Exclusive: NYC Non-Profits Still Expanding, Undeterred by Soaring Prices, Sluggish Economy

When the word non-profit comes up, the idea of deep pockets is rarely the first thing that springs to mind. Yet, in a real estate market marred by economic downturn and a credit crisis, these organizations in New York City are engaging in an activity that the great majority of businesses are avoiding–expanding. According to the New York Nonprofit ViewPoint, a report by the non-profit practice group of real estate services firm CB Richard Ellis Inc., these entities are pouncing on certain opportunities presented in a down market. Tough economic times or no, leasing office space in New York City is rough on the pocketbook.However, certain conditions in the market are welcoming for non-profits. “Prices have not dropped Downtown but they have slowed,” Suzanne Sunshine, vice president with CBRE’s non-profit practice group, told CPN. “Those willing to pay can get space they couldn’t have gotten a year ago. The market has slowed down and landlords are being more patient. They realize that nonprofits are long-term tenants in the market.”Additionally, some organizations defray rent costs by leasing out a portion of their space to a third party. As per the CBRE report, 22 percent of nonprofits sublease space that is deemed temporarily superfluous. Building owners are being more reasonable in negotiations and leasing out portions of office space helps pay the bills, but reasoning has its limits, and so does the subletting market, so many organizations that want to grow are forced to look beyond their comfort zone. “Nonprofits in Midtown, for example, may have to accept going farther east or west in Midtown, and they have to look at the Lower East Side, too,” Sunshine said. “It’s hard. Some have been on the Upper East Side for years; they’re branded to those areas.” CBRE found that 40 percent of surveyed nonprofits viewed their locations as extremely important or very important, citing the role a site plays in attracting donors and high-profile board members. And sometimes nonprofits are not just forced to go beyond their comfort zone, sometimes they are forced go well beyond their comfort zone. “I’m seeing nonprofits located in Manhattan moving out into the outer boroughs or into New Jersey,” she said. “I’ve seen them go from Manhattan to Harlem, Manhattan to the Bronx, and Manhattan to Brooklyn. It’s very, very difficult for some nonprofits to move out of prestigious neighborhoods, but when it comes down to it, they realize they have to be more flexible. They’re very bottom line oriented and mission oriented.” The average asking rent is Manhattan reached $71.92 per-square-foot in August, CBRE reports, marking a 12 percent year-over-year increase. Although Brooklyn rents went up, as well, they rose by only $0.16 to $29.32. Expansion for nonprofits, despite a rather frosty lending market, is not all about leasing. “Of the clients I’m working with, one-third is looking at expansion through purchase–they still love to own,” Sunshine noted. “They can raise money from donors much more easily when they can put their names on the building.” As is the case with leasing, the price per-square-foot foot on for-sale space is still steep. Sunshine revealed that she was involved in bidding on a user building this month that ended with the property fetching $1,200 per-square-foot. For nonprofits, such price tags are frequently rendered a little less overwhelming given the fact that the organizations are tax-exempt. However, even tax breaks are not always enough to facilitate a purchase in, say, the coveted Upper East Side submarket. “Again, for groups like that, they’re going to have to go a little farther east or west than they wanted to.” While there is a certain shrewdness behind many nonprofit organizations’ decisions to increase space at this time through leasing or buying, some have backed away from growth plans. “Other nonprofit boards want to put money into operating, and not tie money up in real estate,” Sunshine said. And, not surprisingly, publicly funded entities are putting expansion endeavors on the backburner.