So Your Organization Thinks It Can't Take Real Estate Donations! November 12, 2014
Presented to: United Way s Tocqueville Legacy Circle Presented by: Chase V. Magnuson, CCIM President Real Estate for Charities
What Will Be Covered Charitable world overview Gift arrangements with real estate equities Alternatives to risk Case studies 3
Statistics On Gifts of Real Estate Although 43% of US assets are in the form of real estate, only 3% of charitable gifts come via real estate ($6 Billion) Average gift of real estate is valued at $419,000 80% of proffered gifts of real estate are rejected by charitable institutions 1,600,000 charities
Related Real Estate Assets Mineral Rights (gas, oil, gravel, coal) Water Rights Air Rights Timber Conservation easements 5
Gift Arrangements Using Real Estate Straight / outright donation Retained life estate Bargain sale Charitable gift annuity (CGA) or Charitable remainder trust (CRUT) funded with real estate Split equity opportunities
Reasons Charities Won t Take Real Estate Ownership risks with various types of liability Unpleasant experiences (Board opposition) Geographically challenged Burns staff time
Reasons not to accept timeshare donations o Potential for future litigation o Stewardship issues with unhappy benefactor o Costly long term holding costs o Net proceeds don t justify staff s time 8
Alternatives to Risks of Ownership Simultaneous closing Single member limited liability corporation Facilitating charity creating a shared gift arrangement Put options 7
Simultaneous Closing: How Does It Work? Traditional Donor Charity Buyer Cash to Charity Risk to Charity Under Traditional 1. Environmental liability 2. Insurance coverage for injuries on property 3. Holding costs 4. Sales price and reporting requirement to the IRS 5. Finding good real estate representation 6. Flaw in title and joined in litigation SOLUTION: Simultaneous Closing Donor Charity Buyer Cash to Charity Deed
Case Sites for Simultaneous Closings Winston F.C. Guest et ux. V. Commissioner, 77 T.C. 9 (1981) Stark v. Commissioner, 86 T.C. 243 (1986)
Alternatives to Risk of Ownership Single member limited liability corporation July 29, 2012 - IRS letter Use of facilitating charity
Case Study #1: Gift of Real Estate in Exchange for CGA Donor owned 50% undivided interest along with four other family members Health issue for donor forcing him to move Additional income was the goal Donor not mentally capable of the sales process Unit needed repairs, condo fees, taxes and insurance paid
Case Study #2: San Diego United Way Donor with 50% interest in a parking lot next to hospital Wanted an annuity for ten years Annual income of $19,000 SDUW would not accommodate this arrangement Facilitating charity stepped in to deal with donor Shared gift split (65% to UWSD 35% to NREF)
The Solution! Donor decided on straight donation NREF took title Annual income split for six years ($12,350 to UWSD each year) Sold land lease to the building owners for $250,000 Check to UWSD $162,500 15
Case Study #3: Apartment Complex Bargain Sale Donors leaving the country need some cash Apartment complex, 30% vacant,with deferred maintenance issues First mortgage Negative cash flow with Donors managing Appraised value Sales price Solution
What We Covered Where the charitable world stands on real estate donation risk Variety of real estate gifting arrangements Solutions to risk of ownership issues Case study 14
Timeshare issues Return for work effort Lingering liability Unhappy donors Doesn t meet minimum net proceeds Exceptions for fractional interest of over $250,000 18
Fee Structure Hourly fee $300 Daily travel per diem $1,800 plus expenses Right to participate in brokerage fee as a referral Performance bonus of 3% of net proceeds Retainer of $3,000.00 against hourly fee and travel 19
Real Estate Sale Evaluation Process with Consultant Chase Magnuson 20
Your Questions!
Biographic for Chase V. Magnuson Commercial and Investment real estate broker with thirty years of experience. Hold the CCIM, CIPS and SRES designations awarded by the National Association of Realtors. National awards for creative real estate transactions Past columnist for the San Diego Daily Transcript covering trends in real estate donations and reporting on charity activities President of Real Estate for Charities, a firm that provides consulting services to charities and donors on gifts of real estate President of National Real Estate Foundation acts as facilitating charity for property donations on behalf other non-profits Presentations at National Planned Giving Council National Conferences, speaker at United Way America s Annual Institute, AARP National Convention, Planned Giving Roundtables in (Pasadena, San Diego, Albuquerque, San Luis Obispo, Palm Springs, Riverside), American Cancer Society National Conference, National Association of Realtors, Morgan Stanley Trust Division, First American Title Company, International Realtors Conferences in Paris and Rome, University California San Diego s Endowment Fund Partial charitable client list include: Habitat for Humanity San Diego and Long Beach George Washington University, Washington DC United Way San Diego, United Way Chicago and United Way America AARP Foundation National Philanthropic Trust Muscular Dystrophy Association Fidelity Title and Escrow San Diego State University Salvation Army Northern Virginia Medical Association Scripps Hospital Foundation California State University Foundation 22
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Appendix Overview Of Property A. Donor 1. Name: Name: 2. Mailing address: 3. Telephone number: ( ) B. Basic Information 1. Type of property: 2.Address: 3. Assessors parcel number: 4. Property description: C. Tenant Profile 1. Lease term 2. Describe use of the property:
D. Estimated market value: 1. Debt: 2. Current gross income: 3. Current expenses: E. Ownership Information 1. Percentage ownership being donated: 2. Title status: F. User property environmental review: 1. Phase I Report: 2. Asbestos and Radon Reports: G. Site Inspection Report: H. Title Search I. Broker s Opinion of Value: Submitted by: Site Inspection by: Date: Date: