Tenant Credit: Evaluating Nonprofits
TRA has a deep understanding of nonprofit organizations and employs a unique framework guiding our analysis of these tenants. The nature of nonprofit organizations seems to suggest that they could impose greater tenant risk than their for-profit counterparts, but the reality is more nuanced, as their sustainability is more closely aligned with their ability to consistently raise adequate funds and serve a well-defined cause.
In addition to conducting a thorough financial review, TRA reviews the sources of the organization’s funds and the overall sustainability of its mission. Below is a rough outline of how to approach a thoughtful review of a nonprofit organization:
Mission and Impact
How sustainable is the organization’s mission? What is the likelihood its mission loses relevance during the term of the lease? What is the level of societal support for the organization?
Is this mission morally and socially acceptable to key stakeholders, including investors, other tenants, and potential acquirers?
Revenue and Fundraising
What is the primary source of the organization’s revenue? How stable is the entity’s ability to consistently raise new funds? What is the concentration of contributions, sponsorships, grants, and other revenue sources each year?
Are the organization’s supporters likely to consistently support the organization financially? Who are the primary financial contributors to the organization? Is the organization closely linked to other organizations, government agencies, or corporations?
Does the organization maintain a trust fund or investment account? If so, how significant is this account to the organization’s operations and income?
Reach out to TRA for help with understanding nonprofit organizations, or any other tenants you need to review.