Arts Centers and Real Estate: Sustainable Business Model?

Playhouse Square (photo by Ron Dauphin)

“Sustainability” and “community development” are ideals that many arts organizations strive to uphold. They want to stand on their own two feet financially, and they also want to play a role in revitalizing communities that have been abandoned by urban sprawl. Some arts centers, such as the New Jersey Performing Arts Center in Newark and PlayhouseSquare in Cleveland, are accomplishing both of these goals with one activity: non-arts related real estate investments.  We know from many, many studies (like this one from The Reinvestment Fund and another from the Center for Creative Community Development) that there is a strong connection between arts activities and real estate values. Is this the sustainable business model we’ve been looking for?

Well, it certainly can bring in the money. Carnegie Hall Tower in New York generates over $2 million a year in revenue for Carnegie Hall. NJPAC, with its holdings of 12 acres, “has an annual operating budget of $30 million, [and] has been in the black five years running. It has built an endowment of more than $55 million and raises about $11 million a year.” In Cleveland, a full 30% of the PlayhouseSquare Foundation’s revenue is tied to real estate.  And why shouldn’t these arts organizations be benefitting from the value they create? Thomas Kean (former governor of New Jersey who ushered in NJPAC) viewed the opening of Lincoln Center across the river in 1981 as a cautionary tale. Lincoln Center went in and transformed the surrounding area into a commercially successful one. Subsequently, Kean says, the Center itself missed out on that value because it hadn’t invested directly in the neighborhood property. By investing in surrounding property, these organizations are able to capture that value and channel it towards their mission-related activities. One might even argue that capturing this value is a responsibility of the organization in order to ensure its financial sustainability.

But should the role of an arts organization in community development extend to directly buying, selling, leasing, and planning the real estate development of large amounts of property? It’s a very deep question whose answer probably depends, among other things, on what the organization’s mission statement is. For example, when PlayhouseSquare was founded in 1970, its purpose was to save five historic theaters downtown. But after those theaters reopened, private investors didn’t rush in as expected. So Playhouse Square jumped in, taking a risk where the private sector wouldn’t. The result has been revitalization for the neighborhood and money in the bank for the non-profit.

Not all arts organizations who deal in real estate have such cozy relationships with their city, however. The Pittsburgh Cultural Trust, whose mission is promoting and developing the city’s downtown Cultural District, is currently appealing a ruling that would force them to pay taxes on two properties it owns but hasn’t developed (one is the site of the CMU Arts Management program’s Future Tenant Gallery). Two years ago it faced a lawsuit by a developer with whom it was partnering over control of the project site.  Large-scale real estate development is not for the faint of heart or the short of cash. The Pittsburgh Cultural Trust’s mission is to develop the Cultural District, so it has made the decision that real estate investment is a risk worth taking. However, that’s a choice that each arts organization must face.

The Old Town School of Folk Music in Chicago chose not to take that risk, and it seems to have worked out pretty well for them. The city gave the school the old Hild Library in Lincoln Square to renovate back in 1998. Since then, the area has gone from tired-looking neighborhood to a pedestrian-friendly paradise, with a surprisingly low number of chain stores.  New Mayor Rahm Emanuel has praised the School for bringing the area to life. According to sources at the organization, Old Town School certainly worked (and still works) with business owners and government to encourage the development of the neighborhood, but it didn’t buy up property like other arts centers.  Then again, its mission is to “teach and celebrate music rooted in tradition,” not to redevelop a neighborhood.

Like any method for diversifying income, real estate investment has its pros and cons. There are also a lot of questions it raises that haven’t been addressed here, like gentrification, real estate monopolization, and whether an arts organization is really the best entity to plan urban revitalization. Do you know of other examples of arts organizations getting involved in non-arts-related real estate investments? How has it worked out for them?

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One Comment

  1. Posted May 18th, 2011 at 8:59 pm | Permalink

    Update: the Wall Street Journal published a profile of PlayhouseSquare’s business model a couple of weeks ago. It’s looking like one of the real success stories of the creative placemaking movement.

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