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The Lease Is Up — Now What?

Thursday, March 2, 2017

By Laila Mehta, Consultant, Northern California Grantmakers

For many foundations that care about the health and long-term sustainability of the nonprofits they fund and partner with, it’s not lost on them that unaffordable office space can be destabilizing – particularly in the Bay Area. Between 2011 and 2014, approximately 1,800 nonprofit organizations left San Francisco, leaving the remaining 6,900 vulnerable to commercial real estate pressures including high demand and skyrocketing costs[i]. Average rent for San Francisco office space grew by 122% since 2010, based on research conducted by Harder+Co contained in our report from last year

While this phenomena does not just impact San Francisco and Oakland, these areas are the hardest hit in terms of rent increases. The report also found that 82 percent of Bay Area nonprofits were concerned about the impact of the real estate market on their viability, and 68 percent said they had a lease expiring in the next five years. Arts and social service nonprofits were amongst the hardest hit.

Luckily, various institutions are advancing solutions to the crisis, some of which are long-term in scope:

  • In the City of Oakland, public and private partners teamed up to create long-term, sustainable solutions to creating affordable, safe spaces for artists and arts organizations. In December 2016, the Mayor’s office announced $1.7M in philanthropic funds to support Oakland’s artists and arts organizations. The Kenneth Rainin and William and Flora Hewlett Foundation funding will support the expansion of a unique real estate model, CAST, into Oakland. Further, support from the Rainin Foundation will fund a two-year mayoral staff position focused on new polices and initiatives to stem the displacement of artists and arts organizations from Oakland.
  • In February, the Kenneth Rainin Foundation launched a new online resource to showcase an innovative solution that can help secure permanent, affordable spaces for arts nonprofits. The Rainin Arts Real Estate Strategy is collaborative in nature and connects resources in the community to the real estate needs of arts and cultural organizations. It provides a replicable model that can be adapted to different cities and types of organizations.
  • A proposed $120 million development in the Mission District could provide space to multiple nonprofits offering services including job training, housing placement, addiction counseling and adult education. Common Ground Urban Development, led by real estate investor Chris Foley, filed an application to build a 200,000-square-foot complex for nonprofits at 1850 Bryant St. TThe project is being partly financed through federal New Markets Tax credits. Spaces in the building will sell for about 40 percent below market-rate values — about $575 a square foot, or $5.7 million for a 10,000-square-foot commercial condo, the new mark of ‘affordability’ in this region. 

Finding space solutions to the nonprofit displacement problem – or crisis, depending on where you sit – is an important action that funders can take to meet the growing needs of the Bay Area’s vibrant nonprofit infrastructure. It’s one part of a larger web of efforts that funders and interested stakeholders can take to ensure that the Bay Area remains a hub of diversity and vibrancy, no matter where we are in the economic cycle. The Nonprofit Displacement Project is poised to help foundations, city officials, nonprofits and real estate interests move the needle on this and other solutions that will lead to long-term affordable, sustainable space!

[i] The Kenneth Rainin Arts Real Estate Strategy