In many cases nonprofit organizations do not have large
endowments or reserves in place from which they draw upon to
readily accomplish and sustain a real estate acquisition. In
today's market, buyers are typically expected to contribute
between 10-20% cash equity upfront as well as meet reoccurring
payments of debt service, operating expenses and real estate taxes.
As a result, many transactions require creative ways to maintain
sufficient cash flow from various sources to fund operational and
programmatic needs.
Some nonprofit organizations have been able to make their project
work by obtaining a real property tax abatement from the local
jurisdiction within which the property resides. Some nonprofit
organizations are automatically exempt from real property taxes
simply due to the nature of their charitable mission, however, it
is not quite as easy in other jurisdictions. For example, in the
District of Columbia, a nonprofit organization must meet very
specific criteria to fit within the real property tax exemption
category. On the other hand, although an abatement is not
guaranteed, any nonprofit is eligible to request a tax abatement
from DC Council.
The abatement frees up cash flow for a finite period so that the
organization's cash can be used towards other necessary
expenditures. In the past, our clients have achieved varying
amounts for different periods of time. We have seen one nonprofit
organization receive a $5 Million Dollar tax abatement over the
course of 5 years while another received up to $20 Million Dollars
for a period of 10 years.
A variety of factors may impact a tax abatement request. Certainly
the size and duration of the abatement are significant factors that
weigh heavily on the outcome of the request. However, other factors
that should be highlighted to help achieve a favorable result are
the benefits that the organization specifically brings to the
District of Columbia, the services that the organization brings to
District residents, how many jobs are created for District
residents, whether the organization is relocating into the District
from outside the city or moving into an area that is in need of
revitalization and more!
In summary, receiving a tax abatement is not guaranteed since it is
subject to and at the discretion of the DC Council. However, if you
use the proper channels, it is typically a fairly quick process to
determine the likelihood of being successful. Thus, the monetary
risk is fairly minimal but the potential gain can be the deciding
factor when it comes to making the project financially viable.
This article is presented for informational purposes only and is not intended to constitute legal advice.
