What Accounts for Increased Real Estate Gift Activity?

By Dennis Bidwell
November 2017

I believe that increases in real estate gift activity can be explained by several factors.

I think more non-profits have opened their doors to real estate gifts, in many cases actively marketing their interest in real estate gifts, because long-standing resistance to real estate gifts has been fading away. Why the more open attitude in these non-profits? It’s in part due to a recognition that there are accepted and proven best practices for real estate gift acceptance policies and procedures. I think it’s also due to the fact that more attention at professional conferences, and in journals, and on list serves, is being devoted to real estate gifts.

Another factor, at least at some institutions, is that key personnel who embodied an organization’s cautious attitudes toward real estate – perhaps a chief financial officer, or a general counsel – have retired or otherwise moved on. In many organizations there is the lore of the “horror story” real estate gift – the property with uninvestigated underground fuel tanks, the property with a distant cousin still owning a one-eight interest, etc. – that has formed the basis of turning away from real estate gift possibilities. Quite often I’ve seen attachment to that lore dissipate with the change of personnel over time.

And then there’s the simple fact that as organizations see their peer institutions raising substantial funds through real estate gifts, they begin to ask why their institution is leaving dollars on the table by not accepting real estate gifts.

I’ve also seen that more and more non-profits, as they contemplate the next large capital campaign, realize that next time around they’ll need to be going back to their donors armed with some different kinds of asks, and often at the top of that list is real estate.

Yet another ingredient in the changing attitude toward real estate gifts is that more non-profits are better understanding the motivation of real estate donors, and are doing a better of job marketing to those motivations. Specifically, as it’s understood that many owners of multiple properties are attracted to the prospect of unburdening themselves of the hassles and expense of continued property ownership, and turning the marketing process over to someone else. Marketing efforts that recognize this motivation – in addition to the tax benefits of real estate giving – can be quite successful.

And underlying all of this is the increasingly understood fact that the largest single category of household wealth in the United States – larger than retirement funds, larger than stocks and bonds held outside retirement funds, much larger than cash – is real estate. Though different data sets yield somewhat different conclusions, by most accountings private real estate wealth accounts for 35% to 40% of household wealth in the United States. (Cash and cash equivalents? About 15%)

Taken together, I think these various factors will continue to have more and more development operations opening their doors to real estate gifts, knowing that accepted due diligence practices and reasonable gift minimums will screen out the problematic gifts and allow focus on the truly promising real estate gift opportunities.

In Arranging a Real Estate Gift, Use All the Tools at Your Disposal

By Dennis Bidwell

May 2017

Sometimes I’ll read an article on real estate gifts that suggests only one workable gift structure involving real estate – a charitable remainder trust, or perhaps making the gift by bequest, or maybe a bargain sale. I also see from time to time conference presentations that emphasize just one gift type.

These single-solution approaches trouble me. They are often made by someone representing a financial firm that makes their money by managing and investing CRTs, or by a law firm looking to build its estate planning practice, or by an organization in the business of managing donor advised funds.

These presentations may be good marketing opportunities for the organizations or firms involved, but they do not represent in my view what should be considered best practices in real estate gift planning. I believe such presentations promote one-size-fits-all solutions, skipping over the importance of first understanding the nature of the problem to be solved.

I consider it the responsibility of those of us in the gift planning arena – whether representing individual charities, law firms, consulting practices or financial firms – to devise gift structures that best addresses the facts and circumstances of the prospective donor, consistent with the policies of the prospective done charity.

I have seen charitable remainder trusts proposed where the donor never expressed any interest in receiving payments in exchange for their gift. (It turns out they were totally content with an outright gift.) I have seen a property-funded charitable gift annuity proposed when the donor would actually prefer receiving a lump sum of cash that they invest themselves. (In other words, a bargain sale or a fractional interest gift would have been a simpler and more appropriate solution.) I have seen bequests involving property encouraged without giving any consideration to the advantages of a retained life estate arrangement instead. I have seen a bargain sale proposed when essentially the same thing could be accomplished (without requiring upfront purchase funds from the non-profit) with a fractional interest gift.

I have found that a little gentle probing about what the donor’s objectives are in considering the gift will generally reveal the parameters within which the gift should be structured. How important is avoiding or minimizing capital gains tax? Do they want some cash back, or are they in position to make an outright gift? How much are they motivated by simply unburdening themselves of the property and turning over to someone else the responsibility for selling it? If they want cash back, would they prefer it as a lump sum or as a stream of payments? How important is an income tax deduction? Do they have the capacity to soak up such a deduction? Are they hoping to continue living in/using the property?

Careful listening, stimulated by a few guiding conversational questions, should be the starting point in devising a real estate gift solution that is tailor made to fit the circumstances of the donor and their property, while fitting within the gift policy constraints of the recipient organization. There are lots of tools available for use by the gift planner dealing with a real estate situation. There’s no excuse for not using all of them, where appropriate. Starting with an assumed solution in mind seldom serves the interests of either the donor or the charity.

Three Reasons to Engage Your Board of Directors About Real Estate Gifts

By Dennis Bidwell

February 2016

As I work with non-profits around the country, helping them attract and structure charitable gifts of real estate, I am finding more and more of them choosing to engage their board of directors in the real estate gift process. Here’s why.

First, a very large majority of real estate donors fit this profile: people over 65 years of age who own multiple properties (generally residential), often scattered geographically, whose children (if they have any) are otherwise taken care of in their estate planning, and who have a charitable interest in the institution. (See this article for more on this.) In my experience, that’s not a bad description for many a trustee at a college or university or hospital or museum, etc. For this reason, I’m seeing presentations made at board meetings, or at development committee or campaign committee meetings, simply because that’s where some of the very best prospects for such gifts are gathered in one place. At such meetings I’ve sometimes been asked to present a hypothetical case study whose fact pattern was eerily similar to the circumstances of a particular board member in attendance. Furthermore, once such a board member (or former board member, or advisory committee member, or long-time close friend of the institution) recognizes the reasons for gifting, rather than selling their unused vacation home, they often are more than happy to have their gift experience broadcast far and wide as an example of giving real estate.

Planned giving pioneer John Brown was fond of saying: “At the table of every Board meeting sits at least one potential real estate gift. It’s just that no one has ever connected the dots.”

Second, board members and other close friends of an organization often travel in circles where they’ll encounter people contemplating disposing of an unused second home, or an investment property. When a trustee of your organization, in a cocktail party conversation, learns that his or her friend is, say, getting ready to put their Nantucket home on the market, it’s important that at that moment they suggest that rather than immediately listing the property, would they mind a brief conversation with someone in the development office about a more tax-advantageous way of parting with the property that would also provide enormous benefit to the institution? The trustee need not be an expert on the tax treatment of various giving vehicles. But it is important that they recognize an opportunity staring them in the face and be ready to suggest a friendly next step.

And finally, successfully incorporating real estate gifts into an organization’s development program depends on institution-wide buy-in. It’s important that revised gift acceptance policies (see article here on gift acceptance policies for real estate gifts) that incorporate best practices regarding real estate gifts be run past the board not just for purposes of pro forma approval, but also because board members need to understand the magnitude of the real estate opportunity and why the organization has decided to pursue real estate gifts. Also, should there be resistance to real estate gifts in, say, the finance office or the office of the general counsel, it’s important that those offices understand that the Board of Directors has endorsed the initiative.

Is It Time to Revise Your Gift Acceptance Policies?

By Dennis Bidwell
December, 2015

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.

[Contact me if you’d like a one page set of essential questions that will allow you to efficiently gather the essential information needed to decide if you want to pursue the potential real estate gift further.]

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.

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.