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6 Leasing Tips for Nonprofits

March 2, 2015 by Lara Jakubowski11

 

Tip 1: Utilize the expertise of a tenant broker

Real estate brokers make calls to landlord representatives to locate an array of spaces in the marketplace that are available to fit your needs. Quite often the best space for you has yet to appear on the market but is in the works. Find an expert broker to help you negotiate the best terms possible so you can save money and ensure your lease has the flexibility to accommodate your growth and success as a business.

You may not want to spend the time it takes to canvas the market for space or work with a broker to negotiate terms, but you should. Real estate is one of the greatest costs in a business budget so it is worth spending some time to see where savings can be realized. Your business is unique, so you need a lease that is tailored to how you plan to use your space now and in the future.

Typically, broker fees are part of market prices. If you do not use one, the landlord will often pay their own broker more rather than allowing you to save these costs.

Tip 2: Plan ahead

The time it takes to locate space and complete leasing arrangements largely depends on the specific needs of your organization and the specific space as well as the current market conditions. Here are some typical guidelines:

  • Property tours and space identification – 1 to 3 months
  • Letter of intent negotiation – 1 to 6 weeks
  • Lease negotiation – 3 weeks to 3 months
  • Improvements to space – 1 to 6 months

Tip 3: Budget accordingly

Nonprofits vary in size, budget, and location. As far as space goes, it’s best to budget about 200 square feet per person.

A recent study of the Denver Metro Area showed that nonprofit organizations are paying an average of $15 per square foot Full Service Gross (see below for what this means). So if you have a need for 5,000 square feet in Denver, you would likely spend $75,000 annually or $6,250 per month.

Read below for more information about additional costs you may want to consider.

Tip 4: Be strategic

Ask your broker to research and analyze all of the properties you are interested in. Your broker can easily look up pricing, leasing term, amount of space available, debt on the property, and other information that can help you negotiate the best deal.

It is important to identify all key decision makers at the outset. Answering the following questions will help streamline the process:

  • Will your board of advisors or directors need to approve the property location and tour the spaces? Will they need to review the lease?
  • Does your organization need to gain approval from a national headquarters?
  • Do the employees need to be involved in the touring process?
  • Do you have an attorney or fiscal sponsor that will need to review and approve the lease?
  • Will there be a property search committee to help in the process?

Tip 5: Be informed

There are many factors to consider when budgeting for space rental, some of which carry additional costs.

First and foremost is the type of lease you are in. There are three types of leases available: Full Service Gross, Triple Net, or Modified Gross.

  • Full Service Gross means that your quoted rental rate is inclusive of all taxes, common area maintenance fees, and insurance costs associated with the property. However, you must consider that most Full Service leases will not include your internet and phone service charges and some may or may not include janitorial costs as well.
  • Triple Net means that your quoted rental rate is only a portion of what your monthly cost for the space will be. You will also pay “triple net“ fees that will cover the property taxes, common area maintenance fees, and insurance for the property. This additional fee generally ranges from $3 to $15 per square foot in addition to your base rent. You will also be responsible for your janitorial costs, phone, and internet charges.
  • Modified Gross has a base rent just like a Triple Net lease, but you will only be responsible for paying your own utility costs like water, electric, gas, etc. You will also be responsible for phone, internet, and janitorial costs as well.

Other costs could include:

  • Costs for building the space ( known as “tenant improvements”), which may include contractor fees, labor, materials, architect fees, permitting costs, etc.
  • Employee and guest parking fees
  • Moving costs
  • New furniture

Tip 6: Be mindful of common misconceptions

We are going to stay in our current space and renew our lease, so we don’t need a broker.

Market conditions and rental rates are constantly changing. What your organization negotiated five years ago might not be the best deal for your organization today. By working with a broker to review your current lease and renewal options, you might be able to negotiate a better lease rate, discover options to expand your current space, or even get funds to improve the space with new carpet and paint, for example.

Someone on my board of advisors/directors is a residential and/or commercial real estate agent, so we will just have them find/negotiate our new space.

Board members are great assets to organizations and can provide excellent guidance and direction for a myriad of issues. In many cases, however, organizations need to be cognizant of conflicts of interest when using the services of board members. Double check your bylaws and bid protocols before requesting the volunteer services of your board members. If you hire an outside broker to work in conjunction with the board member, they will be able to provide a more objective perspective and take some of the burden away from the volunteer member whose time may be limited.

We have a good relationship with our landlord, and he/she is giving us a great deal so we do not need a broker.

If your landlord says he is giving you a good deal, engage a broker to market-test that it is true. Remember, the landlord is in the business of making money from real estate. Even if you are aware of what another tenant is paying, you do not know enough about their agreement to know how that price compares to one you could obtain. Agreements take into account lots of factors like financial strength, lease terms, improvements, etc. Your broker can do the work to arrange what may be a better deal for you.

This blog was written by Melissa Nochlin and Erinn Torres of Broad Street Realty. Nochlin and Torres specialize in finding real estate solutions for nonprofit organizations. Broad Street is a full service commercial real estate firm that represents clients nationally, with offices in Bethesda, MD; Manassas, VA; and Denver, CO.

Author image

About Our Blogger:

Lara Jakubowski

Lara is the Executive Director at the Nonprofit Centers Network and has worked with nonprofits and their real estate projects for 18 years. Most recently she was the principal in LWJ Consulting LLC, a consulting practice that focused on shared space, shared services, business planning, facility planning and fundraising. Since 2006 she has worked with over forty Metro Denver nonprofits to evaluate and grow their impact in the community.


11 comments

  • Eileen McGowan

    April 30, 2017 at 7:44 pm

    Hi Lara,

    Do you know of a broker in New York State (in Westchester or Orange County) that deals with helping non-profits find a space?
    Have you ever heard of an estate donating their house and land to a non-profit?

    Thank you,
    Eileen McGowan

    Reply

  • Charlie Vargas

    October 15, 2017 at 1:19 pm

    Hello Ms. Jakubowski

    I am currently working for a Non-Profit Agency in Alabama and trying to identify lessons learned, do’s and don’ts leasing a fleet for Non-Profit. Recognizing that cash-flow is a concern I feel that Leasing is the best option compared to buying a fleet or vehicles. Finally, what is the most appropriate contract that will benefit the Agency? Any journals, books that may recommend at this point?

    Thank you,

    Charlie

    Reply

    • Katie Edwards

      October 23, 2017 at 9:40 am

      Hi Charlie!

      Most of our resources focus on sharing infrastructure in the form of buildings, although I’m sure some have worked on this problem for vehicles as well. This isn’t our area of expertise, so I would encourage you to reach out to other groups in your area with large transportation needs, like car shares, youth camps and others, who might have better first-hand advice for you!

      Good luck!

      Reply

  • Nora Ruder

    November 9, 2017 at 3:02 pm

    Our location is housed inside a 100k+ sf church facility. They ‘give’ us 33k+ space to use for our nonprofit through an inkind donation. Do I, the nonprofit record the market value as income, and also as an expense? It inflates our revenue / expense stream immensely. I’ve been given conflicting advice.
    Thanks

    Reply

    • Katie Edwards

      January 17, 2018 at 5:15 pm

      Hi Nora! You are probably getting conflicting advice because the Generally Accepted Accounting Principles are changing on this topic. You’ll need to seek advice from a nonprofit accountant like FMA (fmaonline.net/) or FASS (http://fassaccountants.com/). I encourage nonprofits to include the full value of donated offices space on their financials, because if something changes and you have to seek new space, you have an understand of the full cost of doing business. If the church stopped donating, then you’d have to pay someone for office space!

      Reply

  • Shon Brown

    December 2, 2017 at 4:09 pm

    Hi Laura,
    I am looking for some space in Houston Texas that will allow us to use it for our nonprofit for free or close to free. Do you know of any areas or contact people for us?

    Reply

  • Steve Bissell

    December 27, 2017 at 1:30 pm

    Howdy Ms. Jakubowski, Thanks for the great insights. Our city has many vacant business locations, and we are interested in finding a group that helps a non-profit get a free-rent lease. there was a story several months back about such a group, but I was unable to get the specifics at the time. We are in the San Antonio METROCOM area, around Randolph Air Force Base. San Antonio is rated in the top five of highest populated cities in the US. The gist of the story was that with all the vacant locations, it’s unlikely the businesses will grow in this environment. The company being highlighted works with landlords, to negotiate little to no-rent situations.

    Reply

    • Katie Edwards

      January 17, 2018 at 5:24 pm

      Thanks for the lead, Steve! There is so much vacant commercial space going to waste, and nonprofits make great tenants!

      Reply

  • Lynn

    January 30, 2018 at 9:36 pm

    My nonprofit is going to rent a commercial space, and I needed to know if the lease should be in my name (founder and president), or in the name of the nonprofit?

    Reply

    • Katie Edwards

      January 31, 2018 at 9:05 am

      The lease should be in the name of the nonprofit organization. If you sign it on behalf of yourself, you are personally liable for the terms of the lease. You will sign the lease, but the lease should be between the landlord and the nonprofit. Hope that helps!

      Reply

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