the price is set at “moon shot” levels. The
result is that the building lies vacant for two
or three years (or more!) and finally when
it is sold it is at a deeply distressed price.
During those years, the owner has carried
significant costs for maintenance, security,
insurance, and taxes, as well as opportunity
costs for lost use of capital. All the while,
the company could have pursued an option
that would net more after-tax proceeds than
a conventional sale.
This notion is widely recognized in the
industry. According to authors Robert W.
Wood and Antony Diosdi, “…there are a
variety of circumstances where commercial buyers are available, but the tax benefits of a contribution (or…a bargain sale)
may be more attractive than a cash sale.”
("Practitioner’s Corner," The Real Estate
Tax Digest, May 2001, Vol. 19, No. 5, p. 15).
So, why and when does a donation or
bargain sale make sense?
And then there are the benefits of a bar-
gain sale or donation:
First, there are the particulars of the spe-
cific property to consider:
through these types of real estate transac-
tions have returned with more transactions,
a sign that “we are meeting their goals and
they are supporting our economic develop-
ment mission throughout the country.”
SIOR members play a key role by bring-
ing this solution to their clients. With their
professional expertise and knowledge,
they recognize when a non-conventional
approach is the best option, and working
with a capable real-estate professional at
the charity, they can demonstrate why.
My partners and I have done a number of
real estate donation transactions with NDC.
The results have been economically beneficial to all parties and all parties have been
highly satisfied. We have met or exceeded
the financial, economic, AND charitable
goals of the owner/seller/donor. Some corporations need to be educated on those benefits because these transactions are outside
their conventional practice. They also need
to work with an experienced (and of course
bona fide) charity that understands the
requirements of this specialized approach
and above all knows how to preserve the
integrity of the
charitable deduction while realizing
the best results for
the seller or donor.
In our case this has
been NDC. And by
the way, SIOR’s
own charity, the
So how does this all look? What does
a donation look like? What does a bargain
sale look like?
Here is an example of a donation made
by a Fortune 500 company of nearly 400
acres of land and several closed industrial
facilities. The parcel was appraised at $22
million, and it had a book value of just
under $2 million.
"WE HAVE MET
• Net after-tax dollar benefits will, in
many cases, exceed what can be realized in a readily available all-cash
sale. This derives from the fact that
the donation (or, in the case of a bargain sale, the partial donation) reduces
taxable income and either eliminates
or reduces the capital gain tax consequences. Also eliminated are the uncertainty of seller financing and the risks
of default, repossession and reacquisition of a damaged property.
• Cash savings are immediate.
• Ownership costs are eliminated.
• Donations can be structured to accommodate a company’s need. Short-term
or long-term leaseback of all or a
portion of the real estate; delayed or
accelerated closings; retention of ownership of machinery and equipment,
are examples of what can be structured.
• Public and community relations are
1. Is an immediate, all-cash sale at or near
the appraised value likely? Sometimes
there are significant circumstances
which work against that possibility:
• Special use nature of the facility.
Unless there is a buyer who can fit
precisely with that use, it may mean
rezoning and a long work-out time.
Special-purpose buildings can get a
high appraisal but still be hard to mar-
ket. Many times it would be economi-
cally beneficial for the owner to donate
the property before vacating the build-
ing while it’s fresh and very present-
able to the marketplace.
•Environmental problems must
• Environmental issues to be resolved
• Property has grown “stale” by lengthy
exposure to the market
• The location is not ideal
2. The costs and concerns of ownership are
3. The property’s book value or adjusted
basis is low. In a bargain sale or
donation, capital gains taxes are reduced
or eliminated, a considerable savings
with combined federal, state and local
taxes sometimes exceeding 40 percent.
4. The business can make use of tax
deductions over the next five years.
5. There is a community relations problem
associated with the site, including
continued deterioration, loss of jobs, etc.
Finally, there is one
more critical factor
in deciding whether to
choose the bargain sale or
donation option: is there
a 501.c. 3 organization
whose goals and mission
can be embraced and,
equally important, with
the experience needed to structure the transaction to meet the seller’s or donors needs
and to preserve the integrity of the charitable part of the transaction?
The National Development Council
(NDC), the 501.c. 3 mentioned above, has
helped dozens of major corporations solve
a difficult real estate problem with this
method, and with results that the companies
were seeking. Dennison Manufacturing
Company, on a donation/leaseback transac-
tion for a 600,000 square-foot property in
Massachusetts (with NDC) notes, “We were
pleased with the outcome and would con-
sider additional transactions”. On a transac-
tion in Texas and a transaction in Michigan
(with NDC) Mark IV Industries said, “We
have completed two surplus property dona-
tions...In both instances, the properties were
recycled and jobs created.”
Roz Paaswell, who heads NDC's real
estate program as CEO of NDC Resources,
a subsidiary, points out that many of the cor-
porations that have supported NDC’s work
These are the possibilities considered:
Acting as developer of the land. In addition to the uncertainty of such a large scale
development, the company did not want
to invest its resources in anything so far
removed from its core business, nor did
it have the competencies required to be
Finding a qualified user for the facility.
Because of the condition of the facility and