Asked to Develop 80 Units on Religious Property

[David Friedman]

Hello BP,

I've been asked by a religious organization that owns several acres of land to help them develop an 80+ unit, 55+ community.

I've never developed on "Tax Exempt" religious property before and I'm not sure the best way to go about this.

The goal of the religious organization is to provide income to their organization from the rent and thus creating long-term sustainability for their organization. At the same time, they want to provide housing opportunities for their community.

They are looking to us to bring capital, construction financing, construction company (Basically everything).

Some questions I have for BP:

1. Is the best vehicle for this partnership going to be a JV?

2. If they do not want to split off the land from their place of worship, will that be an issue? I'm guessing the lender and investors will want this as its own separate parcel. (This one is really stumping me).

3. If the religious organization has some capital, but not a lot, and you are expected to bring the rest of the equity as well as everything else that comes with developing, what is a fair split to bring our development skills and resources to the table? Fees? Equity? How much?

4. From a moral viewpoint, I'm not sure if I want to own equity with a religious organization. I don't think I have it in me to foreclose or sue them unless they were extremely malicious in their actions towards me.

Thank you for any advice you can give!

[Paul H.]

Just some thoughts:

1. You can call it a JV, but I would assume a GP/LP structure may work best. The last thing you want is a power struggle and not have control of the project.

2. You would have to go through planning anyways to plat the project, I suspect the best way would be to break away, however will the zoning and tax designations change?

3. Work backwards and do some residual land value on the entirety of the project. You could put their land contribution on the LP side and keep a 30/70 split or whatever works.

4. Proper Structure, try to have them contribute the land on the LP side, and then control the project.  If it's treated like a normal project (regardless of the religious partner) everything you should be clean and laid out like a normal development.  The problem I see in this, is that they are asking you to do everything, but yet want to remain in control of everything. If they want to be on the GP side, maybe they need to bring more to the table than just dirt.  Seems like further discussion would be required and with 80 units, it may be too small on the buy and hold side to really get property management covered properly amongst other things being  a bit smaller and new.