“Not Here, Not Yet” – When Is the Right Time and Place for Nonprofit Facility Projects? July 12, 2021

A brand-new facility that specifically meets your needs. Sounds nice, right? But how do you get there?  The technical knowledge and experience needed to achieve that milestone is often outside nonprofits’ expertise. This is where IFF’s real estate team comes in. We support nonprofits from “concept to ribbon cutting,” but we’re often first engaged to conduct an initial feasibility study that assesses the financial and operational viability of an idea.  

Feasibility studies accomplish three major goals: 

1. They evaluate current or potential new facilities to understand needs and challenges.
2. They ensure the building is sized and organized appropriately by considering what activities, services, and capacities the client wants to provide. While a facility should be beautiful and long-lasting, it’s most important for it to be designed to support the desired programming.
3. They consider construction project and long-term operational costs to determine project viability. New facilities must be able to continue to operate in a way that supports the dignity of clients by being in good repair long after the project is completed.

In other words, we answer the basic question: Is this feasible?  

If the answer is yes, then IFF’s real estate team compiles a range of facility development options to guide decision-making about buying vs. leasing, renovating vs. building new, and more. Our team can then apply our expertise to help with other real estate needs, such as site search or construction oversight. 

But the answer isn’t always yes. Sometimes, the answer is “not yet” or “not here.”  

When this occurs, it does not mean that the project is a no-go. A well-conceived feasibility study will provide insight into the challenges that need to be addressed before the project can gain traction, helping guide nonprofit leaders and boards in the development of a second iteration of the plan. This, however, may require additional time, energy, and resources to move the project forward. 

While each nonprofit’s circumstances are unique, there are several common reasons why the timing or location for a project isn’t right. We talked to Dominic LoGalbo, IFF’s Director of Consulting for Design and Construction, about what those reasons are. Here’s what he had to say. 

What Leads to “Not Yet” or “Not Here”

Narrow Margins

Developing quality facilities is hard, full stop. In the private sector, access to capital allows developers to paper over challenges with additional funds or extended timelines. But most nonprofits don’t have this luxury. Access to capital is a challenge, and when they do have access to capital it’s often attached to time limits or restrictions that make it difficult to deploy. 
 
IFF has lent flexible capital to hundreds of nonprofits over the years, and our products are specifically designed to meet their needs. But financing alone is not always enough for an organization with limited access to capital elsewhere. The combination of limited resources and time constraints can put a nonprofit in a difficult position when even common development and building challenges arise. In addition to financing, IFF provides technical assistance to clients to help anticipate those challenges and navigate through them successfully.

Building Stock Limitations

Nonprofits often operate in areas that have experienced significant and long-lasting disinvestment. That sustained disinvestment impacts the building stock, resulting in buildings that are in worse condition than similar structures in other communities. This increases the costs and risks for nonprofits interested in renovating and repurposing those facilities. In fact, “renovating” often doesn’t convey the true scope of work required. For some buildings, the project is more like a “resurrection.” With nonprofits already working with narrow margins, adding complexity and costs can limit the project’s feasibility. IFF’s real estate team helps clients investigate potential buildings and focus on those that present fewer risks.

Too Much, Too Soon

Successful nonprofits often need to “think big” to tackle major societal challenges. But when taking on debt to finance a project, incrementalism is a sounder approach because the facility is going to need to generate new revenue to service the debt.  
 
This is true across the many sectors in which nonprofits operate, but charter schools offer one of the clearest illustrations of why trying to do too much, too soon might make the project less feasible. For example, if a charter school has 500 students and wants a new facility that can support a planned expansion to 2,500 students in the next four or five years, it creates a chicken-and-egg situation. The larger facility is needed to accommodate more students, but it’s also more expensive – and paying off the loan on that new facility is solely dependent upon hitting an ambitious enrollment goal. It’s natural to overweight upside and underweight downside when a nonprofit is considering a new facility to support growth and greater impact, but that’s a risky proposition.  
 
The past 16 months are a good example of how unexpected events like the pandemic can quickly change plans, and too much debt at the outset of a project leaves little room to maneuver when the unexpected occurs. 

Building Support

One of the variables that can have outsized impact on the feasibility of the project is building support for the project beyond the organization’s staff and clients. Some projects require zoning approvals that need the support of local officials and the surrounding community to secure. Other projects need a board of directors to play a lead role in fundraising. To be successful, all projects need the input and buy-in from front line staff that will use the facility to deliver services to clients. IFF works with the leadership of our nonprofit clients to design an engagement plan that builds the broad support to bring a project into reality.    

Am I Ready for a Feasibility Study?

While the list above isn’t an exhaustive accounting of every reason why a feasibility study may result in a determination of “not yet” or “not here,” it’s a starting point for nonprofit leaders and their boards as they debate the merits of a project. As part of the discussion, organizations should answer these questions before sinking resources into a plan that may not be viable: 

Do you have a clear vision for the desired outcome of the project? This is about the organization’s strategic priorities and how the facility will support long-term growth. It’s a question that should be fully fleshed out before any resources are devoted to a project. 

Do you have access to enough capital and operating funds? It’s a question the feasibility study will address in depth, but one that should be discussed internally before the project reaches that point. Where can the organization go for capital funds? Will existing funders contribute to the project? Is the infrastructure in place to move forward with a capital campaign? Is there a lender who can bridge remaining gaps in the project budget? There are similar questions on the operating side. Will additional fees-for-service cover all debt financing costs or can an operating grant be identified to offset additional staffing costs? Map out as much of this as possible internally to get an idea of the project’s viability. The exercise may not address every potential scenario, but it will reveal any large flaws in the plan before committing resources to a formal feasibility study.  

Are there sites in the community that could work for the project? As mentioned above, the building stock in a community influences the feasibility of a project. This factor alone may not determine the viability of a project, but it’s good to know upfront whether you’re likely to have to budget more for renovations or environmental remediation at a blighted property.  

Is the organizational leadership equipped to build the broad base of support needed, or is there a team that can be assembled to pool necessary skills and expertise? Bringing together an outside team with specialized skills in design, construction, and nonprofit facility finance will bring a level of expertise to the project that most organizations do not have internally. Even for non-profits with development experience, building out a “deep bench” may allow leadership and staff to remain focused on client needs and service delivery. Identifying areas of expertise and gaps in internal capacity first will inform decisions about what external partners are needed.  

There may not be clear answers to each question but discussing them thoroughly is a great first step toward a successful project, whether that’s just around the corner or still a few years away. And at whatever stage an organization is at in their planning process, IFF is happy to provide guidance that will lead to better outcomes for the project, the organization, and the community it serves.  

To learn more about IFF’s real estate team and the services it offers to nonprofits engaged in facility planning, click here.