Here’s one way to grow a real estate portfolio that you probably don’t hear about often: partner with churches. Logos Faith Development Partner and Chief Investment Officer Chris Montes gives us the details.
Logos Faith Development has a unique business model for the real estate development world, it partners with churches to create affordable housing, making it a social impact company with a double bottom line of “profit and purpose,” Montes tells Mergers & Acquisitions.
The Los Angeles-based developer partners with churches, primarily in Southern California, that have excess or underutilized land. Through the partnership, Logos Faith Development develops the vacant portion of the lot by creating a joint venture with the church, where the church is given an ownership interest in the asset and cash flow from it. The ownership interest is determined by the value of the land, relative to the equity investment that is needed to build the project, Montes explains.
Logos Faith Development doesn’t acquire any land through this business model, which allows it to keep its costs low. The vacant land is sometimes across the street from the church and other times could be down the street. Sometimes, the undercapitalized church is even demolished, and a new sanctuary is built on the ground floor of the new apartment building, Montes explains.
The developer’s business model is so unique; in fact they are the only faith-based private affordable housing developer company in the country, he says, noting that other faith based developers are focused on public affordable housing, so they use tax credits, “which is a whole different side of affordable housing that uses government funding and tax credits in its business model.”
There are a number of benefits for the church, such as cash flow after all expenses and debt obligations are paid and ownership of a percentage of the building. In addition, the developer helps out undercapitalized churches with their needs, such as new HVAC systems, roofs, or other interim assistance as needed, while they work to build the housing, Montes says.
There are benefits for Logos Faith Development too. Since it doesn’t take any government funds and it doesn’t acquire the land from the churches, it can develop the land at a lower cost per unit price, which translates to lower rents, and a lower cost to develop the property. It has a 20 percent internal rate of return over a seven-year hold period, so it has market rate returns, he says, adding that it also qualifies for a 98 percent tax abatement for 55 years through the state of California for building affordable housing.
Capital Raise
Logos Faith Development is looking to raise $40 million over the next five months for the development of seven affordable housing properties that will create 550 units of housing in Los Angeles and San Diego. It has already $11.5 million through a strategic capital commitment this year from two private investors. The two investors were private family foundations, one of which was based out of Oklahoma and the second investor is the Walt Disney Family Foundation, Montes says.
The company announced in June that it had raised $11.1 million, but that has since increased to $11.5 million, according to Montes.
Logos Faith Development currently has 17 active developments in its pipeline right now with 17 different churches, for a total of 1,000 units, most of which are one- and two-bedroom units. The majority of the projects are multifamily housing, with 13 of them in Los Angeles, two in San Diego, one in Denver and one in Portland. It has a pipeline of another 40 churches behind that are waiting for the next development cycle in the next two to three years, Montes says. He notes that while the development company does want to expand outside of Southern California, it’s focus for the next three years is Los Angeles and San Diego.
“There is a growing need for housing,” he says. “The people that we house are working blue collar jobs.”
Reach Montes at: [email protected]
