Will This Impact Fund Save America’s Music Venues?

The Live Music Venue Recovery Fund, designed and championed by a music venue owner, aims to stabilize independent venues reeling from the pandemic and give them a path to ownership.

A Headliners show pre-pandemic (Photo by Michael Stewart Photography; courtesy Headliners)

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When Joe Argabrite opened Headliners in a former bourbon distillery cafeteria in Louisville, Kentucky, in 1998, the Irish Hill neighborhood was a sleepy, largely industrial area of the city. The 700-person music hall would evolve into one of the city’s most beloved independent music venues, serving as a launchpad for artists like the Black Keys, Smashing Pumpkins, the Decemberists and My Morning Jacket.

By 2017, Irish Hill was being repositioned as a mixed-use residential area and had become a magnet for new development, with a 400-unit apartment building erected on an industrial site down the street from Headliners.

Even before the events of 2020, Argabrite was already feeling pressure from surrounding development. And then came the pandemic.

Forced closures of music venues across the country due to social distancing meant overall revenue losses of up to 90% for some of the over 3,000 independent venues across America, with rent or mortgages still expected to be paid. “There were times when we were very close to seeing ourselves not being able to get to the next month.”

This scenario was all too familiar to Dayna Frank, owner of First Avenue music hall in Minneapolis, who had become deeply involved in advocacy work for the independent music venue community. “Because buildouts for our kind of business are so expensive and specialized, these venues tend to go into lower density and emerging areas where rent is lower so you can put more money into technical and equipment. And then there’s a tendency for neighborhoods to then develop around these venues,” says Frank.

Frank recognized how much time, capital and sweat these venue operators had put into these spaces that they weren’t accruing equity in, how exposed as renters they were to a growing affordability crisis and the whims of opportunistic landlords, and the looming threat of Live Nation’s growing influence and consolidation of the industry.

After seeing firsthand in the early days of the pandemic how many of her peer venues were at risk of permanent closure, she reached out to Grubb Properties CEO Clay Grubb, whom she had met on an Aspen Institute fellows retreat in January 2020 where the two had bonded over their favorite concert memories. Grubb had made a name for itself in North Carolina for developing multifamily projects and had helped to re-establish the Visulite Theater, an independent music venue in Charlotte, and helped finance the newly revamped Cat’s Cradle venue in Chapel Hill.

“So I called him with a problem and he came at it with a solution,” says Frank. The result of that conversation was what is now the Live Venue Recovery Fund, a pioneering program that provides eligible independent music operators with a 3 – 5 year roadmap toward purchasing their own venues. As the program is currently structured, the Grubb-managed fund buys the properties and rent goes back into the overhead and operations of the fund. A path toward operator ownership is written into the contract at the outset, with a negotiated timeline for and price of purchase included.

Designed around an impact fund real estate model, the Live Venue Recovery Fund caps Grubb’s rate of return at 12%, after which any remaining returns are donated to the National Independent Venue Foundation, a nonprofit related to the National Independent Venue Association (NIVA), a trade association that was formed at the start of the pandemic. While Frank is also president of NIVA, she notes that the partnership with Grubb is distinct from that affiliation.

Venues looking to participate in the program need to meet three key criteria areas: They need to be viewed as culturally significant to the communities in which they operate, they have to be spaces that are susceptible to redevelopment, and they need to demonstrate strong operations and financial statements from before the pandemic.

According to fund manager Hillary Schmidt, the program is a more realistic option for venues than working with traditional banks, especially in the short term. Since most of these spaces haven’t been generating income over the past year, they wouldn’t be eligible for business loans for purchasing or completing capital improvements anyways.

For Argabrite, who by last Summer was fielding dozens of inquiries from developers and looking at an array of options to stabilize their business, the partnership with the Live Venue Recovery Fund was a “perfect solution” for Headliners. Unlike other developers, Grubb had a music venue expert and champion in Frank to guide the process and make sure the best interest of the venue operators and promoters would be embedded in the deal. “With Grubb we found an entity that wanted us to operate as Headliners and not as a brewery or some kind of mixed-use project. They just wanted to kind of help us and then get out of the way,’ says Argabrite.

For Headliners, the partnership has been a lifeline both in weathering the pandemic and in planning for an even better next chapter for the venue. After officially purchasing the venue in October, Grubb was able to provide 12 months of rent forgiveness to help Headliners get back on its feet. And through the deal they came up with, Headliners has been able to use the period before Louisville fully reopens to invest in capital and building improvements, including replacing and upgrading ventilation systems and renovating public and artist areas. “When we do open our doors again, people will see a major facelift and hopefully that will help drive our business and artist engagement.”

Rather than looking at the Live Venue Recovery Fund as an aggressive acquisition program, Frank sees this as a resource and another option that venues have available to them as they navigate a challenging external environment. Grubb is currently in conversation with venues across Nashville, Detroit and Denver.

Frank sees this program as part of a wider lab for exploring different development models in support of the sector that could see the establishment of a music land trust at some point down the road. Since unfortunately, the development pressure on these venues shows no sign of waning anytime soon.

Editor’s note: We’ve corrected some inconsistent references to the fund’s official name.

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Tags: impact investinglouisville

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