Magazine article Real Estate Issues

CREs & Non-Profits: Counseling Denominational & Educational Entities in Today's Changing Real Estate Environment

Magazine article Real Estate Issues

CREs & Non-Profits: Counseling Denominational & Educational Entities in Today's Changing Real Estate Environment

Article excerpt

Non-Profits in American Life

Drawing from its historical English constitutional roots, the United States has always pursued a public policy of favoring non-profit organizations in order to serve the public good. The Internal Revenue Code in Chapter 501-C(3) provides Federal tax exemption to a large number of such organizations considered to be adhering to "eleemosynary purposes." Traditionally, in its broadest sense, the word eleemosynary has been defined to include organizations engaging in activities devoted to the general spiritual, cultural, and charitable betterment of the population as a whole.

Throughout the spectrum of traditional mainstream churches in the U.S., there has been a notable decline in attendance in the past few years. Inevitably, revenues have plummeted also. At some point, the need for them to address real property questions becomes paramount. Many times their property has been long held and is extremely valuable. Without proper real estate counseling advice, wrong decisions risk being made at a time when the struggling church group desperately needs every cent it can obtain in order to carry on its mission and goals.

In the past, denominational religious groups of all persuasions reached out far and wide to provide for the schools, colleges, and hospitals which served so many. Gradually these services have been assumed by governmental entities and for-profit service provider competitors. Ever since the start of the G.I. Bill after W.W.II, there has been a major shift toward public funded higher education. Recently, this trend has adversely impacted some private colleges and universities. As tuitions rose, enrollment at some such colleges and universities has slipped, especially at institutions not of the highest quality. A similar situation of deterioration has occurred in the past few years with a number of non-profit hospitals that have been caught in the backlash of the health care revolution.

NON-PROFITS AND THEIR REAL ESTATE

The key tactic for assisting these groups is to recycle disposable realty either by sale, adaptive re-use, or creative joint venture entrepreneurial projects. However, carrying out this suggestion is often not as easy as it may seem. It is imperative that the nonprofit organization in question and its advisors are able to conceptualize the various complications that may arise during any real estate transaction, especially those to which non-profit organizations are particularly susceptible to encounter.

With regard to denominational institutions, problems of ownership almost inevitably occur when joint-ventures under any guise are undertaken with profit making companies. Who within the church has the authority to sign as owner of the property? Similarly, who makes decisions for the church? The lack of a chief decision maker or the need to defer to the opinions of people within or without the organization, and who lack knowledge of real estate, can make it difficult to do business with such non-profit organizations.

To illustrate the point, recently, an ugly public dispute on property ownership took place between the University of St. Louis, its Trustees, and president on one side and the Roman Catholic Archdiocese of St. Louis and the Vatican on the other side.

The medical school of the University of St. Louis was losing enormous amounts of money. In order to continue it as a viable entity, the decision was made to sell the hospital attached to it. The buyer was to be Tenet Health Care Corporation, the second largest health system in the Untied States. The Archdiocese and the Vatican said that this hospital could not be sold without their permission because everything at the University of St. Louis was connected directly to the Catholic Church. The University of St. Louis replied that when the Board of Trustees of the University took on non-clerical members in 1967 and incorporated separately, (thus separating the university from its Jesuit Community), the University became a totally lay organization. …

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