Kevin McMahon calls it the Pittsburgh Cultural Trust’s “oceanfront property” — a prime block of Eighth Street real estate not far from Heinz Hall and the Benedum Center.
Tucked between the Allegheny River and Penn Avenue, the land is about to take center stage in the trust’s decades-long quest to transform the northern edge of the Golden Triangle into one of the premier cultural districts in the country.
This time, the focus won’t be eradicating smut, a mission largely accomplished over the past three decades. The goal now is blockbuster development — perhaps 700 to 800 units of housing to be constructed over the next decade.
The plan could be the capstone of Downtown’s residential boom and serve as a revenue source for the trust’s arts programs, nearly half of which are free to the public.
That model has been part of the trust’s plan since its founding three decades ago: It wanted to fix up theaters, it wanted to clean up Downtown, and it wanted to do so simultaneously in an effort to beat the property values that were sure to rise as a result.
“At the time we were founded, we were as much an economic development organization as an arts organization,” said Mr. McMahon, the president and CEO since 2001.
Most nonprofit arts organizations rely on three main revenue streams to subsidize their missions: earned revenues from ticket sales, contributed revenues and endowments. But the founders of the trust thought, what if we had a fourth stream?
For-profit real estate development “is a big part of how we hope to sustain long term the arts and culture in the cultural district,” said Mr. McMahon. For the trust, which has a comparatively small endowment, “this is our surrogate endowment.” While it is best known for its arts programming, the trust, thanks to this economic development mandate, has become one of Downtown’s largest property owners, with more than 1 million square feet of real estate. “The non-arts real estate does contribute positively to the bottom line.”
“We know this is not going to solve all of our financial issues, but certainly it is a part and has been a part of the cultural trust mission and founding ever since it started 30 years ago,” he said.
Founding mission
The trust was incorporated in 1984, when Pittsburgh’s dire economic outlook and an anti-city mentality sent large swaths of residents elsewhere.
Mr. McMahon said cities were doing whatever they could to keep residents around, adding sports stadiums, convention centers, urban malls and arts venues.
Since 1988, the trust has spent about $23 million acquiring Downtown real estate. Its current assessed value is nearly $59 million, according to a Post-Gazette analysis.
The properties range from icons like the Benedum Center, Byham Theater and O’Reilly Theater to smaller retail, office and arts buildings and parking lots.
O'Reilly Theater in the Cultural District on Penn Avenue. (Larry Roberts/Post-Gazette)
Most are concentrated in the area between Sixth and Ninth streets, Liberty Avenue and Fort Duquesne Boulevard in the Cultural District. Some, like the Harris Theater, were former X-rated venues the trust strategically targeted to clean up what had been a seedy red light district.
The organization sold the land for the development of the Encore on Seventh apartment building. It also sold the Century Building on Seventh to Trek Development Group with the condition that it be developed into residential units with affordable rents.
The stock represents both for-profit and non-profit properties, which generate $4.5 million in gross parking revenues and $400,000 in gross rental revenues annually. The trust pays about $3 million in real estate and parking taxes each year.
Not long ago, the extensive real estate holdings came under scrutiny from the city of Pittsburgh, which successfully challenged the tax-exempt status of two trust properties in a case that went to the state Supreme Court in 2011.
The city and the Pittsburgh Public Schools, which joined the challenge, argued that properties purchased for real estate development did not fall within the trust’s mission and should not be exempt.
“If they want to be real estate developers, then they should have the same tax status as other real estate developers,” school district solicitor Ira Weiss said. Otherwise, he said, the trust would have an unfair advantage over other developers.
The trust, Mr. McMahon said, has accepted the decision and bears no hard feelings toward the city.
“If we’re venturing into the kinds of not not-for-profit activity such as commercial real estate, we should play by the same rules everybody else does and do our part,” he said. “Could we use those dollars to support the arts? Sure, of course we could. But fair is fair.”
More than half of the properties the trust owns are taxable. Any property that is not truly arts-related — even if it’s empty — is taxed. “Most of the non-arts commercial properties that we own actually don’t have a lot of revenue,” Mr. McMahon said. Some buildings have a mixed tax status, such as the trust’s administrative offices on Liberty Avenue, which rents space to a branch of Crazy Mocha.
Now, the trust is mostly out of the building-buying business outside of exceptional cases. For example, the trust’s most recent acquisition in 2010 was the former Bally Total Fitness Club on Sixth Street, which it is considering turning into a first-run movie theater. The organization already owned real estate bordering three of Bally’s walls, so the property was a natural inclusion into the portfolio.
In addition to the commercial entities, the trust brings in revenue through profitable shows such as the Broadway series. But it also supports the city’s resident companies, including Pittsburgh Opera, Pittsburgh Civic Light Opera and Pittsburgh Ballet Theatre, which, like other nonprofit organizations, receive reduced rental fees at trust-owned venues and participate in a shared services program for marketing, ticketing and other administrative processes.
“It is illustrative of the kind of collaboration that goes on in the district,” said Christopher Hahn, Pittsburgh Opera general director.
Still, he said, a “natural tension” arises in negotiating the rental fees for the resident companies.
“We completely acknowledge the rate we have, in relation to the commercial rate, is generous, but ... that still doesn’t answer our own very tight circumstances,” he said. “There’s no easy formula. It’s varied between absolutely flat and no increases and steady increases over a period of time, which concerned us greatly.”
“What I say all the time to my friends and colleagues [is] once you agree to subsidize something, it’s either never enough or too much, depending on what side of the table you’re on,” Mr. McMahon said. “At the end of the day, the costs are what they are. The question is who’s going to raise the money to pay for the costs.”
Ocean view
Developing the Eighth Street real estate, now used primarily for parking, is yet another frontier.
The trust’s first attempt, the ambitious RiverParc project in 2006, fell victim to the Great Recession. Following its collapse, the developer sued; the six-year process concluded in April with an undisclosed settlement. Now freed from the legal entanglements, the trust is poised to begin anew.
Mr. McMahon said local and national developers have been “knocking on our door” about the project. The trust intends to issue a request for proposals to select a developer but seems in no hurry to do so.
“It would be a fair argument to say in terms of Downtown — truly Downtown, Golden Triangle — this may be one of the best, most valuable and important development sites that the city has left,” Mr. McMahon said. “So we’re being especially careful in wanting to be very good stewards of that development.”
As many as 700 to 800 units of housing could be built in the Eighth Street block. The 2006 RiverParc plan also imagined shops, restaurants, public spaces and parking facilities on the six-acre pad bounded by Seventh and Ninth streets. What the trust envisioned then is “still in play,” Mr. McMahon said.
“We are truly interested in exploring the best of the best in terms of design, in terms of sustainability, in terms of public art, in terms of varying housing options,” he said.
At the same time, it “has to pencil out as a project,” he noted. “The days of massive public money to support developments, I don’t know if they’re gone, but they’re certainly not as prevalent as they may have been years ago.”
A large part of the development likely will be upscale, mirroring the housing patterns exhibited throughout the greater Downtown area.
“I think it’s fair to say much of the development that we’re going to see in the Eighth Street block — particularly, if you will, the oceanfront property — is going to be higher- end apartments. There’s no question about that,” he said. “But it doesn’t mean that the entire block is going to be luxury homes. They won’t be.”
But even if the trust succeeds in building the biggest housing development in Downtown’s history, that won’t be its final act. “We still have a lot of potential here, an enormous amount of potential,” he said. “We have a lot of work still left to do.”
Elizabeth Bloom: ebloom@post-gazette.com or 412-263-1750. Mark Belko: mbelko@post-gazette.com or 412-263-1262.
First Published: October 18, 2015, 4:00 a.m.
