MOVING

Nonprofit organizations regularly rely on the advice of their attorneys and CPAs, confident in the knowledge that the advice they receive will be impartial and in the organization's best interest. This confidence has its roots in the ethical standards of the legal and accounting professions which require professionals to be independent, that is, free from conflicts of interest. However, when investigating real estate options, organizations are often blissfully unaware of potential conflicts of interest in their real estate professionals. Legal and accounting fees generally are a small portion of the budget while office space usually represents one of the two largest costs for nonprofits. And it's generally easier to get out of a long-term legal or accounting relationship than it is to terminate a lease or sell a building. Below, we offer some suggestions that we hope will be useful when the time comes for you to look into buying or renting new space, or renewing your current lease.

Conflicts of Interest

It's important that nonprofit organizations recognize potential sources of conflicts of interest in real estate transactions. With knowledge comes the means to avoid the pitfalls.

Obvious conflicts exist when a broker representing tenants also represents (or owns a percentage of) a property in which the tenant is interested.

Several subtler, but no less important, conflicts can arise. Most brokerage firms seek agency relationships with building owners. Once a relationship has been established between the firm and the landlord, individual agents are expected to present their tenants to the company's projects, even if it's not the best deal for the tenant.

Also, brokerage firms that have, or have had, agency relationships with landlords can be expected to seek similar relationships in the future. As a result, the broker's impartiality may be compromised.

Finally, conversations occur between the individual brokers regarding the tenants and transactions in the market. The different landlords represented by such a brokerage house can benefit by learning of each tenant and the terms of each transaction. Unfortunately, with confidentiality compromised, your organization could lose a valuable negotiating advantage.

One way to eliminate these conflicts is to select a company that exclusively represents the users of commercial office space. This is a prudent choice for many nonprofits, just as the use of buyers' agents is becoming a popular alternative in the residential market.

Service Checklist

In addition to avoiding conflicts of interest, the availability of the following types of services should be considered when selecting a real estate advisor.

1. Strategic Planning - Select an advisor or broker who can develop a real estate strategy that supports your organization's specific short- and long-term business objectives. Real estate goals should be viewed within the context of your operating objectives. The advisor should analyze your present situation, conduct a needs assessment and then formulate a real estate strategy and tactical plan of action for achieving the goals. Benchmarking (a detailed analysis and comparison of real estate related expenses) is a useful tool in decision making. Benchmarking issues include square footage efficiency, rental rates, operating expense increases, and occupancy costs as a percentage of revenues.

2. Market Research and Demographic Analysis - Important information needed in deciding whether to renew or relocate can be obtained from a detailed market survey. Such a survey typically examines market trends, lease rates, construction costs, land prices, building operating costs, real estate taxes, owner/landlord concessions, jurisdictional development constraints, incentives and financing alternatives. Other important factors include building amenities, labor pool data, housing availability and commuting information.

3. Site and Facility Evaluation and Selection - Once relevant alternatives are identified, an analysis of important financial and nonfinancial factors should be undertaken. Spreadsheet analyses should show the total effective occupancy costs over the lease term, adjusted to reflect the present value of each proposal. Other factors to be analyzed include: estimated labor costs; proximity to customers and suppliers; local taxes; area amenities and services such as mass transit and highway accessibility; space efficiency; zoning issues; economic development incentives; quality of building finishes; expansion capabilities; and the reputation of the building owner and management.

4. Transaction Management - Skillfully managing transactions, whether for a lease, purchase, sale-leaseback or some other type of transaction, requires precise attention to detail combined with excellent negotiating ability. Your real estate advisor should be able to prepare proposal requests, counter proposals, and evaluation criteria; negotiate all terms; investigate applicable financing alternatives; and negotiate and revise lease or purchase contracts. This should be done while carefully and deliberately creating leverage to achieve the best possible terms.

5. Disposition of Space - Your advisor should also be able to handle the disposition of any excess space through a sale, lease, sublease or buy-out.

6. Build to Suit Development Services Coordination - Build-to-suits, whether on a lease or ownership basis, require someone with significant experience who will work closely with your organization to provide the day-to-day supervision and guidance necessary to ensure a successful build-to-suit development. Beginning with a feasibility study and financial analysis, the real estate consultant should prepare a comprehensive schedule of critical path issues to consider and decisions to be made. This should include organizing the selection process for development team members such as architects (base building and interiors), contractors, attorneys, investment advisors and other consultants.

7. Project Team Management - A custom team of experts whose abilities and experience are carefully matched to meet the needs of your organization should be assembled. Your real estate advisor should assist with identifying, interviewing and negotiating contracts for services with the best consultants and contractors available in each required discipline. These may include: interior architect, base building architect, construction manager, engineers, and technology consultants, as well as lighting, acoustical, furniture, and relocation consultants. Your consultant should ideally provide a single point of contact and accountability, monitoring and coordinating the activities of the project team in order to identify the best solutions and avoid potential problems while allowing you to focus attention on decision making. Good management begins with the selection of the best contractor and continues with close supervision at all points of construction. Your consultant should participate in all budgeting and value engineering reviews and make suggestions throughout the process.

8. Relocation Consulting - No matter how perfect the new space or how favorable the terms of the transaction, an office relocation can cost time, money and lost productivity if the details of the move are not meticulously planned and coordinated. To ensure a smooth transition and minimize downtime, your consultant should be able to develop a custom check list of all the details that need to be considered; review and negotiate contracts with vendors; and organize and lead progress meetings on all move-related issues. Relocations, consolidations and reconfigurations of space often require careful communications with employees, customers and other audiences. Your consultant should develop and implement communications strategies to assist your organization with these requirements.