Pandemic showed not everyone needs to be in the office
When a budding young chef moved into an apartment with two single women after a stint at the YMCA, the idea didn’t go over well with their landlord. After all, it was the late 1970s. It was also the premise for the hit television comedy, “Three’s Company.”
Nonprofits haven’t had to go to such lengths but after two years working remotely or hybrid because of the coronavirus pandemic, they are rethinking their space needs. For some organizations, that’s meant selling their property, leasing smaller spaces, or moving in with roommates – so to speak.
“No longer leasing office space is likely to save as much as $ 140,000 a year.”
As restrictions and mask requirements slowly lift coming out of the Omicron variant this past winter, nonprofits as well as the private sector are slowly implementing return to office (RTO) plans, which in some cases have been pushed back a few times during the past year.
Step Up, a mentorship charity for girls and young women, ended its use of co-working space in New York City and Chicago, where it historically had eight and 10 employees, respectively, according to CEO Delores Morton. “Over the years, the staffing structure and locations and needs have evolved with program formats, so we have smaller teams in both of these markets at the moment,” she said. No longer leasing office space is likely to save as much as $140,000 a year.
All employees are considered to be hybrid now and have the flexibility to choose if working from home or using the office is best for them on any given day. “We’re rethinking how we use the space, prioritizing creativity, collaboration, innovation and safety for our programs,” she said, which support girls and young women ages 14 to 23.
Step Up owns its Los Angeles headquarters, which will continue to be a hub, Morton said, while in Dallas it has partnered with Fossil Group. “I would love to expand this model into additional markets as we return to in-person mentorship programs and need space again. There’s great synergy between nonprofits that need affordable flexibility and companies that perhaps need less office space today than they did before,” she said via email. “Besides the logistical benefits, it also helps to grow the partnership between the nonprofit and for-profit brand – sharing a workspace can contribute to the sense of community, familiarity and appreciation for one another’s work.”
Prior to COVID, five of Step Up’s team members worked from Fossil’s global headquarters, which included storage, work space, phone lines, internet access, printing and copying access, and meeting rooms for staff who were co-located there. Step Up needs only to provide computers and supplies for its staff, who enjoy the same building amenities as Fossil employees.
For Sale
The Alzheimer’s Disease Resource Center (ADRC) had long-term plans to establish an adult daycare center in about 10,000 square feet within its Bay Shore, N.Y. headquarters. Employees began working remotely in March 2020 with the expectation of coming back in two weeks, according to Executive Director Robin Marks. After months of uncertainty, Marks and the board determined that it wasn’t the right time to expand and start an adult daycare program as employees continued to work remotely.
ADRC is a small enough organization to be nimble and so when the pandemic took effect, Marks said they directed efforts toward meeting new challenges. For instance, bereavement was very different since COVID started. “We really understand our DNA, just being there for local families whether by phone or Zoom,” she said. “With that much perspective, having so much square feet wasn’t going to be necessary once we decided to table those plans for a much later date,” Marks added. That led to the conclusion that ADRC should downsize instead of moving forward with plans for an adult daycare center.
ADRC ended up selling the property on Long Island’s south shore in October 2021 for more than $2 million. New York requires the sales and disposition of assets of nonprofits to be approved by the Attorney General’s Office. In each of the past five years, the AG’s Office has approved more than 300 filings by nonprofits. Those figures do not include transactions approved by the courts.
Some states do require the attorney general or some similar level of approval of sale of all or substantially all assets, such as New York and California, according to George Constantine, cochair of the Nonprofit Organizations Group and leads Venable’s associations practice in the Washington, D.C., office of Venable LLP. Delaware doesn’t require government approval but for a membership organization, a sale might require approval from membership and not just the board.
“It’s something to be aware of, sometimes it affects the timing” of the sale of property, he said.
Constantine said that he was at a meeting earlier this year of CEOs of engineering and scientific societies and nonprofit membership associations. “I can’t tell you how many conversations in the hallways and tables were around this issue,” he said of how the pandemic has impacted the use of office space and property in general. “Clearly, what this experience has taught nonprofit leaders is they probably don’t need the space that they’re locked into having right now.”
While there is no one size fits all solution, shrinking and managing expenses is really top of mind, he said. “Obviously, the space needs are tied to policies that organizations plan to move forward with and what they expect employees to do. Most nonprofits we’re working with are certainly not going back to a five-day-a-week work arrangement; many are going fully virtual.”
Nonprofits are taking a hard look at what their space needs really are, Constantine said. In talking with nonprofits, the prevailing view is that “this isn’t just a blip,” he said. No one can predict the future but it’s safe to assume some level of hybrid environment will continue well beyond this year.
For organizations that are stuck in a long-term lease, Constantine suggests not assuming that they can’t get out earlier. “It’s always good to look at that,” he said. Many leases will include an opportunity to get out before the end of it, like a termination option, and usually in exchange for certain fees. “That could be pretty significant, but often it’s built into the lease,” he said.
Constantine describes it as a tenant’s market for commercial real estate. “There’s not a lot of room for negotiation because the market is so bad. In a good market, a landlord would jump at these options to be able to charge the next tenant more. In a tight market, that leverage goes away,” he said. “Hoping for benevolence from landlords is not going to work in this market.”
Landlords want their buildings to be filled so buildout allowance opportunities might be favorable to nonprofits looking to do that, he said.
ADRC had been at its location since about 2012 and still has three other satellite offices in Long Island, some that are leased and others through partnerships.
“We’re close to figuring out where we’re going next. We have to pay attention. There’s a lot of availability but our criteria is very specific,” Marks said.
For ADRC, a new space will have to check off certain boxes. In addition to an older service population that requires a first-floor space or elevator, many programs are held in tandem with a family caregiver, which could be an adult spouse or child, who may also be older and have challenges or use a cane.
The board is exploring the best way to have proceeds of the sale “conservatively invested so it provides that piece of mind that we’d like to have as an organization,” she said. “It lets us be more fiscally prudent, which has always been our north star because we like to keep our services free.” ADRC is likely to lease space at this point, with people still working remotely. “It’s more prudent now, to go forward long-term,” she said.
“We’re going to dip and curve as needed,” Marks said. She looks forward to holding programming, like music and arts activities, back in the office. “How we ramp up to that, I think that’ll be a process; there are different levels of comfort out there, in terms of coming indoors,” she said.
Moving In Together
Lisa Courtice, president and CEO of the United Way of Central Ohio (UWCO), said the Columbus-based affiliate started to think about possibilities for its downtown building as early as 2017. Then the pandemic came around.
UWCO plans to leave its downtown building, which was built in 1955 and donated to the affiliate in 1977, to co-locate with other nonprofits. It was cost prohibitive to renovate the space and real estate experts suggested that the highest, best use of the property is not for a nonprofit. “We believe we’ll be able to use the assets when we sell the property to improve the community and further our mission,” Courtice said.
United Way issued a request for proposals (RFP) for redevelopment of the property, with a priority to include an element of affordable housing. The first round of proposals was due Feb. 28 and the most competitive proposals will advance to a final round on April 22. Courtice expects a final decision sometime during the second quarter of the year. Valuations have ranged from $4 million to $4.2 million, she said. The building is not likely to remain commercial office space but probably be razed for a mixed-use development.
“As we think about how we want to attract and retain the best talent, space is important,” Courtice said.
Where exactly the Columbus affiliate ends up, Courtice wasn’t yet ready to announce. “We had been working on a plan before the pandemic,” she said. It hasn’t been finalized but they’ve been working on a new solution that involves a more collaborative space — an opportunity created because of the pandemic. It’s a good example of something that hasn’t been done very often, she said, and is directly a result of a challenge faced because of the pandemic. “They’re just a lot of empty buildings,” she said, adding that if all goes according to plan, they’ll have at least a 10-year commitment.
All 43 employees of the Columbus affiliate have been working virtually since the pandemic began. Courtrice doesn’t expect to have all staff in the office at one time, except for staff meetings and training, and has asked departments to have meetings once a month to eventually ease into a hybrid working model once the latest COVID variant subsides. The plan is to provide employees 30 days-notice before they try again.
Forefront is one of the anchor tenants at Chicago’s Impact House and will be there for at least the next decade. The Illinois association for nonprofits and foundations was to move into the building in March 2020 — just as the pandemic took hold — but didn’t physically occupy the space until January 2021, according to CEO Monique Jones.
Impact House, a division of Chicago- based FBRK, LLC, is a 40,000-square-foot work club “specifically for the city’s funders and change-makers,” with a purpose to “connect, serve and support Chicago’s granting organizations and impact leaders.”
Forefront originally signed a 13-year lease. “Part of it was we couldn’t just hop out of the current lease; some transition time was built in that coincided somewhat with the pandemic,” Jones said.
She describes Impact House as a coop. Members go through an application process that culminates with a vote by three anchor tenants. It’s a way to help keep that culture in the building, Jones said. “The key for this space was to be a space for philanthropy, and workers didn’t feel like always being solicited for grants; we wanted to keep that way of working.”
Forefront offers workshops on budget building, organization management, and board development. It also has a physical library on site and has regularly had nonprofit leaders come in to do research on grantmaking and donors. Jones expects that to pick up as people start to come back to the office.
About three to four staff have been in the office regularly, Jones said, but there’s still a work from home policy with the option of being in person. “We’ll be returning to some form of hybrid model in the spring,” she said, adding that most organizations have some type of hybrid plan of work from home/ in-person.
Of Forefront’s 1,110 members, about 700 are nonprofits with the remainder on the grant-making and consulting side, according to Jones. Especially among organizations that do not work face to face with people, lots of nonprofits are not renewing leases, she said. There are members who are co-locating now and thinking about their space, offering space to work for those who do the same type of business.
For nonprofits that are in the market for new space, Jones suggests being purposeful. “Not just about the space – we can take up space at our house – but how you want to engage with the other people that are there.”
United Way of Greater Toledo (UWGT) had a unique property: a 25,000-square-foot building with an acre of green space and 140-space parking lot downtown. “It’s kind of unheard of,” said Matt Morris, chief finance and operations officer. The ground floor was a community space that could be reserved, with 2-1-1 service on site and offices upstairs.
Selling the property was “always something we had entertained,” Morris said. Even before the pandemic, United Way Toledo’s 2-1-1 service went remote and they started considering a sale as a way to reduce costs. UWGT listed the property in January 2020 just before the pandemic was declared. “The longer it went on it reinforced that we’re less likely to return to normal,” he said.
The Lucas County Metropolitan Hospital Housing Authority closed on the property in November, and United Way moved out in December. Now, UWGT leases 4,500 square feet within the offices of engineering firm SSOE, a corporate partner of the affiliate whose employees also aren’t likely to be back 100% in-person. “There’s definitely a certain amount of synergy being in the same office as a major company,” Morris said.
For the foreseeable future, Morris said the 30 or so employees will be on a hybrid schedule, in the office two to three days a week. There is enough space for everyone to be in at one time, which they’ll try to do on occasion.
The pandemic definitely stretched out the timeline on the sale, Morris said, with the property listed at $5.2 million for well over a year and ultimately sold for $4.95 million. Proceeds will be rolled into a board-designated fund, which houses United Way’s investment pool, according to Morris. That’s designed for long-term returns that go back out into the community via a 3% to 6% spend rate to supplement the annual campaign.
Morris said it was important to set expectations for staff and everyone knows what’s going on. “When people are in the office every day, they see what’s going on, you talk to them, have impromptu meetings,” he said. When they’re out of the office, coming and going, it’s important to over-communicate.
