Diocese reviews property sales

Anxious about its public image as it prepares for the largest volume of parish property sales in the history of the Roman Catholic Church in America, the Boston Archdiocese has hired an outside law firm to review its handling of real-estate transactions from recent years.

The Rev. Christopher J. Coyne, spokesman for the archdiocese, confirmed Friday that the church hoped that this decision to embrace outside scrutiny -- extraordinary for the church -- would reassure the public that its real estate practices are free of the taint of favoritism or scandal.

Coyne said that the review was nearing completion but that he did not know if the archdiocese would release its results once it is concluded.

On Tuesday, Archbishop Sean P. O’Malley is expected to announce the closure of dozens of parishes, which could result in the sale of 200 or more buildings and lots.

“Of course, we’re worried,” Coyne said. “We’re in the church business, not real estate. We don’t want to do anything that hurts the mission of the church.”

The church moved to hire the firm after the Globe examined a sampling of recent property sales by the archdiocese. Some of those sales have appeared to benefit major donors to the church, or those with connections to church insiders. Other agreements suggest that the church, on occasion, has been an easy mark for developers with an eye for a bargain.

Among the transactions examined were:

A no-bid sale last summer of a long-closed bank building in the South End across from the Cathedral of the Holy Cross, to a developer whose family foundation is a major church donor. Another developer in the neighborhood says he would have paid $1 million more for the property.

An agreement in August to sell a North End church hall to a developer whose partner is friendly with the church's broker in the transaction. The developer plans to put luxury housing on the site; this has angered some in the neighborhood.

Two sales in which the church appears to have sold property for substantially less than its open-market value. In both cases, the properties were quickly resold at a substantial profit.

Church officials defend these deals as fair and appropriate. They say that even if there have been a few lapses, the archdiocese's track record in real estate sales is strong.

"We may have made a mistake or two, but everything that has been done has been very aboveboard and clean," said William F. McCall Jr., a principal in the real estate firm of McCall and Almy, who chairs the archdiocese's Real Estate Advisory Committee. Still, there is anxiety within the church about managing what church observers say will be the largest volume of property sales ever managed by an American diocese. David H. O'Brien, director of properties for the archdiocese, described it as the coming "deluge."

"I don't think any diocese has ever had to deal with the volume that we will be," O'Brien said.

Others who have examined these and other sales say outside scrutiny is long overdue.

The Massachusetts secretary of state, William F. Galvin, is one such critic. He considers the legal review of past transactions a good first step, but has urged O'Malley to name a fully independent team to handle the coming round of sales.

"These properties belong to the parishioners whose donations bought them, built them, and maintained them over the years," Galvin said. "The archdiocese has not shown the openness, expertise, and credibility to be handling such transactions."

Galvin said his concerns had been heightened after a review of publicly filed documents on several sales by the church. He sharply questioned, for example, why in November the archdiocese sold almost 40 acres of buildable land in Hingham for $1.6 million, when half-acre lots in the neighborhood are assessed at $150,000.

Galvin also said he was incensed to learn the details of the 1999 sale of an acre of prime land on the Brighton-Newton border -- land owned by Our Lady of The Presentation Church, where Galvin is a parishioner. Ronald A. Lopez, a Medford developer, paid $800,000 for the lot, then resold it within days for $1.1 million. "The best that can be said about that transaction is that they were incompetent," said Galvin, whose office oversees the registries where property records are filed. "With the archdiocese about to embark on the largest sale of real estate in church history, we don't have the luxury of making mistakes like that."

Leaders of Voice of the Faithful, the lay reform group, differ on a need for outside monitoring. David Castaldi, a trustee of the group who served as the church's chancellor for six months in 2000, praised its real estate division as "a professional and honest operation." However, John Hynes of Canton, chairman of the group's Boston council, said supervision is essential if the church is "ever going to convince parishioners that the process is transparent and fair."

Church leaders still see no need for independent monitoring of future property sales. The archdiocese, they say, has procedures to prevent favoritism and conflicts of interests.

David W. Smith, the chancellor of the archdiocese and its top financial officer, said in a statement that all sales must be approved by two committees with heavy lay representation before O'Malley signs the deeds. Both committees are alerted whenever a donor, family member, or friend of the archdiocese is a bidder, Smith said, and "extra attention is paid to make sure that no preference is granted."

As a further layer of protection, the Vatican must also approve sales of parish properties valued at more than $2.5 million and archdiocesan property worth $5 million or more.

McCall allowed that there have been instances in which major donors have sought an inside track when bidding on church property, much as some developers make political contributions hoping for an edge with the city. "But they don't get it here [at the archdiocese]. In no experience I've ever known."

The church's procedures require that parcels marked for sale be appraised and then marketed through an independent broker. Only once in his tenure of almost three years as chancellor, Smith said, has the archdiocese sold a property for less than its appraised value. He declined to say which property or to explain why.

And only once in the last two years, Coyne said, has the archdiocese sold a property without soliciting bids. He referred to the sale last July of the long-shuttered Penny Savings Bank on Washington Street in the South End to PSB Investments LLC for $2.14 million.

Sean P. McGrath of Weston, a principal in PSB Investments, is one of five children who, with their mother, oversee a charitable foundation in honor of their late father. According to publicly filed documents, the foundation, Highland Street Connection, donated more than $3 million to local and national Catholic causes between 1999 and 2002, most to help needy students attend parochial schools. Also, the family has come to the aid of the church in other ways, said Monsignor Michael F. Groden, former head of the archdiocese's Planning Office for Urban Affairs. He said the McGraths provided a $1.8 million bridge loan to help finance the construction of the Rollins Square Condominiums, an affordable housing project in the South End.

Groden, whose office solicited the loan, described himself as a friend of the McGrath family.

Coyne said that the archdiocese did not have the bank building marketed for sale when the McGrath family approached the church and asked if they could buy it. McGrath agreed to pay the appraised value of the property, and the building was sold without competitive bids, Coyne said.

"At that time, we needed cash. We were facing a budget deficit and we needed millions of dollars," Coyne said.

The quiet sale surprised and angered the owner of the building adjacent to Penny Savings. Mario Nicosia, who operates the development and management firm GTI Properties, said in an interview that he would have paid at least $1 million more for the bank building had he known it was for sale.

In November, Nicosia's lawyer, David L. Kelston of Cambridge, wrote to Rudolph F. Pierce, a lawyer for the church's Planning Office, protesting the sales of the bank building and two of the Rollins Square commercial condo units owned by the church.

"I cannot help but suspect, from all of this, that the well-connected McGrath family's donations to the church have been repaid by, inter alia, inside business deals," Kelston wrote.

Neither Sean McGrath nor his lawyer, Richard J. Levin of Cambridge, responded to several telephone calls from The Boston Globe.

When they first offered to buy the property last year, the McGraths said they wanted to use the building as headquarters for the family's charitable foundation, Groden said. They later decided to develop luxury condominiums there, according to Coyne.

Asked if the no-bid sale of the bank building to McGrath's firm violated the archdiocese's rules against favoring large donors, Coyne said it did not, because the sales price, at the building's appraised value, reflected no favoritism.

McCall added: "We try to make sure that everything is as fair as possible, as transparent as possible. So, if there is one sale over a five-year period that someone wrote a letter on, I'd say we did pretty well."

The church's real estate team has been increasingly busy. The archdiocese's worsening financial condition spurred it to increase the pace of property sales. Last year, it sold or agreed to sell 27 parcels in Eastern Massachusetts for $45 million -- more than four times the value of sales in 2001 and 2002 combined. More than half of the transactions involved parcels owned by local parishes. And the money from the sales went to pay off debts those parishes owed to the archdiocese. Proceeds from properties from parishes O'Malley decides to close this week will go the archdiocese, which is also assuming debts and pension obligations the parishes leave behind.

The largest of last year's transactions involved St. Leonard's Hall in the North End, which had been used as a community center for more than 50 years after it was purchased by the archdiocese for $500. Last August, the archdiocese signed a purchase and sales agreement to sell the building for $6.1 million to a trust controlled by Byron Gilchrest, a former partner in the Boston firm Macomber Development Associates. In an interview, Gilchrest said he had two minority partners in the trust, his architect and Frank T. Keefe, a partner in numerous other development projects in the Boston area. Keefe is also friendly with John E. McGrath, who served as the archdiocese's broker on the deal.

Keefe did not respond to a request for an interview, but McGrath said he knew that Keefe owned 10 percent interest in the firm that was being selected as developer. He said that he did not specifically tell his superiors about his association with Keefe because he saw no potential conflict of interest. Keefe's name, he said, was listed as a minority shareholder in the papers the firm submitted to the church.

While there is no state regulation to require such disclosure by McGrath, Charles F. Borstel, assistant to the director of the state Division of Professional Licensure, said the board of Real Estate Brokers and Appraisers prefers that brokers inform their clients of any friendships with potential customers.

McGrath said he had shown no favoritism toward Gilchrest's firm. He did, however, acknowledge that he asked Gilchrest to increase his offer, which was second-highest, after the company that submitted the top bid could not complete the deal. No similar opportunity was given the other bidders.

Gilchrest intends to construct a 57-unit condominium building on the site, six of which would be affordable. He has also agreed to pay $432,000 to facilitate the construction of six other affordable units elsewhere in the city.

After the agreement was announced, North End political leaders and residents complained that the church had not given them a fair chance to orchestrate a rival bid, one that might have yielded less cash but that might have given the neighborhood something it needs -- more affordable housing, a senior citizens center, or a health clinic.

Taking a lower offer in a good cause is allowed under church rules, Smith said in a statement, and "this is often done in the area of affordable housing." Smith did not respond when asked, through Coyne, to provide instances of such sales.

While he is the archdiocese's final arbiter on property sales, O'Malley must consult with pastors in the marketing of properties from parishes that are not being closed. Coyne said he could recall only one occasion in which the archdiocese and a pastor disagreed -- on the sale of 8.5 acres of land last May in Hudson.

Acting on the recommendation of his real estate team, Bishop Richard G. Lennon, then apostolic administrator for the archdiocese, told the pastor of St. Michael's Church in Hudson that he should reconsider accepting $995,000 for the parcel, because the price was too low. Needing the money to pay for bills of the parish and its school, the pastor resisted, Coyne said, and the deal went through.

Less than a year later, Paul V. Davis, the developer who bought the land, had divided the acreage into nine house lots and sold eight of them for an overall profit of $300,000.

Beyond his criticism of the archdiocese's real-estate sales track record, Galvin also wonders what the church will do with the many millions it will earn from the property sales.

"Yes, the church has debts it owes, and bills it needs to pay, but the money raised from the number of sales being projected is far more than anything that they've said before," Galvin said. "I have one simple question -- if they don't need all that money, why are they closing so many churches and putting people through so much pain?"

Coyne said closing a large number of churches is not prompted by the need to raise money but instead to adjust to the reduced number of parishioners attending Mass and the number of priests available to conduct those services. Indeed, he said, the committee making recommendation to O'Malley on church closings isn't allowed to consider what the properties might sell for.

"We need to put our house in order for the 21st century both financially and operationally," Coyne said. "So many of these properties are being sold because it has just gotten too expensive to continue to operate them as we have been."

Stephen Kurkjian can be reached at kurkjian@globe.com.