Like many real estate projects, the Newseum concept underwent big changes over the decade it took Freedom Forum to build the $450 million mixed-use home for its museum about news in Washington, D.C. Consider, for example, the project's residential units.
A $100 million land dealIn October 2000, the journalism foundation had just signed a contract to pay a record $100 million for the museum's new building site on Pennsylvania Avenue. The deal was a key moment in a major strategic shift led by CEO Charles Overby (left): Freedom Forum would favor a single project -- the Newseum -- over untold other non-profits across the nation, and around the globe. (Indeed, by 2007, the foundation gave 96% of its $60 million in grants to the Newseum vs. just 51% of $44 million only seven years before, Gannett Blog has found.)
That October, Overby said the land deal with the District of Columbia meant Freedom Forum was immediately obligated to do several things: "Among those obligations are the building of about 100 high-priced condominiums on the top floor of the new building."
Eight years later, those condos had somehow become 135 higher-end rentals, the Newseum Residences, when the complex opened last year; the more expensive units are being marketed for up to $6,510 a month for a two-bed, two-bath. This wasn't the only change, of course: the entire complex arrived three years late, and $200 million above initial estimates.Freedom Forum may have abandoned the original condo idea well before the real estate bubble collapsed. Surely, by summer 2007, the deflated housing market would have led to a rental switch. No sense losing all that equity selling condos when demand is low.
Whatever the reason, the first Newseum Residences tenants moved in June 25, 2007, so we only have a partial year's rental income to examine: $384,282 for all of 2007, according to the Newseum's own public IRS reports.
Ditching $17.91 ticketsI wonder if the rental switch was a factor in raising the entrance fee to the much-talked about $20 for general admission, when the museum finally opened last April -- an unusually high price in a city famous for excellent free attractions.
Indeed, documents show the fee was going to be lower. Freedom Forum's 2006 annual report says: "General admission will be $17.91. (The price reminds us that the First Amendment and the other nine amendments of the Bill of Rights were ratified in 1791.)"
I'd like to know a lot more about how the move to apartment rentals changed the Newseum's business model. For example, isn't the project now carrying more debt -- since those residential units weren't sold to pay down any construction loans or bonds?
Please post your replies in the comments section, below. To e-mail confidentially, write gannettblog[at]gmail[dot-com]; see Tipsters Anonymous Policy in the green sidebar, upper right.
An even better irony: the residences at Newseum are being marketed as rentals on craigslist, the very site that's driving a dagger through the financial heart of the print journalism industry. But hey, that's freedom of speech, right?
ReplyDeleteThere's ten rights in the Bill of Rights. Why not make admission a dime?
ReplyDelete$17.91. What a crock.
The $17.91 is still "in tact." There are two taxes on the tickets of 5.75% each. The total ticket price goes to $19.97 with the two taxes. FYI.
ReplyDeletehttp://newsroom.dc.gov/file.aspx/release/10938/Ross041807b.pdf
What is most alarming is that low amount of rental income which is certainly not enough to satisfy the interest on the debt. Of course, 2008 will be more telling in terms of occupancy, but income per unit of less than $500 per month just isn't going to cut it. At 100% capacity, the apartments would only generate about $6 million in rental income.
ReplyDeleteYou might also consider looking at the tax implications of having a non-profit rent apartments. The property tax that a for profit business would pay on apartment units could be different than what the Newseum has to pay to the city.
From an August 12, 2002, article in the common denominator (not sure whether this status has changed):
The D.C. government has agreed to provide up to $300 million in revenue bonds to finance construction of the new Newseum in downtown Washington.
The deal, approved July 2 during D.C. City Council’s last pre-recess session, requires the nonprofit Freedom Forum, which operates the Newseum, to repay the bonds over a 35-year period. A Freedom Forum spokesman said the bulk of the bonds will be paid back from the group’s endowment and from revenue generated by the news museum.
During the same session, the city council also voted to cancel real estate taxes billed to the Freedom Forum for the property going back to Dec. 21, 2000. A spokesman in the Office of Revenue Bonds said the legislation merely clarifies vague parameters defined in the original purchase agreement.
The Freedom Forum initially announced that it intended to waive its tax-exempt status for real estate and retail sales taxes in the District.
"The intent of the agreement reached, when they agreed to come into the District, was that upon occupancy they would voluntarily subject themselves to District real property taxes," said a spokesman in the Office of Tax and Revenue. "The legislation merely corrects that."
The resolution allows the group to assert its nonprofit status for the property while the building is being constructed. No real estate taxes have been collected on the property, the spokesman said.
Don't you think that they might have gone to rentals to preserve their flexibility to expand in the future? Once you go condo, owners have rights.
ReplyDeleteSomeone with a Gannett background must have vetted the design of these apartments, because they are just as small as the stay-free minipads in Arlington. Who would pay thousands of dollars for an 800 square feet apartment downtown? There is an 11 percent income tax in the District of Columbia, plus parking fees for your car, and an inability to go anywhere after dark because of the crime in the neighborhood. There are homeless missions just around the corner and people are so afraid of the neighborhood it is a desert at night. So much for the great planning that went into this idea.
ReplyDeleteRents start at $1,720 for a 440-square-foot studio and top out at $6,500 for a two-bedroom, two-bath unit measuring 1200 square feet. Most of the apartments overlook C Street in the back of the building, because the Newseum execs took the Pennsylvania Avenueviews for their offices.
ReplyDeleteFreedom Forum never made many grants.
ReplyDeleteWhat the Newseum did was replace other Freedom Forum initiatives and programs.
Spy Museum and others do charge in DC.
The Newseum is Washington's second most pricey building. Zillow lists the worth of the White House at $300 million, while the Capitol is $1.2 billion.
ReplyDelete"the Capitol is $1.2 billion." and the Chinese hold two TRILLION in t-bills. No wonder they're using lead-based paint again to keep it white....
ReplyDelete6:13 PM
ReplyDeleteI don't get what you mean when you say Freedom Forum never made many grants.