Let's address the real cost of owning a church facility. One trend I've noticed as I've served over 1000 churches is a lack of understanding among ministry leaders regarding the full cost of facility ownership (not just the cost to build).
It's understandable to think that once you've gone through the arduous process of buying or building a facility, that the most significant costs are known and accounted for.
However, the truth is that the ongoing expenses eclipse the initial costs and in a shorter period than most would imagine.
Let's See The Truth
Let's look at the REAL cost of ownership of our church facility. The following is a theoretical example of the cost of owning a ministry facility.
For this exercise, let's assume our new church facility is 30,000 square feet. We can have it built for $180/square foot (this is going to be low for some parts of the country and does not include site work, AVL, furnishings, etc.), and we paid the design professional a fee of 7% of the construction value. We will also assume the land had been paid for and is unencumbered by debt.
So what do the numbers look like?
INITIAL COST: 30,000 square feet x $180/square feet = $5,400,000 plus the cost mentioned above.
Cost of "Money"
Let's assume we borrowed $4,000,000 to pay for the project and did so based on a 15-year loan at 4.5% but paid it off in seven years. In this scenario, you will have paid approximately $1.0M in interest.
Cost of Operation
Based on our research, the average church in America will spend $6.00 to $7.00 per square foot annually for janitorial services, utilities, and general maintenance, including staffing.
In addition, a church will spend roughly $1.00 (only use if it is a brand new building) to $3.00 per square foot in capital improvements if the capital reserve account is started at the time construction is complete. (This number grows significantly higher if you neglect the capital reserve account during the early years of the building's life cycle).
For the sake of this exercise, let's assume we will spend $6.50/square foot for operations and $1.00/square foot for capital reserve items (only because this is a new building....Otherwise it would need to be higher). This may be low, but I want the calculations to be realistic.
30,000 square feet x $7.50/square foot = $225,000/year
Assume a 40 year life cycle (which is not that long) at 1.5% per year of inflation. Remember, that operational costs are perpetual and paid for with inflated dollars so this is going to increase, and 1.5% is probably too low.
$225,000/year x 40 years = $9,000,000 + 60% (1.5% per year inflation for 40 years without compounding) = $14,400,000
What Does This Mean?
Let's take a look...
- Initial costs including design - $5,400,000
- Cost of Money - $1,000,000
- Cost of life cycle operations and capital reserve - $14,400,000 (that is $480/square foot....OUCH)
- TOTAL COST OF OWNERSHIP = $20,800,000
WOW! That is a BIG number, here is the shocking part:
- The combined cost of the construction partner and the design professionals is only 3% of the total cost of ownership.
- The construction cost, including the design, is only about 23% of the total cost of ownership.
- The interest paid is only about 5-6% of the total cost of ownership.
- Leaving at least 71% of the total cost of ownership in operation costs and capital expenditures.
In his book, Life Cycle Cost Analysis 2: Using it in Practice, David S. Haviland states:
"The initial design and construction of a facility comprises about 15% of the total cost of a building over its 40 year lifespan. The remaining 85% is made up of the building's operations and maintenance costs."
What Costs More?
So what costs more, the initial cost, or the cost after you occupy? I think the number speak for themselves. Do we invest the same amount of time and energy in planning our operational costs as we did when we developed our physical master plans and floor plans?
Why do we get upset about an architect charging 8% instead of 5%, or the construction partner charging 9% instead of 4%? The fees that encompass only 3% of the total cost of ownership feel so important at the time we hire these professionals.
The decisions, direction, means, and methods this team suggest and implements will be with you for the life of your building. Do we have our eyes on the REAL cost of facility ownership?
If Facility Stewardship is really about being wise stewards of all God has entrusted to us, then I think it is fair to say most of us have priorities upside down. Facility Stewardship must include proactive facility management and long-term care. This is where we too often fall grossly short in our Facility Stewardship initiative.
For more tips and details on becoming a better steward of your church's facility, get your copy of Tim's new book today!