The Real Deal New York

Nonprofits in black with record building sales

November 20, 2007
By Jen Benepe

It sounds like an oxymoron, but it’s not: New York nonprofits made more money than ever last year, notching a record $714 million in property sales.

This often cash-strapped sector of the economy decided to cash out in a robust real estate market, and are trading their buildings for leased spaces, according to a report by CB Richard Ellis. Nonprofits bought $114 million in properties last year, a bit more than a third of the 2004 total of $300 million, but consistent with an average of $115 million in the previous two years. Churches and synagogues sold more property than any other nonprofit group in 2005, though it was only worth $45 million. Medical facilities and hospitals were also big sellers, representing the growing financial crises being faced by these institutions in the city.

“These groups are unlocking so much capital by selling their buildings,” said Suzanne Sunshine, the vice president spearheading CBRE’s nonprofit practice group.
This selling allows the groups to use sale profits for operating expenses and other needs. It’s the fifth consecutive year that nonprofits were net sellers, trading in older buildings for leases in newer spaces, brokers said. Other nonprofits have locked in 10- to 20-year operating fund streams, steering the leftover money to office build-outs and long-term investments.

They certainly need the money. In 2004, the last year for which figures were available, private giving by foundations, individuals, andécorporations grew by “a modest 5 percent,” according to the New York-based Foundation Center.

Residential developers who can maximize their return in a still-warm market are enthusiastic buyers for nonprofits’ property. The $100 million sale of the Anti-Defamation League’s headquarters at 823 United Nations Plaza this fall went to Harry Macklowe for residential development, a deal in which CBRE acted as broker. The proceeds will be used in part to finance a new lease on Third Avenue for the nonprofit.

Other nonprofits are selling their properties for combined retail and condo uses, such the United Jewish Appeal’s sale of the base retail floors of its 130 East 59th Street offices for $107.5 million, where retail space leased to the Gap is valued at $2,900 per square foot. UJA kept office space above the stores in this unique sell-off of a portion of the building.

“Current market conditions are getting people to think about the money they have locked up in real estate, and ways to monetize that value,” said Tim Sheehan, a senior vice president at CBRE who brokered the sale of the New York Academy of Sciences’ building at 2 East 63rd Street for $31 million in 2005.

He pointed at the attention these sales are receiving in the media as evidence of a major trend toward nonprofit sales, including the sale in November of air rights for $30 million, or a record $430 per square foot, by Christ Church, a United Methodist congregation on Park Avenue and 60th Street, to Zeckendorf Realty for a 50-story condo tower.

The American Cancer Society sold its 56th Street headquarters because it wasn’t using enough of the space to justify its high costs, said Jonathan Serko, the vice president at Cushman & Wakefield who brokered the sale. But they also wanted to be able to provide temporary communal living space in a “Hope Lodge” for cancer patients traveling from outside the city who likely could not afford to live here while receiving treatment.

That deal was named by Cushman & Wakefield its “Most Ingenious Deal of the Year,” and the transaction included the purchase of 77,000 square feet that accommodated the Hope Lodge on the ground floors of a residential development. The project, by Sidney Fetner & Associates and the Durst Organization, put the hospice on 125 West 31st Street, in a building purchased from the Franciscan Friars.

Not all nonprofits are selling. Schools and universities have been big buyers, with Columbia University leading the pack in Upper Manhattan, effectively connecting its two campuses geographically from the 168th Street Columbia Presbyterian Hospital to the 116th Street campus.

Brokers said that established nonprofits with big endowments are more likely to purchase property, and often receive capital earmarked for that purpose, often with the name of the donor to be affixed to the new building. Brokers agree, in general, that even though nonprofits don’t pay real estate taxes, owning isn’t always advantageous.

“Every tenant who is in space should annually check their status,” said Bob Tunis of GVA Williams, who advises that nonprofits compare what they are paying with market rates, and if they own, should periodically check the value of the building against similar property sales.

For some smaller nonprofits, buying is not an option, and the search for leased space in the $20- to $40-per-square-foot range can be frustrating unless you can find the right landlord, said David Kahane of Helmsley-Spear. While he was at his previous firm, Winoker Realty, Kahane found new space for the International Women’s Health Coalition when the building where the coalition was leasing was purchased and earmarked for residential development.

“We were able to achieve additional space, about 33 percent more, at the same price,” said Kahane, who said that leasing is the least expensive way to go right now for nonprofits. “Many landlords are very philanthropic deep down, and if it’s a cause they can relate to, they will negotiate.”

Leasing new life to some nonprofits

Not all nonprofits can afford to buy new space after selling off their buildings. Hospitals and other medical groups facing escalating costs and new program needs are selling their properties to raise capital, such as Mount Sinai Hospital, which sold 200 Fifth Avenue for $61 million in the last quarter of 2004.

Brooklyn Hospital and six hospitals under Saint Vincent’s Catholic Medical Center are still struggling to survive after declaring bankruptcy, and Lenox Hill is operating at a loss. While Mount Sinai and NYU Medical Center are generating income and are on pace to make a profit for the first time in five years, according to the New York Sun, Lenox Hill plans to create some liquidity “by selling off its substantial Upper East Side real estate holdings.”

With rising real estate costs all over the city, many nonprofits seeking affordable leasing space may only find it Downtown or in Midtown South.

“The challenge is, once you sell, where do you go?” said David Lebenstein, senior managing director at Colliers ABR, who has a long history working with nonprofits. Lebenstein recently assisted the Medical Health Research Association in consolidating their multiple locations to one at 40 Worth Street in a 16-year lease.

Downtown leases are financially advantageous, he said, citing another deal he brokered for the Legal Defense Fund (now known as Legal Momentum) in which they doubled their space to 15,000 square feet after selling off their 99 Hudson Street property.

In another deal, the United Federation of Teachers sold their property on Park Avenue South and acquired new leases at 50 and 52 Broadway, allowing them to gain a meeting hall, classrooms, and other facilities they did not have, and earning brokers Nicky Heryet and Neil Lipinski a Colliers ABR Creative Deal of the Year award.

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