Three tips for non-profit organizations’ real estate decisions in 2024

Hint: They aren’t that much different than for-profit organizations

By: Dan Lofgren, Senior Vice President – Real Estate Advisory

As the new year gets underway, many organizations kick off a planning process to guide their year, with planning often including an evaluation of the current real estate footprint. While non-profit organizations have unique needs due to funding sources, cyclical revenue, and multiple stakeholders, much of the real estate advice is similar to the advice I give for-profit businesses.

Most importantly, I counsel any organization to have strong, credible, creative real estate experts on their side – from advisor to project managers. Those experts will save organizations both time and money in the short- and long-term and ensure that the organization has a roadmap for future growth. Non-profit organizations need to put their real estate strategy on their to-do list this year to make sure it serves them now and into the future.

Tip #1: Consider acquiring your real estate asset rather than leasing

If you’re nearing the end of your lease, consider whether owning your commercial real estate is an option. Non-profits receive significant federal and state tax incentives for owning versus leasing space. While not all non-profits have the funding sources that can support that investment, there may also be new sources of capital that are structured specifically for real estate ownership, like from the State of Minnesota or other foundations.

This was the case with Every Meal, a non-profit organization solely focused on reducing childhood hunger by providing non-school day food distribution. Their volunteers come to their location in Roseville to pack, organize and distribute food to children through their schools, and handle intake of new recipients. Executive Director and Founder Rob Williams planned for the potential acquisition of the building that they previously leased for many years, coordinated funding and enlisted partners who could help make the acquisition a reality.

The acquisition, which closed on Dec. 21, was part of Every Meal’s strategic plan since the State of Minnesota exempts non-profits from property tax when they own the property. “Our goal was to acquire the space so that we have long-term certainty for our employees and volunteers, can control the operating expenses, and have a long-term location that supports future growth,” said Williams.

Often, landlords don’t entertain offers from tenants to buy buildings. But in this case, the asset fell out of the previous owner, Link Logistics’ portfolio parameters because of its size, the mezzanine space, and its age. It just so happened that those attributes of the property suit Every Meal perfectly.  And Link made a generous donation towards the purchase of the building because Every Meal’s mission fits the landlord’s initiative focused on driving lasting, positive change in our community by combating childhood hunger.

Tip #2: Hire a real estate expert to uncover hidden costs in your contract language

There’s a perception it is less expensive to handle your own real estate lease negotiations, but often the costs increase due to unanticipated lease language. From early exits to expansions of the existing footprint, non-profits (and in fact, all companies that lease without professional CRE help) can get stung by lease terms that benefit the landlord more than the tenant. Lease language dictates the tenant charges for operating expenses, infrastructure improvements, and tenant services. With strong representation, non-profit organizations can ensure they have flexible lease terms, allowing reduced penalties for an early exit or requested expansion. They can also negotiate favorable terms between the tenant and the landlord for sharing space improvements expenses, like moving walls, adjustments to HVAC power and coverage, and adding new training or lunchroom areas for employees.

Tip #3: Work with an advisor who understands your mission

The power of non-profits comes from having a compelling mission. Volunteers, donors, other foundations, and recipients of service latch onto a mission that resonates with them – from environmental, societal, or governance work. With a clear mission, the CRE advisor can advise the non-profit on its site selection or space evaluation, predicated on more than just price per square foot. The mission may drive the physical location of the office when a funding source requires the organization to reside within the geographic boundaries of those it serves. The mission may drive the type of property that is considered, especially if a non-profit needs to accommodate in-person volunteers, distribution of products or services, and its employees.

Most often, an advisor can find space that fits the brand of the non-profit by considering options that meet the economic goals and is in a safe area to accommodate a high-volume of volunteer traffic. The best CRE experts understand the pros and cons of each submarket (and even the niche submarkets within them) and can ensure that they offer space that is owned by landlords with a good reputation for taking care of tenants.