Corporate surplus property: Always a challenge, Part 1

Times continue to be challenging with corporate real estate dispositions. Corporate surplus property dispositions are always challenging, even for your better properties. But what about the harder to sell, older manufacturing facilities. The ones that have been closed for a number of years, but still require constant corporate management. To make it worse, certain parts of the country are experiencing more than their fair share of older facilities going dark. With the number of vacant facilities steadily growing, alternative disposition techniques are needed and are available. One such alternative is donating the facility to a 501 (c) (3) not-for-profit corporation. Knowledgeable corporations, as well as your experienced real estate consultants, are increasingly finding that a charitable donation of real estate can be the best solution for certain property dispositions. For much surplus property, a donation may generate more after-tax dollars than the most likely conventional sale at fire sale prices and considerably shorten the marketing time. Picture these types of scenarios: A company closes a manufacturing facility due to the economic downturn and has no intention of reopening that particular facility. Each and every month the property sits vacant, it's costing the corporate owners real cash in terms holding costs such as minimal heat and lights, property taxes, minimal property maintenance and the cost of lost capital being underutilized, etc. While all this happening, the market and values continue to decline. Second scenario is basically the same as the first, except the facility closed two to four years ago. Both examples represent an all too familiar market theme that is here and will be with us for some time. The choice is very clear. You need to stop bleeding cash and dispose of the facility a quickly as you can. A donation will accomplish that while at the same time generating potentially more net-cash after-tax than a conventional cash sale at a "fire sale" price. The donation can give you a tax deduction that can be used based on your adjusted gross income. The deduction has limit of 10% of adjusted gross income for corporation and a deduction limit of 30% of adjusted gross income for individuals, limited partnerships and S Corporations. However most, if not all of your large corporation typically can take advantage of the entire deduction in the first year after the donation. The types of property that typically work well as donations are those properties that have somewhat of a low book value in relationship to its market value. The properties can include: Industrial facilities, office buildings, commercial or retail, vacant land, apartment buildings and specialty properties. Basically this approach works for any type of real estate. But, with the current economic trends, this approach will work well for corporate real estate. As we all know, there are many reasons why corporate properties today are closing and in plentiful abundance. Typically it is the least desirable property in the corporate portfolio of surplus properties. The property is generally functionally obsolete because it can no longer perform the originally intended use. The property may be economically obsolete due to external factors of overall market conditions. Maybe there is an internal corporate decision to get the property off the books by a given time frame, generally by the end of a given year or quarter. Theses are just some of a few reasons, with each property having its own unique reason. Part 2 will appear in the July 17st edition of the New York Real Estate Journal's Upstate section. Ronald Peters is a real estate consultant at Peters & Associates, Saratoga Springs, N.Y.