Non profit receives a donated property?

[jyl]

Yeah, we have one on our board . . . and a non profit specialist CPA in the ‘hood and ready to help.

Getting the revenue and booking records for last few years, to review.

Lot of weddings postponed in 2020. Might be a surge of demand in 2021 - interesting to think about.

[john70t]

Crunch the numbers.

$5k/mo +bennies is absolutely stupid for a very part time manager.

[jyl]

I am still waiting for more info on the staffing that the non profit used. I think it was a part time manager plus a couple other people who were occasionally employed. They had one of these people on-site during every event, to help with set up and take down of the venue’s tables and chairs, answer questions about the facility and A/V system, and generally watch over things. The manager also answered calls, did bookings, kept track of payments and event insurance, showed the property, and so on. Someone did the bookkeeping. Someone did the website, though it was a pretty static site. The venue wasn’t really being marketed. The non profit’s board was quite involved in making decisions, the manager had to get their approval on a lot of things. If you add up all the labor hours, averaged over high and low season, I am suspect it totals close to 1 FTE (full time employee) and a lot of those hours are on the weekends and in the evenings. But I’ll find out.

[1990C4S]

Originally Posted by jyl

Lot of weddings postponed in 2020. Might be a surge of demand in 2021 - interesting to think about.

Lots of Friday and Sunday weddings due to pent up demand. Either 2021, or 2022.

[jyl]

Well, we've done a bunch of due diligence. Reviewed the building's accounts, interviewed the property manager, checked on current booked status for 2021, gone through building, figured out the applicable tax rules, modeled out scenarios under different scenarios, talked to local wedding planners, talked to the former property manager, etc. Still waiting on title report, professional property inspection, deed review, any employment contracts. Basically looks like under almost any scenario, the property will support itself, fund repairs and improvements, and generate a decent amount of excess cash flow for the neighborhood in addition to being a resource for neighborhood groups, fundraisers, etc. However, in the most negative scenario (assume cannot reopen until Jan 2022 - I think that is extremely unlikely but need to consider it) the property will burn around $70,000 before it becomes self-sustaining (most of that is the 1+ year of non-operation). So we'll need to raise, or more likely borrow, around $50,000 to establish an adequate reserve. That's not too much money. I'm thinking of 5 years at 5% interest, prepayment penalty, secured by the property (appraised value $1MM). I think we could get 10 neighborhood families to take down $5K each as private loans. What do you guys think?

[RWebb]

Is there a city sponsored Neighborhood Assoc. that might be interested? We have those here and it would solve a lot of problems, if they did it.

[jyl]

That’s what we are, a neighborhood association (NA) organized as part of the city’s system of NAs. However, we don’t get any support from the city, they certainly won’t help us with this, they’ll simply lambast us for not turning this property into a homeless shelter or whatever.

The city has been shutting down community centers right and left. Some neighborhoods have been leasing the buildings back from the city and running them with volunteers. That will last until some developer gets the land on the cheap and tears down the community center for luxury apartments.

We don’t have a community center, this property can potentially be one for us. It makes (made) 75-80% of its revenue on summer weekends, the rest of the time it isn’t much used.

[MRM]

I think that if you take on the property it will change the dynamics of your neighborhood association and eventually destroy it. Your association right now has achieved a state of equilibrium where all of its members work together for the common good, not because there's anything in it for them, but because they are willing to contribute their time and skills to a larger organization. If you introduce the new property, all the sudden you will inject something of monetary value where nothing but good will and shared sacrifice exists. No matter what you do someone will feel cheated, someone else will feel taken advantage of, and someone will accuse someone else of profiting at the expense of the rest. Some of the people who put up the money will expect to have more say than those who didn't.

You should politely decline the offer and keep your HOA exactly as it is.

[KFC911]

^^^^ if I didn't listen to MRM, I would put up the 50K all by myself before I would enter an arrangement with 9 others.

To quote Cindi L....

"Money.... money changes everything"... jmo.

[jyl]

If I took down more than a small part of the whole loan, I might have to resign from the NA board to avoid a conflict of interest. Maybe the better plan is to seek third-party financing, keep neighbors out of the financial side entirely. Think a credit union would loan $50K secured by a $1MM property?

[jyl]

Ah ha. What do youse guyes think about this.

If we changed the manager from a W2 employee making wage, a little commission, and bennies (in normal years, about $50K + healthcare for about 35 hours/week - he has another gig too) to a 50% profit share self employed contractor:
- He (or someone else) could make $50K (but no benefits) in an average year (like 2019) or $70K+ if he grows revenue +15% or cuts expenses -8%
- But, he’d make no money about 4-5 months of the year while making $7-10K the other months (unless we smoothed it out)
- We would have fewer months when the property is losing money/burning cash
- We would not need to borrow money, because the property would be close to (or not too far from) cash flow breakeven almost from reopening
- He would be more incentivized (although, there’d be more scope for games like shifting expenses into the off season, we’d have to keep tabs)
- We’d save the payroll taxes (but he’d pay self employment tax)

The more I think about this, I don’t see why he’d prefer this profit share arrangement. But there are some capable folks, including some in the neighborhood, who’d jump at the chance to have a flexible gig (the manager has no fixed hours, he doesn’t have to be present to babysit the events, there is an hourly person who does that) of this nature.

Thoughts?

[Sooner or later]

Did you check to see if you could sell the property after receiving it from the non profit?

[jyl]

Consulting a lawyer and getting a title search. No restriction in the deed chain that we can find. I think the answer is yes, we’d be able to sell, all or part, or encumber. Unless a restriction was created and imposed in the transfer to us, of course.

A key point, we wouldn’t want to be trapped in the property if it didn’t work out.

[jyl]

The transaction closed this week.

Title is clear and unencumbered. We are not restricted from selling the property. The donor can use the building a certain number of days per year for their events; their right is subordinate to any subsequent sale, but we'd compensate the donor for the lost use days. We have property and liability insurance, and are working on a secured line of credit. A local interior designer is donating a design for a cosmetic refresh, and we'll try to get some support from local contractors and suppliers. We are reviewing website and marketing plans, and will retain a manager to run the rental business. There's pretty active demand for mid and late 2021 bookings - I'm handling an average of one rental inquiry a day despite zero marketing.

A lot of work lies ahead, to get the property ready and relaunched, but I'm pretty optimistic.