Four top church real estate trends the Pope should be aware of
Like any real estate sector, consumer trends and decreasing demand can adversely impact the value and marketability of religious real estate as well. It is no secret that U.S. church attendance is trending downward and it does not seem to be getting any better.
Religion is on the decline
A variety of recent studies have cited that millennials are growing even less affiliated with religion as they get older. In 2007, about 25% of millennial aged persons did not affiliate with a religion; and this has grown to 34% in the latest survey. According to the Wall Street Journal article the construction of religious buildings in the U.S. has fallen to the lowest level since private records began in 1967.
Construction also is taking a dive
Religious groups will build an estimated 10.3 million square feet this year, down 6% from 2013 and 80% since construction peaked in 2002 according to Dodge Data and Analytics. In terms of dollars, spending on houses of worship totaled $3.15 billion in 2013, down by half from a decade earlier, according to Commerce Department figures.
Let’s take a look at four top trends impacting the value of church real estate. They may surprise you.
Old church buildings can add value
Increasingly, redevelopment is occurring in older urban areas with a focus on creating walkable communities that foster a sense of place. Developers are seeing the benefit of not only preserving old church buildings but actually featuring the older and often ornate structures in the overall development plan of the community.
In August, New York-based Brookland Capital purchased St. Lukes Evangelical Lutheran Church in Brooklyn for $8.8 million and plans to build apartments and townhouses on the site, retaining the existing structure which was built in 1894.
In Miami, developers Matthew Vander Werff and Avra Jain have assembled a nearly eight-block area of the Little River section of Miami to re-develop the grungy industrial area into a walkable community. Located near the center of the assemblage is a beautiful old Catholic church named The Cathedral of St. Mary. Built in 1957, the church architecture draws elements from various architectural periods and features a consecrated 2-ton bronze bell in the seven story cathedral tower. The developers are working with the Archdiocese of Miami to partner with them to feature the beautiful old church building as a centerpiece to the community.
In each case, the developer sees the value in maintaining a feeling of history in their communities by keeping old church buildings.
Charter Schools Are Not the Death Knell
At first the rise of charter schools – to 7,000 today from 1,900 in 2000 – was thought to be the nail in the coffin for Catholic education, which had been in decline for decades. Charters offered many of the same benefits of Catholic Schools such as order, kindness, discipline, and high expectations. But because charter schools are publicly funded, families don’t have to pay tuition which obviously provides charter schools with a competitive advantage over its Catholic school counterparts. Over the past few years however Catholic schools have actually benefited from Charters by poaching staff, drawing from the same donors and adapting their operations to be more like charter schools.
Philanthropic wealth to the rescue
Additionally philanthropic wealth has also come to the aid of Catholic schools. At the same time, state and local school choice programs are surging. In 2000, only 29,000 students attended religious or private school with public support typically through vouchers or tax credits. In 2014, nearly 454,000 did according to the American Federation for Children.
This is quite the turnaround.
Starting in the mid-1960’s, 6,000 inner-city Catholic schools were closed in low-income neighborhoods. Current evidence suggests that this trend is being reversed and that faith based educational facilities has a new base of support which should enhance the overall value and marketability of church property.
What about mega churches
Many megachurches, typically Protestant congregations with weekly attendance above 2,000, erected enormous single use buildings with arena-like sanctuaries in the 1990’s and early 2000’s. However, while their memberships have continued to grow or at least maintain, there has been very little expansion of mega churches. An increasing number have become multi-site churches, holding smaller services in rented movie theatres or local schools or union halls.
To the shopping mall
As the construction of single use religious facilities declines, reuse of non-traditional church space is on the rise. For instance, according to information from Co-Star out of 114,000 shopping center properties in the United States, 220 centers have a “church/community center” listed as a tenant.
In Boynton Beach, Florida mega church Christ Fellowship has back-filled a 127,000 square foot former Dillard’s department store at the Boynton Beach Regional Mall. They had previously been meeting a local high school auditorium.
Initially there were concerns by the city regarding the church not paying taxes and cutting in the tax base. However, the church has agreed to pay $25,000 per year to the city. The city also sees the economic and sociological benefits to the community. It is expected that the church could bring potentially as many as 3,000 visitors a week to the mall and the church has already spent over $7 million in building renovations.
We also see growing examples of churches selecting space in industrial parks as well. The rent is low, ceilings high and the shared parking environment is good since most industrial parks are closed on Sundays.
Thinking outside the box to create value in church property
In many cases the areas around old church properties grow dramatically over the years into a viable office or retail market. There is tremendous underlying land value but the church doesn’t want to move. In these cases, church leaders need to be creative and consider all options.
For instance, there have been examples of churches selling their development rights to developers seeking density on off-site projects. In these cases, the congregation not only gets to cash in some of their chips but they also get to stay in their current building.
Transferrable Development Rights
The cost of Transferrable Development Rights (TDR’s) generally depend on market conditions other factors being equal. During equilibrium, TDR’s are about half of the unencumbered site value but in periods of high demand the price of the TDR’s can often be much more than 50% site value.
In Miami Beach, an older church recently entered into a long-term lease agreement with a developer who wanted to build retail. The problem was however that the church had a “Peace Garden” on one of the lots where congregants and visitors went to pray and meditate. In this instance, the developer agreed to bear the cost to build a new garden on the third floor of the planned development. This was a true “win-win-win” due to the forward thinking of the church leadership. The developer got the site, the church got the cash and the congregants got their new garden.
Since 1975 Walter Duke + Partners has completed hundreds of valuation advisory assignments of religious facilities in the Florida market in excess of 1 billion dollars. Our clients include lenders, investors, owners and congregants. For more information contact Walter Duke at walter@walterduke.com to see how we can help you.
* Photo courtesy of Steve Rouhotas
