Interview: Rebuilding your church with construction CEO Parker Young
No one wants to think about rebuilding a church or nonprofit after a catastrophic loss. But if you don’t, who will?
Your church almost certainly has property insurance. But are you insured to rebuild, or for some arbitrary amount?
In the event of a catastrophic facility loss, insult is added to injury if your insurance settlement is not adequate to reconstruct your facility. How can you make sure your property insurance matches your reconstruction needs?
First off, your property needs a correct and updated building valuation. This valuation helps you determine the real cost of rebuilding your facility, removing debris and complying with new and more stringent building and environmental codes. Ministry Pacific clients are entitled to a free building valuation. If you have not taken us up on this offer, or haven’t recently, contact us to schedule it.
In order to properly establish building value, churches and nonprofits need to understand the reconstruction process. No construction process is simple, but a rebuild is more complicated. It may involve the removal of hazardous building materials. It will definitely require demolition and debris removal. In addition, you’ll need a place to work and worship during the time it takes to replace your facility. In this interview, Parker Young, president of Straub Construction and a veteran of commercial construction, explains the dynamics of rebuilding.
ACTION STEPS
SCHEDULE A BUILDING VALUATION
If Your Church Is Destroyed, Could You Rebuild?
Webinar Notes: Ministry Pacific Insurance Services and parker young of Straub Construction
Recorded October 2023
Ministry Pacific
Welcome to today's webinar brought to you by Ministry Pacific. I'm Roy Harryman, your host, and we are delighted to be joined by Parker Young, president of Straub Construction. Our topic today is, “If your church is destroyed, could you rebuild? Well, of course you could rebuild, right? That's an easy answer. Well, the answer actually is yes … but. The critical factor is, “How much is your building insured for?” Now, this is an area that most people in the faith-based and nonprofit world don't spend a lot of time on, and that's why we're doing this today. The value of your building, meaning the reconstruction value of your building is based on documents that you have provided to your insurance company. If you don't wade into these waters very often the question you may be asking:
Who provided those documents
When did they provide those documents?
Where are those documents?
What do they say?
Have they ever been updated?
Often people don't look for this information until there is a crisis, and then it's too late to change anything. Here’s a scenario you want to avoid: Hypothetically, your policy hasn't been updated in 20 years. However, you've made building improvements in that time period and those aren't reflected in your policy. A related problem is that you could have failed to include important reconstruction costs. Reconstruction is more complicated than new construction because there's a building that has to be removed before another one can take its place. But the good news is that you can be proactive right now and make sure that you have the insurance funds you're going to need if you're ever forced to rebuild because of a catastrophe. Today, we are going to help you forge a link between the insured value of your building and the costs of real-world reconstruction.
To do that, we have an expert guest, Parker Young, president of Straub Construction and a veteran of the commercial construction industry. So Parker, thank you for joining us. And before we get into the nitty gritty of this topic, could you please tell our audience a little bit about yourself and Straub Construction? I know that part of your story is an expertise in building churches and other institutional structures, including the church where I am a member.
Parker Young, Straub Construction
Well, good to be here, Roy, and I’m excited to talk about this. Straub Construction is a third-generation company founded in 1920, so we were able to celebrate our centennial just a few years ago. We focus on working with purpose-driven organizations. Obviously there aren't many more purpose-driven organizations than a church. We strive to be and want to be an advocate for our clients. We use a very transparent and open approach so that they are informed and truly know where things stand.
My personal background is that I grew up in the Kansas City area, went to Kansas State University and earned a construction science degree. I have been in the industry for 30 years and have seen a lot of twists and turns, but it’s been exciting. I've been at Straub for 27 years and it is just great group of people, and as I said, we just strive to be true advocates for our clients.
Ministry Pacific
One of the statistics that we cite in order to help people make proactive changes is that 70% of commercial buildings are undervalued for insurance purposes, and this comes from a real estate research company called CoreLogic. So 70% of commercial buildings – which include churches – are undervalued for insurance purposes. Based on your experience in building and rebuilding, does that number surprise? Does it seem too high or too low?
Parker Young, Straub Construction
I would venture to guess that there are more buildings that are undervalued [than the 70% average] unless they have been evaluated in the last 12 to 18 months. I would be willing to bet that, even for folks who have done a great job of periodically evaluating their properties and structures, if they haven't done it in the last 12 to 24 months, they're behind. We’ve recently had inflationary pressures of 30-40% over an 18-month period.
Ministry Pacific
That's insane! I don't doubt it at all, but I'm sure it's incredibly difficult for you and clients to grapple with those changes.
Parker Young, Straub Construction
There was a period during 2021-2022 where it seemed like every week some other price was increasing and lead times were getting longer (these statistics are from Associated General Contractors of America and Associated Builders and Contractors). These are national, and there are regions and pockets that are even higher than that. Kansas City, for example, is in a building boom right now that it has never seen, and so we're seeing higher inflation than the national averages.
Ministry Pacific
That is really good to know because we generally advise people to look at their values every other year. However, the information you're sharing here helps us understand, that there's been so much change recently that it would probably be good to go ahead and have your building valued now if you have not recently done so.
Parker Young, Straub Construction
Yes, I agree.
Ministry Pacific
The problem that we're trying to solve is the undervaluation of church buildings and nonprofit buildings for insurance purposes. This can be a little bit complex if it's not something we deal with often, but essentially this means that a client is not insured for enough money to rebuild their facility. Parker, in your experience, what are some of the main costs of reconstruction that churches fail to anticipate when they're planning their budget and they're setting up their insurance?
Parker Young, Straub Construction
There are hard construction costs and then there are some ancillary costs. If it's a catastrophic event and the building has to be torn down, you've got debris removal and disposal – you've got to get that cleaned up. If it's an older building, there may be hazardous materials, asbestos, lead, PCBs. In that case, there are a number of different things that you have to have to mitigate and properly dispose of that are more expensive than just the demolition and debris removal.
Then secondarily, you're going to have to have a design. Today's building codes continue to change and evolve from the time the original facility was constructed. Many municipalities have adopted the 2018 energy code. There are places around the country where the 2021 code has been adopted. The jump from the 2012 to the 2018 code had significant cost impacts from a hard construction cost perspective. There's a long-term benefit because the buildings are more energy efficient, but you still have that upfront cost. We've seen anywhere from 5% to 15% increases in steps, processes, and even the HVAC equipment and other related costs. So there are a lot of costs that nobody even thinks about in terms of the impact it could have on their rebuild. In addition, you have continuous insulation requirements on the exterior of the building, which has to go on before your cladding, siding or masonry. That wasn't required even as recently as 10 or 15 years ago. In the 2021 code, there's commissioning where you have to pay a third party to come in and test the building for air quality and for air loss. There's just a number of steps that can be incorporated or required depending on the code of the particular municipality that the structure's in.
Ministry Pacific
It sounds like it’s important as the customer to begin a project knowing what you don’t know.
Parker Young, Straub Construction
The key to this whole discussion today is truly informing and helping clients understand all the things that are out there. They need to understand because churches and not-for-profits are on tight on budgets. They can work with experts like you all on figuring out creative ways, whether it be different deductibles or things like that, that can help maybe minimize or lower premiums.
“But at the end of the day, you want to be covered. The whole point of insurance is if something catastrophic truly does happen, you’ve got the funding there to continue the mission of that particular organization.”
Other factors will be interesting to observe. My personal opinion is that this is only going to get worse before it gets better. Labor costs are continuing to rise because there's a shortage of labor. The shortage of labor is increasing the duration of construction, which increases the cost. If a project takes longer to build, then it takes more money to build it. If you normally would have 10, 15 or 20 workers on a project, now you may only have 12 or 15 and you've just increased your duration by 25% because it still takes the same amount of hours to do the work.
Ministry Pacific
Obviously nobody has a crystal ball. How can churches plan a policy that gives them a reconstruction budget? Do you have any ideas on how they can take inflation into account? Are there some historical numbers? I know you probably have to do that to some extent as you're bidding things that might be two or three years out in terms of a construction timeline.
Parker Young, Straub Construction
Yes. What we do is we work together with our clients and if they're a year out, we will sit down and have a construction contingency for the project and a design contingency for the architect to design team. And it's still two years out. We look at what codes are going to change. There has to be some room for that. And then we are carrying a price escalation, and I will say it's at lower rate today than it was say in 2021 and even early 2022, but it's still probably in the neighborhood of 2% per quarter. So if you’re a year-and-a-half out from building, we're going to recommend you carry a 12% contingency. Now as we get closer and closer to doing the project, then those numbers will come down, but that at least gives practical steps from a planning standpoint. The construction value is different than the county’s assessed value. Reconstruction value is the amount it’s going to cost to rebuild. It's important to have a trusted professional working with you to get a real and accurate number.
Ministry Pacific
That's very insightful on how you do your best to help clients or prospects to insulate them from the shock of inflation by building those estimates into the project. And of course, things are always going to be changing. One thing I appreciate about your approach is obviously you're expert builders. But you're also expert consultants because you could go in and build – if there is such a thing – the perfect building. But if the communication wasn't there, the consultation about decisions wasn't there, then the price and a number of things would just completely shock the client. I really appreciate the consultative approach that you're describing.
Parker Young, Straub Construction
We try hard. We've lost work before because we were too honest. We don't tell people what they want to hear. We tell them what we really think. If it's a situation where it’s over their budget, we roll up our sleeves and come up with ideas to help try to bring it into a realm where they can still accomplish the goals and objectives that they have within the budget that's set forth. The issue here is that we’re looking at a structure that was working and serving its community and its needs. There’s a reason why it's a certain size and there's a reason why it's a certain volume of space and functionality. It's not likely you're going to reduce that to be able to get it into whatever dollars that they had from their insurance. So that's why it goes back to being important to have a real valuation.
Ministry Pacific
One of the things that I want Ministry Pacific clients to understand is that we are here to guide you through understanding and updating your building valuation. This isn't something where we say, “Go off and get that figured out and come back to us.” Rather, it's a totally free service that we provide to all of our clients. And as I had mentioned earlier, we generally recommend revisiting your building valuation every couple years. However, based on the information that Parker shared about the escalation of inflation, it may behoove you to look at it more frequently than that, or at least right now. So please take us up on that. Again, this is a free service and you want to know that if there's a catastrophe to your building that you're going to get out of insurance what you expect to get out of it.
If not, essentially it's adding insult to injury in a difficult situation where you've lost your building and now you find out too late that you weren't adequately insured to reconstruct that building. So please let us know if we can help you with that. If you are not a Ministry Pacific client, we do offer valuation services for a fee. In addition, and I'll talk a little bit about this in a moment, your policy can include related coverages such as business interruption insurance, for example, and that can provide funds to keep you operating when there is a crisis.
Parker, here is a theoretical example that's really at the heart of what we're talking about. First Community Church, again, this is hypothetical, was built in 1993, say 30 years ago. So in today's world, what are some of the building code upgrades, additional permits and environmental regulations that will affect the rebuilding of a church? In other words, how has the earth kind of shifted under our feet since the structure went up sparkling in 1993?
Parker Young, Straub Construction
That’s a great question and example. The reality of it is we've touched on the building codes previously, but that time period represents significant changes and possibly zoning changes and new utility requirements. We've encountered situations where utility regulations resulted in $100,000 to $200,000 in additional fees just get utilities to the site that were there to begin with.
The environmental impacts for a facility built in 1993 is better than for one that was built in 1975 where there's potential asbestos and lead-based paint, but you still have the regulations and demolition and debris removal and still have to comply with the local municipal requirements. Some are far more strict than others. Things that have an impact are related to bringing older buildings up to today's standards. If you're just doing a renovation of a structure, you only have to spend a certain dollar amount to get it towards today's standard because you are ultimately grandfathered. But when the structure is gone, now you have to bring everything up to today's standards. There may be site grading issues, there may be access issues and all of those types of things.
Ministry Pacific
Regarding access, could that be for example adding a lane to a thoroughfare that runs in front of your building?
Parker Young, Straub Construction
It could be that. It could be accessibility such as in ADA compliance where the church was of an age that its construction was prior to the ADA requirements and it only has steps into the building. Now you have to have an accessible entrance point, and in some cases it's harder to do than others. Many churches have improved access independently of any mandates. However, today some churches may be required to have more than a wheelchair access ramp. It may be that approval will require more than this, such as a re-grading of the site.
Ministry Pacific
In terms of hazardous substances, you mentioned asbestos and lead paint. Do people who occupy those buildings generally know that those substances are there or does that come as a surprise? What do you find typically?
Parker Young, Straub Construction
The more sophisticated building owners know about hazardous materials in their facility. The less sophisticated ones do not, and the age of the building obviously impacts it. If it's with a large denomination or a parish, many of those have required hazardous materials testing so that they know what's there. In some cases they've done the abatement, but in many cases they haven't. It goes back to a case by case evaluation. If it's a smaller church – perhaps one that has had more than one owner – they may not be aware of the presence of hazardous building materials. A church falls into a different classification, especially when you've got children involved. So lead-based paint also is a factor of greater concern in that environment.
Ministry Pacific
I'd be interested in your perspective on another related factor. One of the things that our founder, Fritz Hahn, often notes is that when it comes to reconstruction budgets, building demolition and removal are either often left out or done on the cheap. Tell us what's involved with building demolition and removal, what churches need to know, and maybe what makes that so costly?
Parker Young, Straub Construction
Two things that can impact the cost of demolition and debris removal are the presence of hazardous materials and the distance to the site where the debris will be disposed of. Sometimes these concerns get pushed to the side. Well, if you must add $30,000-$50,000 to a project and you don’t have the money, you're not going to be able to finish it. So those are all things that come into play, and I'm using that on a small scale. You can have demolition come in at hundreds of thousands of dollars as well.
Ministry Pacific
Parker, in addition to factors that we've discussed already, are there any other surprises or factors that can drive up rebuilding costs that churches need to be aware of?
Parker Young, Straub Construction
The important thing is for your clients to understand the steps that are involved for reconstruction and then to make a guesstimate at what they think those costs are for each step. That doesn't mean they're spot on, but they've at least allocated some dollars for these components. It needs to include demolition, permitting, design, code requirements and code upgrades. Those are all the types of things to at least talk about and think about and evaluate. There's some heavy lifting to do upfront, and it sounds like you all do a great job and offer a free service to your clients to do so. All of these things tie in together toward making sure you're whole and taking the time and effort to get a good solid estimate upfront.
Ministry Pacific
I'm sure you are experts at answering this question, “How long will it take?” And that's a question that people start asking, I'm sure, before the end of the first day that they suffer the loss of a building. Do you have any guidelines that help churches to anticipate project timing? Now, obviously you said projects are taking longer to get done. If someone has a 50,000 square foot building that needs to be reconstructed, is there a general guideline on timing?
Parker Young, Straub Construction
There's a process and a timeframe and if they've got a good valuation, it's going to be easier. I've got a neighbor who unfortunately had a catastrophic fire event and they couldn't even start construction for a year because they were undervalued on their home. They had enough money to pay off the bank, but they didn't have enough money to rebuild what they needed, so then they had to go and get funding to be able to cover that gap. So you've got that process, but then from a construction standpoint, you've got a six-month design and permitting process, and I think that's relatively routine. There are longer timeframes with some municipalities and processes. A 50,000-square-foot facility is probably a 16- to 18-month construction duration. So you've got two years right there and that's not really that uncommon. Now, obviously to a lesser scale, if it's not a catastrophic loss and it's just a partial, those things can reduce down and speed up and get operational quicker. But for your example of a 50,000-square-foot facility that was a total loss, two years would be, I think, pretty quick.
Ministry Pacific
That's really helpful. That's a great big picture to kind of have in mind. One component that I alluded to earlier that can be part of an insurance policy related to this is business interrupt insurance. Funds from business interrupt insurance can cover a place to meet, renting equipment, even payroll shortfalls, if that's an issue.
Parker, in your experience how have churches effectively managed the in-between times when they don't have a place to meet, but there is a place to meet that's being built?
Parker Young, Straub Construction
I've seen a variety of things done. I've seen some that reach out to the old way of going to the schools and school district and meeting in the multipurpose room. In some cases, you've seen fellow churches share space. There are a variety of things that are done. It just really depends on how large the community is and what the resources are. But to your point, what you don't want to have happen is to not have what is needed to be able to keep that church, that parish together for the long term. There is a catastrophic event and everybody is disappointed and saddened, but now it's like, “Okay, we’ve got to roll up our sleeves. It's going to be a two-year timeframe. This is what we're going to do for that two years, and we can't wait to get back into our own church and serve our community as we were doing prior to that.”
Ministry Pacific
Excellent information. Parker, I really appreciate you sharing it with our clients and others who are joining us. Before we wind down today, are there other things that you would like churches to understand about this topic of having a reasonable plan to reconstruct in the event that it's a partial or total loss of a facility?
Parker Young, Straub Construction
The thing that I would say in conclusion is you've got to start somewhere. And it seems a little bit daunting at first, but just start working at it. Do the hard work upfront and then do an annual review or review it every 18 months. That's so valuable. And the key to that is having a trusted advisor that you are confident in. I mean, that's why we take a very, very transparent approach. We lay out for them all of our costs. We explain all of it. We talk about the durations so that there's no funny business. These are the true costs. They understand it, and if they want to poke a hole in it they can ask, “Why does it cost this much to do this?” We’ll provide an answer, “Well, here's why.” It may be the limited availability of this material, and this is a particular specialty material. Or this may be a very labor-intensive product to install – whatever the issue is. We desire to have that dialogue and open, honest, transparent discussion.
Ministry Pacific
That's what you want in a construction partner, whether you're looking to do an expansion, a new build or in a reconstruction process. So if you are in the market or have questions, we encourage you to follow up with Straub Construction. If you are needing to reevaluate your building's proper value and make sure that it's adequate for reconstruction, please contact us about that or anything related to property or liability insurance needs. We hope this webinar is really the beginning of the conversation. As Parker said, the heavy lifting really is on the front end. Once you have a process going, then it's easier to update it as you go forward. And Parker, thank you for joining us and thank you everybody else, and have a wonderful day.