Challenging Space Affordability

Community Arts Stabilization Trust (CAST)

When tasked with presenting the dynamic and multiscalar ecosystem of arts and culture in the Bay Area, the Grantmakers in the Arts team knew that we needed to call upon those engaging deeply with the forces effecting change. Given the evolving nature of space availability, access, and affordability in cities, any system of disruption will, by design, engage a diversity of stakeholders and intervene at multiple levels. From the strongly held position that the arts drive strong, vibrant, diverse communities, Community Arts Stabilization Trust (CAST) exemplifies one such model. CAST works to preserve affordable cultural space in a “shrinking market” while demonstrating how community-based arts and cultural investments can be at the center of neighborhood revitalization.

Shelley Trott, director of Arts Strategy and Ventures, Kenneth Rainin Foundation, and Moy Eng, executive director, Community Arts Stabilization Trust (CAST), the long-committed team, sat down together to discuss their experiences in the Bay Area, how the issue of space inaffordability emerged and changed, and how, from institutional positions, they intervene.

• • •

Moy Eng What brought you to this work, and why is it important to you?

Shelley Trott I moved to the Bay Area to be a dancer and choreographer in 1996. The conditions were different for a working artist then. I found my community, a place to live, I was taking a class, rehearsing and making work. In 1998, the dot-com boom hit, and everyone and their brother descended on San Francisco to profit off the next gold rush. We started to hear buzz in the community about rent increases, but we weren’t prepared for the scale of the crisis.

Two important dance centers, Dancers’ Group and Brady Street, received eviction notices in 1999 and catalyzed an antidisplacement movement in the arts community. Krissy Keefer’s “Dying Swans Against Gentrification” disrupted a San Francisco Board of Supervisors meeting, and two thousand people protested when Dancers’ Group closed its doors due to a 500 percent rent increase. Performers regularly demonstrated on the steps of city hall. As more art spaces were lost, artists felt helpless. There was panic. Dancers’ Group was my arts home, and when it closed, it felt like my extended family was torn apart. I became acutely aware of the vulnerability of artists and arts organizations.

ST I’m curious to hear your story from this time …

ME I was appointed director of the Performing Arts Program at the William and Flora Hewlett Foundation in 2001, at the height of the last affordability crisis. My predecessor, Melanie Beene, along with other funders, had commissioned a report to look at the size and scale of the displacement problem and what could be done. I read the report and saw a strong commitment to this issue, which I think is rare in the US for any large-scale foundation. The Hewlett board made it clear that I was to stay committed to multiyear general operating support. That still left 25 to 30 percent of our annual grantmaking budget open. It was clear that the Hewlett Foundation had to do something about the critical issue of space inaffordability.

The Hewlett board was not interested in creating a new arts initiative. Under the leadership of Hewlett Foundation president Paul Brest, this was the beginning of creating the “theory of change” — a rigorous construct to focus the foundation’s grantmaking. The arts were viewed from an asset-based grantmaking standpoint, so there was less of an interest or appetite to integrate this problem-solving framework with the arts and culture program. Nonetheless, I thought we had to do something. Rather than start an initiative, we focused on making capital grants to midsized arts organizations that Hewlett already invested in. We made bets on twenty organizations, with large lead grants early in their capital campaigns. We didn’t ask organizations to choose general operating support for three years or a capital grant or an organizational development grant. Sometimes, we made all three grants because that’s what it took for an organization to buy and renovate or build their home.

I also recognized the need for arts organizations to understand the real estate business — knowledge and skills to make good decisions about space. It’s precarious when you’re living month to month or don’t have a space. In the mid-2000s we made a $3 million grant to the Northern California Community Loan Fund (NCCLF), to ratchet up their arts technical assistance and launch a capital regrant initiative that was real estate–centric. We trusted that they would move some grant funds toward capital acquisitions and tenant improvements. Over a period of time, they began to meaningfully tackle that problem.

ST During your tenure at Hewlett, you helped secure a significant amount of arts real estate.

ME Yes, over 750,000 square feet with twenty arts organizations across eleven Bay Area counties: ODC’s two theaters, Ninth Street Media Consortium, East Bay Center for the Performing Arts, Tannery Arts Center, Freight & Salvage, and Los Cenzontles. As impressive as that is, it’s not enough, which is why this work is important.

There need to be three things to make any artistic project or organization happen — money, leadership, and a transformative idea. I focused on money and ideas for many years but not space, not until my work at CAST. In expensive cities like New York, San Francisco, Boston, Los Angeles, it’s an enormous financial and existential challenge when there isn’t affordable below-market-rate space for arts and culture.

ME So how did CAST come about?

ST Well, it’s clear that CAST is a direct outgrowth of your work at Hewlett.

Flash forward to 2011. I’m in a leadership position at a new family foundation — the Kenneth Rainin Foundation. The Bay Area is still in the recession, and then San Francisco mayor Ed Lee has tasked the Office of Economic and Workforce Development (OEWD) with revitalizing Central Market, an area of San Francisco that suffered from decades of disinvestment. The area was largely a commercial zone with the highest vacancy rate in the city. OEWD convened a working group of leaders from Urban Solutions, NCCLF, the San Francisco Arts Commission, Grants for the Arts, as well as other stakeholders. The city appealed to the tech industry, small businesses, and nonprofits to move into the area. I joined the team focused on finding long-term affordable leases for arts and culture organizations. The city offered technical assistance and tenant improvement support to nonprofits interested in moving to Central Market. These efforts were successful. I believe seven or eight arts organizations signed leases.

Attempts to entice the tech industry were similarly successful. The Board of Supervisors passed a payroll tax exemption that was attractive to technology companies poised for growth. Twitter signed a lease, and Spotify, Zendesk, and Dolby followed. A land rush was triggered, as it was clear there would be significant development along the Market Street corridor. Seventeen buildings changed hands in a short period of time. We were privy to this information before most people, and I started to get a nagging, sick feeling in my gut.

I was concerned that organizations brought to Central Market to find affordable space would eventually be squeezed out. I feared things would ramp up quickly as they did in the dot-com boom. I started asking people how the city and others had addressed displacement then, and what we can do now. How can we get ahead of it, or at least move in step to offer solutions? I found the reports you mentioned that were commissioned by Hewlett and others, read a lot of articles, and started a conversation with real estate consultants from NCCLF. I brought all of this information to my board.

There was one critical conversation in 2012 with Josh Simon of NCCLF, who was involved in the suite of solutions implemented in the nineties. He explained the range of interventions — some successful, others not. He spoke about the need for an intermediary organization that could hold property for arts organizations for whom real estate was not a core competency. Josh shared the challenging stories from that time, when arts organizations were given large sums of money to acquire property but lacked the infrastructure and expertise needed to manage complex real estate transactions. Those entities became overwhelmed and ended up in more peril as a result. He had an idea that might mitigate those issues, and he and Leiasa Beckham (formerly a real estate consultant from NCCLF) presented the model for CAST.

ME That summer, Josh called me and said an opportunity had been presented to do something significant in arts real estate. He shared the idea of CAST and asked what I thought, what was missing. He talked about the need for an intermediary that was art- and real estate-focused, because it didn’t exist.

ST Yes, it didn’t exist. He also borrowed from a model that Steve Oliver had implemented during the dot-com boom with a small investment group that purchased buildings for arts organizations and incentivized them to buy the group out. That was a for-profit investment model, and organizations needed to have significant budgets to be eligible. Something in the nonprofit space was needed to help smaller, more vulnerable organizations. Josh and Leiasa took that model, along with the models for a community development corporation and a community land trust, and designed CAST.

ME How did the first project come about?

ST We dove in head first. We knew a full-blown crisis was fast approaching. At a crucial meeting in August 2012, NCCLF presented the business model and three projects to our staff and board. This information helped us understand the numbers and the level of investment required. NCCLF had been working with a group of arts organizations on facilities strategic planning, and the feasibility work had been done.

We asked NCCLF to leave the room, called them back in twenty minutes and said “we’re in.” The board committed $5 million in seed funding over five years for two projects. As a CDFI (a community development financial institution), NCCLF was able to utilize financial tools unavailable to most arts organizations. They leveraged our funds to secure a loan to purchase both properties and bundled them to use New Market Tax Credits to fund the renovations. It’s important to note that we did not have $5 million in our grantmaking budget that year, so we pledged $5 million over five years and provided a loan guarantee to CAST. This was the kind of creative financing required to make it work.

Some might say we were naive, others might say forward thinking. Probably a little of both!

ME I’d say both. And what you just described directly related to what had happened in the late nineties.

ST Yes, our collective experience informed our direction and strategy. We understood the scale of the problem and the need to capitalize the concept. If you’re going to do something like this, you need to provide the resources for success. I don’t believe CAST would have succeeded if we had offered a small sum to do more research on the concept. It wouldn’t have had the momentum nor addressed the urgency of the issue.

ME What did the $5 million buy? What led to CAST becoming more than one project?

ST $5 million bought two buildings and hope for the future. We understood that it was a significant risk and we needed to focus on getting the two pilot projects right. If we could get to proof of concept, we could then build the organization to bring the work to scale. Very quickly, the demand for an intermediary like CAST became clear.

ME If you had to do it over again, what would you have done?

ST I would have set aside more funds at the outset for organizational development. Initially, there were differing perspectives as to whether CAST should exist beyond the two projects. That hesitancy set the organization-building work back a bit. But as soon as we decided to incorporate, we began to think more long term.

In hindsight, I would have also tried to build a coalition of support, although that might have undermined our ability to act quickly on the two opportunities. Real estate doesn’t wait for coalition building or long decision-making processes, which is why nonprofits struggle to compete in an overheated real estate market. But having more funders and stakeholders on board would have been ideal.

Another important element is relationship management. It was challenging to communicate the complexity of this kind of real estate transaction to everyone, particularly our arts organization partners. We were building the plane as we were flying it, and there were varying degrees of capacity and knowledge. We also could have been clearer about the risks, responsibilities, and roles for each entity. There are so many variables for a project like this: construction timelines, contingencies, easements, permits, contractor management, etc. While CAST took on much of the responsibility and oversight for this work, arts organizations participate in all the decision making. Their ability to continue with regular programming is impacted, and the stakes feel very high. It was also difficult to navigate the power dynamics between the funder, the city, the arts organization, the CDFI, and CAST. That was sorted out in real time.

ST How about you? What do you think should have been done differently?

ME As you said, we were running fast to build the plane — learning, designing, implementing, course correcting in a compressed time frame. That cycle was happening every two to five days because we were doing everything for the first time.

I’d echo the importance of relationship building and management. Messaging was important with our key partners. There wasn’t enough time for conversation throughout those early years. In retrospect, we were trying to look forward while also living in the present. That’s the headiness of a new venture. I would have spent more time strengthening the relationships CAST had with our first two projects, CounterPulse and Luggage Store Gallery,1 and staying in regular contact with them during the predevelopment and construction period. We met weekly, but that wasn’t enough.

I’d also reconsider on whether to focus on buying existing buildings or developing new buildings. While exciting, there’s a ten-year to fifteen-year timeline for new development. Should we have acquired existing buildings earlier to provide interim and long-term affordable space? The advantages are that we might have served more arts organizations and received earned revenue streams, shifting CAST’s philanthropic support model increasingly to rent. That would be helpful to address the interim or short-term space challenge. Because we’re so focused on the long term, what do we do for “oh my god, I’m out of my space or I’m being evicted, or my month to month has run out”? It’s heart wrenching, it’s urgent. So how does CAST balance that, while staying focused on the long term? And last but not least, I should have hired staff sooner. I wanted to be prudent — make sure the funds were committed or in hand before hiring.

ME Many cities have reached out to each of us, asking, What is CAST? We hear it might be something that we should be looking at. What are the most common questions they’ve asked you?

ST Well, we haven’t yet addressed one of the main questions: What is CAST?

My stock answer is CAST is a nonprofit real estate holding and development company that secures permanent, affordable space for the arts.2 And then, of course, there are a lot more questions that follow. How is it funded? Who is involved? What is the model, and how does it work? I usually go deeper into the concept of a holding company, that CAST acquires and holds real estate while the arts tenant raises the capital and builds its capacity to become the property owner. CAST passes the asset on to the organization. It does not hold it in perpetuity. That’s one element of the model. I think there will probably be more ways that CAST works to achieve its mission. It may hold property permanently to serve a myriad of organizations that don’t choose to own.

ME I think that what we’re looking at in the second iteration of the business model, in addition to the first: the lease buyback model. There are many organizations and artists who are either not prepared, not poised, or don’t want to own space but would benefit from a below-market, long-term lease. So, the next set of projects addresses that issue.

ST That’s critical because organizations have landlords who aren’t necessarily friendly to the arts — they’re speculators and care about profit. Having a benevolent landlord like CAST, that understands the business model of the arts and is providing below-market rent, is invaluable.

ME When you explain the model, what are some of the questions you get from colleagues who are arts funders and leaders in their community?

ST Funders ask about their role in this work. I like to focus on an aspect of the model that is most attractive to funders — that foundation resources can be recycled to have an impact beyond the initial investment and project. Under the lease buyback program, foundation resources can serve as seed funds to launch a particular project. When the arts tenant raises the capital to purchase the property, that capital replaces the seed funds, which are then used toward the next project. I think that’s why we were initially sold on the idea.

Our $5 million was used to acquire two properties. After seven to ten years, the arts tenants will replace that capital, which will then be used to launch the next project. That’s appealing to funders who appreciate seeing their resources leveraged and recycled in the communities they’re serving. I try to impart that the investment is significant but so is the impact.

Funders also ask about the feasibility of working with small and midsized nonprofits around permanent real estate. There are valid concerns about the burdens of property ownership. But the purpose of an intermediary such as CAST is to mitigate those concerns. I generally respond that it’s case by case. CAST must work closely with arts organizations to ensure there is adequate financial and technical assistance available, and that the board and staff are acutely aware of the complexity of the work. It’s essential that the arts organization and CAST agree on the kind of space required to deliver their programming. Programming comes first, space needs second. Any particular space must wrap around an arts organization’s programming.

ME What I often hear is that “my city isn’t as well off or doesn’t have as many resources as San Francisco” or any of the major cities that have a multiplicity of resources. How do I address that?

ST My experience is that when you start raising the issue of affordable space and begin talking to potential partners — real estate developers, city agencies, arts organizations, CDFIs, and others — you’ll find resources that are not immediately obvious. Once the conversation is started and relationships are built, you might discover an underutilized city-owned property that could be developed or invested in to support arts use. Or a real estate developer is interested in having an arts tenant in the ground floor of a mixed-use development. The key is to have leadership with a sophisticated understanding of real estate that can connect the dots and bring people and resources together around a shared vision.

In our case, the partners included foundations, city agencies (including the mayor’s office), real estate developers, banks, a CDFI, the holding company (CAST), and arts organizations.

ME I would also add city agencies that deal with policy regulations. And artists and arts organizations are extraordinary at pulling resources together, reaching out to local businesses and networking.

ST I also point people to an online resource the foundation developed to help answer essential questions about this strategy, which also includes an infographic map of the model.3 It’s about identifying the different players, convening them, and then surfacing the resources that might be available.

ME It’s essential due to the size and complexity of the problem to bring the critical players around the table to collaborate. What is also necessary is having one organization take the lead. It doesn’t matter who it is, but the people around that table must believe in that individual and believe that person will work with them. In this case, it happens to be CAST. Without somebody taking leadership and helping to drive the collaboration, it can devolve to just concern and talk.

ST Funders will sometimes say they don’t have $5 million. And I say, we didn’t have $5 million either. We pledged $5 million over five years — $500K in the first year to launch CAST and a loan guarantee to help secure liquid capital to purchase the properties. There are other tools in a funder’s toolbox that can be successfully used for this purpose.

ME What does success look like for you?

ST It looks like enough permanently affordable square footage of space to support a dynamic and diverse arts community. That’s the long view, and it’s going to take decades. This work requires patience. While there are short-term wins and a range of partners are intervening to help those who are urgently at risk, the true gains won’t be realized for decades.

We’ve discussed doing a study of how much square footage is needed to sustain a thriving arts community. What would it cost to make it permanent and affordable? What suite of solutions might be needed to achieve such stability and help address the housing crisis?

ME How do you define a diverse and dynamic arts community?

ST Artists from diverse backgrounds of different disciplines at all career stages with access to a variety of resources and affordable spaces.

ME You and I are in concert on that. Looking back now on five and a half years as the de facto mother of CAST, what did you expect to happen, and what was unexpected? Did it turn out the way you had envisioned?

ST CAST has exceeded my expectations. There are opportunities being presented to CAST now that are on a scale that will impact the issue of affordable space in a permanent and meaningful way. Other cities that are looking for solutions see CAST as an example of what’s possible for their communities. I am in awe of the people and the partners that have come together around this concept and helped move it forward. That has been one of the most rewarding aspects — to be able to work with people across the sector to change the paradigm. To serve artists and organizations that provide essential arts programming for our communities.

What once seemed hopeless — to fight overwhelming market forces and claim permanence — now feels possible.

ST I have a final question to you as executive director: What is the potential for CAST? In this region and beyond, now and in the future?

ME I’d like us to get a handle on what the size and scale of CAST should be, if not to solve the problem, to at least make a meaningful dent by creating a constellation of physical arts and culture spaces across our cities, in this case San Francisco and Oakland. So we can retain culture as well as make space for artists and new art forms that I can’t even imagine in forty, fifty, seventy years. We don’t know whether that’s a half million or a million square feet or even more. We have to figure that out, which is part of our work this year.

Secondly, to test the CAST model and to be of service, when invited by cities beyond the San Francisco Bay Area. Right now, I’m sort of thrilled and tickled that of the more than a dozen cities expressing interest in CAST, London is the farthest ahead in creating a CAST-like intermediary called the Creative Land Trust. I understand that the trust is envisioned as a fund to provide low-interest loans to artists and creative enterprises to purchase studio/workspaces. It’s exciting for CAST to be viewed as a potential solution to help retain artists and arts organizations in cities such as Seattle, Portland, Denver, and New York.

That’s what I hope for when I dream. That CAST will have almost solved the issue.

ST What are the biggest hurdles?

ME Imagination, money, and leadership, although I don’t think they’re really hurdles. I think it’s continuing to be open, learn, listen deeply, work with integrity. I knock on wood for our successes because it has taken a large community to get us to this place.

The power of the work is really who is around the proverbial table and investing in arts and culture in whatever way they can to address space insecurity and create permanent affordable arts space. And to do so with sustained commitment and generosity. That’s the power of bringing together all of this leadership and staying focused for the long term — patient capital.

NOTES

  1. For more information about CAST’s first two projects, go to http://counterpulse.org/ and http://www.luggagestoregallery.org/.
  2. For more information about CAST, go to https://cast-sf.org/.
  3. See “The Rainin Arts Real Estate Strategy,” https://krfoundation.org/artsrealestate/; and “The Path,” https://krfoundation.org/artsrealestate/the-path/.