October 7, 2010
I am a fan of the work of the Nonprofit Finance Fund. Through consulting services, financing, and advocacy, they help all sorts of nonprofit organizations stay in financial balance, so that they’re able to successfully adapt to changing financial circumstances — in both good and bad economic times — and grow and innovate when they’re ready.
Recently, an executive of NFF told me that it was his organization’s experience in recent years that of the nonprofits reporting financial distress of some sort, fully 95% of those financially troubled organizations had real estate ownership problems at the core of their financial difficulties.
For example, a nonprofit was given a property for their use, but didn’t anticipate the long term costs and hassles of property ownership. Or perhaps a nonprofit mounted a capital campaign for acquiring a headquarters building, not fully understanding the impact on their operating budget of the operations, maintenance and capital improvements required over the years.
Too seldom, in my experience, do nonprofits take a hard analytical look at the true costs, advantages and disadvantages, of the buy vs. rent decision. Too many nonprofits tie their hands through long term ownership, rather than staying nimble through property leases. Too many nonprofits, in my opinion, wind up with way too much of their capital in a fixed real estate investment, when they’d be better off with more of that capital in cash reserves and endowment.
I recently was asked by The Cancer Connection, a wonderful nonprofit here in Northampton, to help them consider the possibility of mounting a capital campaign for the purpose of buying a facility to replace the leased space they had outgrown. As we worked it through, their board became convinced that they were in the business of providing services to individuals and families affected by cancer, not in the business of owning and managing real estate. We then proceeded to find suitable space, negotiate a long term lease, and launch a campaign to raise the money necessary for various leasehold improvements. The result? Cancer Connection is in larger, better suited space, they raised all the money necessary to pay for improvements, and their cash reserves have remained intact, available for operating purposes and program expansion, not tied up in property ownership.