Church Must Tackle Its Real Estate Crisis

by

Local Church

ROCKVILLE, Md. (UM News)

While The United Methodist Church debates societal issues — LGBTQ rights, Black Lives Matter, welcome of refugees and the like — its congregations’ real estate is eating away at the denomination and threatening its viability.

Before the COVID-19 pandemic, 75 to 100 houses of worship were closing per week in the United States, according to the Center for Analytics, Research & Development and Data of the United Church of Christ. Post-pandemic, those numbers should increase sharply. If houses of worship follow trends predicted for U.S. restaurants and retailers, as many as 20% of the national total could close — up to 100,000 over the next several years — with The United Methodist Church being no exception to the nationwide trend.

The pandemic isn’t the only reason for closings. First, a decreasing number of Americans consider themselves to be members of houses of worship — fewer than half in 2021, for the first time since The Gallup Organization began collecting data.

Second, with the popularization of the automobile in the 20th century and the internet in the 21st, the need for every community to have a structure housing a United Methodist church has faded. A hundred years ago, when many United Methodist churches were founded, a worshiper needed to be able to walk or ride a horse to church on Sundays, but no more.

Third, even with the property tax exemption that houses of worship enjoy, real estate has become more expensive to maintain, with hikes in utilities, insurance, and capital repairs.

Today, the pandemic has made it questionable whether worshipers will return to closed houses of worship.

Many churches are in a downward spiral: congregations dwindle, contributions decline, reserves erode, buildings deteriorate, staff is less able to be supported, the church becomes less attractive to attend. Congregations are finding themselves spending half and more of their annual budgets on real estate, leaving few resources for much else. It is common to hear congregational trustees say that they are “one new roof (or boiler or steeple repair) away from closing.”

The high costs of too-large, too-burdensome real estate can smother congregations. They often find themselves behind the eight ball on their operating budgets, spending half or more on property-related expenses, and on their balance sheets, finding the vast majority of their assets tied up in difficult-to-market real estate. The same small congregation that currently meets in a relatively huge building could gather in smaller, less expensive space and survive, if not thrive — maybe in a worshiper’s living room as a dinner church.

Before the pandemic, one annual conference rated churches based upon nine performance criteria relating to economic health and congregational size. Of 500-plus churches, more than 100 were rated in “critical” condition; another 200-plus were rated in “serious” condition. They owned $1.4 billion in real estate for 50,000 weekly worshipers — $28,000 in real estate per attendee. That annual conference may be faced with taking drastic action with half of its churches over the next few years. Many churches considered “healthy” are in fact struggling, with a shaky bottom line, aging congregation, and uncertain post-pandemic future.

The United Methodist Church has failed to tackle its real estate crisis for several reasons. 

First, the denomination’s structure and the pronouncements of its Book of Discipline make dealing with properties difficult. Some denominations, such as the Roman Catholic Church and the Church of Jesus Christ of Latter-day Saints, are top-down. The church hierarchy makes decisions and imposes them on the local church. Others, such as the United Church of Christ and other “congregational” denominations, are bottom-up. The local church makes decisions almost without regard to a national or regional body. The United Methodist Church is a combination, mandating agreement between and among conferences, districts, and churches as well as, at each level, between lay volunteers and clergy. The denomination promulgates rules about uses of capital and operating money. Sometimes, rather than dealing with the complicated process, people run the other way, not attempting to tiptoe through the minefield that is The United Methodist Church’s real estate.

Second, clergy and lay leaders are not equipped — and sometimes less than interested — in dealing with church real estate. Seminaries, like many institutes of higher learning, prepare students intellectually but not pragmatically, especially in matters involving property. Lay leaders often try to apply wisdom about their home ownership, but often those lessons do not apply.

Similarly, clergy and lay leaders often find themselves debating moral and sentimental issues regarding property rather than tackling practical, often financial, issues. It becomes easier to send in a team to work on a church’s services, music, and sermons than to confront a church whose real estate outsizes and outspends its congregation.

The net result is that churches that need to close do so one at a time, often with deteriorated property and decimated finances, rather than as part of any sort of local or regional strategy.

A few savvy churches are looking into sharing their properties. Multiple use — such as the sanctuary and other rooms used by other congregations — or mixed use — such as an education building converted into child-care center — help bring revenues into a church and may generate activity that grows the congregation. Some churches, especially those in vibrant real-estate markets, have joint-ventured with developers to build mixed-use properties that may include housing, office and retail spaces in addition to a faith-based component, e.g., SouthPark Church in Charlotte, North Carolina.

Some annual conferences, like Western North Carolina, have formed their own not-for-profit redevelopment corporations; others have proved willing to partner with other for-profit and not-for-profit developers. Opportunities for repurposing and redevelopment must be pursued more aggressively now than ever, given the precarious financial situations of many churches and COVID-19’s effect on them.

The upcoming closings of tens of thousands of U.S. houses of worship mean that The United Methodist Church at every level — church, district, annual conference, agencies — needs to become purposefully engaged in its real estate much more comprehensively than it has been. For example:

1. Data. The denomination needs to collect and analyze mountains of key information about its real estate: size, use, location, condition, value, red flags and the like. Real estate is an information-intensive business, and most churches currently deal from a deficit of data. As one colleague said: “We force churches to collect information on every aspect of their worshipers but next to nothing about their property.”

2. Factors. The United Methodist Church needs to collect and analyze key information not only about real estate, but also six additional factors that go to determine future viability:

• Market. Is the church located in a high- or low-demand real estate market?

• Politics. What sorts of changes to church real estate will the municipality and the surrounding neighborhood tolerate?

• Money. What is the financial situation of the church?

• Congregation. What are the demographics of the congregation, and what is its will?

• Denomination. What are the rules imposed by the denomination, and how are those rules enforced by the annual conference and district?

• Partners. What potential real estate partners — realtors, developers, attorneys, engineers, architects — are available in the community?

3. Actions. The denomination needs to analyze six possible alternatives for each property. Districts and annual conferences should do so for their portfolio of properties.

• Downsize. Sell the property and buy (or rent) “right-size” quarters.

• Merge. Combine with a nearby house of worship. Sell or redevelop the assets of one.

• Lease out. Find other organizations that will pay to use existing space, perhaps the sanctuary or other buildings, such as an education building or parsonage.

• Develop. Work with a developer — for-profit or not-for-profit — to jointly develop a property into a mix of uses, maybe institutional, housing, office, retail or a combination.

• Liquidate. Close the house of worship, sell its property, perhaps to a private developer, and use the proceeds to help benefit the community or the larger denomination.

• Do nothing.

4. Philosophy. The United Methodist Church needs to dedicate itself to a new philosophy about its real estate, one that seminarians are educated about, personnel are assigned to and resources are devoted to.

As railroads began fading in the mid-20th century, railroad companies realized they needed to shift toward being more in the real-estate business. They owned prized real estate in America’s greatest cities, especially underutilized waterfront adjacent to downtowns. 

Religious organizations must come to the same understanding. They need to strategize about their real estate as seriously as they treat their Sunday services, missions and Christian education. The portfolio of United Methodist properties in the United States may approach $50 billion in value, six times the value of Rockefeller Center, 25 times the value of the Mall of America. Just as with the railroads, which have used their assets to support their mission, The United Methodist Church can adopt strategies that will support its mission.

While continuing to be engaged in the moral issues of our day, The United Methodist Church must focus just as intently on the present and future of its real estate.

Richard Reinhard is associate of The Lakelands Institute and principal of Niagara Consulting Group. He managed economic-development organizations and city agencies for 30 years before working for the past five years in management positions involving properties for The United Methodist Church. He may be contacted at richardtreinhard@gmail.com.