Will favorable conditions for not-for-profits continue?

A large percentage of the inventory of quality office space in New York and other major metropolitan markets remains available for lease, however, tenant activity has picked up substantially. Many space users believe that the bottom of the market has been reached. Although rents have not yet begun to increase, concessions from building owners will continue to diminish during upcoming quarters. If so, the window of opportunity has started to close for not-for-profit organizations.

As the Manhattan real estate market worsened after 2000, property owners began taking calls from tenants they once eschewed. Not-for-profit organizations were among the beneficiaries of the slow market. They were able to expand, to replace their existing offices with less expensive space, or to step up to higher quality space at rents comparable to what they were paying at their existing premises. With the market improving at a measured pace, it is no longer advantageous for not-for-profits to wait. Many believe they should commit to a lease transaction while New York building owners are still willing to entertain offers from this kind of tenant.

Generally, building owners are very concerned with the credit of potential tenants. Traditionally, credit quality has been important to owners in order to maintain stable cash flow, when financing or selling a building. Investors mulling an acquisition will also heavily scrutinize the credit quality of the building's tenants. Not-for-profit organizations generally do not have the kind of credit that appeals to many property owners. Recently owners were more flexible in this area. That environment may start to disappear as leasing activity with more traditional tenants increases.

Few not-for-profit organizations make real estate matters a top priority. Their real estate requirements tend to be episodic, resulting from a need such as a pending lease expiration or a relocation. Given that not-for-profits are concerned with keeping costs down, office space is not typically part of their agenda. When not-for-profits do seek space, they tend to avoid more expensive offices and a greater spectrum of options become available to them.

Some recent large deals last year involving not-for-profit organizations include two transactions at 55 Water St.: HIP Health Plan of New York's 20-year lease for 485,000 square feet and Teachers' Retirement System of New York's 15-year lease for 157,000 square feet. Saint Vincent Catholic Medical Centers inked a deal in Midtown West for 104,500 square feet at 450 W 33rd St., where it occupies about 35,000 square feet less space than it did previously.

In the first deal of its kind in Manhattan, the Alliance of Resident Theaters/New York was instrumental in bringing more than $2 million in public and private money together in 2002 to lease an entire floor at 520 Eighth Ave. for use by many of the city's arts organizations. Comprising about 30,000 square feet of commercial office space, the floor is occupied by four major anchor tenants, including the Arts and Business Council, and a number of smaller organizations, which occupy spaces as small as 250 square feet. The floor includes many shared services such as a kitchen, business services and three meeting rooms/rehearsal spaces.

The unique aspect of the space at 520 Eighth Ave. is that the Arts and Business Council and A.R.T./NY sublease offices to arts groups that could not themselves afford the space, or convince a building owner to rent space to them. This kind of initiative can reposition a building by bringing in a different kind of tenant. In addition, the manner in which it was done greatly benefits the building owner, which only has to deal with two larger capable organizations rather than dozens of smaller groups.

There are a number of large not-for-profits that occupy entire buildings that are older and require substantial renovation In these cases, the organizations must conduct some sort of strategic analysis to determine if they should stay where they are and rehabilitate the building or find another building.

Many not-for-profit organizations may not have the human resources to take on such a large, complex project. These organizations typically try to keep their costs to a minimum, and that includes staffing. While their employees may be capable of handling a large project such an office relocation, consequently that could mean that the day-to-day operations of the not-for-profit would suffer.

Yet without the in-house capacity to run such a large project, an organization may need to turn to a firm that is capable of handling a full range of needs, from strategic planning and assistance with presentations to their boards to lease negotiations and construction supervision.

Rose Associates, Inc. has spearheaded the relocations of a number of not-for-profit organizations, including the Institute for East/West Studies, the Foreign Policy Association, the Harlem Educational Activities Fund and the Jewish Community Centers of North America. The company oversaw the process from creating a strategic plan to finding space and negotiating leases. Rose Associates, Inc. is the property manager of the building housing the Institute of International Education and is facility manager of the organization's space at 809 First Ave. The company also serves as property and facilities manager and leasing agent for the Anti-Defamation League's building at 823 First Ave.

This is the kind of start-to-finish project management expertise that can serve as a vital resource to a not-for-profit's real estate staff. Outsourcing certain real estate needs to a company that focuses solely on real estate matters will allow a not-for-profit to conduct its operations while ensuring that its ongoing real estate needs are taken care of efficiently and professionally.

BY EDWARD T. LAGRASSA, MANAGER, COMMERCIAL BUSINESS DEVELOPMENT, ROSE ASSOCIATES INC.