Creative Kernow Chair John Pulford writes about using social investment to develop a sustainable business model when it was beyond the risk of high street banks.
Social investment was the only means by which our organisation was able to acquire property and double our workspace for creative people. It had helped us develop a sustainable business model through an investment which was beyond the risk criteria of high street banks.
John's story
Creative Kernow is Cornwall’s leading creative sector support agency. We were established in 1983 as Cornwall Arts Centre Trust and renamed in 2015. We are an Arts Council England National Portfolio Organisation.
In 2005 we acquired the former Redruth Grammar School, which had been vacated in 2003, using a £200k mortgage from Charity Bank. This was a major step for our trustees, many of whom had no experience of borrowing beyond their own homes. Initial resistance to taking on this risk was overcome through exhaustive discussion of the business plan.
Our vision was to provide affordable space to allow individuals and organisations to incubate, grow and put down roots in a creative enterprise ‘ecospace’, where we could work with the local authority and the Redruth community to enable creative Cornish people to work in Cornwall, rather than moving ‘up country’.
By early 2007, 25,000 sq ft were in use with 40 tenancies, 100 creative practitioners with the Melting Pot cafe, a key part of the development, providing a communal meeting place and local community access.
In 2011, planning permission was obtained to replace dilapidated buildings with new workspace and refurbish the remainder, totalling an additional 40,000 sq ft. Our first phase of new build and a new access road was projected to cost £3.8m. £1.9m European funding was potentially available, but had to be matched by private finance, which the trustees had to raise. State aid rules meant that we couldn’t use Arts Council or Cornwall Council capital funds.
The amount was beyond Charity Bank’s lending rules against our modest balance sheet. This was a big challenge for us. Whilst we could not have foreseen the post-2008 banking crash, since 2005 we had built a board with a wide range of skills and commercial experience and we were able to take on the challenge.
Between 2011 and 2013, discussions were held with major banks. They all considered the risk was too great. Although we could demonstrate that by providing one month revolving leases, we had achieved a 90%+ occupancy rate, their credit committees did not understand our rental model. Cornwall and depressed Redruth were perhaps regarded as a risk too far in more than one sense, for a new build property.
We needed a lender who would take a social investor’s view of the risk. We found Triodos Bank who lend only to organisations capable of making a positive social, environmental, or cultural impact. They were already lending to arts and community organisations in the UK. A loan of £1.04m was eventually negotiated in late 2013. The credibility of the board and the occupancy track record since 2005 were major factors in our favour. A shortfall of £0.25m was covered by a loan from the family office of a local housing development business at the same interest rate as Triodos.
The Percy Williams building was opened in May 2015 and was 80% occupied within 6 months vs. target of 40% within 1 year, and is now at 90%+. In early 2016 the Triodos loan was extended to £1.25m to replace the Williams family loan and interest rate was reduced from 4.5% over base to 2.5% over base. Rental income now heading for £250k per year, should move into surplus this year and will then feed profits back to parent charity. Triodos tell their story.
Krowji is the largest creative cluster west of Bristol. Our community of 200 people includes painters, jewellers, furniture makers, ceramicists, textile artists, web designers, theatre companies and musicians as well as several of Cornwall’s key creative sector agencies and we are making a significant contribution to the town centre regeneration. Creative industries are a key part of Cornish economy and with superfast broadband we have digital businesses based here who are working all over the world, helping to redefine the image of Cornwall as a place to do business and create contemporary art.
We took a long-term approach to building our board and to the development of Krowji. For trustees with little or no experience of development finance, now is the time to GET INFORMED. Social investment providers are ready and willing to lend to trustees who want to make a social, environmental, or cultural impact.