South Florida Business Journal

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January 14, 2019

Cover Story: Why churches are striking deals with developers

Sanctuaries of worship are not untouchable holy ground when it comes to development in South Florida, as more religious institutions opt to cash in on their prime real estate. Available […]

Sanctuaries of worship are not untouchable holy ground when it comes to development in South Florida, as more religious institutions opt to cash in on their prime real estate. Available land for development has become a scarce commodity in the tri-county area, especially in downtown areas near water. Churches occupy some of the best real estate, as many were built decades ago in the center of their communities. Without a single pass of the collection plate, these churches are sitting on millions of dollars. It couldn’t come at a better time as some churches experience a decline in donations due to decreased attendance, making offers for their properties too lucrative to turn away.

For developers, buying land from a church or temple could provide a major opportunity for redevelopment, but they are tricky deals to pull off. The sensitivities of the religious community must be considered and some of these religious buildings have historic designations.

That leaves city officials weighing the social benefits of a church in a historic building against the likely boost in economic activity that would come from private development.

In some cases, such as in Miami, new area-wide zoning has automatically increased the density permitted on land inhabited by religious organizations.

The First Methodist Church of Miami was recently torn down, and Senior Pastor Audrey Warren couldn’t be more upbeat about her church’s future. The church sold the 1.15-acre property at 400 Biscayne Blvd. to Property Markets Group, which plans to build apartments and commercial space there. The church will buy space in the new tower.

In the meantime, Warren is working out of WeWork and her congregation meets at a nearby Methodist church.

“We will have a large sum leftover for the endowment, so the church can continue in perpetuity,” Warren said. “Now all the tithes we receive will go to the homeless ministry and causes we support around the world, not for operations.”

A test of faith

A decline in religious participation, especially for the young population flocking to urban areas, has made it tougher for many churches to find financial support. That has increased the pressure on them to sell.

According to Pew Research Center’s 2014 Religious Landscape Study, 36 percent of people attend religious services at least weekly, down from 39 percent in 2007. That dips to 17 percent for people ages 18 to 29. Immigrants are also less likely to attend services weekly.

The Pew survey of 35,000 Americans found that the religiously “unaffiliated” population increased from 16.1 percent to 22.8 percent. About one-third of millennials have no religious affiliation.

That’s bad news for churches in South Florida, as much of the population growth in downtown areas is driven by young working professionals. Immigrants also make up a big part of the workforce.

“Church in general is declining across the country,” said Warren, who has 450 members, with about 250 active, at First United Methodist Church of Miami. “Sunday is Sunday, and any time they have off they want to spend with family and friends. There has been a push towards individual spirituality in smaller groups instead of larger concert settings.”

The First United Methodist Church of Miami has been in downtown Miami since 1896, when railroad magnate Henry Flagler gave them land as part of the city’s early development. The church has moved several times over the years. Its building at 400 Biscayne Blvd., which was recently demolished, was built in 1981.

Dr. James M. Jackson, the founder of Jackson Memorial Hospital, was a member of the church and his great grandson is currently a member, Warren said.

That’s a rarity, though, in Miami’s transient market. Warren said the children of many church members have moved away, and those moving downtown often don’t have ties to the church. The new residents may attend services, but they aren’t familiar enough with the church to donate yet, she said.

“It is a great challenge to build your church and find new members,” Warren said. “Like any industry, we are trying to figure this out, and we are a little slower than others in how to reach new people.”

Having so many young people without a religious affiliation creates a big challenge for churches to reach them spiritually, said Eddie Dominguez, president of the board at Unity on the Bay, a church in Miami’s Edgewater that’s under contract to an apartment developer. Not everybody wants to come together on Sundays in a traditional church setting, so his church has leveraged its real estate to create a new campus elsewhere designed for future generations, he said.

“It’s not purely a financial decision,” Dominguez said. “We wouldn’t sell the property if it wasn’t fulfilling a reason.”

Why churches hit the market

Miami’s Edgewater neighborhood has changed dramatically in the many decades that Unity on the Bay has been at 412 N.E. 22nd Street. What was once a crime-ridden area with mostly low-rise buildings has become loaded with condo and apartment tower development. Old single-family homes are suddenly selling for over $1 million as developers scramble to assemble property.

Dominguez said Unity on the Bay hasn’t attracted many members from the new towers around it. In fact, the development has become a detriment to the church because parking is more difficult.

“It also created a tremendous opportunity to sell,” Dominguez said. “A property bought for $80,000 in the 1950s will be a catalyst for creating the future of Unity on the Bay.”

Unity on the Bay, which has over 1,200 members, started a strategic planning process five years ago that led to the pending sale, he said. Dating to 1919, its building needed substantial renovations and its large sanctuary wasn’t a good fit for the type of services the church planned to provide, such as small group meetings and web streaming, Dominguez said. Since it didn’t have the financial means to make those improvements, the congregation decided to sell the property and build a new church elsewhere.

Over 90 percent of members voted in favor of the plan, Dominguez added.

Unity on the Bay agreed to sell its property to Mill Creek Residential, which seeks to build an apartment tower called Modera Biscayne Bay. The deal has yet to close, so the price hasn’t been made public.

Dominguez said the sales proceeds should be enough to purchase land and build a new church for Unity on the Bay, although a site hasn’t yet been identified. There might be a temporary location for the church during development.

“We are open to any location that makes sense for the congregation,” Dominguez said. “We want to build something that will be more like a spiritual community center with performing arts and healing arts and compatible retail.”

At the First United Methodist Church of Miami, Warren said they realized another source of income besides tithes was needed to sustain the church. They rented the parking lot and classrooms to Miami Dade College, but they still faced a budget crunch that would have forced them to reduce their programming and maybe have only a part-time pastor. Supporting the aging building simply became too expensive, she added.

Fortunately, the Methodist church was sitting on a virtual goldmine: its land on Biscayne Boulevard, where the Miami 21 zoning automatically allows up to 80 stories. PMG and its partners bought the property for $55 million. The developer also agreed to dedicate 25,000 square feet within its future apartment building for the church.

“You really become partners with these people [the church members] and it’s been a pleasure,” said Ryan Shear, managing director of PMG in South Florida. “There’s a symbiotic relationship between the church and the apartment building. We both promote community and social interaction, and there’s a lot of crossover.”

Warren said the church selected PMG, in part, because it’s a long-term owner and had a good vision for how the new church could be incorporated into its building. Spanning from the first floor to the 10th floor, the new church will include a chapel, offices, classrooms, a fellowship hall, a basketball court, and a three-story-high sanctuary facing Biscayne Bay. The church will buy that space from the developer, and still have enough funds left over for its endowment, she added.

“It’s been a transformational time for our church,” Warren said.

In Palmetto Bay, the Cornerstone Methodist Church sold its church at 18301 S. Dixie Highway for $4.4 million to Estate Investment Group, which is building an apartment complex there. The congregation was consolidated into a Methodist church about two miles away in Cutler Bay. Reverend Paul Cook said the two Methodist congregations made a strategic decision to merge.

The churches were so close together and had similar membership, plus it was becoming a financial burden to maintain two properties, Cook said. The proceeds from the sale of the Palmetto Bay church will be used for extensive renovations to the Cutler Bay church, he said.

“The location in Palmetto Bay was on U.S. 1 and so it’s a fairly heavy commercial area,” Cook said. “As a church, we wanted to be more connected to the community and a residential area. We didn’t fit into Palmetto Bay’s vision of developing that area as a downtown.”

Striking a divine deal

When a church decides to sell, where does it turn? Some real estate professionals have found fruitful business in the niche market of church real estate.

Broker Irvin Pena has specialized in selling churches for four years and recently moved his brokerage, Royal International Realty, from Orlando to Fort Lauderdale to be closer to many of his church clients. His website churchesforsale.com lists dozens of available churches throughout Florida, although some of his clients prefer not to have their listing advertised publicly because they don’t want people to think their churches might close, Pena said.

Most churches are looking to relocate, not to sell and close, Pena added.

“Having a strong religious influence in the community lowers the crime rate and improves education,” Pena said. “The other side is they are shrinking, whether from changes of demographics or the economic standpoint, and can’t keep up with the overhead of running a multi-million-dollar structure.”

The challenging part is that churches are often governed by hundreds of members, not a few owners like a private property, Pena said. That requires being open and transparent with the members, he said.

Another challenge is that it’s hard to price a church property correctly because there are few comparable properties, Pena said.

“They hope to sell to a developer for a high value for the particular property, especially in Miami where the market is booming,” Pena said.

Many cities, including Miami, allow historic properties to sell transfer of development rights (TDRs) to developers, so that’s another potential source of revenue for churches, said Iris Escarra, a land use attorney with Greenberg Traurig. She’s worked with fellow Greenberg Traurig attorney Tracy H. Lautenschlager on several church real estate deals, including three land sales by the Christ Fellowship Baptist Church in downtown Miami for a combined $38.9 million.

Yet, when a church might be considered historic, redevelopment can be tricky, Lautenschlager said. In the case of Christ Fellowship, they sold surface parking and an underutilized building, while retaining the historic church building, she noted. Escarra represents the Fellowship Church In South Miami in seeking to rezone 2.6 acres of open land on its campus for residential development in order to sell it.

“As land for development becomes scarce and prices rise, any use that has surface parking or underutilized land could become a development site,” Lautenschlager said. “For churches with valuable property, they want to act responsibly and continue to advance their mission, so the proceeds of the transaction could go into their mission.”Most churches are looking to relocate, not to sell and close, Pena added.

“Having a strong religious influence in the community lowers the crime rate and improves education,” Pena said. “The other side is they are shrinking, whether from changes of demographics or the economic standpoint, and can’t keep up with the overhead of running multi-million-dollar structure.”

The challenging part is that churches are often governed by hundreds of members, not a few owners like a private property, Pena said. That requires being open and transparent with the members, he said.

Another challenge is that it’s hard to price a church property correctly because there are few comparable properties, Pena said.

“They hope to sell to a developer for a high value for the particular property, especially in Miami where the market is booming,” Pena said.

Many cities, including Miami, allow historic properties to sell transfer of development rights (TDRs) to developers, so that’s another potential source of revenue for churches, said Iris Escarra, a land use attorney with Greenberg Traurig. She’s worked with fellow Greenberg Traurig attorney Tracy H. Lautenschlager on several church real estate deals, including three land sales by the Christ Fellowship Baptist Church in downtown Miami for a combined $38.9 million.

Yet, when a church might be considered historic, redevelopment can be tricky, Lautenschlager said. In the case of Christ Fellowship, they sold surface parking and an underutilized building, while retaining the historic church building, she noted. Escarra represents the Fellowship Church In South Miami in seeking to rezone 2.6 acres of open land on its campus for residential development in order to sell it.

“As land for development becomes scarce and prices rise, any use that has surface parking or underutilized land could become a development site,” Lautenschlager said. “For churches with valuable property, they want to act responsibly and continue to advance their mission, so the proceeds of the transaction could go into their mission.”

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