For many nonprofit organizations, their physical building represents both their largest single financial investment and also the greatest enduring strain on their resources. Facilities can cost tens of millions of dollars to design and build and hundreds of thousands of dollars annually to maintain. What if there were a way to build a strong physical presence and a robust balance sheet at the same time, setting a nonprofit up for future success and real financial sustainability? This is exactly what we at Penn State Hillel have accomplished, turning a small piece of land into a fully funded state-of-the-art facility while building a multimillion-dollar fund to sustainably support Jewish student life.

A case study

Penn State Hillel has been serving the campus Jewish student community since 1936, and we have had a variety of locations in our first 86 years. Having grown dramatically in both size and impact in recent years, our organization initiated a search for land for a new Jewish student center.

After purchasing an almost half-acre parcel in downtown State College, we launched an ambitious project to reimagine how we could utilize its land—and air. We worked with the municipality to be included in its Signature Development District, which allowed for a much greater building height limit as well as density of development. First, we partnered with neighboring landowners to assemble the entire block, a total of 1.2 acres, creating a prime real estate development opportunity. Next, we sought out national-caliber real estate developers capable of envisioning and capitalizing a mixed-use development

We are now part of a 12-story, 500,000-square-foot project including apartments for more than 800 students, 30,000 square feet of commercial retail, parking for 300 vehicles, and 18,000 square feet for Hillel. And in selling our land to the developer, we were able to cover the vast majority of the construction costs of our space.

In leveraging an existing asset—the land—we required no additional financing, which further reduced overall project costs. Because we are part of a commercial condominium, we have limited our financial exposure for everything—from major capital repairs to shoveling the sidewalks.

In addition, like any nonprofit in the midst of a capital project, we initiated a major fundraising campaign, but we did not have to raise any funds to pay for the construction itself. Instead, gifts for every naming opportunity were directed to a fund to support Jewish life at Penn State in perpetuity.

With no debt to be paid off, we have greater flexibility in gift vehicles for our ongoing campaign. We are able to work with investors on blended giving opportunities, allowing them to combine cash gifts over a number of years with legacy giving, charitable trusts, and other vehicles to deepen their impact.

What’s the catch? It’s about ego—or the lack thereof. As an institution, we had to be willing to not be the only presence on our property. We had to be able to part with the land itself. The Jewish concept is tzimtzum—contraction. By making room for other entities to be part of a joint venture, we created the opportunity for ourselves to become far more successful than if we had tried to go it alone.

Indeed, this was one of the key ingredients of our success: our willingness to reduce our overall footprint for the sake of a better balance sheet—and the recognition that this would actually help us more in accomplishing our mission than constructing a stand-alone facility.

Innovation starts with inquiry

The most important questions to ask are the most difficult ones: “Do we even need our own space?” “What could we do with just a few thousand square feet?” “What would it look like if we built the smallest possible building?” Asking these questions led us down an unexpected path of discovery, and proved to be the most important part of the entire project. Our inquiry led to a clear conclusion that tzimtzum, contraction, wasn’t only about institutional partnerships—it was also a key part of facility design. We found that, at least in our industry, bigger does not necessarily mean better, and we took this to heart in the design of our new project.

Designing a smaller facility had benefits that tied directly into our deal structure and financial sustainability. We were able to negotiate a deal that funded almost all of our construction costs, and a smaller facility means lower operating expenses, which is especially impactful given recent inflation rates. This means that our overall financial burden is significantly reduced and we are able to direct a greater portion of our fundraising efforts to direct service delivery.

Considerations of risk

There are, of course, risks inherent in any major capital project. Because we combined a complex deal structure with multiple partners and a much larger overall design scope, it was clear that we needed strong advisors who would have Penn State Hillel’s best interests at heart. Our board of directors and senior staff worked together to identify key volunteers with backgrounds in real estate appraising, project development, and negotiation. We engaged a law firm that assisted, pro bono, with developing the structure of the deal and also negotiating on our behalf, and we hired local real estate attorneys to oversee the final deliberations and closing.

Some of the risks we faced were practical, and some were due to the iconoclastic nature of the project. On the pragmatic front, we had to negotiate an acceptable contingency in the event that the plan failed to reach a conclusion—after Penn State Hillel had contributed its land. We also had to maintain a clear understanding of how the finished project would function from a management perspective, and considerable time was spent finetuning the relationship documents among the participating entities.

The complex nature of our project meant that the development process—both negotiation and construction—took a significant amount of time. Communication with our stakeholders was critical during this period. We needed to ensure that our partners had a clear understanding of our plans, the reasoning behind them, and the benefit they would afford the organization. This was especially the case due to the unique nature of the project, which required a paradigm-shifting understanding of how real estate can positively affect an organization’s financial sustainability. As a strong indicator of the efficacy of our approach, every stakeholder with whom we shared the concept was deeply impressed.

Conclusion: A new way forward

The model we have pioneered at Penn State Hillel, leveraging desirable real estate to create both a new facility and long-term financial sustainability, is not lightning in a bottle. Rather, it is a roadmap for how nonprofits—Jewish and non-Jewish alike—can both replace older facilities and build a more secure financial future. Our leadership has already communicated with Hillels, synagogues, and churches around the country eager to learn more about how to replicate our success. Indeed, this approach has the potential to transform how nonprofits utilize their real estate, allowing such organizations to focus more of their resources on the people they serve.

Aaron Kaufman is the Marcus Family executive director of Penn State Hillel.