For nonprofits, the question is ‘to buy or not to buy’

By David Lebenstein

Nonprofit organizations are unique real estate users. Many struggle not only to find locations that can accommodate their need for office and program space, separate entrances, conference facilities, and tolerance for client and traffic issues, but find them at a price they can afford in an appropriately zoned property in the right area.

And gaining approval from the various internal stakeholders, well that’s another process that often makes an already challenging initiative even trickier.

At some point in their space search, many not-for-profit organizations explore the purchase of a building or a commercial condominium/cooperative as an option for their use. So is buying a property the answer to mission success? Maybe, maybe not.

YES, BUY!

• Control over the use of your space.

• Generally predictable/stable costs, monthly, yearly. If costs are equivalent to or less than likely rent, that’s even more of an advantage.

• Exemption from real estate taxes ($5-$8 per square foot of savings in commercial condos, even more for an entire building, but not applicable to commercial co-ops).

• Good vehicle for capital fundraising.

• Favorable financing and low interest rates, and no longer limited to tax-exempt bonds.

• Long-term ownership equals asset appreciation.

• Ability to make the property a reflection of the organization and image.

BUT THEN AGAIN…

• Buying can be a time-consuming and potentially fruitless acquisition process with limited inventory, strong competition, high prices (especially in markets like New York City and Washington, DC), and uncertainty surrounding the availability of appropriately sized and efficient floor plates.

• The property value is dependent on unpredictable, uncontrollable market dynamics.

• There are issues related to expansion and contraction. You own the whole place, and while leasing the surplus is possible, it means you become a landlord and front funds for marketing and broker commissions.

• The need to expend time and capital to build-out space and potentially change occupancy, zoning, etc., or cope with a major assessment in a condo or co-op. • There are financial and organizational/staffing responsibility for running and maintaining the building

• Being an illiquid investment, immediate financial challenges cannot be solved immediately because selling takes time.

The decision to either buy a property or find another real estate solution depends on each nonprofit’s particular situation and goals, and the current environment of the preferred market. To understand your options, give us a call. We’ll help you look at the needs of your organization, how your real estate serves your target community, and the best way to ensure you have the best location to complete your mission every day.

David Lebenstein is co-leader of Cushman & Wakefield’s national Not-For-Profit Practice Group, and has closed hundreds of transactions during his 32-year real estate career. Previously, he served as an executive at Time Equities, Inc. and was co-founder of Interface, a public policy group. He also worked for Mayor John V. Lindsay’s administration and assists the School Construction Authority with identifying sites to build new public schools and pre-K programs.