4.
City Council Work Session
- Meeting Date:
- 02/17/2026
- TITLE
- Babcock Theater Discussion
- PRESENTED BY:
- Tricia Mae
- Department:
- City Hall Administration
Presentation:
Yes
Legal Review:
No
Project Number:
N/A
RECOMMENDATION
Staff is seeking Council’s recommendation of next steps for the Babcock Theater. The Babcock Improvement Committee has met twice in 2026 and is recommending the transfer of ownership of the Babcock Theater (Units 1A and 1B) to Art House Management LLC under the following terms:
The primary objective of this recommendation is to complete the transfer with a one-time capital contribution, after which the property will be accepted without further City obligation. This approach aligns with the findings of the Babcock Improvement Committee, which met twice in early 2026 to evaluate all available options. Their review included:
- Sale Price: $1.00
- City Contribution: A one-time payment of $500,000 for capital repairs, payable upon closing. When the lease RFP was issued in 2017, the City Council had approved $500,000 for capital repairs/improvements for FY2018 and discussed budgeting another $500,000 for FY2019. However, the second payment was not budgeted nor sent.
- Insurance Support: Payment of a $100,000 deductible related to the May 2025 ceiling collapse.
The primary objective of this recommendation is to complete the transfer with a one-time capital contribution, after which the property will be accepted without further City obligation. This approach aligns with the findings of the Babcock Improvement Committee, which met twice in early 2026 to evaluate all available options. Their review included:
- Document Analysis: Examination of Art House’s Letter of Intent and the First Amendment to Agreement to Lease
- Facility Condition Assessment: Cushing Terrell report identifying $3.045 million in facility needs
- Formal Recommendation: Unanimous support for a sale/transfer to Art House, contingent on the capital payment of $500,000.
EXECUTIVE SUMMARY
The Babcock Theater is a historically significant property that has served as a cultural anchor in downtown Billings for more than a century. However, its current condition and escalating maintenance needs present a substantial financial and operational challenge for the City. The Cushing Terrell Condition Assessment identifies $3.045 million in required repairs and upgrades—costs the City would bear if ownership is retained. Previous efforts to solicit purchase interest through an Invitation for Bid process yielded no viable bids, underscoring the limited market demand for this asset. The proposed transfer of ownership to Art House Management LLC for $1.00, combined with a one-time $500,000 capital repair and a $100,000 insurance deductible payment, offers the most fiscally responsible solution. This approach eliminates the City’s long-term liability, avoids approximately $2.545 million in future expenditures, and ensures the theater remains an active community venue under experienced private management. The recommendation is supported by the Babcock Improvement Committee following a comprehensive review of all available options. In short, this transaction represents a strategic exit for the City—converting an open-ended financial exposure into a fixed, predictable cost while preserving the historic and cultural value of the Babcock Theater for the community.
BACKGROUND (Consistency with Adopted Plans and Policies, if applicable)
The Babcock Theater Building, located on 2nd Avenue North in the heart of Billings’ Central Business District, is a historically significant two-story brick structure that has retained much of its original architectural character since its construction in 1907. Recognizing its cultural and historical value, the building was listed on the National Park Service’s National Register of Historic Places on April 9, 2013.
In March 2017, the City of Billings purchased the Babcock Theater with the intent of preserving its historic integrity while ensuring its continued use as a community asset. Following the acquisition, the City Council directed staff to issue both an Invitation for Bid (IFB) for the purchase of the property and a Request for Proposals (RFP) for management services. This dual approach was intended to explore whether private ownership or a long-term management agreement would best serve the public interest.
The results of the 2018 Invitation for Bid and Request for Proposal process were clear: while the City received no bids to purchase the property, two entities, Art House Cinema & Pub and Vintage Theater Partners—submitted competitive proposals to lease and manage the theater. After careful evaluation, Art House Cinema & Pub was selected as the most suitable operator based on its experience, vision for the facility, and alignment with community goals. Art House entered into a 15-year lease agreement with the City and assumed operational control of the theater in July 2018.
To support the building’s ongoing viability, the City Council appropriated $500,000 in Fiscal Year 2018 for necessary repairs and improvements. At that time, Council also expressed its intent to appropriate an additional $500,000 in Fiscal Year 2019 to continue addressing deferred maintenance and structural concerns. However, the second appropriation was not made, leaving several critical projects incomplete.
Since the execution of the lease, the Babcock Theater has continued to serve as a cultural venue under Art House’s management. However, the physical condition of the building has deteriorated significantly over time. Most notably, in May 2025, a ceiling collapse underscored the urgent need for substantial capital investment to address structural and safety concerns. These issues have raised questions about the long-term sustainability of the current arrangement and the feasibility of alternative ownership models.
It is important to note that the lack of purchase interest during the 2018 Invitation for Bid process remains a relevant consideration. Given the building’s age, maintenance challenges, and recent structural failures, staff anticipate similar—or even less—interest than before. Furthermore, pursuing a sale at this time could risk alienating the current operator, who has invested resources and effort into maintaining programming and community engagement despite the building’s limitations.
On December 9, 2025, Art House Management LLC, a Montana nonprofit limited liability company, submitted a Letter of Intent to purchase the historic Babcock Theater located at 2812 2nd Avenue North in Billings, Montana. The proposed purchase price is one dollar ($1.00) in cash, with the amount deposited into escrow upon opening and becoming non-refundable upon execution of the Purchase and Sale Agreement. Title will be conveyed by Warranty Deed, and the Seller will provide a standard Owner’s Title Insurance policy, with escrow and title services selected by the Seller. The Buyer will have a 180-day due diligence period, with up to three 30-day extensions, to review title, secure appraisal and financing, and obtain City Council approval for \$1.5 million in funding through a combination of general funds, CIP, TIF, and endowment sources. Closing will occur within thirty days of executing the Purchase and Sale Agreement, with customary allocation of closing costs. During escrow, the Buyer will have inspection rights and may assign its interest with written notice. In the event of Buyer default, the Seller retains the deposit as liquidated damages; in the event of Seller default, the Buyer may pursue damages or specific performance. The LOI is non-binding except for exclusive provisions, and no broker commission will be paid.
In March 2017, the City of Billings purchased the Babcock Theater with the intent of preserving its historic integrity while ensuring its continued use as a community asset. Following the acquisition, the City Council directed staff to issue both an Invitation for Bid (IFB) for the purchase of the property and a Request for Proposals (RFP) for management services. This dual approach was intended to explore whether private ownership or a long-term management agreement would best serve the public interest.
The results of the 2018 Invitation for Bid and Request for Proposal process were clear: while the City received no bids to purchase the property, two entities, Art House Cinema & Pub and Vintage Theater Partners—submitted competitive proposals to lease and manage the theater. After careful evaluation, Art House Cinema & Pub was selected as the most suitable operator based on its experience, vision for the facility, and alignment with community goals. Art House entered into a 15-year lease agreement with the City and assumed operational control of the theater in July 2018.
To support the building’s ongoing viability, the City Council appropriated $500,000 in Fiscal Year 2018 for necessary repairs and improvements. At that time, Council also expressed its intent to appropriate an additional $500,000 in Fiscal Year 2019 to continue addressing deferred maintenance and structural concerns. However, the second appropriation was not made, leaving several critical projects incomplete.
Since the execution of the lease, the Babcock Theater has continued to serve as a cultural venue under Art House’s management. However, the physical condition of the building has deteriorated significantly over time. Most notably, in May 2025, a ceiling collapse underscored the urgent need for substantial capital investment to address structural and safety concerns. These issues have raised questions about the long-term sustainability of the current arrangement and the feasibility of alternative ownership models.
It is important to note that the lack of purchase interest during the 2018 Invitation for Bid process remains a relevant consideration. Given the building’s age, maintenance challenges, and recent structural failures, staff anticipate similar—or even less—interest than before. Furthermore, pursuing a sale at this time could risk alienating the current operator, who has invested resources and effort into maintaining programming and community engagement despite the building’s limitations.
On December 9, 2025, Art House Management LLC, a Montana nonprofit limited liability company, submitted a Letter of Intent to purchase the historic Babcock Theater located at 2812 2nd Avenue North in Billings, Montana. The proposed purchase price is one dollar ($1.00) in cash, with the amount deposited into escrow upon opening and becoming non-refundable upon execution of the Purchase and Sale Agreement. Title will be conveyed by Warranty Deed, and the Seller will provide a standard Owner’s Title Insurance policy, with escrow and title services selected by the Seller. The Buyer will have a 180-day due diligence period, with up to three 30-day extensions, to review title, secure appraisal and financing, and obtain City Council approval for \$1.5 million in funding through a combination of general funds, CIP, TIF, and endowment sources. Closing will occur within thirty days of executing the Purchase and Sale Agreement, with customary allocation of closing costs. During escrow, the Buyer will have inspection rights and may assign its interest with written notice. In the event of Buyer default, the Seller retains the deposit as liquidated damages; in the event of Seller default, the Buyer may pursue damages or specific performance. The LOI is non-binding except for exclusive provisions, and no broker commission will be paid.
FISCAL EFFECTS
The proposed transfer of the Babcock Theater to Art House Management LLC for \$1.00, coupled with a one-time \$500,000 capital repair payment and a $100,000 insurance deductible payment, represents a strategic financial decision that significantly reduces the City’s long-term liabilities. Under the current ownership model, the City faces an estimated \$3.045 million in documented facility deficiencies, as identified in the Cushing Terrell Condition Assessment. These costs include structural repairs, mechanical upgrades, and safety improvements necessary to maintain the building in a functional and compliant state.
By approving this transfer, the City will avoid approximately $2.545 million in future expenditures compared to retaining and repairing the facility. In addition to direct capital savings, the transaction eliminates ongoing obligations for utilities, maintenance, and insurance—expenses that would otherwise continue indefinitely. This approach converts an open-ended financial exposure into a fixed, one-time cost, providing budget certainty and freeing resources for other priority projects.
While the City will incur an immediate outlay of $600,000 (capital repair plus deductible), this investment serves as a “buyout” of future liabilities and ensures the theater remains operational under private management. The fiscal impact is therefore strongly positive when viewed against the backdrop of escalating repair needs and the absence of viable purchase interest in a prior Invitation for Bid cycle. In summary, the proposed action is the most cost-effective solution available, aligning with the City’s responsibility to safeguard public funds while preserving a historic community asset.
Insurance Coverage Position
City: Did not have coverage on the Babcock Theater
Arthouse: Genstar
Following the May 2025 ceiling collapse at the Babcock Theater, Art House Cinema & Pub submitted a property loss claim under its policy with General Star Indemnity Company (Policy #IMA429087A, effective March 12, 2025 – March 12, 2026). On October 13, 2025, General Star issued a formal coverage position letter denying the claim. The denial was based on the insurer’s investigation, which concluded that the collapse resulted from long-term deterioration rather than a sudden and accidental event. Specifically, the engineering report cited expansion and contraction of the wood ceiling framing, inadequate ventilation, and nail withdrawal over time as contributing factors. These conditions fall under policy exclusions for wear and tear, deterioration, latent defects, faulty maintenance, and collapse as defined in the Causes of Loss – Special Form (CP1030). Additionally, the policy included an endorsement excluding pre-existing damage, further reinforcing the denial. Because the loss was attributed to excluded causes rather than a covered peril, the insurer determined that neither property damage coverage nor business income coverage was triggered.
BW Real Estate LLC (Wydmer-Condo Owner): AmTrust
The recent AmTrust insurance estimate following the May 2025 ceiling collapse underscores the magnitude of these liabilities. The estimate calculated a replacement cost value of $569,638.16 for collapse-related repairs, including extensive plaster replacement, balcony seating restoration, scaffolding, and emergency stabilization measures. After depreciation and deductible, the net claim payment was $287,543.23, but the scope of work highlights the complexity and expense of even a single catastrophic event. Notably, scaffolding alone accounted for over $202,000 before depreciation, and balcony seating replacement was estimated at nearly $199,000. These figures illustrate the financial exposure the City would continue to face if ownership is retained.
Scope of Damage:
The estimate covers extensive cleaning, repairs, and replacements across multiple areas of the theater, including:
By approving this transfer, the City will avoid approximately $2.545 million in future expenditures compared to retaining and repairing the facility. In addition to direct capital savings, the transaction eliminates ongoing obligations for utilities, maintenance, and insurance—expenses that would otherwise continue indefinitely. This approach converts an open-ended financial exposure into a fixed, one-time cost, providing budget certainty and freeing resources for other priority projects.
While the City will incur an immediate outlay of $600,000 (capital repair plus deductible), this investment serves as a “buyout” of future liabilities and ensures the theater remains operational under private management. The fiscal impact is therefore strongly positive when viewed against the backdrop of escalating repair needs and the absence of viable purchase interest in a prior Invitation for Bid cycle. In summary, the proposed action is the most cost-effective solution available, aligning with the City’s responsibility to safeguard public funds while preserving a historic community asset.
Insurance Coverage Position
City: Did not have coverage on the Babcock Theater
Arthouse: Genstar
Following the May 2025 ceiling collapse at the Babcock Theater, Art House Cinema & Pub submitted a property loss claim under its policy with General Star Indemnity Company (Policy #IMA429087A, effective March 12, 2025 – March 12, 2026). On October 13, 2025, General Star issued a formal coverage position letter denying the claim. The denial was based on the insurer’s investigation, which concluded that the collapse resulted from long-term deterioration rather than a sudden and accidental event. Specifically, the engineering report cited expansion and contraction of the wood ceiling framing, inadequate ventilation, and nail withdrawal over time as contributing factors. These conditions fall under policy exclusions for wear and tear, deterioration, latent defects, faulty maintenance, and collapse as defined in the Causes of Loss – Special Form (CP1030). Additionally, the policy included an endorsement excluding pre-existing damage, further reinforcing the denial. Because the loss was attributed to excluded causes rather than a covered peril, the insurer determined that neither property damage coverage nor business income coverage was triggered.
BW Real Estate LLC (Wydmer-Condo Owner): AmTrust
The recent AmTrust insurance estimate following the May 2025 ceiling collapse underscores the magnitude of these liabilities. The estimate calculated a replacement cost value of $569,638.16 for collapse-related repairs, including extensive plaster replacement, balcony seating restoration, scaffolding, and emergency stabilization measures. After depreciation and deductible, the net claim payment was $287,543.23, but the scope of work highlights the complexity and expense of even a single catastrophic event. Notably, scaffolding alone accounted for over $202,000 before depreciation, and balcony seating replacement was estimated at nearly $199,000. These figures illustrate the financial exposure the City would continue to face if ownership is retained.
Scope of Damage:
The estimate covers extensive cleaning, repairs, and replacements across multiple areas of the theater, including:
- Ground Floor/Main Level: Entry, Sub Lobby, Lobby, Theater Room, Stage
- Second Floor: Balcony, stairwells, landings, and cross sections
- Special Systems: Electrical repairs and fire suppression system
- General Conditions: Emergency services, scaffolding, project management, and debris removal
- Theater Room & Stage Repairs: Acoustic plaster replacement, ceiling/wall restoration, painting, and curtain replacement
- Balcony Repairs: Carpet removal/replacement, painting, and theater seating replacement (340 seats)
- General Conditions: Scaffolding bid alone estimated at $202,300.80 before depreciation
- Special Systems: Electrical repairs ($12,996) and fire suppression system ($11,015.72)
- Replacement Cost Value (RCV): $569,638.16
- Depreciation: $182,094.93
- Actual Cash Value (ACV): $387,543.23
- Deductible: $100,000
- Net Claim Payment: $287,543.23
- Recoverable Depreciation (if claimed): $182,094.93
- Potential Total Recovery: $469,638.16
- The largest single expense category is general conditions and scaffolding, accounting for nearly $226,068 before depreciation.
- Balcony seating replacement is a significant cost driver ($198,900 before depreciation).
- The estimate does not include hidden damages that may be discovered later.
STAKEHOLDERS
City of Billings City Council, City of Billings Administration Department, Art House Management LLC, Babcock Improvement Committee, Downtown Billings Partnership, BW Real Estate LLC
ALTERNATIVES
OPTION 1: RETAIN CITY OWNERSHIP
- Path A: Repair & Reopen
- Immediate Costs: $1.7M (High Priority) + $1.345M (Deferred Maintenance) + $100k (Deductible). SEE ATTACHED CUSHING TERRELL CONDITION ASSESSMENT
- Ongoing Annual Costs: $20,000 (Utilities) + $2,200 (Insurance).
- Operational Burden: The continuation of the current management firm under new ownership remains uncertain and would be determined by the parties following transfer.
- Path B: Keep "As-Is"
- Ongoing Annual Costs: $20,000 (Utilities) + $2,200 (Insurance).
- Risks: Accelerated structural decay and significant public liability/safety risks.
- Historical Context: An Invitation for Bid was issued in 2018 produced zero interest from potential buyers.
- Primary Risk: Possibility that Art House Management LLC walks away from the facility immediately.
- Consequence: The City would be forced back into Option 1B incurring all utility and insurance costs while the building deteriorates.
- Garfield High School – Closed by the school district in 2001, purchased by Yellowstone Boys and Girls Ranch in 2007, and later acquired by Hobby Lobby in 2019 before being donated to the Billings Praise Center. Completing this transaction required more than $1 million in uplift to make the property viable for its new use.
- Old NorthWestern Energy Building (Butte) – Inherited by Butte-Silver Bow County in 2016 and sold in 2020 for $1. This nominal price was contingent upon a substantial private investment, with the buyer committing to an uplift of over $10 million to rehabilitate and re-purpose the building
Attachments
- \\bil-fileserv3\AllUsers\Facilities\Shared\Babcock\Staff Memo 2026\Documents to Submit
- \\bil-fileserv3\AllUsers\Facilities\Shared\Babcock\Staff Memo 2026\Documents to Submit
- \\bil-fileserv3\AllUsers\Facilities\Shared\Babcock\Staff Memo 2026\Documents to Submit
- \\bil-fileserv3\AllUsers\Facilities\Shared\Babcock\Staff Memo 2026\Documents to Submit
- \\bil-fileserv3\AllUsers\Facilities\Shared\Babcock\Staff Memo 2026\Documents to Submit
- \\bil-fileserv3\AllUsers\Facilities\Shared\Babcock\Staff Memo 2026\Documents to Submit
- \\bil-fileserv3\AllUsers\Facilities\Shared\Babcock\Staff Memo 2026\Documents to Submit
- \\bil-fileserv3\AllUsers\Facilities\Shared\Babcock\Staff Memo 2026\Documents to Submit
- \\bil-fileserv3\AllUsers\Facilities\Shared\Babcock\Staff Memo 2026\Documents to Submit
- \\bil-fileserv3\AllUsers\Facilities\Shared\Babcock\Staff Memo 2026\Documents to Submit
- \\bil-fileserv3\AllUsers\Facilities\Shared\Babcock\Staff Memo 2026\Documents to Submit
- \\bil-fileserv3\AllUsers\Facilities\Shared\Babcock\Staff Memo 2026\Documents to Submit