Senator Theatre Strategy Group Recommendations Letter

March 31, 2009

Mr. Andrew B. Frank
First Deputy Mayor
100 Holliday Street
Baltimore, MD  21202

Dear Andy:

On behalf of the Senator Theatre Strategy Group, I am submitting our findings and recommendations.  We took our mission from your January 26, 2009 letter to Senator Theatre owner Tom Kiefaber: to determine whether “The Senator Theatre can be operated as a self-supporting nonprofit corporation capable of raising sufficient revenue (through ticket sales and contributions from corporations, foundations, and individuals) to cover debt and expenses.”

This proved a far more complex and daunting task than we envisioned, but nonetheless, our findings are clear: we cannot give you our assurance that a nonprofit organization can own and/or operate the Theatre without an ongoing, and likely annual, subsidy.  On the basis of a thorough review of the legal and financial circumstances of the Theatre, we can, however, propose two options that appear to us to be promising strategies for bringing new vitality to the Theatre, its immediate neighbors, and to the greater Baltimore community that treasures this historic venue.

Following is a summary of the principles that guided our work, the factors that led us to our conclusion, our recommendations and the risks and benefits that attend each recommended action.

Our guiding principles were:

  • This historic movie house should be preserved as a film / entertainment venue
  • The theatre should have maximum benefit to the immediate commercial district and neighborhoods as well as to the larger Baltimore community
  • Ongoing public subsidies will not be available

The Senator Theatre’s debts, based upon the information available to us, exceed $2 million.  More than $1.6 million is owed to First Mariner Bank and the Maryland Department of Housing and Community Development for loans made largely for renovation costs.  Both loans have been unpaid for several months.  Property, amusement and sales taxes are owed to Baltimore City and the State of Maryland; and over a hundred thousand dollars is owed for utilities, advertising, film rentals, and miscellaneous operating expenses.

No for-profit or nonprofit entity can assume this level of debt and operate the Theatre without subsidies and grants.  Foreclosure is the only strategy for completely clearing the property of its debt and protecting any new owner from future claims by Mr. Kiefaber’s creditors.  This could be achieved by First Mariner’s foreclosure, now underway, or by a junior lien holder’s

Mr. Andy Frank
March 31, 2009
Page 2

foreclosure action.  In the event of the latter, any auction bidder would need to assume the debt that is in a higher priority lien position, which would be a likely deterrent to prospective bidders.

In addition, critical building maintenance has been deferred.  Experienced contractors have estimated the cost of needed repairs in excess of $500,000.  These renovations would include improvements to the roof, exterior stucco, electrical systems and plumbing as well as interior plastering and painting and the replacement of seats.

It is the consensus of film owners and operators and other industry experts that single screen theatres are not financially viable as stand-alone entities.  This is largely due to the multi-week contracts required by film distributors.  Such contracts require a theatre owner to show a film for the duration of the contract, regardless of ticket sales.  Without multiple screens, an owner cannot compensate for a poor-performing film by showing another, more lucrative one, simultaneously.  The costs of “carrying” a poor film by a theatre as large as The Senator are exceptionally high.

In addition, film venues compete for the films likely to draw the biggest audiences.  Chain theater operators, who can offer a distributor hundreds of locations with a single agreement, often win these competitions.

Because The Senator Theatre is held in high regard in the film community, its competitive advantage is better than it might be otherwise.  Nonetheless, a new owner intent on showing first-run films either needs access to multiple screens so that he can remove less popular films from the large Senator Theatre, or cash reserves that allow the Theatre to operate unprofitably.

Finally, the Strategy Group looked at enhancing the Theatre’s operations with live performances including music, educational and children’s programming, film festivals and other special film events.  While this framework would offer many benefits, it is largely incompatible with showing first-run films due to the terms of film rental contracts.  A theater operator who pre-empts showing a popular film he has rented due to a previously scheduled live performance, even if he has met the terms of his contract and even for a single evening, is likely to find himself unable to negotiate a future film rental with the aggrieved film distributor.  So, for example, the AFI Silver Theatre in Silver Spring, which mixes first-run and festival film programming, refrains from scheduling first-run films in one of its three theaters several weeks ahead of a planned festival.

Also, non-profit community performing arts centers typically require substantial ongoing public subsidies (often in excess of $500,000 annually) and, while they may attract large audiences for their performances, they rarely achieve the regularity of programming—360 or more days and evenings a year–that a first-run movie theatre does.  So while they are wonderful assets to the regions they serve, they are dark much of the time and rarely serve as the day-to-day anchor to a retail district that a popular movie theater can be.

Mr. Andy Frank
March 31, 2009
Page 3

The Strategy Group sought and reviewed conceptual proposals for new Senator Theatre operations, none of which provided much detail, and all of which would require ongoing subsidy.  We determined that there is not a likely local operator who could provide programming with the neighborhood impact of a movie theater nor be able to sustain programming without ongoing public support.

Based upon the above, we propose these options:

Option 1: City Purchase, Foreclosure and Disposition

The Senator is a unique asset to the City of Baltimore whose history and promise warrant the City’s best effort to protect it and assure that it operates for the public’s benefit.  City ownership would allow the City to establish rules for operating the Theatre and set consequences for non-compliance.  While a long-term lease would also afford a new operator considerable savings in taxes and transfer costs, a promising new operator may nonetheless prefer to purchase the property.  We recommend the City allow the possibility of either outcome at this point, though given the long-term protection of the Theatre allowed by City ownership, we urge the City to give preference to this option.  The steps required to achieve this result are as follows

  • Using its own lien position, the City would foreclose to gain control of the property, pay off the more senior First Mariner note, clear junior debt, and pre-empt future claims on the property by Mr. Kiefaber’s creditors
  • The City and State could negotiate to release Mr. Kiefaber’s Sparks home from their collateral

o In return for release of his home, the City could secure Mr. Kiefaber’s agreement that all sound and projection equipment and the Theatre’s screen are conveyed with the property

  • Upon acquiring title, the City would immediately issue a Request for Proposals for a new owner or owner/operator of the Theatre
  • The City should assemble a review panel to evaluate and rank proposals
  • The City would award either a long-term lease or agree to sell the Theatre to an owner or operator who will manage the Theatre in a way that maximizes the positive impact on the immediate and larger community and whose experience and resources give the best possible chance of long-term profitability.

A City foreclosure is recommended rather than a First Mariner foreclosure to enable the City to have control over the bidding process and disposition of the property.  There is a concern among the Group that if First Mariner forecloses, the Bank could accept a minimal bid that would pay off past-due property taxes and the difference between the balance of the First Mariner loan and the City’s $600,000 guarantee.  The result could be as much as a $600,000 claim on the City’s guarantee and perhaps an unwanted use– a risk the Group feels is too great to ignore.  It should

Mr. Andy Frank
March 31, 2009
Page 4

be noted, however, that there is no guarantee that the City will own the property even under the scenario we propose if another bidder satisfies the liens on the property.

The City’s initial outlay can be offset by either the sale or lease of the Theatre as well as by the sale of an Orkney Road property pledged to the City as collateral.  A lease could be structured to supplement a fixed monthly rent with a share of profits above a certain amount.  The State’s loss could be mitigated by the sale of the Rosebank Avenue property pledged to secure the State’s loan. Any lease should be made for a duration of fifty or more years to afford the lessee all tax advantages, but appropriate controls should preclude undesirable changes to the structure, its interior or its use.

Option 2: First Mariner Foreclosure with the City’s Active Participation

Due to the risks of foreclosure and the strong sentiment both on the part of Mr. Kiefaber and some members of the community immediately surrounding the Theatre, this Option is  “Plan B.” It simply allows the First Mariner foreclosure auction to proceed on April 20.  The City should be an active participant, however, prepared to bid on the property or cooperating with another bidder whose purchase will yield the benefits enumerated above.
Our work group included:

Hannah Byron

Maryland Department of Business and Economic Development

Kimberly Clark
Baltimore Development Corporation

Laurie Crosley
Baltimore Community Foundation

Bill Gilmore
Baltimore Office of Promotion and the Arts

Beth Harber
The Abell Foundation

Bill Henry

City Councilman, 4th District

Ellen Janes
Federal Reserve Bank of Richmond, Baltimore Branch

Mr. Andy Frank
March 31, 2009
Page 5

Larry Jenkins
Baltimore City Department of Law

Jody Landers
Greater Baltimore Board of Realtors

Lauren M. Lyon-Collis
Ballard Spahr Andrews & Ingersoll, LLP

Mark Pollak
Ballard Spahr Andrews & Ingersoll, LLP

Karen Stokes
Greater Homewood Community Corporation

We were grateful to many for their help, especially Marty Azola, Ray Barry, Sally Costello, Buzz Cusack, David Cordish, Jon Cordish, Doug Duncan, Bob Embry, Karen Footner, Carol Gilbert, George Eaton, Rebecca Murphy Jones, Ken Mann, and Claire Zamoiski Segal.

We conclude our work with respect for Mr. Kiefaber for blessing Baltimore with a superb entertainment venue for twenty years, at enormous personal sacrifice.  We are all more determined than ever that the Senator Theatre survive as a premier entertainment showcase and that it continue to be a key asset to its north Baltimore community.  On behalf of the Senator Theatre Strategy Group, thank you for this opportunity to be of service to you, Mayor Dixon, and the citizens of Baltimore.

Sincerely,

Ellen Janes
Coordinator
Senator Theatre Strategy Group

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Published on April 4, 2009 at 9:02 AM  Leave a Comment  

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