The YMCA of Greater Des Moines wants to get out of the business of owning real estate, and is moving forward with a strategic sale-leaseback plan to eliminate its heavy load of debt and free itself to focus on carrying out its programs and mission. 

The 152-year-old nonprofit organization has for a number of years been struggling with an increasingly heavy debt load from a growing inventory of branch properties — capped by a multimillion-dollar project to complete a world-class competition pool at its anchor Wellmark YMCA facility in downtown Des Moines.

 

The community organization has lost one-third of its paying memberships over the past 10 months as it was forced to shut down and then limit access to its facilities and shed hundreds of staff members. Yet the Y still has had to pay a $1.9 million annual long-term debt service cost — a burden the nonprofit has found to be too heavy a lift to continue.

 

In an exclusive interview with the Business Record, the Y’s chief executive, Leisha Barcus, laid out the organization’s plans to move forward with finding a buyer or buyers for its owned branch properties in Greater Des Moines, as well as the Y Camp in Boone. The plan calls for no closures of any of its facilities, which under the plan would be leased back from one or more investors who acquire the properties. 

“I believe that the YMCA needs to focus not so much attention and financial resources on real estate, but rather turn our attention to the mission work of the YMCA and the many programs that it offers that help our community,” Barcus said. “I know from listening to the United Way’s priority funding area, knowing what’s happening with the pandemic and its effect on our mental and physical health, we need to be here as an organization. So we’re looking to get out of the real estate business, if you will, and refocus on our mission.” 

With the approval of its board of directors in December, the Y has begun working with Tyler Dingel, a senior vice president at CBRE|Hubbell Commercial, a leading broker who specializes in sale-leaseback transactions. 

In the interim, the YMCA plans to apply for a $1.9 million Paycheck Protection Program loan from the U.S. Treasury, provided the entire amount will be forgivable, Barcus said. 

Dingel, who joined Barcus on the videoconference, said that sale-leasebacks have provided a good path for many companies and organizations to refocus on their core missions. He completes an average of 25 to 30 of these transactions annually. 

“I really think that this is a good opportunity for the Y to explore how they can refocus that capital and that energy into the YMCA programs and services they provide, and not have that large debt load hanging over the head of the organization,” he said. 

Dingel said that he and his team are close to completing a survey of the Y’s properties, and once further approval is given by the Y’s board of directors, “we’ll be able to take it to market and work to identify who would be the best suitor for a portfolio like this.” 

While a single investor or entity would be the ideal buyer, multiple buyers would not be ruled out if particular properties suited the interests of particular investors, Dingel said. 

The properties identified for sale-leaseback transactions include: The Wellmark YMCA  in Des Moines; Walnut Creek YMCA in West Des Moines; Waukee YMCA; and the Y Camp in Boone. 

“I would see this portfolio as an opportunity for folks like that to continue what they’ve done over the years — to invest in good, quality real estate and to have a tenant in place like the YMCA that gives you a great return on investment. Coupled with that is, with this deal, not only does [the investor] own the facility, but you can really feel good about owning that real estate because you have a tenant that provides so many services to the community.” 

Possible consolidation of some of the existing 146,000-square-foot Wellmark YMCA space — its largest owned facility — is being considered. 

“There’s a lot of square footage down here and we could consolidate into [a smaller portion of] that. We have skywalk access, which is really great,” Barcus said. “So there could be any kind of retail or commercial operation. There’s a beautiful corner down on Fifth and Grand that would make a great coffee shop. It would really add a lot of vibrancy with the Y being here as well.”

Now that a plan is in place to move forward with sale-leasebacks of its owned branches, the board is looking ahead to a brighter future. In late January, the board began a strategic planning process that will look ahead to the next three to five years.  

“We’re going to really take a look at how we intend to impact the community and our mission going forward,” Barcus said. “So it’s nice to finally be able to turn our attention to that. … It’s been a long couple of years, but I think we’re going to make it.” 

 

---

 

Mix of budget cuts, fundraising and federal aid helped Y to survive membership drop

 

In February 2020, the YMCA of Greater Des Moines was forecasting its first break-even year financially in quite some time, despite having a $1.9 million annual debt service expense. Then the pandemic hit. 

In less than a year since the beginning of the pandemic, the Y has gone from a $19 million annual operating budget to a $14 million budget. The organization has lost $2.5 million in program revenue since March 2020. 

The organization has lost more than 6,100 membership units since March 2020, bringing membership down from nearly 18,000 membership units to fewer than 12,000 units across its eight metro branches. Membership fees are the organization’s largest category of revenue, accounting for 65% of its total revenue. A membership unit can be an individual membership or a family membership. 

It’s important not to lose sight of the Y’s mission, Chief Executive Leisha Barcus said. “We’re here to strengthen the community and the well-being of our residents to support important community needs. We do that in three fundamental ways — through paying attention to youth development, to healthy living in our community and to social responsibility.” 

While many people know about the Y’s supportive housing program that serves 140 vulnerable residents with housing and support services, they may not have heard that the Y established a return-to-learn program to help kids at the Grubb YMCA to get up to speed on using laptops for remote learning, or that the branch offers parenting classes, and enrolls more than 100 men each year in a fatherhood program. 

Such mission-critical programs like these, along with swimming lessons and basketball camps and other key activities, are why it’s so important to get the Y onto firmer financial footing, Barcus said. 

More than 625 members currently take part in virtual groups in which they can take live classes on Facebook, with instructors leading about 16 classes per week, providing a community of support for members.

Uncertainty is still a major hurdle, however.  

“While we hope for the return of membership and programs, we don’t know what’s coming this spring and summer, either. So while we’re hopeful and we’re planning for these programs to come back, we can’t just sit on our laurels if we want to ensure the long-term financial stability of the Y,” Barcus said.

Other measures that the Y has taken to make it through the pandemic and the remainder of this year include applying for a forgivable federal loan through the Paycheck Protection Program.   

Early on in the pandemic last year, the YMCA applied for a Paycheck Protection Program forgivable loan of $1.9 million, which it received. However, although the nonprofit had just over 90 full-time employees at that time, it found that the rules required it to count all of its part-time staff, which pushed it over the 500-employee mark and made it ineligible. “So I had to send back the $1.9 million, which was devastating for us,” Barcus said.  

Since then, the Y has taken advantage of the Employee Retention Tax Credit program to receive $864,913, and also received an Economic Impact Disaster Loan of $150,000. It also has used a tax relief provision that allowed the Y to delay payment of the employer portion of its FICA (Social Security) taxes until next year.  

“That, coupled with aggressive fundraising — the community stepped up with an extra $280,000 — and our relationship with our lender, which has been incredibly helpful, has helped us hobble through these last few months,” she said. “I think that’s a testament to our management team that we’ve been able to do that.” 

Barcus and her team are anticipating that membership and activity revenue will tick upward as more of the population becomes vaccinated and people begin to feel more comfortable returning to the branches. She acknowledged that the Y shut down much of its marketing efforts in the latter half of 2020. 

“It just didn’t feel right to be marketing and encouraging people to come back to the gym in a period when so many are uncertain and they are quarantining at home and they weren’t going to work, or to school or to church. We’re just now in the new year starting to put out some messages to tell people, ‘Hey, if you’re ready to reclaim your fitness and be with others and work out, then we’re ready for you.’”