COVID-19 impact: short-term interruption or long-term disruption?

By John H. Wright Jr., MAI, and Martin H. Aaron, MAI, SRA

The role that religion plays in the midst of this pandemic is a philosophical matter.

However, the role that religious facilities play is a decidedly practical matter — particularly for church mortgage lenders.

Before the pandemic, 36% of Americans attended religious services weekly, and 69% attended at least a few times a year, according to the Pew Research Center. The coronavirus brought attendance to a halt in many states, and some religious facilities adapted by providing online or drive-by services.

Unlike online shopping and curbside pickup for retail, virtual and drive-by religious services haven’t become a widely accepted “new normal” (although many larger churches have had success with online services). Even though people are eager to attend worship services for strength and spiritual guidance during this time of uncertainty, there are some concerns that the pause will drive long-term negative attendance and giving trends and affect the use and valuation of religious facilities.

Over the years, religious facilities have expanded to provide childcare, education, elder care, recreation, and community services such as job fairs and food pantries. This, in turn, has affected the ratio of seating to total building area. With social distancing, religious facilities can seat only a fraction of their capacity. Like their public counterparts, religious schools may not fully reopen for some time. These changes could have material value implications.

Space restrictions, along with elevated risk of infection for elders and the potential for church services to become “super-spreader events,” prevent many people from attending religious services.

At the same time, community support services that religious facilities provide are in high demand in the midst of the pandemic. Food, daycare, and job and housing insecurity have become grim concerns for many Americans, and religious facilities can come to their aid to the extent that social distancing requirements allow. In some communities, religious facilities even serve as COVID-19 testing sites because of their large parking lots and recognizable locations.

However, religious facilities survive on tithing, donations, foundations and other sources of cash flow that have been curtailed by the economic downturn. Some religious facilities with mortgages have missed payments since the pandemic, or they are debt insecure.

Every market is different, though, with unique advantages and challenges. There has been a surge in religious facility appraisals as lenders grapple to reassess the value of buildings that aren’t being fully used in the intended way. While some congregations are looking to sell their facilities, lenders are trying to determine if COVID-19-induced trends constitute a short-term interruption or long-term disruption to religious facility use, and resulting in possible changes in the highest and best use of the facility. This process is critical in the accurate estimation of COVID-19’s impact on the current market value of the facility.

Looking to the future, some congregations with stable finances might be considering construction plans or additions as they reconcile how to best serve their communities during the pandemic and beyond. An accurate estimate of the market value of the real estate forms the foundation for sound decision making in this unprecedented time.

John H. Wright Jr., MAI, and Martin H. Aaron, MAI, SRA, are Senior Managing Director and Managing Director, respectively, at BBG, a national due diligence commercial real estate firm. They are also authors of The Appraisal of Religious Facilities, the recognized industry standard for valuation of religious facilities, schools and nonprofits.

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