There Goes the Nonprofit Neighborhood

There Goes the Nonprofit Neighborhood

May 24, 2016

Throughout New York City, increasing real estate values have put pressure on nonprofits to reconsider their space and location needs. Baruch’s Gramercy Park neighborhood was a major center for nonprofit organizations for more than a century, and serves as a microcosm of how these broad forces can impact a neighborhood and a sector.

Beginning in the 1890s, the Mission House of the Episcopal Church and the United Charities building were the headquarters of a number of organizations. The Episcopal Church sold its landmarked building on Park Avenue South in 1963 to the Federation of Protestant Welfare Agencies.

Around the corner, on 22nd Street between Park Avenue South and Lexington Avenue, the United Charities Building housed the Association for Improving the Condition of the Poor (AICP), the Charity Organization Society (COS) and the National Tuberculosis Association in the early 20th century. More recently, it served as the headquarters for the Community Service Society, the result of a Depression-era merger of the AICP and the COS, the Children’s Aid Society, the City Mission Society and the Citizen’s Committee for Children.

Just down the street on 22nd Street and Lexington Avenue was the Russell Sage Foundation building, completed in 1914. The building housed a major funder and advocacy organizations for social work, public health and housing issues. It also hosted the New York School of Philanthropy (now the Columbia University School of Social Work), the Family Welfare Association, the American Association of Social Workers, and the Library of Social Work. The Russell Sage Foundation sold the building in 1949 to the Archdiocese of New York for its Catholic Charities.

A fourth building, on 23rd and Lexington, was the location for United Cerebral Palsy (UCP), which provides educational and rehabilitation services to its clients. UCP began to occupy this four story office building in 1973.

As of 2016, all four of these buildings will no longer be used for nonprofits. The Archdiocese of New York, which bought the Russell Sage Foundation building in 1949, subsequently sold it to a private developer in 1975, and the building, re-named “Sage House,” is now made up of residential coops – a two-bedroom is currently on the market for $1.75 million.

United Cerebral Palsy sold its building in 2014 to Toll Brothers, a luxury developer, for $135 million. Toll Brothers has demolished the existing building to construct an 18-story residential building with 135 condominium apartments. UCP relocated to rental space on the Upper West Side, and used some of the profits from the sale to gut-renovate its new space. United Charities also sold its building in 2014, for $128 million to a China-based development company, Cheerland Investments. The new owners have proposed a residential conversion that will add nine additional stories to the existing nine, and result in 40 large condominiums. The Community Service Society (CSS), Children’s Aid Society, and the New York Mission Society divided the profits, with CSS getting 50% and the others 25% each. CSS and the Children’s Aid Society moved to separate midtown offices, while the Mission Society relocated to Harlem.

A third 2014 sale was the Federation of Protestant Welfare Agencies (FPWA) building, for more than $50 million to RFR Holding and Real Estate Capital Partners. The new owners are planning to market the building to a “single office user.” FPWA bought an office condominium for $13 million on Rector Street, in a building that houses other nonprofits.

These sales appear to be the result of thoughtful planning on the part of the nonprofits. None of these organizations needs to be located in the Gramercy Park neighborhood, and their new locations may be more accessible to clients and other visitors. Government and foundation funding of nonprofits is tight, and it may be a good strategy to squirrel away sale profits as an endowment to fund future programs. These organizations are leveraging the amped-up real estate market in New York City to support their work advocating for and serving low income New Yorkers. These are the types of public-private partnerships that are celebrated as innovative, but reflect the decades-long trend of government withdrawal from the public welfare sphere. As government has turned away, real estate has stepped in to fill the funding gaps, which feels like a very New York story.

At the Center for Nonprofit Strategy and Management, we are interested in learning more about how nonprofit real estate decisions change neighborhoods like Gramercy Park, and the factors that drive nonprofit location decisions. Some types of nonprofits, like arts organizations, are reluctant to leave Manhattan because that is where their market is. Organizations that do advocacy and lobbying work need to be able to get to City Hall. Social service organizations need to be accessible to their clients. Many nonprofits with the resources want to buy commercial condominiums, because it is difficult to find landlords who understand and are willing to work with nonprofit funding streams, which often are not as long as commercial leases.

As real estate costs for nonprofit organizations continue to rise, many nonprofits without the tremendous assets of the organizations described above are concerned about space costs competing with essential programs. Aggregate location changes by nonprofits could affect service availability across the City. These moves could cause secondary displacement in these neighborhoods. Some organizations benefit from public subsidies or favorable rents or space arrangements, but these arrangements are neither rational, nor well understood. Nonprofit leaders dedicate an increasing proportion of their time to their organizations’ real estate issues.

We know that the factors that affect location decisions include space costs, proximity to transportation and clients, whether the space is adequate for the services provided, staff recruitment and retention, historical roots, and safety. But we do not know which of these factors (and what additional factors) are more important, and how and why these factors vary from organization to organization. A better understanding of the dynamics of New York City real estate and nonprofit organizations could help to support the important work that these organizations do throughout New York City.

This article originally appeared in the Baruch School of Public Affairs Center for Nonprofit Strategy and Management’s newsletter. Hilary Botein is an Associate Professor at the School of Public Affairs.

Hilary Botein