Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
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10 March | April | 2016 Commercial Investment Real Estate IS SUE S BUSINE S S w by Mary Stark-Hood, JD, CFP Real Estate Gifts With the upturn in the economy, charitable giving is on the rise. Philanthropy is now a $4 trillion-plus industry, according to the National Center for Charitable Statistics. Although the majority of donations are cash or securities, real estate can also be donated to nonprof t organizations. Both individuals and corporations may have real estate investments they no longer wish to retain, so at some point commercial real estate professionals may encounter clients who are interested in donating property to charitable organizations. Real estate gif ing is a prof table niche that CCIMs and other well-versed profession- als can add to their roster of client services. While anyone at any stage of life can donate real estate, in particular, high net worth individuals, business owners, and property investors who are nearing retirement may f nd that the tax benef ts of gif ing real estate may help them meet their estate planning goals. In some cases, donating a property creates a larger gif than if a donor sold the property and gave the proceeds to the organization. A property donation can benef t the owner by lowering transfer expenses, reducing capital gains taxes, and providing charitable deductions at the federal level and sometimes at the state level, depending on state law. Gifting Steps Individuals and companies donate for a number of reasons. For individuals, it may be due to a philanthropic intent, a desire to use and qualify an appreciated asset as a charitable donation for tax deduction pur- poses, a need for supplemental retirement income, or a desire to establish a legacy for family members. Corporations may be looking to provide support in a local community, divest an underperforming asset, utilize the value of the asset as a deferred compensation vehicle for executives, or fulf ll philanthropic objec- tives for public relations purposes. At this early stage in the process, the donor should seek the advice of an accountant, attorney, or f nancial adviser. T is person should be someone who has enough infor- mation about the donor's f nancial picture to evaluate the f nancial impact of the dona- tion and assure the donor that the value of the donation can be utilized as a charitable deduction on the donor's income tax return. A preliminary f nancial review is of value, as there have been instances where a dona- tion was very large in comparison to an indi- vidual's adjusted gross income and therefore a portion of the donation as a charitable deduction was lost. Once the donor f nalizes the decision to move forward with a donation, a qualif ed charitable organization must be willing to accept the gif . Qualif ed charitable organi- zations are 501(c)(3) entities under the Inter- nal Revenue Code. T is is the stage where real estate donations of en break down and where commercial real estate professionals can add value to the pro- cess. Most charitable organizations are not knowledgeable about the real estate gif ing process. T ey are concerned about possible risks in taking property, and most don't have the knowledge to undertake the necessary due diligence, handle the transaction, and dispose of or manage the property. T ey're also concerned about legal and tax issues. Approximately 80 percent of real estate donations are rejected, even though the aver- age value of a real estate donation is in excess of $500,000. Charities that accept real estate generally resell it and obtain cash, rather than holding and managing the property. If a donation makes sense for both the donor and the charity, specif c duties are assigned to the appropriate members of both teams through closing. Team members may include brokers, leasing professionals, invest- ment counselors, asset managers, appraisers, environmental engineers, structural engi- neers, property managers, corporate real estate executives, developers, institutional investors, lenders, and attorneys. There are several ways to donate real property to a charity, including an outright donation, a bequest under a will, a real estate transfer in exchange for a guaranteed life income under a contract (charitable gif annuity), a charitable remainder trust, a bargain sale, and a retained life estate. T e nuances and complexities of each type vary. T erefore, experienced professionals need to be involved in each transaction. CCIMs and other professionals can learn how to assist clients with real estate donations by attending "Making Transactions Hap- pen With Real Estate Gif ing," a new course of ered through CCIM Institute's Ward Cen- ter on Real Estate Studies. T is program iden- tif es how to assist clients in achieving their donation objectives. As you gain experience David Palmer/Getty Images