by Dennis Bidwell
April 2013
Take-aways from this gift scenario:
- Approval of this gift involved various departments at George Washington University: Planned Giving, Risk Management, Legal, Facilities Management, CFO, and Vice President for Advancement. It all worked smoothly because GWU had previously invested time in thinking through the procedures for evaluating and accepting real estate gifts such as this.
- The gift was made possible by GWU’s access to $1,000,000 of “working capital.” It turned out to be a pretty good use of capital: a return of 75% on a $1,000,000 investment, in four months time.
- Word of this transaction is working its way through the Capitol Area brokerage community. GWU has already received other inquiries about bargain sales.
In mid-2012 George Washington University was contacted by the owners of a very large penthouse condominium in Washington, DC – a GWU alumna and her sister. The owners had consolidated what had previously been five separate units, and extensively renovated their enlarged unit in the 1980s. The donors’ recent appraisal valued the property—including four parking spaces—in excess of $2,000,000.
The donors understood that there was a way to make a partial gift of their condominium to the university, so that they could emerge with some cash on their part. The parties agreed that a bargain sale would work for all involved. For the donors it would provide a lump sum of cash, a substantial charitable deduction, and reduced capital gains exposure. The arrangement would also relieve the donors of the hassle of marketing the property themselves.
Once there was a meeting of the minds as to the basic terms of the gift, GWU undertook extensive due diligence, including a home inspection, a Phase I environmental assessment, and a life safety inspection. GW also commissioned its own appraisal.
Once due diligence investigations proved satisfactory, the parties proceeded to closing. In December, 2012, the university paid the owners $1,000,000 for their property, using funds from its General Fund. The difference between that sales price and the appraised value determined by the donors’ qualified appraisal will be treated as a charitable contribution by the donors.
GWU immediately listed the property for sale, and found a motivated and qualified buyer in fairly short order. In March, 2013, the university sold the property for $1,900,000.
In the end, the net value of the gift to GWU was about $750,000—the $900,000 difference between their purchase price and their sales price, less about $150,000 in expenses (realtor fee, due diligence costs, transfer taxes, closing costs, etc.)
– Thanks to my colleague Chase Magnuson at GWU for providing the basic facts of this case study.