August 31, 2020; Post-Gazette (Pittsburgh, PA)
The pandemic has brought home the need to downsize nonprofit physical plants while also emphasizing flexibility in space and budget over time. But that realization may have come just a little too late for many organizations that are now looking at a commercial real estate “buyers’ market” on steroids.
Some organizations, of course, lend themselves more readily to remote work than others, but Life’sWork of western Pennsylvania is particularly ill suited, providing as it does a congregate job-training setting for people with disabilities. However, its timing was impeccable, having sold its building of 50 years in favor of a leased 28,000-square-foot space. Even at that size, its new location is just a fifth as big as its former one.
Timothy Parks, president and chief executive of the nonprofit, puts it simply: “We had to get out of the real estate business. That’s not our mission.”
Luckily, Duquesne University was eying the site for its College of Osteopathic Medicine, and the $6 million sales price was more than sufficient to finance the move while retiring about $3 million in long-term liabilities and establishing a healthy reserve fund.
But, as they say, timing is everything, and the moment for the selling end of such deals may be gone—at least for now. All types of enterprises are paying dearly for space overcommitments once made in good faith. Pinterest, for instance, just announced it had terminated a lease for 490,000 square feet in San Francisco at an out-of-pocket cost to them of $90 million. In the second quarter of this year, in fact, all office leasing, according to CBRE, declined 44 percent in the second quarter of 2020 compared to the same time period a year before.
Todd Morgenfeld, chief financial officer at Pinterest, offers a statement about the move that, although convoluted, reflects current workplace trends: “As we analyze how our workplace will change in a post-COVID world, we are specifically rethinking where future employees could be based. More distributed workforce will give us the opportunity to hire people from a wider range of backgrounds and experiences.”
Although the market does appear to be rebounding, one could reasonably argue that for some sectors it may never come all the way back. This may include a variety of nonprofits, as they reassess the extent of their need for congregate workspaces.
For those at the natural end of a lease, however, there may be an upside to the current market; CBRE reports that prices on leased spaces are expected to decline by ten to 20 percent by year’s end.—Ruth McCambridge