Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Buying Up Church Buildings
Transcript
- Lucas: So there's a private equity firm called Conscientia Capital Partners that has raised roughly $400 million to buy one very specific type of asset: church buildings. Not to convert them into condos or nightclubs — they buy them and lease them back to the congregations that were already worshipping there. Luna: Wait — so the church sells its building to a private equity firm and then becomes a tenant? That feels like a huge cultural shift for a lot of religious communities. Lucas: It absolutely is. And it's happening more than you'd think. According to a report from the Institute for Policy Studies, the number of churches entering sale-leaseback deals has tripled since 2019. The typical deal looks like this: a church owns a building worth, say, $2 million. They sell it to Conscientia for cash, then sign a 20-year triple-net lease where they pay $18,000 a month in rent. Luna: Triple-net meaning the church also covers property taxes, insurance, and maintenance on top of the rent, right? Lucas: Exactly. So the private equity firm gets a completely passive income stream. For Conscientia, the math works because church properties are undervalued compared to other commercial real estate. They're buying at a cap rate of around 10 to 11 percent, where a standard office building in a similar location might trade at 6 percent. Luna: That's a massive yield premium. But why are churches willing to sell? I mean, for most congregations, the building is their single biggest asset. Lucas: Two main reasons. First, a lot of churches are cash-strapped. Membership is declining — the Pew Research Center reported that the share of Americans who attend religious services weekly dropped from 36 percent in 2000 to about 25 percent in 2025. So collections are down. But the building still needs a new roof, a new HVAC system, maybe an elevator for accessibility. That can be a $500,000 bill a church simply doesn't have. Luna: Right — so selling the building converts a liability into a lump sum of cash they can use for ministry or operations. Lucas: Exactly. The second reason is that some denominations are actually encouraging this. The Episcopal Church, for instance, has a task force that helps parishes explore sale-leasebacks as a way to stay solvent. They'd rather have a congregation paying rent than closing its doors entirely. Luna: And if this conversation has moved your work forward in some small way, honestly, if today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. It's the smallest possible ask and it keeps the show ad-free. Lucas: Yeah, we don't run ads, so listener support is what makes this sustainable. Truly, even a few contributions make a difference. Luna: Alright, back to the deals. So Conscientia is essentially acting as a landlord to churches. What does their portfolio look like? Lucas: They've done about 50 transactions so far, mostly in the Southeast and Midwest. Their average deal size is around $1.5 million. And they've structured the funds so that investors get a preferred return of 8 percent before Conscientia takes its carry. That's competitive with core real estate funds, but with a risk profile that's pretty different. Luna: Let's talk about that risk. What happens if a congregation shrinks so much that it can't pay the rent? The church could default, and then the private equity firm is stuck with a specialized asset that's hard to re-lease. Lucas: That's the central risk. Conscientia's underwriting assumes that the church's weekly attendance will remain at least 60 percent of what it was at the time of the deal. They also require the church to maintain a reserve fund equal to six months of rent. But if a church loses its pastor or splits over a doctrinal dispute, attendance can drop fast. Luna: Has that happened yet? Any notable defaults? Lucas: Public data is scarce because these are private transactions. But I found one case in Birmingham, Alabama, where a Methodist church that sold its building in 2022 had to renegotiate its lease after attendance fell by 40 percent. They went from $22,000 a month down to $15,000. The firm agreed because finding a new tenant for a church building is tough — you can't exactly turn it into a Starbucks. Luna: So there's a kind of moral hazard here too. The church gets a cash infusion, but if things go south, the private equity firm has an incentive to keep them as a tenant even at a reduced rate, because the alternative is a vacant building. Lucas: Exactly. And that's actually part of the pitch to investors. Conscientia argues that churches are sticky tenants — they have a congregation that's emotionally invested in the space. The eviction rate is near zero compared to, say, retail tenants. So the higher yield compensates for the illiquidity and the concentration risk. Luna: But aren't there tax complications? Churches are typically exempt from property taxes, but if they sell to a for-profit entity, the building becomes taxable. Lucas: That's a really important point. In a sale-leaseback, the property is removed from the church's tax-exempt status. So the private equity firm pays property taxes, which is part of their operating costs. However, the church's lease payments are tax-deductible as a business expense, since the IRS treats the rental as an ordinary and necessary cost of carrying on a religious activity. So the net tax effect is actually neutral for the church in most cases. Luna: But the local municipality gains a new taxable property, which is interesting. Some cities have actually started courting these deals as a way to expand their tax base. Lucas: Right. There's a town in Ohio where a group of three churches all sold their buildings to the same private equity fund within six months. The city gained about $300,000 in annual property tax revenue that it never had before. That's real money for a small town. Luna: So who are the investors in these funds? Is it pension funds, endowments, family offices? Lucas: Mostly high-net-worth individuals and smaller institutional investors. Conscientia's $400 million fund has a minimum investment of $250,000, so it's not accessible to retail investors. But there are a few publicly traded real estate investment trusts that have exposure to religious real estate through triple-net lease portfolios. One is Realty Income, which owns about 80 church properties out of its 13,000 total. So you can get indirect exposure through a REIT. Luna: Let's zoom out. Is this a niche that's going to grow, or is it a fad? Lucas: I think it scales, but slowly. The total addressable market is hard to pin down, but there are roughly 350,000 church buildings in the U.S. Even if only 5 percent are suitable for sale-leaseback — meaning they have stable attendance, good locations, and willing leadership — that's 17,500 potential deals. At $1.5 million average, that's a $26 billion market. Luna: And that doesn't include other religious properties like mosques, synagogues, or temples. Are those in play too? Lucas: So far, almost exclusively Christian churches. Conscientia's portfolio is entirely Protestant and Catholic. One challenge with synagogues or mosques is that they often have additional requirements — kosher kitchens, wudu facilities — that make the property harder to re-lease if needed. So the private equity firms are sticking with what they know. Luna: What about the optics? I can imagine some church members being uncomfortable with a for-profit firm owning their sacred space. Lucas: That's a real friction point. When First Baptist Church of Austin considered a sale-leaseback in 2024, it caused a split in the congregation. About 30 percent of the members left because they felt the church was 'selling its soul.' The deal eventually went through, but it shows that the cultural resistance can be as significant as the financial risk. Luna: So private equity is essentially betting that the financial pressures on churches will outweigh the theological objections. And so far, that bet seems to be paying off. Lucas: That's exactly right. And as more churches age and their buildings need expensive repairs, I expect we'll see more of these deals. The question is whether the private equity firms have modeled the downside correctly. If a recession hits and donations drop further, a lot of those 20-year leases could start looking shaky. Luna: It's a fascinating intersection of faith and finance. Thanks for walking us through it, Lucas. Lucas: Absolutely. Next time you pass a church, just remember — the owner might not be who you think.