Nonprofits sell space to prosper

Posted on March 18, 2013

Late last week, when St. John’s University announced it will put the 10-story TriBeCa home of its business school on the block in a sale that could generate as much as $200 million, school officials signaled they thought the time was right.

“Our sense of the real estate market right now is that it’s extremely strong and coming back even stronger,” said Martha Hirst, St. John’s chief operating officer and treasurer, of the decision to sell the building at 101 Murray St.

A growing number of nonprofits are coming to a similar conclusion and are cashing in some of their real estate chips as well. The moves come at a time when property prices are recovering faster than the recession-dampened finances of some nonprofits, presenting a fortuitous marriage of opportunity and need.

“We’re a university that serves high-needs kids,” Ms. Hirst said. “We give out $200 million in financial aid a year, so to the extent to which we can monetize our assets and can pour it into programs, that is something that lets everybody win.”

Another group looking to score a well-timed cash injection is the Jewish Board of Family and Children’s Services. It recently dropped its plans to build a new headquarters on the site of a parking garage it owns on West 77th Street and is instead selling that property. The site can accommodate 100,000 square feet of residential development and could fetch as much as $45 million, according to brokers involved in marketing the site.

Nice stuff to have

“Given what is happening with state and federal budgets, the human-services sector is at a fragile point,” said David Rivel, chief administrative officer of JBFCS, who this summer will take over the role of chief executive. “Being able to generate proceeds from this sale will definitely help us continue to deliver services.”

Nonprofits are also following the examples of a growing number of corporations that in recent years have learned to live with less—putting the same number of people into as little as half the space simply by using it more efficiently. For nonprofits, which as a group are more likely to own than rent because real estate tax exemptions can make doing so more affordable, that extra space gives them a valuable commodity they can turn into cash.

The Partnership for the Homeless is among them. The group is marketing about 13,000 square feet at 305 Seventh Ave. for roughly $8 million. According to people familiar with the organization’s real estate plans, it aims to either buy a smaller, cheaper office space and take home the difference, or lease space and pocket nearly all of it.

St. John’s is aiming for even bigger space savings. It plans to lease 40,000 to 60,000 square feet once it vacates its 150,000-square-foot building on Murray Street, according to Ms. Hirst.

Another nonprofit, the NAACP, is not shrinking but is accomplishing the same thing by trading into less expensive space. It sold three floors it owned at 99 Hudson St. late last year for $18.5 million and is now buying an office at 40 Rector St. for about $10 million.

The temptations to sell are richer than they’ve been in years. According to data from real estate firm Cushman & Wakefield, the average price of Class A office space in midtown hit nearly $800 per square foot last year, up from $740 the year before, and $335 at the bottom of the market in 2009. Similarly sharp increases have occurred elsewhere in the city in recent years.

That appreciation is especially welcome for a number of institutions that have suffered financial setbacks in the past few years. Among them is the Funding Exchange, a nonprofit group that channels donations to a variety of charities. After what officials termed a “continuous decline of revenues,” the exchange will be wound down. Its 8,600-square-foot headquarters at 666 Broadway will likely sell for around $6 million in what will be a nice parting gift for the groups it supported.

“Organizations like the Partnership for the Homeless and the Funding Exchange are real estate-rich but cash-poor,” said Michael Rudder, a broker who specializes in commercial condominium sales and is handling the sale of that space (see “Niche brokering boosts profits,” this issue). “Now they see the chance to monetize their wealth.”

Daniel Geiger, Crain’s New York Business.