Financing physical ministry infrastructure

As Andrew Hong noted a few months back, developers of new residential developments in the outer suburbs of major cities don't have much room for church buildings. There simply isn't sufficient financial incentive for developers or local planners to put aside large blocks of land for church buildings. While there will probably be generic community centres or schools which can be leased for Christian ministry, this is still going to be a problem with:

  • competing with all sorts of other groups for time to use the facilities;
  • no security that one can have access to the facility continuously over the long term; and
  • no space for administration (offices, storage, etc)

This leads back to the question: how should we get access to the physical infrastructure necessary for ministry? Should we buy sites to build church buildings, or should we rent them? Here is a small list of advantages and disadvantages for each.

</td> Buying </td> Renting </td>
**Advantages** * You get the property—you can do whatever you like * Flexibility in use—any time, any purpose * Security of tenure * Pay by the month, better matches churches' cash flow profile * Flexible—if church outgrows current premises, one can find a new one
**Disadvantages** * Expensive, uses a lot of capital upfront * Usually financed by debt—interest rate risk, lenders' rating of churches' credit risk may change * Longevity—Jesus may come back next month—could we have used our capital better? * Inflexible if requirements change * Often legally owned by an entity other than the local church * Landlords not benevolent, nor can one guarantee they won't leave * Potential competition with others for the same premises * Much less flexibility in timing, e.g. for special events * Churches are often unincorporated associations—may have difficulties in entering/enforcing lease agreements

Is there another way?

Maybe a hybrid approach is worthy of consideration. The main points are as follows:

  • A responsible entity sets up an investment fund for the purpose of purchasing real estate for churches. Unitholders, who consider the concept worthwhile, contribute capital into the fund.

  • The fund leases out the properties for use by churches. There is only one perpetual landlord (the fund), whose intention is to finance the physical infrastructure, which should alleviate the risks of security of access.

  • The lease can be structured like any normal real estate lease, or can be structured so that the lessee gains title to the property after all relevant finance costs have been paid.

  • In addition, the investment fund borrows money to finance the purchase of property. Repayments are funded by cash flows from a diversified portfolio of properties, so funding costs may possibly be cheaper.

  • Excess cash flows can be returned to the unitholder as distributions, or reinvested as capital for funding further properties.

What do you think? Is this a worthwhile idea?

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