Nonprofit Sector

Old Boilers and Overcrowding: Facility Costs to Consider

Facilities are mission-critical for some nonprofits, but facility ownership comes with upfront and ongoing costs to consider

One of Newark Symphony Hall’s two boilers had already broken down when Taneshia Nash Laird was hired as CEO and president. Soon after, the other failed, forcing her to cancel all programming for a week, including the popular soul line dancing class and a holiday performance by a local school for the arts, which had rented out the facility.

Nash Laird needed a repair, quick. Fortunately, she had data on her side. A recent Systems Replacement Plan (SRP) assessment – an expert analysis of a facility’s long-term maintenance costs – had identified $15 million in facilities maintenance needs over the next 20 years, including new boilers to replace the failing units – both already five years beyond their estimated lifespans. Nash Laird took her case to the city of Newark, NJ, which agreed to repair the recently failed boiler.

The SRP was made possible through the Newark Resilience Initiative (NRI), a partnership between Prudential Financial, Inc. and Nonprofit Finance Fund (NFF). Though the city is undergoing rapid development and booming investment, the economic benefits of growth often lag for local nonprofits, and NRI provided flexible capital grants and capacity building to help them adapt to a changing city. Having served as a cultural mainstay for citizens and professional entertainers since 1925, Newark Symphony Hall has hosted everything from piano recitals for local children to performers as diverse as Arturo Toscanini, George Gershwin, Richard Pryor, and Queen Latifah. Today it continues to serve as a community treasure and an anchor for economic development in the city.

The Sarah Vaughn Concert Hall at Newark Symphony Hall. Photo courtesy of Newark Symphony Hall.
The Sarah Vaughn Concert Hall at Newark Symphony Hall. Photo courtesy of Newark Symphony Hall.

Newark Symphony Hall’s boiler troubles soon resurfaced when the repaired boiler sprung a leak. Nash Laird felt she couldn’t go to the city for help again. “We got a quote that the replacement of that piece alone was $20,000,” Nash Laird said. “I was like, ‘I don’t have $20,000!’” So she got creative. “We had to think like my mom: If you had a hole in your jeans, she went to Woolworth’s, got a patch, put the patch on the jeans. That’s essentially what we did with the tank.”

The stopgap fix cost one-tenth of a repair, but the need to replace the boilers – quoted at $600,000 each – remains. As the building approaches its 100th anniversary, Nash Laird is using the SRP to inform funding requests, particularly for the HVAC system and building exterior. “If there’s no heating and no cooling, it won’t be comfortable for people to come in, even if it looks pretty on the outside,” Nash Laird said.

Mission-critical Facilities

Old boilers are at the center of Nonprofit Finance Fund’s founding. The organization that would become NFF was created in 1980 as the Energy Conservation Fund to help nonprofits upgrade their facilities and save money on soaring heating costs, freeing up precious operating dollars to spend elsewhere. One of the first clients, Henry Street Settlement House, took out a $50,000 loan to make improvements that would save the organization $25,000 each year.

Today, our work extends far beyond facility needs, though these issues remain a core part of our focus, whether it’s financing renovations and construction of new buildings or working with nonprofit leaders to think through system depreciation, building expansions, and the full costs of operating.

Facilities are critical to the mission of some nonprofits, such as arts organizations that need things like a stage, seats, and wings, or large gallery spaces to fulfill their missions. Or consider Make the Road New York (MRNY), an organization serving immigrants that is using building ownership to make a statement while serving more people. Offering education and legal services, youth programs, and advocacy, among other programs, MRNY wanted to build a structure that would celebrate its permanence – and the permanence of the immigrant community – on Roosevelt Avenue in the Corona section of Queens. 

Make the Road New York’s groundbreaking for its new 24,000-square-foot, three-story building.

In the face of an anti-immigrant [federal] administration, MRNY is building this new, permanent home in immigrant Queens – a place of community, dignity, strength, and safety,” stated the press release announcing the project. “This new center will be a true reflection of this remarkably diverse and resilient community and will give the organization the space and resources to increase its impact and win more victories for current and future generations.”

MRNY’s new facility is financed through a combination of a capital campaign, loans, and New Markets Tax Credit allocations.

Growing to Serve

Growth is another factor that can force facilities decisions. According to the 2018 State of the Nonprofit Sector Survey, in 2017 more than half of responding nonprofits increased staff, and half expanded programs or services.

From its founding in 2002 by a group of area residents, faith-based groups, and health and social services providers, North Texas Area Community Health Centers (NTACHC) grew to provide care from three locations, mostly to low-income under- and uninsured patients. But by 2017 the 12,000-square-foot rented Northside facility that served 4,412 patients in 2006 was straining to serve over 10,000 patients each year – and was adding 500 patients a month.

“As the only federally qualified health center in Tarrant County, we were struggling to offer appointment availability. It was almost impossible for many of our patients, who would have to wait three to four months,” director of nursing Yolanda Ortiz said.

NTACHC decided to build its own facility to double its patient-serving capacity. NFF provided an initial bridge loan for land acquisition in May 2016, and followed up the next year with a $4.3-million loan and $6-million NMTC allocation to support construction of the 33,800-square-foot facility. 

The NTACHC Northside Community Health Center. Photo courtesy of NTACHC.

The new building opened in September 2018 and provides primary and pediatric care, OB-GYN services, family planning, behavioral health, health education, immunizations, and chronic disease management, as well as pharmacy and lab work services.     

Importantly, the new facility has seen wait time for appointments plummet, “offering appointments within three weeks”, Ortiz said.

“Owning the Northside Community Health Center building gave NTACHC more space to accommodate its growing patient population, control its expenses, and include income-producing areas to support operations,” said CEO Gerrie Whitaker.

“As 60 percent of our patients are self-pay, we have to be able to include other ways to offset the cost of these patients through other services that generate revenue,” continued Whitaker. “We are committed to taking care of all our patients, regardless of their ability to pay.”

Facility Project Considerations

A physical, owned space with a mortgage and regular maintenance costs is not the best solution for many nonprofits. Organizations that own these spaces must tend to equipment and infrastructure that ages and fails: boilers, sound systems, roofs. Those considering facilities projects – whether purchasing a building, expanding, or adding new systems – should consider all the factors that attend new building or renovation projects. Ownership means not only running programs and services, but also managing the upkeep of a building and the systems within it, which can be a financial burden. It’s a best practice for organizations to intentionally build reserves to fund improvements and replacements.

Even before these considerations come into play, planning and carrying out a facilities project can significantly affect a nonprofit’s financial situation. A facilities project is not a one-time expense. Planners must consider how fundraising can drain resources before and during a project, the effect of construction costs on an organization’s budget, and – in cases of expansion – the increased operating expenses after completion created by additional program staff and supplies. Also, having a property on the balance sheet reduces an organization’s liquidity; its assets are fixed in a physical structure and cannot be easily converted to cash to pay for programs and heating bills.

Learn More

Read about financial health considerations for large capital projects from NFF and Vivian Fraser, president and CEO of Urban League of Essex County, another NRI participant.

Check out a case study on covering the high costs of maintenance and repair of for historic buildings.

Learn more about what facilities projects entail, how to decide whether one is right for your organization, and pitfalls to avoid.

Discover NFF’s recent facilities projects to address homelessness in Los Angeles; expand services to immigrants, refugees, and low-income people in Tacoma, Washington; and unlock educational achievement in Tennessee.

Visit our Financing page to learn more about acquisition and construction loans for facilities projects, as well as working capital, bridge loans, equipment loans, and other financing options.

Catalyzing Affordable Housing with Flexible, Pre-Development Financing

Abode Communities