Aerial view of Chicago
As with residential business, commercial real estate agents can experience success through specialization.
One established way to specialize is by property or asset type, such as retail, office, industrial, land, hospitality and healthcare. Together with services like leasing, acquisitions and dispositions, valuation, and development, the layers of expertise stack up.
Want a different route? Build your brand of specialization in the nonprofit sector. Maybe you’ve closed a few deals with nonprofits and found the transactions fulfilling. You’re relating to their drive, plus their work weeks in excess of 40 hours. Your professional network in the charitable ranks and trade associations is growing. Is there a clearing in the distance where you transition?
Knowledge is power. It’s worth noting from Candid that the U.S. not-for-profit sector has about 2.7 million entities. In 2015 alone, according to the Urban Institute’s National Center for Charitable Statistics, nonprofits reported $5.79 trillion in assets, and contributed an estimated $985.4 billion to the U.S. economy.
For unsurpassed wisdom on why the nonprofit sector, I caught up with Gregg Witt, senior vice president at CBRE, Inc. Gregg is a member of the national CBRE Nonprofit Practice Group and is the Chicago Practice Leader of their nonprofit specialists.
Tom Pfister: For commercial real estate advisors who are new entrants in the nonprofit sector, what insights do you have for them to make a go at it?
Gregg Witt: For me, I made the decision to specialize in the nonprofit sector as a way to differentiate myself from my competitors. Throughout my 38-year real estate career, I volunteered, and became a leader on one nonprofit board or another. In leadership, I learned much about the inner workings of the organization and the impact real estate had on the organization. Understanding nonprofit organizations from the inside has provided me a perspective in my representation of these groups on real estate projects.
The most important insight for someone looking to specialize is to volunteer and show your passion for the organization’s cause. Markets and changing technology do not replace the concept that all nonprofits are mission focused. Get to know how nonprofits operate, their funding sources, the outside factors impacting them, and how they make decisions. Nonprofits are different in many respects from other real estate clients. A prospective advisor must share their real estate expertise and ability to negotiate a great deal, while also demonstrating they have experience in the nonprofit space and they understand how to navigate both the real estate and internal organizational process, to then build consensus with the various stakeholders within the nonprofit.
Gregg F. Witt, SIOR
Hiring decisions for a real estate advisor are made on many factors, but almost always there is a question on the request for proposal asking one’s knowledge and experience with similar nonprofit groups. When hired, experience from the inside of nonprofits helps one to learn patience with the process-oriented nature under which these organizations typically operate. Decisions are made differently and there are no shortcuts or skipping steps. Unless their process plays out, getting from beginning to end will stall.
Many nonprofits have long legacies, with some being formed more than 100 years ago. The staff and board making organizational decisions today are temporary stewards for this period of time, and must protect the organization’s legacy for their successors. An advisor must understand how the ever-changing world, and the decisions that need to be made with choosing real estate, impact their mission. Resources spent on occupancy costs might mean there are fewer funds available to support programs, clients or members. It is important to recognize where organizational revenue is derived, levels of reserves and ability to fund any real estate project. This leads to successful outcomes, strong future relationships and potential referrals to other organizations.
Pfister: Something that gets missed when prospecting is how frequently nonprofits are associated with real estate and development. Nonprofits are sponsors, landlords, tenants, and occasionally even lenders and investors in developments. Where do you see some of the most productive relationships begin and grow between CRE professionals and nonprofit leaders?
Witt: Very few nonprofits organizations have real estate projects which are more complex than leasing office space for their headquarters, their national chapters or service offices which address client needs. CRE professionals best serve nonprofits as advisors when they understand how real estate supports the organization’s mission. Being immersed within an organization as a board member or involved with similar projects for other nonprofits is how productive relationships begin and grow. A CRE professional that is a nonprofit volunteer will have insights into organizations and understand the pain points, what drives the organization and how they might fund a real estate project.
Typically, complex real estate projects derive from groups that are larger or deliver social services to communities. It might be a headquarters building, affordable housing, nursing home, school or some other unique requirements. These projects are about more than finding a building or space, they may also require services including development, construction, construction management and tax-exempt or traditional financing of the project. Here a nonprofit is better served by engaging a CRE professional at a real estate company with a large platform of services to address all project needs. Referrals are powerful in the nonprofit community. Most nonprofit executives, whether they are association executives or working for a caused-based or social service group, know what similar types of organizations are doing and are not afraid to reach out through their own networks to get recommendations on consultants that might assist in their upcoming project.
Pfister: A dynamic that some communities are reporting is the displacement of nonprofit tenants from their core service areas due to market rent increases. Going forward, along with displacement pressures, what other matters should commercial real estate agents specializing in the nonprofit sector keep tabs on to support their value proposition to clients?
Witt: First, one must understand that there are so many different types of nonprofits, so displacement is not a concern to many. The IRS within its 501(c) classification has nearly one hundred kinds of nonprofits including public charities, foundations, educational institutions, college fraternities, labor unions, religious organizations, credit unions, trade associations and professional societies. Only a subset of these groups are being impacted and displaced by the conversion of lower-priced obsolescent Class C office space, and the overall demand and pricing of office space in many CBD areas. Nonetheless this is still a serious issue to those affected.
In a real estate decision, what matters to a local social service agency that receives funding from state or local government, foundations and donors will be different than to a trade association or professional society with large memberships and financial reserves. In all cases, a commercial real estate agents specializing in nonprofits must have a pulse on how they think, what risk factors and headwinds exist, how they make decisions and which stakeholders influence a decision. In all cases, a real estate agent must understand the financial constraints under which the nonprofit operates, and that the perception the real estate location gives to stakeholders is appropriate, and one where brand and mission are supported.
Understanding metrics and trends is important in advising nonprofits on real estate matters. Nonprofit executives love data and research, and use it to inform their board to support decisions made. At our company, we have studied the U.S. nonprofit industry and for 13 years have provided a nonprofit real estate benchmarking report to support our clients’ need for this information. It is more than understanding what average rent might be or what type of concessions are available. A real estate advisor to nonprofits must share both actual and anecdotal information about workplace strategy, space allocations, the impact of telecommuting and remote working, how the office supports collaboration, attracting and retaining staff, technology and overall support of the mission and values.
However, let’s circle back to those groups that are being displaced by market dynamics. The advisor will need to work hard to find creative solutions to meet nonprofits’ space criteria. Typically, groups in this category might not have the financial resources necessary to lease and build-out the space required. Creativity will take several forms, and it might take compromises on the nonprofit’s part so long as the mission is not affected. Finding an empathetic landlord with interest in the cause, structuring a lease to allow for funding of the relocation, identifying existing space which meets most of the nonprofit’s space need, and targeting large corporations with excess space who might donate the use of it to a nonprofit they support are examples of solutions to the challenges faced.