A Washington Charity Finds Opportunity in the Real-Estate Bubble’s Collapse

The real-estate bust couldn’t have happened at a better time for the Washington Center for Internships and Academic Seminars.

The nonprofit organization, founded in 1975, provides internship opportunities for about 1,600 students a year with companies, nonprofit groups, and lawmakers and government agencies. Its bill for housing students in rental properties kept creeping up, eventually reaching $3.5-million annually, so it sought to build its own dormitory to help contain costs.

Then, in the fall of 2008, the global financial crisis hit. Despite the fact that many of its donors faced hard times, the Washington Center barreled ahead with its plans. A year ago, it purchased a plot of land a few blocks from the Capitol building where many of its interns work; the charity’s new, $38-million housing facility, which will shelter 350 students, is scheduled to open in May.

Did any of the organization’s supporters raise concerns about it breaking ground on a huge financial commitment in the very pit of the recession?

“They thought we were taking a risk, and we were, but it was a manageable risk,” says Michael B. Smith, the center’s president.

By taking advantage of falling land prices, plummeting interest rates, and a construction industry starving for work, the organization got a bargain, says Mr. Smith. It saved more than $1-million in anticipated construction costs and secured a fixed mortgage rate a full two percentage points lower than expected.

In short, he says, “all these things that hurt so many people turned out to help us.”

The new facility’s annual expenses, he says, will be “considerably less” than the $3.5-million the charity had been paying for housing rentals: “That will save us, over the next four years, $1-million. And after that, it gets better.”

Continuing to Thrive

Taking advantage of the housing market’s crisis—along with a gentle, no-pressure approach to fund raising from embattled donors—has helped the Washington Center for Internships and Academic Seminars thrive in a difficult economic climate. The group, which runs on an annual budget of about $18-million, has raised $11-million toward a $15-million goal only halfway through a six-year, comprehensive capital campaign.

None of its major private donors—mostly corporations—dropped their support, and it scored major new grants this year. It managed to avoid pay cuts and layoffs for its staff of 75, freezing only four unfilled positions.

The charity, whose fiscal year starts in September, viewed the recession with alarm. But even though the organization was worried about how its fund raising would fare, Mr. Smith says, “we decided as a matter of policy not to ask for any increase from anyone, period.”

The decision to try to renew existing grants at the same level as before the recession—and not a penny more—has paid off. Not only have all the corporate donors continued their support but this past spring the charity also received $1-million from the insurance giant Prudential to sponsor participation in the program by students from Asia.

In addition to the soft sell, the Washington Center kept longtime donors as the recession raged because it could easily show results, says Patrick R. Gaston, president of the Verizon Foundation, in Basking Ridge, N.J., which has supported the group for more than a decade. In the current fiscal year, the foundation has given the center two grants totaling $50,000.

“The programs they ask us to support have always made sense,” says Mr. Gaston. “So it’s not like they had to do things dramatically different.”

Fixed Costs

The Washington Center’s experience, says Mr. Smith, holds two lessons for charities seeking not only to survive but also to thrive in a challenging economy. First, he advises charities to look at variable costs and, whenever possible, turn them into fixed costs—as his organization did by turning its ever-increasing rental expenses into a fixed mortgage.

Also, Mr. Smith suggests that charities carefully nurture relationships with all donors, in good times and bad: “You want to give value to anyone who’s supporting you, no matter at what level, and I think that comes across in the way you deal with people.”