Hold, sell, or develop: how a fiduciary actually decides
Inside the real decision process behind a trustee's biggest real estate calls.
A property held in trust can present three reasonable paths.
Keep it and collect income. Sell it and release capital. Develop it into something more productive.
Each can be supported by a convincing forecast. Each can also be wrong for the trust that owns it.
The decision begins with the purpose of the account, the people it serves, and the obligations the trustee has to meet. A building’s potential matters within those circumstances. Projected return is one part of the decision.
Washington’s prudent-investor statute illustrates that approach. It requires a trustee to consider the trust’s purposes, terms, distribution requirements, and other circumstances, and to evaluate individual assets within the portfolio as a whole. Its listed considerations include taxes, total return, liquidity, and an asset’s special relationship to the trust or its beneficiaries. The applicable duties must be established under the law governing the particular trust.[1]
Before discussing price or construction, the trustee and counsel need to establish who can authorize a decision. The trust instrument, ownership agreements, financing documents, and any relevant court orders may affect the available paths. Property held through an entity can involve another layer of approval.
A promising proposal has little practical value until the authority to carry it out is understood.
The next question is what the trust needs the property to do.
Does it support regular distributions? Is capital needed for an approaching obligation? How much of the portfolio is tied to this location, tenant, or property type? Can the trust fund repairs or development without compromising its other responsibilities?
Beneficiaries may answer differently. A person receiving current income may value predictable distributions. A beneficiary with a longer horizon may favor reinvestment. Washington law expressly requires impartial administration with due regard for beneficiaries’ respective interests. The practical task is to evaluate those interests against the governing terms and show how the proposed decision addresses them.[2]
Then the property needs to be understood as it stands today.
That means reviewing leases, actual collections, operating expenses, physical condition, insurance, debt, and anticipated capital work. Market value, achievable rent, and potential alternative uses need supporting evidence. An appraisal and a development concept answer different questions; neither alone establishes what the trust should do.
Holding requires a forecast of what ownership will demand.
A fully leased building may produce dependable income while carrying an approaching roof replacement, lease expiration, or loan maturity. The analysis should show the cash available after operating costs, financing obligations, and necessary capital spending, together with the reserves needed to withstand interruptions.
The Office of the Comptroller of the Currency’s refinancing guidance identifies constrained liquidity, high leverage, weak financial performance, and near-term maturities as factors that can increase refinancing risk. For the trustee’s analysis, an assumed refinance should be tested against current lending requirements and the property’s capacity to meet them.[3]
Holding can be the right choice when the property’s income, risk, and capital requirements fit the trust. Continuing ownership should have an affirmative rationale and a review date.
Selling requires a forecast of what the trust will actually receive and what happens next.
The relevant figure is the capital remaining after debt repayment, transaction costs, and applicable taxes. That capital needs a proposed role: funding distributions, reducing concentration, acquiring another asset, or meeting another trust obligation. The comparison should include the income and risks associated with that use of the proceeds.
Tax planning belongs early in the analysis. The IRS explains that qualifying exchanges of business or investment real property can defer recognition of gain, while property held primarily for sale is excluded. A possible Section 1031 exchange therefore needs a separate eligibility and execution review with tax counsel. Its reinvestment requirements must also be considered alongside the trust’s need for liquidity.[4]
Developing requires a forecast of both the opportunity and the obligations created along the way.
A parcel may support more productive use. The trustee needs to understand zoning, approvals, site constraints, tenant obligations, construction costs, financing, market demand, and the time before the project can produce income or sale proceeds.
The OCC’s commercial real estate lending handbook emphasizes project feasibility, the ability to complete construction within budget and on schedule, and a detailed budget with provision for unexpected costs. Although written for lenders, these are useful disciplines for evaluating a development proposal presented to a trust.[5]
The analysis should also count the value of the land being committed. A property owned for decades still has a present value that could be realized through another path. Development returns should be measured against that opportunity, alongside the additional capital required.
There may be an intermediate choice: investigate approvals, secure entitlements, or make targeted improvements before selling. That approach can allow the trust to pursue some of the property’s potential while limiting the scope of its construction exposure. Its costs, timing, and likely benefit still need to be tested.
The three paths then need to be compared on consistent terms.
Use the same evaluation period, distinguish operating income from cash available for distribution, account for taxes and capital contributions, and include any property value remaining at the end. Identify when money must be committed and when it may become available. A development profit expected several years from now has a different role from cash needed next year.
Consider an illustrative trust holding an older commercial building. The leases are nearing expiration, substantial repairs are due, and the site may support redevelopment. The trust also needs dependable distributions.
Holding could remain viable with a funded repair plan and credible leasing assumptions. Selling could release capital for those distributions. Development might offer greater long-term value while requiring the trust to absorb a period without property income. The decision turns on whether it has the authority, liquidity, and capacity to carry that commitment.
A useful comparison shows what happens if rents are lower, costs increase, approvals take longer, or financing becomes less available. It also identifies the point at which the preferred option should be reconsidered.
The written decision record should explain the objective, evidence, alternatives, assumptions, conflicts reviewed, and reasons for selecting a path. It should distinguish confirmed facts from estimates and assign responsibility for implementation and monitoring.
That record gives the next trustee, the beneficiaries, and the advisory team a clear account of the decision.
At Crest Capital, the question is what role the property should play within the trust, and what the trust can reasonably commit to that role.
Hold, sell, or develop becomes clearer once those responsibilities are visible.
Sources
- Washington State Legislature. RCW 11.100.020, trustee management of trust assets. https://app.leg.wa.gov/RCW/default.aspx?cite=11.100.020
- Washington State Legislature. RCW 11.98.078, trustee duty of loyalty, including the duty to act impartially. https://app.leg.wa.gov/RCW/default.aspx?cite=11.98.078
- Office of the Comptroller of the Currency. “Commercial Lending: Refinance Risk,” Bulletin 2024-29. https://www.occ.gov/news-issuances/bulletins/2024/bulletin-2024-29.html
- Internal Revenue Service. “Like-Kind Exchanges, Real Estate Tax Tips.” https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips
- Office of the Comptroller of the Currency. Comptroller’s Handbook, “Commercial Real Estate Lending.” https://www.occ.gov/publications-and-resources/publications/comptrollers-handbook/files/commercial-real-estate-lending/pub-ch-commercial-real-estate.pdf