Church - Dom? Adjustment

[Meandering]

I further believe that because of the size of the facilities (seats 400+ in the primary sanctuary and over 200 in an ancillary "youth" congregation) finding a buyer from another congregation means they will wait years for a buyer. The alternative buyer - a private or public school or institution - also generally takes a lot of time to raise funds.

Speak with the Lutheran foundation.
They have a real estate and real estate lending department.
My experience with them is that they are very knowledgeable and, can provide you with market data for churches they've funded.

Of course that's just one religious group, but I have found them to be very knowledgeable in the north east.


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[Terrel L. Shields]

Since the feds require platted land and unsold developments to discount? I think it was logical to think any time exposure times suggest marketing times will exceed a year, perhaps it needs discounted. Like I said, I am reading an alternative viewpoint sent to me by one of the other forumites.

 

[Eli]

When I value development land (*edit-transitional land*), the exposure time (backward looking) could be 10 years in some cases. The sales used have been marketed for an extended period. So is my job to determine the anticipated price in 10-years and discount it back? The market could be CONSIDERABLY different in that time frame. It is to assume that the property has been marketed for roughly 10-years prior to the effective date and what it would sell for if the sale is consummated on the effective date.
In the route which you are proposing, an owner would purchase it today for theoretically a price less than what it would have sold for if marketed for the three years prior, list it for three years, then sell it again? That doesn't sound like too many church purchasers that I have encountered-that sounds like a use value. Also, wouldn't you need to factor in operating/ holding costs and rental income in your DCF analysis? I'm sure that there are some out there, but I haven't encountered too many church operators engaging in DCF.

Your right. Nobody does that which especially applies to the sales comparison approach. The income approach can rarely be applied to a place of worship if ever. I have never done it or seen it done. The cost approach is the only other applicable approach.

 

[Terrel L. Shields]

Speak with the Lutheran foundation.

I don't have any problem with comps. Here the Lutherans are so few, they sold their building to the city. SDA, Assembly of God, and Baptist denominations are the bigger congregations plus a number of "named" churches whose affiliations are rather obtuse for some reason. Two of our bigger (Holiness?) denominations go by "New Life" and " Sager Creek" (which would make old man Sager roll in his grave as a Methodist minister.)

 

[Gobears81]

Since the feds require platted land and unsold developments to discount?

I think you might have still missed the boat on what I am referring to. I am referring to the land that sells for $15,000 - $45,000 per acre, when farmland sells for $10,000 per acre. No platted lots or unsold developments involved.

 

[Terrel L. Shields]

No plats or unsold developments involved.

You are not required to discount same. And even if valuing proposed lots, I vet that against bulk land sales to estimate whether or not such a project is feasible. (ie.- is the as proposed value any higher than the as is value?)

 

[Eli]

If the seller has to wait three years to get their money, then the NPV is less than the (future) price that they will capture or they will have to discount to move it. That assumes a steady market. There is an argument to be made that you should not discount. I was taught to do so. A PM leads me to a different point of view. To me it is obvious that the exposure time of the comps suggests that the marketing time of the subject is likely to be years. I further believe that because of the size of the facilities (seats 400+ in the primary sanctuary and over 200 in an ancillary "youth" congregation) finding a buyer from another congregation means they will wait years for a buyer. The alternative buyer - a private or public school or institution - also generally takes a lot of time to raise funds.

The typical way I have seen new churches make this move is to build anew before vacating the old. They may build a fellowship hall with temporary use of it as the sanctuary. Once the old church sells, then the Sanctuary building is built.

If you comply with the Feds you will.

To comply with the Federal Reserve Appraisal Standards for Federally Related Transactions Subpart G 225.64 of the FDIC, an appraiser must among other requirements,


analyze and report appropriate deductions and discounts for any proposed construction and discounts for any proposed construction, or any completed properties that are partially leased or leased as other than market rents as of the date of appraisal, or any tract developments with unsold units;


Further, the FDIC defines tract developments as follows in 225.62. (2)j:


"Tract Development" means a project of five units or more that is constructed or is to be constructed as a single development.​

You appraise agricultural and mineral rights all over the country and you know how you do that. Call some brokers who specialize in places of worships or churches and they will help you tremendously. If you can't do that then do a cost approach based on what you have and be done with it. Don't compare apples to oranges and if you do just explain it and make a qualitative decision. Be careful on saying the highest and best use is a place of worship. I have no clue what the highest and best use is.

 

[Gobears81]

You are not required to discount same. And even if valuing proposed lots, I vet that against bulk land sales to estimate whether or not such a project is feasible. (ie.- is the as proposed value any higher than the as is value?)

I agree. The highest and best use of development (or transitional) land is a bit more involved.

 

[Eli]

The buyers of a mega million dollar church that sells in 1 day are not the same as a buyer of a church that sells in three years. Now, there are many churches that are in single family homes that sell. Be careful on highest and best use and comp choice. I have done places of worship with only the cost approach. I want to hang my hat on something that will hold it. The cost approach will hold it on special use or unique properties.

My opinion may not be as credible or reliable as expanding my search into a wider geographical area for similar comparable sales, but I can explain that and offer those services for additional fee.

 

[Eli]

H&B use is my main concern here and the OP is the only one that can give his opinion there.

Places of worship are not easy. I promise you that. It is their unique design and special use purpose that makes them complex. And then movement on the population and other demographics come into play. If you can connect with a broker who talks to a bunch of players then it helps. Trust me. The broker won't be as good as you due to lack of education and experience and training, but they will make you better.