Religious institutions are among the country’s largest owners of useable land. But simply owning land doesn’t in itself qualify a church or synagogue to enter into an agreement to build housing. There are several factors developers and investors should look at before they take a “leap of faith.”

Richard F. Burns
Richard F. Burns

The NHP Foundation (NHPF) has successfully completed two such deals, Roundtree Residences in Washington, D.C., in 2014 and Harvest Homes Apartments, a newly constructed 36-unit family development, in Chicago’s East Garfield Park neighborhood in 2017. Harvest Homes is the realization of a plan initiated by the People’s Community Development Association of Chicago in partnership with NHPF as part of a low-income housing tax credit (LIHTC) deal. Other faith-based development partnerships are in the planning stages.

There are six must-haves for for strong faith-based housing.

1. An independent, accurate property valuation

You have found a faith-based organization with property that appears suitable for building housing. Before any partner enters into a development deal, they should engage the services of an independent appraiser to determine the value of the property and a zoning expert to determine the buildable square footage, including commercial space (a community center or church expansion) as well as air rights. Faith-based organizations will want to realize the full value of their assets, and appraisals need to be part of the due diligence for any real estate transaction. In our experience, we also recommend each party retain its own counsel to assess zoning regulations and determine what is most appropriate to be built at a faith-based site. Amassing this data ahead of time puts both partners in a good position to negotiate a fair and equitable deal.

2. Experienced and trustworthy industry experts

Now is the time for a developer to work with their religious partner and assemble a team of good-faith actors who will respect the religious institution and make sure the deal is a sound one for the developer. The first step for some is to retain an experienced development consultant who can size up the faith-based organization’s needs and bring together the necessary expertise, including:

· Legal counsel trained in municipal and state real estate law and with a track record of previous deals.

· Accountant with high-level experience in tax law pertinent to faith-based housing.

· Builder suited to the project. Whether a congregation is land rich and cash poor or very well capitalized, the builder can budget and plan accordingly to realize the partners’ vision.

· Financial partner with a strong background in affordable housing. Experienced developers have a host of healthy options for financial support, including banks with strong community-lending programs to service affordable or market-rate housing deals.

3. Clear understanding of state and municipal assistance options

State and municipal agencies offer guidance and help safeguard the investment. Developers can leverage existing relationships with state and local entities to facilitate the process for faith-based groups. As of today, few jurisdictions offer the resources of the New York Governor’s Office of Faith-Based Community Development Services to provide navigation through the state-funding process, but sound advice can be obtained from city housing authorities and entities such as departments of housing preservation and development. These agencies provide guidance as well as funding.

4. Knowledge of the potential pitfalls

Deficient due diligence: Research and know the property and the community inside out. No one wants a surprise as construction is about to begin.

Short-term thinking: A project has to have longevity in order to succeed. The most well-developed projects have an appointed committee of responsible individuals, including but not solely the top church or synagogue leader who may not be with the project from start to finish.

Changing tax law: Tax code is extremely complicated, and it pays to stay up–to-date on changes such as avoiding the creation of UBTI (unrelated business taxable income). There are tripwires related to some very complicated rules about what nonprofits can and can't do in order to make money. As well, the current 9% and 4% LIHTC qualifications require constant vigilance to be certain that projects qualify.

5. Communication with all parties

The importance of buy-in from a congregation to undertake a housing initiative is critical to its success. If affordable housing is being built, this includes helping congregants understand housing lotteries and other forces at work that will determine who will live in the units.

There are other groups to bring into the process as well. Developers need to work closely with faith-based organizations to include community voices in the discussion through city council and other meetings. Some neighborhoods will likely protest if a Civil War–era church is facing demolition, for example.

Some communities also view new construction as unwanted gentrification so partners need to paint a clear picture of what the construction will do to the neighborhood character and how it aims to strike a healthy balance. As well, communities need to be made aware of the day-to-day disruption that construction may bring and will want to hear what the team will do to mitigate that.

Another constituency that must be factored in is the governing body of the religious institution, like the Catholic Diocese, for example. Those seeking to build affordable housing or to sell off their property must have approval from those in authority, if applicable. As well, in New York and other states, the attorney general’s office must approve all faith-based deals.

Partnerships seeking to build affordable or market-rate housing should also be in touch with their local municipal department of development. These departments can help churches and synagogues with usages and rezoning often necessary to realize their vision.

6. A realistic and beneficial vision for the property

Often there have been changes in law or zoning in the years since a church began the path toward building. These changes can affect a final decision.

For some, the decision to sell their land makes the most sense. For others, a fully affordable complex best meets their needs. And for still others, a hybrid will work. This may be a new mixed-use development, including condominiums and retail space, as well as market-rate units all within the same complex. A good development partner will help a congregation answer questions like: Will congregants be able to live in the units? How will the tax structure benefit or harm the co-owners? A faith leader may start the process with one vision and come to realize a very different and hopefully most beneficial one, at the end.

The nation’s religious institutions have a unique opportunity to combine their inherent mission to provide for others along with property ownership, ultimately producing housing that will make a difference in people’s lives. And thoughtful, experienced developers can turn these opportunities into reality.

The best faith-based housing outcomes are borne of knowledgeable, respectful, and experienced teams. Successfully assembling these joint ventures is the key to a smooth, productive process for religious institutions and their constituencies moving forward.

It is our hope that developers and investors will seek out ventures with churches, mosques, synagogues, and other faith-based organizations to create successful housing through equitable partnerships that benefit the organizations, the community, and society at large.