The sudden economic downturn is shaking the region’s nonprofits, some of which had only recently found some footing after years of struggles in a pricey real estate market.
Following the last recession, a number of Bay Area nonprofits like the Sierra Club and the Women’s Foundation of California were displaced during a real estate boom that has only recently begun to cool.
Saul Ettlin, director of consulting at Community Vision, a nonprofit lender and consultant to other nonprofits, said nonprofits have often moved because they have faced a doubling or tripling of their rents. Before joining Community Vision in 2016, Ettlin helped lead real estate in the Bay Area for several years for Tides Foundation, a progressive advocacy organization that helps other progressive groups with real estate.
By 2016, 68% of Bay Area nonprofits were considering a move, according to a survey of almost 500 of them conducted by Harder+Co. Dozens were on the way out of downtown Oakland alone in the following years, including Misssey, an organization addressing sexually exploited youth, and the Eviction Defense Center.
Backed by public funding and third-party foundations, part of Community Vision’s work is consulting nonprofits on their real estate strategies, such as what to lease, whether to buy, how to be on a path to ownership and asset management.
In late 2015, for instance, Tandem, Partners in Early Learning, an early childhood development nonprofit, was able to avoid displacement with the help of Community Vision, which helped provide training in lease negotiations and visited commercial properties with the nonprofit. Tandem was based out of a 1.8K SF office in SoMa for over 10 years before signing a 6K SF lease in the Bayview-Hunter’s Point neighborhood in December 2015.
The overall anti-displacement task had started to become somewhat more manageable before this year, according to Ettlin.
“While it was still intense and expensive at the end of 2019, it had started to level out,” he said. “Nonprofits that had three- to five-year leases had gotten into leases that had pricing similar to what they were facing at the end of their term and were looking for renewal.”
Now, nonprofit tenants are plagued by the same crisis affecting the for-profit sector, but they often have even less flexibility, Ettlin said.
“They can’t just crank up the price of something or adjust their revenue structure,” he said. “They have to raise more money, so they’re slow to respond to these kinds of changes in the market.”
Nonprofits with debt often refinance, Weisman said.
Arts and culture organizations are among the hardest hit. Without patrons for the time being, The Marsh, a theater nonprofit with stages in San Francisco and Berkeley, is facing difficult circumstances, founder Stephanie Weisman said.
Though the organization has owned its San Francisco location since the 1990s, it rents in Berkeley, where trying to renegotiate its lease agreement has proven to be problematic, Weisman said. Commercial rents in Berkeley are a far cry from S.F. proper, but average asking retail rents in the East Bay as a whole still came out to over $30 per SF last year, according to Kidder Mathews.
Weisman called selling their S.F. location potentially attractive but said the timing is bad given the market and likely difficulties in buying or renting another place.
“We’re literally paying, for us, a small fortune in rent for something we cannot use, and we have no idea how long it will be,” Weisman said. “We have two venues, four stages and no people.”
Like many other tenants, The Marsh is being asked for something in return for short-term rent relief from its lease agreement, which currently expires at the end of January 2022. Its Berkeley landlord, The Dinerstein Cos. (which acquired the Allston Way building last year), is looking for a lease extension in exchange for relief now. Weisman said that is difficult to commit to given a frustratingly uncertain economic future.
“We are in negotiations with the landlord, but to support survival, we will need rent abatement and so far we haven’t been able to negotiate that,” Weisman said. “There is an offer on the table for deferred rent, which kicks the problem down the road, but doesn’t provide real relief.”
The Dinerstein Cos. did not respond to requests for comment.
A once potential source of relief for both hospitality tenants and nonprofits like The Marsh now appears dead. SB 939, a proposed bill that would have compelled many of the state’s landlords into more tenant-friendly lease renegotiations, fell apart in the Senate Appropriations Committee in June.
Renewed efforts will follow SB 939, state Sen. Scott Wiener, one of its authors, said after the bill’s rejection.
In the meantime, Weisman said she is hopeful The Marsh can weather the coronavirus-induced storm. The nonprofit has been in its Berkeley spot since 2010, she said.
“Frankly, I love the space, and I would love to be there for the long-term,” she said. “But it’s a very difficult, crazy situation right now.”