Leasing space to a Church...Pros/Cons?

Question

Hello BP,So I have a small office building in Mesa, AZ. It's roughly 6k sqft with a chiropractor renting 1500 sqft and 4500 sqft is vacant. I bought the property with a year to year tenant who rented the 4500 sqft but was way under market value so I anticipated I would have a large vacancy when it came to renew their lease. Needless to say they moved out.I have a Church that is looking to rent roughly 1800 sqft, modified gross. They are interested in a 5-year lease. I don't know about the tax reporting for a church so I told them I'd probably need someone to personally guarantee the lease. My question is who here has rented to a church and has it negatively affected your values at all? I assume a typical “business” is a more desirable tenant but I’m not sure why. What other potential negative impacts am I missing? I figure if the guarantor has strong credit and I get a 5 year lease it can only help the property value. I’m asking these questions because when talking to the potential tenant I asked how many other spaces he’s looked at and he mentioned one potential landlord got cold feet when he found out it was a church who was looking for space.Thanks,

Joel Owens · Answer

Commercial lenders typically do not like churches as a tenant in a retail center. There can be a stigma in the community if church is not paying or partially paying and landlord has to evict. The congregation can retaliate and not frequent or boycott the businesses in the center.Additionally lenders if they have to foreclose on an asset with a church it can give them bad press in the news they don't want.I saw a case years ago with a church that owned a vacant apartment building. A short sale was being negotiated on it but lender wanted the pastor on the hook for some of the write off. Pastor mentioned to them they would go on videos, news stations, and picket in front of the lender headquarters for social injustice. Lender decided to write off the bad debt difference and not go after the pastor.Another tenant is Hindu food type restaurant. The curry smell is very strong and without specialized ventilation systems that are properly maintained it can waft through to the whole retail center and get complaints from other businesses.Church would be one of the last tenant types to optimally fill a retail center. Also they take up lots of parking where other businesses in the center cannot function properly. So a key with a church is how many services they have a week in days and how often. If it is just Sunday and your other businesses are closed then likely not a problem or if businesses for retail close at 5 or 6 and church is at night time etc. only.

Charles Kao · Answer

@Casey Miles One more thing you aren't normally looking at credit of guarantor depending on size but rather the amount of monthly donations they average when looking at their capability to stay. If they are very small they probably will personally guarantee but in general they will be able to find accomodations to not have to. As for bank financing as I did a few church loans when I was a commercial lender that is how they are approved for financing as well

Charles Kao · Answer

@Casey Miles I was looking at purchasing an office building of a friend of mine and they said the church tenant was great but a couple of things to note. 1)They need lots of parking but mostly on Sundays so they don't generally bother other tenants but if other tenants are present Sunday its pretty disruptive 2) There often is alot of trash cleanup from an inflix of alot of people afterwords so trash bins need to be emptied and you need to make sure you have reasonable handicap accomodations 3) Most churches eventually grow big enough to expand or build so in the case of this office building the church actually leased more space 3 times over 2 years

Thomas S. · Answer

Anything religious is a hot button topic that is best avoided. I would apply the same principal to selecting tenants and avoid churches.

Omar Khan · Answer

@Casey Miles Even if the church is the greatest tenant on the planet, what happens when you to terminate their lease? I would be very uncomfortable terminating the lease of a church, a place where many member of the community congregate on something as personal as religion.

Henri Meli · Answer

@Casey Miles . No experience with Churches as tenant. But a few things you can check.How long have they been around? Yes, make sure to get a guarantor with strong credentials. How long have they been in existence? What type of history do they have?Who have they been renting with and why are they looking for new space? Expansion? Retraction? Issue with their landlords?Knowing the area's economy, how likely are you to rent the remaining 4500? An empty building is never a good thing. I have seen buildings stay empty for a long time ... waiting for tenants, that never arrive.