Read the third article in our series of specialist articles for Non Profit Sector Property Portfolio Owners and Developers – “Property – is this a core strength of your organisation?”
Adapting property assets over time as the organisation develops, grows and alters throughout its lifecycle can be a constant challenge for boards and executive teams. Many non-profit organisations own property that supports the delivery of their services or provides accommodation for valuable resources. However, there are many organisations with property assets on balance sheets that do not add any value to the bottom line and, what is often of a greater concern, are a significant drain on cash flow and human resources – both of which can be under considerable pressure within the organisation.
It is typical for a building to be designed and constructed for an economic life of approximately 50 years. Many buildings, through good maintenance or ‘re-lifing’ can far exceed their design life. Therefore the real issue becomes that it is likely the intended use of the building when it was originally constructed could have changed significantly within a 10-15 year period. Many properties owned by non-profit organisations have been acquired through legacy and with a typical organic transformation of the organisation into new business or service delivery models these property assets can become redundant or at least inappropriate and outdated for current requirements.
To meet their tenant’s demands, commercial property owners manage this transformation of requirements by converting building uses during these operational business cycles. However, if an organisation owns their buildings but does not have the requisite property or development experience, a challenge can arise whenever there is a need to adapt or change their property assets. This might also include the disposal of these assets in order to move to more economically sustainable and efficient buildings or to maintain proximity to clients and stakeholders.
A comprehensive analysis of the choices available to non-profit organisations in determining the ‘highest and best’ use of their property assets and whether this aligns with their current use is a valuable tool for the board to consider. To achieve the best possible outcome though, more than a straightforward property valuation is required. An in-depth analysis of the market should be involved and the potential town planning opportunities for the redevelopment of the site considered.
The management of property assets may not be a core strength of your board, executive or senior management teams and you may not have the experience or desire to deal directly with property developers. In this situation, outside advice – such as from an experienced development advisor – may be helpful in ascertaining the highest and best use for your organisation’s property. Development advisors can provide independent advice and knowledge across property, finance and construction related risks whilst guiding a property owner through an acquisition, development or disposal process. A development advisor can manage the technical inputs from advisors, be the conduit for information exchange with stakeholders and be an effective “sounding board” for the executive team to control and manage contractual and legal risks.
If undertaking an in-depth analysis of your organisation’s property assets internally, a number of important elements should be kept in mind. Below are elements to property management that you may not have considered:
• Manage the engagement and consultation process with stakeholders
• Develop a strategy for future disposal or redevelopment
• Manage the involvement of real estate agents and other consultants such as legal and public relations/media
• Manage the preparation of property memorandums and due diligence documents; and
• Control contractual and legal risks
Whether it is undertaken internally or provided by an outside contractor, an in-depth analysis of your organisation’s property assets that aligns your organisation’s property needs with your business model is a valuable part of sound governance practices and could potentially have the added benefit of releasing valuable capital or reducing impact on your cash flow.
Russell Martoo, Managing Director – RCP Qld
Email Russell for further information at : firstname.lastname@example.org