Developer Raising Impact Fund To Save Live Music Venues Through Real Estate

Joe Argabrite was expecting a record-breaking 2020 at his 750-seat live music venue in Louisville, Kentucky. But Argabrite and his co-owners at Headliners Music Hall were forced to cancel every show after March and found themselves struggling to stay in business.

Headliners has a deep connection to the Louisville music scene. Since opening in 1998, the venue has hosted the Black Keys, Ice Cube, Kings of Leon, My Morning Jacket and comedian Patton Oswalt. Bands like Wolf Mother, Strfkr, The Lone Bellow and Bikini Kill were booked and likely to sell out Headliners, Argabrite said. The shows didn't go on.

“It was a fairly dire financial position at that point to lose and refund the vast majority of our calendar all at once and no understanding of when revenue might come back,” Argabrite said. “It was always a possibility that we would be forced to throw in the towel, but my partner Billy [Hardison] and I are fighters with a true entrepreneurial spirit.”

In October, Headliners got a lifeline: The partners sold the concert hall to Grubb Properties, which is raising a new impact fund dedicated to saving independent music venues.

As 2020 was coming to a close, the Charlotte-based real estate developer and investor launched the Live Venue Recovery Fund. The vehicle lets Grubb and its investors buy the real estate of independently run music venues to give them a financial buffer until local governments allow them to fully reopen and they re-establish their business.

Venue operators, which lost $9B in ticket sales collectively last year, according to the live music industry trade publication Pollstar, then lease back the property from the fund with the option to eventually buy it out and take ownership of their real estate.

The fund, which is aiming to raise $50M, is seeking venues it deems “socially significant” with a strong pre-COVID financial history, Grubb Properties CEO Clay Grubb said in an interview.  

“Obviously the No. 1 pressure that comes is they have mortgages to pay, and taxes are still due,” Grubb said.

He is partnering with Dayna Frank, CEO of the Minneapolis venue First Avenue and president of the National Independent Venue Association. Investors' returns would be capped at 12%, Grubb said, and all additional profits would be donated to NIVA.

Grubb, who calls himself a live music lover, is no stranger to owning performance venues. The firm once owned The Visulite Theater in Charlotte as part of its ownership of a larger property. And more recently, Grubb financed a loan for Cat's Cradle, an independent venue in Chapel Hill, North Carolina.

Headliners was the live venue fund's first purchase. Using all house capital, Grubb bought the venue from Argabrite and his partners for $950K, according to Jefferson County land records.

The sale allowed Argabrite and Hardison to buy out their co-owner, who wanted to cash out, as well as infuse $100K into the venue to upgrade the interior and the HVAC system in preparation for a return of live performances sometime this year, Argabrite said.

“It's taken some of the pressure off, and it's allowed us to come back and left us with a building that will be better than when we left it,” he said. “We're really running under the thought that the live event music business is going to come back stronger than it was pre-pandemic. A year of people not experiencing live music has created a large pent-up demand.”

Grubb said he is actively soliciting investors to raise further capital for the impact fund and will seek independently operated venues that are desperate for a financial reprieve. He said he wants to help venue operators survive through pandemic restrictions long enough to come back to a revived economy.

Grubb is in talks to buy Nashville's 50-year-old live music venue Exit/In from the two families that currently own the property. They recently listed it for sale, casting the club's ongoing existence into doubt.

“I don't think there's any question that humans are all about interaction and experience. This generation is 10 times that compared to the generations before it. They don't own homes. They are in it for experience. This is the selfie generation, and they want to document their experiences,” Grubb said. “Entertainment is one of the best anchors out there. Instead of Neiman Marcus, it's the brewpub. I just think that there's zero chance that that trend even slows down.”

The impact that the coronavirus pandemic has had on restaurants has been well documented, with more than 110,000 eateries having shuttered in 2020. But as some 80% of consumers shifted to takeout dining, many restaurants at least had a fighting chance and transitioned with their customers. That same luxury wasn't afforded to live music venues.

“You really can't get music to go. There's no such thing as live music takeout,” said Clark Wolf, founder of New York-based Clark Wolf Co., a leading restaurant consultant that has also consulted with live music venues.

Many venues are still unable to host concerts, despite the mounting mortgage, utility, tax bills and loan installments, with reopenings being pushed well into this year, according to NIVA.

As a result, 90% of 3,000 independent music venues across the country are likely to face bankruptcy without at least some government funding help this year, according to a NIVA survey.

Already, at least 91 venues have permanently shuttered across the country, including the Upright Citizens Brigade comedy clubs in New York and Los Angeles; The Satellite in LA, which owners turned into a restaurant last year; Slim's in San Francisco, which was co-owned by legendary musician Boz Scaggs; and the Eighteenth Street Lounge in Washington, D.C., which operated for 25 years.

Music industry trade publication Billboard has been tracking all the venues that have closed down since the pandemic.

In December, Congress passed the Save Our Stages Act as part of the second coronavirus relief package. The grant program is expected to allocate $15B to music venues, performing arts theaters, independent motion picture companies, nonprofit museums and talent representatives through the Small Business Administration. But the SBA has yet to accept any applications for funding, which is putting many music venue operators under additional strain, industry advocates say.

This delay only puts pressure on music venues that achieve thin profit margins in the best of times.

“They run on fumes to begin with,” Wolf said.

Unlike many restaurants, local rules have restricted the ability for live venues to reopen at anything above heavily reduced capacity. Headliners can only host 100 patrons of a concert compared to the original 750 based on local social distancing guidelines. Argabrite said the venue has elected to stay closed, rather than operate at less than one-seventh of capacity.

“The ability to open at partial capacity is not economically feasible,” the National Independent Venue Association said in a recent report. “Rents, utilities, payroll, taxes, insurance, and artist pay are not on a sliding scale matching the capacity we’re permitted to host. They are fixed costs.”

Advocates say music venues can have an outsized impact on a local economy. Every dollar spent on a live performance produced $12 in economic activity within the larger community, according to NIVA. The relationship between live venues and artists is symbiotic, with NIVA estimating that live events account for 75% of an artist's income.

“The smaller venues is what keeps the Louisville music scene alive,” said Sheryl Rouse, the lead singer of the Louisville jazz and pop group Sheryl Rouse Band, and a regular performer at Headliners.

Rouse has also performed in venues like the Apollo Theater in Harlem and the Mercury Ballroom in Louisville and has opened for Al Green, The Temptations, K.C. and The Sunshine Band and Aaron Neville.

“We can't afford to get the big rooms. Everybody can't be Beyoncé,” said Rouse, who has just now started to rebook performances for later this summer. “Small venues are what we thrive on. We're still trying to make a few virtual things happen, but it's still not the same."

Headliners still has an uphill battle. The venue operators were forced to lay off 95% of their staff. Along with diminished capacity, Headliners had to enforce 6-foot social distancing, which made holding any events a pipedream, Argabrite said.

“If people don't notice, those two things don't match up,” he said. “This is still the case.”

Wolf said he thinks the Grubb impact fund is a good idea, especially to help these independent venues recapture business from artists once the world returns to normal. But the longer live venues cannot host concerts and performances, the more likely these artists will seek other platforms to showcase their talent, Wolf said. 

“There's the thing about performance. The format may change, but it's never going to go away. People are going to perform in a parking lot, in a subway. And the way our society is today, something recorded on the side of the road could end up on Netflix,” he said.