Join us for a fascinating conversation with Stephen Powers, co-founder of Open Impact Real Estate, and Amy Lawrence, managing director, as they share their expertise on the intersection of real estate and social impact.
In today’s turbulent real estate market, it can be hard to know what to do, especially with big-ticket real estate decisions. Join me, Stephen Powers and Amy Lawrence to learn how nonprofits can be opportunistic with commercial real estate, how to take advantage of this moment and how to access special financing. This is a fascinating conversation about an intimidating topic.
This episode is sponsored by Open Impact Real Estate: https://openregroup.com/
Connect with Stephen Powers: https://www.linkedin.com/in/stephen-powers-9a158b8/
Connect with Amy Lawrence: https://www.linkedin.com/in/amy-lawrence-5009552/
“Take advantage of this environment and dream big.” – Stephen Powers
Episode Transcript
RHEA WONG 00:05
Welcome to Nonprofit Lowdown. I’m your host, Rhea Wong. Hey, podcast listeners! Welcome once again to Nonprofit Lowdown. Today, we’re talking about real estate opportunities for nonprofits. And particularly since I’m in New York City, I love real estate. It’s like the unofficial sport of New Yorkers, I think. Today, I’m joined by Stephen Power, who is the Co-Founder of Open Impact Real Estate, and Amy Lawrence, who is the Managing Director. So welcome, Amy and Stephen!
STEPHEN POWER 00:34
Thank you so much
AMY LAWRENCE 00:36
Thanks for having me.
RHEA WONG 00:37
So before we jump into the meat of the conversation, Stephen, maybe we can start with you. Tell me a little bit about how you got interested in the intersection of real estate and nonprofits.
STEPHEN POWER 00:48
Absolutely! Growing up, I’m from Detroit, Michigan, initially, and there had been a lot of work on urban renewal efforts. And a lot of false starts, really, and I’ve seen how the built environment has fallen apart in that city for the most part, especially in the urban core. And I went to college in St. Louis and similarly, St. Louis had a long period of urban decline.
STEPHEN POWER 01:11
And they had made some major progress though this is back in around 2000, in trying to refocus some energies on the center of the downtown and trying to bring back the whole live-work-play aspect of urban life that people liked so much in New York City. And when I started to get read more and more about it and learn about it, I realized that nonprofits play a really critical role in that urban fabric, providing a lot of the services that oftentimes the city doesn’t provide and that the commercial sector doesn’t provide the arts and culture and the social services and things like food pantries and institutes of education and after school programs.
STEPHEN POWER 01:50
Those really are what make urban centers, particularly rich, because there are so much more offerings, and you can get in a lot of the more suburban communities because of the density and all the services being in one place. When I got my master’s in real estate, they call that the benefits of agglomeration. And it’s exciting to see. And in working with nonprofits, the role that real estate plays in delivering on their mission is really substantial.
STEPHEN POWER 02:16
Without it, they can’t really provide the types of services that they want if the environment doesn’t suit it overthought located in the right way. And so we get the privilege of getting to work with these organizations during a really critical period of time and help them deliver on their strategic plan and mission through real estate.
RHEA WONG 02:34
I want to get into that a little bit more. But Amy, from you, briefly, how did you get interested in the intersection of real estate and nonprofits?
AMY LAWRENCE 02:42
Absolutely! So I have always had an interest in the power of business, for positive change, not just for economic power, but also for social and environmental impact simultaneously. And when I went to business school to do my MBA in Finance, I joined an organization called Net Impact. I don’t know if you’ve ever heard of it plug for them. They’re wonderful.
AMY LAWRENCE 03:07
I found these people that thought about things the way I did about how can business do well and do good at the same time. It was a sort of novel concept, maybe 25-30 years ago, less so now. And after getting my MBA in finance, I went to go work for a nonprofit, actually a public policy organization, the Aspen Institute, in their business and society program, where we were looking at exactly that.
AMY LAWRENCE 03:31
And some of the things that Stephen was just talking about when the government or other institutions are not filling the role, perhaps that they should, have nonprofits or for-profit organizations, impact-driven organizations, fill those spaces and have positive change while doing business. And so I did a lot of work in the public policy space, but I’m a business person at heart.
AMY LAWRENCE 03:54
And I thought, how can I use my business skills? How can I help people do strategic planning and make good deals that make sense for them to support the kind of work for profit or nonprofit that they want to be doing? I happen to love real estate anyhow. And so all of these things came together for me. And that’s the point in my life where I met Stephen, and I’ve known him ever since. And we’ve been doing really great work for all kinds of organizations.
RHEA WONG 04:20
Thanks for sharing that. So let’s just jump into the nitty gritty. And Stephen, we’ll start with you. Nonprofit real estate to, generally speaking very different spheres. What are the opportunities that nonprofits can think about with respect to real estate because often I think when I was running my nonprofit, the only time I ever thought about real estate was when I like my lease was up like I needed more space, but it sounds like there’s more to consider?
STEPHEN POWER 04:46
Yeah, absolutely! Whenever I tell people that I don’t know that I work in nonprofit real estate, they always look at me like I have two heads, and that is an oxymoron. But people who work in programs, facing nonprofits or not nonprofits that use space to deliver a mission, really understand that it’s a critical part of how they deliver in the financial stability of the organization. Nonprofits have some special opportunities available to them, that for-profit counterparts do not.
STEPHEN POWER 05:15
So because of their tax-exempt status, they have access to things like tax-exempt bond financing. The program allows you to get essentially, loans that are very long-term that can cover 100% of the cost of a project, but at interest rates that are substantially less than the current marketplace. Right now, if you’re looking at giving a traditional loan, it’s in the 6% to 7% range, and nonprofits are able to do loans in the 4% to 5% range.
STEPHEN POWER 05:42
And that’s a huge power and huge savings that’s only available to nonprofits. But there’s a lot of things like that, such as, when for your office space, you pay real estate taxes as part of your rent. And if you know how to structure the deal the right way, you can structure it to take out those costs. So that’s 25% of the money that you normally spend on your rent is going to real estate taxes.
STEPHEN POWER 05:53
And so if you know how to structure the deals in the right way, you can take that money and reallocate it directly towards the program. So oftentimes that real estate is the second largest line item at a nonprofit’s expenses annually. And if they can save 25% of that and put it back into programs, that can that’s more staff that can do direct service. And when we work with a nonprofit on developing their three to five years strategic plan, real estate needs to be a part of that conversation.
STEPHEN POWER 06:31
Because if it’s not thought of proactively, oftentimes it can become a barrier to delivering on your mission. If it’s, for example, if you’re working with an organization that is serving a specific population that has high-security needs, maybe even something like domestic violence, and you’re in a building that has security protocols that force folks to show multiple forms of identification, when they’re otherwise supposed to be in an environment of anonymity, that doesn’t work.
STEPHEN POWER 06:59
And so if you’re working in that space, your real estate can be a barrier. But alternately, if you’re in the right type of space, and in that domestic violence space, just to give an example, you don’t want to be located in the exact neighborhood that the folks are coming from. You want to be far enough away so that there’s a physical separation that people don’t see you. So understanding what communities they are coming from, and locating in the right community is to provide that buffer and barrier and provide the services to folks in a way that supports what they’re trying to achieve versus a barrier.
RHEA WONG 07:27
Yeah! That’s a really helpful example. It’s something that I had not considered, but that’s obviously very relevant. So, Amy, just something that occurred to me, because I’m from San Francisco, I was recently in downtown San Francisco, and it was like a ghost town. With the vacancy rates being pretty high, and a lot of remote working, are there any opportunities that you see that nonprofits can take advantage in this moment?
AMY LAWRENCE 07:57
Absolutely! I’ll just start from the plan. I’m going to answer this. But I’m going to go back a little bit to what you said before about oh, I only to the nonprofit leader, I’m thinking about my real estate when my lease expires. One thing that we like to tell our clients is to plan early, and get in front of these things much sooner than that, right? So that you’re not stuck in a position where you can’t take advantage of these opportunities in the market.
AMY LAWRENCE 08:23
So you at least at any nonprofit leaders on this call should check your leases. It makes sure to see how much time you have left and give yourself the opportunity at least a year to be prepared for what’s next. And yes, there are a lot of opportunities in the market. There are a lot of opportunities for folks who are leasing space to get really good deals, not only in the kinds of buildings that you’re in but potentially to even upgrade your space and take on and you might want to perhaps downsize because you’ve included more hybrid work in your environment. But that doesn’t mean you don’t need space.
AMY LAWRENCE 08:58
And it means you could potentially be getting better space. You could be in a better location and in a better building for the same amount of money or perhaps even less than in today’s environment. And then there are also great opportunities for organizations that have a very long-term perspective and are in a position where they might want to buy or do a leasehold condominium structure which requires a 30-year commitment.
AMY LAWRENCE 09:20
But if you did a leasehold condominium, you would drop your costs dramatically, maybe by $15 a square foot because you take the tax out of that. Or if you can purchase in today’s environment because you know that I have a certain need and I need to be in this market in downtown San Francisco, there are absolutely deals to be had in today’s market. It really depends. A lot of folks are looking at flexibility in their portfolios as well.
AMY LAWRENCE 09:47
And so it depends on how what kind of commitments you can make, but we can also build flexibility into your steel structures, the ability to get out early, the ability to take common spaces and building and use the landlord amenities to serve some maybe you don’t take a conference room that takes up a lot of space. you use Convene or some other entity. And so there are a lot of ways to do that. And to take advantage of the market today, absolutely! I don’t know if you want to add something, Stephen.
STEPHEN POWER 10:15
Just exactly what you said about being opportunistic. Just to give some examples, we track the market very carefully. And we track the market as it applies to nonprofits, as well as the holistic market. So when you hear about rents, traditionally, they’re talking about the class A buildings or the average of all the buildings. And nonprofits don’t traditionally locate themselves in these trophy buildings. So historically, nonprofit rents are about 25% to 35% less than their for-profit counterparts on average. But in today’s market, what’s happened is that there’s a real push to get people in the office as part of the labor strategy.
STEPHEN POWER 10:53
So if you want people to come in for collaboration and for culture-building activities, for-profit sectors where they seemingly have limitless money to spend on their occupancy expense, are located in these trophy buildings that have these double height spaces that are completely column three, and multiple floors of amenity and food service and new construction primarily. In those buildings, the pricing is extremely high. It’s actually at historic highs of over $200. It’s been some of these trophy buildings, then there are the buildings that are the A minus and B plus buildings.
STEPHEN POWER 11:26
And those are the buildings that nonprofits really like to be professional and affordable. And super transit-oriented so that people can get to and from this all around the country, not just in cities like New York, Chicago, and San Francisco. But in those areas where this B plus and A minus buildings, the rents have come down substantially. For example, in one building that was in a neighborhood pre-pandemic, versus now we were able to do a deal that was 50% less than when it was just pre-pandemic.
STEPHEN POWER 11:53
And the landlords who are able to do this are the ones that are long-term owners and want to meet the market and cover their expenses to fill the vacancy. Because as everyone is looking to take a little bit less space, it will count for hybrid work. And maybe they’re adding more culture-building and collaboration spaces to it. They’re all struggling a little bit. That’s creating a huge vacancy in this A minus B buildings. And you can either choose to do a deal and meet the market. And if you’re an opportunistic nonprofit, you can take advantage of that.
STEPHEN POWER 12:24
Or some of them that are have locked financing on the building, where there’s loan covenants that prevent them from being able to do deals below a certain dollar amount, because it puts them in default can’t do it. So you need to know the right buildings where they’re able to actually meet the market. But if you work with someone who understands that, and you are you have enough long-term perspective, to know what the future holds, you can lock in an opportunity now at 50% lower rents for the long term and put yourself in a strong position with the market back.
RHEA WONG 12:55
The first issue is an interesting question, and I don’t know that I certainly don’t have a good answer. But we know that for many nonprofits that depend on philanthropic dollars, there can be some uncertainty and volatility with the market and your cash flow forecasting. So it’s curious how you help nonprofits hedge against an uncertain market when they’re taking on a big expense like office space.
STEPHEN POWER 13:22
One of the things that we can do, especially in this market where we have more leverage as a tenant is nonprofits can do things to build in flexibility, like Amy mentioned earlier on. But that flexibility is things like termination options in the event of loss of funding. So we have a client that has a building in Jamaica, Queens, and what we did was they were on three separate floors of the building. And with a dedicated entrance, they actually were serving folks, they had a youth drop-in center there, as well as a whole host of wraparound programs for families, foster care, the whole combination of food services.
STEPHEN POWER 13:57
And because that building had different programs that were operating out of it, and some of it was philanthropic-based and some of it was contract-based, they needed to plan ahead to build on the flexibility that the last one of those contracts they could give away. They could release part of the space. So we set it up on a half floor-by-floor basis. If we demonstrated that we lost funding of a certain amount, we could terminate that portion of the lease. And that allowed for flexibility, but not giving up space that they otherwise needed for the rest of the program.
STEPHEN POWER14:28
So you don’t want to have only the option to give an all or none. You want to have, ideally the best of both worlds to be able to contract when you need to. And then on the flip side, the expansion options, the option to take adjacent space at pre-negotiated terms. And in this market, you can get all those things.
STEPHEN POWER 14:45
And you can build the space to plan for that flexibility. So in this circumstance, we designed the air conditioning systems, the electric systems, and everything to be intentionally segmented on a half floor-by-floor basis so that they could contract as they were able to But if they needed to, and we’re actually taking advantage of some of that now,
RHEA WONG 15:04
Really interesting points. We think a lot about the amount that we’re spending on rent as an expense, is there ever a world where nonprofits can start to think about their real estate as a potential revenue generator?
AMY LAWRENCE 15:19
There are many cases of that. And there are organizations that we’re helping with that now, especially organizations that have portfolios of assets, owned assets, and where you can leverage those assets to generate revenue for the organization. For example, we’re working with some religious organizations out there. They very typically are asset-rich, and cash poor, and maybe have maintenance that they need on their buildings. And there are opportunities to lease portions or even parts of the portfolio of assets that they have to other nonprofit organizations.
AMY LAWRENCE 15:54
The benefit of that also is that for those organizations that are with nonprofits, when you lease to a nonprofit, you’re passing on your real estate tax benefit. So if you’re renting from a traditional landlord, you’re paying not just the rental amount, but also included in that is the tax portion of the real estate tax, but when you’re a nonprofit, renting from another nonprofit, you can get a better deal, right? Because there is no real estate tax in that, right? So a lot of these organizations can find wonderful tenants that help support their organization financially, with assets that they have that they don’t necessarily need to utilize now.
AMY LAWRENCE 16:33
And they can also structure that you’re a portfolio, you maybe you’re not a religious organization or social service organization, and you have some assets that you don’t need now, but you may need in the future, you can structure deals where they are shorter term are more flexible as well, so that you can bring in some cash now and take back the asset expand back into it later as needed. In some cases, and we’ve helped them with this, it makes sense for organizations to sell assets that they have as part of their portfolio, and perhaps take something else. What you want is the real estate to be right-sized, and suited for your organization.
AMY LAWRENCE 17:11
You don’t want to be paying a lot of expenses on assets you don’t need. So by potentially selling off something that downsized, or you’ve changed over the years how you deliver on your mission, it might make sense to actually sell that and take something else either owned or leased, that makes sense for you to be right-sized and have the right expense or profile for who you are today. In that consideration as part of the strategic planning that Stephen talked about and think about not just who you are today. But what might we be three to five years from now? And how do we think about this more holistically as an organization so that we’re supporting ourselves in sustaining ourselves long term?
RHEA WONG 17:54
I just to follow up on that point. So, Amy, I was thinking about when I signed a lease on some office space downtown, and one of the challenges that I had was thinking about the fact that we needed program space, because we ran after-school and summer programs, but we didn’t need it all the time. And so how might somebody think about bowl space that is only used intermittently for school or summer programs,
AMY LAWRENCE 18:24
We work with lots of organizations like that, and there are differences. There are different ways to skin the cat, depending on the organization, and what it is that you need. Sometimes that space can be again, through another nonprofit that has the program, sometimes that program space is the ground floor and needs people to be able to walk in but you can work with other entities to lease that space on an as-needed basis and move in and out of that space.
AMY LAWRENCE 18:53
That’s a very typical sort of scenario. It also depends on how long you need it. And whether you just need it this year, or you need it in perpetuity. But you can also I’m just thinking you can take short-term leases in today’s market because retail is not doing as well as it has in the past. There are lots of opportunities for pop-up or short-term leases of those kinds of spaces as well. So it really just depends on who you are and what your needs are.
STEPHEN POWER 19:28
Amy’s point though, is that sometimes you might also know that you need space only a given hour of the day. So you might know that you need it just after school. And we’ve had a lot of very successful partnerships with schools that don’t need the space after school hours. So a lot of churches will have partnerships with school tenants and as part of the deal, we’ll have the ability to use the classroom space after hours. And then on the monetizing front, one thing that people always think of as a vacant style or they can do a traditional lease but a third option is something called the ground knees.
STEPHEN POWER 20:01
And so one of the religious organizations we worked with was very had been there for a very long time in a neighborhood that had gone from being downtrodden to very wealthy in the West Village. And so in the West Village, they have the luxury of actually having land around there around this church.
STEPHEN POWER 20:18
And instead of selling it to a developer to build luxury residential, they decided to throw the thinking through what they wanted to preserve the future optionality and do a 99-year ground lease, so that they would be able to have an annual revenue stream that they could support and sustain the organization, and then be able to use that money to invest in programs and potentially save up some money to be able to build something and another portion of the property.
STEPHEN POWER 20:44
And in that whole scenario, we actually were to have a shared space arrangement with a school where they also had enough a long-term lease, and so we could continue to use the classrooms. And I have a partnership between the school and the church. So that one of the important things is, if you do share space, you have to constantly communicate so that it makes sure you have a weekly meeting so that you know that you can touch base on any little things. We have a motto that if you don’t over-communicate, something else will come in to fill that space, that’s generally pretty negative. So keep that communication going, especially when you’re in a partnership.
RHEA WONG 21:19
Having shared space, I can attest to that. All the tension that we ever experienced was about the shared space. And did you move my eraser, like, okay, no one touched it.
AMY LAWRENCE 21:29
Be very clear about operations, who’s cleaning the bathroom, putting the toilet paper, and all of those little things that can add up over time.
RHEA WONG 21:39
So one of the things that I think I’ve heard a lot of my nonprofit leader friends think about as they’ve seen, remote working, and so forth is a co-working space. Curious if you have any perspective about the pros and cons of a co-working space,
AMY LAWRENCE 21:55
I have a lot of perspectives on that topic, not just in my work here at Open. But in prior work, I ran a portfolio of assets for Citi Group, where we use co-working space very often. A lot of times in that environment, we used it as swing space, or as expansion of contract. It is to build flexibility in your model, right? So if you are in an office building, it’s great to be in an office building, for example, that has co-working in it.
AMY LAWRENCE 22:22
And if you are potentially growing beyond what you have currently, you can take a year or two of space in a co working facility that’s adjacent to the space you have and be able to expand and grow in that way, until you move into your new longer-term lease. You can also use it a lot of times as a swing space. So I need to get out of my lease, maybe I didn’t plan far enough. I need to move. But I don’t want to just have any leverage and not find the right space. So perhaps I move into a co-working environment for some for a year, while I’m looking for my new long-term home.
AMY LAWRENCE 23:04
And so I’m still supported, I still have everything I need. But then I use that time to find the right space and have the leverage to negotiate a good deal for myself versus being under the pressure of time. Those are the two ways I see it. The most of third way that’s probably very common for, I’ve also done this with smaller nonprofits is when you start, you don’t need a lot of space. You might need a desk. And so perhaps you start in a co-working space and you grow in that environment. But at a certain point, what I’ve done a lot of is moving people out of co-working.
AMY LAWRENCE 23:36
Because once you’ve grown to a certain point, it doesn’t necessarily serve your needs anymore. One of the things you can do in co-working is divided up so it’s like it’s your own office space within the co-working. They have a business platform where it’s branded, and it’s exclusive. When you’re small. It’s not like that, right? It’s a much more shared environment and other things about it. But as you grow to a certain point, you either need to be more self-contained. Maybe you have security concerns or other things, or you need to move. That’s typically how I see it.
STEPHEN POWER 24:07
In my clients, any organization that is that had previously been in a dedicated space that wasn’t shared, and then moved into a co-working environment. Work with hundreds of nonprofits and maybe dozens that have done this for a period of time. No one likes it. They actually hate the culture. Definitely, there’s the keg and the brotastic culture, not jive super well with the nonprofit culture that people are looking for. And in a nonprofit, a big part of why people work for a given organization is because they want to be connected to that mission. And if they’re in a co-working space, it’s really hard to feel connected to that mission when it’s really not about the organization.
STEPHEN POWER 24:47
It’s about the sort of neutral environment that’s not really specified to them. So we’ve actually in this marketplace, and people are needing to swing like Amy said, because they need a temporary thing, or they’re not sure there long term plans, what’s really popular? Are these dedicated smaller sub-leases that are short-term? Because then they can still preserve that culture and preserve their identity but not take on so much space because they’re in a period of change?
RHEA WONG 25:14
Yeah! I think the work experience is really important. And I know, especially now that like labor is short. Holding on to staff is hard. So can you speak about the importance of having a nice space that people like to come t,o balanced against the fact that nonprofits are pretty price sensitive, and they’re looking for the best deals, which may not necessarily, certainly in many cases, is not like the fanciest office space? So like, how do we manage that tension? Stephe, let’s start with you.
STEPHEN POWER 25:50
We worked with a group called KIPP, which is a large charter school network. And they also have an organization called KIPP Foundation, which is a foundation that supports the KIPP charters around the country. And colocation of multiple organizations is oftentimes very difficult because you have competing interests. But in this scenario of the foundation and the New York City collaboration, there were a lot of synergies for them to consider co-locating.
STEPHEN POWER 26:16
And one of the things they were able to do is find a building that was really one of the most affordable possible buildings, and colocate and share things like support spaces, and meeting rooms. And there’s this outdoor terrace area. And one of the things that you can do is if you make the individual workstations as dense as possible, but then offer folks at another place, like a soft seating area, a phone booth, or Zoom room, or a small or medium, or large meeting room, if you have a diversity of other support shared spaces, you can do a lot more with less square footage.
STEPHEN POWER 26:51
So that you can max up, let’s say, for example, everybody who has worked at the organization has a dedicated seat at the headquarters. But they can come in, and they can sit in the meeting room or a conference room or a soft seating area when they need to come in for large training, and so on. So there are ways to be smart about how you plan for your space to take less dedicated personal workspace and allow you to do more with less.
AMY LAWRENCE 27:17
I’ll just add to what Stephen said. I’ve done a lot of work in the past for organizations around the future of work, and what is the future workplace environment and back-to-work strategy throughout the pandemic. And so some of what we’ve been talking about is really that and there are differing opinions on what that should be certainly. But one thing that seems clear across the board is the concept of culture building, training and mentorship, and the development of people.
AMY LAWRENCE 27:47
And if you’re not together in an environment together, especially if you as a new employee, like a lot of people were hired brand new during the pandemic, and they’ve never met their colleagues in person. And that coupled with what you brought up previously about the opportunities that exist in the marketplace. So you can design a space that’s much more collaborative and conducive to culture building and opportunities for mentorship, getting people back into the office in this more hybrid kind of work environment and an environment where there are spaces to interact. And it’s really important even just to have a pantry. A lot of times, you just have a conversation with someone when you’re getting a coffee, right?
AMY LAWRENCE 28:29
And that could be critical to your whole day. Because you said oh, I’m thinking and they say oh, I know the answer to that. So having just that interaction. So the marketplace today, there are a lot of opportunities to upgrade and have better space where you can build a lot of that stuff in. And there are also a lot of landlords that will construct your space for you as part of the total package. They have tenant improvement allowances. And so you can build a very nice conducive space to the kind of collaboration and culture building you want as a nonprofit, and have an upgrade to what you might have had previously.
RHEA WONG 29:06
Last question from me. And then I see a good question from Danielle. How do we manage the competing priorities? So let’s say there’s a world where I serve a very specific geographic area, and I have to be in that area. But I’m priced out. It’s like, the amount of space that I would need is just not affordable in that given space. But I have to be in that location because we offer the programs there. So I’m wondering, like, is there a world where real estate needs clash with strategic needs?
STEPHEN POWER 29:40
All the time. So we’re working with an organization that serves a very specific community and the cost of this neighborhood has gone up quite a bit or it’s actually in Forest Hills, Queens, and it’s a very attractive place to live and there’s not a lot of commercial product. And this organization serves seniors and has historically been renting and using the undercroft of a synagogue for as a senior center. And that worked great, and they’re paying $12 a foot, which in real estate terms is almost nothing. And this synagogue is being sold, and they no longer can account for this sort of below-market space.
STEPHEN POWER 30:20
And so they get funded by and this is getting in the weeds of it. It’s important. They get funded by an organization, which is the city agency that funds senior services. And there’s a process for most public funding sources. If your historic rent, that’s not really achievable, there’s an appeal process to get a bigger contract. And it’s not immediate. You have to plan ahead for these things.
STEPHEN POWER 30:44
So oftentimes, you can start a conversation and then within a couple of years that you’re going to need to move, they can start allocating more resources towards your real estate. So from a public funding perspective, there’s almost always a path if the public funding wants you to be in those neighborhoods. From private dollars perspective, it’s very difficult to just raise money overnight, as everyone knows, but one of the things that’s great about being in a relatively pricey neighborhood, and that’s oftentimes very visible.
STEPHEN POWER 31:15
So you can do a capital campaign around specifically owned real estate if you have a long enough term perspective. But it’s a very attractive way to build a capital campaign, having a location and naming rights and all the things that go along with that, because it really does appeal. You’re definitely more of an expert on this to me, but the concept of living donors can live forever through their through those types of donations. That’s a very powerful fundraising strategy. And we’ve seen that happen quite a bit. I’d love for Amy to tell the story of what the Screen Actors Guild was able to do.
AMY LAWRENCE 31:47
I’d love to, Can I share two stories really quickly?
RHEA WONG 31:50
Yeah! And then we’ll get to Danielle’s question, and then we’ll wrap it up.
AMY LAWRENCE 31:54
Just one thing I wanted to say. And then I’ll share the Screen Actors scenario. It’s just a lot of work that we do is with charter schools. It is throughout the Borough’s. What I was going to say is that not just the location itself, but sometimes the market and so in today’s market environment, for example, a lot of charter schools are ground-up development, and the market today for construction, just the cost of materials has gone up dramatically, as has we all know, interest rates and the financing costs.
AMY LAWRENCE 32:21
So these things that used to be we do a lot of work, for example, in the Bronx, which in the past was much more affordable and has become less so over time, especially for those kinds of projects because of the costs of construction and development. And what I was gonna say is just that what we’ve found, what we try to do is be creative in deal structuring and thinking about how else could we do this thing and still achieve the mission or the outcome that we’re looking for.
AMY LAWRENCE 32:47
So in that environment, what we found lately is that because we have a long-term perspective, we’ve been finding opportunities where with a nonprofit we can actually purchase the asset instead of leasing it from the developer and fund it by doing non-tax-exempt bond financing, which the interest rate is much lower than conventional interest rates. And so when you run those numbers, the first couple of years, it winds up being a bit more expensive, but over the duration, much less expensive than today’s leasing environment.
AMY LAWRENCE 33:23
And those nonprofits that have the credit that is established enough and have a history that folks are comfortable and making get much better deals. And we’re starting to do deals like that, versus the ones we used to do in the past, which were straight-up leases for 30 years. leasehold condos, basically, but we’re running numbers that are better. And so like, a lot of times, it’s also like, just shifting your perspective maybe, like how else can I think about the market and the opportunities that exist in it, where I can still achieve my mission. But think about my real estate a little bit differently.
AMY LAWRENCE 33:59
And Screen Actors Guild one is just that is really more about something that we talked about for ages Stephen said, being intelligently opportunistic, means planning well, so that you know what you need, and you know what you can afford so that when you go out to the market, you’re never going to find the exact thing you were thinking. It’s very rare that you say I planned this all out. And this is the thing that I’m going to find exactly as it is.
AMY LAWRENCE 34:26
In the Screen Actors Guild, we did an extensive planning process for their new actor center that included not just a screening room, but also voiceover and space for actors in between gigs to meet up and etc. And when we went out to the marketplace, we couldn’t find all of that in one. But what we found were pieces of it and we said you know what? That can work for us because wound up being the Robin Williams Center on 54th Street, that’s the Screen Actors Guild screening room and so we found this space that was exceptionally affordable for a variety of reasons the city government and the developer getting air rights to build up.
AMY LAWRENCE 35:07
So they had to give this space to the community at a lower cost. So we took advantage of that. And we said, oh, that fits. We know how the physical requirements. We know our budget, oh, well, we can do this. And we can put the rest of the facility in a traditional office space nearby but elsewhere and still make this thing work how we intended.
RHEA WONG 35:28
Amy, as you were talking, I was just thinking about it because I love a dating analogy. There’s no such thing as the one, right? You could never find the one who is going to meet all of your needs. Alright, Daniel, you have a great question. We’re gonna jump in here.
DANIELLE 35:45
Sure! Hello, thank you. This has been really useful and interesting. I was wondering, and you touched on it a little bit, Amy just now. There are certain government initiatives that are happening. And I know for Brooklyn, in particular, in New York City, Brooklyn, Borough President Reynoso has included financing. He’s going to dedicate money towards nonprofits that are requiring real estate.
DANIELLE 36:06
And I know there’s been incubators and industries city at one point that had some nonprofit angles to them, I believe. But it’s done through economic development illustration. So just I’m being very New York-specific for all those listeners out there. But I’m sure nationwide, there are lots of government initiatives like that. And I’m just wondering Is that a growing trend or are those things useful? Are they convoluted? Just some thoughts on that.
AMY LAWRENCE 36:27
I guess I’ll start there. We have done work with lots of nonprofits who have allocations from Borough presidents, other electeds, and others. Currently, even there’s a lot of funding for migrant housing, and accompany views all of those. It’s a very big deal nationally, and here in New York. And I would say a little bit, it depends. Sometimes those money comes a lot, most of the time, they’re for capital, not for operating costs.
AMY LAWRENCE 36:58
And there are requirements associated with using pre-approved project management and construction and other things where you have to go through a very specific process for the city. So it can be very beneficial. But you also really need people who understand how these things work to make sure you don’t get hung up and stuck with some of the bureaucracy and issues that are associated with taking that money.
STEPHEN POWER 37:27
Public money oftentimes comes with strings. So the quick short version of it is that if you use the money for capital, oftentimes, if you have to restrict the property for at least 25 years, you have to use union and prevailing wage, which can increase the cost of construction by 20% to 100%. And you have to have a much more detailed reporting process was also adds time and cost to a project. But if you use the capital for things that are movable that like furniture, fixtures, equipment, or anything that you could take with you, the restrictions are much, much less because they really just need to stay owned by the nonprofit community.
STEPHEN POWER 38:02
And in those scenarios, we worked with an organization in Brooklyn that had the capital to pay for the renovation of their theater space. It was a performing arts music organization, but they didn’t necessarily have the money to pay for some of their lighting grids and technology, as well as something important to have this very special piano that was like a perfect piano. So this piano was a million dollars.
STEPHEN POWER 38:29
And they got the world president to give them a million dollars to buy this piano and they already had one. So now they’re doing million-dollar pianos. So you got to be smart about how you ask for the money. But sometimes they have to spend it. You can sometimes take advantage of the fact that they don’t spend it. They’re gonna lose it. So they’re willing to give you money that you oftentimes would think would be impossible to achieve.
RHEA WONG 38:51
I love that dueling million-dollar piano. That’s a first year on Nonprofit lowdown. Stephen, and Amy, this has been really great. Is there anything else that we should know about, be aware of, or anything that we haven’t covered so far?
STEPHEN POWER 39:03
I think the biggest picture is that this is an opportunity to take advantage of really unprecedented times. And that you can set yourself up as an organization for really long-term affordability and success. And it’s also a great time to make a change the big disrupter that was the lockdown has forced people to rethink a lot of things. And you can make bigger changes now with less painful change management. So we are encouraging our clients to dream big and think about the vision for the organization. And then we can help you figure out a real estate strategy that supports that.
RHEA WONG 39:40
Good to know.
AMY LAWRENCE 39:41
Just super quick that it’s never too early to start. All nonprofit organization leaders shouldn’t be checking their leases and should look I mean, I should reach out and have a conversation. You may not do something now but you should think about what it is you could do. What are the possibilities to take advantage of this environment and to dream big and think about maybe you can even get out of your lease? You should check it out.
RHEA WONG 40:06
Awesome. Yeah, let’s take advantage of an opportunity, y’all. So Stephen, and Amy, thank you so much for joining us. I’ll make sure that all of your information is in the show notes, a link to the website, and your LinkedIn if folks want to get in touch with you. So thank you so much for joining us.
STEPHEN POWER 40:20
Thank you so much. We really appreciate it.
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