Va Beach church sells bonds to fund construction

VIRGINIA BEACH, VA. — Bayside Church of Christ found a way to finance a $990,000 addition and get a little something for its members — an investment that pays better rates than most certificats of deposit, 10-year Treasury bonds and traditional savings accounts.

The church issued bonds.

Much as cities sell bonds to pay for construction projects, Bayside sold bonds to finance a new family life center. The bonds pay interest ranging from 5.25 percent for a six-month note to 7.75 percent for 20 years.

Although church bonds have been used for about a century, the practice remains rare, said Larry van Horn, the consultant who helped engineer the Bayside offering. But more churches are opting to issue bonds these days, van Horn said, and no wonder.

Since the credit crunch began more than a year ago, banks have tightened lending requirements. That has left congregations, including some in South Hampton Roads, unable to qualify for or afford mortgages.

Although the 360-member church was pre-approved for a mortgage, church Minister Michael Lucas said the conditions, including automatic revisits of the interest rate, were too restrictive. Bonds, in contrast, let Bayside self-finance its construction project.

"The biggest advantage for the church is they get a fixed rate on their loan for whatever the length of the bond is," van Horn said.

To issue bonds, Bayside first incorporated in Virginia as a nonprofit organization and then sought state approval to offer bonds.

Bayside teamed with van Horn's firm, Dallas-based Share Financial Services Inc., which arranged the offering. The firm, which helps 25 to 30 churches a year with bond issues, gets a fee for its services but wouldn't reveal the amount.

Church bonds are sometimes available to the public. But the day Bayside's bonds went on sale, there was only one type of buyer allowed: Bayside's own congregants. The bonds sold out to members in less than two days.

The bonds are a win-win for Bayside congregants. The money they pay for bonds enables their church to grow by 6,800 square feet, and it's a smart economic move for members. The bonds pay a juicy return compared with other options: 10-year Treasury bonds now pay less than 3.5 percent, certificates of deposit are under 2 percent and savings accounts are close to zero. For members who want an investment to help pay for retirement or college costs, that return is more desirable than the tax deduction they could get from giving the church a cash donation, Lucas said.

George Yacus, a Bayside elder, said many members put their IRAs into the bonds, while others shifted CDs or 401(k) or 403(b) accounts to the investment.

"I had my children, my mom, with varying amounts of money," he said. "Some had a little, some had a lot; some wanted short-term, some longer, and they were all accommodated."

Phill Martin of the National Association of Church Business Administration said investors should scrutinize church bonds as they would any investment opportunity. "If the church doesn't meet the requirements for a more conventional loan, the investor needs to make sure of their confidence in the security of the investment," Martin said.

The church is able to offer such high rates of return because investors have agreed to lock up their money in bonds for as long as 20 years. That means they can't cash out prematurely, as is possible with a CD.

The bonds' high yield helps offset that restriction, which investors otherwise might object to. "When you give up some liquidity, you get a better rate," van Horn said.

He also said Bayside's bonds are low-risk.

"The investment is secured with a first mortgage on the property, so they have a security, just like the bank would have if it loaned them money," van Horn said.

Investors can also be reassured by Bayside's solid, 57-year history.

"Churches are some of the most reliable, stable institutions in the world," said Lucas — who put money of his own into Bayside bonds.

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Information from: The Virginian-Pilot, http://www.pilotonline.com