According to an internal memo, officials at the Newseum offered a stake in the building, above, in exchange for an immediate cash infusion. (Nikki Kahn/The Washington Post)

Nearly seven years after opening a $477 million complex on a prime parcel of Pennsylvania Avenue, the Newseum floated a document saying it would consider offering an ownership stake in its building in exchange for an immediate influx of funds.

Burdened by $307 million of debt, museum officials wrote in November about a strategy that included offering equity investors shares in the sprawling complex, which encompasses the museum, a conference center, parking garage, luxury apartments and a high-end Wolfgang Puck restaurant, according to internal documents obtained by The Washington Post. Investors would provide capital upfront at a below-market interest rate, but the museum would need to make a large “balloon payment” at the end of a 10- or 15-year term.

“If we were unable to provide the promised return, the investor would end up with a large stake — or possibly own all — of the building,” which has been appraised at $677 million, according to the Nov. 6 memo, titled “Financial Facts About the Newseum.”

The potential strategy is the latest turn in a difficult few years for the Newseum, a nonprofit corporation that has experienced layoffs and annual deficits. Its financial stability relies heavily on the Freedom Forum, a related foundation that launched the museum.

Peter S. Prichard, the Newseum’s chairman and interim chief executive, issued a statement Wednesday saying the document is “stale, outdated and incomplete” and “does not reflect the significant financial progress the Newseum has made in the past year.” In a brief interview, he declined to elaborate, saying the Newseum is involved in a “delicate” search for a new CEO and offering to provide more details in a week.

“Our endowment has increased more than 30 percent in the past few years, our spending rate is down to four percent, and we will be announcing several significant donations in the coming months,” he said in the statement. “Our attendance is growing, our exhibits are exciting, our educational outreach is thriving and our more than 800,000 visitors a year consistently give us rave reviews.”

The memo outlined several strategies to protect the organization against rising interest rates, to reduce the debt and to put the Newseum on “sound financial footing.” Other ideas include leasing its parking garage, selling a storage facility in Laurel, Md., and refinancing part of the debt with commercial and investment banks. The proposals are designed to give executives time to launch a $250 million fundraising campaign, the memo said.

Thomas Lys, a professor at Northwestern University’s Kellogg School of Management, said that such balloon-payment loans, in general, can be risky.

“One speculation is, you know, let’s worry about what’s going to happen in 10 years,” said Lys, who reviewed a summary of the financial data contained in the internal document at the request of The Post. “Passing the buck to the next guy. Live another day. Call it whatever you want.”

Annual deficits

The Freedom Forum, formerly known as the Gannett Foundation, contributed $208 million to the museum between 2008 and 2013, which is the most recent year of publicly available data. Despite that funding, the Newseum still posted annual deficits every year except its opening year, according to IRS filings.

Prichard, a veteran journalist and former top USA Today editor, is the Newseum’s third leader in five years. He replaced James C. “Jim” Duff, who resigned in October and returned to his previous post as director of the Administrative Office of the U.S. Courts. Duff’s compensation — which totaled $1.6 million during his first year running the Newseum — drew scrutiny from media critics.

Duff said the financial condition of the Newseum did not factor into his decision to return to his former position with the federal government.

“I felt comfortable doing so because we had made significant financial progress during the previous three years I was there,” he told The Post via e-mail.

Duff left just before the confidential document was circulated and said he did not know about the Newseum’s current plan for addressing its debt.

“We were reviewing various strategies at the time I left, as any healthy organization would do in this market,” he said.

The Newseum’s goal, Prichard wrote in the November memo, is to promote the First Amendment and to give visitors “a deep dive into the first draft of history, in an entertaining and educational way.” Popular attractions include a remnant of the Berlin Wall, a 9/11 exhibit featuring an antenna from the World Trade Center and a gallery with Pulitzer Prize-winning photographs, including recent images of the Ferguson protests.

The Newseum’s most recent tax documents filed with the IRS are from 2013. That year, the museum brought in about $63 million in total revenue and spent nearly $67 million, generating a $4.4 million shortfall, down from $8.3 million in 2012.

Total expenses have dropped significantly since the Newseum’s first full year in operation in the District — down from $92 million in 2009 to $67 million in 2013. The amount spent on salaries decreased from $21 million in 2009 to $19 million in 2013.

That year, the subsidy from the Freedom Forum was the Newseum’s single largest source of revenue — accounting for $23 million of $26 million in total donations.

Revenue gains

Admission revenue hit $8.8 million in 2013, up from $6.9 million in 2009. Revenue from the cafeteria and the conference center topped $17.6 million in 2013 — or double the amount earned at the gate.

The November memo reflects the optimism that the Newseum is doing better with donations and admissions. But the document also reveals a fear that the museum could face higher interest rates on the bonds that financed its construction.

“Our total debt service payments in 2014, including principal and interest, will be about $5.6 million,” the memo states. “We have benefitted from low interest rates for several years but are obviously vulnerable to rising rates.”

The Newseum is the District’s most expensive museum: Admission costs $22.95 for adults and $13.95 for children 7 to 18, plus tax, although discounts are offered.

Its 2013 attendance of 850,000 is dwarfed by government-supported museums in town, which offer free admission: 8 million at the National Museum of Natural History, 7 million at the National Air and Space Museum, 4 million at the National Gallery of Art and 1.6 million at the U.S. Holocaust Memorial Museum.

Last fall, Newseum executives met with David Rubenstein, a notable philanthropist and co-CEO of the Carlyle Group, one of the world’s largest private equity firms. Prichard then wrote a letter to Rubenstein in which he attached the document spelling out the financial problems facing the institution. In parentheses he wrote, “I know you will not give it to the Post.” Prichard added that he would appreciate any advice Rubenstein could offer, while thanking him for offering to loan the museum a rare 1776 newspaper. Rubenstein declined to comment for this article.

Museum officials also recruited Wayne Reynolds, a D.C. philanthropist who helped stabilize Ford’s Theatre. Reynolds joined the Newseum board of trustees last summer but resigned in June, expressing his frustration in the organization’s lack of progress in fixing its problems. He promoted a plan to partner with academic institutions that did not come to fruition.

“They brought me on as an agent of change, but change is the last thing they’re interested in,” Reynolds said.

Several board members, reached by phone this week, declined to answer specific questions about the museum’s current finances.

Building boom

The brainchild of Allen Neuharth, who earned his fortune running USA Today and the Gannett newspaper chain, the interactive museum first opened in 1997 at more modest surroundings in Arlington, Va. But Neuharth had a bolder vision, and three years later, Newseum executives announced they were offering the D.C. government $100 million for a coveted corner of Pennsylvania Avenue. The deal was approved just before Christmas 2000, at the time making it the largest commercial real estate deal in the District’s history.

The Newseum was part of a building boom that struck the cultural sector at the end of the last century, experts said. Many organizations opened spaces with big construction debt and without reserves to help cover the increased operating costs associated with their new structures, according to Indiana University professor Joanna Woronkowicz, co-author of “Building Better Arts Facilities: Lessons from U.S. National Study.”

Many cultural institutions got in over their heads, Woronkowicz said.

“It’s not only, ‘Let’s build a building and make it function’ but, ‘Let’s build a building and let it say something about the organization and about me,’ ” she said. “It’s almost like a trophy.”

The gleaming facility opened its doors on April 11, 2008. It tripled the size of its predecessor — going from 72,000 to 250,000 square feet of exhibit space.

Critics did not shy away from attacking its opulence, including a USA Today arts writer who dubbed it a “giant, costly new temple.” There are 15 theaters, seven levels of exhibits and an outdoor terrace with a stunning sightline of the U.S. Capitol. Even the hydraulic elevators earned their own press release. (They were trumpeted as a unique, one-of-a-kind design that were among the world’s largest.)

But just as the Newseum was opening, the Great Recession was building to its peak. It would hurt both the economy and the museum’s finances.

The Newseum’s construction was financed with $356 million in variable-rate revenue bonds secured by the Freedom Forum. When the 2008 financial crisis happened, the interest rates rose after the museum’s bond insurer had its credit rating downgraded, the memo said. The museum’s plan to swap its variable-rate loans for fixed ones stalled as lenders stopped making loans. When Lehman Brothers declared bankruptcy in September 2008, it demanded $62 million for previous credit-default-swap transactions. After years of negotiations, the Newseum paid $41 million to settle the claim, according to the confidential document.

Despite its financial woes, Newseum executives still received large salaries. Duff, the former CEO, received $1.4 million during his first year on the job to compensate him for giving up federal retirement money. In 2013, the most recent year available, tax returns show Duff earned $625,341, including a $112,500 bonus. His salary and bonus were paid for by the Freedom Forum.