Banking on a loan that fell through led to Frost museum’s cash woes

It was the plan from Day One: Miami-Dade County would give the Frost Museum of Science $165 million toward its new $275 million downtown Miami home, enough to get construction of the elaborate new building well under way.

Then, once Frost officials had collected a substantial nut in cash and secured pledges from private donors, they would use that as collateral to get a bank loan for the balance to finish the job.

Borrowing money to build is a common approach for cultural groups that depend on donations because very often promised money doesn’t come in until years later — when, for instance, a donor who has left the museum the money in a will dies. Very often, too, the organization lands some big donations only after a glittering new facility actually opens. As the donation money comes in, the group pays off its loan.

In this instance, though, what appeared to be a well-laid plan went seriously awry, jeopardizing the project. And the reason appears to be a significant miscalculation by the museum and its financial consultant, according to Miami-Dade officials.

Though its director, Gillian Thomas, says fundraising was somewhat “slower” than expected, the museum has rounded up $58 million in secure pledges — meaning pledges that donors are bound by contract to deliver at some agreed-upon date. Thomas and other museum officials have said they’re confident they can raise $38 million more by selling naming rights to the museum’s aquarium and other major elements.

All that, a financial advisor assured them, would be enough to persuade a bank to lend the museum the full amount needed to finish construction, a whopping $105 million, a top county official said Wednesday.

Only it didn’t work out that way. When the Frost went to the banks, loan officers told them they could not count on unsecured pledges or unsold naming rights. In effect, the museum learned, it could borrow at most $38 million.

Bottom line: The museum walked away without its loan. When Miami-Dade Mayor Carlos Gimenez initially rebuffed Frost officials’ request in October for a bailout, the museum found itself by early January in a critical and unforeseen fix — with a looming payment of between $5 million and $7 million to the general contractor, Skanska, and no cash to cover it.

That’s because the county’s contribution is already gone, spent to get the museum construction almost three-quarters done. The museum, too, had spent all the cash it had on hand for building construction — $30 million. And while fundraising efforts were redoubled, it was clear no white knight would be riding in to bail them out quickly enough.

“They really thought they could get this done, but they just ran out of time,” said Michael Spring, a special advisor to Gimenez who is now helping the county come up with a rescue plan to keep the project on target for a November opening.

Though details are still being worked out, that plan envisions converting a promised $4 million annual operating subsidy from the county to the museum over 20 years into an upfront payment of $45 million toward construction, meaning taxpayers would not be out any more money than officials are already committed to laying out.

The county would borrow the $45 million. It would pay off the loan by using the money promised to the museum for operations over 20 years. That money, from hotel and convention tax revenue, would add up to $80 million.

The $80 million would yield only $45 million in cash because of expenses associated with borrowing the money, mainly interest payments, Spring said.

The museum would borrow at least its $38 million, for a total of over $80 million. That’s still short of the cost of fully building out the museum as planned, but enough to finish and open the facility and its major elements, including the aquarium and new planetarium, county and museum officials say. Some exhibits, mostly outdoors, would be cut out for now, Thomas said.

Even if the Miami-Dade commission approves the plan, which Spring says would not be ready for a final vote for three months, substantial uncertainties surround the project.

To keep construction going without a costly and disruptive interruption, for instance, some major donors have agreed to accelerate their pledged donations to cover upcoming payments to Skanska. But that would reduce the available collateral, Spring noted, and thus potentially the available proceeds from a loan.

On the other hand, the county’s intervention, and perhaps some new secured donations — the museum is now working to nail down $9.5 million in promised donations — could strengthen the Frost’s loan application and yield a higher cash figure, he said.

“I’m hoping the banks can do better” than $38 million, Spring said.

To be sure, the Frost has raised a substantial amount privately — more than $93 million in cash and secured pledges, according to figures supplied by the county. The museum has announced some major gifts, including $45 million from Patricia and Phillip Frost, $10 million in cash from the Knight Foundation, $7 million from its board of trustees co-chairs, Daniel and Trish Bell, and $7.5 million from the Batchelor Foundation.

But the museum has spent all but $5 million of the $35 million in cash donations to date on design and initial construction costs. The remaining $5 million is restricted to installation of exhibits.

Getting the loan won’t mean the end of the Frost’s money worries.

It still needs to raise substantially more to meet its full commitment to the county of $140 million, which includes nearly $35 million in other, non-construction costs related to the new museum — from moving expenses to permits and project insurance. And, if the rescue plan is approved, it must figure out a way to cover the cost of its operations without the expected $4 million subsidy for 20 years.

This story was originally published January 13, 2016 at 8:06 PM with the headline "Banking on a loan that fell through led to Frost museum’s cash woes."