Garfield Traub Theater Development Case Study
The Need: A high-quality downtown performing arts center had been a goal of the City of Durham for many years when Garfield Traub and its team were selected by the City to develop the center. Independent studies identified substantial market demand for touring Broadway musicals, concerts and other entertainment. Downtown momentum was already building with the redevelopment of the American Tobacco Historic District, The Durham Bulls Athletic Park and other signature projects. Duke University had an older arts facility it wanted to demolish for building new campus facilities, and Duke and the city wanted to preserve Durham as the headquarters for the American Dance Theater which needed new facilities.
The Challenge: Durham’s downtown development activities were very enterprising, but the City was insisting that the private sector invest in and share risk and responsibilities with the City. Furthermore, the historic 1,000-seat Carolina Theatre of Durham and its Board of Directors and community supporters were very concerned what a new theater would do to this beloved local institution and its future.
The Risk: While recognizing that the ownership and capital financing of a new performing arts center would fall primarily to the City, the City did not have the desire or the resources to operate or accept the associated risks of operating and promoting a performing arts center.
The Opportunity: With both the City and Duke and some influential civic leaders seemingly ready to contribute and move forward, and the city having engaged two theater specialists to assess the marketplace, the missing piece was to add a development and finance leader to the effort. Garfield Traub in concert with a local design firm, Szostak Design Inc., was selected to lead the team that would deliver the DPAC.
- Financing – The DPAC was funded primarily by low-cost City financing that did not require a voter referendum. Sources of funding included taxable Certificates of Participation repaid by a portion of Citywide Hotel Occupancy Tax, facility naming rights, a Duke University grant, an operator loan and philanthropic sponsors. Furthermore, Garfield Traub led a selection effort that resulted in the City negotiation of a public/private partnership between the City as facility owner and Nederlander Organization and Professional Facilities Management to be the operator and promoter of the Durham Performing Arts Center (DPAC). The operator submitted a proposal to operate the DPAC, assume the risk of operating losses, and guarantee theater activity to ensure that City economic impact goals would be met. Those goals included (1) Pedestrian activity and downtown vitality, (2) Construction and permanent job creation, (3) Increased property valuation and taxes in the vicinity of the theater, (4) Increased city visitation, including hotel room nights, dining, retail and transportation spending, and (5) Inducement of adjacent, private investment and business activity.
- Delivery – With Design-Build not being allowed as a form of delivery within North Carolina at the time, the team recommended and the City agreed to use a Construction Manager At Risk (CMAR) contract to ensure a predictability of on time and on budget success. The DPAC was completed ahead of schedule and under budget.
The Result: The ambitious initiative led to the opening of the DPAC. It is owned by the City and The DPAC has exceeded the original projections of attendance, surplus cash flow and economic impacts by multiples of original projections, and has contributed greatly to the development of many new restaurants, retail, office, and other related mixed-use developments, in spite of the recession in full force upon the opening of the theater in 2009. Five new downtown restaurants opened in the first two years of DPAC operations, despite the national recession. The DPAC produces $28 million in annual economic impact according to the Durham Convention & Visitors Bureau, and was rated #1 by trade publication Pollstar as the top-selling theater in the U.S. and #2 in the world for the first half of 2012. Projections for surplus cash flow after operations were originally conservatively estimated at $400,000 per year, with approximately $160,000 (40%) going to the City. The actual results have exceeded the original, purposefully conservative projections by a factor of ten! This year the DPAC reported a net income of more than $4.5 million in fiscal 2011-12, with $1.8 million of these funds going to the City of Durham.
Co-promotion and joint marketing activities have proven that “a rising tide raises all ships” for a properly planned arts venue. As evidence, in spite of early concerns that the DPAC would be competitive with the historic 1,000-seat Carolina Theatre of Durham, less than three years after the grand opening of DPAC, it was announced that the Carolina Theatre was ranked among the top 100 theaters in the world in attendance for the first time in its history. This Garfield Traub-led venture proves what smart partnering of the public and private sectors can accomplish.
To find out how your City can successfully build a performing arts center or any other public development to meet your City’s needs contact Garfield Traub.