REALITY CHECK

Nonprofit tenants sometimes fill space no one else will take, as “cheap” can be attractive to entities with a limited budget. Many donors prefer that their contributions go to serve the target audience of the nonprofit, rather than pay for nice space.

On the other hand, some nonprofits prefer the best locations, as their donors need to feel the entity is “high class” and is financially positioned to last a long time.

Representing (or being) the property owner, please go beyond the current financials of the nonprofit (or your desperation to fill empty space), and consider how the subject nonprofit will fare over the next five (5) years.  

FACTS TO CONSIDER

1. OLD. The demand for human services evolves with an aging population. Is your nonprofit tenant positioned to benefit from these shifting service demands (meaning donors and government move their support to other entities better aligned with the then demand for services)?

2. ECONOMY. When the economy is uncertain, gifts to non-profits slow, as the grantors face their own financial challenges. How diverse are their income sources?

3. GOVERNMENT. When the federal government reduces funding, a shrinking state and local budget results in reduced funding for nonprofits.

4. FEDERAL DEBT. The national debt ($31.27 trillion) exceeds the total market value of what the nation produces (goods and services;  aka,  Gross Domestic Product). The burden of federal borrowing is at its highest level since World War II (source – CBS news). We borrow more money to pay the interest rates on every increasing national debt. Any new funding for human services, in this or any future administration, will  need come from adding additional debt on top of massive existing debt or increased taxes (neither a politically nor practically rational act). 

5. TECH IMPACT. AI is automating routine tasks — in business and government — augmenting human decision-making and driving significant efficiency gains while shifting hiring needs. (Source: Route 50).  Estimates are as high as 20% of local government jobs will be taken over by “virtual co-workers” over the next five years! (See Memmoo.com –  a client –  for more insight). How will nonprofits and their clientele gain access to government services when there is limited human interface available?

6. AI CHALLENGES. It is the “Wild West” with individuals creating their own co-workers as they access AI at work (see Wall Street Journal, Monday, May 18th, page B6 at top). It is to be seen how nonprofits and their clientele will be impacted by the equivalent of “children with loaded guns.”

7. NIMBLE. Those who project the future – even less than five years out – are less accurate than the bookies in Las Vegas on game 7 of a playoff series. We last faced a sea change in our economy when the internet became the source of information and entertainment. No matter how good a nonprofit is functioning today, look at their board for members who DAILY in their career are facing AI (and the impact thereof) AND effectively act in their governance role on their unique insight in demanding appropriate action from the nonprofit. Without someone in governance having this combination of insight and action, the nonprofit is doomed to irrelevance before the end of this decade.

BOTTOM LINE

We in real estate are always challenged to make long-term decisions – in development, acquisitions, and capital – in a world which (seems to) change daily!

The brave may survive; only the nimble ultimately will thrive.

Need help evaluating a tenant, planning a real estate transaction, or preparing for a business transition?

Contact Rick Chess to discuss strategies for growth, governance, real estate, and exit planning.

804-241-9999 | rick@chesslawfirm.com.