Many of the developments cater to a well-heeled clientele, such as the Moxy Madison, a boutique Marriott hotel where weekend rates start at $341 a night. Or Archipelago Village, which will feature both an 11-story office tower and a "pricey" mixed-use building with new apartments.

But St. John's sees a different side of Madison through its community outreach programs, including a men's homeless shelter; a drop-in center for people battling mental illness, some of them unhoused; and an emergency fund run by the congregation.

"We kept hearing that housing is a crisis," said Pastor Peter Beeson, who arrived at St. John's nearly six years ago and promptly launched a discernment process around the church's future mission. "People were spending 50, 60, 70% of their income on rent, which left no surplus funds for savings or emergencies… [Their struggles] kept coming back to how much they were spending for housing."

The congregation wanted to encourage a different kind of development in the East Washington neighborhood. Over time, they reached a bittersweet decision about their church: If they razed it, they could help confront the housing crisis, which seemed to them particularly acute in Madison. 

"We began looking at what we could do with our building and real estate," Beeson said. "We were perfectly zoned to be able to do a 10-story high rise with apartments on the upper level and a mixed-use space on the ground floor."

The church didn't want to just add to the stock of market-rate apartments going up in East Washington. So eventually, they settled on a plan for 130 units, 110 of them income and rent-restricted. Of those 130 units, 20% will be limited to households that earn below 30% of the county's median income. A portion of those will go to homeless people.

 The first floor will offer space to community groups and be the new home of the church congregation.

"If it weren't for the church's vision and leadership, they never could have invested the time and energy to advance this effort," said Mark Binkowski, a real estate developer based in Madison who is working with the church on the project. "The church's commitment to its mission is evident in the fact that St. John's is donating its land." 

Even with the church's contribution of $5 million of land value, the congregation faced escalating construction prices, a higher interest rate environment and total costs comparable to market-rate projects. Binkowski said the most challenging part of the project has been making the financing work. That's where Baker Tilly comes in; the Chicago-based consulting and accounting firm has an office in Madison and took St. John's on as a client.

"The church is the primary developer," said Ethan Tabakin, an affordable housing manager in Baker Tilly's real estate advisory group. "The building itself will be sold to a related party, single-purpose entity. So the church will remain a controlling entity of that single-purpose entity, but for tax purposes, [low-income housing tax credit] purposes, and to admit the investor into this entity, in order to get the tax equity, they need to create that single-purpose entity. But the church will remain in control."

According to Tabakin, St. John's applied for and received federal tax credits and state housing tax credits from the Wisconsin Housing and Economic Development Authority. WHEDA will provide the credits to St. Johns, which will then sell the credits to an investor. The investor will inject roughly $17 million of federal and state LIHTC equity into the deal.

The project also includes debt. The mortgage on the property will be collateralized with tax-exempt bonds. The project has authority to use over $26.3 million in tax-exempt bonds issued by WHEDA, which will be privately placed. 

Then there are contributions from the city of Madison and Dane County, both of which have affordable housing funds. Madison will provide $4.85 million in funding and Dane County will chip in $3.78 million. In exchange for those funds, the church made certain commitments, such as the units set aside for formerly unhoused people or the use of flexible tenant selection criteria.

Finally, the church has also kicked off a fundraising drive, aiming to raise $3 million for the project. As of Tuesday, it had raised $788,545. 

The total construction cost recently went up to $53 million, according to Beeson.

"The public financing process, it's so complicated," he said. "I think the more we as a society can simplify and streamline the process, the better… My challenge or encouragement to the financial world would be to continue to look for opportunities to make it simpler for churches to do creative things with their properties. To continue looking at financing mechanisms that make it simpler, because that way, there'll be more opportunity to use these properties for good."

Don Bernards, partner and affordable housing team lead at Baker Tilly, said they're seeing efforts like the St. John's project pop up around the country. He mentioned a similar project in Las Vegas, where Baker Tilly is working with a developer to convert a deteriorating church that the congregation can't keep up into affordable housing financed in part by tax credits.

"The faith-based housing development initiative is a trend that we see that has been really exacerbated by the COVID pandemic," he said. "Fewer congregations are growing, there's a deterioration of religious affiliation… and physical deterioration of buildings. A building should maybe last 30 years, give or take. And many of these worship spaces are 40, 50, 60 years old, and have not had capital improvements. So now they've got a lot of aged buildings that need a lot of capital improvements."

Both Bernards and Tabakin said the need for affordable housing is acute everywhere — in urban and rural areas; throughout Wisconsin, across the Midwest and nationwide. But in rural areas, there are fewer economies of scale and lower population centers, so it costs more and requires more tax credits per unit to build affordable housing, and takes longer for those buildings to lease up.

Bernards said the LIHTC program is one of the most effective financial tools to build affordable housing units today. And Tabakin noted that "WHEDA every single year is oversubscribed with their competitive credits."

Market-rate deals tend to be more highly leveraged and to use a lot of debt, necessitating higher rents to finance the project. But with LIHTC deals, the calculation is flipped: developers want to minimize the debt because the federal tax credit requires them to limit how much they can charge in rent. 

"So it's almost the inverse proportion that is coming into the deal in the form of equity compared to a market-rate deal," Tabakin said. 

Beeson, who now has a master's degree in real estate development, said he and the congregation have learned a great deal from the project. His advice to other churches is to start by taking time to explore the congregation's vision: "Know the why," he said.

He also stressed the importance of engaging with the community early and often, inviting neighbors into the conversation and sharing information with key stakeholders to ease the necessary approvals.

"It's a wild ride," Beeson said. "There are some days when you feel like you're on top of the world and everything is lined up, and there are other days when you look at the budget and don't know how you're going to go forward. But the main thing is just to keep plugging away and know that it's a journey.

"St. John's has had to have a lot of stamina to get this project done," he added.