The ABCs of Facilities Projects: 27 Real Estate and Construction Terms Every Nonprofit Leader Needs to Know January 19, 2023

An opinion or estimate of the value of a property. There are generally three approaches to determine value: replacement cost approach, income approach, market comparison. Most lenders require an appraisal before extending a loan to a borrower for a facility project, but appraisals make it harder and more expensive for most nonprofits to access affordable debt – which is why IFF has always offered non-appraisal-based loans.

An improvement, rather than a repair, that adds long-term value to a facility.

A certificate issued by a governmental authority indicating that a building is ready and fit for occupancy and that there are no building code violations. The last step before moving into a new or recently renovated facility.

An order to a contractor from the owner, architect, or engineer on a construction project authorizing changes or modifications to the original work as shown in the contract drawings, plans, or specifications. A change order usually changes the original contract price.

The postponement of building upkeep, which often occurs because organizations are either unaware that systems need repair, or they lack the funds and/or staff to manage the projects. Find three tips for managing deferred maintenance here.

Loss of value of an asset like an owned facility due to a variety of causes usually associated with physical deterioration and functional obsolescence.

A detailed plan at the outset of a facility project that outlines the milestones during construction at which the builder will be paid for their work.

The clean-up of a site where a new project will occur, removing contaminants from the property to ensure the health and wellbeing of future visitors to the site, and to mitigate environmental damage. For example, a nonprofit that wants to build a new headquarters on a lot where a gas station once stood will likely need to engage in environmental remediation before beginning the construction phase of the project.

A process by which money and/or documents are held by a third party until the terms and conditions of an agreement are satisfied. Escrow is usually used for the disbursement of construction funds.

A determination of the likelihood that a proposed project will fulfill the organization’s objectives. The results can be negative, or unfeasible, though that doesn’t mean there isn’t a path forward to achieve the organization’s facility goals. Learn more here.

Movable items in a nonprofit’s facility that have no permanent connection to the building itself. Examples include desks, chairs, tables, and other items needed to execute on the organization’s mission. It’s critical to include a line item for FFE when developing a project budget to avoid unexpected costs after construction is completed.

The direct costs to construct a building or structure, otherwise known as “brick and mortar” costs. Lumber and drywall are two examples of hard costs associated with almost all construction projects.

Renovations to a leased space to suit the renter’s needs. These may be paid for either by the landlord or the tenant.

A scoring system, based on a set of required “prerequisites” and a variety of “credits” in six major categories: sustainable sites, water efficiency, energy and atmosphere, materials and resources, indoor environmental quality, and innovation and design process. Attaining LEED certification can help reduce operating costs in the facility by ensuring energy efficiency.

A claim against another’s property securing either payment of a debt or fulfillment of some other monetary charge or obligation.

A waiver of mechanic’s lien rights, signed by a general contractor and their subcontractors, that is often required before the general contractor can receive a draw under the payment provisions of a construction contract.

The ordinary expenses of operating and maintaining a property, such as taxes, insurance, repairs, security, utilities, etc.

Funds set aside annually to be used to offset unexpectedly high operating and maintenance costs.

An expert hired by the owner or leaseholder of a facility to manage the construction process. Owner’s representatives serve as a liaison between the project team and the owner or leaseholder to ensure their interests are protected at each stage of the project. Common tasks for owner’s representatives include conducting site visits and analyses, managing the design process, working directly with general contractors to execute the client’s vision, and project accounting and reporting, among other examples.

Predevelopment is anything that needs to occur to define the where, what, when, and how for a project before hammers meet nails. Example of pre-development activities include needs assessments, feasibility studies, hiring a project team, etc. The length of the predevelopment phase for a project depends largely on the organization involved and the type of project they’re pursuing – taking anywhere from a few months to several years. Learn more about what the predevelopment process can entail.

A document that outlines the services required by the nonprofit from an architect and/or general contractor. After publicizing the RFP and reviewing proposals, interviews with prospective members of the project team are critical to finding the right fit. Learn why here.

A process – often led by a real estate broker – to identify properties and/or facilities that meet the criteria established in a nonprofit’s space plan (see below).

Expenses, other than hard costs, incurred in developing a real estate project. These costs include financial, architectural, and legal fees.

Driven by the nonprofit’s programmatic offerings, a space plan takes into account the building specifications needed to for the organization to serve the desired numbers of clients, house the desired numbers of staff needed to support program operations, etc.

A formal process that helps nonprofits determine short- and long-term facility needs based on the organization’s business goals.

Set by local units of government, zoning laws create restrictions on what can be built on specific properties and how the completed facility can be used. For example, if a property is zoned for a single-family home, a nonprofit seeking to operate on the site would need to secure a zoning variance from the municipality before moving forward with a facility project on the property.