More than six decades ago, the Xavier Society for the Blind bought the 15,783-square-foot, seven-story building at 154 East 23rd Street. In July, it put the property on the market for $13 million. The decision came in response to changes in how the nonprofit, a library service for the visually impaired, produces its audio and print materials. But the decision was also driven by changes in New York’s investment sales market.
“These are savvy folks, and they realized that they missed the up market of ’05, ’06, ’07,” said David Schechtman, an executive managing director at Eastern Consolidated, the brokerage marketing the building. “They are hip enough and well-advised enough to realize we’re at a real high in the market again.”
Indeed, last year was the busiest since the recession for building sales in the five boroughs — and by the year’s end, 2012 might prove even busier in terms of sales volume.
A midyear report from Massey Knakal found that the city’s $14.2 billion in building sales through June represented a 3 percent increase over the $27.4 billion in the first half of 2011 — when annualized. The brokerage predicted that the $14.2 billion tallied so far would more than double by the end of the year.
While no complete overall numbers are available, recent sales and listings suggest that nonprofits are capitalizing on this robust market to unload Manhattan properties. In fact, many nonprofits are looking to cash out of the buildings they own in desirable residential areas and downsize into cheaper commercial condos in other neighborhoods.
In addition to Xavier, other notable nonprofit listings include the Jehovah’s Witnesses’ 5,088-square-foot building at 67 Remsen Street in Brooklyn Heights and the 10,000-square-foot townhouse at 149 East 78th Street owned by the Ackerman Institute for the Family, a therapy center. The Albert Ellis Institute, the behavioral therapy facility, is also once again marketing its 13,000-square-foot townhouse at 45 East 65th Street after taking it off the market in November and the NAACP Legal Defense Fund is looking to sell a couple of floors at 99 Hudson Street.
Meanwhile, in June, the New York Public Library sold 140,000 square feet at 188 Madison Avenue for more than $60 million to Church Pension Corp. — a nonprofit that provides insurance and other benefits to those affiliated with the Episcopal Church.
On the purchase side, there have been numerous commercial condo sales just in the last several months, including the China Institute in America, which took 48,000 square feet at 40 Rector Street in May, after looking to buy space near its East 65th Street gallery, which turned out to be too expensive.
It’s not just the robust sales market driving these decisions to buy and sell, according to brokers.
The increase of larger commercial condos on the market and the reemergence last year of tax-exempt financing for nonprofits through the city are also playing a role. Also a factor, of course, is the financial challenges these nonprofits are confronting post-recession.
“Basically, the nonprofit market is constrained right now by funding cuts from the private and the public sectors,” said Suzanne Sunshine, president of S. Sunshine & Associates, which provides commercial leasing brokerage and consulting services to nonprofits.
“I think that [some] nonprofits can hold on to their assets by subletting,” she added. “The ones that are not doing as well as they would like, or need to do, are going to sell their real estate assets.”
Xavier is one nonprofit in transition. It hired Sunshine a couple of years ago to sublease two floors at its 23rd Street building. The nonprofit never ended up subleasing, but has now decided to sell the building.
For Xavier, the transaction represents a downsizing, as does the would-be sale by the Ackerman Institute of its East 78th Street location, which it has owned since shortly after it was founded in 1960. Eastern is not only marketing the Ackerman site, but also brokered the deal to move the nonprofit into a commercial condo at 936 Broadway.
The growing sizes of the commercial condos now on the market have spurred nonprofits to sell the buildings they own as well, brokers say.
Novelties less than a decade ago, commercial condos were until recently typically under 10,000 square feet. Bigger ones, like the more than 11,000-square-foot floor plates at 936 Broadway or the 30,000-square-foot-plus plates at 40 Rector, have come online to the relief of nonprofits that still want to own, but want to also take advantage of the sales market to unload their entire buildings at a premium.
And commercial condos can prove financially tantalizing.
Were a nonprofit to buy, for example, a 20,000-square-foot condo for the average Manhattan asking price of $531 a square foot (as of late 2011), it would pay a onetime cost of $10.6 million, which might be mitigated by tax-exempt financing. If the nonprofit were to lease the same amount of space — even at a relatively low Manhattan asking rent like $40 a square foot — it would pay roughly $10 million over the course of a 10-year lease, taking into account escalating rental rates. So, sources say, it would be in a better position after 10 years if the market improved.
“If you’re going to buy or want to buy or need to buy, it’s going to be condos, not buildings,” said David Lebenstein, a senior managing director at Cassidy Turley. “The buildings that are getting sold are getting sold for residential use or development use — they’re not getting sold to other nonprofits.”
Michael Rudder, a principal at the Soho-based Rudder Property Group, noted that many nonprofits are encouraged by donors to purchase property.
“They find it easier to raise funds from donors to buy rather than to lease. Donors view leasing as throwing away money, whereas they view ownership as helping to sustain the nonprofit in the long-term,” he said, adding that organizations often launch capital campaigns to raise money for a purchase and offer naming rights.
In addition, there are deals to be had in buying commercial condos.
Rudder pointed to the Urban Justice Center, which provides legal services to poor and homeless New Yorkers, as a case in point.
The organization owned a commercial condo at 666 Broadway in Noho until selling in 2006 and then leased 20,000 square feet at 123 Williams Street for just under $30 a square foot. But in April, UJC bought a 32,522-square-foot commercial condo at the abovementioned 40 Rector for $8.4 million or $258 a square foot — not including common charges of about $7 a foot, Rudder said.
“When you factor in their mortgage and common charges, it was still a lot less expensive to buy than it was to lease a market-rate rental in Lower Manhattan for $30 bucks a foot,” he said.
The tax-exempt financing, which is available through government bonds, also helps reduce costs.
The city’s Economic Development Corporation in July approved $75.6 million in tax-exempt financing for four nonprofits, including the Browning School, an elite all-boys private school that will use the financing for an expansion on the Upper East Side.
Such tax-exempt financing all but dried up in early 2008, but it’s returning through a bond-issuing program called Build NYC, which the EDC launched in late 2011.
“There is plenty of healthy activity,” said Carri Lyon, a Cushman & Wakefield senior director who specializes in nonprofits. “Is there the supply to meet it? If more supply came online of larger floor plates, there’d be more activity. I certainly have groups that want it.”