I am confused by the proposal offered by the Campus Ministry Task Force of the Minnesota South District.
According to the task Force report, the total district dollar investment, in today’s dollars, in the two campus ministry properties is over $6 million dollars. The estimate of the resale value of the properties is $5 million, with a disclaimer that the real estate market is not stable. I do not have a degree in accounting, but that sure sounds like a loss of over $1,000,000 dollars.
And that assumes a sale price of $5 million for the two properties. But a quick real estate search shows that a local house/B&B in the same area, with 1/2 the space and adjacent parking, has an asking price of $1.5 million. Again, I’m no accountant, nor am I a real estate agent, but it seems to me as if a property that has ready-to-go housing near a major university will sell for more than a church, which would need either extensive renovations, or need to be demolished to make way for a new development. But lets assume that the district can get twice that amount for the ULC property.
So, assuming that the district asks $3,000,000 for the ULC property, they need to ask $2,000,000 for the Mankato property. The campus ministry center there seems to occupy about two lots. Nearby homes have asking prices of under $150,000, with more than one property boasting of a “price reduction.” Even assuming you could get the full double-lot price, that only works out to $300,000. This is a total of $3,300,000, which is lower than the even the most pessimistic assessment given in the Task Force power point presentation.
But even the the current owners will probably not get the asking price. The average time on the market for the properties in Mankato is over 200 days. (And ranges between 90 and 500+ days) The property near to ULC in Minneapolis has also been on the market over 200 days.
And the bad news continues: Any pastor that has tried to sell an old congregation building knows that commercial property sells at a higher price than residential. A church sells at a lower price, sometimes as low as half the price of residential property. Why? Because churches are not suitable for other purposes without extensive renovations or even total rebuilding. Gutting or knocking down a building costs money, so the market price is discounted. In other words, the $300,000 is a wish, and the $3,000,000 likely a fantasy.
In addition, the interest rate offered by LCEF is no longer 2.32%. It is now 2.275%. What will it be in 200+ days? Has anyone had their bank increase interest rates in the last three years?
But, let’s assume that the district manages to sell the properties for the premium price of $3,300,000, and manages to do so before the June interest rates are released. That means a total annual endowment income of only $75,075.
If the properties sell for less than that (or if the interest rate continues to decline), the number declines. For example, assume that the Mankato property sells for only about $225,000, and the Minneapolis one sells for $2,500,000 (Which numbers are still slightly optimistic, given the current real estate market.) This drops the endowment income to $56,875. This amount does not come close to covering the costs of the new campus ministry plan, which also assume a local Mankato congregation will cover much of the expense of the campus ministry there.
When you consider that the rental value of ULC is estimated at $187,008, the utter folly of selling the buildings becomes apparent. More income could be gained by simply renting the facility. Indeed, if ULC “gives back” the extra 2265 square feet they began renting in 2005, limiting themselves to the 7800 square feet they rented before that time, and the District rented out the other space at market value, the income would be $62,208/year, which is above a realistic assessment of the total amount of endowment income after selling both properties. In other words, the district can have it’s endowment income, and keep the properties at the same time. They can seek a local Mankato congregation to help support that ministry, as called for in the task force report. They can continue to have an on campus presence at both universities. They also retain ownership of two admittedly valuable properties through a real estate slump, rather than selling them when their value is at a low point.
And, best of all, they do not displace either congregation.