Churches & Charities - turning property into opportunity

10 December 2018

Plenty of charities are in the enviable position of having a large asset base in real estate.
Plenty of charities are in the enviable position of having a large asset base in real estate.

ACNC data tells us that total charity assets sit around $200 billion.[1] Small charities (with annual turnover less than $250k) hold the majority of those assets – around $170 billion. However, those small charities represent only 1.4% of annual charity income.

It comes down to this – plenty of charities there who are asset rich and income poor. And insufficient reliable income is often a restraint on how much a charity can do in achieving its mission.

The community (and charity law) expects charities to use their assets to further their charitable purposes. The big questions for these asset-rich charities seem to be “are we doing enough?” And “how could we do more with what we have?” It is a high order governance question.

Plenty of charities are in the enviable position of having a large asset base in real estate. For those who are “land rich” in that sense, here are a few ideas to ponder as you ask yourself the question “how could we do more with what we have?”

  1. Consider selling lazy land.

    If lazy land is doing nothing for your mission and you have no foreseeable need to grow onto it, turn it into something useful. But before you do, consider whether you can add value to the land (lift covenants, obtain permits, create separate access, etc). Make the most of what you have.
     
  2. Consider leasing lazy land or underutilised spaces.

    Identify ways to permanently free up space and obtain an income stream. Car parks, office spaces, even vacant land can attract a rental. Hiring arrangements can also produce good outcomes - a ballet school can operate without owning buildings, and might even use the church hall more hours per week than the church itself! Think about whether there might be people or organisations who would be a great strategic fit in your spare space.
     
  3. Develop for sale.

    Some charities hate the thought of selling dirt to a developer, so want to develop their property prior to sale. You were cash poor, remember? Are you borrowing to pay for this? This is sometimes appropriate but requires serious consideration of skill, capacity, financial risk and project management. Don’t jump into property development simply because you have a board member who has some experience in the field.
     
  4. Develop for lease.

    A charity may want to improve its property and make it suitable for creating rental income. This may be appropriate, but beware the vortex of becoming a ‘property management charity’ over time. You should have a sound business case for this kind of venture and a clear exit plan if you ever need to regain that space for your own charitable use.
     
  5. Develop for joint use.

    Property can often be developed for blended use. If you’ve got spaces that will have regular short-term use, then you’re starting a business – have a business plan. If you’re developing for a specific partner and it’s needs, then your partner might put money towards the development, but will want something in return (long tenure, an agreed buy out if they leave early, equity in the property, etc).  Whatever you do, don’t go into a venture like this without knowing what it might look like when it ends. All lease arrangements come to an end at some point.
     
  6. Swap land for buildings.

    That’s right, it can be done.  It’s a variation on option 1 – exchange some spare land for new buildings which can better serve your purposes. These are bespoke arrangements and things can get really creative. This is not nirvana, but can save significant transaction costs and planning risks. Just don’t forget to measure the value of the land you’re giving up vs the value of the buildings you have been promised.
     
  7. Use the air space above you.

    The basic concept here is to partner with a developer to completely rebuild your site, giving back to you a brand new building far better than you had before. The developer keeps building above you and sells the rest of the building into the market (as apartments, office, etc). A profit share arrangement should be on the table in this discussion. The sky’s the limit – subject to council approval.
     
  8. Make your property for a different charitable use.

    Sometimes the cause should trump the financial returns. After all, charities are primarily about mission, not profit. Consider using the unoccupied manse for affordable housing. Give a 99 year ground lease to a charity and allow them to build on your site. Make some space available for crisis shelter during the winter. Stay open to the possibility of being a partner with another suitable charity.

No charity was ever established for the purpose of holding lazy land. Go put it to use for good.

Andrew Boer is the Practice Leader of Moores’ Property & Construction legal team. His in-depth property knowledge and vast experience gained over 20 years of working closely with churches and charities, is unrivalled. Andrew and his team are uniquely positioned to advise clients on the often challenging and complicated process of turning property into opportunity.

If your Church or Charity would like to discuss a potential opportunity, please do not hesitate to contact Andrew Boer on (03) 9843 2100.

Alternatively, you can fill out the enquiry form below.

[1] ACNC 2016 Charity Data Set

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