By RaeAnn Slaybaugh
Central Peninsula Church in Foster City, Calif., is blessed in many ways — not the least of which is in having land in the highly sought-after Bay Area on which to expand as necessary.
“Divine timing” is another factor when it comes to locking in a favorable interest rate for its refinancing effort.
However, as Executive Pastor Dave Vergara points out, these are only two elements of success; others are more controllable.
As everyone knows, land is at a premium in the Bay Area, home of Silicon Valley. That said, Central Peninsula Church (CPC) was in a fortuitous position when the church, which began in a rented meeting space, expanded through three separate building phases on its property over the decades.
The third and final phase was the construction of a large auditorium. With it came various bank notes on a few different refinancing initiatives — including, troublingly, a balloon payment coming due at the end of 2022.
“There’s a level of uncertainty involved in that,” Vergara acknowledges. “When you have a balloon payment, it’s always looming. You’re always wondering, What’s next?”
Fortunately, Vergara got ahead of the issue by beginning to consider the church’s refinancing options in 2021. With the presence of COVID, timing was a challenge, to say the least. Many variables were unknown at the time.
Having left a Silicon Valley job in 2014 to join the staff at CPC, where he and his wife had been members for 35 years, Vergara was uniquely suited to lead the refinancing effort. “But still, we’re not economists, right?” he admits. “So, trying to figure out what was happening financially was leading us — like every church — to wonder Who’s coming back? What will the makeup of this church look like once the pandemic is over?”
Despite all these hurdles, the goal was unwavering: Vergara aimed to secure a refinancing package that would not only eliminate the balloon payment but also deliver more attractive terms; come with a high level of ongoing service; and establish a true partnership — one in which the church’s immediate and long-term needs would always be considered.
Evaluating all the options
CPC vetted commercial and church lenders alike. As Vergara discovered, most commercial lenders were only offering 10-year fixed rate refinancing packages at the time. “They had the classic kind of offerings and really more ‘balloon’ types of loans,” he recalls.
Further complicating matters, the church’s loan amount wasn’t large enough to secure the most favorable terms from many lenders. Finding a 15-, 20– or 25-year fixed rate was nearly impossible, and some larger banks required the church to enter into a SWAP contract to get access to 10-year fixed rates — a path Vergara wasn’t willing to go down again.
At that point, he turned to his proverbial Rolodex.
“Frankly, I started scouring my executive pastor resources and found out what other churches in our position had done,” he recalls. In doing so, he came across an unfamiliar lender — Thrivent Church Financing — with a familiar name on staff: Senior Relationship Manager David Lee.
The two first became acquainted in 2016 when CPC launched one of its campuses as an independent church. “[Lee] was really a great resource for us as we tried to navigate financing and referrals for that,” Vergara explains. “He also knows a ton of people. Most recently, he helped us secure the Employment Retention Credit, the ERC. He really has an awesome consultative approach.”
This familiarity with and confidence in Lee’s abilities led Vergara and his team to fully explore Thrivent’s offerings. Ultimately, CPC was able to lock in a truly 15-year fixed-rate loan without a SWAP agreement. This not only allowed for debt freedom when the loan matures but was able to be solidified prior to the initial loan’s maturity in 2022 — before interest rates rose sharply.
“It was really attractive that [Lee] was able to bring that forward with Thrivent at that specific time,” Vergara recalls. “The way markets are right now, we’re all having the conversation, right? Are we going to have a continued challenge with inflation that the Fed’s trying to figure out? And then, are we going to have a soft landing — in a recession? Nobody knows.”
For its part, CPC navigates no such uncertainty, now, knowing that the entire loan will be paid off at the end of the 15 years, with no balloon payment. “That goes back to the idea of reducing risk,” Vergara says. “We just know that that’s part of our budget, and at the completion of that, we’re finished.”
Another priority for Vergara and his team was the freedom to bank with any bank it chose. Through the vetting process, church leaders knew that many commercial lenders would require the church to bank with them as part of their reporting and account management requirements. But even now, the church’s credit card — among other things — is with another bank.
Lessons learned, lessons shared
Sure, the lower-interest-rate environment of 2021 is, unfortunately, in the rearview mirror for now. Even so, Vergara says he learned some important tenets for securing the best possible refinancing package in any rate climate.
“In today’s world, I think it’s all about taking the time to explore all of your options,” he advises. To this end, he points out that the CPC team — knowing the balloon payment was looming — put the right people in place, early, to thoroughly explore all of their refinancing options.
“It’s not always easy to get everyone on the same page, but certainly pray through the options together,” he encourages. This includes making sure all the potential refinancing paths are explained (in plain English) to the leadership team and, if applicable, to the board of elders — the members of which might or might not have a lot of financial acumen.
“I just always went back to trying to make it as simple as possible,” Vergara recalls. “In the end, I said, ‘Here are the criteria we’re evaluating. Here’s what we found with Thrivent Church Financing and why we’re recommending going with them.’”
He also urges church leaders to recognize their own limitations when it comes to refinancing — namely by enlisting the right lending partner to fill in the gaps. For his own team, that partner was David Lee and, by extension, the entire Thrivent Church Financing team. Vergara credits them as “just great to work with” from start to finish.
“They walked us through everything that was needed, from collecting all our information, to helping with assessments, and ultimately to get to the final signing,” he says. “Whoever you choose, you need to know that they’re looking out for you. We’re just not experts in everything.”