If it's going to be empty anyway, why not?

February 27, 2009 1:50 PM

How common is it, or is it common at all, for a commercial property management company to donate the use of space to a nonprofit?

We run a very, very tiny nonprofit theater, and we could use some sewing workshop space. There are a ton of older strip malls around our location. Lots of space has remained vacant in these locations for quite a long time, and things being what they are, I cannot imagine that's ripe for change. Is there any advantage to a big company in donating space to a nonprofit? At $10-$14/square foot and assuming about 1,000 square feet (which is average), it seems to me that's 10-14K a month that could be written off as a charitable contribution. We would basically be ready to be "evicted" if they had anyone who wanted to pay to be in the space, so our long-term occupation of the space should not be considered a problem (or so I would think). Any commercial r/e people who want to weigh in, I'd be really interested in your take on this kind of proposal. Assume, as it would be correct, that we do not have cash on hand enough to pay for any kind of rent.

posted by Medieval Maven to work & money (6 comments total)

I have obtained space this way, especially in sketchier areas. We used the same logic as you did (offering a charitable tax receipt, but I don't think we're allowed to do that anymore for in-kind items.) We received the donated space from the same landlord as we rented our offices from. They knew us, and trusted us not to trash the place. It wasn't a huge benefit to the landlord EXCEPT because it was in a sketchy building, it benefited him to have people in and around the place. Less chance of it being broken into and vandalized. We were doing him a favour as defacto security guards.
posted by typewriter at 2:00 PM on February 27

I know that my husband's company has sublet parts of their space to nonprofits in the way you describe. They aren't a property management company, they just have a long lease on a pretty big facility with multiple separate offices within the building, and they do get to write it off, which helps them offset the cost of having space that isn't being actively used otherwise.

I don't know how you'd go about finding the right match for you, but I should think the idea itself is within the realm of possibility, particularly in this economy.
posted by padraigin at 2:00 PM on February 27

It certainly happens here in Denver. I've done it myself with my own property. Hit the bricks and start talking to landlords. The issue that would come up is utilities. If each space is separately metered, you'd probably have to pay for power. You'd also have to sign a lease to clarify your relationship, even if you're not paying anything. Just think for yourself what costs the landlord would incur because of your presence. Think of trash removal, exterior maintenance etc. Perhaps you could make yourselves useful to the building owner in some way?
It also helps if you are looking at space that reinforces the identity of the neighborhood and would be viewed as attractive to other potential tenants.
I invoiced my tenant for full rent, then showed the reduction as a charitable gift. I'm assuming you have a non-profit tax ID?
posted by Carmody'sPrize at 2:06 PM on February 27

My theater group in Manhattan gets all of our set/costume workshop space this way. Usually, someone has a personal connection to the property management company, and I believe there's an agreement for us to use it for a specified amount of time (so we don't get kicked out right before a show, for example).
posted by ocherdraco at 2:27 PM on February 27

I can't speak to whether it happens, but when you go to try to negotiate something like this, also remember the advantages there are to having people in and around a building as typewriter mentions: it's harder to let offices/stores in a totally empty building than one with some activity.
posted by whatzit at 4:55 PM on February 27

This does happen in my experience from the NPO end, although a fully zero rent semi-permanent situation is rare.

The economics are not as advantageous as all that. You have to realize that real estate is already a huge passive loss generator, largely through depreciation. This means that an empty building can save the owner taxes. It generates no rent, but its expenses are still deductible including mortgage interest, so it has negative income and depreciation. So the owner lost money, right? Not if he's making money elsewhere he has to pay taxes on. This passive loss is essentially mathematically transferable to offset profitable aspects of the enterprise -- not just across the enterprise, but also in time, as there is a passive loss carryover from year to year if your losses are too great.

This is one reason why slumlords often "warehouse" buildings for no apparent reason. I consider this a largely unrecognized moral hazard.

Long story short, it depends.

In any given commercial neighborhood there will be scores or even hundreds of landlords with space available. What you can do is pound the pavement, or you can circulate at business mixers, or seek introductions by networking. Do it like a job search -- "We need some donated space, do you know someone who'd be interested?" If you can have a professionally serious "business plan" for using the space and allaying expenses, even better. I don't think any serious landlord would consider this unless you really came across as a going concern, rather than a lark that's going to cost him time and money to clean up after in ten weeks.
posted by dhartung at 10:14 PM on February 27