Owning Church Real Estate – Smashing a tired paradigm
Monopoly, unlike the real world, rewards aggressive real estate acquisition
During my years in the real estate business, I repeatedly saw fast growing companies decide to own the real estate they occupied. 99.9% of the time it was a BAD idea. Why did they do it? Maybe they played too much Monopoly as a kid. But I suspect another culprit. There’s a horrible old mindset that goes something like this: “Why should we pay rent when we can make debt service payments and build equity?” That expression is so naive and ridiculous that you should wash your mouth out with soap if you have ever uttered it.
Very smart companies like Kroger, Walgreens, and Wal-mart lease their stores. Haven’t they ever heard the mindless platitude above? Why aren’t they choosing to “build equity”? Possibly they have better things to do with their precious capital.
Consider this:
- The fundamental value in almost all church real estate is the underlying land. The improvements on that land add very little, if any, value. The land and buildings that cost you $10 million 4 years ago to construct ain’t worth $10 million. Disagree? Put a for sale sign on it and see.
- Any fast growing entity should put a very high value on flexibility. Real estate ownership is rarely flexible.
OK, maybe sometimes churches should own
I had to get that first section off my chest to challenge the mindless bias of churches owning their real estate. There are 2 reasons I can think of for churches to own their real estate:
- Suitable for-lease properties are not available
- In some jurisdictions, churches get a property tax exemption by owning that they cannot receive when they lease. Further, the benefit for a church owing vs. leasing is substantial due to high area real estate taxes.
Types of Church Real Estate Usage
Rent-by-the-day - The church simply rents auditoriums and meeting rooms on the day the church needs them and not the other days of the week. While you may picture a small church renting a movie theater; consider this: National Community Church in Washington DC is a very large church with 3 locations in movie theaters and will continue to grow simply by adding more movie theaters. They may never own.
24/7 Lease – The church leases real estate 24/7 for a short period of time, say 6 months, or a long period of time, say 20 years. A fast-growing church might start with a Rent-by-the-day location and then move to a 24/7 Lease location later. Buckhead Church moved into the ballroom of the Buckhead Doubletree Hotel in 2002 as a Rent-by-the day facility then into a 4-year 24/7 Lease in a renovated Harris-Teeter grocery store in 2003. During this time, Buckhead’s adult attendance grew from 400 to 3,000. Owning during this rampant growth period would have put shackles on the church. The great thing about a 24/7 lease is that a church only has to raise capital for leasehold improvements, not for a building shell and land. To grow from 400 to 3,000, Buckhead only had to raise $3 million dollars. That’s a lot of money, but not nearly as much as we would have had to raise to buy land and build a building.
Owning – At some point, for the 2 reasons listed above, it may make sense for the church to own real estate. And please note, there are a million hybrid combinations. Buckhead Church owns its current building with a 3,000 seat auditorium and 350 parking spaces. You heard me; 350. We have a long-term lease agreement for the Sunday use of a ton of parking spaces in an adjacent office building garage.
So, why the church real estate ownership rant? I have seen way too many young churches start looking for land once they grow to 200 people. More often than not, that’s a huge mistake.
January 5, 2009 at 6:44 pm |
These are some very interesting thoughts that I haven’t heard much of before. Our church’s lease feels too restrictive as it is, because we’ve outgrown the space but can’t get out of the lease. I guess most churches believe that if you have land you’ll never outgrow it. That is bad thinking that puts a lid on growth potential but the “building equity” idea is probably the biggest reason you see it happening. With houses it makes sense, but with church buildings it doesn’t. Thanks for that reminder!
My question would be, what factors were involved with deciding to buy land and build the three main NP campuses? Was it more than the 2 factors you listed (no good lease options and tax benefits)? How does church size play into it, if at all?
January 5, 2009 at 10:34 pm |
Nick, great question. In the case of Buckhead, we were looking for the impossible. A building big enough to seat 3,000 and parking for 1,800 to 2000 cars in a high density area with very little available land. Given the price of land in Buckhead, that means a multi-level parking garage structure at $10,000/space not including land. We quickly realized our only hope was to find an unbuilt office site that already had the garage built for earlier buildings that we could share. We found exactly that in Tower Place, a multi-use development in Buckhead.
Similarly, finding an existing facility for 2,000 seats of worship in Cumming, GA for Browns Bridge Community Church was not fruitful.
So, I think the same answer really applies in both cases: the large scale of our campus needs eliminates most of the existing building stock out there. Interestingly, I recently toured an empty factory building that could house all three campuses several times over. Its problem was that it was too big!
January 6, 2009 at 11:56 am |
David,
This is just another cyber-hug!!!!
Thanks for sharing your wisdom with us. We get this question ALL THE TIME!!!
The David McDaniel Fan club now has 2 official members – Laura McDaniel & me
January 6, 2009 at 12:45 pm |
Sean, thanks for your kind words. You’re as intelligent as you are handsome.
By the way, Sean is the Lead Pastor of Athens Church (Athenschurch.com). AC runs over 1,500 adults when college student are in town and they proudly occupy a Rent-by-the day facility, the Classic Center in downtown Athens. Their auditorium is amazing. Sean has asked me the not-so-rhetorical question, “Do we ever need to own a building?” Great question and one I never hear asked.
January 6, 2009 at 10:45 pm |
Wow. Great timing David!
The local newspaper here in Nashville, The Tennessean, ran in a front page article today talking about this very subject. I don’t think the staff writer could really grasp what I was trying to explain, which you so eloquently shared here….buying land and building isn’t smart. The point I was trying to make is exactly the one you convinced me of over the years, “Flexibility is your best friend” as a growing church. Here’s the article in case your interested: http://www.tennessean.com/article/20090106/NEWS06/901060358/1023
Great stuff David!! Keep it coming. Glad others are benefiting from the wisdom Sean, I and others have benefited from over the years. You the man!
Eddie
January 6, 2009 at 10:46 pm |
David,
Great thoughts. I wonder how many folks forget about the maintenance costs associated with owning. As a building ages, churches find themselves employing an entire team of facility maintenance, janitorial, and landscaping personnel. Not so with rent-by-the-day!
In some ways, the best part of my Sunday is driving away from the facility while someone else is locking it up. If the roof leaks, or the A/C breaks, it’s someone else’s headache, time and budget.
All that said, it helps to have great landlords!
January 6, 2009 at 11:33 pm |
I visited Athens when they were in the school and it was one of the best environments I’ve seen as a portable church, and as a church period.
Do you think environments created in a portable setting can rival those in a 24/7 setting (lease or own)?
I’m thinking of the Upstreet environments at all the NP campuses, and I haven’t seen anything portable come close. That’s probably because having your own space allows you to theme out everything, including hallways, floors, ceiling, etc. I also haven’t visited a portable church that’s anywhere near the size of the NP campuses either, and I’m sure that factors in.
I’d love to hear from both of you if you have thoughts on that topic.
January 7, 2009 at 5:31 am |
Nick,
Yes these children’s environments in a Rent-by=the-day facility can “rival” those of an Owned facility. If you liked Athens environment in the school, you should see them in the Classic Center. They’re amazing. Children’s environments in a 24/7 Lease can equal those of an Owned facility because the set up / tear down process is removed.
January 7, 2009 at 9:50 am |
So… any advice for churches that were 200 and bought some property and built a building and are wondering if they should move back to the movie theatre?
This is one of those articles that I wish I would have read 4 years ago. One other thing about land and buildings is that it quickly becomes the central identity if your church, meaning that if you DO feel as though you should change it “feels” like a step backward to move into rental space.
What do you generally tell churches who are thinking about making that move?
January 7, 2009 at 11:02 am |
Jeff, that’s a tough situation. What has you wishing you could move back to the theater?
People will probably always view going from owning to leasing, or leasing to renting, as a step backwards. It’s probably the same everywhere but in the northeast everyone wants to know where your church is “located”, whether they grew up in church or have no church experience. Hopefully churches can continue to shatter that paradigm and use the money that would be tied up in mortgage payments to advance their mission even more.
January 7, 2009 at 11:21 am |
Jeff, like Nick, I wonder the reason you feel you have to move back. Please share that with us. Perhaps it’s a capacity issue. One thing to consider regardless of the type of facility (rent, lease, own) is maximizing your capacity.
Craig Groeschel and Bobby Gruenwald of Live Church in their blog speak of the concept of “Seat Turns”, that is, the number of times in a given weekend a seat in your auditorium is used. Let’s say in your 200 seat auditorium, you have a 9am, an 11am, and a 6pm service. you have 175 at 9am, 210 at 11am, and 100 at 6pm. That’s 485/200, or 2.43 seat turns. The “hottest” running campuses at Life Church and at North Point have at times exceeded 4 seat turns.
So you may not really be full until you have over 3 seat turns considering all services…
January 7, 2009 at 2:28 pm |
Obviously these issues are difficult to address in generalities… but I was wondering more along the lines of signs and issues a church might look for that would indicate “It is time” to release land/buildings.
Take our 200 seat auditorium. We have come to realize that (at least for us) a 200 seat auditorium makes for a very difficult service split. It fills up at around 150 people, which means starting a new service with 75. And, if we try to push in more adults then we find ourselves running out of children space… it is a rock and hard place type of deal. So, we are left with the option to spend more money on space… but we have so much of our budget wrapped up in our current space that finding more will not be easy.
We find ourselves thinking, “we should have waited to build, or built bigger”. Any way that we look at it now we will have to get our people to commit in a big way either financially or time/energy (I remember the days of being portable). I know that we can keep adding services and easily take care of our numbers in this location. But, the fact is that we bought assuming fast, sustained growth… and instead we had fast growth followed by a nice drop-off and plataeu. So, what was a short-term budget stretch has become a multi-year budget monster. I don’t mind trusting God to bring more people and more money… but I wonder if that is the only, or even the best, solution.
January 8, 2009 at 8:05 pm |
Jeff, as you know once you own a church building, it’s very hard to sell it. Maybe there’s another congregation who’d pay you what you have in it; however, that’s probably a long shot. So, while you may be wondering if you should go back to leasing, I wonder if you really can. Assuming you could get out of it, you have to really cast vision for why it is a good idea to remain flexible and get space better sized for adults and kids. I cannot imagine casting that vision if you had to take a financial hit on your building.
Josh Roberts reminded me of the concept of having a building properly sized for a full house of adults. When you have a full house of adults, that means a certain number of birth-through-5th-graders depending upon your demographics. And it means a certain number of parking spaces. If you could make a few alterations which would give you room for a full house of 200 adults with parking and space for kids, then you could consider turning the 200 auditorium seats 3 to 4 times a weekend.
If, somehow, you could get the children’s space to balance your adult space of 200 seats, you could conceivably grow to 600-800 adults per weekend. If you got that big, your giving would allow you to consider another building alternative. Personally, I’d be surprised if you could get out of your building whole and move to a more flexible facility. If you can, by all means, do it.
January 7, 2009 at 4:10 pm |
So, if you filled up the 200 seats, you wouldn’t have enough space for kids? We have enough space, but could definitely use more. Maybe David knows of ways to figure out if your children’s space is enough in comparison to your auditorium seating. We’ve found that we need more than what we have now, but we don’t have a specific ratio or transferable principle.
Not every season of plateau, or even decline, must have a reason for it but a good question to ask might be why the plateau? I’ve heard that limited space can sometimes be a growth barrier that is easily missed, because people aren’t actually complaining about it, they’re just not coming.
January 7, 2009 at 11:07 pm |
Wow! I wish you would post three times a day. We rent our space by the day (actually there’s no rent – but you get what I mean.) Our struggle is that our space is a nightclub in downtown rome. And as you quickly assessed when we chatted, there was no feasible space for children. Luckily, we were able to lease a 2200 square ft facility on the same block to use for children’s space on Sundays and office space. We launch this Sunday so we’ll see how it goes. We’re quite hopeful.
January 9, 2009 at 11:54 am |
Thank you all for the advice and suggestions… and the metrics (this is the first I have heard of “seat-turns”). I think the most realistic thing at this point is that we will work to make our current location work for growth and then make sure to remember these lessons when we start looking to add campuses.
January 10, 2009 at 8:51 am |
I have nothing further I can add to the conversation. Well said David.
January 10, 2009 at 9:22 am |
Thanks for the insight David! Very timely information.
January 10, 2009 at 9:30 am |
I love Monopoly. But thanks for the article. i found it hugely helpful!
January 10, 2009 at 9:41 am |
Great post and great things to think on.
January 10, 2009 at 10:02 am |
Great insight here David. Lots of practical application, especially in light of the current economic realities. Seems too often that building debit robs ministries of being able to well, do ministry.
January 10, 2009 at 10:43 am |
I found this through a Twitter connection. Great conversation. I agree with the premise here. We find ourselves in a similar dilemma that several have described here, including Buckhead. We have grown rapidly in 3 years (not as rapidly as some of our larger city friends, but for a town our size, 150,000 people, it’s massive growth.) We meet in a school and we are out of room averaging 1,100 per week in 2 services. We can’t add many additional services because of the school restrictions and this is the largest venue around. We have searched everywhere for a building to lease or expand to, but found nothing. Our current thought is that we can either multi-site or push to build. If we multi-site, however, it may be harder to get people to move locations. (Again, we are a smaller city.) If we build, we will try to build something that has multiple use in the future.
We have been praying for months about this. I wish God would answer this one specifically. Thanks for the forum to find wisdom from others.
January 10, 2009 at 11:14 am |
Hey Ron. Growth like that is a high-class problem. If you haven’t already, you might look at Elevation Church in Charlotte, NC. They are less than 3 years old and have 3 Rent-by-the-day set-up / tear-down locations, 2 in schools. So, like National Community Church, in Washington DC, they went multi-site without owning real estate. I believe they have now bought a retail shopping center and are making plans to renovate it and possibly lease out what they are not using (yet).
January 10, 2009 at 11:25 am |
thanks so much for the follow up response. I am familiar with both churches. It may be that we haven’t gotten gutsy enough or I don’t have enough faith as to what’s holding us back from doing as they have, but part of it also is population. When you are pulling from the suburbs of Charlotte or Metropolitan DC you have a larger audience to pull from. We have 2 Starbucks and that only came about in the last couple years. We still don’t have a Panera Bread or 5 Guys or Harris Teeter, etc. Our demographic structure and small town feel will support having the same service just a few miles down the road.
I hope I don’t come across as negative. It’s just a frustrating place. The next step for us is huge. Great thought stirring though. Thank you.
September 28, 2009 at 8:54 am |
This is a very late response to your post, but I just found it today. We are one of those churches who bought land when our newly planted church’s attendance was growing (we are at about 80 now). That was 6 years ago. We still own the land, are meeting in donated space, and recently gave up our rented space because we couldn’t afford it anymore. Our land fund may be depleted as soon as next year, and our loan would default. We have a lovely community garden there and it would be heartbreaking to sell the land, if we were even able to.
Do you know of any instances where a church successfully leased land to a community organization, or do you have any other creative ideas by any chance? Trying to brainstorm, covered in prayer.
September 28, 2009 at 9:13 am |
I am so sorry about your situation. As you are painfully aware, unimproved land is a very difficult asset for an organization to carry in that it is so quite often difficult to sell and difficult to earn income from.
As for selling, especially in this difficult economy, the most likely choices are neighboring land owners who, for whatever reason, might want to add adjacent land to their current land ownership.
As for leasing, this can be very difficult for unimproved land. Again, neighboring landowners may have a desire to lease your property for parking. Be careful and get good counsel before considering a long-term lease, however. These types of transactions can be basically a land sale and you need to be very careful here. Warning: silly thought coming. Would it be possible to charge a modest rent for members of the community to have small gardens on the property? If the property were large enough for 10-15 small gardens, perhaps the rental income from the gardeners could pay the debt service for a while.
Having said all of this, I do not think a fledgling church plant should own land. The best course of action, assuming there is a buyer, is to sell the property.