Religion
In God We Bust
The plight of debt-ridden Great Hills Baptist in Austin shows that the financial health of Texas’ superchurches isn’t always so super.
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O’Chester’s style and commitment to growth suited the congregation of Great Hills, which was then located in the quiet West Austin neighborhood of Allandale. From the time he took over the church, its membership increased so fast—by more than 15 percent a year—that the church building was bursting at the seams. After Great Hills bought up nearly two dozen houses as part of its expansion plans, area residents filed suit. “They didn’t want a megachurch in their neighborhood,” says O’Chester. Church members began scouting for another location, and soon they settled on a newly cleared hilltop parcel on the fast-growing northwest outskirts of Austin. They raised $1.6 million in contributions to pay for the land, hired an architect from Dallas to design a new sanctuary and educational complex, and put their old property in Allandale up for sale, along with another twelve acres owned by the church. By 1984, when they began construction on the new land, they had found buyers for the old church and property and lined up a loan guarantee for $6 million from First Federal Savings and Loan, an Austin institution considered one of the most solid in the state.
What happened next was a disaster that only Jeremiah could have foreseen. “First Federal was part of a billion-dollar corporation, as secure as the Rock of Gibraltar,” says O’Chester. “But when the downturn came to Austin, it was unbelievably fast. In the fall of 1985, the ground fell out of the real estate market, and during a single week, it seemed as if almost every bank went under.” The Federal Deposit Insurance Corporation recalled the notes on the Allandale church property and the twelve acres of land just as the buyers were also going under. “We weren’t worried until we learned that First Federal was going under too,” O’Chester says. No longer able to sell the old church and the parcel of land and suddenly forced to pay back the money still owed on those properties, the church’s financial health severely worsened. “We lost six million dollars almost overnight, and we just couldn’t pay it. We saw the handwriting on the wall. The construction company threatened to sue, and the renegotiation of the construction contracts cost us another million dollars.”
That’s where the bondholders came to the rescue. During the bust, money for church loans from banks and savings and loans had dried up completely, and the only place to turn was bond compa-nies that specialize in loans to nonprofit groups—in Great Hills’s case, A. B. Culbertson and Company of Fort Worth. Culbertson marketed the Great Hills bonds primarily to individuals who tended to be churchgoers. A number were retirees who were living on fixed incomes and looking for a good cause to invest in as well as a rate of interest (above 10 percent) that was higher than that offered by most savings accounts. In retrospect, the bond issue appears to have been risky, more appropriate for speculators than elderly investors looking for rock-solid ventures. But as Bill Jackson of A. B. Culbertson observes, “The loan looked good on the day it was made. They never had experienced loan-payment problems before—they had a successful history of previous bond issues, and the ratio of collateral and debt service were in line with past loans.” The first bond offering, in 1986, was for $7.5 million, most of which went to repay the church’s debt. The next year, a second offering raised $8.85 million to retire the 1986 bonds and pay for the church’s plans.
Great Hills built the educational complex first and waited six years to build their dream supersanctuary, worshiping in the meantime in the atrium between two smaller buildings. “We had a foundation and a steel frame that sat out there bare as a skeleton for all of Austin to see,” says O’Chester. At one point Great Hills fell behind on its bond payments of $87,000 per month and construction on the sanctuary was halted, but O’Chester insisted that a thirty-foot-tall cross and additional lights be hoisted on top to make it a symbol of future victory that would be visible to the rest of the city. He and other church officials managed to convince nervous bondholders that only by continuing to build could they grow and increase their income sufficiently to repay their debt.
In 1993 work was completed on the new supersanctuary, complete with a sweeping Hill Country backdrop painted by a Tony award—winning set designer. O’Chester’s idol, W. A. Criswell of First Baptist Church of Dallas, was present at the opening gala. But over the next two years, Great Hills fell further and further behind in its bond payments, and negotiations with increasingly impatient bondholders began to falter. “They wanted to just keep growing and building, and we thought they should cut back and honor their debt,” says bondholders committee chair Bill Holman.
On January 1, 1996, counting accumulated interest, Great Hills owed its bondholders $15 million. The next day, just as bondholders were set to foreclose, the church declared bankruptcy. Within the religious community, the reaction was mixed. Although, as O’Chester puts it, “Baptist churches are very individualistic, and they’re not known for helping each other,” Great Hills received more than $120,000 in donations from other Baptist churches and another $15,000 from churches of other denominations. Yet there were bargain hunters in the air along with the angels. At least two Central Texas churches were interested in the Great Hills property: Cornerstone, a nondenominational superchurch in San Antonio, and Riverbend, a large Austin church with Baptist roots whose growth had also been financed through A. B. Culbertson, using many of the same bondholders. During the bust, Riverbend too had some troubles making its payments. “But they paid back every penny they owed,” Culbertson’s Bill Jackson confirms, “and they even paid interest on the interest they owed. They addressed the situation in an honorable fashion.” And as Great Hills continued to sink lower into debt, Riverbend began to boom.
Eventually, a Riverbend member inquired about buying the Great Hills property. This angered O’Chester, especially since he and Riverbend’s pastor, Gerald Mann, had been rivals for many years. “I think it was a way of getting rid of us as a competitor,” says O’Chester, who has taken Mann to task for “lite” theology (“They take ’em any way they can get ’em, and we believe in maintaining strong biblical standards”). Mann denies any involvement in the inquiry—and anyway, nothing ever came of it.
Although the bondholders considered letting the church property go up for auction by the bankruptcy court, they finally settled on an agreement that would return 84 percent of their principal and no interest. The total payment would be $7.5 million, or about what appraisers had set as the market value for the church. Great Hills agreed to pay $1.5 million by the end of 1996 and another $5.5 million by March of 1998. O’Chester says the church has already raised the first payment, but he is not sure where the second will come from.
For now, the news is good for Great Hills. “This thing ought to crush us, squish the air out of us,” says O’Chester, “but my people have gone through so much. We have an upbeat congregation.” The bondholders, however, are less upbeat. “We’ve been so patient all these years and then to have it end like this—it hurts,” says one. “It was the best deal we could get,” sighs Bill Holman. “I guess they’re all happy down there in Austin. I don’t know how someone could face their congregation knowing they took the legal rather than the moral way out.” Holman says the bondholders have learned their lesson, and he doesn’t imagine they’ll be buying any more church bonds.
Of course, thanks to good economic times, there is once again plenty of money out there for church loans from banks. O’Chester says that one bank has even approached him about a $5 million loan to pay off the rest of the church’s debt to the bondholders. Yet there are some indications that the seemingly unending mega-church trend may be winding down. “I think the era of the megachurch is on the decline,” says Bruce Bowles. “I find a lot of people moving from megachurches to smaller ones because they want to be involved in things directly rather than be a spectator. You have lots of folks now in the thirty-to-fifty-year-old range who want to participate more in the church ministries and be more involved in the decision making. They want to invest their lives more fully in the church.” And that kind of investment, although it’s immeasurable by financial standards, may prove more secure in the long run than any bonds, bank, or line of credit.
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