Roger was delighted that his charitable organization had grown out of its original donated space in the unused rear of a busy assembly plant. The space had helped but was far from ideal. It had been just enough to get the organization up and running, off the ground. But as soon as the organization had hit its stride, Roger knew it needed a better space. And soon, the organization had identified and acquired its new, hopefully permanent, facility. Yet as soon as the organization moved into its new facility, Roger realized that the facility presented several new issues with which he had been unprepared to deal.

Needs

A physical space out of which to operate is a critical need for many charitable organizations. Some charities can operate out of the residences of their founders, leaders, and managers. Their work may all be at special service sites such as in schools, at hospitals, and in nursing homes. What good is a facility, if all it does is add a cost? But other charitable organizations need a place to conduct their charitable service, such as a soup kitchen needing a dining area and location to store and prepare the food. Patron service and activities, storage of the charity’s supplies, production or assembly areas for charitable goods, and offices for the charity’s services and staff may all be necessary or appropriate to carry out the organization’s charitable purpose. This chapter addresses areas to consider relating to your organization’s facility needs.

Identification

The first step in your organization’s space plans should be to identify space needs. As just stated, not every organization needs a physical space. Research and study may show your organization that it can survive and thrive without a physical space of its own. If that’s the case, then all the better, because premises come with distractions and costs. Keep the focus on your organization’s charitable purpose, not on occupying an impressive facility. Charitable organizations sometimes fail over taking on too much space. Yet at the same time, other organizations fail for not recognizing, planning, and meeting their space needs. Indeed, lack of an adequate facility may condemn more charitable organizations than most other concerns. Space can be essential. Make studying, planning, and pursuing space needs a high priority for your organization’s board. And once your organization is in a space, continue to monitor space needs. Organizations can grow, change, and contract quickly, changing their space needs. Timely response to changing space needs can be critical to organization success.

Acquisition

Once your organization determines its space needs, either initially or as the organization grows and changes, put a process and team in place to acquire that space. Your organization’s facility-acquisition process should include fundraising or other financing plans, site searches and evaluations, purchase or lease transaction plans, modification or renovation plans, furnishing and equipment plans, and move-in plans, including clean up, repair, or other responsibilities as to the vacated space. Your organization need not necessarily buy its facility. Many charitable organizations occupy donated space, incubator space, shared space, or rented space. Consider carefully the pros and cons of each option your organization finds available to itself. Ownership is not necessarily better than sharing or renting. Each acquisition option has advantages and disadvantages. Any one option may be better for your organization than another option, depending on your organization’s ministry and needs.

Cost

When evaluating space options, carefully estimate and calculate costs. Costs begin with acquisition. Purchased properties obviously have a purchase price. But buying real estate can also entail transaction costs like agent fees, property tax apportionments, sales taxes, recording costs, and surveys. And occupying a purchased property brings other costs including maintenance, repair, custodial services, utilities, and real property taxes. Rented facilities can also have extra costs beyond the monthly rent, such as agent fees, security deposits, common-area maintenance charges, utilities charges, and sometimes pass-through real estate or business-equipment taxes. Moving from one facility to another itself brings costs, not just of modification or renovation but also for moving furniture, equipment, supplies, and inventory, and installing telephones, computers, wifi, security, and other systems. Count the costs up front. Don’t let surprise charges and expenses crater your organization’s facility plans halfway through their execution. 

Budgeting

Once you have a clear picture of the probable acquisition, move-in, and occupancy costs, give considerable thought to how those costs affect your organization’s budget. Just because your organization can get into a facility doesn’t mean that it should. Help your organization’s finance team study the impact of the potential new facility’s costs on the organization’s overall budget. Don’t let acquisition, transaction, moving, and occupancy costs crash your organization’s budget. Keep a clear picture to help your organization’s board make informed judgments on whether, when, where, and how to move.

Fundraising

Once you have a clear picture of the budget impacts of a new facility, and your board believes pursuing the new facility to be wise, give considerable thought to fundraising. A capital campaign is a traditional way of financing a new facility. Your organization may have the fundraising skill and donor base to make a capital campaign a good choice of approaches. But your organization may have other options. Donated facilities or facilities sold at a discounted price, in recognition of the organization’s charitable purpose and for any available tax deduction, can dramatically improve your organization’s financial picture around facility acquisition. A business owner may, for instance, face a substantial capital-gains tax on sale of a business property, a tax that the owner could potentially reduce or eliminate with a charitable gift of, or discounted price for, the property. 

Financing

Financing the new facility with a mortgage loan may be another option. Charitable organizations borrowing money face similar risks to anyone else borrowing money. Borrowing turns the time value of money against the borrower. Borrowers ordinarily have to pay interest. Interest on a long-term mortgage can effectively double or triple the purchase price, a hidden but very substantial long-term cost. Your organization may qualify for a mortgage loan, especially with a reasonable down payment on a secure and valuable facility. But qualifying for a loan doesn’t mean that borrowing is wise or a prudential use of donated funds. If your organization determines that borrowing for a facility is necessary and manageable, consider approaching donors to fund the loan at no or low interest. If your organization must borrow on the commercial market, shop for a lower-cost loan. Be very cautious of financing a facility purchase. A turn around in the economy and decrease in donations or other charitable grants and receipts could lead to your organization’s inability to make mortgage payments, followed by foreclosure.

Agreement

Once your organization decides to lease or buy a facility, get skilled and experienced help negotiating the lease or purchase agreement. Preferably, get that help from a real-estate lawyer, perhaps already a board member, donor, or other supporter of your organization. Alternatively, get the help of a real-estate agent who owes your organization, not the other party, the duty of loyalty in the transaction. Lease terms to consider carefully include base rent, common-area-maintenance charges, lease duration, annual rent increases, utility, custodial, garbage-removal, and maintenance responsibility, renovation options and responsibility for renovation costs, late fees, and costs of enforcement. Purchase agreement terms to consider include purchase price, closing date, occupancy date, tax allocation, assessments allocations, title insurance commitment, financing contingency, inspection contingency, and walk-through right. Negotiate and execute a fair agreement that you understand, with skilled professional help.

Taxes

Real estate taxes can be a substantial obligation, increasing the annual costs associated with a charitable organization’s facility. If your organization rents a facility, ensure that its owner is responsible for real estate taxes. Of course, as a tenant, your organization will pay rent reflecting the owner’s real estate tax costs. But just be sure of who is paying real estate taxes when agreeing to the lease, especially if the owner is leasing at a discounted price or donating the space. You may be glad to accept the gift but don’t want to be surprised by a hidden obligation to pay or contribute to real estate taxes. If your organization owns its facility, it will bear the real estate taxes, unless your state law and the law of your facility’s locale exempts 501(c)(3) charitable organizations from paying real estate taxes. Those exemptions are common for churches, less common for non-church 501(c)(3) organizations. Churches generally avoid paying real estate taxes related to First Amendment rights and principles, as much as by state or local legislative action. But the same is not true for other 501(c)(3) charitable organizations, which may not qualify for exemption or may have to make a special application to the local assessor’s board based on the nature and value of your organization’s charitable mission.

Design

As your organization acquires a new facility, consider carefully an efficient, safe, and attractive design for the facility’s modification or renovation. Your organization may have few or no funds for modification or renovation. It must still arrange its furnishings, equipment, and inventory in the space. Giving attention to initial design and occupancy can save redesign and reconfiguration costs later. Simply moving in may not be enough. Your organization needs a space that works. Move in with well-laid plans that make the new space work for you. Don’t let a new facility that doesn’t work very well and instantly needs further modification and redesign discourage your organization’s staff, donors, and patrons.

Maintenance

Pay attention to the maintenance of any facility that your organization owns. The facility may be your organization’s most-valuable tangible asset. Maintaining the facility can maintain or increase its value, while failing to maintain the facility can diminish or destroy its value. Roof repair is essential both to protect the facility’s integrity and the integrity of the furnishings, technology, equipment, inventory, and operations that the facility houses. Maintenance of doors, locks, restrooms, kitchens, heating and cooling, and other fixtures and systems can be essential to safe, secure, and reasonably comfortable use and occupancy. Assign maintenance responsibilities to a paid staff member, or assemble a skilled volunteer maintenance team. Budget for maintenance expenditures, including a sinking fund for roof, HVAC, or other major repairs and replacements. The condition of your organization’s facility speaks to the strength of its commitments and the quality of its programs, culture, and leadership.

Custodial

Arrange for regular and competent custodial services, if the landlord does not already provide for those services in a rented space. If the landlord supplies custodial services, ensure that the services meet professional standards. Work with the custodial crew or contact the landlord if those services are not keeping the facility reasonably clean. If your organization owns the facility and is responsible for its cleaning, either recruit a skilled volunteer custodial staff, assign cleaning to competent and committed paid staff members, or retain a competent cleaning service. Community-service workers may be another option, working with the local authority supervising those workers. As with maintenance, the cleanliness of your organization’s facility speaks to your organization’s respect for patrons, volunteers, donors, and staff, and commitment to the organization’s charitable purpose.

Security

Facility security can be a significant and high-priority issue, especially for charitable organizations serving vulnerable populations on site or populations some members of which may exhibit violent tendencies or mental or emotional disabilities given to delusions and outbursts. Put security plans and systems in place thoughtfully, after research and consultation. Ask for local law-enforcement review of your organization’s facility security and plans. Give due attention not only to door locks but also surveillance cameras, motion detectors, alarms, fire-suppression equipment, signage, de-escalation training, active-shooter training,  and security and emergency-management teams. Develop a set of security policies, and distribute security information to appropriate leaders, staff members, and volunteers. Study security trends and developments, and update your organization’s security policies and training. Your organization’s operations director or facility director can be appropriate staff members to whom to assign these responsibilities.

Committee

You can see from the above discussion the large number and significant complexity of facility issues. Do not underestimate those issues and the time, skill, experience, and commitment addressing them responsibly takes. If your organization has a facility of any significant size but does not have a paid staff member dedicated to facility issues, or even if your organization does have a staff facility director, consider recruiting and empowering a volunteer Facility Committee. The Facility Committee should include at least one board member, any paid facility director, and several volunteers to monitor, study, and address facility issues, with appropriate reports and recommendations to the board. Stay on top of facility issues, opportunities, and obstacles. They can make or break your organization’s success pursuing its charitable purpose.

Key Points

• Prioritize addressing your organization’s facility needs.

• Study the impact of facility costs on your organization’s budget.

• Identify the benefits, costs, and availability of improved facilities.

• Fundraise through capital campaigns for facility acquisition.

• Be cautious to finance facility purchases because of costs and risks.

• Negotiate fair lease or purchase agreements you understand.

• Investigate real estate tax exemption under state and local law.

• Design facility uses and modifications to increase efficiency.

• Keep your charity’s facility maintained, clean, and secure.

• Assign a staff member responsibility for the facility.

• Recruit a Facility Committee to study and assist with facility issues.

Read Chapter 18.