Guest post by Michael Rudder
Leaders of nonprofits are constantly looking for ways to be more cost efficient while running their organizations. One major way to cut back on long-term costs is to purchase your organization’s space, instead of just renting it. In New York City, the recent conversion of 866 United Nations Plaza to an office condominium created new opportunities for nonprofits to purchase their space, saving them money in the long run. There are five main reasons why nonprofit decision makers should consider purchasing their own space:
- Tax exemption: Nonprofit organizations are exempt from paying real estate taxes when they own and occupy an office condominium, but are required to pay taxes if they choose to lease instead (when you are renting, taxes are built into the cost per month and can consume 30-40% of the total).
- Significant savings: Current leasing rates exceed the annual cost of owning an office space. Costs include common charges, utilities and, if applicable, real estate taxes and mortgage payments.
- Never be displaced: Securing a permanent location is crucial for businesses and organizations in order to avoid the expense and time loss of moving.
- Stabilized occupancy costs: Owners are protected from the ever-increasing cost of leasing space, allowing for precise operating cost projections and easy budgeting. Rental tenants are subject to fluctuations of the market and whims of landlords who could have conflicting objectives.
- Control your space: Office owners control their premises and have the flexibility to dictate all aspects of its design and function. The investment value that a unit owner accumulates through construction and improvement is also theirs to keep.
So how can nonprofits go about making ownership a reality? Here are my tips for organizations looking to buy:
- Find the break-even point: Determine how long your organization would occupy a space at minimum and evaluate how much that would cost as a renter, based on average office rents in the area. More often than not, you will find that after 5 years, you will be spending more for renting than the cost to buy a unit.
- Determine if your organization is eligible for tax-exempt financing: Nonprofits are often eligible for tax-exempt bond financing, which tends to have low interest rates and reduced upfront fees. This can save you a significant amount and isn’t always an option when financing is secured for a month-by-month lease.
- Create a capital campaign: Nonprofits can hold capital campaigns to raise the equity needed to purchase an office unit. Sophisticated donors may feel that renting space is throwing money away, so nonprofits often find it easier to raise funds if the money is going towards the cost of owning their office space. You could also offer naming rights for your conference rooms or other spaces to donors.
- Lay out a long-term budget: Nonprofit tenants that lease space must budget for costs beyond rent, including relocating, construction, furniture, and all of the intangible hassles of moving into a space. With office condo ownership, your organization can amortize upfront costs over a long period of time, allowing for better planned and advantageous budgets.
- Decide how much space you really need: In projecting for future growth, it’s common that nonprofits will purchase space larger than what they need in the immediate moment. By determining how much space your organization can efficiently use in the present moment, you can sublease any additional room to other companies, which allows you to subsidize carrying costs, and still have room to expand down the road.
Michael Rudder, principal of Rudder Property Group, is the only broker to specialize in the New York City office condo market and currently holds the record for selling the most Manhattan office condos. Michael also recently led the first office condo conversion in NYC since 2008 at 866 United Nations Plaza. During his career, Michael has facilitated the acquisition, conversion and sales of nearly 1 million square feet of Manhattan office condos. Prior to forming Rudder Property Group, Michael spent over seven years as director of office leasing and sales with Time Equities, Inc.
Rudder Property Group
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