The Real Deal New York

Manhattan nonprofits rush to sell as values skyrocket

Churches, schools and cultural institutions feel pressure to sell their properties intensify before market turns

December 01, 2013
By Guelda Voien

Last month, the Brodsky  Organization leased the land adjacent to St. John the Divine from the Episcopal cathedral. The developer is planning a project with 428 apartments on the site.

Last month, the Brodsky Organization leased the land adjacent to St. John the Divine from the Episcopal cathedral. The developer is planning a project with 428 apartments on the site.

With Manhattan real estate prices on the rise, a slew of major religious, cultural and government institutions — some of which are cash-strapped — are looking to offload properties in the five boroughs.

While the trend is not new — The Real Deal first reported on it last September —the pace and urgency of sales has increased significantly lately, as prices for luxury housing in Manhattan have skyrocketed.

Indeed, much of the churn is being driven by the high demand for residential condominiums, which has driven up the prices for all developable properties, said Michael Weiser, executive vice president of Manhattan-based commercial brokerage GFI Realty Services, who has worked with nonprofit and other institutions selling New York City buildings.

“Organizations don’t need to be on whatever corner they’ve been on for the last 20 years to fulfill their mission,” he said. “They can turn [cash from a sale] into millions and millions in their endowment.”

That is particularly true for nonprofits with swanky addresses, especially on Fifth or Park avenues. And those organizations are snapping up cheaper commercial condominiums Downtown, said Peter Hauspurg, chairman and CEO of investment sales brokerage Eastern Consolidated.

The high ceilings and ornate interiors that many of these buildings are known for make them particularly attractive for adaptive reuse, Weiser said.

Another factor fueling the trend is that the city and state governments around the country, including in New York, are cracking down on the tax-exempt status of some buildings owned by nonprofits, said David Blum, head of the real estate department at the Philadelphia-based law firm Montgomery McCracken. (According to data from the Urban Land Institute, nearly a tenth of landlords in New York City are exempt from paying into the tax base.)

And a city Department of Finance crackdown between fiscal year 2012 and the current fiscal year 2014 booted roughly 1,000 nonprofits off the list of tax-exempt properties, saving the city nearly $31 million, according to the New York Post.

This month, The Real Deal looked at which nonprofits are turning their bricks and mortar into cold hard cash.

Jehovah’s Witnesses

The Jehovah’s Witnesses have been making headlines for selling chunks of their sizable Brooklyn holdings in preparation for a move upstate.

The organization, which has been headquartered in Brooklyn Heights since 1909, owned 42 Brooklyn buildings before it began selling them off in 2004. And according to city records, it’s sold $425 million worth of New York City property since then — not including around $100 million of properties in contract, according to published reports. (By comparison, the organization’s new 253-acre campus in Warwick, N.Y., will cost an estimated $11.5 million to build.)

According to a spokesperson for the Witnesses, 18 properties remain. Those properties include 25 Columbia Heights and a large parcel between Vine Street and Columbia Heights in the Brooklyn Heights area, as well as massive Dumbo site 85 Jay Street, which is zoned for residential development.

The group’s $1 billion portfolio of buildings — which also includes holdings in the East Village — has been marketed variously by Massey Knakal, Cushman & Wakefield, and Eastern Consolidated.

This past July, a partnership led by Jared Kushner’s Kushner Companies and Aby Rosen’s RFR Holdings announced that it was buying six Dumbo buildings totaling 1.2 million square feet from the Witnesses for $375 million. The industrial buildings will be developed into loft-style office space. The deal is set to be Brooklyn’s largest this year.

Yeshiva University

Colleges and universities have seen endowments dwindle since the recession, and some have started trading buildings in upscale Manhattan locations for larger or more up-to-date facilities outside of prime Manhattan.

Yeshiva University, a modern orthodox Jewish institution, is a case in point. It began selling late last year, when an undisclosed developer bought the 18,000-square-foot 237-241 East 34th Street, a lecture hall, for $15.5 million. This past February, the school unloaded two more buildings, both office buildings in Midtown South between Fifth and Sixth avenues, for a combined $115 million.

The following month, the school sold another two office properties to a partnership of ClearRock Properties and Juster Properties for $87.5 million. The duo is now planning to redevelop 9 East 38th Street and 14 East 39th Street into high-end office space, reports show.

When asked if the university would sell additional sites, a spokesperson told TRD “there’s nothing we can discuss at this time.”

Yeshiva’s properties and land are worth about $602 million, according to public tax filings. The filings also show a gift of $175 million in commercial real estate bequeathed to the school in 2011 by an unnamed benefactor, and note that the school is looking to the sell the properties — whose addresses are not given in records — as soon as possible.

U.S. Postal Service

Like travel agents or local newspapers, the U.S. Postal Service has seen its business contract dramatically in recent years.

But the federal agency sits on some very lucrative New York City real estate, and in the past few years it’s begun selling some of it off. In 2011, the USPS sold its 1 Peck Slip postal facility, a 70,800-square-foot Financial District outpost, for $13.5 million to the city, which will convert the building into a school.

Then, in July, the USPS announced it would sell the historic 175,000-square-foot Bronx General Post Office at 558 Grand Concourse. Area residents have, however, protested, arguing that since the structure was built with taxpayer dollars, it should not be sold to a private party without taxpayers’ consent. One opponent filed suit to stop a sale. But the USPS has countered, saying it needs the money from the sale.

In October, the agency defaulted on a $5.6 billion payment to the U.S Department of Treasury. Despite the lawsuit, CBRE Group, which represents the USPS portfolio, is still marketing the Bronx property as well as two other New York City post offices: one at 167 East 124th Street in East Harlem and another at 322 West 52nd Street in Hell’s Kitchen. CBRE declined to comment.

Episcopal Church

The Episcopal Church might just be the longest-tenured landlord in the city. Much of its property was given to it by the Queen of England centuries ago.

The church owns about 14 acres of land in the Financial District, Hudson Square and Soho, which it revealed in court papers earlier this year is worth an estimated $2 billion. Just last month, publishers Pearson and Penguin Books moved into newly revamped spaces at 330 Hudson Street, which Trinity Real Estate, the property arm of the church, leased in 2011 for 99 years to Beacon Capital Partners.

That deal complements the church’s other main moneymaker: land and air rights it’s sold or leased long-term to developers like the Brodsky Organization for residential development. In a deal finalized last month, Brodsky leased the land at Amsterdam Avenue and 113th Street, which is owned by the Episcopal cathedral St. John the Divine. The developer will build a 330,995-square-foot project with 428 apartments at the site, which is adjacent to the church.

Meanwhile, the General Theological Seminary, an Episcopal affiliate, has also been in selling mode. In 2011, Brodsky bought six Chelsea plots — 422 and 455 West 20th, three nearby townhouses, and the parcel of land on which Brodsky’s cond-op building Chelsea Enclave sits at 177 Ninth Avenue — for a total of $47.5 million, according to published reports. (Brodsky had a land lease on the Enclave site before buying it.)

Brodsky will build rentals and condos on the plots in coming years.

In addition, in 2012, Brodsky bought 445 West 20th Street for $18.5 million, and 180 Tenth Avenue for $16 million, both from the seminary.

Brodsky is converting 445 20th Street into 23 condos, and built the High Line Hotel on the Tenth Avenue spot. According to a source who asked to remain unnamed, the Episcopal Church and its affiliates are expected to sell other plots.

The seminary was facing declining enrollment and high cost of debt service, but Brodsky said the church is in better financial shape now because of its property sales. However, a spokesperson for Trinity said the group currently has no plans to sell any more of what she described as a “6 million-square-foot portfolio.” A spokesperson for the seminary did not return calls.

Freemasons

This country’s forefathers had pretty good taste in real estate, generally building the elaborate, gilded lodges where Freemasons gather in conveniently located downtown areas across America. But their buildings started to fall into disrepair when membership in the fraternal organization starting shrinking in the second half of the 20th century.

Still, the sturdy bones of former Masonic lodges make the buildings particularly attractive for residential conversions, as the Wall Street Journal reported earlier this year.

At 71 West 23rd Street, the Freemasons own a 243,000-square-foot “Grand Lodge,” built in the Neoclassical style. While the property is not on the market, the Freemasons have been divesting properties nationally. (The fraternal organization sold its only other Manhattan property, 253 West 73rd Street, in the early 1980s to Orsid Realty, which converted it into the Level Club condominiums.)

But Upstate, it sold a Masonic temple in Bath, N.Y., to developer Chip Klugo two years ago. The developer converted the building into four apartments, the Journal reported, spending $2.1 million on the acquisition and redevelopment. The high ceilings and loft-like spaces are attracting much higher rents —$1,000 to $1,100 — than the average for the area, in Steuben County.

The Masonic Grand Lodge of New York did not respond to a request for comment.

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