Helen Brown Group

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Deciphering Form ADV Filings

One thing that’s great about our profession is that we get to learn a little bit about a lot of things. Sometimes, though, the learning is more of a slog than we’d like. This week HBG Senior Consultant Heather Hoke forges a path for us through the dense mire of SEC Form ADVs, so that we can get better information about financial advisors and the companies they work for. Thanks, Heather! ~Helen

Heather Hoke

        Heather Hoke

There is so much wealth among people in the finance industry. If you are researching someone who is a founder, partner, or executive officer of an advisory firm, including private equity and hedge funds, be sure to look at the SEC Form ADV. It provides an abundance of information about registered investment advisory firms and their affiliated professionals.

I remember when I first started looking at Form ADVs and I felt completely overwhelmed! There were so many pages of information, sometimes hundreds of pages. Well, that was many years ago and I am now much more adept at finding the information that I need quickly. I thought I would share some tips with you to save you some time…

The Securities and Exchange Commission (SEC) requires all professional investment advisers to submit the Uniform Application for Investment Adviser Registration (or more commonly known as the Form ADV). For companies that manage funds in excess of $25 million, this form must be updated annually and whenever material changes occur.

Where to find a Form ADV

Form ADVs are publicly available through the SEC’s Investment Advisor Public Disclosure website. There you can search either by advisory firm name or by the name of the individual investment advisor.

For our work, the two most important things to look at are “View Form ADV By Section” and “Part 2 Brochures.”

Choose “View Form ADV By Section” so that it is broken down into sections to view rather than the full, often very lengthy, document.

Sections not to miss

 Part 1A Item 1 Identifying Information includes the name, address and phone number of the investment advisor.

Item 2 SEC Registration/Reporting specifies if the firm is considered a large or mid-sized advisory firm.

Item 5 Information About Your Advisory Business provides number of employees (in sections A and B), number and types of clients (in sections C and D), fee arrangements (in section E), assets under management (AUM) (in sections D and F), and advisory activities (in section G).

Schedule A includes direct owners of the registered investment advisor with a 5% or more ownership interest and executive officers (CEO, chief financial officer, chief operating officer, chief legal officer, chief compliance officer, directors).

Schedule B includes all of the indirect owners.

It is necessary to check both Schedule A and Schedule B to fully understand the ownership structure and ranges. Ownership codes specify a range of ownership interest which can be helpful in considering the capacity of an individual.

Schedule D includes other office locations and affiliated registered investment advisors and broker/dealers.

Disciplinary Reporting Page (DRP) provides details about felony or investment-related misdemeanor, regulatory discipline, or court judgments related to violation of investment-related statutes and regulations by the investment advisor or its affiliated persons.

Signature Page for the date of the document.

Next choose “Part 2 Brochures.” At the bottom of the page, you will find a PDF of the brochure which is a narrative of the advisory firm. Each firm lays out their brochure slightly differently, but there is a table of contents to help you find relevant sections. The document can include:

  • An overview of the registered investment advisor
  • Advisory fees
  • Types of clients
  • Background information on advisors
  • Disciplinary information of any legal or disciplinary events

Now you’re a pro at deciphering the SEC Form ADV!

The information in the ADV can be incredibly helpful when researching people in the finance industry or an advisory firm as it can provide indications of significant wealth for individuals and be useful in your due diligence research.

 

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Real Estate, 1031 Exchanges, and your nonprofit

This week our resident real estate expert, Josh Ostroski, shares some great background on a real estate trade called a 1031 Exchange. If someone wants to defer capital gains taxes on an investment property, a 1031 Exchange is a great way to do it, and it can mean opportunities for nonprofits, too. How? Read on! ~Helen

     Josh Ostroski

In my research (and in my previous work as a real estate agent) I’ve come across a particular real estate exchange a few times and wanted to share what I’ve learned and how it can be used for prospect research purposes.

What is a 1031 Exchange?

In a nutshell, a 1031 exchange is an IRS rule that allows real estate investors to defer capital gains taxes to some point in the future by swapping an investment property for another property of equal or higher value. For example, you could sell a single-family rental, apartment complex, etc. and purchase a similar or upgraded investment property and defer paying property gains tax. You are allowed to continue exchanging properties as many times as you want and for as long as you are alive.

Benefits of a 1031 Exchange

Deferring property gains tax allows the investor to have more buying power by having more money to put down on the next property. The investor could also sell their current property for one with a better return on investment.

The investor could diversify their portfolio by adding properties in a different market that may be hot, since there are no restrictions on where the new property is located. They could also improve their portfolio by either consolidating properties, or investing in multiple properties, which would create more potential for wealth. You could also increase your cash flow.

Rental properties are considered depreciating assets, and you can deduct a percentage of the cost of the rental property from your taxable income each year. If you exhaust the amount that can be depreciated, you could do a 1031 exchange, which would allow you to recapture your investment properties depreciation.

You can gift the investment properties to your heirs, and they won’t have to pay the accumulated capital gains. The heirs will inherit the properties in a step-up basis, meaning they will inherit the properties at the current fair-market price of the asset.

Downfalls of a 1031 Exchange

When you sell the property, you need to put the entire initial amount – including the downpayment on the property being sold – back into the new investment, so there is no liquidity event with a 1031 exchange.

When you sell the investment properties you will need to pay the capital gains realized on those investments, which could accumulate to large amount.

There are strict timelines: you have 45 days to identify a new property (or properties).

The process can be complicated and confusing, so some people may not want to deal with the rules and structure. It becomes even more complicated if there are multiple investors.

How it Relates to Prospect Research

A property owner could turn a vacation home that they don’t use into a rental property, then either exchange it for another rental or keep it and gift it to their children or a nonprofit.

If a prospect has investment properties, it could be advantageous for them to gift the properties, so they don’t have to pay the realized capital gains while also accomplishing their philanthropic goals. It can be akin to donating stock or crypto.

There are many factors that would affect if donating a property would make sense for your organization:

  • does your organization accept gifts of real estate?;
  • how much equity is in the property;
  • is the property marketable;
  • are there any additional associated costs with the property?

These are all things to consider.

To find the estimated value of the investment property, there are a couple of simple ways:

  • If it’s a commercial property, LoopNet is a good resource to find comparative values (“comps”).
  • If the prospect has single-family home that is used as a rental, you can see what the normal resale value of the home is by checking Zillow. In addition, Zillow will often list what the last asking rent price was on its listing for that property. If the rental price isn’t listed, I recommend doing a search on the property address to see if anything comes up for that property.

If a prospect has either a vacation home or what appears to be investment properties, let that be known in the profile you create and/or let the gift officer or planned giving officer know so they can talk about options with the prospect.

Here is a link to the IRS Fact Sheet about 1031’s. As always, if you have questions about the legalities of 1031’s seek out a tax attorney for information.

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Corporate Philanthropy and Pledge 1%

By my unofficial survey, almost all prospect researchers and gift officers have heard of The Giving Pledge, the effort launched in 2010 by Warren Buffett, Melinda French Gates and Bill Gates to encourage the “world’s wealthiest individuals and families to dedicate the majority of their wealth to charitable causes.”

To date, there are 242 pledgers from 29 countries around the world.  Most pledgers have penned a letter that explains why they decided to join The Giving Pledge.  The letters also serve as a public commitment, and pledgers often talk about the types of causes that resonate with them.

If one of these pledgers is on your radar, assessing their broad capacity is simple – they are all capable of transformational giving.  More importantly, you can frequently get a window into their philanthropic interests by reading their letters, navigating to their family foundation websites (many have one!), or through any of the other resources we typically use to research philanthropic giving patterns.

Pledge 1%

Less well known is Pledge 1%, which I will call the corporate philanthropy counterpart to The Giving Pledge.  Founded in 2014 by Marc Benioff of Salesforce and Scott Farquhar of Atlassian, the 18,000 companies who have now signed Pledge 1% have agreed to contribute 1% of their equity, product, employee time and/or profits to the social good sector.

Rather than being singularly focused on one metric the way The Giving Pledge focuses on wealth, Pledge 1% champions flexibility, allowing each company to choose the approach that works best for them.

Some companies choose just one of the four categories, while others choose a combination.  Still others deviate from the 1% threshold, sometimes committing more and sometimes committing less.  Rather than holding firm on the parameters, Pledge 1% is “building a movement of corporate philanthropy” and aiming to instill philanthropy into corporate culture more substantially.

While any company can join, the movement specifically targets early-stage companies.  The philosophy is that building philanthropy into a company’s DNA during its nascent stage will allow for a growing impact over time, especially with the understanding that each company’s goal is to scale up and become more successful.  And, as Pledge 1% points out, it is easier to commit when there are fewer decision makers – like outside investors, board members, and large executive teams – involved.

Like The Giving Pledge, Pledge 1% is a worldwide effort.  The companies that have committed to it span 100 countries and almost every industry that you can think of, from the tech industry to venture capital firms, to utilities, to apparel companies, to beauty product and food manufacturers and professional services companies – you get the idea.

While focused on corporate philanthropy, Pledge 1% is, in and of itself, a non-profit organization.  To lean on the expertise of others, it has relied heavily on a partnership with the Tides Foundation, which provides them with strategic advice and philanthropic services, such as managing some of the donor advised funds and private foundations that companies may choose to fund.

To build regional momentum, Pledge 1% has partnered with preeminent non-profits and community foundations in major cities who can help “encourage and challenge” participation from companies headquartered in local communities.  For instance, Pledge 1% Boston is spearheaded by the Boston Foundation and TUGG whereas its New York efforts are led by Robin Hood and Australian Philanthropic Services takes a lead role down under.

So, why should we care? 

For starters, Pledge 1% claims that its signatories have already committed over $2 billion in philanthropic dollars.  That’s a lot of impact.  And, that’s only the dollars – it does not include the volunteer or pro bono hours being donated by employees of Pledge 1% companies or the free/discounted products that Pledge1% companies are offering to non-profits.

Consider Salesforce. Admittedly, they might be one of the largest companies to be part of Pledge 1%.  Even so, their impact alone equates to $240 million donated, plus 3.5 million volunteer hours, plus free or discounted software to 39,000 non-profits.  That’s a tremendous impact.

Further, Giving USA data shows that over the most recent 5-year period, corporate philanthropy is growing faster than any other source.  In 2022, $30 million of corporate philanthropy was reported – a 23.3 percent jump since 2018.

Combined, all these factors indicate that corporate philanthropy is – and will continue to be – a bigger driver of philanthropy in the future.

How do I know if a company has signed the Pledge?

The simplest way is to search the list on the Pledge 1% website.

But, there’s more to it than just knowing which companies. As with The Giving Pledge, it is even more helpful to better understand the specific goals and objectives of each company’s philanthropic programming.

For many Pledge 1% companies, Googling the company name and “Pledge 1%” can lead you to articles and press releases that discuss the company’s commitment.

You may also find some good case studies (for the company you are interested in!) within the Pledge 1% Community Blog.

A company’s website is a good place to dig deeper, and some targeted searching can be helpful.

  • Look generally for references to the nonprofits – or types of nonprofits – the company supports financially, in product, or in staff volunteer hours.
  • Are there references or specific webpages that discuss sustainability, community affairs, community relations, social responsibility, etc. that might point you in the right direction?
  • What does the company’s employee benefits package look like? Do they offer matching gift programs, volunteer opportunities, etc.?
  • If the company publishes an ESG (Environmental, Social and Governance) or CSR (Corporate Social Responsibility) report, you’ll typically find some really great detail in it relating to both philanthropic initiatives and impact.

Lastly, for public companies, you may find some information in their SEC filings. The DEF14A (proxy statement) is a good place to start, but I have also seen references in S-1, 8K, 10-K and 10-Q filings.

Final Thoughts

If you are exploring how corporate philanthropy can help your nonprofit, it will be important to look more broadly than just the Pledge 1% participants.  There are millions of companies that haven’t signed the pledge – and many are still deeply committed to their corporate philanthropy programs.  Many of my search tips will work more broadly as well!

 

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Image credit: Money gift – Pile US dollar banknotes wrapped with bright yellow ribbon by Marco Verch under Creative Commons 2.0

 

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What to know about an IPO

This week Michele Borucki walks us through the sometimes-confusing world of initial public offerings, or IPOs. How do they happen? What are the steps that companies have to take, and why do they take them? What resources can we use to find out more? Michele explains all! ~Helen

Michele Borucki

Assistant Director of Research, Michele Borucki

In the prospect research world, we know a lot about the stock market, probably more than any of us liberal arts majors ever anticipated we would need (or want) to know. Fairly early on in our careers we learn to search EDGAR, paid resources, and even company websites for financial filings (though it may take a few years to completely understand which filing is which, and what the heck are those footnotes actually telling us??)

It can take hours of digging at times, through hundreds of different forms to find what we are looking for, but there at the very beginning is the one form unlike all of the others: the form S-1. The S-1, or “red herring”, is the start of it all for a public company, it’s the initial form filed with the SEC right before an initial public offering, or IPO.

So, why do companies even decide to go public? Well, it’s essentially a fundraising method used by companies. They are able to sell deeply discounted shares to investors, then those shares are traded on a stock exchange at a (generally) higher value. The main motivation to pursue an IPO is that these companies can raise capital from the sale of shares to the public and provide liquidity to company founders and early investors and take advantage of a higher valuation.

There are many steps companies have to take to see their name on an exchange and it can take anywhere from six months up to a year. The process looks a little something like this:

  1. Proposal – Underwriters present proposals and valuations, best type of security to offer, offering price, number of shares, and estimated time frame for market offering.
  2. Underwriting – The company chooses an underwriter, (a financial institution that will buy the shares and then sell them on the open market), formally agrees to terms, and signs an agreement with their chosen underwriter.
  3. Team – IPO teams are formed (underwriters, lawyers, CPAs, and SEC experts).
  4. Documentation – Information about the company is put together for the S-1. The S-1 has two parts, the prospectus and the privately held filing information.
  5. Marketing and updates – Materials are created for pre-marketing of new stock issuance. The team markets the share issuance to estimate the demand and establish a final offering price. Underwriters can make changes to their financial analysis throughout the marketing process which can include changing the IPO price or issuance date.
  6. Board and Processes – A board of directors is formed to ensure processes for reporting auditable financial and accounting information every quarter.
  7. Shares Issued – The company issues its shares on an IPO date.
  8. Post-IPO – Some post-IPO provisions may be instituted. Underwriters may have a specified time frame to buy an additional number of shares after the IPO date. Meanwhile, certain investors may be subject to what are called “quiet periods”. The purpose of the quiet period is to preserve objectivity and avoid the appearance of a company providing insider information to select investors. With an IPO, the quiet period stretches from when a company files registration paperwork with U.S. regulators through the 40 days after the stock starts trading.

There are a lot of pros to companies going public. Of course, the capital raised! They usually get great publicity. Companies can attract better management and skilled employees, have an increase in market share, an increase in transparency, and it’s a great exit strategy for founders.

But there are also some downsides to going public. It’s incredibly expensive. While the financial reporting can be a pro for transparency’s sake, it can also be a con in that not only will board members be held to rigorous standards, but periodic audits are required and public reporting can bring on scrutiny from shareholders, which sometimes results in lawsuits.

There are also distractions caused by the IPO process. If the leaders of a company are focused on going public and wrapped up in that process, they may miss opportunities to enhance a product or overlook an up-and-coming competitor. Lastly, there is investor appetite. Not all companies have a large following, so boards have to decide whether or not there will be enough interest in an IPO to make the shift worthwhile.

Proactive research when it comes to our prospects or donors who are involved in an IPO can be really fun! There are some pretty great resources out there to track upcoming IPO’s:

  • Exchange websites – The New York Stock Exchange (NYSE) and NASDAQ both maintain dedicated sections for IPOs. NASDAQ has a dedicated section called “Upcoming IPO” and NYSE maintains an “IPO Center” section. Exchange websites will also provide access to the official IPO prospectuses.
  • Google News – Single source for all global IPOs, regardless of the exchange or country where an IPO is listed.
  • Yahoo! Finance – Has a dedicated IPO section with details on the IPO date, symbol, price, and links to IPO profiles and news items. It also offers performance tracking of past IPOs.
  • IPO Monitor – Dedicated website that provides specific news for tracking IPOs. Apart from the usual IPO information, it also provides broader market-level statistics under the section called “Current IPO Market Dashboard.”
  • IPO Scoop – Offers information related to upcoming IPOs. Paid subscribers also get access to SCOOP’s ratings for upcoming IPOs.
  • Renaissance Capital IPO Center – Maintains a dedicated IPO section that has a weekly calendar for IPO offerings. It also offers other related content such as articles about the largest U.S. IPOs and the largest global IPOs, in addition to dedicated sections like “IPO News” and “IPO Poll.”
  • And Fidelity has an excellent glossary of IPO terms!

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The RiF Prospect Research Handbook is out today!

Lots of times we might have a brilliant idea to nudge forward (or perhaps even revolutionize) our profession, but then we think, ugh, is it worth it? That would take forever! And we go back to whatever it was we were doing before our daydream.

Fortunately for all of us that’s not what happened back in 2019 when Ben Rymer, then chair of Researchers in Fundraising (RiF), dreamed up the bold idea to create a soup-to-nuts Prospect Research how-to Handbook. In case you’re not familiar with RiF, it’s the professional association for prospect researchers in the UK. Just like Apra here in North America, RiF has a great conference every year (theirs is in November in London) as well as gatherings throughout the year.

The RiF Handbook (available today!), called Researchers in Fundraising: Best Practice Guide and Handbook for Prospect Research has been a labor/labour of love for many of us in the prospect research community. I was lucky enough to be one of the volunteer editors for a segment or two, and I was impressed at what a well-run machine it was, and what a great job that the project’s manager Ally Lee-Dudley, founder of Adcumulo, did of keeping the operation running so smoothly.

I was interested to learn more about the Handbook and the process of creating it, so I got in touch with Ben, Ally, and Chris Davis, RiF’s current chair, to find out more. Sincere thanks to Ben, Ally, and Chris for sharing these great insights!

Helen: Ben, how did the idea come about to do a Handbook for prospect researchers?

Ben Rymer: When I sent the initial proposal to the Chartered Institute of Fundraising (CIoF) in August 2019, I’d known for a while that a handbook/textbook/how-to guide was needed. My feeling was that prospect research was still something of a trade, rather than a profession or discipline. We have a huge amount of expertise, experience and goodwill in the community, but it had never completely crystallised into a finished product so we could build on and improve existing good practice.

HB: What was your initial plan for the scope of the project, and did that change at all as it evolved?

BR: All I knew was that the main areas of research practice should be included. Basically I wanted to create something that I would’ve found practically useful in my first job in the sector. We cast the net wide in starting, with plans for 23 chapters. The big trade-off since then has been in response to volunteer availability. All the content is crowd-sourced, and so we have to work in sequence with the expertise of volunteers who come forward … Also, Covid hit a short time after project kick-off, but we pivoted to remote working pretty well, thankfully.

HB: Ally, how did you get involved with the project?

Ally Lee-Dudley: My involvement with the project began in January 2020 when the Steering Group were looking for a Project Manager to move the Handbook from a great concept to a work in progress. At this time there were not yet any structures, processes, or resources in place so this really was the beginning of the Handbook as an active project.

HB: How many volunteers were part of it?

AL-D: To date around 90 volunteers have contributed to the Handbook, some as writers, some as editors, some as beta-readers, as some as micro-volunteers. Volunteers come from 3 different continents, and around a dozen different countries making the volunteer effort an international collaboration.

HB: How many chapters are there, and how was the decision made on which topics to include?

AL-D: At launch, 8 chapters are available for readers plus a Resource Director and Glossary of industry terms and phrases. There are another 7 chapters in progress which will be published as and when they are completed and a further 11 chapters that are yet to be started. Publishing content on a staggered basis like this means we are able to start getting useful content out and into the prospect research community far more quickly than if we wait for a ‘complete’ Handbook. The original list of potential chapters was developed through discussions between the volunteers who make up the RiF Committee. Over time several additional chapters have been added to that list as a result of suggestions made by volunteers involved with the project.

HB: Chris, as the scope of the project evolved, what changes did that cause you to make?

Chris Davis: As we added more chapters to the Handbook, we found ourselves looking beyond our immediate peer group for input and advice, to those with specific expertise or lived experience. For example, in our chapter on Strategic International Prospecting, we were aware that we needed to get as much input as possible not only from researchers with extensive knowledge of international prospect research, but also from those with experience of living or working in different countries and communities. This was definitely a challenge, but I hope we got the balance right! Similarly, when we start work on the chapter on Equality, Diversity & Inclusion in Prospect Research we’ll be seeking involvement from those who are experts in the ED&I space.

HB: What surprised you most about the process, or what created the most changes or opportunities as things went along?

CD: I think I was surprised by how much content we ended up generating! I knew that the prospect research community would be hugely generous with their time and knowledge, but I was still taken aback at times by the volume of work we ended up producing. At this point I’d have to give a big shout out to our beta-reading and editing volunteers, who were a major help in clarifying and refining the chapters and getting them to where they are now.

HB: Ben, what do you think are the top 3 things that readers will find that might surprise them?

BR: 1. Reach: it is a big thing! Chapters I’ve worked on have ended up being 10,000-20,000 words long. We also have a very broad range of topics, so I think readers will be pleasantly surprised at that.

  1. What’s still to come: by the same token, there are some big chapters in the pipeline, so reader may be left waiting for those. If anyone has suggestions, please feel free to get in touch via the Handbook website, www.rifhandbook.info.
  2. Quality: we’ve put a lot of effort into making the content as good as it can be. For a wholly volunteer-generated initiative I think it is a solid product, but I’m biased of course!

HB: Chris, what do you think are the top things that you think readers will find most useful in the Handbook?

CD: I think that will be different depending on the needs and experiences of readers – throughout the Handbook we’ve tried to ensure that content is relevant for both those who are new to prospect research and for experienced researchers who are looking to innovate and upskill.

For early-career researchers or those who are setting up a prospect research function, we hope our New Researchers Guide chapter and the chapter on The Prospect Research Role will be invaluable. Within the Data & Skills Domain of the Handbook, there is some very detailed, nuanced, and in-depth content on estimating wealth and assigning capacity ratings – topics that we know are of eternal interest to prospect researchers and fundraisers alike!

Finally, we’ve made extensive use of case studies throughout the Handbook, drawn from the real-life experiences of researchers. We hope these will really bring the content the life and illustrate how the principles and techniques outlined in the Handbook can be applied practically.

HB: Chris, what did you enjoy most about the process?

CD: I’ve really enjoyed the experience of being involved in creating content for the Handbook, especially the early stages of this where you are exchanging knowledge with your peers. I’ve been working in prospect research for over a decade, but being involved with the Handbook has absolutely encouraged to rethink some of my settled views about the work that we do, and how we do it. I think the Handbook does reflect this process of peer exchange, and I hope that everyone who uses it will find something new and different in there that challenges their assumptions.

HB: Ally, What tools did you use for collaboration on this massive project and how well did they work? If you had another large collaborative project to undertake, would you use the same tools?

AL-D: The Handbook was always intended to be primarily a remote project, so in that sense we were lucky and the pandemic didn’t significantly affect our plans. In order to help ensure both accessibility of tools at no cost for volunteers and to help embed project sustainability by keeping the financial burden of the project low for RiF, we’ve largely drawn on tools that are available for free. As a Steering Group, our project management hub is a tool called Freedcamp, and this enables us to plot and track actions, deadlines, and milestones and assign task accountability at a strategic level.

For the Handbook’s wider volunteer community, the free version of MS Teams is our collaborative workspace. Teams provides us with a place to create, share, and store documents such as meeting agendas and action plans, and to work collectively on producing and editing content in real-time whilst being able to communicate quickly and easily with each other. Within Teams volunteers can access the web versions of MS Word and Excel so we’re all using the same tools to ensure compatibility plus there is in-build versioning history and storage back-up for those ‘just in case’ moments.  We’ve recently made the switch from using Zoom for our regular meetings to using MS Teams’ video calling service; it doesn’t quite have all the same features as Zoom but it does come at zero cost rather than requiring a subscription to hold meetings for small groups for up to an hour at a time.

The Handbook itself is created using a custom-made WordPress website. We chose the route of e-publishing over hard copy for several reasons and the WordPress platform, with its almost unlimited flexibility and versatility, is the best fit to meet the Handbooks needs both now and in the future. As an e-publication it is not only much easier to keep the Handbook content up to date, it is also far simpler to ensure its availability to readers around the world who can access the content from any device with a web browser.

Overall, aside from the usual occasional IT glitch, (we’ve done the equivalent of turn it off and on again once or twice), the tools we’ve chosen have been effective and created not only a conduit for remote productivity and development, but also a space to come together a a community and experience that sense of being part of a team working towards a common goal that is so important to the Handbook.

Many thanks again to Ben, Chris, and Ally for sharing the inside scoop on the RiF Prospect Research Handbook, and for all of the hard work and coordination that went into creating it! Check out the Handbook website at www.RiFHandbook.info. If you would like to be a volunteer writer or editor for future chapters, please visit this page to learn more.

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Getting started with corporate philanthropy research

This week HBG’s Monique Miller shares her insights on researching companies and the various ways that they incorporate giving and philanthropy in to their community and global strategies. She found some useful resources as well, so if you research companies or engage them as philanthropic partners, you’re sure to find this week’s article helpful. ~Helen

Monique Miller

Ever since I was little, I’ve been interested in processes and complex problems – how things work, how people think, how to understand the world, and how to make it a better place for everyone. So it makes sense that I ended up working in this field, making use of various kinds of information to help mission-driven organizations do their great work.

Soon after arriving at HBG, I started on projects that involved researching corporate philanthropy such as creating company profiles, and prospecting for companies whose missions and interests might fit with those of clients. As I got deeper in, I realized corporate philanthropy is a unique creature and one that would require strategy and focus to yield useful results.

While I’m still refining my approach and tools – and I’ve found these vary depending on the organizations I’m researching and working with – I thought I’d share a few things I’ve noticed about my evolving process in case it’s useful in your work. Maybe it will further conversations at our organizations and beyond around company giving.

Starting with the organization(s)

This is pretty common sense, but I’ve found sometimes that in my excitement to get to work I can be at risk of forgetting why I’m doing this in the first place. This is especially the case when I find myself dealing with a lot of information about a particular company or companies. I’ve found it helpful to ask as a start: What kinds of information are important to my organization? How do my clients like it organized? What kinds of prospects are they looking for? Local, national, particular industries? Understanding who your organization or client is makes for much more effective work. Beyond that, I’ve found profile and prospecting templates can also be really helpful starting places to guide my thinking, especially if I keep them brief at first. I’ve noticed that, ultimately, each research product ends up being a little different depending on the context.

I also take a long and deep look at corporate websites. For me, this can be a fairly daunting experience particularly when looking at large well-established national or international companies. I’ve sometimes found it helpful to go to some trusted resources, such as Inside Philanthropy for guidance. The good folks over there have already sifted through a lot of information for us, and they provide helpful corporate and foundation summaries that have given me threads to follow.

Some other things I’ve noticed:

 Corporate Social Responsibility statements can be helpful

According to Harvard Business School, Corporate Social Responsibility (CSR) refers to the idea that a “business has a responsibility to the society that exists around it” (Stobierski, April 2021). Social-awareness marketing agency Don’t Panic goes even further in this blog post that shares advice for companies on how to do CSR well, but also gives us insight into how companies can think about their corporate giving with a CSR lens.

These resources and a company’s CSR statement (if there is one) can be helpful in determining whether a company would be a good fit with your organization. I’ve noticed that sometimes, a company’s strategy is clear and their philanthropy clearly aligns. Other times, it seems there is poor coordination or there isn’t a coherent strategy at all. This, compounded with vast amounts of data dispersed in different places, can make it hard to make sense of what you’re reading. This is where I’ve found conversations can be helpful. Are there particular types of gifts they’re interested in, say, by dollar amount, by topic, or certain years? Giving patterns can also help you deduce a strategy when one might not be explicit.

Corporations can have more than one giving vehicle

  • Foundations

According to Inside Philanthropy (2022) a corporate foundation is a private foundation whose money is contributed by a for-profit business. They rarely have an endowment and grant-making is often tied to the company’s geography or target market. Corporate foundation giving can be very focused, particularly when tied to a philanthropic strategy; sometimes company foundations have a formal grant application process and sometimes they don’t (or it’s not clear or available). Sometimes grants are administered through a donor advised fund (DAF) housed at a community foundation or other sponsoring organization such as a bank.

In researching foundations, I noticed that gift reporting in Form-990s is always a few years behind. I’ve tried to fill those gaps by doing web searching or looking for gifts from a company foundation that are reported in grantees’ annual reports. This has impacted my ability to be conclusive about giving strategies when I can’t find one on the web. I couldn’t conclude, for example, based on a few gifts I found in the news from 2020 that all corporate foundation giving was to X organization or in support of X type of organization for that year.

  • Corporate Giving Programs

Corporate giving programs seem to take the shape of grants/gifts, employee matching, company sponsored employee volunteering, event sponsorships (get ready to get cozy with your favorite web browser to find these!), and more. These programs can sometimes align with a stated philanthropic strategy or CSR statement (where they exist), but oftentimes I’ve had to try to deduce a strategy based on the philanthropy I find from a company. And sometimes that’s not possible because of the large number of varied gifts and I have to be strategic about what gets reported/analyzed. Again, checking in with my team helps here so I avoid going down a rabbit hole and potentially inundating my readers with information.

Due diligence continues to be important, possibly even more than ever

Like me, you may have noticed that the COVID-19 pandemic, coupled with increasing discussion of systemic inequalities, may be pushing companies toward greater commitments to social justice causes and positive social change. These commitments inspire hope that a better world is on the way. At the same time, this moment may require us to scrutinize potential donors, ourselves, and our own organizations even more than ever before. As others have suggested (for example Scutari, June 2020), this moment of great financial vulnerability and strong need for change will require that we have thoughtful conversations and ask difficult questions. We will need to make decisions about where we want to draw the line on accepting gifts from particular donors (corporations or otherwise). My sense is that this is best done collectively and thoughtfully, and, thanks to our colleagues in prospect research and nonprofits, these discussions have already been happening. My hope is that we can keep this going and play an active role in positively shaping the future of the nonprofit world and beyond for everyone.

A couple of other resources

 

References

Inside Philanthropy. (2022, January 24). IP explainer: What is a corporate foundation? https://www.insidephilanthropy.com/home/2022/1/24/ip-explainer-what-is-a-corporate-foundation

Scutari, M. (2020, June 25). Scrutiny of donors and ‘reputation laundering’ is growing thanks to COVID and protests. Inside Philanthropy. https://www.insidephilanthropy.com/home/2020/6/24/scrutiny-of-donors-and-reputation-laundering-is-growing-thanks-to-covid-and-protests

Stobierski, T. (2021, April 8). Types of corporate social responsibility to be aware of. Harvard Business School Online. https://online.hbs.edu/blog/post/types-of-corporate-social-responsibility

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How much is that private company worth?

Finding information about public companies is so easy! Unfortunately, the majority of companies in the world are privately-held, so finding information about them – especially how much a company is worth – is a daunting task. Thankfully, today my colleague Grace Chandonnet provides a huge hand up for those of us who aren’t professional company valuers with this enormously helpful article. ~Helen

Grace Chandonnet

                Grace Chandonnet

It’s an age-old prospect intelligence challenge. Especially if you’re new to our field, placing a value on a privately held company, and on your prospect’s stake in that company, can seem daunting. Publicly traded companies are required to report their financial information to the SEC, and that information (things like market capitalization, revenue, number of employees, and insiders’ stock holdings), is then available to the public. Privately held companies are not under the same legal obligations, so getting at their financial information is a bit trickier and less straightforward. The good news is that there are some pretty simple tricks that can help a researcher arrive at a reasonable guess as to the value of a private company.

You will need a couple of pieces of information, and the fact is that sometimes you will not be able to know enough information to make a realistic estimate. But there are some resources to help.

If you can uncover a reliable estimate of the company’s revenues, that’s a great start. The unicorn is to find a news article, often published in business or industry publications, that is talking about the company’s industry and uses your prospect’s company as an example. In this article, the exact amount of revenue is not reported, but enough information is provided about the company, a provider of solar energy, to figure it out. The company “reported a 124% gain over 2018 gross sales – an increase of $42.4 million” – when you do the math, you will arrive at 2019 gross revenue of about $76.6 million.

If I have information like this, the first thing I will do is try to find one or more publicly traded companies with a similar line of business and similar revenue, and then compare the public company or companies to the privately held one that I am researching. To find similar public companies, I use a stock screener like this one, which is a free resource.

Select Create Custom Screen and then pull down on Select Category to Current Financials and select Revenue. Enter the revenue criteria (I use a range of values, in this case between $60M and $80M). Once you’ve entered that and clicked in the box to activate the search, go back to the pull-down menu. Pull down to Company Overview and then click on Industry (scroll down in the box, it’s slightly hidden). For this example, I picked “Alternative Electricity”. As you’ll see in the image, there is only one search result, but it’s a good one – click on View Screen Matches to see results. The piece of information to look for in those results is the market capitalization or market cap, which is the total value of the publicly traded company because it is reasonable to assume that there is some similarity between the market capitalization of the public company ($373.1 million) and the value of the private one.

If I have multiple companies in my search results, I will use the average market cap for the companies in the list that are the most similar to my prospect’s company. When doing this, I leave out any outliers – where the market cap is a lot lower or higher than most of the companies in the list.

If, however, you know that your prospect is trying to sell her company or that she already has, the value you want to look for is the enterprise value rather than the market cap. Enterprise value is the amount that a company could fetch in an acquisition. You can find this number by looking up the comparison public company or companies at any number of free sources. I like Yahoo Finance, where you can find the enterprise value under the Statistics tab.

Of course, a good deal of the time, you won’t find an article that tells you exactly what your prospect’s company’s revenues are or there just won’t be good comparison public companies in your search – sometimes a close industry match isn’t available or (if you do have an estimate of revenue), there won’t be any companies with revenues in that range.

My second go-to in cases like this is the Business Reference Guide, which is a paid resource, but not terribly expensive. This resource is available as an online subscription, a book, or both. It is focused on pricing businesses and franchises and is geared toward entities that are seeking to buy a company or franchise.  It is chock full of industry benchmarks and trends, rules of thumb when assessing certain industries or franchises, and ways to assess a ballpark figure for what a company is worth using a host of different data points that you may have. If you have an estimate of the number of employees a company has, for instance, you can often find a simple multiplier to use to estimate a company’s valuation.

This of course brings us back to whether you have that information and where to find it. I like to look at my prospect’s company in several different resources, including Dun & Bradstreet and ZoomInfo, both of which are included in a Lexis Nexis for Development Professionals (LNDP) subscription, and see how these resources’ results compare to one another. If you have access to LNDP, you not only have access to both of these resources, but also to a host of others, including Gale Group Company Briefs, IAC Company Intelligence, and Lexis Nexis Corporate Affiliations.

iWave is another great source of aggregated company information. Dun & Bradstreet has often been maligned in our profession for not containing trustworthy information because its data is frequently based on self-reported numbers and/or modeling, so it should be taken with a grain of salt. I’ve been finding lately that ZoomInfo often returns data about revenues and number of employees that seem pretty accurate to me. With practice, you will be able to identify which information is probably wildly inaccurate versus information that seems quite reasonable. D&B Private Company Insight (also available in LNDP) often has information about what percentage of the company is owned by whom, and this is great to know. Estimating the value of a company is one thing, but knowing how much of the company your prospect owns is the next (and important) step to including these numbers in your capacity score.

The more you do this kind of research, the more you will trust your instincts about what seems to be relatively accurate numbers, both for revenue and number of employees. There will always be things we can’t know abut a privately held company, such as the value of inventory or machinery and other hard assets, and debt/liabilities, but I believe that we should at least attempt to understand what a privately held company could be worth when assessing a capacity rating for a business owner, and I also believe that these relatively simple calculations can result in a strong estimate.

Some additional things to consider:

  • What percentage of the company does your prospect own? If you don’t know, estimate conservatively – I like to use 10 to 25 percent ownership.
  • Is it a multi-generation family business? This could indicate that there are minority shareholders (family members) and should be taken into account when assessing your prospect’s true stake.
  • Did your prospect found, grow and continues to head the company? This could indicate 100 percent ownership for your prospect.
  • Is it venture funded? Investors will own some stake in the company if so. Sometime the percentage of company owned by the investors can be found in a news search, but not always. If not, be conservative when estimating what your prospect’s ownership percentage is.
  • A company’s valuation is not a liquid asset for your prospect until/unless she sells it, but it is an asset that should be included in your capacity rating, just as real estate values are.
  • It is conventional wisdom that privately held companies are often not as valuable as publicly traded ones, so as for all the other steps, be conservative in your estimates.

Good luck – and remember: sometimes you just will not have enough information to make a reasonable guess about a company’s valuation and this is not a bad reflection on you or your research skills!

 

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December edition – Who’s Doing Well Now?

It’s been eight months since I did a blog post on the topic of “Who’s Doing Well Now” and I thought the end of the year – giving season – might be a good time to revisit that question.

If you read that original blog post and the follow-up white paper, many of the industries from that period remain at the top, but over the summer innovation (and pivotation) pushed a few other companies and industries into the spotlight. I wanted to share my resources to help you dig a little deeper to find prospects that might be flying under the radar a bit.

For example, it’s not a secret that puzzles and games are doing well, so of course we should look into who makes them. Manufacturers like privately-held (and very diversified) Allied Materials and Equipment Co. of Kansas City, MO, whose subsidiary Allied Products is the maker of Springbok puzzles, are doing well this year. According to their website, Allied also makes American flags that fly “over some of our nation’s most important institutions as a result of contracts with the United States Senate, Department of Defense, and GSA recipients.” Those flags are also used for military (and veteran) keepsakes and burials, which unfortunately have seen an uptick this year. Allied’s DOD contracts also extend to military equipment, such as chem/bio life support systems.

Want to find more suppliers with US government contracts? There’s a database for that: https://www.usaspending.gov/. You don’t have to know the name of the company, either. If you’re prospecting, the surprisingly well-built search tool allows for a large array of filters, including recipient (awardee) type, NAICS code, state, zip code, and congressional district.

Specifically interested in companies that have received contracts for COVID-related purposes? You can find that on the USASpending site, but ProPublica has also created a very search-friendly tool at https://projects.propublica.org/coronavirus-contracts/ for finding companies that have recently increased sales due to government contracts.

In the Washington, DC area, it would be natural to think that the fastest growing company would be a government contractor. Holistic Industries, which has grown 447% over the past three years and is considered an essential business will probably not be a DOD contractor anytime soon, though. The cannabis retailer reported growth over 30% for the first quarter this year and beat estimates for Q3 by $3 million. CEO and University of Maryland alumnus Josh Genderson has hopes to double sales next year. Cannabis retailers can’t use traditional banks to park their money, and they frequently donate to local nonprofits to prove their place in building up community. If your nonprofit doesn’t include cannabis retailers in your due diligence ‘no-no’ list, you may want to check out your local retailer’s leadership.

With the disruptions in the supply chains over the past several months, grocery retailers have needed to utilize more cold storage facilities to keep things fresh and relatively close-by. Two companies control nearly 60 percent of all of the cold storage in the US – Lineage Logistics and Americold Realty and both are growing quickly, according to The Wall Street Journal. The CEOs of both companies are graduates of Midwest universities that mention nonprofit interests on their LinkedIn pages.

I found the three specific company examples mentioned above by searching for “companies doing well” and limiting my search dates, but there are other resources (stronger than a search engine) that you can use to prospect for successful industries and companies (and the people who are doing well because of them) right now.

One of my all-time favorites is an expensive resource that used to be found only in hard copy in business libraries: ValueLine. Imagine my delight when I learned earlier this year that not only is ValueLine online and searchable, but my library card to my little local library gives me free access to it. (Maybe yours does, too?) ValueLine gathers information about 6,000 publicly-held companies and 18,000 mutual funds (as well as other invest-ables) and provides insights on which companies and industries are “timely” (how they’re doing as compared to others in their industry) and “safe” (the likelihood that the company will continue to do well over the coming months – or not) at the current moment.

My search in ValueLine this week showed that 26 companies are at the Venn diagram nexus for both growth and safety. The list includes several you’d expect like Clorox, Costco, General Mills, Home Depot, JM Smucker, Procter & Gamble and Walmart, with a few interesting ones like Jack Henry & Associates (payment processors for the financial services industry); Landstar (shipping and logistics); and Synopsys, an electronic design automation company focusing on silicon design, verification, and intellectual property and software security and quality.

Another resource to check for companies doing well right now is the Fortune Global Fastest 100, a listing of the fastest-growing companies in the world. I like to break their list down into industries to get an overview of sectors that are growing quickly in order to spot trends and outliers. This year the top three categories for growth are commercial banks; homebuilders, engineering, construction, and building materials; and internet services and retailing.

One last resource I wanted to mention is LinkedIn. Since it was first published on March 31, senior editor Andrew Seaman’s article, “Here’s Who’s Hiring Right Now” has been regularly updated. Its long list of companies that are doing well enough to be hiring this year is worth a look for prospecting ideas.

What places are you looking when you’re prospecting these days?

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What on Earth is a SPAC?

A few weeks ago I was doom-scrolling Twitter and saw a link to yet-another article about SPACs and thought, “I really need to know more about these things.” My colleague, Kenny, has been casually dropping the term in our team meetings for a while, while talking about research he’s been doing, and I realized it was about time I stopped faking that I knew what he was talking about.

So I did a search and got lots of articles about Space-X, because “SPAC” and Twitter’s sub-par search engine don’t mesh. Sigh.

My bad…

If you’re looking for a lost shoe, chances are good it’s not in the refrigerator.

So I stopped being lazy and did the smart-researcher thing, which was to go directly to Investopedia. I knew it would have the answer, and who has time to waste? (Well, me apparently, because I fell through the prospect research rabbit hole and spent another two hours learning about SPACs!)

There are lots more resources I’m going to link you to at the end of this article that explain things fairly clearly including a fascinating, detailed, inside-baseball explainer from Bill Gurley, a venture capital deal-maker in Silicon Valley.

But first, I’m going to share the basics.

A SPAC is a Special Purpose Acquisition Company. Anybody can start a SPAC. You can start a SPAC. You don’t need a special license or anything. You just need to be able to raise money. (Hmmmmm)

A SPAC is a publicly-held shell company formed by an investor or group of investors, also known as sponsors. These sponsors usually have knowledge or expertise in a certain industry sector.

The ultimate purpose of a SPAC is to merge that shell with a promising privately-held company in order to take that company public without the hassle or cost of the traditional IPO process.

The sponsors will do a roadshow to institutional investors like family offices and private equity firms to drum up interest in investing in this shell company. You might see a SPAC referred to as a “blank check” company, because investors are essentially putting money toward something that doesn’t exist yet.

The sponsors might (or might not yet) have a few companies in mind that they will approach for a merger, and they’re not supposed to tell the investors even if they know – at this stage anyway (more on that in a minute).

Anyone can invest in a SPAC, too, including you and me. Shares traditionally open at $10 each.

Once there’s enough money in the pot, it goes into a blind trust. The SPAC has 24 months in which to acquire/merge with the target company. If they aren’t able to do that within 24 months, all of the money gets returned to the investors.

Now, once the SPAC sponsors have decided on a company to merge with, they can go back to the institutional investors and tell them (in confidence) about it, and ask if they want to put in more money. This is what is called a PIPE deal – a “private investment in public equities.” It sounds a little sketchy, but institutional investors are not allowed to share this insider information, and they’re not allowed to trade their shares for four months after the merger. Retail investors – you and me – can sell or buy anytime.

Who’s making money, how, and how much?

So let’s say the SPAC merges with a privately-held company. What happens then? Who makes money? How do they make money?

Let’s start with the sponsors. They make money in fees: 2% of the SPAC’s value plus $2 million for administration. Plus any profit off of the sale of shares or increase on money they put in.

The owners of the privately-held company make money when their shares increase in price and/or they sell them. In addition, they save money because the IPO process is expensive, with lawyers and investment banks and lots of other people to pay. By merging with a SPAC, they’ve avoided all of that payout.

The institutional investors make money when their shares of stock increase in price. In addition, when they originally invested they were likely also given a warrant to buy future shares of stock at a discounted price at/after a particular date. Assuming that the share price has gone up, that can make for a tidy profit.

So that’s the overview of SPACs. Don’t miss these articles and resources that fill in more of the gaps:

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Real Estate in the Age of Coronavirus

COVID-19 has impacted every single industry, usually for better or worse. But with real estate, the impact of the pandemic has been both better *and* worse, depending on the area of real estate you’re looking at. In today’s article, my colleague Josh Ostroski brings his deep knowledge of real estate to help us understand how our prospects who work in real estate (or who own well-placed properties) may be impacted now. ~Helen

There has been a lot of talk about real estate trends during the coronavirus pandemic. We have all heard about the urban exodus, housing prices increasing, and people working from home. I wanted to dig a little deeper to see if what we’re hearing is true or merely anecdotal and the reasons why.

The Urban Exodus

We have all heard that families are leaving cities to find more space in the suburbs. As the country was in lockdown, many people began to re-think what was important to them. With restaurants, bars closed, and shops closed, along with food delivery service expanding to more rural areas, there was less of need to be able to walk to amenities. However, according to a recent report by Zillow’s Economic Research team, they found that in most areas of the country “suburban housing markets have not strengthened at a disproportionately rapid pace compared to urban markets.”

There are some outliers, such as the Northeast, where new pending listings in urban zip codes re-accelerating more slowly than in the suburbs. “Some regions saw stronger evidence for a suburban-urban diverging trend than others. For example, in the New York City metro, home values in urban ZIP codes were decelerating in June relative to pre-COVID trends ( -0.2 pp) while suburban ZIP codes were accelerating (0.2 pp).

The same trend holds in Boston with urban home values down 0.5 percentage points and suburban homes values up 1.3 percentage points. However, this deceleration was already a trend (comparing February YoY to January YoY) in the Northeast Region overall, and the New York City metro.

Conversely, the Chicago metro area experienced the exact opposite trend with growth, decelerating in suburban areas while urban areas accelerated. And areas like Philadelphia and Miami saw accelerated growth in both regions, but more so in urban ZIP Codes.”

San Francisco is seeing a trend to becoming a buyers’ market, as inventory and days on market are up. According to Zillow’s report, “in San Francisco, list prices have fallen 4.9% year over year and inventory has risen 96% with a flood of new listings. Higher levels of inventory, up 96% year-over-year following a flood of new listings during the pandemic, are sitting on the market in the city proper, a significantly larger jump than the surrounding suburbs. In San Francisco, though, the softening is clear as sellers flood the market with their listings and buyers have not changed their pace to match.”

The markets where the largest share of renters in the center city would gain the power to buy if they looked outside city limits are San Francisco, Seattle, Washington, D.C., and Boston.

Check Out These Market Trends

Zillow: 12 mid-sized markets to watch

Realtor.com: Hottest Zip Codes

Insurify: Cities with the greatest pandemic real estate booms

Housing Price Increases

Normally in an economic crisis, housing prices drop. However, in this pandemic, prices in many locations have increased. Part of the reason is the drop in demand was matched with a drop in supply at the same time, protecting prices. Then when people began to look to move, the lack of supply has created a seller’s market, increasing prices.

Historically Low Interest Rates

Interest rates are still at an all-time low, so buying a home is more affordable. There has also been an increase in homeowners refinancing, putting themselves in a better economic situation.

Lender Standards

During the housing crisis of 2008, the use of subprime mortgages and lenient qualifications caused homeowners that were not really qualified to purchase homes out of their price range. When prices plummeted, they owed more than the house was worth (became “upside-down” or “under water” on their mortgages). Since then, the government and mortgage lenders have become much stricter in their lending qualifications. That means more homeowners are qualified now. According to CoreLogic, lenders have tightened credit requirements or increased payment requirements, making riskier loans less common. This helps to protect homeowners in a down market.

Home Wealth Gains

According to the Federal Reserve, housing wealth is a major component of total household wealth in the United States. According to the National Association of Realtors, “as of 2018, a homeowner who purchased a typical existing home five years ago (2013) gained $79,488 in wealth (equity), of which $64,200, or 81 percent was from the home price appreciation ($197,400 in 2013 to $261,600 in 2018).”

Home equity is at an all-time high in the U.S., which has not only helped weather the economic downturn, but has allowed homeowners to use that equity to their advantage by having flexibility to be able to sell their home for something that works better for them, like investing in another property (which can generate rental income), home renovation (which further increases the home value), a child’s college education, emergency or major life events, or expenses in retirement. National Association of Realtors has calculated equity reports on 181 metropolitan areas.

Default rates have also remained low during the pandemic. According to ATTOM Data Solutions, “Equity-Rich Properties Continue to Outnumber Those Seriously Under Water by Four-to-One Margin; Portion of U.S. Homes Considered Equity-Rich Ticks Up to 27.5 Percent; Seriously Under Water Properties Down to 6 Percent.”

Second Homes

Another trend that we are seeing is people are moving into their second home and using it as their primary residences. According to an article in the Colorado Sun, schools in Aspen, Vail, and Crested Butte reported record interest in enrollment as part-time resident relocated to their second homes. At the same time, the market has seen increased home sales in these resort towns as people are wanted to get away from cities.

This is also happening in New York City, which was one of the hardest hit cities by COVID-19, where people are moving into their upstate NY, Hamptons, and CT homes.

Real estate agents are also seeing an increase in people that live in cities, but are renters, buying second homes outside of the city.

As researchers, we should keep an eye on surrounding communities outside of cities that were historically vacation areas to see if there is an increase in sale prices. This could also trigger people to sell a home in a vacation area to take advantage of the increased demand.

Commercial Real Estate

One industry that is struggling is commercial real estate. As many businesses struggle to stay afloat, they have not been able to pay rent and commercial real estate companies are feeling the effects. Also, since many companies are having their employees work remotely, they are finding out they don’t need all the space they have and once their lease is up, they are either looking for smaller space or going fully remote.

Physical distancing is also changing the physical layout needed in office areas, meaning that potential tenants are going to demand less open spacing (can this mean we can finally put a nail in the open workspace concept?), updated HVAC systems, and improved amenities.

There is an increased demand for warehouse and storage space, as e-commerce has surged. Biotech companies are also seeing increased demand for lab space.

I think it would be smart to look at a commercial real estate firm’s portfolio and see what types of companies are in their portfolio. Consider using the HBG Whitepaper on who is doing well to help you determine if the RE firm has any of those clients or companies in industries that are doing well. At the same time, if the portfolio is full of restaurants or retail it could mean lean times for the commercial real estate firm.

Also, be on the lookout for commercial real estate firms to take advantage of opportunities to acquire properties at a good price and build their portfolio. Here is a good place to keep an eye on commercial real estate transactions and news.

Working Remotely

Due to the pandemic, many people were forced to work remotely. According to Business Insider, following the pandemic more than half of Americans want to continue working remotely while two-thirds of companies may render their current work-from-home policies permanent. A few major companies have announced they will continue to have employees work remotely, including Google, American Express, Uber, and Airbnb. REI plans to have its employees work remotely indefinitely and recently sold its brand new headquarters in Bellevue, WA to Facebook for $368M.

The National Association of Realtors created a Work From Home Score that studied “3,142 counties that are best poised to provide a supportive environment for working remotely, mainly, working from home.” They used nine factors to calculate the score. The top 30 work from home counties represent the top 1%. The top five counties include:

  • Forsyth County, Georgia

Part of the Atlanta-Sandy Springs-Alpharetta metropolitan area, 11.3% of the workforce already works from home and 99% of the population is served by three or more broadband internet service providers (ISPs). It’s a fast-growing area, and the population rose nearly 21% over the last five years.

  • Douglas County, Colorado

Part of the Denver-Aurora-Lakewood metropolitan area, 11.7% percent already work from home and 98% of the population is served by three or more broadband providers.

  • Los Alamos County, New Mexico

Part of the Los Alamos micropolitan area and the Albuquerque-Santa Fe-Las Vegas combined statistical area, less than 3% work from home but what stands out is that 68% of the workforce work in office-using industries. Homes are very affordable and only 11% of homeowners pay  30% or more of their income on their mortgage.

  • Collin County, Texas

Part of the Dallas-Fort Worth-Arlington metropolitan area, 8.6% of the workforce work from home, and its population expanded 17% from 2014 to 2019, indicating it is a fast-growing county.

  • Loudoun County, Virginia

Part of the Washington-Arlington-Alexandria metropolitan area, 7.5% of residents work from home, with 44% working in office-using industries. 100% of the population is served by three or more ISPs.

These areas could also be a good place to keep an eye on if you have prospects living there as they could see an increase in their property value. It is also going to change the type of home people want to purchase, which may now include two office spaces and an area that can act as a home school.

What trends are you seeing in your area?

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