After the Building BoomMs. Peers writes on art and culture for The Wall Street Journal.
[IMAGE : Museum Meltdown] David Gothard
The economy's swoon and Wall Street's woes are taking a particularly specific and tough toll on art museums. The art boom of the past two decades, and the resulting skyrocketing costs of acquisitions and insurance, led museums to staff their boards with more than a few deep-pocketed executives from real-estate firms, financial institutions and hedge funds -- industries that are now among the hardest hit. Plus, the tough times come at the tail end of a nationwide boom in museum expansions, and many of those glamorous buildings and new wings are not yet paid for. A handful of major institutions financed those expansions with bond issues that face the same climbing adjustable interest rates that are bedeviling homeowners.
For some time now, most museums have been betting that a golden age of giving was soon to end. But even institutions that braced for a downturn say the stock market's decline, the bankruptcy or disappearance of major investment banks, and the liquidity crisis have made this one unique. "We know from history the bell curve of support goes down," says Emily Rafferty, president or the Metropolitan Museum of Art. "But as far as the corporate world is concerned, we've never seen anything like this" current climate, she says. "We need to navigate a very, very difficult time."
At the same time, museum directors say they are actually potentially much more nimble than the cash-strapped orchestra or local theater might be because they have such diverse sources of revenue -- membership income, facilities rental, donations, endowment, admissions and gift-shop sales.
The bottom line: Art museums are in more trouble than many other cultural institutions right now, but perhaps more able to manage and maneuver their way out of it. Strategy is key right now, says Ms. Rafferty. Museums, "while controlling expenses as much as possible . . . must think broadly about growing revenues in all other possible ways."
So what are museums doing? Just a year after the opening of its gleaming new Bloch Building, the Nelson-Atkins Museum of Art in Kansas City, Mo., has cut hours -- and turned down its thermostat. The Contemporary Museum in Honolulu has laid off 25 employees, nearly half its staff; the Museum of Modern Art in New York has instituted a hiring freeze and won't host any parties at Art Basel Miami Beach this year. Some West Coast institutions seeking increased rental income are expanding their party facilities. Other museums are offering expanded signage to corporate sponsors that pay for exhibitions. Last month, the Los Angeles County Museum of Art refinanced $383 million in adjustable-rate bonds to cut its interest rate.
There's all the more tension because museums have become less reliant on corporations than on a relative handful of individual donors in recent years, says Michael Shapiro, director of the High Museum of Atlanta. He notes that while the High has 40,000 members, about 40% of the money donated by members comes from just 200 of them.
How dependent is the museum business on Wall Street and financial-services income? Boards are actually fairly well diversified, but Wall Streeters have been disproportionately generous. The Met's first gallery devoted to contemporary photography, Joyce and Robert Menschel Hall, opened earlier this year; it was endowed chiefly by Robert Menschel, a senior director of Goldman Sachs. Hedge-funder Kenneth Griffin gave $19 million to the Art Institute of Chicago for its new building. Donald Marron, former head of PaineWebber, David Ganek, and buyout kings Henry Kravis and Ron Perelman all have gotten their names on museums walls, rooms, wings or rotundas in recent years. SAC Capital's Steve Cohen gave the Met its first Robert Rauschenberg painting two years ago -- unveiled at an exhibition sponsored by Merrill Lynch.
The ties to financial institution executives are particularly tight at the Museum of Modern Art, which opened its $800 million new building in 2004. It has Mr. Menschel, hedge-fund mogul Leon Black, and Marie-Josée Kravis, the wife of financier Henry Kravis, on its board. Kathy Fuld, wife of disgraced Lehman Brothers CEO Richard Fuld, is a museum vice chairman.
Mergers spurred by the credit crisis have made wealthy individuals even more important. Key donors such as Lehman, Merrill Lynch, Wachovia and Washington Mutual -- one of the Seattle Museum of Art's biggest corporate supporters -- no longer exist as separate entities.
The museum community as a whole has a bit of a hangover from unbridled expansion. About two dozen institutions added wings or buildings in the past several years, or are still in the midst of doing so. At the Boston Museum of Fine Arts, donors have pledged $504 million toward expenses and a new wing due to open in 2010, and so far, 62% of that money has been paid, says Patricia Jacoby, deputy director. She's not too worried, she notes, since on the last fund-raising campaign in 1998 donors defaulted on only $56,000 of the $137 million pledged.
Still, museum directors remember the case of Tyco chairman L. Dennis Kozlowski. Aggressively courted by the Whitney, he pledged over $1 million shortly before being indicted in 2002 for securities fraud.
New York's Museum of Arts and Design just relocated to a new building. "I don't say it's easy and I can't say it's finished," says Holly Hotchner, MAD's director, about raising the last $7 million of a $93 million construction budget. It's become more difficult because of liquidity issues with some art collectors: Banks have cut back sharply on loans against art, she notes.
Many of the building sprees were paid for by both donations and bond issues. A New York City agency, the Trust for Cultural Resources, has, since 2000, issued bonds for six art museums in the city. In most cases, the issues totaled more than $20 million. This is not problematic in and of itself, museum development and financial officers note, since many of the bonds are insured, they're payable over decades, and endowments alone can often easily cover outstanding debt. (The Met alone has an endowment of more than $1 billion.) But the museums with adjustable-rate securities have been hit by rising interest rates.
Last month, the Los Angeles County Museum of Art had to refinance $383 million of bonds it had issued to pay for a renovation designed by architect Renzo Piano. Interest rates on the variable auction-rate securities had climbed to as high as 11% after the bond's insurer was downgraded to junk status; the new debt is at about 4%, says CFO Ann Rowland. She adds that the museum is considering modest cuts in programming and has started a hiring freeze on all "non-revenue-raising positions." (Earlier this year, MoMA refinanced all its debt to make it fixed-rate.)
Pressure to expand museums comes from shortsighted donors with an "edifice complex," says Scott Black, a trustee of the Boston Museum of Fine Arts and chairman of Delphi Capital Management. They want their name on something and "don't want to give money for just operating costs." With most museums' big expansions behind them, that makes fund raising at previous levels unlikely.
For many institutions, it may just be unfortunate timing. While some institutions, like New York's New Museum, have just finished ambitious building projects, the Whitney Museum of American Art launched a capital campaign last year, seeking to raise $680 million for a Piano-designed "Downtown Whitney" on New York's Gansevoort Street. The museum says "nothing has changed. . . . [O]ur building capital campaign is still in the quiet phase."
The economy has slowed some other institutions' big plans. In 2006, the Parrish Museum of Art, in New York's tony Hamptons, unveiled a design by architects Herzog & de Meuron for a building in Watermill, N.Y., that would triple its space. The budget is $80 million. The Parrish's director, Terrie Sultan, says the museum will not break ground until 80% of the target amount is reached through donations. "A decision was made not to take a mortgage" to raise the financing, she says, and now she's glad there isn't one.
Going forward, expect more museum positions to be named after donors, the way endowed chairs are at universities, museum executives say. And expect directors to make pilgrimages to the United Arab Emirates. While the economies of those Persian Gulf states have been dented by oil's decline, they are still among the most free-spending nations in the world. Last year, the Louvre cut a deal to lend some of its art to a new museum in Abu Dhabi that will be built and funded by that state but bear the Louvre's name. The agreement netted the French museum in excess of $500 million. And the heads of MoMA and the Guggenheim have traveled to the United Arab Emirates in the past several months, and a slew of museum officials are expected at the opening of Qatar's huge new Museum of Islamic Art next month.
Meanwhile, the High Museum's Michael Shapiro is thinking far in the future. "We're putting a lot of energy into planned giving, into bequests," he says. In the meantime, the High's annual wine auction is coming in March, and the museum is beefing it up and hoping for record results. People may want to drink more wine in a recession, the director says.
