Catholic real estate bonanza

Firm touts ties with Vatican in bid for U.S. church property

By JOE FEUERHERD

An Italian-owned Manhattan real estate development company claiming ties to high-ranking Vatican officials is bidding on properties owned by dozens of U.S. dioceses and religious orders. Some church real estate professionals have questioned the company’s tactics, while others praise the firm for its promise to revitalize vacant church property.

The Park Avenue-based Follieri Group, founded nearly three years ago by Raffaello Follieri and his father, Pasquale Follieri, has “entered into contracts for the acquisition of over $100 million of church property in three U.S. cities” and is “actively bidding on an additional quarter billion dollars of church assets,” according to the company’s Web site.

The business opportunity exploited by the Follieri Group is evident: A cash-hungry, land-rich institution (the American church) experiencing a demographic shift among its clientele (parishioners abandoning the inner city) and huge and ongoing liabilities (more than $1 billion has already been paid victims of clergy sex abuse) needs to divest itself of long-held but increasingly unproductive holdings (inner-city parishes and other excess real estate holdings). It’s a big business. In Boston alone, an extreme example given the impact of the clergy sex abuse crisis in that archdiocese, the church has sold nearly $200 million in property since August 2003, according to The Boston Globe.

There were two initial factors motivating the company’s interest in U.S. church real estate, Raffaello Follieri told NCR. First, he said, “The [sex abuse] scandal in America [where] dioceses were paying a lot of money to pay[off] the lawsuits” would necessitate the sale of church property. Next, he said, the changing demographics of the church -- from North and East to West and South and from city to suburb -- mean that “a lot of the schools and churches that were full of people in the beginning” are now largely unused.

The Follieri Group’s business is significant because it is focused solely on Catholic church property in the United States and because the firm openly claims sensitivity to church “imperatives” and connections with “senior members of the Vatican hierarchy.”

The business itself is doubly shrouded in secrecy. For competitive reasons the real estate industry is hyperdiscreet. Only when a deal is consummated -- a process that can take months as prospective purchasers arrange financing and conduct environmental and other land and structural analysis -- do sales records become public. Even then, in some jurisdictions, religious institutions are exempt from some disclosure requirements. Dioceses and religious orders, meanwhile, are notoriously reluctant to discuss their business dealings, especially when senior Vatican officials are involved. As a result, most of the more than a dozen real estate and finance officials familiar with the Follieri Group interviewed by NCR agreed to talk only if guaranteed anonymity.

Still, there is little secretive or subtle about the Follieri Group’s business plan.

“Our intention is to purchase properties from dioceses and religious organizations, to renovate them, and if necessary, convert them to new uses, such as housing (lower, middle and upper income, depending on the area) and commercial use,” the Group’s then-director of business development, Joseph Iallonardo, said in an early 2005 letter to a religious order. “Because of the Follieri family’s deep commitment to the Catholic church,” the letter continued, “and its long-standing relationships with senior members of the Vatican hierarchy, the Follieri Group understands very well the imperatives of the church and is sensitive to its needs.”

The firm’s literature mentions no specific Vatican figures, but the Follieri group clearly has ties to Cardinal Angelo Sodano, Vatican secretary of state since 1991. Andrea Sodano, the cardinal’s nephew, is a Follieri Group vice president, a fact widely known in U.S. church real estate circles.

Raffaello Follieri, the Group’s charismatic 27-year-old chief executive officer, said the company does not use its Vatican ties to gain access to church officials. Andrea Sodano, Follieri told NCR, is a renowned engineer in Italy with long-standing ties to the Follieri family’s development business there and extensive experience in converting church property to other uses. Sodano is a “technical person” who “does not do [marketing] relations for us,” said Follieri.

In an e-mail response to an NCR inquiry Andrea Sodano said: “I have worked with the Follieri family for the past 15 years as an engineering consultant. My involvement long predates The Follieri Group’s interest in the States. The Follieri Group’s long and successful track record in real estate speaks for itself.”

But others familiar with the Group’s marketing strategy paint a different picture. The Sodano name, and the implicit Vatican endorsement that the Group has promoted along with it, has opened doors that might otherwise be closed to a firm headed by Italian nationals with no real estate development track record in the United States, according to those who have had business dealings with the Follieri Group. “When Raffaello wants to meet with the bishop, they put the touch on from the Vatican and they get the meeting,” said one East Coast diocesan real estate professional. “They’re about as connected as it gets.”

In fact, say church real estate professionals who have met with the group, rather than acting solely in a behind-the-scenes technical capacity, Andrea Sodano frequently accompanies Raffaelo Follieri to meetings with church officials. “They certainly make it clear they have relatives in the Vatican,” said one such official who has met with the Group’s representatives.

Some of the church real estate professionals interviewed by NCR are bemused and annoyed by the group’s tactics, though they don’t feel particularly pressured by them. “I wouldn’t be surprised if it got them in a door or two,” said a high-ranking diocesan layperson familiar with the Follieri Group. Still, continued the diocesan official, “I didn’t get the impression that we were being instructed to do business with them.”

Said another church real estate professional, “They used the Vatican connection and they found out that it got them polite teas with the bishop, but no further. It’s a European approach to an American business relationship.”

Others take a dimmer view of the company’s tactics.

“This thing smells in my opinion,” said the finance officer of a religious order that has been frequently solicited by the Follieri Group. “I wouldn’t get close to these people,” said the official.

“They don’t want to compete,” said a real estate professional who dealt with the firm on a multiple-property offering in a Midwestern archdiocese. In this case, said the professional, the Follieri Group attempted to short-circuit the established procedures by ignoring the brokers hired by the diocese and making its offer directly to the church for the multiple properties. Church officials rejected the Follieri Group offer and were subsequently convinced that the archdiocese had received a higher price by selling its closed parishes on a one-by-one basis.

Last September, Cleveland Bishop Anthony Pilla declined to meet with Follieri Group representatives. Pilla, on vacation, did not respond to NCR’s request for comment by deadline.

NCR’s attempts to reach a Vatican spokesman for comment were unsuccessful.

A well-wired firm

If events of recent months are any measure, access to church officials doesn’t come cheaply.

On Nov. 9 at the Met Life Building’s Sky Club restaurant in Manhattan, more than 200 prominent Catholics gathered for an evening fundraiser to support the Path to Peace Foundation, the charitable arm of the Holy See’s permanent observer mission to the United Nations. The night’s honoree, winner of the Foundation’s Path to Peace Award, was Fra Andrew Bertie, prince and grand master of the Sovereign Military Order of Malta. Previous winners of the award include former U.N. Secretary General Boutros Boutros Gali and his successor, Kofi Annan, former Philippine President Corazon Aquino, and former Polish President Lech Walesa.

The Follieri Group was one of two “benefactors” of the event, the highest level of giving noted in the event’s program. Seated at Pasquale Follieri’s table were Jean-Pierre Mazery, grand chancellor of the Knights of Malta, who accepted the award for Bertie; Archbishops Celestino Migliore, the Vatican’s permanent observer at the United Nations, and Gabriel Montalvo, then the Vatican’s ambassador to the United States; and Cardinal Renato Martino, head of the Vatican’s Pontifical Council for Justice and Peace.

The following week, Raffaello Follieri and Andrea Sodano visited the Capitol Hill Hyatt Regency Hotel in Washington, site of the U.S. Conference of Catholic Bishops’ annual meeting. An escalator ride up from the general assembly meeting room, the Follieri Group maintained a hospitality suite for bishops. At that meeting, by a vote of 222-2, the bishops agreed to seek Vatican approval for an amendment to church policy that would allow large dioceses (those with more than 500,000 Catholics) to sell or mortgage properties for up to $10.3 million without Rome’s prior consent. The previous $5.1 million limit, said those supporting the change, was increasingly cumbersome in the go-go real estate market affecting U.S. dioceses nationwide.

Meanwhile, the Follieri Group is among the groups that sponsor the annual conference for Catholic facility managers. The company hosts exhibits at events that attract church real estate professionals, including meetings of the National Association of Treasurers of Religious Institutions and the Conference of Major Superiors of Men.

How well wired is the Follieri Group? In early 2005, Catholic blogger Domenico Bettinelli, editor of the Catholic World Report, summed it up: “Unless [Andrea Sodano’s] name was Wojtyla, you couldn’t get a better connection.”

The opportunity

Thanks to his relationship with burgeoning Hollywood star Anne Hathaway (the princess of “The Princess Diaries” and most recently Lureen in “Brokeback Mountain”), Raffaello Follieri is more likely to be featured in New York’s tabloid newspaper gossip pages or paparazzi-like Web sites than on the financial pages. He’s an entrepreneur who aims to do well. But, he says, he also means to do good -- by transforming underutilized church properties into income-generating condominiums and apartments that feature amenities (cultural centers, daycare facilities, affordable apartments) that enhance their communities and further the church’s mission long after parishioners have moved on. From its profits, said Follieri, the company will fund a foundation that will carry out charitable activities both in the United States and abroad.

In an early December interview with NCR, Follieri talked generally about the company’s activities, declining to specify where -- beyond two closed inner-city parishes in Philadelphia -- the company has purchased real estate.

The company, said Follieri, is focused exclusively on church properties in the United States, a niche that he hopes will redound to the company’s credit. Further, he said, “We are a profitable organization, but we are interested in the social good for the community.” The group is committed to developing properties that are compatible with the church’s social mission, he said.

Yet, he said, that commitment to good social outcomes does not give them an advantage in the bidding process for church property. “We sit down when [a bishop or diocesan official] receives us and we explain what we do. Some of the bishops embrace the projects, some are not interested. It is like any other venture. Some people are interested, some are not.”

Said Follieri: “We have to pay market price -- we pay like every other developer.”

Some of the deals

During the past year, the Follieri Group, and its affiliated limited liability corporations has:

• Purchased two closed parish facilities (church, school, rectory and convent) in North Philadelphia. The Group paid over $1 million for Transfiguration Parish, while local land records do not indicate what it paid for St. Clement.
  In the Philadelphia archdiocese, according to spokesperson Donna Farrell, “the broker markets the property based on two independent appraisals … [and] all qualified bids are reviewed and the highest responsible bid with respect to the appraisals of the property is accepted. In addition, we must ensure that the intended use of the property is not in conflict with values and teachings of the church.” Plans for development of the two sites -- the Follieri Group hopes to preserve Transfiguration’s church as a neighborhood art and cultural center -- are in their early stages, but will likely involve affordable housing.
• Bought a vacant lot in the upscale suburb of Orland Park, Ill., a property owned by the Chicago archdiocese. An archdiocesan spokesman refused to tell NCR what the Group paid for the property. The archdiocese lists its properties with real estate brokers and no favoritism exists in its procedures, said the spokesman. The Follieri Group is currently bidding on another Chicago archdiocese-owned property, according to a church source.
• Purchased a rundown parish and school complex that has been abandoned for more than two decades in the Camden, N.J., diocese. The Atlantic City, N.J., pastor who welcomed the Follieri’s Group’s involvement, Msgr. William Hodge, said he is “absolutely thrilled” at the prospect that the Follieri Group will develop affordable housing for casino employees and senior citizens on the site.

Raffaello Follieri said the company is successful in 60 to 70 percent of its bids, though they have, according to those familiar with some of the Group’s transactions, been unsuccessful bidders for church property in Boston, Brooklyn, N.Y., and St. Louis.

Last year, the Follieri Group partnered with the Yucaipa Companies, a Los Angeles private equity fund headed by Forbes magazine-ranked billionaire Ron Burkle. Yucaipa, whose advisory board includes former president Bill Clinton (who counts Burkle among his closest friends) and the Rev. Jesse Jackson, has extensive investments in profitable inner-city commercial enterprises, particularly grocery stores.

Joe Feuerherd is NCR Washington correspondent. His e-mail address is jfeuerherd@natcath.org.

National Catholic Reporter, March 3, 2006