THE BIG BOX CHURCH – Part 1: Pros and Cons of using empty retail space

For the past few years we have seen lots of churches take advantage of the vacancy rates in many of the country’s lagging real estate markets.  The exit of Circuit City, Linens ‘n Things and Block Buster, the relocation of Wal-Mart to make way for the SUPER STORE, the downsizing of many car dealerships and the closing of other large retails facilities has left the real estate landscape cluttered with an abundance of empty “big box” spaces.

Enter – The BIG BOX CHURCH

Just so we start off on the right foot, I am not disparaging this…in fact, I am a big advocate of this…for the right church…in the right situation…with the right “deal”.  What I am not a supporter of, is a church rushing into any facility acquisition or development/re-development project without the right information and understanding.  So, I want to share a few real life examples of big box pros and cons.

PRO’s

1. Spaces are generally arranged with lots of open space…so you are not encumbered by a lot of demo
2. They are ready NOW!  Move in could be within weeks (depending on code issues and other items listed below in the CON’s)3. Parking is already in place
4. Good road frontage and accessibility.  In most cases the reason these facilities were developed for retail was for the traffic count, accessibility and visibility
5. It requires a much lower initial cost of entry (tune in next time for Part 2 and a real life example of rental costs vs. building costs)
6. Rent is usually lower than the interest you would pay on a loan (again…check out Part 2 of this blog)
7. Good street signage
8. Developers are very motivated to fill up their large empty spaces
9. Developers are generally responsible to the maintenance and repair of common areas including the exterior walls and roof
10. You can move out after the lease term…no strings attached

CON’s

1. “Occupancy” Classification.  Churches are generally classified as an “assembly” occupancy…which has a very different set of building code implications than a retail classification.
2. Sprinklers…ouch.  In most municipalities that have adopted the International Building Code in its un-amended format requires automatic sprinklers for an occupancy exceeding 300 people.  If you intend to use “loose” seating…such as metal stackable chairs…you determine your occupancy on a formula of 7 square feet per person.  So, if you have a space that is at least 2,101 SF in the worship space, you are over 300 and thus must add a sprinkler system (2,101 / 7SF = 300.1 people)
3. But it already has a sprinkler…great…and bad.  Just because it has a sprinkler, the “head” spacing may not be adequate for an assembly occupancy
4. HVAC requirements for fresh air intake and “CFM per person” in assembly occupancy far exceed that of a retail store.  You may have to add some units…or totally replace the existing systems.
5. Not enough parking.  Yes, you have parking, but is it enough?  Check with your local code office, but most likely you will need 1 parking space per ever 3-4 seats (based on the occupancy formula in #2 above)…so in that same example, if you have a 3:1 ratio requirement for parking, you will need 100 parking spaces which will consume 1-1.5 acres of land.  In our area, when Rite Aid bought out Eckerd, there were a number of very nice 7-9,000 buildings left empty…with only about 20 parking spaces.  The building would have been great for a small church, but the parking was grossly inadequate.
6. Joint tenant issues – if you are in a strip center, you may have to limit noise, parking times and service times to accommodate other tenants
7. You don’t own it…so you have to get permission to make any substantive changes to the facility
8. You don’t own it…so you are not building up equity…but this can also be a PRO (see Part 2).
9. You don’t own it…you will have a landlord that you are accountable to
10. You will have upfit costs…and you may have to borrow money for that…but banks are not real keen on lending to a church (or any organization) that does not have an equity position in the collateral.  You don’t own it so financing can be (not definitively) a challenge

Each “deal” is different so make sure you do your homework and have a team that can lead you through the process.

In Part 2, we will look at a real time example of a church that chose to rent vs. build and how it made very good financial sense for them…and maybe you.

Stay Tuned.