Real Estate Gift Readiness Audit

By Dennis Bidwell
June 2015

I have recently been asked by several clients to help them conduct an “audit” of their institution’s readiness to actively pursue real estate gifts.

At the end of this audit exercise, sometimes the conclusion is: “We’re just not ready to tackle real estate gifts. We’ll come back to it in another year.” Increasingly, however, the response is: “We’re leaving so much wealth on the table by not pursuing real estate gifts that we’ve decided to build up our capacity in this area now.”

I hope this audit template is of use to your organization.

Institutional support
1. Is pursuit of real estate gifts (with appropriate attention to minimizing risk) supported by your VP of Development? By your CFO? By your general counsel or equivalent?
2. Is top management at your organization familiar with the real estate gift experience of peer institutions?

Gift acceptance policies and procedures
1. Do your gift acceptance policies address the forms of real estate gifts you will and won’t accept, and under what circumstances?
2. Do you have a policy on real estate gift minimums?
3. Do you have a clear assignment of responsibility for handling the different stages of a real estate gift: initial conversations, detailed gift structuring, gift acceptance letter, due diligence, gift closing, interim management, sale of property?
4. Would you describe your policies as a balance between “donor-friendliness” and “institutional protection”?

Training
1. Do your gift officers have a basic familiarity with different types of real estate gifts and the situations for which they are appropriate?
2. Do your gift officers have a comfort level with discussing/initiating real estate gifts with donors?
3. Are your gift officers expected to bring forward at least one real estate gift scenario every six months?
4. Do your board members (or development committee members) understand enough about real estate gifts to recognize an opportunity when it presents itself at a cocktail party?

Marketing
1. Do you promote your interest in real estate gifts prominently on your website?
2. Do you market your interest in real estate gifts in your newsletters/magazines/etc.?
3. Do you provide information about real estate gifts at member/alumni gatherings?
4. Does the content of your marketing emphasize a “problem solving” approach?

Prospect research/outreach
1. Have you attempted to identify prospects who specifically fit the profile of a real estate donor?
2. Do you have a plan to reach out to identified prime prospects for real estate gifts?

Campaign work (where appropriate)
1. Have you built real estate gifts into your campaign strategy and structure from the start?

A Donor-Friendly Way to Screen Real Estate Gift Inquiries

By Dennis Bidwell
April, 2014

In my experience there is often someone or some office in a non-profit organization—perhaps the CFO, maybe the general counsel’s office—that is exceedingly cautious about accepting real estate gifts. Often this is due to a bad experience from 20 years ago, such as the now legendary story of the gift of the former gas station owned by three warring siblings.

My response is that those of us who have worked with real estate gifts for decades—and there are many of us at this point—have figured out a pretty good way to open the doors wide to potential real estate gifts, while at the same time putting in place rigorous—but donor friendly—screening and due diligence procedures. The result is that only the promising and generally non-problematic gifts make it through the process, while the bad gift potentials get discarded early on, with a minimum of donor disappointment.

This approach starts with clear gift acceptance policies and procedures that adopt best practices for screening and receiving real estate gifts in various forms. And then it proceeds to a two-stage screening and due diligence process.

Gift acceptance policies

State of the art real estate gift acceptance policies these days specify whether, and under what conditions, various real estate gift types are acceptable (outright, bargain sale, charitable gift annuity, charitable remainder trust, retained life estate, fractional interest) and what gift minimums apply in each case. (With the understanding that allowance always need be made for exceptions.) These policies also tend to clarify the “who does what” within the institution—screening, due diligence coordination, gift approval, handling closings, coordinating property disposition, etc. Better to have all of this thought through in advance than to be left scrambling while an impatient donor prospect feels put off for weeks and months on end.

A two-stage screening and due diligence process

The aim of the first stage of a screening and due diligence process 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.

[A one page guide to gathering this initial critical information, which many institutions have adopted, is available to anyone who “likes” my Facebook page.]

For potential gifts that pass such an initial screen, a period of due diligence then follows. It is generally at this point—and not sooner—that the donor prospect is asked to provide much more extensive information—sometimes the right questionnaire at this stage of the process is helpful—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);
  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.

I am convinced that the key to increasing the quantity and quality of real estate gifts is, first, to broadcast an institution’s interest in accepting real estate gifts in various ways, and then to work the prospective donor in a two-phase process that initially screens out/in in a donor-friendly way, saving the more burdensome parts—providing documents, completing questionnaires, allowing people on the property for inspections—until a later stage when it’s fairly clear that this indeed a promising gift.

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.

Real Estate Gifts: Why, and How, to Pursue Their Largely Untapped Potential in Difficult Economic Times

July 23, 2009

As the effects of the deteriorating economy ripple through development offices of non-profit organizations of all sizes and shapes, increasing attention is being paid to the potential of real estate gifts. This shift in attention is due to several factors:

  • With growing liquidity concerns in most households, cash gifts – current or deferred – are becoming harder and harder to come by. This is causing development professionals to turn more of their attention to the non-cash assets of their donors and prospects, particularly real estate assets.
  • Real estate assets comprise over 35% of the assets of U.S. households. Yet only about 3% of charitable giving in recent years has come from real estate gifts. Development offices are increasingly recognizing the need to go where the wealth is – the largely untapped potential of real estate.
  • More attention is being paid to the experience of those non-profits that have consistently attracted large numbers of substantial real estate gifts. A survey conducted by the National Committee on Planned Giving, published in the Fall 2008 issue of The Journal of Gift Planning, reported that 13% of institutions responding received over 10% of their total contributions as real estate gifts over the previous three years, as measured in dollars.
  • The collective experience of institutions that have enjoyed success in pursuit of real estate gifts has led to an increasingly accepted body of “best practices” that permit the opening of the doors to real estate gifts while carefully managing and minimizing the potential risks of real estate.
  • Institutions at one stage or another of campaigns – planning phase, quiet phase, or those that have gone public and are concerned about hitting their targets – are increasingly turning their attention to the potential of real estate gifts. Indeed, there is evidence that the methodology for many campaign planning/feasibility studies in the future will devote more explicit attention to the role of real estate gifts in campaigns.

    Read more…

Making the Right Real Estate Gifts Happen

July 14, 2009

More and more non-profits are becoming aware that they are receiving fewer real estate gifts than 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.

In some cases, these organizations have responded by transitioning from a program that occasionally accepts gifts of real estate in various forms, to one that seeks to make such gifts happen. This transition needs to occur, of course, while taking appropriate precautions to manage the various types of risk (environmental, liquidity, holding cost) 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 institution is on the same page regarding the types of properties (residential, commercial, farms and ranches, etc.) that will be accepted and the gift structures (CRTs, CGAs, retained life estates, etc.) that can be employed. These policies also tend to establish minimum gift amounts that take into account the often time-consuming and costly process of structuring, analyzing, and closing gifts of real estate.

Read more…