From the issue dated May 18, 2006

A Space of Their Own

Centers for nonprofit groups offer low-cost rent and other perks

By Eman Quotah

In the late 1990s, Third Sector New England, a nonprofit group in Boston, learned just how much the volatile real-estate market can shake up a charity's budget.

Third Sector, which offers management training, consulting, and financial support to charities, needed more space in the building where it was then located. But prices had spiked since the organization signed its original lease — the new space cost 60 percent more per square foot, says Jonathan Spack, the group's executive director.

"When we were seeing the impact on our budget, we thought maybe we should have control over our own space," Mr. Spack says.

It was a very small leap from that notion, he says, to the idea of opening a "nonprofit center" in which Third Sector New England would keep its headquarters and rent space to other nonprofit groups. "We wanted to find a building that would provide affordable and predictable rent," he says, both for organizations that collaborate with Third Sector and others that promote social change.

But more than that, Third Sector saw owning a building as a way to achieve its mission to strengthen charities.

After years of searching, Third Sector New England in 2004 opened the 110,000-square-foot NonProfit Center, a renovated, eight-story, historic building in downtown Boston.

Rental rates run in the low $20s per square foot — well below the $37-per-foot rate for space of equivalent quality in Boston. Rents are raised only to cover costs, he says, not to chase market fluctuations. Tenants get such perks as free meeting rooms, discounted high-speed Internet access, use of videoconferencing and audio-visual equipment, and a full calendar of free management-training events provided by Third Sector.

Running a Small Deficit

With occupancy at just below 60 percent, Mr. Spack says Third Sector is "slightly in the red," covering operating costs but not all of its loan payments. But, he says, his organization has not rushed to fill spaces, turning away potential tenants who don't fit the building's focus on social-change groups.

"If we had less fidelity to the mission of the building, we would be full," he says. "We're not breaking even yet, but we're confident that we will," he adds, noting that the center needs 85 percent capacity to cover its costs, and that his group is actively seeking tenants.

A Community of Charities

The NonProfit Center is one of at least 100 facilities around the country designed primarily to house nonprofit organizations, according to Diane Vinokur-Kaplan, associate professor at the University of Michigan School of Social Work, in Ann Arbor.

Though nonprofit groups have long shared spaces, Ms. Vinokur-Kaplan and others say interest is growing in the idea of multi-tenant centers as a way to foster collaboration among charities, and protect nonprofit groups from the whims of the commercial real-estate market.

Most important, they say, nonprofit centers offer a kind of camaraderie that charities are unlikely to find in corporate buildings.

By contrast, the landlord of a multi-tenant nonprofit center might choose to write collaboration into the lease, as does Cleveland's Fairhill Center, which houses about 25 charities that serve the elderly. Fairhill, which calls itself a "collaborative campus," takes into account how much a charity has collaborated with other tenants when it negotiates rents at lease-renewal time.

But Ms. Vinokur-Kaplan cautions that relationships between landlords and tenants can be complicated, and charities that become landlords may not be prepared to evict fellow nonprofit organizations that can't pay the rent, or respond to complaints about faulty boilers and other building-maintenance concerns. "Issues arise because they are not trained in facility management," she says.

The Rent Question

The commercial real-estate market presents a challenge for many charities.

"Space is just a major issue for nonprofits. It's expensive and people keep getting dislocated," says China Brotsky, executive director of the NonprofitCenters Network, a national membership organization in San Francisco for multi-tenant nonprofit centers, and vice president of special projects at the Tides Network, which founded San Francisco's Thoreau Center for Sustainability, a multi-tenant center, in 1995.

That makes nonprofit centers particularly attractive to foundations, she says, because grant makers would prefer to see charities putting their money into programs rather than a commercial landlord's pocket: "Instead of just subsidizing people's rent every year, [foundations can] buy a building."

That proposition can pay off for charities as well. In a survey of 133 executive directors of organizations renting space at four multi-tenant sites, Ms. Vinokur-Kaplan found that rent ranged from free to 25 percent below market rate.

But based on the experience of Snow Leopard Trust, an international wildlife-conservation group in Seattle, not all tenants of nonprofit centers are getting a bargain, says Brad Rutherford, the Trust's executive director.

For the past 20 years, Mr. Rutherford's organization has leased space at the Good Shepherd Center — a building that formerly housed a Catholic school for "wayward girls," and is currently owned by the nonprofit preservation group Historic Seattle.

Last year, when the Snow Leopard Trust needed more space because of its growing staff, Mr. Rutherford didn't want to leave the center, with its gardens and stained glass windows and the proximity to other nonprofit groups. But with no larger space available at the center, he priced commercial real estate in downtown Seattle.

Historic Seattle was charging about market rate, $11 to $12 per square foot. Then, when another group at the center moved out of a larger space, the Trust decided to stay — but found itself paying $13 per square foot.

"I was surprised and a little disappointed that we could find cheaper alternatives," Mr. Rutherford says. But his group stayed put because the commercial buildings he checked out didn't have the same character as the center.

"By and large, we've been very happy here," he says. "Our biggest issue is what an appropriate rent is for a nonprofit center and how transparently that's set."

Russ Meltzer, property manager for Historic Seattle, says the group offers charities (who make up 80 percent of Good Shepherd's tenants) lower rents than for-profit tenants, but he wouldn't elaborate on the subject. Because the center sits in the middle of a park, he says, "it's hard to find a building exactly comparable," but thinks the rents charged are "similar to other buildings with a bit of a break on rent for nonprofits."

Good Shepherd has to be self-supporting, he says, and works to strike a balance between its need to stay fully occupied and offering spaces to nonprofit tenants.

Nonprofit landlords say that maintaining low rental rates presents a challenge when operating costs go up, but that they deliver a bargain over the long run.

For example, at the Thoreau Center for Sustainability, the relation of rents to market rates has fluctuated over the years, from market rate in 1996, to 10 or 15 percent below market rate today, according to Ms. Brotsky.

Still, she estimates that Thoreau Center's 68 tenants over the past 10 years have saved a total of nearly $13-million in rent. She recalls that during the Internet boom of the late 1990s, thousands of nonprofit groups couldn't pay the Bay Area's steep rents. "Through that period, we were able to keep rents stable," she says, noting that the Thoreau Center's rents fell to a third below market rate in those days.

Cleveland's Fairhill Center does not charge a standard rent, instead negotiating with each tenant, says Michael C. Gathercole, the center's associate director. In some cases, he says, the center gives a break to start-up organizations with small budgets.

The center also uses rents as an incentive to encourage collaboration among tenants, he says.

The policy has sparked some teamwork: Volunteers from a computer center taught computer skills to third and fourth graders from a local school where elderly people pitch in, and several tenants worked together to educate the public about recent changes to Medicare regulations.

Katherine T. Freshley, senior program officer at the Meyer Foundation, in Washington, which supports a handful of nonprofit tenants at the local Josephine Butler Parks Center, sees advantages to the approach, but she cautions charities pondering a move to exercise the same due diligence they would use when renting from a for-profit landlord.

"Just because you're renting from a nonprofit doesn't mean you shouldn't pay attention to all the details," such as rental terms and how common areas are to be used, she says. "Sometimes, when you're working with peers, you don't dot all the i's."

A 'Brain Trust'

How much tenants get for their rent dollar varies from center to center. While some nonprofit centers offer services as good as or better than those provided by commercial office buildings, not all have the resources to offer many perks. And some tenants say they miss the niceties common to for-profit facilities.

Nina Wu, an academic case manager at Project Northstar, a Washington organization that tutors needy children, misses a few things when she compares her group's offices at the Josephine Butler Parks Center, owned by the nonprofit Washington Parks & People, with the corporate office building across town where she used to work for a nonprofit policy center.

She misses having an elevator (she often has to haul teaching supplies up to the windowless fourth-floor office she shares with another worker), someone to take out the trash, and front-desk security.

"I've tripped the building alarm several times," she says.

Still, charities that rent space in multi-tenant nonprofit centers say having like-minded organizations as neighbors outweighs most of the drawbacks.

Subsidized rent and free space to tutor children at the Josephine Butler Parks Center helps keep Project Northstar running, says Brian Carome, the group's executive director. But on top of that, leasing space at the center allows the group to collaborate with other tenants with similar missions. In 2001, Project Northstar and another Parks Center tenant, Young Playwrights' Theater, which produces free plays written by students, produced Holy Ghosts, a play written by young people and performed at the center.

Working in a nonprofit center has professional benefits as well, Mr. Carome says.

"Executive director is a lonely job," he says. "To have as many as 10 other executive directors in the building provides an incredible network and brain trust."

Managers of nonprofit centers say the facilities can have an impact that goes well beyond their buildings.

Steve Coleman, head of Washington Parks & People, says he sees the Josephine Butler Parks Center as more than office space, but rather as a sort of "indoor park" with public events that open its doors to everyone. Events at the Parks Center in recent months have included a local school's winter festival, along with tutoring and afterschool programs.

And Mr. Spack says Boston's NonProfit Center has received enthusiastic support from municipal officials in part because it inhabits a multiple-use building that also includes condominiums built by a for-profit developer.

"You've got something that's adding to the fabric of the city," he says. "It's not vacant half the time."

Mr. Spack joined the local neighborhood association, though he says he hasn't been very active, and leaders from three nearby neighborhoods attended an open house at the center in April.

"I'm curious to see how it all plays out, what kind of impact we're going to have here," he says, "and to see if we can improve the image, the visibility, of Boston's nonprofit sector."

Proponents also say that multi-tenant nonprofit centers make better use of the limited resources of small to medium-sized charities.

"If you took the money nonprofits put into commercial real estate each year, it's probably billions," says Ms. Brotsky. "You can take the money that nonprofits are paying anyway and create something that's more sustainable."

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