July 23, 2016; Fresno Bee

NPQ has talked itself hoarse about the folly of nonprofits overinvesting in real estate. Still, boards often see the buying—or even leasing—of an overly ambitious space as a sign of having come of age. Doing so, though, can weigh the whole operation down with fixed costs and can cause serious damage. Beware the leader that sells growth as primarily connected to bricks and mortar.

Hugh Ralston was CEO of the Central Valley Community Foundation for only two years before he parted ways with the foundation in June. All the board will say about that short tenure is that the reason for departure is “a confidential personnel matter.” Still, during his tenure he managed, with the board’s blessing, to more than triple the foundation’s rent bill.

The Central Valley foundation announced in a press release that it had “officially parted ways” with Ralston in mid-June, and a former foundation board member who served as interim CEO before Ralston was hired retook the interim position. But just as Ralston left, the problems that had occurred under his watch at the Ventura County Community Foundation, where he had been president for 11 years before he took over at Central Valley, were beginning to surface in the press.

As Ralston exited Central Valley, newspapers in Ventura County were reporting on the results of a seven-month review by accounting firm KPMG, which found that some donor funds at the Ventura County Community Foundation had been undervalued as a result of mismanagement dating back to Ralston’s tenure. Among other things, KPMG found that some permanent funds had been invested in low-interest money market accounts and excessive administrative fees charged to some funds. The state attorney general’s office has been informed and will be guiding the foundation on how to make it right with the donor accounts out of its unrestricted revenue.

But these additional liabilities are simply more straws on the camel’s back. Ralston oversaw the purchase of a 55,000-square-foot building during his tenure that was to house the foundation’s offices and provide below-market-value lease space to qualifying nonprofits. That building, after improvements, represented an investment of about $11.3 million. Four years later, that building was first listed for $11 million, but that asking price was later lowered to $9.8 million. Meanwhile, the Ventura foundation’s staff has been reduced from 22 to five, and those employees that stayed saw cuts to their pay of 20 percent. Its 24-year-old Center for Nonprofit Leadership, a capacity-building operation, was also closed.

In Fresno, an expansion plan that drove the Central Valley Community Foundation’s monthly rent for 2,770 square feet of office space from $4,783 to $17,093 had just been completed. Yet the interim CEO in Fresno described the timing as coincidental. Both in Ventura and in Fresno, the boards said they endorsed the growth plans and increased spending.—Ruth McCambridge