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For Urban Churches Selling Hot Real Estate, the Sky’s the Limit

c. 2006 Religion News Service NEW YORK _ The Rev. Bob Brashear rubs his fingers against the 117-year-old walls of his church and a shower of red dust sprinkles the sidewalk. Above him, scaffolding protects pedestrians from falling 20-pound chunks of sandstone. Inside, water stains line the walls and cracks trace the barrel-vaulted ceiling of […]

c. 2006 Religion News Service

NEW YORK _ The Rev. Bob Brashear rubs his fingers against the 117-year-old walls of his church and a shower of red dust sprinkles the sidewalk. Above him, scaffolding protects pedestrians from falling 20-pound chunks of sandstone.

Inside, water stains line the walls and cracks trace the barrel-vaulted ceiling of Brashear’s West-Park Presbyterian Church on Manhattan’s Upper West Side. Brashear estimates a repair bill of at least $10 million.

There are, he says with a sigh, “no resources to cover that kind of expense” in a 100-member church. But like so many other urban pastors, Brashear has seen his financial salvation _ and it’s coming out of thin air.

The open space _ or air rights _ above Brashear’s church will soon be sold for about $15 million to a developer who will erect a 21-story condominium complex that cantilevers over the back of the church. The new building will include church meeting rooms, 40 low-income housing units and 40 market-rate condos. Once repairs are paid for, Brashear hopes to invest the remaining funds.

From New York to Seattle, downtown congregations are striking deals with developers worth tens of millions of dollars. Those willing to sell are often mainline Protestant churches saddled with aging buildings, growing deficits and shrinking memberships.

While a red-hot real estate market has cooled some in recent months, industry veterans say the church trend remains strong, especially in revitalized cities where the supply of condominiums and office space has not caught up with demand.

In many large cities, air rights can be bought and sold. A church that doesn’t reach the maximum height allowed by zoning laws can sell the unused space above its roof to a developer, who can transfer that space to an adjacent building. Such churches can make millions off a “vertical asset” that would otherwise go unused.

The result is unexpected “manna from heaven” for some churches, said M. Myers Mermel, a real estate broker and member of Christ Church United Methodist in New York, which negotiated a $30 million air rights deal in November.

While proceeds have replenished bank accounts, expanded social outreach and breathed new life into aging sacred space, the high-stakes transactions can be risky for clergy and congregations unprepared for the cutthroat world of real estate development.

In places like New York, Chicago and Washington, where the only place to go is up, low-rise churches are attractive targets. Increasingly, developers are willing to pay top dollar for not just land, but also the air above a church’s roof.

“The cities with the hottest real estate markets and (air rights) will be the places where the phenomenon sticks out the most,” said Richard Peiser, professor of real estate development at Harvard’s Graduate School of Design.

Consider a few examples of churches striking real-estate gold:

_ In Chicago, two separate 60-story condo towers will rise above Fourth Presbyterian Church and St. James Episcopal Cathedral in the heart of the city’s Magnificent Mile. Fourth Presbyterian will sell the air rights above its building for $25 million, and St. James will sign a 120-year lease on its land in a deal worth at least $10 million. “In an urban area, air rights are just as much an asset as a piece of property,” said the Rev. John Buchanan, pastor of the 5,400-member Fourth Presbyterian.

_ In New York, in the shadow of the Empire State Building, the quaint Episcopal Church of the Transfiguration razed its parish house and sold its air rights for a 55-story luxury condo building that will net about $7 million for the congregation. Uptown, the Episcopal Cathedral of St. John the Divine is planning two education and residential projects that The New York Times estimated will generate at least $40 million over the next 20 years.

_ In Seattle, the terra-cotta domed roof of First United Methodist Church will soon make way for a high-rise office tower. Church officials say they can’t maintain the 1910 building and would prefer to spend money on outreach to the homeless. The Seattle Times estimated the deal is worth about $30 million.

_ In Washington, the city’s insatiable housing market prompted St. Luke’s United Methodist Church to sell part of its land to a developer who built condos that sell for up to $2 million each. The church made about $6 million on the deal, said the Rev. David Myers, which will fund a homeless shelter and feeding program. Without the infusion of cash, Myers said his small congregation probably would have closed its doors.

Traces of the trend can be found in smaller cities as well. In Sarasota, Fla., First United Methodist Church was offered $17 million for its downtown property that abuts a new residential/retail complex. The church, however, turned down the deal after “sentimentality ruled the day,” said Co-Pastor Art McClellan.

Some churches retain some space for themselves in the new projects, but many of the high-rise condos, offices and hotels being constructed have little direct connection with the church beyond a shared address.

On Manhattan’s tony Park Avenue, the Byzantine-style Christ Church United Methodist is dwarfed by high-rise apartment buildings on the corner of East 60th Street. The 70,000 square feet of air rights above the church is considered developable space, even though the church has no plans to build up.

The unused vertical space sold for $430 a square foot _ twice the going rate in New York’s competitive real estate market _ and brought in $30 million for the church. The money will fund a number of ministries, including an “adopted” public school in the South Bronx.

The real estate boom that began in the late 1990s has encouraged more churches to consider development, but some of the biggest deals started decades ago.

The prototype is St. Peter’s Lutheran Church in midtown Manhattan, which sold its 1905 church on Lexington Avenue in 1970 to make way for a 59-story Citicorp tower. A new street-level church for St. Peter’s was carved out below the tower’s four massive support columns.

St. Peter’s entered a condo agreement with Citicorp and was paid $9 million. The deal literally put St. Peter’s on the map _ as well as in New York tour books _ and made it a signature building, said the Rev. Amandus Derr.

“St. Peter’s would have gone the way of a lot of other churches in town,” Derr said in his airy office that looks out onto the hustle and bustle of East 54th Street. “It would have slowly died off, moved away and would be a shell of what it is today.”

Catholic churches have gotten in on the game _ St. Paul’s Catholic Church near New York’s Lincoln Center negotiated two air rights deals in 1984 and 1998 worth about $35 million, for example.

But the most active players appear to be mainline Protestant churches, including Episcopal, United Methodist, Presbyterian and Lutheran congregations. Unlike Catholic churches where bishops and cardinals have the final say, the semi-independent status of mainline congregations allows them to play the market more freely.

“I think what is happening is mainline churches are having to do some self-examination about where we’re going,” said the Rev. Cindy Voorhees, a Los Angeles Episcopal priest and church consultant who has studied the trend.

The decision to deal often flows from necessity.

“Generally speaking, they’re usually not looking at those opportunities unless there’s some economic pressure to do so,” said Michael Slattery, research director for the Real Estate Board of New York.

Mount Vernon Place United Methodist Church, an aging relic of its former glory, is selling a run-down classroom annex in downtown Washington to a developer for an office building.

For the Rev. Donna Claycomb, the money to restore her 1917 “leak-a-week” building is a godsend. “When you have an aging congregation that has been declining for some time, it would take 70 years to raise the $7.2 million to repair our property,” she said.

Claycomb declined to disclose precise details of the transaction, but said the church will buy back 25,000 square feet in the new building, and get enough money to pay a massive repair bill and rebuild its endowment. A local seminary will also buy 18 dorm rooms in the facility for an urban ministry lab, and a neighboring church will buy 3,000 square feet of meeting rooms.

For others, real estate ventures just make good business sense, even if there are no pressing financial or maintenance issues.

On New York’s Upper East Side, the Episcopal Church of the Epiphany hopes to bulldoze its Depression-era building and replace it with a 25-story residential condo that will include space for a new church.

“We’re not a church that is about to go bankrupt,” said the church’s pastor, the Rev. Andrew Mullins. “But we’re sitting on resources that are valued in excess of $50 million, and it would be silly not to utilize that for our own mission and ministry.”

In some cities, developers are “cold-calling” churches with offers to buy property. Concerned denominations have taken steps to minimize the temptation to sell and quickly spend.

New York’s Episcopal bishop, Mark Sisk, has directed his clergy to turn over real estate proceeds to a trust fund controlled by the diocese. All the money belongs to the local church that made the deal, but it can be spent only with diocesan approval.

“Parishes don’t waste the money, they’re not being at all frivolous,” Sisk said. “But the appeal of an immediate need is going to be more compelling than the appeal of an unknown need 50 years from now.”

The New York City Presbytery has launched a building survey of its 98 churches to figure out what shape the real estate is in and how congregations can best consider deals, sometimes by working together.

“The church is changing and we’ve got this huge big real estate question,” said the Rev. Arabella Meadows-Rogers, who oversees New York’s Presbyterian churches.

Congregations forced to navigate the market on their own can get “the short end of the stick,” said the Rev. Amy Butler, pastor of Calvary Baptist Church in Washington.

“This is big-time real estate,” said Butler, whose church just finished an $11 million project after it sold a parking lot and educational building. “And we don’t know what the hell we’re doing.”

Slattery, of the Real Estate Board of New York, says churches should find experienced professionals to broker their deals because they “have something that someone else wants, and they need to recognize that.”

Back at West-Park Presbyterian, Brashear’s face shows the stress of five years of negotiations.

The church was offered $40 million for the entire site on Amsterdam Avenue, but Brashear said “we wanted something more creative than finding a developer and just selling to the highest bidder.”

The church settled for the $15 million deal that allowed the congregation to keep and rehabilitate a building that has been a sacred place for New Yorkers since 1889.

Brashear sometimes wonders if that was the wisest decision, but he is committed to staying. For now, he says, the future is quite literally up in the air.

MO/PH END ECKSTROM

REPEATING to clarify how air rights are transferred from churches to developers; changes in grafs 7, 8 and 20

Editors: To obtain 16 photos of church development projects in Washington, New York and Chicago, go to the RNS Web site at https://religionnews.com. On the lower right, click on “photos,” then search by subject or slug.

For a 1,150-word version of this story with optional trims to 925 and 775, suitable for business and real estate sections, see RNS-SKY-LIMIT2.

SPECIAL REPORT: CHURCHES AND REAL ESTATE

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