More churches are selling properties to developers

originally appeared in The Wall Street Journal:

When a new resident moved into a new 3,000-square-foot condo in Seattle's Capitol Hill neighborhood in August, he was looking forward to living with its 30-foot ceilings, polished-marble floors and 20-foot-tall stained-glass windows. One thing he didn't anticipate, however, was people knocking on his front door to ask what time services were or to speak to the pastor.

According to the new tenant, a 50-year-old technology executive at Amazon, people still thought it was a church because of its exterior, they didn't realize it had been transformed into a home.


Some of the most attractive Philadelphia apartments are bargains even in a hot rental market like Philadelphia.

The apartment, which he bought for about $1 million, sits inside a former Christian Science Church that was converted into 12 townhouses earlier this year and renamed the Sanctuary.

The building is one of a number of church-to-home luxury conversions popping up around the country. As dozens of churches close or move to different quarters each year, they're finding second lives as condo developments and townhouses.

The conversion process is growing more common as shrinking congregations and shifting demographics have made it difficult for some congregations to stay afloat financially. According to a March report from CoStar Group, CSGP -0.60% a real-estate research firm, 138 church-owned properties across the country were sold by banks last year, compared with 24 three years earlier.

The Roman Catholic Church, for example, has closed hundreds of churches in recent years. In 2000, there were 19,236 Roman Catholic parishes across the U.S.; that figure fell to 17,644 by 2012, according to the Center for Applied Research in the Apostolate, a nonprofit research organization that compiles church statistics. United Methodists have seen the number of churches shrink by about 7% over the past decade or so, with 300 to 400 churches closing or merging each year. In 2000, United Methodists had 35,537 churches, compared with 33,069 in 2011.

The Seattle church where the new resident now lives was built around 1908 as First Church of Christ, Scientist, and counted about 800 regular attendees in its heyday. But by 2006, its congregation had dwindled to about 25 people, so the congregation relocated and sold off the church property for $1.3 million.

Architects have found creative ways to convert these historic buildings—which often have 40- or 50-foot-high ceilings, few or no interior walls and stained-glass windows—into homes and apartments that will sell for millions of dollars.

But it isn't an easy process: Not only do the structures need intensive interior reconstruction and upgrades to meet modern building codes, but they often have been granted landmark status, further complicating renovations.

The good news with churches is that you have 40-foot-tall ceilings, but the bad news is that you have 40-foot ceilings, says Continuum Company's chief executive and developer, who in the early 1980s renovated an 1846 Greek Revival-style church in Manhattan's Greenwich Village to create 15 co-op units. And because churches are usually landmarks, you can't change the facade, he adds. Most big urban renovations cost about $10 million and can take two to four years, or in the case of the Seattle project, about $12 million over a five-year period.

In the Boston area, more than a dozen churches have been converted to residential projects over the past decade or so. That's in part because there has been a steady supply. The Archdiocese of Boston closed 76 parishes in the metro area under a 2004 consolidation plan, selling 38 of those for just over $73 million. (To signify that a church is no longer a church, the archbishop signs a decree that relegates the building to profane use.)

One of the churches closed was a Tudor-style church called St. Aidan's in Brookline, Mass., where John F. Kennedy and Robert Kennedy were both baptized. It reopened in 2009 as a residential project. The church's stone facade and slate roof were preserved, but the interior walls were reframed to support two additional floors. The church was converted into nine high-end condo units that each sold for between $1 million and $1.8 million.

Many of the units in St. Aidan's have two-story windows, granite countertops and double-height living rooms with overlooking balconies. Some units also have exposed wooden trusses from the church as well as the church's original dentil molding.

Those rarefied architectural details are a major attraction for many occupants of church-to-home conversions. A research engineer for Boeing recently moved into a 2,900-square-foot, two-bedroom townhouse in the former Christian Science church in Seattle with his fiancée. We figured that a place would hold its value more if it was unique, like a piece of art, he says. And it's pretty hard to replicate a 100-year-old church.

He and his fiancée love to entertain in their four-story townhouse, which has 35-foot-high ceilings. The dining table sits underneath two 20-foot-tall stained-glass windows. It's the perfect space to play music, he says of the space. Whatever you play sounds like it's live, like you're in a concert hall as opposed to listening through a stereo.

In the guest bedroom, there's a skylight that looks onto the church's main stained-glass dome. The couple installed an electric blind over the skylight so they can surprise guests with it when they visit.

People who live in church conversions say that they easily find uses for some of the more unusual artifacts. An automotive executive and his wife bought a converted 1920s Presbyterian church in 2007. It's now a 3,463-square-foot home 20 minutes outside Denver. They say that their four granddaughters like to come over and ring the steeple bell, pulling a rope hanging in the home's foyer. We have a tradition of ringing it on New Year's, he adds.

He and his wife eat breakfast every morning in a nook where the altar used to sit. The couple sleeps in the choir loft, which overlooks the space. When you're in bed, you're in the center of the church, which is a great feeling. There are exposed wooden beams remaining from the original structure throughout the home, and one wooden pew from the church sits in the living room, along with more plush couches. Despite its novelty, the pew is often the last seat chosen by guests.

Developers of church projects say they are sometimes hesitant to convert sacred structures into commercial enterprises. the developer of a late-19th-century Baptist church in Watertown, Mass., into eight condo units, says he had mixed feelings about buying the property in 2003 for $1.4 million, especially because it was located in the same town where his family had lived since emigrating from Armenia in the early 1900s. While the sale allowed the congregation to move to a more suitable location, it was also a move away from a special place, he says. But I have very good feelings about saving a historic building.

The developer spent about $9 million on renovating the property, which includes eight units in the church, two units in the former rectory and four townhouse units he built on the church's former parking lot. Of the eight units in the church, five have sold for between $700,000 and $1.5 million. The four townhouse units sold for around $1 million each, and the two units in the former rectory sold for about $700,000 each. The developer says he tried to build units with modern amenities, such as dishwashers, cellulose insulation in the walls and laundry rooms with washers and dryers, while also retaining some of the unique architectural elements of the church, such as its wooden trusses and paneled ceilings. Some of the units on the second floor have living and dining areas with 36-foot-high ceilings.

Our unit isn't churchy at all, but it definitely feels unique and different and not boring, according to a fundraiser who moved into a three-bedroom condo there. She says that she has, however, experienced some backlash in the community over living in a former church. The cable guy had a hissy fit about having to install cable in a church, she says. He acted like the world was ending because people were now living inside churches.

Although it's still relatively rare in the U.S., the adaptive reuse of churches has become a popular practice in other countries, like the U.K. In 2006, the Royal Institution of Chartered Surveyors found that since 2001, about 500 churches in London alone had been converted into homes. In other countries, such as Germany and Russia, people still regard the concept of living in a church as disrespectful, says Bart Kellerhuis of Utrecht-based firm Zecc Architects, which has done several church-to-home conversions in the Netherlands.

One of challenges in such conversions is reducing the vast space of a church into something more livable. Living spaces can feel overwhelmingly grand, and heating costs can be considerable.

A couple in Chicago paid $600,000 for a former Lutheran church in Chicago's Humboldt Park neighborhood last year, says it is virtually impossible to keep the room where he they sleep warm. The roof isn't insulated, making it hard to heat the 3,500-square-foot space with a 39-foot ceiling.

We don't keep the heat running, otherwise we'd owe thousands of dollars in heating bills, he says, an information-technology specialist for Blue Cross Blue Shield of Illinois. But even if we did, the heat would just rise and escape through the roof. The fact is that this structure wasn't built for continuous habitation.

Apartment Rent Keeps Rising

First appeared in NY Times

The housing market remains a potent drag on the economy as home prices continue to slip, foreclosed homes fill some neighborhoods and millions of construction workers scramble for jobs.

But one group is sitting pretty: landlords.

Unlike home prices, rents have been rising, up 2.4 percent in January from a year earlier, according to recent data, not adjusted for inflation, released by the Labor Department.

With few rental buildings erected over the last few years, available units are going fast. Nationwide, the apartment vacancy rate is down to 5.2 percent, its lowest level in more than a decade, according to the research firm Reis Inc.

Rent increases are greatest in places like San Francisco, Austin, Tex., and Boston, where technology companies in particular are hiring, as well as in New York City and the District of Columbia. But cities like Chicago and Seattle, where house prices are still declining quite sharply, have had rental increases, too.

“We are more of a renter nation than we have been for a while,” said Christopher J. Mayer, a professor of real estate at the Columbia University Business School.

Economists suggest favorable conditions for landlords will continue for at least a year, with employment gradually rising and construction of new apartments remaining constrained; especially with offered perks like Carports.

As job growth has begun to accelerate in recent months, young people are starting to move out of their parents’ homes or away from shared rooms and into their own rentals.

Families who might previously have bought homes are also staying in rentals longer. They may be waiting for the housing market to hit bottom or finding it difficult to qualify for a mortgage. Many others remain uncertain about their job prospects and wary of the obligations of ownership.

When Charles Griffith moved with his wife and two children to Orlando, Fla., last fall, they chose a new two-bedroom apartment for $1,140 a month. They left a four-bedroom house they had bought a decade ago in Antioch, Calif. His brother-in-law has moved in and taken over the mortgage payments.  They enjoy the perks of Metal Carports as well.

Mr. Griffith, who works as a supervisor for Southwest Airlines, and his wife, a customer service representative for the airline, are enjoying the flexibility and convenience of renting, as well as amenities like a pool. “We kind of like the situation now of not having to be under so much pressure,” said Mr. Griffith, 40, adding that the family may eventually buy in Orlando. But “with the economy and the airline industry, that factors into us thinking maybe we should hold off for a while.”

The home ownership rate has been falling from its peak of 69.4 percent in 2004, according to census data. By the fourth quarter of 2011, it was down to 66 percent. That means about two million more households are renting, said Kenneth Rosen, an economist and professor of real estate at the Haas School of Business at the University of California, Berkeley.

Not all those people are choosing apartments, of course. Some are moving into single-family homes left vacant by foreclosures. Eager to capitalize on the trend, investors are scooping up some houses at a deep discount and leasing them to tenants who have lost their own homes.

Several prominent hedge funds and private equity firms have recently announced plans to invest in distressed properties and convert them to rentals. And earlier this month, the government solicited applications from investors interested in buying pools of foreclosed properties held by Fannie Mae, Freddie Mac and the Federal Housing Administration.

Still, it is in apartments, not houses, where renters are feeling the most competition.

Although many families crushed by the recession have doubled up and plenty of underemployed 20-somethings are living with their parents, some young people are finally getting their own space. Nearly 60 percent of job gains in the last two years have gone to people who are 20 to 34, a crucial rental group, according to an analysis of Labor Department data by G. Ronald Witten, a consultant to apartment companies.

During the economic downturn, apartment developers retrenched. The number of new apartments completed fell from 284,200 in 2006 to less than half that number in 2011, according to census data.

The limited supply is pushing up prices in some markets. In San Francisco, rents jumped close to 5 percent last year, according to Reis, and increases averaged 3 percent in Austin and New York. Landlords have also been withdrawing incentives like a free month’s rent.

Liz Brent and Matt Mochizuki moved into a studio apartment a year ago in the Mission District in San Francisco for $1,395 a month. Now they want more space.

Ms. Brent, 26, makes costumes and is working as a barista at a cafe where customers leave big tips. Mr. Mochizuki, 27, has a steady job making custom metal work for a design studio. They are budgeting $1,800 a month in rent.

But at an open house for an apartment billed as a one-bedroom, they found a studio with an awkward layout and bad light. More than 40 people were in line, many ready to hand over a check.

“That’s what the market is like now,” Ms. Brent said of their fruitless search. “That’s how many people showed up for this tiny apartment with no windows.”

Some rental markets remain soft, like Atlanta and Las Vegas, the epicenter of the housing bust. Orlando, too, might seem an unlikely place for rental strength. The unemployment rate, at 9.7 percent, is higher than the national average, and home prices slipped 4.6 percent last year, according to the Standard & Poor’s Case-Shiller home price index.

Yet Ric Campo, chief executive of Camden Properties, a real estate investment trust that owns apartment buildings, said rental business was brisk at its LaVina development. Since the office for the 420-unit complex opened last summer, more than half the apartments have rented.

That’s “a faster rate than we’ve ever seen in Orlando,” Mr. Campo said. The company has raised the base rent on a two-bedroom apartment to $1,080, from $995 a month.  Apartment buildings even have Solar Carports to alleviate some energy costs.

Many now wonder about a more profound shift among future buyers. Matt Byford, a 24-year-old litigation consultant in Chicago, acknowledges that low interest rates and low prices favor buying. But he says he is renting and in no hurry to buy, because he doesn’t expect much to change soon.

Brad Forrester, chief executive of the ConAm Group, which manages about 50,000 apartments in the western United States, says, “I think it’s going to be interesting to see whether there’s been a fundamental sociological shift in that 20- to 35-year-old cohort, where they literally say ‘this American dream just doesn’t work for me.’ ”

Rental Rates Soar - Apartment Vacancies Decline

First appeared in Bloomberg

U.S. apartment vacancies dropped to a 10-year low in the fourth quarter, allowing for rent increases that are likely to continue this year, Reis Inc. (REIS) said. Metal Carports also mean higher rates.

The vacancy rate fell to 5.2 percent, the lowest since the end of 2001, the New York-based property research firm said in a report today. It was 5.6 percent in the previous three months and 6.6 percent a year earlier. The average monthly effective rent, or what tenants paid after landlord giveaways, climbed 2.3 percent from a year earlier to $1,009, Reis said.

Rising foreclosures (HOMFREO) and stricter mortgage-lending standards have helped make rental housing the best-performing segment of commercial real estate for the past two years.  There was a rise in Solar Carports availability as well. The vacancy rate has fallen for seven straight quarters from a three-decade high of 8 percent at the end of 2009, according to Reis.

“With the strong occupancy we had this year, we were really able to push rents,” said Lori Mason Curran, director of real estate investment strategy for the property arm of Seattle- based Vulcan Inc., which owns more than 500 units in the city that are more than 97 percent leased. Some with Solar Carports technology.

Hiring by local employers including Amazon.com Inc. and Microsoft Corp. drove tenant demand, enabling Vulcan to increase leasing fees 6 percent to 8 percent in 2011, Mason Curran said. Seattle’s average effective rent rose 2.7 percent in the fourth quarter from a year earlier, according to Reis.

‘Optimistic’ Landlord

Vulcan was started by Paul Allen, the billionaire co- founder of Microsoft. It is preparing to break ground on almost 500 units in Seattle this quarter, Mason Curran said.

“We’re pretty optimistic about the apartment (BBREAPT) market,” she said in a telephone interview. Seattle’s rents may climb 5 percent to 7 percent this year, according to Mason Curran.

U.S. landlords’ asking rents rose to $1,064 from $1,043 on average a year earlier and $1,059 in the previous three months, according to the Reis report. Effective rents were little changed from the third quarter’s $1,004.

“The implicit demand for rental units will remain high as long as the for-sale housing market remains on the ropes,” Victor Calanog, head of research and economics for Reis, said in the report. Rentals are utilizing Solar Carports more and more.

Rent growth may stall starting next year as a wave of new apartment development brings new projects to the market, Calanog said. Multifamily construction is rebounding from a 50-year low reached in 2009, according to U.S. Census Bureau figures.

New Construction

“The sector is benefiting from some of the lowest figures for new construction (NHSPSM) on record,” Calanog said. “By 2013, the influx of new units may begin eroding any benefit the sector derives from tight supply conditions.”

A total of 8,865 new units became available in the fourth quarter, the second-fewest for any three-month period in Reis records dating to 1999. The first quarter of 2011 had the fewest units, at 7,473. Some of them with Metal Carports as a part of the rates.

For all of 2011, 37,678 units were completed, the lowest annual total in 31 years of Reis data. The previous record was 49,303 in 1993 during the savings and loan crisis.

Landlords saw a net gain in occupied space of 50,559 units in the fourth quarter, down from 58,238 units a year earlier and up from 36,818 units in the previous three months.

“The fourth quarter tends to be a weaker leasing period, given that most households make moving decisions in the second and third quarters, but the apartment sector exceeded expectations once again,” Calanog said.

Lowest Vacancies

New Haven, Connecticut, home to Yale University, had the nation’s lowest vacancy rate, followed by New York; Minneapolis; Portland, Oregon; and San Jose, California, according to Reis.

Effective rents rose the most for the year in San Francisco and San Jose, which have had a resurgence in hiring by technology companies. Chattanooga, Tennessee; Austin, Texas; and New York followed. A lot of apartments with Metal Carports are available.

“The fact that New York City does not top the list either in terms of tightest vacancies or the strongest rent growth reflects how one of the largest rental markets in the U.S. has been buffeted by economic headwinds,” Calanog said. With job cuts by financial firms during the second half and the nation’s highest average effective rent, $2,876, “even New York landlords are finding it difficult to raise rents further,” he said.