Dear NAEYC Members:
The launch of NAEYC’s strategic direction has led to substantial investments in our membership model and it is paying off. Our membership has grown by more than 18% in the past year! We are thrilled that you have found value in being a member of the largest early childhood association.
Because you are a member, we want to communicate directly with you about an important decision our National Governing Board has made regarding our strategic real estate plan. NAEYC is the owner and landlord of a building located at 1313 L St NW in Washington, D.C. The building was purchased in 2006 and is partially occupied by NAEYC and leased to tenants on 2.5 floors. The building is NAEYC’s largest fiscal asset.
Each year building ownership and location comes up during Governing Board discussions. As a result, in 2017, the Governing Board and executive leadership engaged a commercial real estate firm to conduct a strategic real estate analysis. This type of analysis was designed to evaluate the current D.C. market conditions, assess the maintenance and remodeling needs of our current building, better understand the benefits and drawbacks of the current space design and evaluate the relationship between NAEYC’s vision, mission, strategic direction and building ownership. The analysis was both qualitative and quantitative and included a staff survey with 100% participation.
The findings included the following summary results:
Vision and Mission: NAEYC’s vision and mission is bold and significant. Throughout the past four years substantial investments have been made in technology upgrades, recruiting and retaining highly qualified staff, redesigning business models (i.e. membership, affiliates, publishing and accreditation), marketing and communications and advancing a substantial public policy agenda through Power to the Profession and America for Early Ed. Our building and space needs are not unique, but rather typical office space conducive to effective utilization and cross-divisional collaboration. Our strategic direction and design needs do not inherently require building ownership nor does serving as a landlord further our strategic direction. Our staff have modest requirements, prioritizing proximity to public transit, adequate parking and conducive space design.
Real Estate Market: At the time NAEYC purchased the building many nonprofits and associations owned their own buildings. However, after the 2009 recession and subsequent softening of the downtown Washington, DC office market, leasing terms and concession packages became historically favorable for tenants. Many nonprofits are taking advantage of this dynamic to sell their assets primarily to developers looking for sites to repurpose into trophy office space, and moving into long term leases with attractive rents and concessions. Purchase prices are high, while leasing terms are extremely aggressive. This allows for nonprofits that own their buildings to capture the accumulated equity and place it elsewhere in more liquid investments than real estate and/or apply some or all of the gains towards their missions. Examples include the American Association of University Women, Children’s Defense Fund, National Association of Attorneys General, National Association of Broadcasters, Family Matters of Greater Washington, Fannie Mae and American Road and Builders Association.
- Financial and Risk Analysis: Considerations include the substantial appreciation in the building asset, deferred maintenance, renovation costs if NAEYC is to maintain the current location versus the costs associated with leasing space. A twelve year analysis was conducted and while the financial bottom line after twelve years is almost identical for either option, NAEYC would need to invest substantially more assets and incur additional debt service to maintain the current building (approximately $9 million). While NAEYC’s reserves would more than adequately cover these expenses, they are not mission critical and divert organization attention away from our strategic priorities. There is additional risk and staff time associated with serving as a landlord to ensure our leasing space is fully occupied. While commercial real estate portfolios can easily absorb vacancies, for a nonprofit owner occupant, this injects quite a bit of volatility. There is also uncertainty as to whether DC commercial real estate market will maintain its current strength long-term.
As a result of the mission, financial and risk and analysis, NAEYC’s Governing Board, with support from executive staff, voted unanimously to sell the current building, lease space in the downtown D.C. area in close proximity to public transportation and with adequate parking for staff. This decision was substantially a mission decision--enabling NAEYC to focus on it’s double bottom line while maximizing staff capacity and fiscal strength.
NAEYC will seek to acquire and design space that supports the creativity and effectiveness of our teams as well as serving as a gathering location for meetings and trainings for the early childhood education field. The sale of the building and move to a leased space is expected to take 18 – 24 months starting with a commercial real estate RFP in January. The building proceeds will be governed carefully with the Governing Board establishing spending policies and providing oversight.
This is a substantial transaction that requires thoughtful and collaborative stewardship between the Governing Board and executive staff. Our strong fiscal position allows us to approach this carefully with the due diligence necessary to make thoughtful decisions that promote our strategic direction today and ensure our fiscal health for decades to come.
Amy O’Leary, Governing Board President
Rhian Allvin, CEO
Amy O'Leary serves as President of the NAEYC Governing Board.