How can a church develop its land without mortgaging the sanctuary?

The land is the easy part. The hard part is developing it without pledging the one asset the congregation cannot afford to lose — the sanctuary it already owns free and clear.

There is a structure that does this. It is not exotic, it is not new, and most congregations are never told about it because the people they talk to first are lenders and architects, neither of whom are paid to think about the church's balance sheet.

Key takeaways

• Religious organizations that end up in Chapter 11 are overwhelmingly small congregations operating a place of worship, and the primary driver is trouble paying mortgages on real property.
• Of 200 faith-land housing developments studied over the last decade, only 38% kept the land — 46% of congregations sold it outright.
• Subdividing the development parcel from the church parcel before anything else happens is the single most protective decision available, and it costs a survey.
• Collateral should be the subdivided land, a ground lease of that land, or the improvements on it. Never the church.
• New Markets Tax Credits can cover a meaningful share of total development cost and wrap much of the remainder in very low-cost, interest-only debt — which is what makes an unmortgaged structure financially possible rather than merely desirable.

Why is mortgaging the church the default, and why is it wrong?

Because it is the path of least resistance. A congregation with a paid-off building and a vision walks into a bank. The bank sees an unencumbered asset with a clear appraised value and a borrower with predictable revenue. The bank offers a loan against it. Nobody in that room is being dishonest. The congregation gets the fastest, cheapest capital available to it, and the bank gets good collateral.

The problem is what that trade actually is. The congregation is financing a speculative development project — one that has not been designed, priced, entitled, or leased — with the asset that houses its core mission and is the reason the institution still exists. Development projects go sideways. Construction estimates come back double. Grants get terminated. When they do, the thing at risk is not the project. It is the sanctuary.

This is not hypothetical. A study of religious organizations that filed for Chapter 11 reorganization between 2006 and 2011 found that the vast majority were small organizations operating places of worship, and that they sought reorganization primarily because of problems paying mortgages on real property (Pamela Foohey, Bankrupting the Faith, 78 Mo. L. Rev. 719 (2013)). The failure mode is well documented. Congregations borrow against what they have, and then cannot pay.

Meanwhile the underlying pressure keeps building. In 2024, roughly 4,000 Protestant churches closed against 3,800 openings — a net loss, and a reversal from a decade earlier when openings exceeded closures (Lifeway Research, January 2026). Congregations under that kind of strain are exactly the ones being told that their land is an opportunity.

What does the land actually look like as an asset?

Considerable. In California alone, religious institutions own roughly 38,800 acres — about the size of the City of Stockton (Terner Center for Housing Innovation, UC Berkeley, May 2020). In the Washington, DC metro area, faith-based organizations own 800 vacant parcels that could accommodate 43,000 to 109,000 housing units (Enterprise Community Partners, via HUD Exchange).

But look at what happens when congregations actually develop it. A study of 200 faith-land developments completed between 2015 and 2025 — 9,727 housing units and 122 shelter spaces — found that 46% of congregations sold the land, 38% leased it (typically on 60- to 99-year ground leases), and 10% donated it (Mian et al., Rutgers, March 2026).

Read that again. Nearly half of the congregations that successfully developed their property no longer own it. The most common outcome of a faith-based development project is that the church ends up with cash instead of land — a one-time payment in exchange for a permanent asset.

That may be the right answer for some congregations. It should be a choice, not a default, and it should not be the only structure anyone offers.

What is the alternative structure?

Four moves, in order. The order matters more than anything else here.

1. Subdivide the development parcel from the church parcel — first

Before design, before a capital campaign, before a lender conversation. Subdivision creates a legally separate piece of real estate that can carry a mortgage, a lien, a ground lease, or a construction loan without any of it touching the parcel the sanctuary sits on.

This is the cheapest protective act available in the entire process. It costs a surveyor and a filing. Done late — after the congregation has signed a term sheet secured by the whole property — it is worth nothing.

2. Transfer the subdivided land to a separate nonprofit entity

Not a subsidiary of the church in name only. A distinct nonprofit special-purpose entity that takes title to the subdivided land, and through which every dollar of project cost is incurred and every contract is signed.

This does two things. It ring-fences the project's liabilities away from the congregation, so that a contractor dispute or a cost overrun is the entity's problem rather than the church's. And it gives funders a clean applicant: a single-purpose organization whose books contain only the project, which is far easier to underwrite than a church budget with a development project buried inside it.

3. Pledge the land, the lease, or the improvements — not the institution

Once the parcel is separated and titled to the entity, the collateral question has an answer that does not include the sanctuary. A lender can take the subdivided land. Or the entity can retain title and ground-lease the land to the project, with the leasehold as collateral. Or the improvements alone can secure the debt.

The ground lease is worth particular attention, because it is the structure that lets a congregation participate in the value it creates rather than selling it once. It is also, notably, the structure only 38% of congregations in the Rutgers study used.

4. Build the capital stack so the debt is small to begin with

The structural protections above matter most when there is less debt to protect against. This is where the capital strategy and the ownership strategy stop being separate conversations.

New Markets Tax Credits can deliver a substantial share of total development cost as subsidy that is never repaid, and wrap much of the remainder in interest-only debt at rates conventional lending cannot approach. Grants, program-related investments from foundations, and CDFI predevelopment lending fill more. A project that would have required a $10 million conventional mortgage against the church might require $2 million of patient debt against a subdivided parcel — a completely different risk to a completely different asset.

We have written separately about what a $30 million New Markets Tax Credit transaction actually costs, including the fees nobody budgets. The credit is not free money. But it is the mechanism that turns "we would have to mortgage the building" into "we don't have to."

What does this cost, and what is the catch?

The catch is sequence and time.

Every one of these moves has to happen before the project has momentum. Subdivision, entity formation, and capital structuring are decisions made at the beginning, when there is nothing to show for them and the congregation is impatient to see drawings. A board that has just approved a vision wants a rendering, not a survey.

They also require money the congregation does not yet have. Predevelopment capital — feasibility, legal, survey, environmental, design — is the hardest money in community development to raise, precisely because it is spent before anyone knows whether the project works. Recent research on congregations developing their property names lack of predevelopment capital as one of four primary barriers, alongside limited congregational capacity, complex ownership systems, and the absence of proven models (RootedGood, Fieldworks, September 2025).

And the zoning is frequently hostile. More than half of religious-owned land in Oakland, Sacramento, and San Diego is zoned for single-family use (Terner Center, 2020). Land a congregation owns is not automatically land it can build on.

None of that is a reason to mortgage the sanctuary. It is a reason to start earlier and raise predevelopment money first.

The reframe

The instinct that owning land puts a congregation halfway to a development project treats land as the scarce ingredient. It isn't. Congregations collectively own an enormous amount of well-located land, and the research is clear that what they lack is capacity, predevelopment capital, and a structure — not acreage.

What is actually scarce is an institution with an unencumbered balance sheet and a century of community trust. That is the asset worth protecting, and the whole point of the structure above is that it never has to be pledged to anyone.

A congregation should be able to say, at the end of the process: we built the thing, and the church was never on the line. That is not an aspiration. It is a design decision, made in the first month.

FAQ

Does the congregation still control the project if the land goes into a separate entity? Yes, if the entity is structured that way — board composition, reserved powers, and ground lease terms are all negotiable and all set at formation. Separation is a liability boundary, not a transfer of control. The terms are worth real legal attention at the outset.

Can a congregation do this after it has already started? Partially. Subdivision and entity formation are still possible mid-process, but costs already incurred by the church are harder to move into the entity, and any financing commitment already secured by the whole property has to be renegotiated. Earlier is materially better.

Isn't a ground lease just a slower way of losing the land? A 60- to 99-year ground lease is a long time. But at the end of it the land reverts, the congregation collects rent throughout, and the improvements typically revert as well. Compared to a sale, the congregation retains the reversionary interest and an ongoing income stream. Compared to doing nothing, it converts an idle asset into program revenue.

What if our project is too small for New Markets Tax Credits? Most are. NMTC has an effective floor — practitioners generally put it around $5 million of project cost, with the workable range starting near $8 million — because the transaction costs don't shrink with the deal. Below that, the stack is grants, CDFI lending, program-related investments, and conventional debt sized against the subdivided parcel rather than the church.

Sources

• Pamela Foohey, Bankrupting the Faith, 78 Missouri Law Review 719 (2013) — religious organizations in Chapter 11, 2006–2011: overwhelmingly small worship-space operators, driven primarily by mortgage payment problems.
• Mian, Remond, Kumar & Sahu, Affordable Housing and Shelter Built on Faith Land, Rutgers Voorhees Center (March 2026) — 200 developments, 2015–2025; 46% sold, 38% leased, 10% donated.
• Garcia & Sun, Mapping the Potential and Identifying the Barriers to Faith-Based Housing Development, Terner Center, UC Berkeley (May 2020) — 38,800 acres in California; R1 zoning constraint; capacity barrier.
• RootedGood, Fieldworks Initial Research Report: Unlocking the Potential of Church Property (September 2025) — predevelopment capital as one of four primary barriers.
• Lifeway Research, Church Closures Eclipse Openings in the U.S. (January 2026) — 4,000 closures against 3,800 openings in 2024.
• Enterprise Community Partners / HUD Exchange, Faith-Based Affordable Housing Case Study, Washington DC — 800 vacant faith-owned parcels; 43,000–109,000 potential units.