Bankruptcy court judge rules that Arts Bank building can go to developer, the highest bidder
Objections by the Pennsylvania Attorney General’s Office to keep the building in the hands of the arts community were overruled.
A U.S. bankruptcy court judge has ruled that a University of the Arts building should go to a developer that was the highest bidder even though it won’t be used for arts purposes.
Quadro Bay LLC, which intends to use the Arts Bank building on the Avenue of the Arts for residential and possibly commercial purposes, will pay $2.71 million for the building, beating out the Lantern Theater Company, which bid $2.61 million in an auction. The move comes despite an objection from the Pennsylvania Attorney General’s Office that asserted the building should be maintained for charitable purposes, in light of a grant UArts received from the William Penn Foundation to purchase and renovate the building for the arts in the 1990s.
“I am profoundly sympathetic to the desire of the commonwealth and the Lantern Theater and the many parties that took the time to either attend yesterday’s trial or write letters to the court to convey the importance of the Avenue of the Arts to the cultural life of Philadelphia,” Judge Brendan L. Shannon said during a hearing Thursday in Wilmington, where he rendered his decision. “… But the record developed at trial [held on Wednesday] makes it clear that neither bankruptcy code nor Pennsylvania law operate in this instance to permit me to substitute my judgment for the [UArts bankruptcy] trustee’s.”
He said the trustee “is required to liquidate estate property promptly and efficiently to maximize returns to creditors, and that is what he has done here.”
Even though William Penn gave UArts $6.4 million to convert the former bank into a 238-seat dance and performance hall, Shannon said there was no deed restriction or restrictive covenant that required it remain in use for the arts. He noted the foundation had made such deed restrictions in other cases, but not in this one.
The judge also noted that UArts had offered the building as collateral for secured loans, meaning it could have ended up in the hands of creditors to use however they wanted.
» READ MORE: Judge approves sale of UArts’ Terra Hall to Temple University for $18 million
“The university actually mortgaged the Arts Bank building and placed liens on it in favor of a bank,” Shannon said.
Lantern executive director Stacy Maria Dutton said the company was “deeply disappointed” by the decision but appreciated all who supported Lantern’s side in the case, including former Pennsylvania Govs. Ed Rendell and Tom Wolf, the William Penn Foundation, and the Lantern and UArts communities.
“The loss of the Arts Bank will be a blow to the performing arts in Philadelphia and for the Avenue of the Arts,” she said.
The attorney general’s office is “reviewing the ruling to determine next steps,” a spokesperson said.
Damien Tancredi, the lawyer for Quadro Bay, did not immediately respond to a request for comment.
The Pennsylvania Attorney General’s Office, which is responsible for protecting charitable interests in bankruptcy sales, objected to the sale to Quadro Bay, arguing that Pennsylvania law requires consideration of donor intent ― in this case, the William Penn Foundation’s grant to UArts to convert the space for arts ― and the charitable purposes of the property.
“When it gave a project grant to the University of the Arts to buy, renovate, refurbish, and maintain that building, it was committing property for a charitable purpose,” Lisa Rhode, senior deputy attorney general, said during a hearing Wednesday. “It therefore has its own, like, little constructive trust around it.”
During the hearing, she asked Shawn McCaney, the executive director of William Penn, which distributes $30 million in grants to arts and cultural institutions annually, what effect it would have “if this court were to permit a for-profit developer to purchase the Arts Bank building.”
In addition to being disappointed about “the loss of our investment,” McCaney said, “it could have a chilling effect on future decisions for grant-making we might do in the arts.”
Local arts leaders and some politicians have said they were hoping that UArts buildings would maintain their cultural use in the hands of new owners.
The Arts Bank building becomes the third UArts building to be sold; the Curtis Institute of Music bought the Art Alliance building last month for $7.6 million, while Temple University purchased Terra Hall, the largest of the buildings, for $18 million.
On Tuesday, bids totaling more than $20 million came in for Anderson, Hamilton, and Furness Halls. The buyers are limited liability companies named after the addresses of the buildings, but they are connected to Dwight City Group LLC, a commercial real estate investment and asset management company based in New York.
A bid also was registered last week for Spruce Hall, formerly a UArts residence hall. A company called 1228 Spruce LLC has bid $7 million.
Seven of nine UArts buildings have received leading bids. The attorney representing the UArts bankruptcy trustee has said in court that there is secured debt of approximately $67 million following the abrupt closure of the arts university last June. There are millions more in unsecured claims and $7 million to $10 million in administrative expenses, too, court testimony showed.
The UArts bankruptcy trustee said through written testimony Wednesday that there are signed agreements for seven of the eight proposed property sales, noting two of the buildings are joined and being sold together.
“Based on the signed agreements, the total value of the real estate assets is $75.61 million,” he testified, noting that he does not anticipate the total to exceed $80 million when all sales are completed.