OK, so I am biased. Representing nonprofit organizations has been my real estate niche for many years, and I love it. There are many wonderful aspects to this specialty. However, one of the most interesting and continuing challenges in representing nonprofit organizations is helping brokers, landlords and lenders overcome their concerns and stereotypes about our potential tenant.
So, what are the typical questions and concerns, and how are they addressed?
The most important questions are “how are they going to use the premises, and who will be coming to our building?” Logical questions. Typically, ownership wants details about the nature of the work being done there and who will be coming to the property. High concerns are usually expressed about non-profit organizations that serve clients who may have behavioral and substance abuse issues, are experiencing homelessness, are teenagers, or have criminal backgrounds.
All are rational concerns for any landlord about any potential tenant. The same people may be coming to for-profit tenants. However, with non-profits, it usually takes a lot more educating and advocacy to make ownership feel comfortable. Sometimes I can’t overcome those concerns. For example, on one occasion, my client and I could not convince an asset manager to allow a non-profit specializing in victims of rape as a tenant. We never could figure out the landlord’s objection. These were the victims, not the perpetrators!
The best course is complete transparency. Our client’s website and other materials are usually provided early in the process. Calls are frequently scheduled with the non-profit’s senior executive to discuss how the agency operates. Like for-profit companies, non-profits want their organizations to run smoothly and in an environment that is supportive to its staff, clients, and other tenants.
Where does their money come from? How reliable is it?
Here is where non-profits have a lot of advantages as a potential tenant. Most non-profit agencies have multiple sources of revenue. Sources of funds can include governmental grants (Federal, State, County, and City), fund raising events, as well as donations from United Way, individuals, well-known foundations, and corporations. Frequently the government grants are for multiple years or have been given for many years. Most agencies also have lines of credit. These are important since government grants are often dispersed irregularly during the year, and fund-raising events may not occur until the fall or late spring. Running at a deficient in the first quarter of a calendar year is not unusual.
How reliable is their financial information?
What makes a non-profit so unusual is that unlike private companies, their financials are public information. Their 990 tax returns and other reports can be seen on GuideStar. Most have yearly audited financials that must be provided to all their funders. In addition, some government agencies perform their own audits. Providing financial information to a potential landlord is never an issue. Very few small business owners have yearly audited financial statements. Having this information usually significantly increases ownership’s comfort with a non-profit tenant.
Will there be a personal guarantee for the lease?
Unlike small business owners, it is extremely rare for a non-profit to have anyone personally guarantee as lease. In fact, I have NEVER had a non-profit client have someone personally guarantee a lease.
If there is no personal guarantee, who is held accountable?
Unlike a small business, non-profit organizations have a board comprised of community leaders. Board leadership does not want the organization to overextend itself or run into financial difficulties resulting in a poor rent payment history or inability to fulfill its obligations. I have had very few non-profit clients fail to complete their lease term. This was true even during the early days of the pandemic. However, when they do have difficulties, I find they are very open with their landlord and generally are able to create a path that works for everyone.
How sustainable is their business?
Most of our non-profit clients have been in business at least five to 10 years. The number that has been in business for more than 25 to 50 years is quite large. Knowing that the non-profit has been in existence longer than most small businesses offers the landlord the prospect of a very viable tenant that is unlikely to default on its lease.
Final Comments
Lastly, we are seeing non-profit organizations moving into spaces with beautiful architecture and design. As the rendering with this piece shows, Prism Health North Texas has stunning new space on the Baylor campus that creates a special environment where employees, clients and community partners will want to work and gather.
So the next time you have the opportunity to work with a nonprofit organization as a client or potential tenant, know that you have a fabulous opportunity to not only provide support to our community, but to secure a good client or tenant.
Eliza Solender is president of Solender/Hall Inc. and serves on the board of directors of Origin Bancorp and as the Lead Advisory Director for Lost Oak Winery.
This article was originally posted in DMagazine Commercial Real Estate – Nonprofits | CRE Opinion