Newport Beach, CA, July 11, 2009 --(PR.com
)-- Trinity Partners, a national real estate endowment who specializes in acquiring commercial office and industrial real estate purchased a 42,000 square foot office building from a fabricated company called Smart Co.
Smart Co. listed the office property in California for sale to generate cash currently tied up in the highly appreciated property it had owned since 1980.
John Smith, Smart Co’s Director of Corporate Real Estate contacted Andrew Hanscom, Executive Director of Trinity Partners to determine if the property would be of interest to Trinity Partners and its specialized real estate investment partners. John also wanted to understand how a “Buy and Hold-Charitable Bargain Sale” might bring him a more favorable return than an “All Cash Offer” so he could convince his corporate management it was worth pursuing.
John along with Smart Co’s accountants understood that the sale of their highly appreciated property would have Income Tax (capital gains) implications that must be considered and understood. Smart Co. would net only 55% on an all cash sale when selling the property since the Net Book Value was only $98,000 after factoring in 28 years of depreciation. John and their CPA knew that in order to ensure the greatest bottom line return for Smart Co. they must consider the value of “Net Cash Profit” from a sale instead of a “Gross Cash Offer.”
Trinity Partners, its financial partner and John decided to move forward with the sale and at the same time structure an attractive lease back of the entire property by Smart Co. for 10 years. One of the greatest advantages to a Charitable Bargain Sale is the offer price is always determined by the current “Fair Market Value” of the property certified by an MAI appraiser. "There is no distressed offer price or no needless negotiating. The price is what it is." said Mr. Smith.
Smart Co. contacted a local certified MAI appraiser, as required by the IRS for a Charitable Bargain Sale, and paid them to perform a full appraisal. The appraiser determined the “fair market value” at the time of the appraisal was $10 million which stood firm for 90 days.
Trinity Partners financial partner paid $5.025 million of the purchase price in “cash” and Trinity Partners provided the remaining $4.975 million in a certified IRS 8283 certificate (tax deduction) that would offset all of the capital gains tax Smart Co. would have been required to pay to the IRS under an all cash sale.
Smart Co. was considering accepting an $8.2 million offer for the property from another source, but the NET cash they would have retained on the sale would have only been $4.575 million. John knew the offer involving Trinity Partners netted Smart Co. $5.025 million without any haggling and could close in 45 days vs. a potentially longer escrow and loan underwriting unknowns with the all cash offer. In good faith, John could not have passed up an opportunity to net $450,000 more in cash for his company and secure the IRS tax deductions. The bonus was knowing that his company had significantly supported a charity benefiting children at the same time.
Smart Co. kept their existing office space by committing to an excellent 10 year lease back. According to Mr. Smith, most of Smart Co’s employees didn’t even realize the building was now owned by Trinity Partners and its REIT partner because the transaction was so seamless.
In the end, all three parties were satisfied. Smart Co. received $450,000 more than an all-cash sale, then immediately reinvested all cash proceeds toward new R&D and expansion projects. The REIT partnering with Trinity Partners agreed to 100% ownership buyout after 36 months and was able to save close to $1 million vs. buying it outright on their own. Thirdly, Trinity Partners committed over $750,000 of its endowment revenue from the transaction directly to a local children's outreach charity. A textbook win-win-win business deal.