Location, Location, Location

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?

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.

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….”

This article has been updated since its original publication.