This article was created from a webinar interview between Stan Reiff, Partner at CapinCrouse, and Nathan Artt, Principal of Ministry Solutions.
What’s the difference between what’s happening today and the Great Recession of 2008?
There are four major defining characteristics of financial crises: a sudden drop in commodities, a sudden and unexpected crisis, uncertainty in the market, and a mass over-leverage of debt. What marked the 2008 Great Recession was being vastly over-leveraged in side deals and bad debt. Our current crisis has so much more to do with the unexpected crisis of COVID-19. In fact, what we see in the market today is intelligent debt. This is responsible and highly-rated debt from stable companies.
As unemployment goes, we’re seeing a spike from the retail, hospitality and oil and gas sectors. These are clearly linked to the unexpected crisis of COVID-19. In 2008, big institutions, pension funds, etc. were going bankrupt and needing to be bailed out. However, that is not the case today. In contrast, banks and consumers are in a good place right now.
Lastly, as more companies pivot toward working remotely, class-A office space will be overbuilt as we evaluate how much office space we really need. We’re not sure when this season will end, but the companies who have been innovating during this time will ultimately come out on top.
In this unexpected season, churches everywhere have had to pivot. What are some insights and long term impacts of this change?
Churches and organizations need to hear this: COVID is not changing our environment; it’s accelerating the change that was already taking place. We are seeing that retail is taking a large hit, but also know that buying habits were already changing. Put simply, retail was overbuilt. However, Amazon’s stock is up 40%. Why? The relevant organizations who are adapting to this change are not only surviving this crisis, they are managing to thrive in some cases.
Higher education and church are the only two organizations that tell you where and when you have to be to be a consumer. However, this “Amazon Effect” is changing that landscape entirely. The churches who are positioned for a change are thriving.
In some cases, we are seeing church attendance quadruple and giving skyrocket. Church has now become more accessible than it has ever been before. The Lord is using His Church in ways that we’ve never experienced before.
When the printing press was invented, the Bible became exponentially more available to Christians and non-Christians alike. There was no longer a requirement to be physically present in order to hear God’s word. Rather, God’s word was able to be placed inside the home. Similarly, what we’re seeing today is just as dramatic of a shift in the church. We are no longer required to be physically present at a specific time and place to engage with God’s word in an impactful way.
There will be a correction point soon. What would have happened in 2-3 years is now positioned to happen in a matter of months. As it relates to churches, those that were struggling to keep up with the digital age will need to seek a solution quicker than potentially before COVID. On the other hand, the churches that were moving in-step with the changing demands of our society will see the fruit of that labor even sooner.
How is the economy different from the capital markets?
For a prepared organization, it is possible to make money in a down market. Profit is buying low and selling high. Credit markets are starting to open up, and money will be cheaper than it’s been in a long time.
Real estate inventory is about to spike, which means there will be more supply than demand and the price will drop considerably. Additionally, because of the fall of the bond market, interest rates are very low. There is a flat yield curve - that is, short term interest rates are similar to long term interest rates.
For organizations looking to build and expand, the construction industry will not only be more available, but also cheaper in labor and material costs. This is because demand has dropped substantially, freeing up a workforce that was previously overworked. Contractors - who once didn’t have enough labor to support demand - are now looking for work, flipping the script entirely.
In summary, interest rates are low, we are overbuilt in class-A and retail space, and construction costs are dropping considerably. For a prepared organization, this is a pretty incredible time.
How will churches need to adjust to the move from high rise buildings to single-family homes?
People are getting used to the concept that they don’t need to travel anywhere for their everyday life. The takeaway here is to meet people where they are. Organizations need to start thinking about how to be more efficient in their offices and buildings. For example, churches need to consider offering something outside of a Sunday experience. Churches have the opportunity to be more relevant to the community than they’ve ever been.
How should the church be preparing for the future?
We’re seeing a reduction of territorial restrictions in order for organizations to reach people. The “main campus” is now online. It is the primary tool because it grows our reach.
For example, the concept of attending a church in a different state is now possible. Members can have the same experience both physically and digitally. We are not bound by the state, city, or region that they are in. This has monumental impacts on churches.
What about a church that’s not looking to expand? Is it possible to refinance and get a lower interest rate?
The key takeaway is that banks are hungrier now more than ever, but they will also be more careful. If your church is approaching a conversation with a bank for a refinancing opportunity, be ready for questions. The banks are looking for quality and presentation, but ultimately they are eager to lend money.
Why should we "throw away our budgets"?
We're not proposing to throw away your budget as if it didn't exist, but simply to change to a monthly budgeting model for the time being. We don’t know what’s going to happen four weeks from now. We’ve been forced into an environment of innovation.No one is proposing changing salaries or making major real estate decisions right now. This is simply testing to see what works and what doesn’t.
There could be an expense that made sense last month that doesn’t make sense any more. The idea here is keeping a flexible and conservative approach each month. The best we can steward our resources is to fine-tune and make adjustments on a monthly basis.