Nonprofits Are Seizing Their Moment To Buy Commercial Properties At A Discount

Wellroot Family Services was looking for a new place to house teenagers who were aging out of the Georgia foster care system when it came across an aging apartment building in Dectaur with an owner that didn’t want to pay to bring it up to standard.

The owner, local development firm Braden Fellman Group, faced opposition over plans to raze the 17-unit building and turn it into townhouses. So instead, the developer sold the property to Wellroot in 2022 for $3.4M — a discount compared to the average apartment sale in Atlanta at the time.

“We are constantly looking, keeping our eyes and ears open for real estate opportunities,” Wellroot CEO Allison Ashe told Bisnow.

Wellroot, previously known as The United Methodist Children’s Home, has been around for 140 years, but it hasn't had many better opportunities to buy properties for its services at a discount. It is one of a growing number of nonprofits across the country looking to take advantage of a down market to make generational investments for their missions.

“We have a lot of nonprofit groups spread across the country, and we’re hearing the same thing: Those with money want to buy to create a legacy,” said Cushman & Wakefield Executive Managing Director Carri Lyon, co-chair of the firm’s national not-for-profit practice.

With overall U.S. commercial real estate pricing down 21% from its March 2022 peak, according to Green Street, nonprofits are seizing the moment to buy property, largely at discounts from what their previous owners paid to acquire them. 

New York arts and theater nonprofit The Joyce Theater purchased a 58K SF office building in Manhattan's East Village in December for $16M, roughly half of the $31.7M its former owner, The Boys’ Club of New York, paid for the facility in 2019.

Visions in Education, a Sacramento, California-area nonprofit charter school, bought a 65K SF office building for its operations in September for $6.6M, paying nearly half the price the previous owner bought the facility for, the Sacramento Business Journal reported. 

“This is a function of the way the commercial real estate market is right now where there’s a lot of vacancies. When there’s a vacancy, there’s opportunity for potential tenants,” National Council of Nonprofits Chief Operating Officer Rick Cohen said. “In this case, it’s nonprofits hoping to solidify things at a time when there’s vacancies.”

Record donations flowed to the more than 1.8 million nonprofit organizations in the U.S. each year between 2020 and 2022, including nearly $500B in 2022, according to data from The Giving Institute. Nonprofit revenues have grown from $1T in 2020 to $3T last year.

“Many foundations, like arts groups, theater groups in the New York market, they are sitting on lots of cash,” Lyon said. “They don’t care about interest rates. They like that property prices are low.” 

There are strong incentives for nonprofits to become landlords, Avison Young principal Brian Martin said. For one, nonprofits aren't charged property taxes in most municipalities, giving them significant annual savings. As renters, they often pay taxes, with common-area maintenance fees tucked into leases.

Commercial property owners who sell to nonprofits also get a boost when the property trades at below market values: That delta between the fair market value and sale price can be written off as goodwill, experts say.

“Nonprofits can secure different financing, more advantageous financing, than other commercial and private sector groups,” Martin said. “Now we’re seeing depressed office values. So your building is snapped up at a much lower cost on a per-square-foot basis.”

Minnesota childhood hunger nonprofit Every Meal purchased a 65K SF warehouse for $8.1M in January after it had leased it for the past seven years.

Creative financing aided Every Meal’s ability to buy its own warehouse, founder Rob Williams told Bisnow. Minnesota pooled more than $1B for nonprofit grants in 2023, and Every Meal received a portion of the purchase cost from that, Williams said, financing another portion with a five-year, no-interest loan.

Owning the warehouse means Every Meal is saving $140K annually on property taxes, Williams said. 

The Atlanta region, where a quarter of all office space is vacant, has been a hotbed of this activity in recent months. 

Nonprofit Ser Familia purchased Barrett Summit Building 200, an 80K SF, five-story office building in Kennesaw, for $10M in February from Tioga Capita. Residential mental health treatment nonprofit Skyland Trail last month bought a Hampton Inn just outside the city, where it plans to expand its treatment operations.

The CEO of fintech company GreenSky, David Zalik, bought a 138K SF office building just off Interstate 285 for $12M and plans to house his philanthropic operations there, the Atlanta Business Chronicle reported. 

Even the Georgia Center for Nonprofits has gotten in on the action, recently purchasing a 16K SF former grocery warehouse along the Atlanta BeltLine, turning two former food storage coolers into offices for its organization and other nonprofits needing space, said Taylor Yarbrough, a principal with the architectural firm Niles Bolton, who assisted the organization in designing its space.

Paul Johnson, a first vice president with Marcus & Millichap in Atlanta, recently represented the Free Church in the purchase of an office building for $14.5M in the affluent suburban community of Alpharetta, north of Downtown Atlanta. 

“It’s remarkable how many different religious faith-based groups are looking,” he said.

“In my lifetime of doing this, which is almost 50 years, even though the marketplace for debt is not favorable, users/buyers are coming to see their opportunity,” Johnson said. “I do think you're going to see more of the nonprofit people looking to try and make an acquisition because they are able to raise the money.”

The ability to pursue real estate deals isn't available to all nonprofits, though, said Chase Magnuson, the founder of Real Estate for Charities and a 40-year nonprofit consultant.

While giving in aggregate has hit record numbers, inflation and spiking operating costs have taken a bite out of revenues. Owning real estate could turn into costs, such as property insurance, that many nonprofits are unable to handle, even if the real estate is donated, Magnuson said. 

Those challenges were echoed by the 2024 State of the Nonprofit Sector report by accounting firm Forvis Mazars, which surveyed more than 350 organizations. While more than half of those surveyed were either somewhat or very pleased with their organization’s financial position, more than 38% reported being somewhat or very concerned about their finances. Nearly 31% said their organization’s financial position somewhat or significantly deteriorated from a year before.

“Unfortunately, the nonprofits are not in a good position for the risk factor of owning real estate. It’s costly. It’s got environmental issues possibly,” Magnuson said. “They’re not in the real estate business, so they’re reluctant to take it.”

Wellroot is still raising funds to renovate its recently acquired Decatur apartment building, but it’s already moving forward on another real estate deal.

After it sold its longtime headquarters campus to the county government, which in turn built an affordable housing project, Wellroot acquired a 7-acre campus from Decatur First United Methodist Church for $4.8M last month. It plans to develop a multi-use housing community for children and families.

“We’ve really been in a growth phase for the past four years. Fundraising has not been a challenge for us,” Ashe said, adding that Wellroot has created a committee to evaluate future real estate opportunities. “I do think this will become more and more [common]. There’s just a lot out there.”