TSCPT Financing Analysis
Background
253 Colombo Street was acquired by the Burridge Family Trust a few years ago with the intention of selling to the church, at cost, for development into a new Church Building. Trinity requested and received a number of pledges from the church towards the costs of this.
Following approval by the church, the Trinity South Christchurch Property Trust (TSCPT) acquired 253 Colombo Street for $650,000 on 28 April 2022. (The transaction was zero-rated for GST.) While estimated building costs had by that time increased to approx $1.2m, it was felt that the acquisition at significantly below market value was a safe one.
The purchase was funded using a mix of pledges already received, other donations, and funds provided by the South Christchurch Evangelical Trust (SCET).
Since then, efforts have been made to secure resource and building consent and to obtain estimates or quotes for development. Consent was granted, albeit after a number of confusing and occasionally conflicting messages from the council. By the time, building costs had again increased and contractors generally became unwilling even to provide an estimate.
Costings
Avon Dickie Proposal
The only estimate TSCPT were able to obtain came from Avon Dickie Construction (ADC) on 13 May 2022. The estimate was approximately $1,580,000 + GST, and was based on:
● Materials provided at cost where possible.
● A 25% discount on the standard builders’ margin.
● Specified hourly rates for onsite staff and forement.
● A reduction on the initial scope.
● Use of ADC’s “own project management team by way of Avon Dickie (Company Director), Alex Hinchey (QS/Contracts Manager), and [their] qualified Site Manager to oversee and complete the works.”
● Involvement of “the Church’s Project Coordinator, David Thompson”.
● Involvement of the architect, Marc Coulthard, and a Contract Supervisor (possibly also Marc). Costs here are unclear.
ADC noted that items could be removed if not required. It seems unlikely that there will be much left to cut, and conversely the scope excludes fit-out costs.
The Terms of the estimate state that rates and costs are to be confirmed. Inflation through 2022 was around 7%. Given the age of the estimate, we should add a 15% contingency:
| May 2022 Estimate | $1,580,000 |
| Contingency @15% | $240,000 |
| Architect/Supervisor/PM (estimate) | $130,000 |
| Total (excl GST) | $1,950,000 |
Early on, some testing will be carried out which involves drilling through the concrete slabs to the external brick work. It is considered unlikely, but there is a possibility that these will shift the preferred approach from renovation to rebuild or a more substantial recladding of the building. Should a rebuild be required, the likely additional cost would be in the region of $1m.
GST Recovery
The above figures are exclusive of GST, as GST costs on development should be recoverable on essentially the same conditions as the GST on the purchase, i.e., that we intend to make taxable income.
Obtaining Quotations
We have in the past been unsuccessful in securing the services of a Quantity Surveyor to provide a schedule of quantities report in order to enable contractors to provide fixed priced quotes. If we were to pursue this again (successfully) we might be able to get prices from contractors who have been reluctant to provide estimates based on existing information.
We estimate a QS report would cost around $8,000. It would be the work of a few days for a QS to prepare. However, allowing for scheduling and administration, this could easily take longer.
Funding Requirement
Funds Available
To date, we have raised $725,550. This includes some donations made subsequent to the previous pledge round. $353,961 has been used for the purchase of the building. This leaves $371,589 in the fund. On top of this, we could call on up to $150,000 of general reserves, whilst leaving a reasonable cash balance.
| Building Funds Raised to date | $725,550 |
| Used for Building Purchase | $-353,961 |
| Current Building Fund Balance | $371,589 |
| Additional reserves available | $150,000 |
| Total Funds available | $521,589 |
We have also received a donation of $250k which is available for the purchase of a Vicarage, but not for use towards 253 Colombo Street.
Shortfall
This leaves a shortfall of approximately $1.4m-$1.5m to fund. This includes no contingency so unless we can become highly confident in the estimate, we would probably want the ability to call on a further $200k-$300k.
Financing Options
Our options are broadly as follows:
a) Donations from Congregation
Donations from the congregation clearly represent the optimal source of financing from a TSC perspective, with the obvious caveats:
· Tax deductibility is capped to earnings.
· Tax deductibility could change in the future.
· Donations should not be at the expense of regular giving.
The amount obtainable this way will depend on a number of factors:
· Funds available within the congregation (or ability to persuade friends, relatives, etc)
· Willingness, in principle, to give sacrificially.
· Belief in this particular project
b) Commercial Loans
The only viable known source of lending identified is Christian Savings. They:
● Apply a Loan-to-Value Ratio (LVR) limit of 60%.
● Benchmark their rates to the major NZ Banks. (Their rates seem to be around 0.5% higher)
● Are often stretched in their ability to lend.
● Require a loan application, including 2 years’ worth of financials and 2 years’ worth of budgets before they will hold any discussions. (Anecdotally, the budgets must show an ability to cover 125% of debt repayments, and we would likely need to show explicit pledges for these amounts.)
Assuming a mortgage could be available for up to 60% of the project, the maximum loan we might theoretically get from Christian Savings would be in the order of $1.6m (based on a property valuation of $800k and building cost of $1.9M, and sufficient capital being available from Christian Savings.)
c) Loans from Congregation
Some members of the congregation might feel willing to lend at lower rates.
Realistically this likely involves asking the congregation to consider investing retirement funds in the church building. This would limit the time frames available for repayment to probably 10-20 years. Relational risks would also need to be considered, since there would be some risk of payment default.
Loan Analysis
Projected Cash Flows
For the last year or so, income from donations has covered costs, with relatively little surplus. Ownership of a building is likely to increase monthly costs (rates, repairs, electricity, though rates should decrease slightly, and we would potentially save on office rental).
Our best estimate is that projected operating cash inflow/outflow, ignoring any debt servicing, would be fairly close to zero.
Debt Servicing Requirements
Per $100,000, the monthly payment (cost+interest) would be:
| Rate \ Term | 10 years | 15 years | 20 years | 25 years | 30 years |
| 4% | 1,012 | 740 | 606 | 528 | 477 |
| 5% | 1,061 | 791 | 660 | 585 | 537 |
| 6% | 1,110 | 844 | 716 | 644 | 600 |
| 7% | 1,161 | 899 | 775 | 707 | 665 |
| 8% | 1,213 | 956 | 836 | 772 | 734 |
| 9% | 1,267 | 1,014 | 900 | 839 | 805 |
With Commercial Savings we would seek a longer mortgage (20-25 years) but would be paying a higher rate. With a congregational giver we might be able to offer a lower rate, but the term would need to be shorter.
Either way, we would likely expect to be paying around $800/month per $100,000 of debt. This would itself then need to be covered by additional giving. To fund, say, $500,000 of debt, our giving levels would need to increase by around $50,000 per annum. Lending therefore appears to be an undesirable option.
Additional Requirements
The ADC proposal referred to a Trinity project manager. It is unclear how intensive this role would be. Latimer Church, with a significantly larger project, have the equivalent of at least one full-time role. It may be sensible here to assume that a dedicated part-time role will be needed, which means we will either need a volunteer in the role, or we will need to pay someone. For the sake of clarity, we do not believe this should be one of the existing ministry staff.
Alternative Options
Shared Ownership
Ownership could potentially be shared with:
· Members of the congregation, in return for an option to be repaid at share of market value after some specified time frame.
· Other CCAANZ churches, in return for shared facility use. (This seems an unlikely option.)
Demo and Build
This would likely cost an additional $1m or so. The footprint of the building would not need to change because of existing use rights, and we would gain some flexibility around the design.
Sell…
The last Rating valuation on 1 Aug 2022 put the value of 253 Colombo St at $1,180,000, of which $860,000 represented land value. We should therefore expect to realise at least around $800,000.
However, vacant land in Christchurch has been declining in value for a while now. Residential developers (the likely purchasers) are likely to wait until the market stabilises. This means we should not anticipate a quick or easy sale.
…and Buy
Acquiring a use-ready property (an existing church, or some similar structure) has the appeal of avoiding a construction project and the accompanying risk. We estimate that we would likely pay in the region of:
● $2.5m for a property with more land but at most capacity for around 140 people.
● $3.5m+, for a building with more land and capacity for around 220 people.
Were we able to sell 253 for $800,000, we might therefore be able to buy a ready, if smaller, property for around the same budget ($1.8m + $0.6m = $2.4m) as for the development of 253, but with less risk.
Alternatively, a larger building might prove more viable were it to attract significantly more giving.
The main problem either way is the availability of alternative properties; it is unclear how long we would have to wait for a property to become available. Based on the current market, we would likely need to decide how far from our current parish we are willing to look.
…and Redirect the Funds
If it turns out that any building acquisition/development project is not currently viable, our most likely scenario would be to redirect funds to the acquisition of a vicarage and an office. These would have the advantage of saving us the $36k rental costs (noting there would be additional costs for rates, maintenance, etc.). We would be able to apply the gift of $250k received towards the purchase of a Vicarage.
Wait
Givers may also find it easier to invest in the building project once there is less uncertainty over what the next few years will look like. There is also the possibility that other properties may appear on the market, and costs might decrease as the economy settles. Against that, an incoming vicar may prefer not to have to take on, immediately, such a decision.
Some Issues
A couple of issues to consider with abandoning development of 253:
● Some donations were specific to 253 Colombo St and may need to be returned should the building be sold. We would need to look into how we could return the donations without creating tax obligations, were donors to request this.
● A sale might create complications with GST, which would need to be looked into. The purchase was zero-rated on the basis that TSCPT intended to use the property for taxable income.
Conclusions
At this point, the Parish Council believes that 253 Colombo Street represents the best option currently available for owning a church building.
The only way we can achieve this is if we are able to:
● Fund the project mostly or entirely from congregational giving.
● Identify one or more volunteers to serve as project managers during the project.
We are asking the congregation to consider whether they want and are able to support development of the building. $1.45m of pledges would enable the project to proceed with confidence. Pledges of significantly less than this amount wouldn’t necessarily mean that the work can’t happen, but would mean that the Parish Council and the Property Trust would need to investigate whether some combination of cost savings and loan contributions would enable the project to proceed, or whether we should consider one of the options identified above. These coming weeks are a time for us to prayerfully consider how we might partner in this work.