Seeing Nonprofits as Potential Buyers
In New York City, prime locations and low availability are part of the real estate acquisition equation, giving strong credit-worthy buyers an advantage. Nonprofits are often overlooked as potential office condo buyers. They may also fail to secure the right financial and real estate advisors and, therefore, the necessary financing. This is a shame, because most nonprofits are reliable, considerate, and invested owners. Considering that their reputation is at stake, this makes a lot of sense.
Property Acquisition for Nonprofits
Brokers are smart to take a substantive look into exactly what sets apart nonprofit real estate transactions when compared to for-profit equivalents. From potential site analysis and planning to financing capital improvements, nonprofits face a different set of funding challenges—and opportunities. The differences have as much to do with organizational culture as with structuring financing.
Importance of Liquidity for Nonprofits
For nonprofit organizations, the “cash out” that comes with selling valuable real estate may have provisions. Liquid assets can be reinvested into endowments and into expanding programs. Consequently, the argument for maintaining some of the benefits of property ownership is a strong one. Office condo ownership is especially appealing when faced with potentially losing tax breaks by leasing. 501(c)(3) nonprofits are exempt from paying real estate taxes when they own their property.
Location’s Value for Nonprofits
Location is of utmost concern for mission-oriented organizations. A social service provider or school that is meeting the needs of a particular population, in a particular local, can’t easily pick-up and move elsewhere. Sometimes, the building (versus the individual unit) takes precedence in negotiations.
Ownership provides a level of independence not present when leasing a facility.
For a culture of community service or civic responsibility, customer trust is everything. A nonprofit organization’s physical presence is typically an integral part of maintaining the integrity of their brand. Having control over facility operations and alterations becomes an important consideration for whether to lease or buy.
When Nonprofits Borrow and Invest in Real Estate
When financing property acquisitions and capital improvements, nonprofits face additional challenges specific to their status. Tax-exempt financing entails various approval processes and requirements by the lender and bond issuer. Nonprofits are not always equipped with the internal resources (or mindset) to anticipate and navigate processes best tackled with a team of legal, accounting, real estate, and financial experts at one’s side.
Nonprofits’ Competition for Real Estate
In New York City, brokers often work within a landscape of coveted neighborhoods and constrained supply. Office condo buildings are at a premium. The nonprofit will more often than not be competing against for-profit businesses. Companies with high infrastructure costs (doctors, dentists, skilled trades) also find office condos an appealing option. Compounding this highly competitive market are foreigners buying commercial properties as investments.
Working with Nonprofits on Property Acquisition
Nonprofits don’t always consider differences in business and sales cycles. When you adhere to a predictable calendar of fundraisers, capital campaigns, and endowments, the fast pace and unpredictability of the real estate market can be jarring, to say the least.
With proper support and guidance, nonprofits can navigate the necessary twists and turns and deliver the appropriate information, analysis, and forethought, making them your ideal buyer.
Planning for significant structural, operational, and programming changes exists for many nonprofits within a 5, 10, 20-year context. Conversely, the speculative nature of funding philanthropic initiatives often leads to particularly complex financial transactions. Consolidation and expansion plans can bring unexpected challenges, including refinancing debt and the need for economical structuring. All of these factors can translate into a lengthy, complicated process. Preparation is the key to success.