An asset or a liability?
Property can be a key asset for many charitable organisations, either operationally or financially. It can provide a host for front line services; accommodation for operational support; a source of finance - whether from the sale of legacy properties or longer-term investments; and for some charities, the properties themselves can be the focus of their objectives.
 
However property can also be a liability, particularly where it is not properly managed, whether through financial constraints or historic neglect. Despite the increased emphasis on asset management in recent years, operational property portfolios held by charities are often predominantly historic, inherited rather than actively acquired and can often be obsolete, unfit for purpose or unsustainable. Consequently,  trying to ‘make do’ with the existing property portfolio can be a drain on time, resources and finance – a burden which charities, like all businesses, can ill afford, particularly during this challenging economic downturn. 
 
Hallmarks of an effective charity
In 2008, the Charities Commission issued the six Hallmarks of an Effective Charity, which includes: “Hallmark 5: Financially sound and prudent - An effective charity has the financial and other resources needed to deliver its purposes and mission, and controls and uses them so as to achieve its potential.”
 
The wide-ranging expression “and other resources” includes people - both paid and volunteers -  who are usually a charity’s most valuable resource and a range of other vital assets including its property portfolio. When strategically and actively managed, property portfolios can offer significant opportunities to deliver corporate and operational objectives, but they can also be both a major constraint and a demand on other resources, including cash.
Those charities which succeed in ensuring that their property portfolios deliver to overall corporate objectives and make a positive contribution have worked to develop a clear understanding of the nature and extent of their property portfolios. They also have a clear vision of how property fits into the overall business plan and have a strategy and best practice plan for exploiting the portfolio to deliver financial and non-financial benefits.

An illiquid asset class
Although simple in theory, ensuring that property assets are actively helping to deliver the charity’s objectives is more challenging in practice. Property is an illiquid asset class, changing the portfolio can be a slow and often painful process.  The current economy is exacerbating the situation; for example, development sites which could have produced capital receipts over two years ago are now costing money to hold onto pending an upturn; upward-only rent reviews on leased properties mean many are now over-rented with no prospect of a reduction until the lease renewal is due; charities’ donation and legacy income is reducing – and all the while the need to maintain services remains.
 
Many charities are caught in the grip of the twin pressures of budgetary constraint and the need to optimise the use of resources.  The result of the generally gloomy outlook means that many  property issues are increasingly being relegated to the bottom of the agenda; in many cases strategic planning of the property portfolio has become a ‘bridge too far’.  But this does not need to be the case.
 
Putting the ‘Best Practice Plan’ in action
Agreeing and carrying out practical steps in the short, mid and long term lay the basis for a workable ‘Best Practice Plan’. These plans enable charities to update strategic property plans regularly; taking a current rather than historical approach to ensure that property is making a positive contribution and costs are minimised. Best Practice Plans offer a full analysis and clear understanding of a charity’s portfolio, throwing up opportunities for improving financial and non-financial returns aligned to charitable purposes.

The short term
At the outset, charities should seek to understand the extent of the property portfolio now and assess its performance. An organisation needs to identify core properties, assess liabilities and opportunities, identify surplus property opportunities and develop action plans. For example, is there a requirement for cheaper accommodation for a charity’s HQ? If yes, plans should be set in place to renegotiate rental rates or contracts; there may also be opportunities to restructure other contractual commitments across the portfolio.

The mid term
In the medium term, charities will be able to implement as well as evolve plans for adding value to the portfolio by exploring investment/disinvestment strategies; diversifying sources of income and revisiting investment policies. Effective property disposals will enable the maximum value of assets to be realised; strategies for asset and portfolio procurement, including funding options, will be required.

The long term
With longer timescales, full planned maintenance programmes can be implemented and strategic reviews and ‘whole life value for money’ appraisals can come into play. Charities can also undertake analysis of benchmarking and performance indicators. Ongoing reviews are necessary - whether rental rates need to be renegotiated or a property disposed of, it is vital that the approach to managing property constantly evolves.

Successful strategic management
The key to successful strategic property management rests with a commitment from the top to start, what is in principle, a simple process but which requires sophisticated analysis, projections and the development of an achievable Best Practice Plan. Board/senior management responsibility needs to be established at the outset and the necessary internal and external resources need to be identified and accessed. 

However you get there and whatever resources are put in place, constant evaluation and understanding of the property portfolio will throw up opportunities to improve financial and non-financial returns aligned to charitable purposes. Putting a ‘best practice plan’ into action following the publication of the Charity Commission’s ‘six hallmarks’ of an effective charity, will help charities ensure they adopt good practice at the same time as meeting legal obligations.