Delaware Art Museum uses reserve fund to repay mortgage

When Delaware Art Museum leaders announced in 2001 an ambitious plan to nearly double the size of the institution's Kentmere Parkway location, they likely had no clue the project would threaten to bankrupt the institution – twice.

In the end, the $32.5 million expansion plagued by cost overruns and construction delays saddled the museum with a crushing debt, which severely depleted its investment reserve fund and discouraged corporate and individual donations.

On Wednesday, museum officials announced they would retire the remaining $19.8 million in debt by the end of this month. The cost: Two masterpieces and at least another $5 million subtracted from the institution's investment fund, according to board Chairman Gerret Copeland.

Copeland said he is relieved the museum is "free of the albatross around our neck," but frustrated the art market decided not to cooperate.

The museum's pre-Raphaelite masterpiece, William Holman Hunt's "Isabella and the Pot of Basil" (1868), sold for a disappointing $4.25 million at public auction in June. Copeland partly blamed unrest in Ukraine, noting that a couple of Russian buyers backed away from deals after they couldn't access funds held in Russian banks.

Alexander Calder's "Black Crescent" mobile fared better, selling for an estimated $10.6 million at a recent private sale. Museum CEO Mike Miller would not disclose the price paid for the Calder. The News Journal calculated the figure based on the auction results and Copeland's estimate of the investment fund withdrawal.

As for the third work selected for sale – Winslow Homer's "Milking Time" (1875) – the museum is holding off for now after rejecting several low bids, Copeland said.

"Basically, there's no interest in Homers," he added.

After the debt is paid this month, the investment fund – an arts organization's lifeline – will stand at $15 million to $18 million, Miller said. That's about half what the museum needs for long-term stability, he has said previously.

The fund fluctuates depending on market conditions. Earlier this year, officials estimated it was worth $25 million.

"I view it as a loan from the endowment that we will repay as soon as possible," said Miller, who would not confirm the amount borrowed from the fund, but said Copeland's figure was "not correct."

How quickly the fund is repaid depends on how much the Homer fetches (it is being shopped to private buyers), along with proceeds from a yet-to-be-named fourth work from the museum's 12,500-piece collection. Previously, museum officials said a fourth work would be sold only as a last resort.

On Wednesday, Miller said selling a fourth piece to help replenish the investment fund was a "strong possibility." No works acquired through gift or bequest will be sold.

The museum was under the gun because it had to meet a bank deadline of Oct. 3 or risk closing its doors, officials said. The trustees voted in March to sell up to four works of art to raise $30 million to repay the debt and replenish the investment fund.

The sales resulted in sanctions against the museum by two professional museum associations. The century-old Delaware Art Museum lost its accreditation and ability to receive loaned works from many museums nationwide.

If the museum hopes to be financially secure in the future without having to sell more art, leaders agree they must bolster the investment fund. Retiring the debt is a positive sign, they said.

"We're confident our supporters are going to step up and support us in the next couple of years," Miller said.

News Journal editor Lucia Blackwell contributed to this report. Contact Margie Fishman at 324-2882 or mfishman@delawareonline.com.