Which do you want first – the good news or the bad news? Okay, it’s actually mostly bad news.
Last week, DSS and our partners at the Nonprofit Centers Network and Mile High Community Loan Fund released a report titled “Reality Check: A Snapshot of Nonprofit Real Estate in Metro Denver.” And it’s not looking good out there. Just like the residential market, the Metro commercial market has skyrocketed – putting the “third sector” at serious risk of getting priced out to the hinterlands. Here are three tidbits for policy leaders to consider.
1) The risk of displacement is very real. The data revealed that 44% of Metro nonprofits that currently lease space have leases expiring in 12 months or less. Couple this pending rush to renegotiate with the fact that nonprofits are paying a full $5 below the average rate for Class C space, and it’s not hard to imagine significant pressures to relocate. While it’s true that Metro Denver is averaging 18% office vacancy, largely due to oil and gas downsizing in the Central Business District, average lease rates still grew by 3% in Q2 over Q1 of this year (Q2 2016 Market Snapshot, Newmark Grubb Knight Frank). As leases expire, landlords have every incentive to increase tenants’ rates to keep pace with the market. Very few nonprofits can absorb such a significant increase. In order to find affordable lease space, nonprofits will follow the trends of the residential migration from Denver’s city-close neighborhoods into inner ring suburbs where leases are more affordable. While this might not be a problem if this relocation just meant that service providers were following those people who needed the services. But in less-dense suburban locations, residential and commercial space is less likely to be proximate or accessible via public transit. So relocating will most likely just make it even harder for nonprofits to connect with those who may need their programs, amenities, and services.
2) Nonprofits need more than just money. We were excited to discover that nonprofits have significantly improved their facility planning efforts, compared to what was reported in 2001. This improvement suggests that nonprofit leaders are getting more savvy about real estate management and planning. This is good news and worth celebrating. Unfortunately, this dramatic increase was only up to roughly 60% of building owners. This means that the other 40% may not have the technical assistance needed to ensure they are responsibly managing their facility. Further, when we asked about other capacity building, respondents expressed gaps around space planning, collaboration-building, and partner identification. Currently, there are few resources, outside of those represented by this projects’ partners, to address these needs.
3) Although, they need that too. Money, that is. About half of the survey respondents owned their facility, many having weathered the economic downturn with their real estate asset intact. However, deferred maintenance and renewed growth mean many nonprofits are planning, or currently engaged in, capital fundraising efforts to address facility needs. Additionally, it appears that many nonprofits are planning capital campaigns in the next few years to fund acquisition or new build – likely in an effort to stabilize facility costs. This means we can expect capital funding resources and donor networks to be tapped increasingly with capital campaign requests.
Fortunately, it’s not completely hopeless. There are concrete solutions available to those of us invested in keeping the sector strong. Check out what Mayor Michael B. Hancock committed to in his closing remarks for the retreat release (video below). Or read the full report for specific recommendations for nonprofit leaders, public sector decision-makers, and the philanthropic community.