This past summer, I hosted five Morehead-Cain Scholars here in Baltimore for an eight-week study on capital grantmaking — the kind of philanthropy that funds construction, renovation, and equipment purchases for nonprofits. Our project began with a simple request from a mentor: “Tell me everything you know about capital grantmaking.”

I sat down and drafted a quick two-page memo, eager to supplement it with external resources. To my surprise, I couldn’t find much. Curious, I reached out to philanthropy colleagues across Baltimore to learn about their own approaches and tools for capital grantmaking.

Those conversations confirmed what I suspected: There are very few resources available, especially for a funding strategy that is often considered a foundational pillar of philanthropic giving. Moreover, it’s difficult to find research on how nonprofits are currently managing capital projects and what donors should consider on capital grantmaking during these times.

After years of federal and state stimulus, capital projects are adapting in a volatile environment defined by shrinking funding streams, inflation, construction delays, and a shrinking labor force. Nonprofits are still building — but often under extraordinary strain. What do funders need to know?

Drawing from my 25 years in the nonprofit sector, five years focused specifically on capital projects, and this summer’s research, I’ve distilled a few lessons worth sharing — about what makes these projects succeed, where they most often stumble, and how both funders and nonprofits can approach them more effectively.

Capital projects place an outsized burden on smaller nonprofits

Capital projects require time, technical knowledge and significant administrative capacity.

In many cases – even within mid-sized organizations – these projects are managed by staff who may have limited experience navigating construction timelines, permitting processes or real estate decisions.

Nonprofits that successfully manage large building or renovation projects often have specialized board members, staff with relevant expertise, or access to external support through funding or services donated free of charge. These would include project managers who represent the nonprofit’s interests during construction (a.k.a. owner’s representatives), architects, and developers.

Fundraising for the projects can divert attention from core programming, adding stress to teams that are already stretched thin. For smaller nonprofits, this dynamic can be particularly challenging.

Funders need shared infrastructure for collaboration and guidance

Early and coordinated funder engagement can make a huge difference. Foundations are well-positioned to share lessons across projects, identify red flags and foster better project outcomes across the community.

What’s needed is a more formal platform for funders to discuss capital projects and collaborate with external experts in finance, real estate, architecture, historic preservation and more.

Between 2020 and 2025, a wave of public funding helped many capital projects move forward. But as those resources tighten – especially from federal and state sources — the need for strategic collaboration and shared learning becomes even more pressing. Funders must not only collaborate more deeply but also invest in understanding the lessons our nonprofit partners have already learned.

Nonprofits should build in extra time, resources and contingency funds.

Capital projects are increasingly unpredictable. Inflation, supply chain delays, tariffs and a shrinking construction workforce — driven in part by changes in federal immigration policy — have all contributed to volatile costs. As a result, project bids are harder to pin down, and delays can have expensive ripple effects.

Nonprofits should plan for extra time, extra resources, and generous contingency funding for unexpected expenses – many budget for upwards of 20 percent. Phasing projects — that is, breaking them into manageable stages – can be a helpful strategy for adapting to shifting financial realities.

Fundraising for the building is one thing. Maintenance is another.

One insight that emerged strongly from this summer’s study was the need to look beyond the build. Too often, the focus is on raising capital for construction, but maintaining the new or renovated space presents an ongoing financial challenge.

For many after-school or summer programs, a “capital” expense may take the form of a van used to transport students. While organizations often seek funding to purchase the van itself, they frequently struggle to cover the ongoing costs associated with operating it — including the driver, fuel, insurance and maintenance.

A similar challenge arises with brick-and-mortar projects. Given the constraints on available funding, it is essential that funders request detailed maintenance budget projections and compare them to historical operating costs to ensure long-term sustainability. How will the organization manage increased utility bills, custodial services, security costs, as well as any loans that may need to be paid associated with the project? What is the long-term facilities plan?

Innovative use of space can create revenue opportunities.

Some nonprofits are finding creative ways to offset maintenance costs by treating their space as a revenue-generating asset.

Wide Angle Youth Media here in Baltimore uses its space for evening and weekend programming. During off-hours, the organization rents its studio space and equipment to video and film companies, generating revenue that helps cover operating costs.

In Baltimore, charter schools are primarily funded through a per-pupil allocation provided by the local public school system. One charter school that was recently offered a new space for expansion is exploring scaling up its pre-kindergarten program, which is funded through state resources. This strategic expansion has enabled the school to diversify its funding streams.

Funders should encourage this kind of strategic thinking and ask how the organization might optimize use of space and assets across a 24-hour period or towards diversified funding streams.

Early decisions matter a lot.

Foundational questions — whether to rent or own, whether to retrofit an existing space or pursue new construction, and whether to renovate a historic building – can have significant financial consequences.

One organization in the study shared that their project costs ended up doubling due to an early-stage decision to use historic preservation, and the associated tax credits, in their building strategy. If they had had better information upfront, they may have chosen a different path.

These decisions should be made carefully, with clear involvement from both capital project experts and community stakeholders — especially the communities served by the nonprofit. Community voices can be engaged through board representation, participatory design processes and grassroots fundraising efforts.

Funders are more than just financial support.

Funders often see dozens of projects each year. One of our greatest untapped strengths is the ability to carry ideas and lessons learned across projects. We are not only sources of funding; we are also connectors, question-raisers and sense-makers. By sharing what we see and know, we can help elevate all the projects we touch.

The findings from this research, captured in our full report, point toward a common goal: better coordination between funders and nonprofits, and a stronger shared understanding of what it takes to build well in unpredictable times.

These are lessons worth carrying into the next grantmaking cycle — and the next generation of this evolving landscape of philanthropic investment in capital projects.

This post was originally published on Next City.