Zeal of the newly converted

Across America, real estate is the new religion, and increasingly, religion is the new real estate.

Changing demographics has meant that many churches, especially ones in urban areas, can no longer be financially supported by their dwindling worshipers. At the same time, a housing boom has meant lofty valuations for these buildings, many of which are situated in prime residential locations.

Take, for example, the St. Peter's Roman Catholic Church and boys' school in Cobble Hill, a hot brownstone neighborhood in Brooklyn, New York. Developers have just finished selling off this 1859 structure, now called The Arches, as condos, with the largest unit sold for roughly $1.8 million. Kim Soule, a broker with Corcoran Group in New York, which handled the sale of The Arches units, says: “People felt that the uniqueness of the space was worth a premium. There are a lot of cookie cutter condos out there. But if you take a fabulous old church with large windows and a soaring roof, that's something special.”

Catholic real estate in particular is changing hands. In St. Louis, Missouri, 18 Catholic churches, along with schools and rectories, are on the block, thanks largely to population shifts in the city. In Boston, where the archdiocese is struggling under the weight of child molestation damages, 60 churches are reportedly for sale.

Church conversions bring with them some controversy. Faithful members of the affected congregations are not always pleased to have their house of worship converted to a house, or – God forbid – a nightclub.

A cautionary tale si the infamous limelight in New York City, a former Episcopal chuch converted into a nightclub by Peter Gatien, which became notorious for drugs and general debauchery in the 1980s and early 1990s.

Some sellers have structured clauses that disallow buyers from using the buildings for “sordid” purposes – strip clubs, abortion clinics, etc. Sold churches that are not converted to an alternative use may be, of course, torn down.

Plans to convert St. Brigid's, in New York's East Village, into condos have been met with protests from some former worshipers. Corcoran's Soule says none of the prospective buyers of the Arches units found anything untoward about moving into a former house of worship. “The people who did, didn't show up,” she adds.

FUNDS & INVESTORS

Boulder Net Lease closes $100m fund
Northbrook, Illinois-based Boulder Net Lease Funds has closed a debut $100 million (€82.4 million) fund to invest in high-yield office properties and single-tenant industrial sites. The fund includes commitments from the principals at the firm, which was launched by net leased investment brokerage firm The Boulder Group. The fund hopes to be largely committed in the second half of 2005, building on the firm's existing relationships with net leased property owners.

JER launches $213m REIT
McLean, Virginia-based real estate investment and advisory firm Joseph E. Roberts Companies priced shares of its publicly traded real estate investment trust at $17.75 (€14.62), raising $213 million through the offering. The company sold the majority of its more than 12 million shares, which have been trading on the New York Stock Exchange between $18.14 and $18.74. The offering was lead by Friedman, Billings Ramsey and Banc of America Securities. JER closed its most recent opportunity fund, JER Real Estate Partners III, in October 2004 on $825 million.

Investors: real estate prices to stay high
Investors feel US commercial real estate prices are going to remain at high levels for the coming months, according to the 2005 Korpacz Real Estate Investor Survey. PricewaterhouseCoopers real estate advisory head Peter Korpacz told a recent conference that the sustained peak will eventually succumb to an “economic event.” The survey said nearly 80 percent of all commercial real estate equity comes from private investors and also reported a cap rate of 8 percent for retail “power centers,” the lowest level ever registered for the sector.

Beacon raising $1.75bn fund
Boston-based Beacon Capital Partners is looking to raise $1.75 billion (€1.44 billion) for its fourth vehicle, which could be the largest fund to exclusively invest in office properties. The private equity real estate firm's last fund, Beacon Capital Strategic Partners III, closed in June 2004 on $1 billion and was 49 percent invested as of March in nine assets. Whereas the third fund focused on New York, Seattle, Chicago, Denver, San Francisco, Los Angeles, Boston and Washington, DC, the new fund is reportedly looking at expansion into Europe.

Alaska pension to up real estate commitments
The Alaskan state legislature passed a law allowing trustees of the $31-billion Alaska Permanent Fund (€25.5 billion) to set their own asset mix, a move that will free up the pension to explore more opportunistic real estate strategies. The pension previously invested solely in core assets and has a current real estate portfolio valued at $3 billion. While the old law limited real estate exposure to 15 percent of the total portfolio, the new rules allow greater freedom: the fund could eventually invest up to a quarter of its real estate holdings in more opportunistic strategies, as well as pursuing other investment strategies.

Marin investing in first commingled funds

Marin County Employees' Retirement Association has committed to three funds, following a decision last year to increase its exposure to real estate. The pension has committed $30 million (€24.6 million) to ING Clarion Partners' Lion Property Fund, a core vehicle, and $15 million to RREEF's latest America fund. The pension is also looking at more opportunistic strategies via a $5 million commitment to AEW Capital Management's fifth opportunity fund, a $500 million vehicle. The 1.2 billion pension has a 12 percent allocation to real estate.