By David Lebenstein and Carri Lyon, Co-Leaders, Not-For-Profit Practice Group
The acquisition of real estate is one of the most important decisions many organizations ever make. But because real estate is not their area of expertise, some nonprofits are underprepared to both make and act on the decisions necessary to provide adequate housing for their operations and client services. Why does this happen? How can you avoid it? Read on.
Five Mistakes Some Nonprofits Make
Procrastination – Everybody does it, especially for tasks perceived as difficult, taxing, costly, or time-consuming. Unfortunately, procrastination in exploring a real estate solution can be financially and operationally disastrous, as options and negotiation leverage decline the closer you get to lease expiration.
Undercapitalization – Many nonprofits lack detail about the market in their area, and in using their existing lease as a baseline, underestimate the current cost of leasing or purchasing. They also do not account for the price of constructing new space and moving, which can often equate to two to three years of rent.
Time Underestimation – People often frame all real estate activities in the context of buying a house or finding an apartment — stressful, but relatively short processes. In reality, the commercial space search is a very different process that requires more resources, more effort, more preparation, more funds, and more time. Failing to accommodate the “mores” results in fewer options that cost — you guessed it — more. Signing a lease or purchase agreement is one of many steps in a process that can take as long as two years.
Organizational issues – Most nonprofits operate in a collaborative environment, which can create challenges in the real estate process. Due diligence and decision making take longer, and unless all constituents are consulted throughout the process, a “done” deal can be shot down at the last minute, costing time, leverage, and possibly the location itself.
Excess thriftiness – Nonprofits are protective of their funds, but real estate success usually requires brokerage, architectural, and engineering expertise beyond the knowledge of even the most savvy in-house staffers. Without professional assistance, an organization can end up in inefficient space ill-suited to their everyday operations and overall mission.
Get all your ducks in a row. Determining operational, financial, and qualitative requirements is a difficult task. Staffers’ opinions may differ from funders, board members, and other constituents; wish lists do not reflect the funds available; and gaining consensus among all those stakeholders can be a challenge. Gathering documentation and doing due diligence before the process begins will streamline this exercise and set the stage for the activities that follow.
Start early. Coming to a consensus about what the organization needs, going out to find the right location, negotiating to acquire it, and building out the space takes a long time. Renewals and expansions happen faster, but nonprofits considering relocation should start the process at least 18 months in advance of lease expiration.
Understand the Benjamins. Knowing how much the organization spends on real estate — and can spend in the future — is an important part of due diligence. Raising funds for a dream location should take place in advance of the real estate process, as the capital assumed available for rent, investment, and construction is one of the baselines on which all activities, financial modeling, and decisions are made.
Assemble the best team. People say you get what you pay for, and in the case of the real estate process, paying for expertise and experience supports the best possible outcome. Pro bono brokerage, legal, architectural, and other representation sounds good on paper, but their priorities sometimes remain with paying clients. And unless an internal resource has training in a related specialty field, activities such as term negotiation, financing, design, and construction should be left to the professionals.
Support internally. Allocating an internal resource as project lead and/or creating a real estate committee to oversee the initiative are also smart ideas as they act as a central point of contact/coordination for activities, communication, and decisions. Until the objective has been achieved and the new location occupied, this designated point person should have a singular focus: the initiative.
The process of finding a location that fits an organization’s needs and contributes to the successful serving of its subject constituents does not have to be a terrible experience. A little preparation can go a long way — as 5.2 million Boy/Girl Scouts across the U.S. would say!
Give us a call to find out how we can help.
David is co-leader of Cushman & Wakefield’s national Not-For-Profit Practice Group and has closed hundreds of transactions during his real estate career. Previously, he served as an executive at Time Equities, Inc. and was co-founder of Interface, a public policy group. He also worked for Mayor John V. Lindsay’s administration.
As a broker, attorney and site selection specialist, Carri has over 30 years of broad-based real estate experience. She currently serves as co-leader of Cushman & Wakefield’s national Not-For-Practice Group and is a leading nonprofit broker in New York City.