Ten Real Estate Rules Every Nonprofit in America Should Know

1. Before looking for property to lease or buy, have a plan. Your mission and business plan should drive the real estate and not the reverse. (For further information on this topic see this article from Fund Raising Management.)

2. Hire professionals such as a commercial real estate broker, attorney, architect, space planner, zoning consultant, construction contractor, and fund raising consultant (these will vary depending on your needs). Get them involved early in the planning process. Don’t ask your executive director and staff to act as real estate experts.

3. Nonprofit organizations differ from businesses with their slower decision making, finances and special needs. Hire a commercial broker who has experience serving on nonprofit boards and representing nonprofit agencies because he or she will understand how they really operate. Hire the individual not the firm (a big firm doesn’t guarantee an experienced broker). Ask other agencies who they have successfully used.

4. Understand total rental occupancy costs. Don’t ignore the Base Year in your lease. It impacts your total occupancy costs. Your costs may include rent, electricity, parking, taxes, insurance, and common area maintenance. These must be calculated and used as the basis of comparison between properties.

5. If your space needs are under 15,000 square feet, you should lease and not buy unless you have unique real estate needs. Owning is more costly for smaller organizations that do not have the expertise to manage a property. (For further information on this topic see this article from NonProfit World.)

6. The commercial real estate broker on your board should guide the real estate project, but not represent the organization. As a fiduciary, the board member should only “wear one hat” and avoid any potential conflict of interest. Even if he or she plans to “donate” the fee, this arrangement can be very costly to the organization. Being a service provider and a board member can become awkward for the organization…how do you fire a board member? (For further information on this topic see this article from Philanthropy in Texas.)

7. Don’t “fall in love” with a property. When you lose objectivity, you lose the ability to negotiate the best deal for the organization. The person willing to walk away from the deal has the strongest negotiating position.

8. Be cautious about buying a larger building than you need with the plan to lease the excess space. If the financial projections only work with tenants, the organization may face significant risks if tenants do not materialize. Plus, do you really want to be a landlord and property manager?

9. Don’t accept donated real estate unless you have a written policy and procedure for evaluating such gifts. Many calibri a potential gift may have serious problems that can be very costly to the organization after accepting the gift. (For further information on this topic see these articles from Non-Profit World and The Major Gifts Report.)

10. Understand the property tax and sales tax exemptions of the state and municipality where you are located. These exemptions can save an organization significant money even in rental situations.

Comment: If you have a real estate committee that has been thorough and professional in carrying out its responsibilities, the other members on the board shouldn’t be second guessing their recommendations.