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Helping nonprofit organizations with their property needs can be a fulfilling experience professionally and personally. Opportunities exist in every market, but it’s essential to understand the unique aspects of nonprofits before pursuing this niche.
The IRS reported 1.97 million nonprofits were registered in the U.S. in 2022, according to USAFacts. Yet, there are niches within niches. “You wouldn’t approach a medical nonprofit the same as a religious organization,” says Richard Rosenthal, CRE, CRB, CEO of the Rosenthal Group in Los Angeles. “Each niche has different characteristics and unique needs. If you’re in a large market, specializing in one nonprofit sector can give you a market edge.”
Commercial specialists offer value to nonprofits beyond sales and leasing to include space planning, new construction, land acquisition and property valuation. Plus, opportunities abound to advise local government agencies.
Understanding Funding Sources
Regardless of their sector, nonprofits share a common need: sustainable funding. Typical funding sources include membership fees, donations and grants. Among larger nonprofits, 90% adopt funding models around a single dominant source of revenue, according to the industry website Philanthropy Circuit. Understanding an organization’s funding model is essential to representing the organization as a buyer or tenant. “Donors can be there one year and gone the next,” Rosenthal says. “Likewise, grant funding is unpredictable.”
Chris Cockerham, CPM, GRI, commercial manager and broker with F.C. Tucker in Bloomington, Ind., knows this firsthand. “I worked with a group that learned at the eleventh hour that grant money received couldn’t be used for acquisitions,” Cockerham says. “Fortunately, I had a very willing seller and was able to negotiate a solution.”
Each niche has different characteristics and unique needs. If you’re in a large market, specializing in one nonprofit sector can give you a market edge.”
- Richard Rosenthal, CRE, CRB, CEO, The Rosenthal Group
Understanding a nonprofit’s financial position can be a complex process. “I am very inquisitive about its finances and financial resources,” Rosenthal says. “I ask about their annual budget and how much they raise and spend annually. Do they have an endowment? What’s their average collected balance? Who are their financial supporters? Do they have deep pockets, or do they fight for every dollar?” Rosenthal also asks about bank relationships and advises on financing strategies.
A financial analysis goes beyond a purchase price or lease. Cockerham encourages groups planning a capital campaign for property acquisition to build an endowment. “If they need $5 million to buy a property, I tell them to raise $6 million to cover operating costs,” says Cockerham, citing an organization that failed because building operation costs were higher than they calculated.
Overcoming External Barriers
Zoning is a barrier for some nonprofits, especially those that provide housing. “Group homes are very limited in where they can operate due to laws that limit the number of people residing within a property,” Cockerham says. “Even if you find a zoning class that works for the organization, you may face community pushback due to perceptions about the group’s mission or clientele.”
Cockerham has gone door-to-door with clients to talk to neighbors. “Letting people know what is happening and listening to their concerns can go a long way to overcoming objections. When possible, we make accommodations to address their issues.”
Some sellers and landlords are wary of nonprofits. “Sometimes there is a lack of focus among decision-makers due to too many fingers in the pie,” Rosenthal says. “It makes it hard to get a timely decision.”
Most nonprofits are more flexible about floor plates and more willing to consider less-desirable properties.”
- Ed Gardner, GRI, broker-owner, Gardner Real Estate
Cockerham warns there is more risk until you get to the closing table. “Every deal is subject to board approval. We try to put time parameters in place, but we let the seller know the board could reject the deal. Sellers don’t want to tie up a property for six months, only to have the sale fall through at the last minute.”
But the softness in the office market means owners might be more willing to negotiate. “If a property has been on the market a while, I’ll have a better chance of getting the property for a nonprofit client,” he says.
Ed Gardner, GRI, broker-owner of Gardner Real Estate in Portland, Maine, suggests nonprofits might be more open-minded about the type of space they lease or buy.
“Most nonprofits are more flexible about floor plates and more willing to consider less-desirable properties,” Gardner says. “Few nonprofits want a glitzy building because it undermines their fundraising efforts.” Also, nonprofits may be willing to forgo tenant improvements and take on basic tasks, such as painting, in exchange for lower rent.
Personal Involvement Can Be a Win-Win
Gardner uses GuideStar, a public information database of nonprofit organizations, to research prospective nonprofit clients’ missions, leadership and financials.
He stresses the importance of building rapport with the organization’s leadership. “Get to know the executive director and meet the board president,” he advises. “Learn who serves on the board. What’s their commitment to the mission and ability to sustain success?”
I worked with a group that learned at the eleventh hour that grant money received couldn’t be used for acquisitions. Fortunately, I had a very willing seller and was able to negotiate a solution.”
-Chris Cockerham, CPM, GRI, F.C. Tucker
It’s not unusual for commercial brokers to be personally involved with the nonprofit organizations they do business with. Gardner says this makes the work more enjoyable. “It makes my heart happy,” he says.
Rosenthal’s experience is that the nonprofit sector is tough to break into without some personal knowledge or contact with an organization. “Smaller nonprofits are typically an easier target market, as large groups often have in-house real estate professionals,” he says.
“Getting involved with a nonprofit is good for the nonprofit and good for you,” says Cockerham, who recommends expanding your reach statewide into smaller cities.
Pro Bono: Yes or No?
However, personal involvement doesn’t necessarily mean donating your services. “I separate the personal from the professional,” Cockerham says. He serves on six nonprofit boards and gives generously to these groups. “Nonprofits need professional expertise, and they need to pay for these services. This keeps the relationship very professional.”
Gardner typically donates his commission back to the organization. “I’ve built a successful business, and now it’s time to give back,” he says. Gardner was recently featured in REALTOR® Magazine for turning his empty investment property into a center for 12 local organizations, enabling them to pay reduced rent and dedicate more resources to assisting high-risk communities.
He acknowledges his generosity has likely generated new business.
The question of pro bono work should not discourage commercial specialists from pursuing the nonprofit sector.
“Real estate firms don’t typically work pro bono unless there is a special relationship, as there is no steady cash flow coming from these clients,” Rosenthal says.
Sometimes an agent or broker may be asked to work on behalf of their local state or REALTOR® association and receive a commission. “So long as they disclose it, there is no conflict of interest,” Rosenthal says. “Keep in mind, however, that you must be very knowledgeable and a good communicator, because you have a lot of colleagues who think they can do better.”
Nonprofits typically share information, especially within a sector, so one successful transaction may open other doors. Rosenthal advises doing your research to be knowledgeable about their needs and market options.
“The bottom line is that if you want to go after this market, assume [most decision-makers] don’t have a clue and that you’ll have to educate them about what’s important,” he says.
