Church Facility Work Brings Happiness

Today, at the church that I attend, Pastor Jim Dixon spoke about how happiness and joy come from responding to God’s calling. God calls us to confess that Jesus is Lord (as Peter did in Matthew 16:16) and to focus our lives in service to Him. If we do this, then we will begin to experience happiness and joy.

Development Advisors Church Facilities group (comprising Mr. Scott McLean and Mr. Tim Dreessen) believes that we have each been “called” to serve churches desiring to expand and/or relocate. We believe that God has called us to this service. While we have performed this specific work to churches for only 6 years, it has taken our entire careers to mature. Our lifelong careers in commercial real estate brokerage and development and our regular attendance as congregants at local area churches, have uniquely prepared us for such a time as this and for this church facility calling. We have a passion to serve Christ by leading churches (its' staffs and congregant leaders) that seek to expand and/or relocate their church facility. By doing so, we convert church leader’s visions into reality and participate in expanding God’s kingdom. Both the journey and the result, for us and for our clients, produces great joy and happiness. PTL.

New Facility - How Much Debt Is Prudent

In addition to cash and fund raising efforts, nearly every church facility relocation project today requires a certain amount of debt in order to be accomplished. Most lenders will tell you that a church’s total facility expenses should not exceed 35% of its annual budget. In fact, in a bond underwriting, this is a statutory limit. Even at 35%, this is a tremendous burden on a church. So how much is prudent?

Frequently, Development Advisors is asked about the amount of debt that a church should take on. Here are some ideas worth considering:

a. In general, we believe it’s only prudent to take on as much debt as can be comfortably managed during stormy seasons.
b. Borrow only as much as you can pay back. Church properties typically sell in the after-market for considerably lower than their replacement costs. A church should not borrow more than the future value of the property. The reason that church properties sell so inexpensively is that they simply have very little demand (so few possible buyers). Little demand means a lower selling price.
c. Discern what is really needed as opposed to what is desired. Borrow money for real needs necessary to evangelize, worship, teach, disciple and to help others recover.
d. Borrow only as much as the church can allocate from a modified budget for future additional debt service and operating expenses.
e. Finally, the leaders of the church have a responsibility to discern God’s leading in prayer.

Churches End Up Paying Property Taxes

We just learned that churches, who desire to lease instead of own their facilities, will likely end up paying real property taxes to the owner of real property who is obligated to pay these taxes to the State of Colorado regardless of the occupant of the building.

We think this is just plain wrong.

In our opinion, the intent of the state real property tax exemption doesn’t regard ownership but only use. The State of Colorado Property Tax Exemption Statute states that in “the general assembly hereby finds, declares, and determines that the uses of property which are set forth in this part 1 as uses for charitable purposes benefit the people of Colorado and lessen the burdens of government by performing services which government would otherwise be required to perform. Clearly there is no mention of property ownership. We believe that the owner of real property, who leases to a qualifying tax exempt entity, should have their real property taxes abated for the portion of the space occupied by the qualifying entity.

Currently, in order to qualify for real property tax exemption, a church must both own the property and also use the property for qualifying charitable purposes.

Colorado Revised Statute 39-3-106 (1) states that: Property, real and personal, which is owned and used solely and exclusively for religious purposes and not for private gain or corporate profit shall be exempt from the levy and collection of property tax.

It is our hope and perhaps a future goal to find a way to revise this to match the original intent of the statute.

VACANT Retail Boxes Offer Church Facility Choices

With the continuing malaise plaguing the economy and consumer spending at its lowest level in a decade, unprofitable retailer operations are being shuttered leaving vacant spaces in retail shopping centers across American. According to Mary Beth Jenkins with the Laramie Company, who recently reported at the Rocky Mountain Real Estate Expo, there are 54 retail boxes currently unoccupied in the greater Denver area. This does not include the many additional automotive facilities that too lie fallow.

Development Advisors, LLC (“Advisors”) believes that many of these empty retail buildings would be desirable as a new church facilities. Retail boxes offer many of the attributes that churches are seeking today—visibility, access, parking, and services like restaurants to frequent before and after Sunday services.

Not long ago, the mere presence of a church in a retail center suggested that the shopping center had lost favor with retailers who abandoned the center for greener pastures elsewhere. But today, the reputation of a shopping center with a church has changed. These days, weekend and evening traffic from a church can transform a slowing retail center.

There are many examples of churches that occupy retail space in the greater Denver area including:
▪ Calvary Chapel South Denver: 9052 West Ken Caryl Avenue; Littleton, CO 80128.
▪ Orchard Christian Center purchased the former Beau Monde shopping center at the NWC of I-25 & Orchard Road in Greenwood Village, CO.
▪ Foothills Community Church 8270 W 80th Ave; Arvada, CO 80005.
▪ Flatirons Community Church 400 W South Boulder Road; Lafayette, CO 80026-8856.
▪ South Fellowship 6560 S Broadway; Littleton, CO 80121.
▪ Colorado Christian Fellowship 10630 E. Iliff Avenue; Aurora, CO 80014.

Refinance Debt in 2010

At the Rocky Mountain Real Estate Expo, we heard that interest rates are projected to increase in 2011 primarily as a result of competition from the US Government. Apparently a $6 Trillion pool of available debt capital will be reduced to only $3 Trillion because of this new competition. This new demand will put pressure on this supply thus causing the cost of this debt resource to increase.

As a result, we suggest that our church clients make plans during 2010 to refinance any debt expiring in 2011 or 2012 before this possible rate spike.

Denver Softens Land Use Regulations for Churches

We are pleased to report that, after talking with Denver Planning, city staff met and discussed the current Denver Zoning Code’s treatment of church and similar public assembly uses, and revisited how or whether the New Code should change that treatment. Denver Planning has agreed to remove the assembly area size restriction (see our previous update entitled Denver Proposing Strict Land Use Regulations for Churches) and to permit churches in all zone categories. Instead, planning will use the existing administrative review process. This will apply to a church moving into a residential or mixed-use zone district to occupy an existing building for the first time (different use prior to), to expand an existing building, or to develop a new building ground-up. This is customary in our experience and likely typical for other municipal jurisdictions along the Front Range. Further, we understand that in commercial zone districts, in which residential is not present, there would be no administrative review process even though it would still be necessary to apply for a change of use from zoning (if not previously used by a church)

The only restriction (limitation on use) remaining would be the 11 pm end-time for regular hours of operation in a residential zone district.

If you have questions or need any help, please feel free to contact us.

Denver Proposing Strict Land Use Regulations for Churches

Churches need to become familiar with the sweeping changes proposed to Denver’s land use regulations—Denver’s New Zoning Code. These changes will certainly impact churches currently located or desiring to be in the City and County of Denver. We recommend that as a property owner, you go view the new zoning map to learn about the proposed new zone district for your church property.

Further, after a quick review of Draft #3 of Denver’s proposed new zoning code, it states in section 11.3.2.5 entitled “Public or Religious Assembly” that Special Exception review is being proposed for >300 seats in Residential Zone Districts and >600 seats in all other zone districts. This could be a big problem for a church owner that needs to sell its property and also for a church seeking to purchase and renovate an existing building, if your church does not comply with the seating regulations.

It’s possible that any renovation work that would require a building permit could trigger a Special Exception which is akin to a complete rezoning of the property. This could invite neighbors to object and the size of the assembly area (worship or sanctuary space) to be modified and therefore rendering the property less valuable for future church use.

If you have questions or need any help, please feel free to contact us.