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 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.
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.
Growing Non-Profit Attention to Real Estate Gifts
November 23, 2009
I attended a recent meeting of the Planned Giving Group of New England in Boston. It was “Real Estate Theme Day” at PGGNE, with presentations on real estate gifts by a team from the University of Pennsylvania, and by Harry Estroff, Real Estate Gift Manager at The Nature Conservancy. Coincidentally, on the same day, my colleague Chase Magnuson was presenting on real estate gifts at the National Capital Gift Planning Council in Washington, DC. Chase joined the development staff at George Washington University to develop a comprehensive real estate gifts program for the University, drawing on his background as founder and principal of Real Estate For Charities.
In February, I’ll be presenting at PGGNE on Real Estate Gift Basics. I’ve also been asked to make presentations on real estate gifts in the coming months at the Chicago Planned Giving Council, the Minnesota Planned Giving Council, and the Greater Cincinnati Planned Giving Council.
Why all the attention to real estate gifts?
Here’s my short list of reasons that development offices across the country are turning more of their attention to real estate gifts:
- There is growing awareness of the dramatic success of some real estate gift programs. For example, The Nature Conservancy has generated $300 million in real estate gifts (this doesn’t include gifts of conservation land) since 1982.
- Some charitably –minded donors want to proceed with plans to make gifts, but are cash-strapped and don’t have much in the way of appreciated securities, so are turning to the real estate portion of their balance sheets to make gifts.
- More and more property owners, particularly aging property owners, are finding the continued ownership, management and carrying costs of property – especially second, third or fourth homes – are more burdensome than enjoyable. They are thus quite interested in ways of disposing of their property with as little hassle as possible.
- Some property owners are wary of the process of marketing their properties in volatile times. They are therefore more inclined to gift the property, letting the charity undertake the marketing process.
- More financial advisors, as well as gift planners, have become knowledgeable of the range of real estate gift structures and how they can be helpful in addressing the retirement planning, estate planning, and charitable objectives of the families they work with.