A few weeks ago, the WSJ featured an article titled “A Class Move for an Office” about Bank of America donating an office building in Wilmington, Delaware to a local charter school. “Wilmington’s central business district’s fourth-quarter office vacancy rate stood at 20%…The four-quarter national average was 17.3%. Bank of America weighted a number of options before opting to donate the 282,000 square feet of space, including selling it.”
The article seems to hint at this but, does not state it outright, or perhaps I’m just more cynical than the journalist. I believe BAC was greatly incentivized to donate the building for the following reasons:
- The expected sale price was substantially lower than the mark of the building currently on its balance sheet, and would have resulted in a charge to its ever precious equity capital.
- Perhaps there is less scrutiny by the IRS than the OCC/FDIC/Fed on mark to market, thus the current unrealistic mark for the building actually becomes a greater than “fair value” tax benefit.
Regardless, this article led me to wonder, could other investors (especially those that hold illiquid/private assets) emulate this tactic employed by BAC and be better off donating certain assets, particularly in situations where:
- Investors/funds make annual charitable donations anyway
- The asset is a long-term cash drain (e.g., non/negative-cash flowing real estate with high maintenance expenses in a market a long way from recovery, time share condos, etc.)
- Sale of that asset would lead to additional (cash) losses, transaction fees, and/or become the source of much aggravation and headache