Spend Your Time on the Right Real Estate Gift Prospects

Spend Your Time on the Right Real Estate Gift Prospects
by Dennis Bidwell
March 2012

My last article – “Good Real Estate Gifts Happen with a Little Effort” – showed that an organization will greatly increase its opportunities to attract “good” real estate gifts if it invests in marketing its interest in real estate gifts and, better yet, if it initiates conversations with prospects who fit the profile of a likely real estate gift prospect.  This graphic summarizes the evidence and the assertion:

good/bad chart

Good real estate gifts rarely just show up at your door – though some often will. But, as marketing and targeted outreach efforts increase, more gift opportunities will increase, and a greater percentage of those opportunities will be “good” gifts.

But, some have told me: ”We’re reluctant to market our interest in real estate gifts, because we don’t know what we do if we got a lot of inquiries. How would we manage them? How could we quickly tell which are the “bad” gifts to be avoided, and which are the “good” gift possibilities worth spending time on?”

I have two simple answers to these questions.

1) Revise your gift acceptance policies and procedures to address various types of real estate gift structures. Before you increase your marketing efforts, you need to know that everyone in your organization is on the same page regarding: whether you would or would not accept real estate to fund a Deferred Charitable Gift Annuity; under what circumstances you would trustee a real estate-funded Charitable Remainder Trust from the outset; do you have a minimum age for considering Retained Life Estates; do you have an overall gift minimum for real estate gifts, and how is that minimum calculated?

You should also carefully use this opportunity to clarify, and very likely streamline, the matter of Who Does What: who gathers the initial information, who decides whether the gift has enough merit to warrant further investigations, who manages the due diligence process (and who pays for what in this process), who writes the gift acceptance letter that clearly outlines the gift structure and any conditions or contingencies, and who makes the final gift acceptance decision?

Time spent addressing these key questions – and drawing on emerging best practices in the real estate gift field nationally — is a very worthwhile step in preparing for a more robust level of real estate gift activity.

2) Adopt a two-step gift screening/due diligence process. Sometimes I observe an institution responding to an initial real estate gift inquiry by sending in the mail, or via email, a 15-page “Real Estate Questionnaire” accompanied by a request to provide deeds, mortgage discharges, title insurance documents, property tax bills, leases, etc. The institution then expresses surprise when they never hear back from the prospect, sometimes concluding that they weren’t really interested in giving away their property after all. I would respectfully suggest that there’s room for another explanation: Perhaps the questionnaire and document request were tremendously donor-unfriendly, and very understandably put-offish.  Read more…

Here’s a proven and more donor-friendly way to handle the situation.

First, use a simple one page set of questions to gather, over the phone or on-site if possible, the essential pieces of information about the property and the prospect’s situation and objectives.  (Contact me, and I’ll provide such a sample.)  My experience is that, in most cases, a cordial 30- to 45-minute conversation can reveal sufficient information to know whether this is a gift that is worth pursuing further, i.e. a gift that likely meets the criteria in one’s gift acceptance policies.  This basic information – combined with a little time on www.zillow.com and Google maps, and perhaps a quick call to a local broker or planning official – will generally point to a fairly clear decision – Yes, the gift has enough promise that we’ll dig in to a greater level of detail in a second phase of investigation, or No, thank you very much, but we need to decline your kind gift offer at this time (and spend our time instead on more promising gift situations).

Second, assuming the individual or group entrusted (in your clear gift acceptance procedures) with making this preliminary decision decides to take the gift possibility to the next step, then a more rigorous information gathering and due diligence phase kicks in. Even then, I would never suggest sending off the 15-page questionnaire. Rather, I would offer to walk through the questionnaire with them, gathering information, and going on a document hunt, in a friendly and collaborative manner.

As for due diligence, I would always start with finding a good local real estate attorney to order up a title search and pass along any obvious permitting or zoning challenges.  (I’ve seen too many situations where, far along in the process, the donor remembers that cousin Sally owns a 1/8th interest.) I would always gather market opinions from trustworthy local realtors before commissioning my own appraisal. And, based on growing evidence from the field, the clear trend is for the institution to foot the bill for a Phase I environmental assessment (unless that requirement is waived altogether in certain routine residential situations) – assuming all other aspects of the gift are checking out – and to regard it as a legitimate cost of doing business.  (I have seen nice real estate gifts go to another organization because the initial institution insisted it was “policy” to require the donor to pay the $2,200 for an environmental assessment, even if the value of the gift was $750,000!)

So, I would suggest, if you invest a little up-front time in thinking through these policies and procedural and screening matters, and give some thought to who you will turn to if you need additional professional help, then you’re ready to market your interest in real estate gifts and, even better, arrange conversations with the prospects who fit the profile of a promising real estate donor.

More about identifying the promising real estate gift prospect in my next article.

Good Real Estate Gifts Happen with a Little Effort

Good Real Estate Gifts Happen with a Little Effort
The Bad Gift Offers Happen Anyway

by Dennis Bidwell

January 30, 2012

I am more convinced than ever that the likelihood of an organization receiving “good” real estate gifts (properties that are marketable, free of environmental and title problems, and with net value of at least $50,000) increases as a function of the effort expended in marketing and reaching out to likely real estate donors. Conversely, non-profits that do little or nothing in the way of marketing their interest in real estate gifts will tend to receive the occasional real estate inquiry, but it is often a “bad” real estate gift offer (questionable marketability, title defects or environmental issues, likely net value way less than $50,000).

This pattern, I believe, is even more pronounced during these challenging times.  People wanting to unload truly problematic properties will try to do so without any prompting from a non-profit development office. But at the same time more and more excellent real estate gifts are being made  –  because many older individuals and couples have reached the time in their lives where they must make a decision about disposing of a vacation home or other property, and they are often intrigued at the gift possibility when reminded by a development officer that they have charitable capacity in their real estate, and that a large menu of charitable options is available to them.

This graphic tells the story:

Twenty years of experience helping non-profits attract, structure and dispose of real estate gifts tells me that when an organization doesn’t market its interest in real estate gifts, and doesn’t initiate conversations with donors about their real estate holdings, the organization is likely to receive only the occasional, haphazard inquiry about a piece of property.  Very often, but not always, the property offered will be problematic in one way or the other – it’s an unmarketable time share, or a property with very little equity value once the mortgage has been paid, or a property with access issues, or a property with a complicated family ownership story, or a property with some sort of environmental complication.

Often, organizations that have been offered such gifts over time come to the conclusion that all real estate offered as gifts must be similarly problematic.

We all know of many organizations with a history of having accepted one or more of these “bad” real estate gifts, way back when, which has left behind the lore that real estate gifts are bad.

But hundreds of non-profit organizations are accepting many high quality real estate gifts every year.  It’s just that the organizations receiving these gifts tend to be organizations that make the gifts happen through their marketing and outreach efforts.

Several years ago, I worked with the National Committee on Planned Giving (now Partnership for Philanthropic Planning) to conduct a survey of its members nationwide regarding real estate gifts. (See Journal of Gift Planning, Volume 12, Number 3 for complete results.) This survey found that 13% of the organizations responding reported that 10% or more of their gifts in the last three years, measured in dollars, had come from real estate gifts.

Among the organizations reporting a high volume of real estate gifts, these are the percentages that rated various marketing and outreach approaches either “very effective” or “somewhat effective”:

The conclusion? Real estate gift activity – particularly opportunities to close “good” real estate gifts — increases with the intensity and type of marketing and outreach effort undertaken.

The single most effective approach? Identifying prospects who fit the profile of a likely real estate donor (typically involving people over 65 owning multiple properties, geographically dispersed), and then initiating a conversation with them about their real estate holdings and their plans.

Screening out the “Bad” Gifts

Because marketing and outreach efforts have been shown to increase the number of properties being offered as gifts, it becomes very important that a development office is adept at quickly screening out the “bad” gifts, in order to devote scarce resources to the truly promising gifts.  Fortunately, there are proven ways to quickly identify – and tactfully decline – the “bad” gift, while working in a donor-friendly way with the “good” properties offered.

More about this in my next article.

Ramping Up Real Estate Gift Activity

Ramping Up Real Estate Gift Activity –
Different Strategies for Different-Sized Development Shops

by Dennis Bidwell

December 5, 2011

As gifts of cash and appreciated securities remain hard to come by, more and more non-profit development shops are turning their attention to other assets.  This often means an increased interest in real estate gifts, since real estate is by far and away the largest asset category for most U.S. households.

I have found that different organizations have increased their level of real estate giving through different strategies, which tend to vary as a function of the size and nature of the particular development operation. One thing that is common to all of these pursuits is a belief that the massive real estate wealth transfer taking place every day offers fundraising opportunities that can no longer be denied or delayed.

I present here my experience of how development shops of various sizes – small development operations, medium-size development shops, large development departments — have moved in some instances from almost accidentally receiving the occasional real estate gift to intentionally pursuing and closing the “right” real estate gifts in larger volumes.

Small development operations

I find that many smaller development departments – especially those staffed by one or two staffers wearing multiple hats, where there is limited planned giving experience – think they simply don’t have the capacity to undertake gifts of real estate.  But some of these organizations have attracted and completed an initial real estate gift, learned from the experience, then taken steps to grow their real estate gift activity. What have they done?

First, presented with a potential real estate gift that “just appeared out of nowhere,” they have sought the assistance of a local community foundation, a college or university with real estate gift experience, or one of the several private consultants concentrating on gifts of real estate. Using outside expertise to help arrive at the gift structure best suited to donor and non-profit, and to conduct appropriate due diligence investigations, and obtaining necessary internal approvals and arranging for help in disposing of the asset, such organizations have completed real estate gifts.

Increasingly, I am finding that such instances spur the organization on to think about how to more purposefully and systematically attract and process real estate gifts in the future. This sometimes leads to a desire to develop more formal gift acceptance policies and procedures covering real estate gifts. Often, the first major real estate gift can form the basis of a marketing effort aimed at encouraging those making decisions about disposing of real estate to call to learn about interesting charitable options.

In many instances, such organizations choose to firm up a relationship with a real estate gifts consultant, who stands ready to offer assistance when other situations arise.

Medium-sized development shops

For organizations with larger development operations – perhaps including a planned giving director – I have found that the same approaches used by smaller organizations often apply, but sometimes with more likelihood of using outside counsel of some sort as a coach, guiding the development officer through the steps of structuring, evaluating and closing a real estate gift. Such organizations often also find it helpful to train board members and top management in how to recognize a real estate gift situation staring them in the face

Larger development departments

Large non-profits with full-service development departments – perhaps with staff in major gifts, planned gifts, annual fund, development research, leadership gifts, development operations – have been especially aggressive in recent years in turning their attention to the potential of expanded real estate gift activity. Existing gift acceptance policies and procedures are often updated to reflect emerging best practices regarding real estate gifts. Gift officers from the organization’s various departments and schools and institutes are often convened for specialized training in real estate gifts, where the emphasis is recognizing opportunities, growing comfortable initiating real estate gift conversations, and how best to handle the “hand-off” to the planned giving department or wherever else real estate gift expertise is housed.

Sometimes these organizations have internal real estate departments to turn to for assistance in evaluating the property in question. Sometimes such organizations turn to outside assistance when the property is located out of state, beyond the radius in which the real estate department is accustomed to operating.

These organizations, which are often engaged in campaign planning or the early stages of a campaign, often find it valuable to provide training to their development committee or campaign committee, sometimes with an aim of building an explicit real estate gifts strategy into the structure of the next campaign.

Some such organizations have found it helpful to have outside real estate gift counsel available to “coach” gift officers working with real estate gift prospects, or in some instances to meet with staff periodically to brainstorm specific emerging real estate gift situations.

Whatever the size of the development department, non-profits of all sorts are increasingly warming to the vast potential of real estate gifts, while taking the steps to assure that risks are identified and appropriately managed.

Toward a More “Purposeful” Real Estate Program

Making Real Estate Gifts Happen

September 27, 2011

More and more non-profits are becoming aware that they are not seeing the volume of real estate gifts experienced by some of their peers.  They are realizing that other organizations have enjoyed considerable success in attracting a portion of the estimated 30 percent of the nation’s private wealth that is in real estate holdings.

Some organizations’ development operations have responded by transitioning over time from a program that occasionally accepts gifts of real estate in various forms, to one that more purposefully seeks to make the right real estate gifts happen.  This transition needs to occur, of course, while taking appropriate precautions to manage the various types of risk (environmental, liquidity, holding cost) that can be associated with owning real estate.

A review of the experience of those non-profits that have successfully made this transition reveals several important steps in developing a more active and lucrative real estate gifts program.

Get the key players on the same page

Successful programs tend to have clear gift acceptance policies and procedures governing real estate.  These policies assure that everyone in the organization is on the same page regarding the types of properties (residential, commercial, farms and ranches, undeveloped land, etc.) that will be accepted and the gift structures (CRTs, CGAs, retained life estates, bargain sales, etc.) that can be employed. These policies also tend to establish minimum gift amounts that take into account, one way or another, the often time-consuming and costly process of structuring, analyzing, and closing gifts of real estate.  Also, it is important to be clear about which parties in the organization (planned giving staff, treasurer’s office, general counsel, board development committee), as well as which outside sources of expertise, are involved in which aspects of the real estate gift review and approval process.

It is often very helpful to gather in one place all of an institution’s key players with responsibility for real estate gifts in order to refine these gift acceptance policies and procedures.  Such a working session can provide an opportunity for all to express their worries and reservations – which exist in some form in almost every institution – and then to share information and devise due diligence and approval procedures that address those concerns.  What emerges is often not just a set of clear policies and procedures, but an enhanced appreciation for the potential of real estate gifts, as well as streamlined relationships for facilitating such gifts in the future.

A two-stage review process

Increasingly, non-profits are adopting more “user-friendly” postures with regard to potential real estate gifts.  One way this new attitude comes across is by adopting a two-stage process for reviewing such gifts.

The aim of the first stage is to gather essential information about the property, the donor prospect, and the proposed gift structure as rapidly as possible in order to provide the prospect with a prompt indication of whether or not your institution wants to pursue the gift.  Providing such an answer quickly not only avoids wasting a great deal of time and effort on the part of the donor prospect, but also assures that your institution’s staff is spending its time on the truly promising gifts.

For potential gifts that pass such an initial screen, a period of due diligence then follows.  It is generally at this point that the donor prospect is asked to provide much more extensive information and documentation about their property and their financial situation.

The key elements in a due diligence process designed to identify, manage, and minimize risks generally consist of the following:

1) title investigation with the assistance of a local real estate attorney;

2) a Phase I environmental assessment, with follow-up as needed;

3) an independent assessment of local market conditions and the property’s market value (usually stopping short of a full-blown qualified appraisal); and

4) a building inspection (if appropriate), along with a personal visit by a representative of the institution.

Moreover, non-profits are recognizing that in order to be in control of the due diligence process, as well as to be more “donor friendly,” it makes good business sense to assume the costs of these investigations, rather than ask the donor to do so.

Gift acceptance letter

Once the committee charged with assessing potential real estate gifts has reviewed the various documents generated in the due diligence process and has agreed to accept the gift, it is generally good practice to communicate this decision to the donor in a detailed letter.  Such a letter would include any conditions placed on the gift and any proposed alternative gift structures, as well as a “roadmap” of sorts detailing who needs to do what along the way towards a closing of the gift.

Property disposition

Since the vast majority of real estate gifts are accepted with the intent of liquidating the property as quickly as possible (as opposed to gifts accepted for the ongoing use of the non-profit in furtherance of its mission), it usually makes sense to retain a local real estate broker to handle the listing and sale of the property.

Staff and trustee training

Once there is agreement within the institution on the types of real estate gifts that will be accepted, as well as the process for analyzing and accepting such gifts, many organizations find it useful to conduct real estate gift training sessions for development staff and board members.  These sessions should include everyone who may enter into conversation with a donor prospect about a gift of real estate.  The importance of briefing board members on real estate gifts cannot be overstated.  After all, it is highly likely that they will come into contact with donor prospects (including fellow board members) who might mention, for example, plans to sell the family’s summer home, thus making them candidates for follow-up gift conversations.

 

Marketing

When there is awareness at the staff and board level of the “profile” of the likely real estate donor, as well as concurrence on the types of real estate gifts to be accepted, organizations often choose to get the word out that they are interested in discussing real estate gift possibilities.  Case studies in newsletters and mailings, web site illustrations, special mailings, workshops for professional advisors, annual report “advertising” – these and other marketing vehicles should be used to plant the seed for friends of your organization who are seeking creative ideas about how they might use their surplus real estate holdings to further the mission of the organization.

Research and personal visits

Surveys have shown that the single most effective way to stimulate real estate gifts for many organizations is to conduct donor research aimed at identifying prospects who own multiple pieces of real estate and are 65 or older, and then to arrange personal visits with such prospects during which their plans for the future of their real estate holdings are discussed.  It may take some time before gift officers at your organization develop a comfort level in initiating such conversations, but this is clearly a highly effective way to develop real estate gifts.

Conclusion

Real estate is an important source of wealth for many donors.  While gifts of real estate are inherently more complex and risky than gifts of cash or publicly-traded securities, we have shared some proven steps your organization can take to manage this complexity and risk.  Once your organization has put in the work to have agreed-upon policies and procedures in place for handling real estate gifts, it will be more prepared to attract and close lucrative real estate gifts.

Real Estate Gifts: A Report from Practitioners in the Trenches

Real Estate Gifts – A Report from Practitioners in the Trenches

As real estate gift activity continues to increase – especially at institutions actively promoting their interest in real estate gifts – more and more professionals are concentrating on the growing field of real estate gift planning.  In my work, I often confer with colleagues specializing in this discipline.

This issue of my newsletter is entirely devoted to recent trends in the real estate gift arena, based on my experience working with a range of clients, and on my conversations with three trusted colleagues: Chase Magnuson,  Director of Planned Giving-Real Estate at George Washington University; Harry Estroff, Real Estate Gift Manager at The Nature Conservancy; and Jerry McCarter, Professional Advisor Relations Officer at the Minnesota Real Estate Foundation.

Overall real estate gift trends

Among organizations with which I’m working, real estate gift activity is clearly up at institutions that have decided they want to be more proactive in making real estate gifts happen, e.g. marketing, initiating conversation with promising real estate gift prospects, gift officer training, etc.  For organizations that aren’t specifically promoting their interest in real estate gifts, it is my experience that they generally continue to receive the occasional inquiry at about the same rate as in previous years.

Chase reports real estate gift activity at GWU has increased dramatically in recent years, which of course coincides with the time period that GWU decided to invest in a dedicated staffer to pursue real estate gifts.  Jerry reports that the Minnesota Real Estate Foundation completed 15 gifts in 2010, compared to 5 in 2009.  He reports new real estate gift prospects are emerging at the rate of two to three per month.  Harry reports that The Nature Conservancy’s overall number of real estate gifts has declined in the last two years, but that the average gift size has increased.

The most frequent real estate gift structures

My experience is that the most dramatic increase in real estate gift activity is in the area of outright gifts, followed by charitable gift annuities funded with real estate.

At The Nature Conservancy, the trend has been fewer life income gifts and more outright gifts and retained life estates.  The Minnesota Real Estate Foundation also reports outright gifts as the most popular gift type, with numerous inquiries about Charitable Remainder Trusts. GWU reports continued strong interest in both CRTs and CGAs as ways to provide income streams to donors.

What is motivating the real estate donor these days?

We are all in agreement that most donors of real estate these days are motivated by a desire to rid themselves of the headaches of owning and managing property they no longer use.  Generally, charitable intent is equally important.  The trend is that use of tax deductions, and desire for an income stream, are less a part of the motivation than they might have been in earlier years.

I have found that the most successful marketing efforts explicitly appeal to older property owners who may be facing decisions about what to do with seldom-used property that is now more of a burden than it is enjoyable.

Who are these donors, and what properties are they giving away?

The most common real estate gift scenario for the Minnesota Real Estate Foundation is the over-60 donor looking to make a gift of a debt-free vacation property or raw land.  The Nature Conservancy has seen a marked increase in inquiries from donors without a history of supporting the organization who are challenged by the difficulties presented by current market conditions.  For George Washington University, a common fact pattern is folks in the 70 to 85 range looking to dispose of a residential property in order to get rid of management headaches and produce a life time income.

My own experience is that the most common real estate donor profile is an over-70 individual or couple, with multiple properties scattered geographically, looking for help in disposing of a second home, who often times have not previously shown up on the radar screen of the non-profit they wind up giving their property to.  Also, we know from the most recently-available IRS data (2007) that the average size of reported real estate gifts for donors over 65 (the vast majority of such donors) was $787,000.

How do real estate gifts find their way to you?

The Minnesota Real Estate Foundation has been especially successful cultivating relationships with financial advisors, attorneys and CPAs who are their best referral sources. The Foundation’s partner organizations, armed with marketing material from the Foundation, also produce a significant number of referrals.

George Washington University has had considerable success training its major gift officers to initiate conversations with donor prospects identified by a prospect research team focusing on owners of multiple pieces of real estate. Similarly, The Nature Conservancy benefits from their army of well-trained field fundraisers exploring the full range of assets, including real estate, with their donor prospects. TNC also generates many inquiries through its excellent real estate gifts website.  (I recommend it to all my clients: http://giftplanning.nature.org/giftguide/)

Though some institutions have generated gifts through mailings highlighting the story of actual real estate donors, the trend seems to be greater results from web pages that specifically highlight real estate as an asset to be donated. But the one trend that tops them all is the success of those development shops that focus prospect research on real estate donors, and then encourage (or require) their trained gift officers to initiate real estate conversations with prospects.

What is your advice to other non-profits interested in ramping up their real estate gift activity?

The themes that emerge from our collective experience are:

  1. Seek professional help in developing real estate gift acceptance policies and procedures appropriate for your organization.
  2. Find a combination of in-house staff eager to be trained, and outside consultants, who can evaluate gift opportunities, structure and close the gifts.
  3. Make sure that all staff and board members fully understand the organization’s interest in real estate gifts, and that they feel comfortable at least starting the discussion with donors when appropriate.
  4. Be patient. Understand that an investment of time and money will be necessary, but that with patience it will pay off in the form of substantial real estate gifts.

And finally, as a reminder that organizations that follow these practices are successful in attracting real estate gifts, a national survey of almost 600 non-profits conducted by the National Committee on Planned Giving (now the Partnership for Philanthropic Planning) in 2008, revealed that 13% of survey respondents – virtually all of which employed the steps outlined above – reported that 10% or greater of their total giving in recent years had been in the form of real estate gifts.

Real Estate Gifts and Non-Profit Retirement Communities

October 11, 2010

I have recently had occasion to work with several non-profit retirement communities, helping them attract and structure real estate gifts.  My experience with such communities is that their residents may have disposed of their primary home (though some still own them), but many of them continue to own a summer home on the lake or on the shore, or a farm, or an investment property.  Many times these property owners, as they age, are especially receptive to ideas about how they might dispose of their real estate in a way that benefits charities in their life (including the retirement community)  while addressing their tax planning and/or retirement income needs.

In other instances, I have seen non-profit retirement communities work with prospective new residents to see if a donation of their home could meet the entrance fee (or purchase price) requirements of moving into the community.

I have often wondered why more non-profit retirement communities don’t explore ways that they could provide a valuable service to their residents – helping dispose of increasingly burdensome real estate — while at the same time opening up the possibility of substantial charitable gifts, to their organization and others as well.

Why Not a Charitable Gift Annuity Funded with your Property?

October 9, 2010

Let’s say that you are in your 70s, and have for some years not been getting much use out of your vacation home on the shore. Instead, you’ve been renting it out more and more, and have become rather accustomed to the extra cash flow from your property.

But now, as you age, the hassles of maintaining the property (and of paying taxes, utilities, repairs, etc.) and carrying around that responsibility are starting to outweigh the benefits of property ownership. Which means it’s time to dispose of the property.

Let’s also say that you have watched friends go through this process, and this has left you dreading the task of listing the property, working with a broker, adjusting he asking price, fielding offers, and working the process all the way through to a closing. (Not to mention you’re not excited at the prospect of paying a very considerable capital gains tax upon the sale of your low-basis property.)

So, what is the alternative?

Well, if your financial situation permitted, you could make an outright gift of the property to a charity of significance to you. You would be eligible for a charitable tax deduction equal to the current appraised value of the property, there would be absolutely no capital gains tax paid, you would have made a magnificent gift. And the charity, not you, would assume all the responsibility for selling the property.

If you’re not in position to give it away outright, and instead need a continuing stream of income, perhaps you could talk with a charity of meaning to you about funding a charitable gift annuity with your waterside property. With a gift annuity, you would lock in a steady, regular income stream for the rest of your life, you would generate a substantial tax deduction, and you would pass on to the charity (as in the case of an outright gift) the responsibility for selling the property.

More and more charities are interested in working with property owners on this sort of arrangement, because they have become more adept at structuring the arrangement in ways that minimize the risks that they might need to begin making annuity payments prior to the time they’ve sold the property.  Also, an increasing number of charities are recognizing that many property owners want to roll their property into a steady income stream, not the variable income that would come from a charitable remainder trust.

If the situation above sounds a little bit like yours, talk with your advisors, or talk with your favorite charity, about the possibility of a charitable gift annuity funded by a property that you are ready to dispose of however reluctantly.

The Buy vs. Lease Decision

October 7, 2010

I am a fan of the work of the Nonprofit Finance Fund.  Through consulting services, financing, and advocacy, they help all sorts of nonprofit organizations stay in financial balance, so that they’re able to successfully adapt to changing financial circumstances — in both good and bad economic times — and grow and innovate when they’re ready.

Recently, an executive of NFF told me that it was his organization’s experience in recent years that of the nonprofits reporting financial distress of some sort, fully 95% of those financially troubled organizations had real estate ownership problems at the core of their financial difficulties.

For example, a nonprofit was given a property for their use, but didn’t anticipate the long term costs and hassles of property ownership. Or perhaps a nonprofit mounted a capital campaign for acquiring a headquarters building, not fully understanding the impact on their operating budget of the operations, maintenance and capital improvements required over the years.

Too seldom, in my experience, do nonprofits take a hard analytical look at the true costs, advantages and disadvantages, of the buy vs. rent decision.  Too many nonprofits tie their hands through long term ownership, rather than staying nimble through property leases. Too many nonprofits, in my opinion, wind up with way too much of their capital in a fixed real estate investment, when they’d be better off with more of that capital in cash reserves and endowment.

I recently was asked by The Cancer Connection, a wonderful nonprofit here in Northampton, to help them consider the possibility of mounting a capital campaign for the purpose of buying a facility to replace the leased space they had outgrown. As we worked it through, their board became convinced that they were in the business of providing services to individuals and families affected by cancer, not in the business of owning and managing real estate. We then proceeded to find suitable space, negotiate a long term lease, and launch a campaign to raise the money necessary for various leasehold improvements.  The result? Cancer Connection is in larger, better suited space, they raised all the money necessary to pay for improvements, and their cash reserves have remained intact, available for operating purposes and program expansion, not tied up in property ownership.

IRS Study Documents Increase in Real Estate Gifts

October 1, 2010

Starting with Tax Year 2003 the IRS has been producing reports called “Individual Noncash Charitable Contributions.”  IRS researchers have examined Form 8283 (Noncash Charitable Contributions) used to substantiate charitable deductions greater than $500 claimed on Schedule A (Itemized Deductions) of Form 1040.

In the spring of 2010 such a study was issued for the Tax Year 2007.  Here is a quick comparison of key real estate gift data from Tax year 2005 vs. Tax Year 2007.

What does this mean?

I think it means that in the middle of the decade the idea of real estate giving was grabbing hold.  Total real estate giving increased by over 30% during this period, with an especially dramatic increase (261%!) in the average size of the gift for donors 65 years and older.  This is especially significant, as a very high percentage of real estate giving comes from these older donors.

I predict that we will see a continuation of this trend once the IRS issues its report for Tax Year 2009.

When development officers tell me that real estate gifts are time consuming, sometimes complicated, and that some are pursued without ever making it to completion, I agree with all of this. But I point out: If the size of the gift is likely to be in the range of $400,000 or $500,000 or more, isn’t it worth a little investment of time and resources? Explain to me how this is a poor return on investment?

Here’s a link to the complete IRS Report: http://www.irs.gov/pub/irs-soi/10sprbulindcont07.pdf

Combining Land Conservation with a Major Gift

December 4, 2009

Sometimes owners of conservation-worthy land are reluctant to make a gift of that land to a non-profit organization, such as their alma mater.  Their conern is that the non-profit will be bound by its fiduciary responsibility to sell the land at fair market value, even if that means the land might someday be developed. A solution to this situation is for the private owner to first donate a conservation easement on the property to a land trust or to an appropriate unit of government, and then to donate the fee interest in the land to the charity (or charities) they wish to support.

Here is an example of such an arrangement as reported by the Partnership for Philanthropic Planning:

“Dr. Herald Nokes and his wife, Donna, donated 1650 acres of their forest land in central Idaho to the University of Idaho by placing a conservation easement on the land in favor of the Idaho Department of Lands, and then donating the fee title to the University subject to a retained life estate.  Total value of the gift was just under $11 million.  UI will use the property as an outdoor classroom/laboratory and for field research.  Ongoing selective harvesting of the trees will provide a continuous source of revenue to help underwrite the maintenance and use of the land.”

I’m aware of a New England  family who decided to first gift a conservation easement on their farm to a local land trust, generating a tax deduction of over $1 million.  They then gifted the fee-restricted land to the husband’s alma mater, generating an additional charitable contribution of over $2 million.  Had they donated the land unrestricted to the college their total tax deduction would have been about the same, but they wouldn’t have had the satisfaction that the land would be forever protected from development.  The College, on the other hand, received a gift of land worth over $2 million which they were able to market to a farm family looking for expansion agricultural land. The College would never have received a gift a tall were it not for the conservation easement.

The Land Trust Alliance reports that there are currently at least 1700 land trusts in the country.  These land trusts, in addition to  units of government, can hold conservation easements. Properly structured, the use of conservation easement can enable gifts and land protection that meet the objectives of all involved.

For information on how Bidwell Advisors can help address your land conservation issues, click here.