Two Strategies for Nonprofits to Reduce Occupancy Costs 

Nonprofit organizations are in a unique position to execute on the strategies noted below to effectively reduce their leasing costs by an amount corresponding to the real estate tax cost that is implicit in their cost of leasing.

30-Year Leasehold Condominium:
In NYC if a non-residential property is leased for a minimum term of 30 years, the landlord is permitted to convert the leased space into a condominium and can give ownership of the leased space to the nonprofit organization for the duration of the lease.  The newly created leasehold condominium then becomes a separate tax lot with the consequence that the nonprofit owner is not subject to real estate taxes on the property. 

In simple terms if the real estate taxes for the property prior to condominium conversion were $10 psf., then following the conversion rent of $50 psf. effectively becomes $40 psf., with no annual real estate tax passthrough that would increase the rent.

This strategy allows nonprofit organizations to take advantage of the laws of ownership without having to divert capital to a downpayment and renovation.
Landlords throughout Manhattan and the Boroughs have become increasingly aware and accommodating of this strategy.

Ownership:
An Office Condominium

• The office condominium market makes up approximately 2%-3% of the commercial office market in Manhattan, with over 100 buildings that offer office condos for sale. Pre-Covid the average price of office condominiums was between $800 – $1,000 psf., but the market has dropped considerably with the result that many transactions are now getting done at below $500 psf.
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A Commercial Building 

• In 2023 investment sales dropped 45% from 2022.  This depressed sales market presents the opportunity to own property at pricing levels that may not be this low again, and as a nonprofit the real estate tax is eliminated from occupancy costs as noted above.
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I would be delighted to discuss available options and provide a financial analysis of a 30 yr. deal scenario.

Paul Walker

Senior Vice President 

Paul.walker@cbre.com

212-984-7117