5 Advantages of Charities Owning Their Offices - and the Risks

We ran a seminar on real estate for charities last week, and a number of Executive Directors, Directors of Finance, and CFOs came out to share best practices, enjoy coffee and muffins, and review “Real Estate for Charities 101”.

If you ignore the largest (e.g. YMCA, etc.) or longest-standing (e.g. settlement houses, etc.) organizations, certainly most charities today are leasing their spaces. So one of the themes that we explored, especially since we have recently completed several projects where charities and foundations have purchased their own buildings and office spaces, was the pros and cons of buying / owning versus leasing / renting.

As I work with charities it’s easy to see the allure of owning your own space.

• Can be leveraged – in difficult financial times or to fund a project the option exists to take out a mortgage / secured line on the property
• Provides cost certainty – other than the fairly predictable cost increases in utilities, the main cost (the mortgage) can be predicted very accurately for years to come
• Potential for “upside” – your payments build equity and not the landlord’s bottom line, plus with no “middleman” owning can save money over time, and  you could even take in tenants or fellow charities to help them / increase your own revenue
• Greater control – while some landlords may not like / or even allow certain charities (or the mission or clients they bring into a building) this is less of an issue when you own
• Profile and pride – having a central location can bring greater confidence to prospective donors, allow for marketing and sponsorship opportunities, and give the staff and stakeholders a central theme to rally behind

However, the challenges and risks with owning a building for charities and non-profits are significant. Obviously a building is not very “liquid” so if cash flow is a concern it might be better to have the funds simply earning interest in a fund, bonds, or even just a bank account. Buildings require upkeep, so a reserve fund and on-going capital costs must be accounted for. For some organizations owning a building can send the wrong message to donors: “I don’t want you to put my gift towards your building, I want it to support your programs” goes the donor’s thinking.

Finally, a purchase of a building is a massive exercise. It can distract you from your Mission. Moreover, since charities are often looking at older “bargain” spaces, issues of hazardous materials and building code violations are more frequently a concern than in newer spaces.

So among many other topics, the bottom line from our Real Estate for Charities 101 seminar was that if purchasing your own office building or office spaces in on your wish list, do make sure you get the best possible professional advice and map out a clear strategy towards this goal.

New Year's Top 10 List - Differences in the Charitable World

I got off the phone this morning with a woman who is thinking about making the move from the for profit world into the charitable world. At the root of most of our conversation was the question "just how do the two differ?" So in the spirit of New Year "Top 10" lists, here’s my Top 10 List of for-profit versus charitable differences. Note that I’m not going for the obviously different aspects, but what might surprise you on the "other side"….

1. Passion – in the charitable world it’s about wanting to make a difference. People, inspired by their experiences or insight into a need, set out to change the world. Not make a profit: change the world.
2. Mission – most corporate employees don’t know their corporate Mission statement. Most charitable employees live their Mission statement every day. This affects every aspect of the charity.
3. Volunteers – are a key defining difference. Most charities simply could not exist without what volunteers bring: their skills, their passion, their heart and they’re free. This all has its own set of intrinsic pros and cons, but whatever the case I don’t remember many volunteers helping out the corporations where I worked
4. Boards – sure big corporations often have Boards, but unlike the vast majority of businesses charities of all sizes have Boards
5. Complexity – given that charities have Boards and volunteers, and structures or staff that parallel virtually all for-profit activities, charities of roughly the same operating budgets (size) as a for-profit business are more complex
6. Structure – at the same time, in comparing most organizations of a similar size, my experience is that charities are relatively unstructured for their size (e.g. fewer policies and manuals, less robust Human Resources practices, etc.)
7. Lean – if you think your for-profit experience was with a lean organization, I’m pretty sure there are still charities that can show you a trick or two. All funds (for better and for worse) are often pushed to the furtherance of the Mission
8. Intangible – a bit of an "obvious" difference but with important implications, unlike many for-profit organizations what is "sold" in a charity is a feeling or outcome, not a "thing". For example, this difference results in different skills for fundraisers versus salespeople
9. Voice – manufacturing has a sector voice, but in Canada non-profit is even bigger but with less "clout" (and same as the automotive sector) – Imagine Canada does great work as one voice (and in U.S. not even a single voice at all), but as evidence of this difference no Federal bail-out money was coming to struggling charities in this economic downturn
10. Understanding – most Canadians have a fairly good sense of the ingredients in the food they buy, or the "value" of property they live in, but most don’t understand the causes they support as well. If buying something and making a gift are both transactions of a kind, the difference here is that purchases are often made first through the head, while donations are often made first through the heart.

Not better or worse, but very different indeed!