First-time Borrower Purchases Class A Office Space for New Headquarters
From the start, remaining in Manhattan was important to our client. NYC is home to this internationally respected nonprofit. The organization has roots in the city that go back more than a century.
Our confidential client had outgrown its current leased space, which was both outdated and ill-equipped to support expanded programming. Remaining in New York presented some financial challenges. However, leaving the city during a time of economic upheaval and uncertainty (brought on by COVID-19) felt antithetical to its mission and standing among nonprofits.
The Many Advantages of Acquisition
Prior to the pandemic, our client had identified a condominium space just a few blocks from its current location. Purchasing the property was attractive on a number of levels, not the least of which was avoiding significant increases in occupancy costs upon renewal of the current leased space. The move also represented an opportunity to design their space to fit their exact requirements.
Owning property meant having an asset that would increase in value over time. Buying (vs. leasing) would have lasting positive impacts for the organization. And, right from the start, owning the space eliminated the uncertainty of a fluctuating rental market.
Property acquisition meant consolidating office and programming uses in a nearby Class A facility while gaining an asset for the balance sheet.
Formidable Challenges for Buying Property
The condo’s original investment was sizable, especially for a first-time borrower unfamiliar with the financing process. The property needed improvements, adding to upfront costs. Furthermore, our client had to consider the several million dollars needed to buy out their existing long-term lease, which was scheduled to expire in a few years. The organization would also have to absorb the temporary dual occupancy costs associated with simultaneously renting and renovating two locations.
At the outset of the COVID-19 pandemic, management put the project on hold.
Perseverance and Teamwork Pay Off
Approximately 15 months later, the condo owner approached our client with a significantly reduced asking price. In collaboration with a close-knit team of real estate brokers and consultants, ThinkForward helped the nonprofit weigh the advantages of taking on the project. Long-term benefits would far exceed projected rent increases under the current leasing arrangement. Ultimately, our client would realize substantial savings, with incremental increases each year, while building equity in the property.
“Purchasing property demonstrated long-term commitment to NYC. Not for just 3 years but for the next 30 years,” according to a Cushman & Wakefield real estate advisor.
Because of its tax-exempt status, our client could finance the project at low tax-exempt interest rates and avoid paying property taxes—costs that had previously been passed along through lease payments.
We structured the financing to achieve a number of key objectives.
- 100% financing to cover all capital costs
- Fixed debt service for the long-term, effectively reducing the interest rate risk
- Additional line of credit secured to support growth
Our Role in the Successful Acquisition
ThinkForward served as financial advisor. We worked hand-in-hand with the organization’s real estate team who helped the nonprofit with adept project management and real estate advice. Our client benefited from a network of professionals capable of tackling the many challenges associated with tax-exempt financing, including the various approval processes and requirements of the lender and bond issuer.
Project Details
Client/Project
- Nonprofit
- Property Acquisition & Renovation
- Class A Office (70,000 SF)
Financing
- Tax-exempt Bond
Collaborators
- Build NYC Resource Corporation
- Cushman & Wakefield
- IDB Bank
