What is a Multi-Tenant Nonprofit Center?

Multi-tenant Nonprofit Centers come in all shapes and sizes and serve many different kinds of nonprofit organizations. All centers, however, share three basic features:

• They are composed of multiple (2 or more), primarily not-for-profit, tenant organizations
• They exist as a physical site (one or more buildings)
• The purpose of these centers is to provide affordable, stable work environments, to build capacity for the nonprofit sector, and to support the various missions of its tenant organizations

In addition to basic office and program space some centers are also designed as:

• Multi Service Centers – providing a one-stop service option for a targeted population.
• Programmatic Theme Centers – housing organizations all focused on a common cause such as the environment, the arts, or children.
• Community Economic Development and/or Historic Preservation Centers – renovating aging or historic buildings as part of a plan for community economic revitalization or base conversion
• Foundation-created Centers – providing a home for a specific group of grantee organizations.

Why is Space Important to the Nonprofit Sector?

The nonprofit sector is a critical part of our social fabric. It plays a vital role in maintaining a healthy environment and promoting a just and democratic society. The ability of nonprofits to provide quality affordable social services, however, depends on their ability to develop and maintain crucial infrastructure resources. They need adequate, cost effective office facilities and operating resources.

Today more than ever, nonprofit organizations find it increasingly difficult to secure and maintain quality work environments – space that is stable and affordable and also enhances the mission and operations of tenant organizations.

Some of the key reasons for this include:

• Economic Hard Times – Funding from foundations and corporate sponsors has decreased, especially to groups who already tend to receive a smaller portion of the pie, such as those serving immigrants, advocates for social justice, or youth service providers.
• Infrastructure Instability – More than 80% of nonprofits do not own their own space. These organizations typically must allocate 20% (second only to personnel) of their expense budget to rent, thereby exposing over 1/5 of their cash assets to the profit driven fluctuations of the real estate market.
• Lack of Real Estate Focused Support Services and Advocates – There are very few, if any, organizations dedicated explicitly to the office and program space needs of the nonprofit sector. To date, infrastructure support for nonprofits has been focused on management and organizational development, fiscal sponsorship, fund development, and more recently, information technology.

How Do Multi-tenant Nonprofit Centers Benefit the Various Aspects of the Nonprofit Sector?

They increase the power and effectiveness of the entire sector through:

• INCREASING VISIBILITY – MTNCs provide a tangible, visible expression of the essential work done by the nonprofit sector. Names such as the Interchurch Center, The Marin Justice Center, and the Thoreau Center for Sustainability, succinctly and powerfully convey the contribution tenant organizations are making toward a richer, more just civil society. In doing so they increase not only the credibility of tenant organizations but those of the entire sector.
• LOWERING OVERHEAD COSTS – affordable space means more money is available throughout the sector for direct program and service delivery.
• TRANSFORMING EXPENSES INTO INVESTMENTS – with nonprofit owned facilities, rent dollars that would normally flow out of the sector are reinvested in the long-term capacity of the sector.
• PIONEERING NEW INITIATIVES – MTNCs are leading the way into new territory for the nonprofit sector. As a social enterprise, MTNCs build on the best practices of both the for-profit and nonprofit sectors, laying the groundwork for other social venture initiatives. As economic development catalysts, important employers, and community assets, they are establishing new models of community development. They are also some of the most exciting new examples of sustainable ‘green’ building design.

They benefit organizational tenants through providing:

• STABILITY – Multi-tenant Nonprofit Centers are developed for the purpose of providing a long-term home for nonprofit organizations - not as a ”quick sell” capital gains investment. Owners do not look toward increasing rents as a source of cash to fund further investments. As such they provide a cushion against the capricious nature of the for-profit real estate market.
• AFFORDABILITY – Even the few centers that operate at market rate rents facilitate economic efficiency and cost sharing through providing collaborative facilities and back office infrastructure (such as shared conference rooms, IT services, and reception areas). These alone can produce great financial savings for tenant organizations.
• MISSION ENHANCEMENT – Cross-organizational collaboration and synergy, such as sharing office support services and developing multi-stakeholder initiatives, as well as enhanced exposure to neighboring tenant’s stakeholder networks through center supported public programs or gallery space, are just a few of the mission enhancing benefits of Multi-tenant nonprofit centers.

They strengthen individuals and diverse communities through:

• INCREASING DIRECT PROGRAM AND SERVICE DELIVERY – when nonprofit organizations can save money on overhead costs they have more to allocate to the programs and services that directly impact individuals and local communities.
• CREATING NEW HUBS OF ECONOMIC ACTIVITY – people who work for an organization in a MTNC spend their dollars near their place of work. Residents have convenient access to services delivered right to their own neighborhood. Renovation of old buildings in a run-down neighborhood can catalyze economic revitalization throughout the area.
• PROVIDING COMMUNITY RESOURCES – public open space, low-cost or free meeting venues, historic and environmental displays, public galleries that display community artists, affordable performance and rehearsal space, socially responsible retail and restaurant choices, training for local residents, multi-sector networking events, and professional and organizational development training are just a few of the public services provided by MTNCs.

Resources on Making the Case for MTNCs >

Strategic Considerations in Developing and Operating Multi-tenant Nonprofit Centers

Through our work across the country we have identified six interdependent strategic issues that are important to consider in creating and operating Multi-tenant Nonprofit Centers.

• Planning and Feasibility
• Ownership and Governance
• Financing and Fundraising
• Real Estate
• Building Operations
• Programs & Services

Planning and Feasibility

Vision & Purpose

At the heart of every successful Center is a shared identity based on a clearly articulated unifying mission and set of objectives. Once defined, the identity of the Center provides the cornerstone for all other strategic decisions about facilities, financing, services, tenants, and governance. Most centers fall under one of these categories:

• Affordable, Stable Space : the most basic, yet least cohesive, type of center simply provides a real estate haven for nonprofit organizations. Often focused primarily on office facilities for a single anchor tenant with subtenant leases, these types of Centers may also include: program delivery space, event/conference space, exhibit space, concession space, or other facilities used by both tenant organizations as well as the public. Often the Center revolves around the real estate - a high-profile or landmark building.

• Multi Service Centers : providing a one-stop service option for a targeted population.

• Programmatic Theme Centers : housing organizations all focused on a common cause such as the environment, the arts, or children.

• Community Economic Development and/or Historic Preservation Centers : renovating aging or historic buildings as part of a plan for community economic revitalization or base conversion.

• Foundation-created Centers : providing a home for a specific group of grantee organizations.

Development Process

It all starts with the Vision & Purpose. Then you move into a parallel process of identifying real estate options, such as development partners and funders as well as governance and ownership options. The key aspect in this stage is to have an agency that takes on the role of keeper of the vision and lead project manager.

Planning and Feasibility Resources >

Ownership and Governance

The way in which strategic decisions are made at the Center depends on your ownership and governance structure. This structure can range from tenant-owned coops to a traditional real estate (landlord-tenant) relationship. The type of structure you choose will depend on the type of center you are trying to create (see Vision & Purpose above), the amount of tenant participation or sense of community you want to maintain, and your financing. In general, the more cooperative governance approaches tend to elicit and/or require more tenant participation but are more cumbersome and challenging to manage and finance. The more traditional real estate development approach will be more streamlined and efficient but will require more effort to develop a community feeling among the tenants.

Ownership and governance options:

Below we have listed the three most common ownership and governance structures. However, we encourage you to be creative and find a structure that best fits your particular project.

• Anchor tenant owns or leases the space and subleases to other nonprofit organizations.
• Mission Driven Development/Property Management Agency (for-profit or nonprofit) owns and operates the center and leases to nonprofit organizations. A variation on this would be a for-profit/nonprofit Limited Partnership. Another variation would be to sell nonprofit equity shares either just to tenants or to any related nonprofit organization. Unlike the tenant cooperative, these equity shares would not include governance participation.
• Tenant cooperative governed through an independent 501(c)3 nonprofit. Cooperative ownership structures generally require governance participation on the part of all owning members. A variation on this might also include non-tenant owners from the community the Center serves and/or the real estate developers who provide building renovation and/or management services.

(Note: in order to share ownership with a for-profit entity the center itself must be incorporated as a for-profit Limited Partnership since nonprofit assets can not be owned by private entities.)

Participatory Governance Issues:

Many of the Centers we've encountered strive to create a sense of community and interaction among the tenants. Often there is even a desire to share in the decision-making and governance process. Community building, however, can take many shapes and forms and need not rely solely on shared governance--the most time consuming structure to manage and the most challenging to finance.

Some issues and options to consider include:

• How much time are tenants really willing to contribute beyond the regular work of their organization?
• The connection between decision-making and finances.
• Proactive solicitation and management of tenant input through: tenant meetings, town halls, suggestion boxes, surveys etc.
• Auxiliary governing bodies: tenant councils, working groups etc.
• Facilitation and support of shared services: let the tenants initiate and manage the center's tenant services with behind the scenes facilitation and support by Center management (i.e. a tenant shares a copier and the Center provides the staff to track and bill for usage)

Ownership and Governance Resources >

Financing and Fundraising

For most nonprofits, real estate financing is not a core competency. Yet creative, solid financing is one of the key factors in developing a stable Center with affordable leases. There are a number of technical support resources in this arena, such as the Nonprofit Finance Fund or a local community loan fund. Attention paid to this issue and consultation with one of these support organizations early in your process is time well spent.

Types of Funds Required

There are many different types of funding required to develop and operate a Center. Most organizations simply focus on funding the purchase of a building; however, that’s just the first step. You must also consider: Development & Renovation funds, Tenant Improvements, Ongoing Building Management Operations, Periodic Capital Improvements, and Program & Service Delivery.

Funding Sources

Usually financing a center will require a combination of sources such as:

• Capital Campaigns: [targeted fund solicitation strategy that asks for donations from individuals, businesses, and foundations] Since this is the most familiar form of nonprofit fund raising, most organizations immediately assume that this is the only way they will be able to acquire real estate. While it can be a key component of your funding package, it is also important to take advantage of a variety of other sources.

• Traditional Bank Financing (Mortgage): [borrowing over time with interest] This is one of the main sources of funds for real estate projects. It will, however, only cover 75%-90% of a project. Since traditional banks are often unfamiliar with nonprofit finance structures, many successful projects take the time to cultivate relationships with a bank contact person or an intermediary to educate them about nonprofit real estate issues and to work with them to craft a compelling loan application.

• Community Loan Funds: [interest-bearing loans to organizations that are either underserved by conventional lenders or are strengthening the economic base of low income and minority communities] Organizations such as the Nonprofit Finance Fund, The Northern California Community Loan Fund, Partners for the Common Good, and Self-Help provide nonprofit facilities loans as well as technical assistance. Working with one of these organizations to leverage one's financial assistance is also a great way to access other financial resources.

• Private Loans: [interest-bearing loans from a private individual or corporate entity] Rather than share equity with a for-profit (or nonprofit) partner, MTNCs can work with partners to develop private, interest-bearing loans.

• Program Related Investments (PRIs) from foundations: [below market interest rate loans or loan guarantees for commercial or tax-exempt bonds] This strategy requires a process similar to a grant application but can often be for larger amounts. As with traditional bank financing, PRIs often require leveraging existing relationships with foundations and educating your contacts about this particular type of financing. It is often a very attractive strategy for foundations because low-interest loans qualify as part of their required annual payout.

• Historic Tax Credits: [tax incentive for renovating and reusing historic buildings] Tax incentives can be very attractive but are only applicable to for-profit projects. Public-private partnership projects may also be able to use this type of financing.

• Tax Exempt Bonds: [interest bearing bonds are sold either publicly or privately through an intermediary broker] To qualify for this financing strategy your project must be owned by a nonprofit entity and 95% of its tenants must be nonprofit organizations. There may be other restrictions. Consult with a professional bond broker who is familiar with nonprofit bond financing.

• Organizational Reserves: [financial savings] Start putting aside some reserves as part of your annual budget to use as a down-payment and other purchase costs. Having these reserves is especially helpful in applying for a Traditional Bank Loan.

Ongoing Financial Management Considerations:

• Insurance (liability & property)
• Accumulating capital reserves for renovations, expansions, tenant improvements and repairs
• Staffing costs
• Loan repayment deadlines
• Refinancing
• General/annual maintenance costs
• Unexpected program or project opportunities
• Tenant vacancy reserves
• Rental market fluctuations

Financing and Fundraising Resources >

Real Estate

The most obvious characteristic of a Multi-tenant Nonprofit Center is the building. Many strategic decisions in this area-- such as location, renovations and improvements, space allocation, layout and design-- apply to any nonprofit organization that gets involved in owning real estate. Adding multiple tenants makes these considerations more challenging and raises additional issues such as rent pricing, tenant improvements, and incorporating facilities for shared services.

Key considerations include:

• Location: who are you serving? Who will be working there? How does the building support the Center's identity? What transportation options are available to employees and visitors?
• Buy or Lease: when does it make sense to become a landlord?
• Rent pricing: market rates, subsidized, nonprofit rates, or sliding scale?
• Renovations: green building techniques, accessibility, and historic considerations.
• Space allocation: who gets what space? Prime vs. basement, tenant growth, room to expand. Space for direct service delivery?

Facility issues include:

• Space layout and design : traditional private offices or small, flexible cubicles for short-term tenants? Can you subdivide into a variety of square footage options or does each tenant have roughly the same amount of space?
• Reception areas: shared or individual?
• Program delivery: zoning, access, security, hours of operation
• Shared multipurpose space: small conferences, workshops, special events, board meetings etc.
• Exhibit space: showcase tenant activities, public access and outreach, develop relationships with other community organizations
• Tenant services: showers/lockers, outside lunch areas, food concessions and kitchens, supply/storage/copier rooms, broadband access, announcement boards, parking lots and bike lockers etc.

Real Estate Resources >

Building Operations

The fundamental business of a MTNC is mission-driven property management. Achieving stable, affordable, mission-enhancing space and developing a collaborative community of tenants begins after the trash is taken out, the gutters are cleaned, and the heating/cooling system is operating at maximum efficiency.

Property management issues include:

• Over Extending Your Organization: most nonprofit organizations have little to no experience in building management and leasing and virtually no extra time to coordinate programmatic services beyond their core mission. Give strong consideration to using a professional building manager or management service.
• Facility Operations: who cleans the gutters and fixes the broken windows? Will you add staff to your current organization, contract outside professional services, or create a new independent organization whose sole purpose is to operate the Cente? (see also Ownership and Governance above)
• Staffing and Support: will you combine responsibilities for building maintenance, leasing, and tenant services into one staff position or split these up into several different roles? There are some inherent conflicts of interest built into having all these roles provided by the same person. For example, the person responsible for collecting rent and/or terminating leases may not be the best person to motivate tenant volunteerism and inspire social interaction. It is also very difficult to find someone who is equally skilled in all of these areas.

Leasing & tenancy issues include:

• Tenant Selection Criteria: in addition to financially stable tenants you will need to consider the tenant mix (i.e.: do you want a variety of tenants or do you want to serve a particular issue area or type of tenant?). What about their various space needs? How will you make selection decisions and how public will you make your process and selection criteria?
• Space: how can you create different kinds of spaces to allow for diverse tenant needs, tenant growth, and a variety of lease-rate options?
• Marketing: how will you attract the right kind of tenants - word-of-mouth, professional real estate brokers, advertising?

Building Operations Resources >

Programs & Services

Creating and supporting the community of organizations that inhabit a Center is both rewarding and challenging. There are great opportunities for cooperation, operational cost savings, and synergy as well as headaches trying to broker buying coops, mediate conference room scheduling conflicts, and inspire program participation.

As with all of the other strategic considerations, it is essential to align your menu of shared services with the vision and purpose of your Center. For example, if your goal is to create a Center with coordinated client services, you will need more hands-on program management to facilitate tenant interaction and shared services than if you are simply providing affordable office space.

Service Philosophy & Delivery Plan

As you can tell from the list below, providing or supporting shared services is not a simple task. There are many options and considerations. Several issues that cut across almost all shared services include:

• Service Philosophy -- Do you want to deliver the services to your tenants, do you want to leave it completely up to them, or do you want to facilitate some combination of the two? It all depends on what you want to achieve. Tenant participation, in creating and controlling the services they receive, is a great way to build a sense of community. However, if your primary goal is efficient cost saving measures, centralized professional management may better serve your tenants.
• Who provides the services? -- Do you contract with an outside vendor? Leave it up to the tenants? Facilitate tenant volunteer/work committees? Provide staff?
• Extending your boundaries beyond the Center -- Do you want to raise the profile of the center and its tenants, generate some additional revenue, and/or provide an extended community service by opening up your shared services to non-tenant organizations? Do you have the right service delivery structure and staff to support this?
• How do you pay for these services? -- Will you build it into the rent and/or financing structure? Fee for service? Tenant sponsorships? Rent subsidy exchanges? (See Program Related Investments in the Finance section above)

Here are some of the kinds of services typically found in Multi-tenant Centers:

Most centers provide some kind of shared facilities and/or enhanced infrastructure:

• Enhanced Space and Physical Infrastructure: along with providing enhanced physical amenities such as announcement boards, storage rooms, and shared kitchens (see tenant services in real estate section above) comes the responsibility to service these areas or at least facilitate tenant participation in servicing the areas. Tasks such as removing old flyers from bulletin boards, posting recycling information in the kitchens, and mediating who gets how much storage space will require someone's time.
• Shared Multipurpose Space: having this type of space for small conferences, workshops, special events, and board meetings was listed as the number one desired shared service in CompassPoint's recent 2001 research report on Multi-tenant Nonprofit Centers in San Francisco. However, just creating the space is not enough. Coordinating room reservations, supporting their use and maintenance, and collecting fees can be a full time position. Some tenants with private conference rooms may choose to share their space with neighbors on an ad-hoc basis, while others find staffing this community contribution quite burdensome. Providing enough staff to actually attract and service public use of your shared space is also a great way to provide a much needed community service to other nonprofit organizations as well as increase public awareness of both the Center and its tenant organizations.
• Exhibit Space and Signage: how do you achieve a unified, professional look and feel yet allow individual organizational expression? With a little effort, common halls and corridors can become wonderful exhibit space to showcase both the unique aspects of your Center as well as the work of its tenants. Rotating in external exhibits will also serve to increase public awareness of the Center and its tenant organizations.

Many centers provide some kind of enhanced communications or programmatic element to their property management role:

• Communications and Outreach: do you want to produce or support a shared newsletter (either paper or on email), a listserve or on-line bulletin board, shared web space, or other community publications that can help tenants get to know each other better as well as promote the Center to the greater public?
• In-Person Community/Professional Development: town hall meetings, brown bag lunches, public workshops, working committees, professional development seminars, social gatherings, orientations and site tours all help to build a sense of community. These events, however, require some kind of staffing to schedule, promote participation, facilitate, and produce (i.e.: setup and cleanup).

Some centers extend their role into providing or facilitating operational support services such as:

• Reception and Clerical Services: Large cost-saving can be found in shared reception services and clerical staff; however, it's important to negotiate up-front who these folks report to and how the cost is shared.
• Integrated Staffing Services: in addition to reception and clerical positions, other common services include: IT support, database management, mail/copy/supply room staff, and some programmatic personnel if coordinated client services is a goal.
• Resource Sharing: this category includes such things as a/v equipment, buying cooperatives and hospitality equipment like tables, chairs, coffee makers etc.

Programs and Services Resources >