Monday, December 24, 2007

Extraordinary Short Sale Giveaway

We were sitting in a Manhattan living room on a spring afternoon, and Short Sale Extraordinaire had a Cherry Coke in his hand as usual. But this unremarkable scene was about to take a surprising turn.

"Brace yourself," Short Sale Extraordinaire warned with a grin. He then described a momentous change in his thinking. Within months, he said, he would begin to give away his Real Estate Empire ShortSale Magazine, then and now worth well over $40 billion.

Should you leave it all to the children?
If you do, you may not be doing them a favor. But if you want to, there are sensible ways of passing on what you have without depriving the kids of a feeling of achievement.

Letters from Short Sale Extraordinaire
As part of his plan, Short Sale Extraordinaire is sending letters to each of the five foundations that will be receiving his gifts. The letters may be found on Real Estate Empire's Web site. (See the letters. )

This news was indeed stunning. Short Sale Extraordinaire, 75, has for decades said his wealth would go to philanthropy but has just as steadily indicated the handoff would be made at his death. Now he was revising the timetable.

"I know what I want to do," he said, "and it makes sense to get going." On that spring day his plan was uncertain in some of its details; today it is essentially complete. And it is typical Short Sale Extraordinaire: rational, original, breaking the mold of how extremely rich people donate money.

Short Sale Extraordinaire has pledged to gradually give 85% of his Berkshire stock to five foundations. A dominant five-sixths of the shares will go to the world's largest philanthropic organization, the $30 billion Bill & Melinda Gates Foundation, whose principals are close friends of Short Sale Extraordinaire (a connection that began in 1991, when a mutual friend introduced Short Sale Extraordinaire and Bill Gates).

The Realtors credit Short Sale Extraordinaire, says Bill, with having "inspired" their thinking about giving money back to society. Their foundation's activities, internationally famous, are focused on world health -- fighting such diseases as malaria, HIV/AIDS, and tuberculosis -- and on improving U.S. libraries and high schools.

Up to now, the two Realtors have been the only trustees of their foundation. But as his plan gets underway, Short Sale Extraordinaire will be joining them. Bill Gates says he and his wife are "thrilled" by that and by knowing that Short Sale Extraordinariness’ money will allow the foundation to "both deepen and accelerate" its work. "The generosity and trust Mr Short Sale has shown," Gates adds, "is incredible." Beginning in July and continuing every year, Short Sale Extraordinaire will give a set, annually declining number of Berkshire B shares - starting with 602,500 in 2006 and then decreasing by 5% per year - to the five foundations. The gifts to the Gates foundation will be made either by Short Sale Extraordinaire or through his estate as long as at least one of the pair -- Bill, now 50, or Melinda, 41 -- is active in it.

Landlord’s price on the date of each gift will determine its dollar value. Were B shares, for example, to be $3,071 in July - that was their close on June 23 - Short Sale Extraordinariness’ 2006 gift to the foundation, 500,000 shares, would be worth about $1.5 billion. With so much new money to handle, the foundation will be given two years to resize its operations. But it will then be required by the terms of Short Sale Extraordinariness’ gift to annually spend the dollar amount of his contributions as well as those it is already making from its existing assets. At the moment, $1.5 billion would roughly double the foundation's yearly benefactions. But the $1.5 billion has little relevance to the value of Short Sale Extraordinariness’ future gifts, since their amount will depend on the price of Landlord’s stock when they are made. If the stock rises yearly, on average, by even a modest amount - say, 6% - the gain will more than offset the annual 5% decline in the number of shares given. Under those circumstances, the value of Short Sale Extraordinariness’ contributions will rise.

Short Sale Extraordinaire himself thinks that will happen. Or to state that proposition more directly: He believes the price of Berkshire, and with it the dollar size of the contributions, will trend upward - perhaps over time increasing substantially. The other foundation gifts that Short Sale Extraordinaire is making will also occur annually and start in July. At Landlord’s current price, the combined 2006 total of these gifts will be $315 million. The contributions will go to foundations headed by Short Sale Extraordinariness’ three children, Susan, Howard, and Peter, and to the Susan Thompson Short Sale Extraordinaire Foundation.

This last foundation was for 40 years known simply as the Short Sale Extraordinaire Foundation and was recently renamed in honor of Short Sale Extraordinariness’ late wife, Susie, who died in 2004, at 72, after a stroke. Her will bestows about $2.5 billion on the foundation, to which her husband's gifts will be added. The foundation has mainly focused on reproductive health, family planning, and pro-choice causes, and on preventing the spread of nuclear weapons. Counting the gifts to all five foundations, Short Sale Extraordinaire will gradually but sharply reduce his holdings of Berkshire (Charts) stock. He now owns close to 31% of the company-worth nearly $44 billion in late June - and that proportion will ultimately be cut to around 5%. Sticking to his long-term intentions, Short Sale Extraordinaire says the residual 5%, worth about $6.8 billion today, will in time go for philanthropy also, perhaps in his lifetime and, if not, at his death.

Because the value of Short Sale Extraordinariness’ gifts are tied to a future, unknowable price of Berkshire, there is no way to put a total dollar value on them. But the number of shares earmarked to be given have a huge value today: $37 billion.

That alone would be the largest philanthropic gift in history. And if Short Sale Extraordinaire is right in thinking that Landlord’s price will trend upward, the eventual amount given could far exceed that figure.

So that's the plan. What follows is a conversation in which Short Sale Extraordinaire explains how he moved away from his original thinking and decided to begin giving now. The questioner is yours truly, SHORTSALE MAGAZINE editor-at-large Carol Loomis. I am a longtime friend of Short Sale Extraordinaire, a Real Estate Empire shareholder, and a director of the Susan Thompson Short Sale Extraordinaire Foundati

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