“Growth” is the Real Story

Earlier this month, I attended my nonprofit client’s celebration of the opening of their new headquarters. Located in Downtown Manhattan, the Class-A office space was 100% financed, covering all capital costs with long-term fixed rates to reduce the interest rate risk. We also obtained an additional line of credit to support ongoing growth.

My nonprofit client chose growth over enterprise-wide paralysis. Opportunity over the status  quo. And, sustained income over uncertainty. They are a model for resiliency, even in times of economic uncertainty and market disruption.

When Nonprofit Mission and NYC Real Estate Intersect

NYC is home to an internationally respected nonprofit that has roots in the city that go back many decades. Remaining in Downtown Manhattan was important to our client. However, the mission-driven organization had outgrown its current leased space, which was both outdated and ill-equipped to support expanded programming.

“We knew owning our space would eliminate the uncertainty of a fluctuating rental market…but buying also presented formidable challenges,” said our client. 

In early 2019, leadership at the nonprofit identified an ideal condominium space just a few blocks from its current location. The condo’s original investment was sizable, especially for a first-time borrower unfamiliar with the bond financing process. The property needed substantial improvements, which added to upfront costs. Furthermore, they had to consider temporary dual occupancy costs associated with simultaneously renting and renovating two locations.

The Argument for Property Acquisition vs. Leasing

Several months into the Pandemic, the condo owner approached our client with a significantly reduced asking price. Owning property was attractive on many levels, not the least of which was avoiding significant increases in occupancy costs upon renewal of the current leased space.

Also, a priority for our client: making a strong statement about perseverance, one consistent with its high standing among nonprofits. According to a key real estate advisor at Cushman & Wakefield and member of the project team, “Purchasing property demonstrated long-term commitment to NYC. Not for just 3 years but for the next 30 years.”

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. We also helped them with the various approval processes and requirements of the lender and bond issuer.

Best Mix of Options

• Tax-exempt bond financing

• Build NYC Resource Corporation Incentives program

Because of its tax-exempt status, the nonprofit could finance the project at low interest rates and avoid paying property taxes—costs that had previously been passed along through lease payments.

Game Plan

• 100% financing to cover all capital costs

• Fixed debt service for the long-term to reduce the interest rate risk

• Additional line of credit secured to support grows

Substantial Savings over Three Decades

Long-term benefits far exceed projected rent increases under the current leasing arrangement. Ultimately, the nonprofit will realize substantial savings: $30+ million saved in occupancy costs over 30 years, with only incremental cost increases each year…all while building equity in the property.

The  nonprofit moved into their state-of-the-art, 70, 000-square-foot office space about a year after successfully completing the financing. In the Fall of 2022, the project team, our client, and its many supporters celebrated the grand opening.

Bottom Line

A first-time borrower chose to move ahead—during the Pandemic—with establishing a new headquarters in the city. They recognized that owning their offices meant having an asset that would increase in value over time. Furthermore, they knew that having the right space at a pivotal time in the organization’s history would set-up this mission-driven nonprofit for an optimal success trajectory.

The choice to buy (versus lease) will ultimately save our client more than $30M in occupancy costs over the next 30 years. The savings, combined with overhead certainty, frees-up both resources and headspace for expanded programming.

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