Community Dividend

With bank support, arts organizations help build better communities

Investments in local arts and culture can create social, human, and economic capital.

Jacob Wascalus | Community Development Project Manager

Published April 1, 2014  | April 2014 issue

Video Supplement: How Can the Arts Contribute to Community Development?

Screen printing is one of many visual arts media taught by Free Arts Minnesota, a Minneapolis-based organization that works with at-risk youth. In 1990, when the 52-unit Northern Warehouse Artists’ Cooperative opened in the Lowertown section of downtown St. Paul, Minn., the developer of the property understood why some people were skeptical of his organization’s decision to create affordable, artist-only residential and studio space there.

“The area was a ghost town,” says Will Law, chief operating officer of Minneapolis-based Artspace. “One hundred, maybe two hundred people lived down there. There were all those warehouses that were mostly vacant. It simply didn’t look very inviting.”

Yet Artspace’s investment in the “Northern,” a century-old warehouse a few blocks from the Mississippi River, helped kick off a residential and economic resurgence in downtown St. Paul that, more than 20 years later, can be measured by the thousands of people who now live and work in the area.1/ As an organization dedicated to creating and preserving permanently affordable studio and residential space for artists and office space for arts organizations, Artspace recognizes the potential of using arts and artists to revitalize underinvested areas and pursued this vision in Lowertown.

“I think our investment in the Northern sparked what was the beginning of a revival,” says Law, noting that three years later the organization opened another space for artists in a warehouse adjacent to the Northern. “There’s a completely different attitude about that area from when we started. But at the time, people definitely thought we were insane.”

Not everyone, however. The refurbishing of the Northern wouldn’t have been possible without willing partners to help underwrite the $10 million cost. One such partner, TCF Bank, wasn’t deterred by the unconventionality of the investment opportunity.

“They were willing to try to understand us, rather than just say, ‘You don’t fit into the box,’ which is what a lot of lenders did,” says Law. “They were willing to sit down and figure out why that particular loan could make sense.”

Arts organizations, and arts and culture more broadly, support facets of community building that contribute to a comprehensive vision of community development—one that not only includes bricks-and-mortar projects and the economic development opportunities they often spur but also the social and human capital fostered through individual and collective arts projects. Monetary support for these endeavors often falls to foundations and individuals. But as TCF Bank demonstrated with its underwriting of the Northern, financial institutions can play a significant role in supporting arts-oriented clients. And in doing so, they may receive favorable consideration under the Community Reinvestment Act, or CRA. (For more on the CRA, see the “A CRA primer” sidebar below.)

“Arts are a vital and intrinsic part of community building,” says Erik Takeshita, deputy director of Twin Cities LISC (Local Initiatives Support Corporation), a community development intermediary that has supported various arts developments over the past decade. “Broader financial support for them means both arts and communities can thrive.”

Creating affordable art space

Artspace has been advocating for arts-related living and working spaces since its founding in 1979, when the Minneapolis City Council and the Minneapolis Arts Commission co-created the organization to assist artists in finding affordable workshop space in Minneapolis’s Warehouse District. By the late 1980s, recognizing the need to be more proactive, Artspace transformed itself into a property developer and has since built a portfolio of 35 properties in 14 states and the District of Columbia. Of these, 27 projects are “live/work” buildings, in which artists and their families both reside and practice their arts media, with a total of 1,167 residential units. The remaining eight buildings are studio-only spaces. The number of residential units in each development ranges from 10 up to 100. (To learn about Artspace developments in the Ninth Federal Reserve District, see the sidebar below.) In addition to art studios and apartments, many of Artspace’s buildings include the capacity to host retail, commercial, or office space.

“There’s a lot of information out there about how arts can be good pioneers in revitalizing an area in general,” says Law, “and many of our properties have succeeded in bringing a level of vibrancy back into a community.”

Artspace employs one of two basic strategies when determining where to develop a project: to build in underdeveloped, often low- and moderate-income (LMI) areas where an investment has the potential to spark a broader economic and housing revitalization, such as the Northern did in St. Paul; or to build in areas that are rapidly gentrifying, in order to preserve affordable space. For example, the organization has developed properties in Fort Lauderdale, Fla., and Santa Cruz, Calif., in order to safeguard arts-only resources for areas that were quickly pricing out artists.

Moreover, large urban areas aren’t the only locations where Artspace develops properties; it also seeks out space in smaller, more rural communities. Fergus Falls, Minn., for instance, which has a population of approximately 13,000,2/ has a 10-unit live/work space (which also happens to be Artspace’s smallest development); and Kyle, S.D., on the Pine Ridge Indian Reservation, will soon boast the Pine Ridge Arts Lab, a fixed arts center and mobile arts laboratory that will help serve the arts-resource needs of Native American artists who live on the reservation.

For the vast majority of these developments, TCF Bank has served as one of Artspace’s primary underwriters. In fact, while their business relationship started locally with the Northern project, it continued as Artspace expanded its development market nationally. For TCF, the Artspace partnership has been good business.

“When we look at these development proposals, they have to make sense from a safety and soundness perspective, just like any other loan,” explains TCF Bank Community Reinvestment Officer Bill Sarvela, who indicates that TCF receives CRA credit for its work with Artspace. “These types of loans may require a little deeper dive at the front end to fully understand the organization and their financials, but in essence we underwrite them just as we would any other commercial loan, and they are solid, well-performing deals that have a significant community impact.”

Theater taps children’s creativity

A strong connection to a bank is one of the reasons why SteppingStone Theatre—a 27-year-old children’s theater company whose mission is to build self-esteem, confidence, and a sense of community—has succeeded. Richard Hitchler, artistic director of the St. Paul-based company, explains that his organization’s business relationship with Sunrise Banks has made possible the theater’s extensive outreach and programming capacity.

“As a small arts nonprofit, if you don’t have the ability to borrow or have a bank’s support behind you, you’re going to have a difficult time succeeding in your mission,” he says.

In 2007, Park Midway Bank in St. Paul—one of three family-held banks in the Twin Cities that later consolidated under the name Sunrise Banks—underwrote a loan to enable SteppingStone to purchase and renovate a vacant St. Paul building that developers had been targeting for condominiums. With support from hundreds of nearby residents, who mounted a signature campaign opposing the residential project and favoring the children’s troupe, SteppingStone successfully transformed the idle property into its current playhouse, a 430-seat practice and performance hall where instructors work with scores of kids, from preschoolers to high school seniors, to put on six main-stage performances a year. The child actors, who live throughout the Twin Cities region and come from economically and racially diverse families, including LMI households, perform original works written by local playwrights. The theater also uses local choreographers, musicians, and composers, among other Twin Cities-based artists.

“Our shows tend to be culturally specific to reflect the social fabric of the Twin Cities,” Hitchler says.

While the playhouse serves as the organization’s central performance and office location, a big part of SteppingStone’s work takes place outside of its theater. Each year, the organization places more than 40 artists-in-residence at schools around the metro area and conducts more than 100 after-school programs. While the residencies sometimes act as fill-ins for absent or discontinued theater programs, they are often used to enhance classroom curricula. Hitchler offers an example: If the subject of a class is astronomy, an artist-in-residence will create a play about the planets or the solar system.

“We use theater to help bring students a more hands-on learning environment,” he says. “It’s more experiential than bookish.”

Combined, the school- and theater-based programs involve the participation of more than 10,000 kids. Including the kids who watch the various performances, that number reaches upwards of 70,000, according to Hitchler.

“We’ve had a fantastic experience in the new space so far,” he says, “and it’s been made possible because of the bank that helped us get established there.”

Arts as therapy

The chief executive officer of Sunrise Banks, David Reiling, appreciates the vibrancy and health of the Twin Cities arts community. He values its role in adding to the fabric and culture of the area, and he emphasizes the need to support it.

“There are multiple ways to do that from a bank’s standpoint,” he says. “Banks can make loans, which is more straightforward. But they can also provide contributions or offer volunteer time.”

Free Arts Minnesota, a Minneapolis-based organization that uses arts-based mentorship to help at-risk youth express their emotions and gain self-esteem, has enjoyed a positive relationship with Sunrise Banks since 2002. The bank provides the organization with a line of credit and various operating accounts, and its employees volunteer at Free Arts Minnesota’s largest fundraiser, an annual event called the Art Heals Breakfast. It has also contributed money to the organization through its corporate giving program. For its activities with Free Arts Minnesota—and with SteppingStone Theatre—Sunrise Banks hopes to receive positive consideration at its next CRA evaluation.

Free Arts Minnesota reaches thousands of kids each year through a range of arts-based services, according to the organization’s executive director, Dan Thomas.

“Rather than have kids come to us, we bring arts to them,” he explains, noting that transportation is a large barrier for most of the children the organization serves. “We work at agencies that are already trying to help these kids but might not have the capacity or skills to do what we do.”

Through Free Arts Minnesota’s mentorship program, trained volunteers travel each week to different social service agencies—homeless shelters, domestic violence shelters, day treatment centers, etc.—to work with kids who have experienced poverty, homelessness, abuse, and mental illness. While there, they teach kids to use various visual arts media, such as drawing, painting, digital photography, and screen printing, to express emotions that they may find difficult to articulate verbally. On occasion, Free Arts Minnesota also offers music and theater programs, and it is currently exploring the possibility of adding a dance program.

Working outside the comfort zone

For most people, arts organizations and banks aren’t the first pairing that comes to mind when imagining typical business relationships. But to Will Law of Artspace, that doesn’t mean these types of relationships couldn’t be more plentiful; it’s a matter of banks’ willingness to explore the lending possibilities a bit further.

“Arts organizations are hard to underwrite in typical banking-underwriting structures,” he says, explaining that their income streams might not be as clear-cut as those of other businesses. “Banks have to be willing to work outside of their comfort zone a little bit, which means they might have to expend some resources to do the extra due diligence to have success in their internal loan review process.”

And he’s not alone in this assessment. Reiling of Sunrise Banks notes that working with arts organizations may require some extra effort on a bank’s part, but the end result is worth it. He sees his institution as not just providing financial support to some arts organizations but also encouraging their social and community development goals.

“Sometimes it’s a matter of doing the analysis on the organization and having them understand what exactly their cash flows are and where the risks are,” he says. “The last thing we want to do is make a bad loan or blow up the organization. That would prevent them from achieving their social mission, and we want these arts organizations to be here for a long time.”

A CRA primer

For banks that partner with arts organizations, the positive outcomes could go beyond solid deals and community building. Depending on their exact nature and target market, arts-related activities may earn a bank favorable consideration under the Community Reinvestment Act (CRA). Enacted in 1977, the CRA requires depository financial institutions to meet the credit needs of the communities they operate in, including low- and moderate-income (LMI) neighborhoods and distressed or underserved areas. To ensure that financial institutions are complying with the CRA, examiners from the federal financial regulatory agencies (the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency) periodically evaluate each institution’s performance in meeting the credit needs of the people and businesses in its geographically delineated market area. The evaluation criteria differ according to the institutions’ asset sizes.

Large institutions, or those that have assets of more than $1.202 billion as of December 31 of both of the prior two calendar years, are evaluated on their record of meeting three CRA tests: a lending test, an investment test, and a service test. In other words, regulators assess whether large institutions have provided loans, investments, and services to LMI individuals and neighborhoods in their assessment areas. Large institutions receive favorable CRA consideration if activities in each of those categories constitute community development, which the CRA defines as:

  • Affordable housing for LMI individuals;
  • Community services targeted to LMI individuals;
  • Activities that promote economic development by financing small businesses or small farms; or
  • Activities that revitalize or stabilize LMI geographies, designated disaster areas, or distressed or underserved nonmetropolitan middle-income geographies.

In 2011, regulators expanded the definition to include certain activities in designated Neighborhood Stabilization Program target areas. However, as of this writing, eligibility for these activities has largely expired. (For more on this, see “Recent rule changes expand definition of community development under the CRA,” in the July 2011 issue of Community Dividend, available at

Small institutions are those that have assets of less than $1.202 billion as of December 31 in either of the two prior calendar years. Intermediate small institutions, a subset of small institutions, are those that have assets of less than $1.202 billion as of December 31 in either of the two prior calendar years but at least $300 million as of December 31 in both of the two prior calendar years. They are evaluated on their record of meeting two CRA tests: a lending test and a community development test. The extent of the community development test varies depending on each intermediate small institution’s circumstances. Institutions that do not meet the definition of intermediate small institutions are evaluated on just one CRA test, the lending test, but can try to enhance their CRA rating by asking regulators to evaluate their community development activities as well.

Artspace developments in the Ninth District

Northern Warehouse Artists' Cooperative, exterior and interior, St. Paul, Minn.


Franklin Arts Center

Washington Studios

Kaddatz Artist Lofts
Fergus Falls

The Cowles Center for Dance & the Performing Arts

Traffic Zone Center for Visual Art

Artspace Jackson Flats

Chicago Avenue Fire Arts Center

Grain Belt Studios

Artspace Green Homes North*

Northern Warehouse Artists’ Cooperative
St. Paul

653 Artist Lofts (formerly Frogtown Family Lofts)
St. Paul

Tilsner Artists’ Cooperative
St. Paul

North Dakota

Minot Artspace Lofts

South Dakota

Pine Ridge Arts Lab*
Kyle (Pine Ridge Indian Reservation)

*In development

1/ In 1990, the population of the two block groups encompassing the Lowertown section of downtown St. Paul was approximately 1,300. In 2010, the population of the blocks contained in the 1990 block groups was nearly 3,400. These figures were drawn from data provided through the Minnesota Population Center’s National Historical Geographic Information System, available at The boundaries for Lowertown were drawn from St. Paul’s Historic Lowertown Small Area Plan, viewable at

2/ 2010 U.S. Census.