Real Estate Deals Could Be Shaky Ground For Nonprofits

By: Marv Pearlstein
– Law360

Special considerations come into play when nonprofit organizations want or need to engage in real estate transactions. With very few exceptions, nonprofits have a focus on something entirely unrelated to real property - real estate transactional dealings are quite foreign to the purpose and outside the experience and day to day activities of the vast majority of nonprofit organizations. The typical nonprofit, whether its mission is educational in nature, or health related, or is directed to social issues or addresses other causes, will rarely engage in real estate transactions. When the need to do so arises, the contemplated transaction must be evaluated with a recognition of the particular needs of the nonprofit. The organization's tolerance for risk and its appetite for complex deal structures is likely to be much lower than would be the case for a business whose central purpose is to achieve economic goals and generate profits. The nonprofit faced with navigating its way through the purchase, sale, leasing or development of real estate may very well find itself on shaky ground. Nonprofit staff members may well be unfamiliar with real estate dealings. Taking into account the combination of staff inexperienced in conducting such activities and the fairly low risk tolerance threshold that characterizes most nonprofit organization, this is an area where creative, alternative or complicated deal structures, which might make sense with different actors and in another context, should probably be avoided.

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