The Academy of Motion Picture Arts and Sciences will pay more than $36 million to the Los Angeles County Museum of Art for a 55-year lease on the former May Co. department store building and adjacent land where the academy plans to build a movie museum scheduled to open in 2017.
The deal may seem pricey at first glance, with the full $36.1 million to be paid by Oct. 1, according to LACMA spokeswoman Miranda Carroll. She said the academy paid a $5-million installment last year.
But once the large up-front payments are made, the academy, which is raising $300 million for its museum, will be in the clear for 108 years. The lease on the building known as LACMA West went into effect Oct. 18, 2012, said Academy Museum spokeswoman Morgan Kroll. After 55 years, the academy has the option to renew it for an additional 55 years at no further cost.
Kroll said lease payments are $28 million for the building and $8.1 million for adjoining land on which the academy plans to build the David Geffen Theater, a 1,000-seat cinema with a large see-through dome.
The May Co. store, built in 1939 and featuring a distinctive black- and gold-painted Art Deco-like sculptural column at the corner of Wilshire Boulevard and Fairfax Avenue, will be the main museum building, housing exhibition galleries and several spaces for screenings and lectures.
LACMA Director Michael Govan said that the art museum and the academy hired independent appraisers to calculate a fair market price for the land and building and that they agreed to abide by the outcome.
“The idea was not to haggle, not to make an issue of money; whatever was fair was fair,” he said. “We were sensitive about [avoiding potentially adversarial negotiations] because we’re going to be neighbors forever.”
An outline of the lease agreement first emerged in LACMA’s most recent audited financial statement, posted on its website. It will provide a welcome infusion of cash for the art museum, which had struggled since the recession under financial restrictions imposed by agreements with bankers concerning $343 million in construction bonds used to build the Broad Contemporary Art Museum, the Resnick Exhibition Pavilion and the BP Grand Entrance.
The Academy Museum’s payments will help LACMA’s efforts to bounce back fully from the recession, which blunted a funding campaign begun in 2003 to raise $450 million to revamp its campus.
Plans to renovate the May Co. building for about $50 million had to be abandoned: Among other things, LACMA needed the money to keep its liquid assets above thresholds required to avoid a possible bond default. Money from the Academy Museum’s lease will make it easier to meet the requirement while continuing to make interest payments that are projected to exceed $15 million a year, according to information LACMA made public in August in conjunction with a refinancing of its debt.
That report showed that the campaign to fund new construction in the 2000s eventually pulled in $339.3 million in gifts and pledges — 75% of LACMA’s goal. Members of the museum board provided $268 million, 79% of the amount raised.
Moody’s Investors Service has noted LACMA’s financial constraints in periodic ratings of its bonds since 2010, when it first placed a “negative outlook” on them as an advisory to potential investors. Although Moody’s continued last summer to give the museum high marks for a “consistently robust” financial performance for exhibitions and other day-to-day operations and did not lower the museum’s A3 bond rating, it cautioned that at that point, LACMA had “very thin” liquid assets relative to its debt. Nevertheless, in Moody’s rating scale, the A3 ranking — seventh on a 14-rung scale — signaled to investors that the LACMA bonds carried a “low ... risk” of default.
Govan said LACMA’s financial picture has improved considerably since that bond analysis. Along with the lease payments from the academy, he said that LACMA quietly has launched a fundraising campaign leading to an April 1 celebration of its 50th anniversary in Hancock Park (what’s now the Natural History Museum of Los Angeles County in Exposition Park previously did double duty with both art and nature exhibits).
“We’re already tens of millions into our campaign for the anniversary,” Govan said, declining to say what its goal was because “I don’t want to spoil the fun of the announcement.”
Even with a successful campaign to mark the anniversary, LACMA still figures to face the heaviest financial lifting in its history when it turns to the completely separate funding of an ambitious plan to replace the buildings on the eastern end of its campus (except for the Pavilion for Japanese Art) with a huge single structure, designed by Swiss architect Peter Zumthor.
The preliminary estimate for construction is $450 million, with an additional $200 million to be raised for operating and other expenses. If that estimate pans out, LACMA’s fundraising target would be 6.6% higher than the $610 million campaign by the San Francisco Museum of Modern Art for a new wing that’s under construction.
LACMA does not lack for potential funding angels. Orange County real estate magnate Donald Bren, now honored as a life trustee, has been on the LACMA board since 1986, and his wife, Brigitte, is also a board member. Forbes Magazine has estimated Bren’s net worth at $15.3 billion, roughly 21/2 times the size of Eli Broad’s fortune.
The board roster also includes Barbra Streisand, Lynda Resnick, who shares an estimated $3.5 billion net worth with husband Stewart (they gave $45 million to fund the Resnick Exhibition Pavilion, which opened in 2010), Edward P. Roski Jr. (a $1.1-billion net worth per Forbes) and William H. Ahmanson and Wallis Annenberg, who head big Los Angeles charitable foundations that are proven LACMA backers.
LACMA also can expect a boost from the Los Angeles County Metropolitan Transportation Authority, which is paying the museum $1.1 million to use a lot it owns for 20 months of “exploratory work” on its Wilshire Boulevard subway project. Then, when it begins digging the tunnel, Metro will use the lot as a construction staging area for an estimated 10 years, either buying or leasing the parcel at a price to be negotiated.
For Govan, going with the tear-down and rebuild plan, targeted for completion in 2023, is the essence of frugality. The older buildings’ age is showing, he said, and it would cost an estimated $320 million to fix them.
To illustrate issues LACMA is starting to face with its older buildings, Govan noted that the museum recently had to put its collection of 17th century Dutch paintings in storage because of problems with skylights in their gallery and that an electrical failure had hit the eastern end of the campus, forcing a film screening to be moved.
Moody’s had a point when it began raising questions about thin financial reserves in the wake of the recession, Govan said, but things are changing rapidly. “Without further fundraising, if you did the math, you couldn’t repay the bonds. But that isn’t the case.”
Govan said the museum board “unanimously supported” moving ahead with the Zumthor design, despite the expected price. “We have a strong board, and they’re fully confident.”