, with high vacancy rates, numerous building code violations, resident complaints about poor security and too much red ink, said Veronica Gonzalez, NHP’s regional director of development. The group, which manages about 10,000 units nationwide, decided it was impossible to purchase a portfolio that large and distressed.
The pandemic hurt their bottom line, Gonzalez said, but Heartland Housing also struggled to handle the complex tasks of asset management, which go far beyond property management duties such as providing security and keeping hallways clean. Asset management entails mastering the compliance requirements set by affordable housing funders and lenders, including state and city agencies, managing rental assistance contracts, and keeping enough money flowing in to handle escalating operating costs or unexpected expenses.
“We don’t have the option the market rate industry does, where they just raise the rents,” Gonzalez said.
Tax documents also show that a big hole had opened in Heartland Housing’s budget when revenue garnered through contributions and grants plunged from more than $9.5 million in 2018 to less than $1.4 million in 2021.
Glenda Monet moved into Hollywood House about 13 years ago, shortly after Heartland Housing took over the property. It’s never been well run, she said. Too often units were rented to residents with mental illnesses, including some, later arrested or evicted, who threatened other residents.
“We’ve had tons of people who didn’t have the ability to take care of themselves,” she said.
Monet, 74, moved to Hollywood House after an accident left her partially disabled. She wants to see the building preserved, as it allows her to afford a lakefront apartment with her disability payments and pension.
“I live on the 12th floor and have a view of the lake and park to die for,” she said.
A new owner will need to do a lot to establish trust, she added. The building hasn’t had a major renovation since Monet moved in, those struggling with mental health issues need more support from nurses or licensed social workers, and property managers should do more frequent wellness checks on elderly residents.
“We’ve had a number of dead bodies rot to the point where they stunk,” she said.
Heartland Alliance officials now say the collapse of Heartland Housing was inevitable.
“Affordable housing developers all over the country, especially those who provide permanent supportive housing to vulnerable individuals, have been struggling since the pandemic,” according to a statement sent by Stellon. “Unfortunately, Heartland Housing was no different. During the pandemic, rent collection suffered and, at the same time, rising inflation dramatically escalated operating costs. Heartland Housing also experienced the same staffing crisis as everyone else. In the end, despite its best efforts, these challenges proved too much for Heartland Housing to overcome financially.”
Other supportive housing providers acknowledge that providing health care services to people in affordable housing, especially those at risk of homelessness, gets precarious during economic downturns. But other providers also say they will stay afloat, and that Heartland Housing’s meltdown doesn’t signal a widespread problem in the industry.
Thresholds, a social service group, owns and operates about 800 affordable units, many in former single-room occupancy hotels and group homes, said CEO Mark Ishaug, and the amounts it generated from contributions and grants increased from $49.7 million in 2018 to $65 million in 2021. Many tenants, including military veterans, also pay rent out of their social security and disability payments, which sustained Thresholds during the pandemic.
“Developing and maintaining affordable housing is really hard on all of us,” he said. “The margins are small, if not minuscule, and if you don’t have the right level of support, it’s impossible. But we’ve had slow but steady growth over the past ten years.”
That gives Gonzalez, of NHP, confidence that financially viable groups will be found to take over the Heartland properties and continue providing residents with supportive services.
“This is a distressed portfolio that needs a lift from everybody,” Gonzalez said. “And good organizations are stepping up to help preserve these assets.”
Gonzalez said NHP Foundation formed a partnership with Voice of the People Uptown Inc., an affordable housing provider in the lakefront Uptown neighborhood, to acquire the San Miguel Apartments and recapitalize it while preserving supportive services for its residents.
Voice of the People Uptown Executive Director Michael Rohrbeck said Heartland Alliance has accepted the partners’ proposal and calls the 71-unit apartment building a “gem in the market,” one of the few still providing homes to very low-income people.
“This community has experienced a lot of gentrification and displacement,” he said. “What’s exciting about this partnership is we’re local and community-controlled, and we have an esteemed national partner with the credibility and capital to hold the building together until we can get it rehabbed.”
NHP is also checking out several other Heartland properties for possible purchase, Gonzalez said, and is willing to help other potential buyers.
“We know how to make deals work.”
Joshua Wilmoth, CEO of Full Circle Communities, an affordable housing provider that owns and operates about 1,600 units in the Midwest, said his nonprofit plans to take over Hollywood House as general partner in the next 60 to 90 days, boost supportive services for residents and launch needed rehab projects.
“We spent a lot of time listening to the residents so we can identify the right partners to meet their needs,” he said. “We also have a substantial balance sheet that we can use to pay for and augment these services. Heartland Housing was operating under much slimmer margins.”
Full Circle Communities also plans to take over Town Hall Apartments, a modern, 79-unit affordable building developed by Heartland Housing at 3600 N. Halsted St. in Lakeview, he said.
Several other affordable apartment properties once run by Heartland Housing are also on the path to new ownership. Enterprise Community Partners, a Washington, D.C.-based nonprofit, last year took control of Harvest Commons, a renovated Art Deco hotel at 1519 W. Warren Blvd., and Warren Apartments at 1533 W. Warren Blvd. Enterprise was Heartland’s limited partner on both projects and is looking for a new partner.
“We are in negotiations with a strong and experienced replacement general partner for the two Chicago properties Enterprise stepped in to support, and we expect to complete the transition in 2024 once all required approvals have been secured,” an Enterprise spokesperson said in a written statement. “Supportive services for residents have been continuously provided and will remain in place under the new operator.”
Ishaug said Thresholds may take over some of Heartland’s health care programs, or even one of its affordable properties.
“We are going to do everything we can to support Heartland in this transition, and we will discuss with all of our partners how we can help guarantee we don’t lose a single affordable building in Chicago,” he said. “But it’s a big, big undertaking, and we have no immediate plans.”
But Young, of Community Investment Corp., can’t promise every property will be saved.
“There is no guarantee.”
