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Reduced Property Values Expected to Persist in 2013

Reduced Property Values Expected to Persist in 2013

In addition to tight underwriting guidelines, declining real estate values are making church deals harder to do all the time. And this trend will continue into the New Year, according to finance experts.

"We're not seeing the kind of values that we used toit used to be that if you put $1 into new construction, you'd get at least $1 in appraised value," says David Dennison, principal of Church Mortgage Solutions in Colorado Springs, Colo. "But now it's more like 90 cents."

Church facility values are still dropping in markets such as California, Florida, Georgia and Michigan, Dennison reports, "because there is such a huge supply of properties on the market, many of them foreclosures." One of the biggest problems this causes, he notes, "is when a ministry is trying to refinance a loan for a building it purchased three or four years ago, whose value has droppedwhich makes for a very high loan-to-value ratio."

Depressed property values impact both old and new churches, according to Roger Carson, a Savannah, Ga.-based real estate appraiser whose practice includes church valuations.

"An older church may die out' because the population around it has changed, and/or it hasn't been successful in bringing in new members," Carson says. It has been years since many of these older churches have upgraded their HVAC and other building systems, resulting in high maintenance costs for new buyers. "So when they do eventually sell, they will typically do so at a level well below replacement costs," he notes.

Meanwhile, echoing Dennison, Carson says that churches constructing new facilities are recognizing that they will not appraise for what it costs to build them.

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