Many houses of worship in America are in a precarious financial condition. Declining membership, increased property costs and pandemic pressures have all conspired against the traditional, steepled structures with which we all are familiar. As one clergy friend said about her church, “We’re one new roof away from closing.”
Many of us cannot imagine our lives without our houses of worship. Not only do they provide spiritual grounding, inspiration and camaraderie, but they also offer low-rent homes to many of our communities’ social services — food pantries, clothing closets, child care centers and self-help groups.
The number of houses of worship closing in the U.S. could climb drastically from the pre-pandemic norm of 75 to 150 per week. An accurate prediction of the number of houses of worship about to close is up for debate. According to our research, some sources foresee a doubling of the rate of closure; others, citing estimates for other service businesses, think as many as 30% may shutter their doors over the next few years. In our surveys, a denomination in one state estimated pre-pandemic that out of 530 churches, 105 (20%) were in critical condition and 40% in serious condition.
A major challenge houses of worship in America face is a mismatch between a big, expensive building and a small, financially stretched congregation. A congregation of a few dozen may own 10,000 (or 100,000) square feet of property, use only a portion of it a couple of days a week, and hemorrhage money trying to keep the property going.
Some savvy houses of worship are trying to stay alive by better using their overabundant, oversized, overly costly properties. Some have leased out portions of their buildings to other congregations, community organizations or businesses. Others have sold their real estate and downsized, merged or liquidated. Still others have tried to redevelop property by joint-venturing with development companies or trying to become real estate developers themselves.
Houses of worship often shy away from looking at innovative uses of their real estate, recalling a past when worshippers filled the pews and anticipating a future when a small, aging congregation will magically turn itself around — or perhaps just feeling overwhelmed, ill-equipped to contemplate make-or-break real estate decisions.
It’s a sensitive topic, but there are steps your house of worship can take to think in new ways about its surroundings — to view property a little more like a community asset and a little less like a stand-alone, single-use religious building.
Here are five things your congregation can start doing now.
Tip #1: Learn everything you can about the property and its community.
A Zillow page often has twice as much information about your residence than your congregation knows about its real estate. A congregation needs to know the property’s square footage and acreage; number and size of rooms; presence of bathrooms, kitchen, basement, elevators; handicapped accessibility — at a minimum, know what Zillow knows about your residence. It needs to know the major repairs and replacements needed over the next several years and their approximate costs. It should strongly consider a professional appraisal of the property to determine its true monetary value.
Your congregation also needs to know about its community, the place where it is embedded. Who are your mayor, your district council member and your appointed city officials, and does your congregation have a relationship with them? Is your congregation familiar with the official vision and plan for the future of your municipality?
Who leads the neighborhood association, the business association and the preservation organization, and are congregation members active in those groups? How is the house of worship’s property zoned, and how is the neighborhood zoned around it? Is your neighborhood part of a hot real estate market or a cool one? Are there restrictions on the property’s deed; did someone donate the property with the condition that it always be for religious uses?
Tip #2: Think outside the box about the best possible uses for your property.
It’s an underused house of worship today; what could it be tomorrow? Could the education wing be a charter school or child care center? Could the “back 40” be developed into affordable housing? Could the whole property be redeveloped into a mix of uses, including office, retail, housing, with part of it being for a downsized place for worship? These scenarios are not far-fetched notions; all have come to fruition at a house of worship somewhere.
Imagine deeply what your house of worship’s property could become in response to meeting the community’s needs. The result will be better for your house of worship and better for your community. In today’s real estate market, a mix of uses is often a property’s most productive use.
Tip #3: Unlock the asset value of your house of worship’s real estate.
Houses of worship tend to be real estate-rich and cash-poor. It’s not unusual for 90% or more of a house of worship’s assets to be locked up in illiquid real estate, just as it’s not unusual for more than half of its operating expenses to be spent on keeping the property operating, leaving little money for staffing, worship or mission.
How can your congregation convert its real estate to cash or more liquid investments? Can it sell part of its property to a developer for an alternate use? Can it sell all of its property and lease some of it back for its own use? Can it lease its property to a developer in return for annual payments? Can it enter into a joint venture with a developer?
There may be many other solutions, but the tough nut to crack is turning a building into liquid assets.
Tip #4: Design for the house of worship of the future, not the past.
Hockey great Wayne Gretzky said, “I skate to where the puck is going to be, not where it’s been.” The house of worship of the future — post-COVID-19 — may bear little resemblance to the one of the past, thanks in part to the effects of the pandemic. Houses of worship will likely:
- Be mixed-use, not single-use.
- Dedicate space for internet broadcasting studios and community missions (like food and clothing distribution), not just worship.
- Have low operating costs and potential for high earned income, not high operating costs and low earned income.
- Be transit-, pedestrian- and bicycle-friendly, not surrounded by a sea of parking.
- Be green and “clean” in building and grounds, not eco-unfriendly and inconsiderate of public health.
Tip #5: Get help.
In the mid-20th century, it suddenly dawned on railroads, a declining industry, that they owned valuable, underused real estate in many of America’s cities — properties that could be used profitably for offices, hotels and residences rather than empty rail yards. But because they knew little about real estate, they engaged experts for help. Houses of worship should do the same. Like the railroads, they need help, because they’re in the business of religion, not real estate.
Some have turned to experienced national and regional community development corporations (CDCs), which have begun to eye houses of worship as promising sites for redevelopment. Some denominations have formed their own CDCs. Some have partnered directly with for-profit developers, but only after reaching out to consultants for wise counsel.
Houses of worship often find themselves in a downward spiral when the congregation ages and doesn’t attract new members. The number of worshippers dwindles. Contributions decrease, but expenses don’t. Congregations run deficits and spend down their cash reserves, leaving insufficient money for full-time staff or building repairs.
Once your congregation falls into such a spiral and visitors don’t return, it’s probably too late to turn things around; the house of worship should make plans to close. Either a new house of worship needs to be started on-site or the property sold for other uses, with the congregation determining how to distribute its assets.
Many houses of worship throughout the U.S. and beyond have successfully repurposed or redeveloped their property. No two have been exactly alike. What works in a hot real estate market may not work in a cold one. What works with a robust, young congregation may not work with a struggling, elderly one. What works in a progressive community may not work in a conservative one.
We have only begun to experience to what degree worshippers will return in person to their faith communities. In any case, thousands of houses of worship will be closing over the next several years, so the scale not only of closings but also of redevelopment projects will be several times anything we have experienced before. We need our houses of worship to be ready.
