HBU of Church with high land value as vacant

[DREA Dean]

From OP: "How do you prove the HBU as improved is redevelopment without seeing church financials?"

As mentioned above by glenn walker, don't go down this rabbit hole. A church's financial situation is very intimately tied to the denomination, structure, demographics and, above all, two changeable factors: a) the head minister/pastor, and b) one or a few members who give a lot of money. I've seen many churches that gained and lost significant membership, attendance and revenue due to changes in ministry or the death of one of the main benefactors. And in relatively short periods of time. Operations and revenue are "going concern" issues separate from the real estate.

Banks will want to see financial statements to make sure the church can pay the mortgage, but that is nothing that an appraiser needs to see. Not an income-producing property from a real estate standpoint.

 

[George Hatch]

I have never once looked at a group's internal financials. Not even when they were operating a school. It's only when they are leasing something out - like a cell tower or a billboard or to a school - that any income might become relevant in my analysis; but that's rental income, not a "going concern".

 

[Terrel L. Shields]

I would aver there is no direct relationship between the income and property value. One multi millionaire who tithes can distort the picture of a congregation of elderly retirees.

 

[Deleted member 152047]

Denis and I used to argue whether such obsolescences were external (i. e. - due to external market forces) or as Denis usually argued were functional related to the overall function of the building. It is a choice...

Yes is the answer. Its probably a mixture of both. IMO as long as you are identifying some level of obsolescence in the cost approach (as supported by market extraction), you are doing your job.

 

[Deleted member 152047]

In your SCA you might take out the land value from each of the sales prices to segregate the contributory value of the improvements. That way you do not have to make location adjustments and you can compare apples to apples. Then you would add the contributory value of the subject improvements, as supported by your adjusted comparables, to the value of the subject's underlying land in your SCA conclusion table.

This is how we handle properties with substantial land values compared to their overall values (think auto dealerships, hospitals, schools, etc.).

Income in religious facilities is irrelevant from a real property appraisal perspective. It does come into play when the facilities have significant school components, but that is mostly tied to determining the feasibility of continued school operations.

You indicate that you know the ins and outs of appraising this type of asset, but you are not listening to the responses and keep trying to fit a round peg into a square hole. The responses within this thread are solid and no one has gone off on a political tangent yet. Stop here and get 'er done. Best of luck!

 

[DREA Dean]

In your SCA you might take out the land value from each of the sales prices to segregate the contributory value of the improvements. That way you do not have to make location adjustments and you can compare apples to apples. Then you would add the contributory value of the subject improvements, as supported by your adjusted comparables, to the value of the subject's underlying land in your SCA conclusion table.

This is how we handle properties with substantial land values compared to their overall values (think auto dealerships, hospitals, schools, etc.).

I would say this only applies if the existing use is determined to be the H&BU as improved. In other words, that the H&BU is indeed as a church. If the H&BU is to demolish the church and redevelop, then adding the land value to the depreciated value of the church building will give you a SCA value that is much too high.

To my way of thinking, the high land value where the church sits is of relatively little importance to the value of the property for use as a church. A church does not want $1.5 million tied up in land if there are reasonable alternative sites/locations where land is much cheaper. So, as a church, the land is probably worth much less than the vacant land value as available for development. If H&BU is to demolish the church and develop the site, you value the vacant land and subtract demolition costs and that's the end of the appraisal. There is no SCA if the H&BU is to demolish the church.

Now, if the client insists on a "value in use" as a church, (in the cost approach) I would look at land sales bought for church, private school, recreational center or other "institutional" uses to determine land value. Not prime commercial or residential land that is worth a lot more.

 

[George Hatch]

These days in my region it's become fashionable to site religious uses on land that's zoned for either office or business parks. In some cases they're moving into concrete tilt-ups and just adding TIs. The primary limitations being onsite parking.

 

[masmia]

"I would say this only applies if the existing use is determined to be the H&BU as improved."

This is exactly my point. You cant take SFR land and add depreciated church improvements to get to value. You'd have to take church land and adjust for location (land value) but you are back to subject land value being based on SFR use, not church use and a mixing of uses.

Not sure there is a really good way to empirically prove HBU as improved is redevelopment aside from what I indicated earlier using a larger data set and demonstrating that the highest price paid for a church intended for continued church operation is XX, and the underlying land value of the subject for redevelopment is many times XX so HBU as improved is concluded to be redevelopment.

Thanks again. Appreciate the thoughts.

 

[Gobears81]

This is exactly my point. You cant take SFR land and add depreciated church improvements to get to value. You'd have to take church land and adjust for location (land value) but you are back to subject land value being based on SFR use, not church use and a mixing of uses.

Not sure there is a really good way to empirically prove HBU as improved is redevelopment aside from what I indicated earlier using a larger data set and demonstrating that the highest price paid for a church intended for continued church operation is XX, and the underlying land value of the subject for redevelopment is many times XX so HBU as improved is concluded to be redevelopment.

Thanks again. Appreciate the thoughts.

The principal of consistent use is where this becomes an issue. An example would be a house that still has value, but is on a commercial-zoned site and busy street (where the commercial land is more valuable than residential). Adding the depreciated cost of the improvements to the land valued based on commercial zoning would be inappropriate without considering additional functional obsolescence for the site value effectively being super-adequate. I think you CAN empirically prove that the HBU is for redevelopment by showing a grid of the church sales in the HBU as you mentioned earlier. Also a market analysis of the supply and demand for churches in this location and consideration of whether the higher site value would have any benefit for church use. In my area, churches are experiencing a real decline in congregation sizes and a big question for its future viability is whether the zoning would allow the building to be utilized for an alternative use. My market is weaker, particularly for residential, but the decline in congregations is a wider issue that is relevant in many parts of the country.

 

[Terrel L. Shields]

it's become fashionable to site religious uses on land that's zoned for either office or business parks.

Here we see two things that have changed since I started appraising. The first and more dramatic is the construction of churches that are more flexible, i.e.- metal frame square buildings that can be readily modified for non-religious uses. These appear to have less obsolescence. Further, the church may seek something like, here in my town as an example, a movie theater, a skate rink, or a furniture store - all newer buildings metal frame and square.

The other factor is lot size. Larger lots are preferred and the churches are moving to the outskirts of towns so they can buy 5 or more acres of land. Our downtown churches are being abandoned. Most are now being modified into apartments or quasi-public buildings such as private schools, boys and girls clubs, senior centers, etc.