Three Isn’t A Crowd
April 1, 2010 Mark Hrywna
Tom Hanks and Peter Scolari dressed in drag to score an apartment at the all-female Susan B. Anthony Hotel in the old television series Bosom Buddies, while the late John Ritter pretended to be gay so a California landlord would let him live with two women in the ‘70s sitcom Three’s Company. Nonprofits aren’t going that far to save money but in some cases they are moving in together to share the rent, so to speak.
Within the past year, the English-Speaking Union of the United States has two small nonprofits as tenants in its midtown Manhattan headquarters: American Friends of Attingham and Humanity In Action. “One of the things that makes it work is that there is some kind of synergy in missions,” said Alice Boyne, president and CEO of The English-Speaking Union of the United States. “Especially when you’re going to have only half a floor of a three-story building, it’s important to have someone that had similar goals, someone you’re comfortable with,” she said. “It really takes a lot of patience on both sides with an understanding that we’re both knee deep in the work we do,” said Boyne.
The three organizations share the public space of the three-story building, such as the reception area and conference room, including a public area that can be used for lectures and programming. “We could never afford to own a space like this, or even rent at this point, space that gives us all the assets that we have by joining up,” said Judith Goldstein, executive director of Humanity In Action. “What we could afford might be a few small offices, but we couldn’t afford a kitchen or a conference room. By teaming up, we are able to enjoy those resources,” she said.
Suzanne Sunshine, president of Manhattan-based S. Sunshine and Associates, stressed that when nonprofits share office space, they’re not merging or melding their missions. “For a group that is more developed, sharing space is ideal right now because of the cost, but they don’t want to share with multiple tenants. They want to establish their independence,” said Sunshine, who brought Humanity In Action together with The English-Speaking Union. She points to Brooklyn-based Blue Ridge Foundation as another example of nonprofits sharing space. Blue Ridge is an incubator for fledgling nonprofits until they grow on their own, like College Summit, Year Up and iMentor, according to Sunshine. When grantees are ready to “graduate,” Blue Ridge helps them find new homes, she said. “These groups become established enough to be able to rent their own space,” Sunshine said, as in the case of iMentor, which outgrew 5,000 square feet at 40 Exchange Place and moved to 25,000 square feet at 30 Broad St.
It’s important to draw some lines when sharing space. It’s one thing to have a shared reception area, Sunshine said, “but you don’t want everything shared, with no boundaries.” Humanity In Action moved into the building in September, signing a two-year lease. “It gives us stability for two years, and time to build a good working relationship with English-Speaking Union and see where we are,” said Goldstein.
The organization had been renting from a Manhattan-based nonprofit for about six months after several years in Brooklyn. “It’s not uncommon to move around,” said Goldstein. “We’re also an organization that’s growing,” she said, adding that only a few years ago there was one full-time employee. A lot of nonprofits would prefer not to move at all but many might have to, Sunshine said, as hundreds of thousands of feet of nonprofit space are expiring in the next two years.
Sunshine estimates nonprofits can save anywhere from $10 to $20 per square foot when sharing space, since they don’t have to worry about getting it furnished or wired. “It’s a very cost effective way right now to lower your costs and nonprofits are looking either to maintain or lower costs,” she said. The arrangement isn’t without its drawbacks. “For me, the downside is spending time on real estate. Any time we’re spending on being a landlord is not time spent on our work. That’s why it’s not a permanent solution,” Boyne said. Her nonprofit tenants understood subletting from another nonprofit would not be the same as renting from a management company. At the same time, she said the nonprofit renters are raising issues that they never anticipated, like calendars and holiday schedules for each organization, and when to close the building.
“We all understand this is not a permanent situation. We need to grow, not just to sustain ourselves but to make it reasonable to take the space back,” said Boyne. The English-Speaking Union bought the East 39th Street building in 2002 after selling its stately townhouse headquarters on the Upper East Side. The organization sold that building in 2001 for about $10 million. “We didn’t have to sell but the board at the time believed the assets should be mission oriented,” Boyne said, and the proceeds helped to create an unrestricted endowment.
After renting space for about nine months, the three-story former carriage house was acquired for $4 million. “Putting some of the assets into real estate seemed like a prudent thing to do,” said Boyne. Nonprofit boards have become very cautious as a result of the economic crisis. Despite some encouraging economic news in recent months, Sunshine said nonprofit boards are not willing to take risks. “People are very cautious all over America. Boards are much tougher with their executive directors and presidents,” she said.
Sunshine is seeing more urgency from nonprofits to share space this year as compared to last fall. “This to me is a sign that there are a lot of nonprofits struggling out there.” The depressed real estate market can make for some opportunities when it comes to buying or long-term leasing.
“Landlords are much more willing to consider a nonprofit in this economic environment than they have been in the past,” said Jeff Kaplan, counsel with Bryan Cave, LLC, in New York City. Landlords haven’t been able to get very good deals on leasing in the city but now that the city is so slow in terms of viable tenants, landlords are entering into leases with nonprofits. They are asking for bigger security deposits from nonprofits, he said, knowing that if financing doesn’t materialize in any particular year for the nonprofit, the landlord could take the security deposit, which is better than just having vacant space. The general rule of thumb seems to be a security deposit equal to one to three months’ rent, but it depends, Kaplan said.
Brian Waterman, vice chairman of Newmark Knight Frank in New York City, said there’s tremendous value compared to 10 or 15 years ago. “ A lot of times nonprofits were cut off at the pass by not having the ability to fund construction costs,” Waterman said. “A lot of nonprofits are basically jumping back in and taking advantage of this market,” he said. As nonprofits try to make up for slashed budgets, one area that has potential is rental costs. “While rental is a decent expense, it’s not huge for some of these smaller nonprofits,” Waterman said.
When it comes down to it, Sunshine said, rental prices are related to employment statistics. When unemployment grows, businesses shrink and more space is on the market, driving prices down. “As a result, there’s a lot of opportunity in the market for nonprofit tenants,” she said.