Commercial galleries

Location, location, location: the real estate lessons to be learned from Ace Gallery’s bankruptcy

How Los Angeles dealer Douglas Chrismas leveraged his property to attract artists, reassure clients, and generate income—even while facing financial disaster

Given all the talk about Instagram shaping our self-images, Facebook replacing our friendships and art fairs draining the profits out of galleries, one surprise of the 21st-century culture industry is that so many art sales still depend on a physical, bricks-and-mortar space.

Even a small gallery offers a platform that almost all artists—and collectors too—prefer to fair booths or web pages. And the reliable presence of a gallery open in regular business hours helps to signal an underlying financial stability, with more ambitious dealers using their real estate in complex and interesting ways.

In this respect, perhaps nobody has been more ambitious than the art dealer Douglas Chrismas. He ran Ace Gallery in Los Angeles for nearly 50 years with a dream-big, build-it-and-they-will-come sort of brinksmanship more often associated with artists—until an accountant stepped in this April to take control of the gallery following a three-year-long Chapter 11 bankruptcy case.

Of course, it is easy to read Chrismas’s loss of his gallery as a cautionary tale that has a strong moral: respect your artists, clients and their contracts. But there is also something to be gleaned from his real estate transactions over the years—many newly brought to light by the bankruptcy filings. His real estate history can be seen a case study that reveals the many ways that gallerists today can leverage their real estate to attract artists and collectors, and generate income.

Architecture can lure artists

In the early days of the gallery, which opened in Los Angeles in 1967, Chrismas attracted artists like Michael Heizer, Robert Irwin and Richard Serra because he shared a vision of sculpture that approaches architecture, going well beyond a pedestal-based object. Chrismas famously let Heizer dig up his gallery floor, while Irwin did a more monastic makeover, emptying out the gallery almost completely.

But since the 1990s, when accounts of Chrismas not paying artists on time—or at all—began to circulate widely, one wonders why any artist would take the risk of showing with him. When asked that question, Laddie John Dill spoke of Ace’s main gallery, an Art Deco building on Wilshire Boulevard with beautifully scaled rooms and as much exhibition space as the new Hauser Wirth & Schimmel.

“A lot of artists I think are willing to take the risk of showing with the gallery, not because it’s Ace but because of the space itself,” said Dill, who this year had his first gallery show there: colourful glass-tube sculptures filled with different gases (picture oversized glow sticks). “It is such an amazing space, I couldn’t turn it down.”

The same could be said of many galleries, solvent or not, including the airy, light-filled space that Kulapat Yantrasast designed for the art dealer Perry Rubenstein when he moved from New York to Los Angeles, before his gallery’s own 2014 bankruptcy. Great architecture is artist bait.

Gallery size generates the impression of gallery solvency The size and scale of Chrismas’s real estate holdings also helps answer the question of why anyone would do business with someone who has been subject to so many lawsuits (at least 55) and is the principal party in so many bankruptcies over the years (at least five).

Real estate is one answer, as Chrismas helped to pioneer the mega-gallery model by opening multiple locations in his own hometown as well as other, now-defunct venues in cities like New York and Mexico City. Court cases can seem remote compared to the undeniable presence of his galleries—especially his long-running spaces in LA—which are designed to signal the business’s well-being and viability.

In an industry known for a lack of financial transparency, extensive or expansive real estate can project the image of profitability. So struggling galleries like Ace—or Salander O’Reilly in New York with its palatial Upper East Side townhouse—at least look like they’re playing the blue-chip game, until they fail to make their six-figure monthly rent.

Even renters can benefit from gentrification With its 16 branches worldwide, Gagosian of course has become the leading example of a gallery that uses multiple, and often massive, locations to make a big impression. And in some ways Larry Gagosian is a classic real estate investor: buying low and selling or refinancing high, as he did when he bought his Chelsea property at 11th Avenue and 24th Street for $5.8m in 1999 from the son of the late Mafia boss Carlo Gambino. Fifteen years later he used it to draw a $48.8m loan from Bank of America, as the property had appreciated more than eight-fold.

This is the traditional model, where only gallerists who are property owners benefit from the neighborhood gentrification that they themselves helped to engender. But one of the startling things revealed by the Ace Gallery bankruptcy is just how much Chrismas was able to leverage property—his Beverly Hills space and the Art Deco building on Wilshire—that he didn’t even own.

The monthly rent is substantial: about $70,000 for the former, $220,000 for the latter. But he was able to benefit from surging real estate prices in Los Angeles by taking subtenants to offset his own rent. And he early on took the extra step of negotiating purchase options on both leases. In the case of Beverly Hills branch, he recently exercised this option, buying the building for $22m, only to flip the property immediately to the Metropolitan Transit Authority, which is building a subway underneath Wilshire, for $40m—netting about $18m.

If he tried to flip the Art Deco building, which he has an option to buy for $20m but has been valued at $50m, he could potentially make much more. But that is a big “if”, pending litigation that began three years ago when Ace failed to make its rent. In fact, the first two years of the Ace Gallery bankruptcy case were so dominated by legal wrangling over this property—with art claims coming in at the tail end—that several lawyers say it was essentially a real estate dispute.

Larry Gagosian once told art critic Peter Schjeldahl, “If I weren’t doing this, I’d probably be in real estate.”

A lawyer involved with Ace’s bankruptcy went further: “Doug is really a real estate investor who has supported his art exhibitions that way.”