When Seattle Art Museum made an unusual real-estate deal with Washington Mutual in order to finance its 2007 expansion—a complicated agreement that included WaMu paying SAM rent on eight floors of office space—the museum took a risk. Last week, the museum announced that JPMorgan Chase, the bank that has taken over after WaMu's failure in September, will not continue to rent those eight floors from SAM after March. Chase is giving the museum $2 million a year for five years. But that leaves SAM in need of $3.8 million a year to pay its debt on that newly constructed 240,000 square feet. The museum is looking for tenants.

The announcement raises larger questions: How sound is SAM, financially speaking? And was the WaMu-partnership risk worth it?

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Museums across the country are reporting budget cuts, layoffs, and diminished endowments due to battered investment portfolios. Earlier this month, the Art Newspaper reported its findings from a survey of about 40 American art museums: Most have lost at least 20 percent of the value of their endowments, and nearly all have begun cutting 2009 budgets by between 5 and 20 percent.

SAM's endowment has dropped 27 percent, to $77 million, in the last year. The museum cut its 2009 budget by $1.5 million to $26.4 million. The museum already had a planned deficit of $2.5 million for 2009, meaning that the museum anticipated the shortfall and raised funds to cover it in the expansion capital campaign. Those funds run out this fiscal year, which ends June 30.

That day is significant for another reason: It's longtime director Mimi Gates's last day on the job. In an interview Thursday, Gates said she's confident the museum will hire her replacement in plenty of time. She also said the museum isn't making any visible adjustments to the financial developments just yet.

Inside the museum, things are tight. SAM began a hiring freeze in December and has reduced its staff by 5 percent through attrition, restructuring, and layoffs. SAM has 262 employees; 199 of those are full-time.

Memberships are at about 40,000 households, lower than the museum's all-time high of 42,000 during the Spanish and van Gogh exhibitions in 2004 and 2005. But attendance at the downtown location is up from 285,917 visitors in 2005 (in the museum's old building) to 498,732 visitors in 2008, the first full calendar year in the new building.

If SAM hadn't partnered with WaMu in 2002, it wouldn't have been able to expand—which inspired promised gifts of some 1,000 artworks from collectors—for decades, Gates says. She adds, "The Washington Mutual deal was absolutely the right way to go."

The deal has no exact precedent. Its closest parallel is in real-estate projects the Museum of Modern Art has used to finance expansion.

Just because the deal leaves the museum high and dry now doesn't mean it wasn't the right decision for the long run, says Wilson O'Donnell, associate director of museology at the University of Washington.

A 2007 story in the Seattle Times describing the elaborate anatomy of the SAM-WaMu deal depicted the bank as the driver and SAM as a willing—if initially skeptical—participant. Trustees worried about the museum's identity when WaMu, for instance, wanted its architect to design both towers. (SAM won that battle and got its own architect.) If a close, complex, and privately brokered deal between a museum and a major corporation felt uncomfortable, it wasn't for financial reasons. Nobody thought the bank would fail. The deal was and is still viewed as "visionary" in the field, O'Donnell says.

In the broader context, the SAM-WaMu chapter epitomizes entrepreneurial behavior at nonprofit museums run by business-minded boards of directors. Whereas museums once were supported by the laissez-faire largesse of the wealthy, now it's common for donors of all kinds to see their gifts as investments with measurable returns. In recent years, the word "grant" has even gone out of parlance—government agencies regularly give out "contracts"— since "grants" sounds so strings-free as to be near irresponsible.

"As you're moving into the late 20th century, museums had to prove their worth," O'Donnell describes. "What people wanted to see were results in society, and many were less interested in the care and feeding of the materials that actually allowed people to go out and do things in communities.... Society is demanding new things from museums. I think we are in a period of transition, where museums are struggling with the whole idea of what their actual worth is to the communities they serve, and communities are trying to decide whether museums are worth the investment."

Matt Griffin, the real-estate developer who hatched and managed the SAM-WaMu deal, is now helping the museum find tenants. Unfortunately, downtown vacancy rates are at about 10 percent and climbing, he said.

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With the collapse of WaMu, SAM finds itself in the position of active landlord. Director Gates, in an interview about the museum's finances, includes a pitch for the eight floors above the museum: "It's a great space, it's a great location, it's at a great price...." recommended

This article has been updated since its original publication.

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