Bank moves to foreclose on San Francisco Art Institute

Despite laying off scores of faculty, fomenting an exodus of students, and announcing it will not offer degree programs in Fall 2020 or Spring 2021, San Francisco Art Institute has steadfastly maintained it is not “closing.” 

“The San Francisco Art Institute is not closing its doors,” read a June 30 email from school trustee Doug Hall to students, faculty, alumni, and others. “In early July a process will be announced that allows community input as we begin the interesting and positive process of restructuring and reorganizing SFAI into the vital place it was and can be again.” 

That goal ostensibly became more difficult — though not yet impossible — earlier this month when Boston Private & Trust Company moved to foreclose upon the 150-year-old institution’s crown jewel, its Chestnut Street campus building, which serves as collateral for a hefty loan.   

The “Notice of Default and Election to Sell Under Deed of Trust” was filed on July 8 on behalf of Boston Private by Peak Foreclosure Services, Inc. In a separate document also filed on July 8, Peak Foreclosure Services was inserted as a “substitute trustee” for the school. 

The Notice of Default lists the sum of the Art Institute’s “past-due payments plus permitted costs and expenses” as $19,069,631.48 as of July 2. The document lists the school’s “breach” as “the failure to pay the principal balance, which became due on 04/01/2020 together” with other costs and expenses. 

No sale date of the property may be set until three months after the July 8 date of the notice of default. 

SFAI Notice of Default by Julian Mark on Scribd

Both interim Chief Operating Officer Mark Kushner and Board of Trustees chair Pam Rorke Levy last week insisted to Mission Local that the San Francisco Art Institute had not missed a payment. Both acknowledged, however, that the school had been in “technical default” for months; its deed of trust with Boston Private required certain amounts of cash reserves and other such measures it had not been able to maintain. 

Questions today to Kushner and Rorke and the school’s attorney from Keller Benvenutti Kim — a San Francisco firm specializing in “corporate bankruptcy, restructuring, and crisis management” — were deferred to the following statement: 

Like many educational and arts organizations worldwide, SFAI has been deeply affected by the COVID-19 pandemic.  The pandemic has affected nearly every aspect of our operations, and we have had to take painful steps to cut costs and preserve resources.  These steps have had a single goal: enabling SFAI to continue to provide world-class fine-arts education in San Francisco, as it has for over a century.  We are in active discussions with our current lender, as well as with potential sources of additional funding, with that same goal in mind.  We expect these discussions to continue over the course of the summer.  We are grateful for the community’s overwhelming support through the current adversity, and hopeful that SFAI will emerge from it an even stronger organization.

The pandemic has been a disaster for educational institutions large and small; the San Francisco Department of Public Health on July 7 informed all “institutes of higher education” that in-person instruction is not allowed — a move with dire educational consequences, and which will cost instructors their jobs. 

The San Francisco Art Institute, however, was already facing a crisis of its own making — crushing debt on a $16 million loan the institute secured in 2016 to finance its ambitious expansion into Fort Mason — and an $18 million 2017 refinancing. 

“One of the major issues facing the institute is debt,” Hall wrote on June 30. “Personally, I was shocked to learn the extent of it. It would be inappropriate at the moment to provide many details about the fiscal health of the school since it changes almost daily.”  

On July 1, 2016, the school put up as collateral its “real property” to obtain a loan from Shanghai Commercial Bank. The University of California Regents are also listed as grantors on these forms. The UC Regents have served as “remainder trustees” of the school dating back to an 1893 agreement between UC and benefactor Edward Searles. 

Thanks to this 19th-century pact, if the Art Institute were to cease to be, its real properties — and debt — would fall to the UC Regents. 

Our messages for the Regents, querying what their plans would be for the school have not been answered.   

The hefty loan was secured to finance the school’s expansion into space at Fort Mason. Five years ago, the school’s enrollment was pushing 700, and this move was sold as necessary. But the student body has shrunk precipitously since then, and is now under 300 — a disaster for a school that’s 85 percent tuition-dependent and now saddled with crushing debt and a half-century remaining on its waterfront lease. 

“The loan was very badly done. We over-collateralized,” Levy said last week. “With our big enrollment, the amount we spent on Fort Mason was very justifiable. If the board at that time had people advising us, we would’ve known we were on top of a demographic trend” — and that enrollment would fall at institutes of higher education nationwide, and is predicted to continue to drop. 

In a complaint sent earlier this year to state Attorney General Xavier Becerra, the SEIU 1021, which represents 69 adjunct faculty members who have been laid off, accused the school and its trustees of “conflicts of interest, self-dealing, and breaches of duty of care and loyalty.” 

Elizabeth Travelslight, one of the 69 laid-off adjunct faculty members and the union’s chapter president, lamented her colleagues losing their jobs — “and these were very special jobs at a very special cultural institution.” 

She is unsure what comes next, or what to expect from the school, the bank, or, quite possibly, the UC Regents. 

“Both the Board of Trustees and the UC Regents deal with problems as administrators, not as people who do the actual work this institution is meant to do,” she said. “Which is teach.”

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