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A Look at REITs and REIGs: A Primer for Planned Giving Professionals

January 5, 2023
A Look at REITs and REIGs: A Primer for Planned Giving Professionals

Every charity has experienced the investment account that simply will not liquidate.  No matter what you do, one of the assets just will not sell, causing your file to remain open for years on end!  Not infrequently, the culprit is Real Estate Investment Trusts (REITs).  A REIT is a legal entity that owns, operates, or finances income-producing real estate such as apartment complexes, hotels, or shopping malls.

REITs were originally created to expand access to real estate investing and the profit and diversification opportunities that it offers.  The statutory authorization for REITs dates back only to 1960, so these vehicles have much less history than typical equity and debt investments.

REITs are Occurring More Often in Charitable Bequests

Since REITs are often long-term investments, it is only in the past decade or two that these assets are surfacing regularly within charitable bequests.  By now, most charities with a significant volume of bequests have dealt with one or more instances of a REIT gift.  Planned giving officers responsible for bequest cultivation and/or the management of matured bequests need to be familiar with these vehicles.  In other words, they should know how to speak “REIT.”

The two main questions a planned giving officer should be asking when evaluating a REIT gift are as follows: “What type of REIT is it?” and “How much is it worth?”  Broadly speaking, the answer to the first question will indicate how difficult/easy the liquidation process will be.  The answer to the second question will determine if the required effort is a good use of the charity’s time and resources.  Obviously, the information acquired will be used differently in the bequest cultivation process than in the estate settlement process.

Public vs. Private REITs

From a charity’s point of view, all REITs fall into one of two categories: public and private.  The “private” category includes a growing number of public non-listed REITs (PNLR).  While the difference between a truly private REIT and a PNLR is important to an investor, it makes no difference to a charity receiving such interest as a gift.

In short, the planned giving officer just needs to know that public REITs are very easy to liquidate.  All the others present redemption challenges.  A public REIT, as far as a charity is concerned, is simply one that is traded on a major stock exchange.  It is bought and sold in exactly the same manner as the stock of Verizon, Walmart, or any other public company.

All other REITs are subject to the redemption procedures outlined in the entity’s governing documents.  These procedures may, for example, limit redemptions to certain periods or impose significant charges for “cashing out.”

What About Real Estate Investment Groups (REIGs)?

REITs now have a first cousin: the Real Estate Investment Group (REIG).  Like REITs, REIGs offer investors the opportunity to invest in real estate and real-estate-related ventures.  However, REIGs are subject to little regulation or government oversight, even less than private REITs.

In some ways, they are like crowdfunded ventures.  Again, while this makes a difference to the investor, it should make little or no difference to a charity.  A charity can consider a REIG to be a version of a private REIT and subject to the same issues.

How Can Charities Deal with REITs?

A charity may wish to address the subject of REITs in its gift acceptance policy, but only if it is actively cultivating bequests of this type or, for some other reason, expects to receive a substantial number of them.  For most charities, dealing with REITs on a case-by-case basis will be more than adequate.

Here, in broad strokes, are a few suggestions for dealing with REITs:

  1. Look: Once a charity receives notice of a gifted investment account, peruse the account statement for REITs.  They will typically be in the “Alternative Investments” section of the statement.  Often, but not always, “REIT” will be part of the name.
  2. Research: First, do a quick Google search to determine if the REIT is public or private.  This information is readily available on the REIT company’s website.  If it is a public REIT, it will be liquidated with all the other holdings like a normal stock.  If it is a private REIT, then pursue further action.
  3. Analyze: If the REIT is private, call the financial institution that holds the account or the transfer agent that oversees the REIT to determine the frequency of liquidation opportunities, minimum hold time, and secondary market purchase options.
  4. Prioritize: Use the information gathered from steps 1 and 2 to determine if the value of the REIT is sufficient to justify the effort of liquidation.  If not, the charity may consider declining the gift.  Alternatively, some charities prefer to hold nonliquidated REIT shares in the hope of future redemption.

In short, REITs are apt to become more common in the planned giving world in decades to come.  For sure, these assets are not “white elephants” like vacation club ownerships or most cemetery plots.  REITs require the focused attention of informed professionals dedicated to the charity’s mission and the prudent management of its resources.