It’s a fairly common arrangement for a nonprofit board member to donate commercial real estate to a nonprofit in need of office space. But sometimes the economics don’t really make sense, especially in a city with a hot real estate market like Austin.
Imagine that you own a commercial office building in downtown Austin and you’re on the board of a small local nonprofit that needs 3,000 SF of office space. You have a vacancy coming up and you offer to lease it to them for $2/sf as opposed to the market rate of $40/sf.
On the one hand this looks like a great deal for the nonprofit (a $38/sf donation) and for the landlord since they would be receiving some income and an in-kind contribution that can be taken as a deduction -- e.g. 50% of the $38/sf annually or ($38 x 3,000sf) x 50% = $57,000.
Now imagine another scenario.
The landlord leases his property to a commercial tenant at $40/sf and has income of $120,000/year. Let’s also say you donate the $38/sf ($114,000) you would have provided to the nonprofit and instead provide it as an in-kind contribution in cash to the organization. And let’s also say that the organization uses that income to secure their own lease in another less expensive space, for $90,000 per year.
With the exact same assets, you can provide the identical charitable benefit to the landlord donor, but in one scenario you can ensure the long-term stability of the organization. Not to mention, innovative approaches like this can provide even more revenue as the initial class A space sees the lease rate continue to rise. Some food for thought for donors out there looking for new ways to give back and nonprofits in need of affordable real estate solutions.