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A Guide for Creating and Preserving Affordable Artist Spaces

Acquisition of Artist Space—Ownership or Rental

Is This Building Right for Artists?

When identifying potential spaces, look for a building that is "easy" to convert to your artist needs. That means a building which does not need a huge amount of remedial work before renovations can begin.

The following are some quick tips to guide you if you are looking at potential buildings with no professional advice.

Layout for intended use: How well does the floor plan lay out for studios or living spaces? Deep spaces work best in buildings with high ceilings and large rooms. Does each floor have two legal means of egress and a logical path for hallways?

Sprinklers: If they are required (see a code consultant), do they work? Can they be upgraded, or will they need total replacement?

Mechanical systems: Are the heating and electrical systems adaptable for your use? Will you be able to control the heating system efficiently?

Environmental: 21-E is the legal section in Mass Law which governs environmental clean-up. Phase One 21-E test involves a visual walk through by an environmental engineer and a check of all public records for reported underground tanks or spills in the building and within a radius of the building. Most projects also require a Phase Two examination, when actual sampling and testing of a site is done. Without at least a Phase One test, it is risky to spend much, if any, money on professional design or legal services.

Structural: While you need an expert to give you the final word on any structural problems, keep an eye out for problem clues, such as sagging or bouncing floors, major masonry cracks, standing puddles on wood floors, or obvious foundation settlement.

Roof: How old is the roof? Has it been maintained or is it leaking badly? Replacing a roof membrane is typical, but replacing a rotted roof structure is much more costly and intensive.

Windows: Will they need replacement? Are there enough for your needs? Cutting new window openings is sometimes simple, sometimes complicated, and on lot-lines may be prohibited.

Freight elevators: Do they work? If the elevator is not up to code with a current use certificate (usually posted in the elevator cab), it may be expensive or impossible to upgrade.

Basement: Look for a water-level line ("ring around bathtub") as indicator of basement flooding.

Parking: Is there sufficient parking for your purposes and to meet the zoning code?

Historic districts: Within a district, the building rehab must pass various design reviews. These are important, but not necessarily inexpensive. Ask a public planning official for confirmation if the seller does not know for sure.

Zoning: It is foolish to proceed beyond a simple walk-through without knowing what uses are allowed.

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Ownership Structures

The following examples of legal ownership entities are used in the creation of artist space.

Co-operatives: In a cooperative, the real estate is owned by a corporation and the shares in the corporation are held by the building owners in proportion to how much space they occupy. Each owner also has a lease which gives undisputed legal right to occupy his/her space. Co-ops pre-dated condominiums and have some advantages:

  • There can be one "blanket" mortgage on the entire property (shared by the unit owners), a series of smaller mortgages, or a combination of both.

  • The overall financial strength of the borrowing group can carry along members with uncertain incomes or low net-worth. Some of the best group members fall into this category.

  • Changes in unit boundaries do not need to be recorded in public documents (unlike internal changes to condominiums)

  • Co-ops are inherently more flexible than condos and are easier to operate as mixed-use buildings.

  • Co-operatives can set their own rules about who can purchase shares (a unit), hence it is easy to require that all residents be artists.

Limited equity co-ops: 'Limited equity' refers to the mechanism used to keep a project affordable by placing a ceiling on the resale price of the studios. For example, at the 249 A street artist co-op in Boston, the resale price is limited to a 10 percent per year return on one's cash (equity) down payment and capital improvements. While this prevents early "windfalls", long-time owners find that the 10 percent allowable increase eventually brings them close to the unrestricted market. Limited equity and restrictions on resale to artists limit the choice of lenders, since many banks and mortgage companies only deal in standard debt products.

Condominiums: Condominiums differ from co-ops in that each condo owner holds a deed to the unit and obtains an individual mortgage for its purchase. This is similar to buying a single-family house. This approach means that each individual owner is responsible for mortgage payments and property taxes associated with the individual units. Generally, unit owners gather to form a condo association that elects trustees who are responsible for the management and oversight of the building and/or management company. This management includes oversight of common areas and elements of the structure. Also unit owners typically pay a 'condo fee' to maintain these public areas. Mortgages to individual owners often take the form of conventional, 30- or 15-year, variable or fixed-rate mortgages. Condo associations have somewhat uncertain legal rights to restrict sale of units to non-artists, although such restrictions do exist.

Limited Partnerships and Limited Liability Corporations (LLCs): In limited partnerships, a group owns percentage shares of the "LP". Sometimes artist/developers team with investors who put up money in exchange for the right to use the depreciation of the property as a tax shelter. This is a business form of ownership not really suited for most owner-occupied residential projects.

Because limited partnerships and their treatment by the IRS can be extremely complex, an experienced real estate attorney and accountant should be your guides through this process.

Limited liability corporations (LLCs) are a relatively recent form of ownership. LLCs are popular for one primary reason: members of an LLC are not personally liable for debts or liabilities of the company beyond the investment they made in the project. In most respects, however, LLCs and Limited Partnerships function almost identically, and serve the same purposes.

Rental properties: Rental properties are typically owned by partnerships and LLCs. Sometimes artists band together in a partnership to develop and own a studio building. Typically they rent space to themselves (the rent comes back to them) and to tenants outside the partnership. Residential rental projects are seldom developed by artists, but are sometimes built as part of larger residential or mixed use projects.

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Purchasing a Property

The Letter of Intent: One of the first steps in the development process is preparation of an offer to the seller, often called a "Letter of Intent to Purchase".

At the outset, you and your group should set a maximum price you will pay. Before making an offer, you should consult with an experienced real estate lawyer to understand the implications of an offer and to develop a negotiating strategy. Price is not the only consideration - other important items to discuss early on include:

  • Time to inspect the site,
  • The amount of a deposit to take the property off the market,
  • The expected closing date, and
  • Changes in zoning which you need in order to buy the property.

Making an offer is like a poker game: you and the seller don’t know each other's hands and you don’t know who is bluffing. You can increase your bargaining position by having a general understanding of the market for similar properties. Find out how long the property has been on the market.  See if you can find out from the broker any other offers that were made.

If the broker comes back with a counter offer, you know there's maneuvering room. If your offer is flatly refused on the basis of price, you will need to decide whether to unilaterally offer more. Sometimes the actual cash price is less critical to the seller than his/her assessment of your ability to close the deal.

Purchase and Sale Agreements (P&S): Closely following the Letter of Intent, the P&S is a formal agreement between you and the seller on how to complete the transaction. The P&S details all important conditions which affect the sale. Is there still an environmental investigation or clean-up needed? Under what conditions will your deposit be returned? Important language governs these issues, and they will be noted in the P&S. In addition, a timeline to get ready for the purchase is set. For example:

  • Structural analysis: 1 month
  • Environmental analysis: 3 months
  • Zoning variance applications: 2 months
  • Zoning variance: 6 months
  • Preliminary financing commitment: 3 months
  • Firm financing commitment: 7 months
  • Closing: 10 months

Taking each of these steps will require that you have cash on hand. The deeper you get into the steps, the more money you have put toward things. Focus your cash on the steps that are the most crucial to project feasibility.  For example, you should probably delay getting detailed architectural drawings until you have received your variance and are confident of financing. The same goes for detailed legal work. If you are planning to purchase the building from a private owner, a cash deposit will be required. Try to minimize the cash deposit amount so you can have funds on hand to cover pre-development costs.

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Renting for a Group of Artists

Renting a studio space most often involves leasing a floor or portion of a floor of a commercial or industrial building. Leasing more space than you can use for your own studio might mean that you need to rent or 'sublet' the remainder of the space. Let's say you are a little more ambitious, don't want to move into an established studio building, and are thinking about renting a larger industrial or commercial space. Here are some options for renting space:

  1. Get a group of artists together prior to a building search and establish a cooperative and sharing agreement for renting the space.
  2. Find a space and then get a group together before signing a lease.
  3. Sign the lease and then get the group together.
  4. Sign the lease and sublet to other artists who would pay more than their share of the pro rata costs. Basically you could sublet for a profit to compensate you for the risks you are undertaking. (Not recommended.)

Options 1 and 2 involve the least amount of risk; however, you might not have the time to get a group together before signing the lease (option 3). In this case you should evaluate the risks and the feasibility of subletting space to others. In most cases, landlords try to get at least two signatures on a lease. The last option, 4, is definitely NOT recommended. In most cases it leads to resentment, misunderstandings, and lack of cooperation which might threaten your status as a lease holder.

Most commercial landlords prefer to lease entire floors rather than subdivide a floor and deal with multiple leases. While a floor lease might give you more space than you need or can afford, this gives you more bargaining power with a landlord.

Floor co-op agreements: The importance of written agreements cannot be emphasized enough when setting up a floor of artist studios. These agreements can prevent future problems. Without a written agreement, your tenancy could be jeopardized by personality conflicts. Your claim to your space is best protected with a written agreement that defines and makes enforceable what you have spoken about with your co-tenants and landlord.

Many artists find co-operatives to be a supportive and creative environment in which to work and develop their art. Setting up a floor co-operative, with several separate studios or in one large studio, has been a popular and successful model. Everyone has an equal say and therefore an equal stake in important decisions. A co-operative agreement binds everyone to accept equal responsibility and liability with the leasehold.

By forming a co-operative you can share not only floor space and utilities, but also equipment and materials. Co-operative purchasing can make materials less costly, and it may be only way to have access to expensive tools such as a kiln or band saw.

Every group's arrangement will be different depending on the needs of individual artists.

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Subdividing Raw Space

Most artists welcome the opportunity to design their studio space and put a great deal of thought into the layout of their floor. Artists strive to subdivide their area so that there is a minimum of unusable or un-rentable space. The following points should be considered when planning the build out:

Fire Egress: Typically each studio needs unobstructed access to two means of egress.

Fire Protection System: Walls should be built so they do not interfere with sprinkler heads, and all corridors must have sprinkler systems. Consider existing sprinkler locations before you lay out the walls. Moving or adding sprinkler heads is not a trivial procedure. It is well worth your time to lay out the space with someone who knows the regulations which govern sprinkler head coverage BEFORE committing to a plan.

Wall and Door Construction: Depending on the building type and other factors, you may need more or fewer fire resistant walls and doors in any space you build out. Some buildings are based upon code interpretation which allows for wood studs, others are not and require steel studs. Some walls can be cheap and ordinary; others need to be fire rated.

Access: You should be able to easily access the freight elevator which may require wider corridors than you would otherwise care to leave.

Sound Control: Consider using fiberglass or some kind of soundproofing between the studs if necessary.

Odor and Fume Control: Best controlled at the source. Tell your subtenants what is and what isn't allowed. Put smelly or noxious uses near ventilation sources. Look into ways to directly exhaust odors, dust, and fumes.

Storage: Don't underestimate your need for storage space. The average visual artist uses 15 percent of floor space for storage; many find they need even more. Depending on the configuration of the floor, you might consider setting aside part of the common space as storage. Make sure that any storage you build does not interfere with a sprinkler.

Heat Circulation: When you subdivide a space, you need to consider how heat and fresh air will reach all the spaces. Often walls do not extend to the ceiling – but be aware that this creates a very "communal" feeling to the space.

Flammable Materials Storage: Thinners and other flammable liquids should be stored in metal cabinets designed for the purpose. Often groups of users share a single cabinet.

Building Permits and Inspections: Except for very minor alterations, everything you build requires permits and inspections. This does not need to be confusing or contentious, though it adds some expense, and requires the full knowledge and cooperation of the landlord. We recommend engaging a knowledgeable architect or code consultant to look at the space and review your plans before going to the building department.

Always ask the landlord before planning any changes to any plumbing or electrical systems.

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Zoning

Cities and towns, through their zoning ordinances, control the use of land. This includes: allowable uses on the site (residential, office, retail, industrial, etc.), how buildings can be situated on the property ("dimensional requirements"), parking requirements, landscape and open space requirements, and numerous other regulations. There can be layers of laws for an individual site; for example, a waterfront property might have base zoning of industrial, as well as a waterfront "zoning overlay" which permits new uses.

Besides local zoning, the state also regulates certain properties, most notably waterfront property, which generally falls under the purview of Chapter 91.

All of these laws and codes are publically available, usually through municipal web sites. It is advisable to research the zoning yourself to see if there are any restrictions on the building for residential or workspace use. Artist live/work space will sometimes be referred to specifically in the code. Calling a city official in the planning department will help you figure out how the code affects a building.

That being said, any project funded with a construction loan will need a 'zoning opinion' from the developer's lawyer which states that the project is in full compliance with local and state regulations.

Be sure that you fully understand the zoning status of a property before signing a purchase and sale agreement. If some zoning action is needed, make that a condition of the purchase and sale agreement. Buying a property before it is zoned for the use you need is very risky.

In some communities artists' studios and residences are allowed in commercial or industrial zones, where housing is not allowed by the current zoning. Municipalities can create a special zoning "overlay" to encourage artist use of underutilized downtown or industrial districts.

VARIANCES AND SPECIAL PERMITS
If the use you want is not allowed by the zoning, or if it can't be built within the dimensional or parking requirements, you may apply for a "variance" from the zoning regulations. Each locality has its own rules for how these are carried out. Obtaining a variance is a lengthy and technical process, and virtually impossible to navigate without some assistance.

If the proposed use is allowed by "special permit," it still requires a vote of a public body, typically the Planning Board.

Either type of zoning change (special permit or variance) will involve time and money and can take months (or years!) for approval. Community input is often part of the process for getting a variance. Hence, it is essential to get community support and consider all feasible requests the community may have. Proctively compromising is much more efficient than grinding your way through endless public meetings.

Next: Financing

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