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.

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.