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

[Casey Miles]

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]

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.