Wilbur Marvin Foundation gives BRAF $6 million only to have BRAF lend it back
After the Baton Rouge Area Foundation accepted a record $6 million contribution from The Wilbur Marvin Foundation, which owns Commercial Properties Realty Trust, in 2010, it turned right around and lent the money back to the Marvin foundation. Part of the repayment was transferring to BRAF ownership of this parking lot at Fifth and Laurel streets, located behind BRAF’s headquarters at the time, valued at $1.2 million. (Courtesy Google)
A frequent criticism leveled at BRAF and its real estate company, Commercial Properties Realty Trust, is that the line between the organizations is blurred, the relationship convoluted.
Consider the curious contribution The Wilbur Marvin Foundation, which owns CPRT, made to BRAF in 2010. Though tax returns from that year originally reported the amount as $35,816, an amended tax return filed four years later—in December 2014—shows the Marvin foundation actually made a $6 million contribution to BRAF.
It’s a remarkable amount of money for a couple of reasons. First, it’s more than the Marvin foundation had ever contributed to BRAF before—nearly twice as much as it had spun-off even during its best years in 2006 and 2007.
Second, the contribution was made in the middle of the Great Recession, just a year after CPRT had written down $40 million in losses, leaving its net assets at $32 million.
Why would the Marvin foundation contribute so much money to BRAF during this difficult period, particularly when $3.5 million was the most it had previously given?
CPA Jerry Jolly, who does accounting work for BRAF and CPRT, says the Marvin foundation board “wanted to make a strong statement of support” for BRAF, and that they wanted to make up for the fact their contribution in 2009 had been just $7,800.
“Remember, (the Marvin foundation) is a charitable organization and must balance its charitable goals with its business opportunities,” he says. “The board’s judgement was to make the contribution consistent with (its) charitable goals and IRS requirements.”
Complicating matters, is that BRAF immediately loaned the money back to the Marvin foundation. According to BRAF’s audited financial statements, the Marvin foundation agreed to repay the loan in monthly installments of some $25,000 over 30 years at 3% interest.
Jolly says the deal was structured that way because the Marvin foundation needed the cash and BRAF wanted the support foundation that owns its real estate company to prosper.
“BRAF decided to loan the money back at a favorable rate rather than have (the Marvin foundation) borrow money in the normal course of business from a financial institution,” he says. “Their motivation was to increase the future profitability of (the Marvin foundation) and hopefully allow for increased contributions in the future.”
Though loan terms called for the first monthly payment to be made in January 2011, the Marvin foundation didn’t begin loan payments until 2013, when it donated—in lieu of cash—a $1.2 million parking lot at Fifth and Laurel streets (above). The lot, behind BRAF’s headquarters at the time, was already used and controlled by BRAF.
The Marvin foundation has continued to pay down the loan and currently has a balance of around $3 million.
Commercial Properties, the real estate arm of the Baton Rouge Area Foundation, has sustained significant financial losses over the past decade. Now the company is banking on a new investment strategy to rebuild its portfolio.
If it’s puzzling that a real estate company coming off its worst year would contribute money it needed only to then borrow it back with interest (the interest would eventually be forgiven), Jolly says it’s important to remember the Marvin foundation exists to support BRAF and its charitable endeavors—even if that means BRAF has to help the Marvin foundation achieve that mission.
“Any assistance by BRAF to (the Marvin foundation) should cause better results and more future contributions (to BRAF by the Marvin foundation), which provides a motivation to BRAF (to make) the loan,” he says. “There are many companies with loans from financial institutions where they maintain significant cash balances (Apple, Google, Amazon, etc.) and I do not think people view it as borrowing their own money back.”
As to why the 2010 contribution was originally recorded as $35,816 and not $6 million, Jolly says the accountant preparing the tax return did not record the contribution properly and that the error was not caught until the following year.
“And then it was another couple of years after that before the amended return was filed,” he says.