This week’s post is written by the Rev. Dr. Patrick G. Duggan, Executive Director of the United Church of Christ Church Building & Loan Fund. Since 1995, Rev. Dr. Duggan has also served as senior pastor of the Congregational Church of South Hempstead in South Hempstead, New York.
After several years of struggling, a CB&LF church loan partner could no longer afford the large, beautiful property it had inhabited for several decades. The church wound up in the possession of CB&LF (foreclosures are extremely rare in the 165-year history of the Fund, but over so many decades there have been a few). Thankfully, it took only a few weeks to identify a perfect occupant for the former church; one whose mission, values and purpose aligned with those of CB&LF and the UCC. The buyer had accumulated savings for a down payment and applied to the Fund for a mortgage loan to pay the balance of the purchase price.
To determine a price in any real estate transaction, there are several ways to determine property value. Home buyers for example, rely on real estate brokers to find homes in a price range they can afford. In most cases, the price advertised for a home is a market valuation (“broker price opinion” or BPO), i.e., the price is determined by comparison to sales prices of other homes recently sold. Once buyer and seller agree to a price, many buyers need a mortgage loan to complete the purchase. When the buyer applies for a mortgage, the lender requires the home buyer to hire a professional real estate appraiser to determine that the home value and sales price align (professional appraisals are considered to be the most authoritative determination of property value). And when the home buyer purchases homeowner insurance, s/he will see that the insurance company has used its own valuation to determine the total replacement value of the home.
These three ways of determining real estate value, market valuation, professional appraisal, insurance valuation, are the most widely used ways that buyers, sellers and financial intermediaries arrive at the value of any real estate including church property. What is noteworthy here is that these methods of valuation never yield the same exact result. In other words, if the home buyer in the previous example had all three of the valuation methods done on the home at the same time, on the same day, each of the valuations would be different (and could vary by thousands of dollars).
When CB&LF was ready to sell the church property mentioned above, our expectations for a sale price were based on an insurance valuation and an appraisal done three-years earlier. Our staff was confident that after years in a stable, suburban, residential neighborhood, the well-maintained, improved, and “move-in ready” church property would have increased in value at least moderately, and perhaps substantially. Our expectation was that the proceeds of the sale would pay off the former borrower’s loan and yield the Fund a $200,000 surplus that would enable the Fund to assist other congregations in the future. More importantly a new, mission-focused reuse of the church property would continue to advance the mission of the UCC and positively impact the local community for decades.
Since the appraisal was three years old, we ordered a new one to be done prior to finalizing the sale of the church property. To our surprise, the appraised value of the property had dropped to a level so low that the Fund was fortunate to complete the sale to the new borrower at a $30,000 loss.
What happened to cause such a disconnect between our expectations of value and the reality? The short answer is that value is both subjective and relative. This is true for real estate, stocks, cars, and just about anything you can buy or sell.
Take, for example, rocks. Let’s say you are walking barefoot in Central Park in New York City and step on a pebble in the grass. You will probably pick it up and throw it as far as you can. Now let’s say instead of a pebble, you step barefoot on a near-perfect diamond the size of that pebble. You will pick it up and run in your bare feet to the nearest jeweler so you can sell it and pocket your seven figure financial windfall. Since the value of rocks is subjective and relative, two different rocks of the same size have wildly different values. (Remember pet rocks?)
A diamond is valuable because it is a rare rock. Church properties, on the other hand, are found in every neighborhood. Many, if not most church buildings are underutilized (open only 1-1/2 days per week). Congregations are closing at the rate of about 4,000 per year. In locations other than the most high-value real estate markets, congregations seeking to buy existing church buildings are likely to find prices that are lower now than ten years ago. Because church buildings are often single-purpose buildings (unusable for any other purpose), in many cases, non-church buyers of church properties must factor demolition costs into their redevelopment plans.
Non-church real estate and development professionals (developers, commercial lenders, real estate brokers, or professional appraisers for that matter) place little value on the mission-driven purpose of church property (decades or centuries of worship, prayer, food programs, baptisms, weddings, fellowship, funerals, graduations, philanthropy, community meetings, justice work, and all the other ways that congregations shape communities). Absent a vital missional purpose, the value of a church property is dramatically impaired. No mission, no market value.
With increased demand for real estate (especially in cities), all church property in the United States is under market pressure to transition to new uses. The problem of declining church property value however, is less about market pressure on the property, and more about insufficient motivation to change within congregations and denominations.
It is time for church leaders to wake up to the reality of the assets, buildings, properties, endowments, investments that God has placed into our hands. Global religions are the largest holders of real estate on the planet and have managed financial enterprises for centuries before the existence of any global financial institutions. The wealth owned by global faith traditions makes religion the fourth largest investors in the world. Instead of whining and moaning about decline, church leaders must seek God, dream together and thoroughly articulate institutional vision, mission, goals, objectives, and impact metrics. Having immersed ourselves in the “why?” and the “how?” (in precisely that order), we must execute innovative strategies to advance the mission-driven use of the assets that God has placed into our hands. The highest and best value of church-owned property is unleashed in the mysterious ways that the Spirit moves in people to use assets to transform lives and communities.