The REAL Cost of Facility Ownership
The REAL Cost of Facility Ownership

By Tim Cool

I come from a background of planning and building ministry facilities. I have been blessed to invest 30 years of my life into developing new and renovating existing ministry facilities. That phase of my life brought me great joy and fulfillment. 

But now I am very burdened by the millions . . . and billions . . . of dollars spent each year on religious construction without a clear understanding of the real cost of ownership.

Most ministry leaders, I think, do not understand that the ongoing costs of a building eclipse the initial costs, and do so in a much bigger way than might be imagined.

Let’s look at the REAL cost of owning a ministry facility.

1. Initial Cost

Let’s assume a new ministry facility is 30,000 square feet and is built for a cost of $150 per square foot. Of that, the construction partner’s fee was 4 percent, and the design professional was paid a fee of 6 percent of the construction value. We will assume the land was already paid for and was unencumbered by debt.

So, what do the numbers look like?

INITIAL COST: 30,000 square feet x $150 (per square foot) = $4.5 million + 6 percent design fees [$270,000] = $4,770,000. 

2. Cost of “Money”

Let’s assume $3 million was borrowed to pay for the project, and a 15-year loan at 6 percent interest was obtained, but the loan was paid off in 7 years. Under this scenario, the church will pay approximately $1.1 million in interest.

3. Cost of Operation

Based on my company’s research and benchmarking provided by the International Facility Managers Association, the average church in America will spend $4.50 to $7.00 per square foot annually for janitorial services, utilities, and general maintenance. A church will also spend an additional amount in capital improvements that will be in the $1.00 to $2.00 per square foot range (if the capital reserve account is started at the time construction is complete, and 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 the church spends $7.00 per square foot for operational items.

YEARLY COST: 30,000 square feet x $7.00 = $210,000.

Assume a 40-year life cycle for the building (which is not that long) with a yearly increase of 1.5 percent to account for inflation. (Remember, operational costs are perpetual and are going to increase, and probably at a higher rate than 1.5 percent.)

ONGOING COST (40 YEARS): $210,000 per year initially, increasing 1.5 percent yearly for 40 years (without compounding) = $13.44 million.

So let’s look at what this means:

1. Initial costs (including design)—$4,770,000

2. Cost of money (i.e., interest payments)—$1.1 million

3. Cost of life-cycle operations and capital reserve—$13.44 million (that amounts to $448 per square foot . . . Ouch!)

TOTAL COST OF OWNERSHIP (40 YEARS) = $19,310,000

WOW . . . that is a BIG number. Now here is the shocking part:

1. The combined cost of the construction partner and the design professionals is only 3 percent of the total cost of ownership.

2. The construction cost, including the design, is only about 22 percent of the total cost of ownership.

3. The interest paid is only about 6 percent of the total cost of ownership.

4. That leaves 71 percent of the total cost of ownership being spent on operation costs and capital expenditures.

State Farm Insurance found that over 40 years, it spends about 80 percent of the total cost of ownership of commercial buildings on operational costs. David S. Haviland, in Life Cycle Cost Analysis 2, a book published in 1969 by The American Institute of Architects, wrote: “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.”

So, what costs more—the initial cost of a building or the cost after that building is occupied? I think the numbers speak for themselves.

But does a church invest the same amount of time and energy in planning its operational costs as it did when it developed the master plans and floor plans? Why do church leaders get all in a tiff about an architect charging 7 percent instead of 5 percent or the construction partner charging 6 percent instead of 3 percent?

The fees that encompass only 3 percent of the total cost of ownership feel so important at the time when an individual or firm is hired, but the decisions, direction, means, and methods that this team suggests and implements will be with a church for the life of its buildings. Do church leaders have our eyes on the REAL cost of facility ownership?

If facility stewardship is really about being wise stewards of all God has entrusted, then I think most of us have our priorities upside down. Facility stewardship must include:

1. Purposeful Facility Planning—taking the time to really evaluate the “genetic code” of the church, reviewing the vision, determining if facilities are needed to accomplish the vision and mission of the church, in addition to evaluating the potential financial implications.

2. Proper Facility Development—This is not just about construction, but also encompasses the financial stewardship of the resources God has entrusted; it includes planning facilities that meet the ministry objectives . . . and do not bankrupt the church with future operational costs. As seen above, most of a church’s long-term cost of facility ownership will be established based on the planning during the development phase of any project.

3. Proactive Facility Management and Long-Term Care—This is where we too often fall grossly short in our facility stewardship initiative.

Think about it . . . then do something about it.

Does your church need some help getting started? I suggest you order a copy of our manual “Facility Stewardship: Managing What God Has Entrusted to You.”

Tim Cool of Charlotte, North Carolina, is the founder of Cool Solutions Group. He has collaborated with nearly 400 churches in the areas of facility needs analysis, design coordination, preconstruction, and construction management, as well as life-cycle planning/facility management. Cool Solutions Group is the developer of eSPACE Facility Management software products including Event Scheduler, Event Registration, Work Order Management, Life Cycle Calculator, and HVAC integration. He is the author of Why Church Buildings Matter: The Story of Your Space, Church Locality (coauthored with Jim Tomberlin), and Plan 4 It: The 4 Essential Master Plans for Every Church, as well as a church facility management manual entitled “Intentional Church Series: Facility Stewardship.” Tim blogs at www.espace.cool/blog; his company’s website is http://coolsolutionsgroup.com. Download a free copy of the new eBook on capital reserve planning from this website.

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