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Risky Real Estate

Wednesday, March 15, 2017

This feature article by Inside Philanthropy reminds colleagues in the sector of the ongoing pressures caused by nonprofit displacement. NCG, together with The San Francisco Foundation and other partners, established the nonprofit displacement crisis as a regional issue with the release of our report last year. Many priorities compete for our attention and we must ensure the problem doesn't get buried. The article highlights the causes of nonprofit displacement, possible approaches and the role funders of all stripes can play. 

What happens when a nonprofit can’t afford to pay the rent? If fundraising falls short, programs might be cut, staff might lose their jobs, and the organization might be forced to decamp. That’s bad enough when we’re talking about arts nonprofits, which are getting priced out of many expensive cities, with the most egregious cases in the Bay Area. But what about nonprofits that provide social services?

In struggling neighborhoods, nonprofit service providers can be literal lifelines for single moms, recovering addicts, troubled youth, persons with disabilities, and so many others. They can keep small businesses afloat, or help homeless people find their way back. As American cities gentrify, these nonprofits look after those whom gentrification leaves behind. But who’s looking after them?

In the Bay Area, a cadre of grantmakers is delving into the problem. The effort began several years ago, when a public-private effort, the Community Arts Stabilization Trust (CAST), brought together partners like the Kenneth Rainin Foundation (which made the grant to create CAST), the Northern California Community Loan Fund (NCCLF), and the City of San Francisco to help arts organizations find stable real estate. 

In 2015, as more organizations were forced to move, a task force of regional grantmakers decided to clearly define this looming threat. Convened by Northern California Grantmakers (NCG), the Nonprofit Displacement Project administered a survey to 1,683 Bay Area organizations to nail down their concerns about displacement. 

The results, collected from 497 respondents, are not pretty. A full 82 percent were concerned about the impact of the regional real estate market on their financial sustainability. Sixty-eight percent thought they’d need to make a decision about moving in the next five years, and 38 percent have already moved. Disproportionately, these displacements impact low-income communities of color. 

To learn more about the survey and how funders are responding, I got in touch with Steve Barton, director of regional vibrancy and sustainability at NCG, along with Policy and Communications Director Emily Katz. Barton’s title speaks to a Bay Area irony he was quick to point out. That is, encouraged by liberal politics, San Francisco’s vibrant nonprofit sector helped create the quality of life that attracted tech firms. But now, because of that influx, those same nonprofits are getting priced out.

When the survey results were reported, there was a lot more interest in nonprofit displacement than Barton anticipated. NCG followed up the survey with a series of four community briefings in 2016, gathering funders and nonprofits to chart out next steps. Most nonprofits were facing this problem with a quiet desperation, but the survey gave them a chance to voice their frustrations.

On the listening end were funders like the Common Counsel Foundation, the East Bay Community Foundation, the Silicon Valley Community Foundation, the San Francisco Foundation, the Walter and Elise Haas Fund, the William and Flora Hewlett Foundation, and the Y & H Soda Foundation, all of whom supported the survey effort. 

Taking care to keep nonprofit voices at the table, NCG’s briefings identified a range of ways funders can support nonprofit sustainability. Barton emphasized the danger of elevating one solution above the others: Different organizations need different things, and a sole focus on, say, buying properties might hamstring other tactics funders and supporters could use. 

These include providing technical assistance (i.e. in lease negotiation), creating more spaces dedicated to nonprofits (co-working for the social sector), advocating for policies to relieve the problem, and raising the visibility of this oft-overlooked issue. From a funders’ perspective, there needs to be less stigma around giving for general operating support, which nonprofits can translate into financial sustainability. 

Barton pointed to the CAST real estate model as a good way forward. For arts organizations, CAST already engages in activities like acquiring property, building nonprofits’ capacity to lease or own, bundling leases, and coordinating funds from public and private sources. In the Bay Area, Barton says the Northern California Community Loan Fund is ready to put in the required work on the ground. 

Nonprofit centers are another avenue. In the early 2000s, the Nonprofit Centers Network convened in the Bay Area. Shared space, operated by an owner for the purpose of hosting nonprofit organizations, can be a bulwark against high rents. Currently, the Sobrato Family Foundation is one leading funder of nonprofit centers, developing three in Silicon Valley. 

In the long run, it’ll take successful policy advocacy to fully guarantee space for social service providers. Barton acknowledges that such campaigns are still in their infancy, even in San Francisco. But there is some movement from the public sector. Backers of NCG’s survey included the City and County of San Francisco and the Mayor’s Office of Housing and Community Development. And late last year, Mayor Ed Lee stepped up public support with $6 million toward nonprofit sustainability, including money for a Nonprofit Space Investment Fund.

Philanthropy may also find ways to partner with private developers like real estate investor Chris Foley, who recently filed an application to build 200,000 square feet of space for social service nonprofits in the Mission District at the eye-catching cost of $120 million. 

It’s not surprising that the Bay Area is leading the way on nonprofit sustainability, at least when it comes to real estate, given the confluence here of soaring rents and a robust, responsive funding community. But other high-rent cities like New York, Seattle, Washington D.C., and Los Angeles are confronting the same problem. As they do, NCG hopes that San Francisco’s model can provide a way forward for funders. 

Of course, there’s always the argument that as cities gentrify, social service providers should move where people need them; that displacement by the market isn’t a bad thing. According to Barton, this is oversimplification. While low-income, at-risk populations remain in cities, the nonprofits already there should continue providing services on comfortable home turf. 

Meanwhile, the suburbanization of poverty continues. How to ensure that nonprofits can provide for newly spread-out, disconnected constituents is another question that will need more attention going forward.