Vatican ties go just so far for Follieri Group

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Three years ago, Raffaello Follieri was sent to the U.S. by his father, the wealthy Italian businessman Pasquale Follieri, to launch the Follieri Group, a real-estate company with an unconventional but timely business plan: Buy up property from the Roman Catholic Church and redevelop it for "socially responsible" purposes.

Follieri Group's strategy seemed promising: The Follieri family is a strong supporter of Catholic organizations and is widely perceived to have links to former Vatican Secretary of State Angelo Sodano, whose nephew is a Follieri Group senior adviser. And the timing has been right: Sex-abuse scandals, demographic shifts among parishioners and rising pension and health-care costs for workers have put many U.S. Catholic dioceses in a financial bind, and many are selling off property to raise funds. The sex-abuse cases are expected to cost Catholic churches in the U.S. more than $1 billion. Last year alone, Catholic dioceses in the U.S. paid out nearly $500 million in settlement and legal fees, according to the U.S. Conference of Catholic Bishops.

The Follieri Group says its plan is to use a significant portion of its U.S. real-estate profits to fund an affiliated foundation, which will provide scholarships to Catholic-school students, improve health care for children in poor countries and offer free prescription-drug discount cards to uninsured and underinsured Americans. The company says it conducts business based on the principles and teachings of the Catholic Church.

"We don't look for the best dollar," the younger Mr. Follieri, the company's chairman and chief executive, said in an interview. "We are here to make the best difference in the community."

So far, though, the 28-year-old Mr. Follieri has had an easier time maneuvering around Manhattan society than in acquiring and developing Catholic church property. A resident of Trump Tower, he is the frequently photographed beau of "The Devil Wears Prada" star Anne Hathaway and is often seen dining with New York's rich and famous. His association with Ms. Hathaway has helped him get recognition for a trip the couple made last week to Nicaragua to give out 1,000 hepatitis-A vaccines to children. He also has attracted some important financial backers, including billionaire businessman Ron Burkle.

Still, doing business with the Catholic Church in the U.S. is turning out be a struggle. Follieri Group has tried to purchase at least 20 properties from more than 10 dioceses and archdioceses over the past three years. It has been the successful bidder on only three church properties.

Follieri Group lost out on some of its other attempts to a higher bid. Joseph Zwilling, spokesman for the New York City Archdiocese, says the archdiocese's real-estate group has met with Mr. Follieri in connection with the possible sale of property and was aware of his connections with the Holy See. But the Follieri people "have never been the highest bidder," Mr. Zwilling says.

The company made an awkward attempt at schmoozing with the National Conference of Catholic Bishops in June. The Conference declined the Follieri Group's offer to place fruit baskets in the hotel rooms of 350 bishops at the Los Angeles meeting, according to Sister Mary Ann Walsh, the conference's spokeswoman. The company ended up handing out the fruit baskets near the conference registration desk.

Sister Walsh says bishops attend the meetings to pray and discuss the liturgy -- not to deal with business issues. "This group has tried persistently to be part of (the conference) and was not permitted," Sister Walsh says. "They're not a church organization."

A Follieri Group spokeswoman, Marcy Simon, says the company's attendance at such meetings "helps everyone get to know one another and forge relationships or improve on existing ones through dialogue and meetings."

The Follieri Group's Web site has noted "long-standing relationships with senior members of the Vatican hierarchy." But those ties could be backfiring. Earlier this year, several bloggers who write about Catholic news seized upon that line -- which has since been removed from the Web site -- and warned that selling Catholic property to the Follieri Group could raise the appearance of preferential treatment or conflicts of interest. A Vatican spokesman said the Holy See has no relationship with the Follieri Group.

Cultural differences between Europe and the U.S. may be contributing to the Follieri Group's slow start in the U.S. "In the U.S., we take great pains to separate church and state. That also includes separating religion and business," says Michael Czinkota, a professor at the McDonough School of Business at Georgetown University in Washington. "In European countries, there is more linkage between the two."

The Boston Archdiocese, which is selling more than $500 million in properties to pay legal claims, rejected the Follieri Group's offer in 2004 to buy 12 properties, including churches and schools, all at once. Church officials there believed the parcels were worth more if sold individually, and they didn't like the idea of selling all of them to one buyer -- especially a company that wasn't local.

"They were trying to buy everything," says William McCall, an attorney and the chairman of the Boston Archdiocese's real-estate advisory committee. "The thinking here was that it might cause some turmoil in the market." Boston Church officials say they invited the Follieri Group to bid on properties individually but the company declined.

Follieri Group has sometimes lost out even with a high bid. The St. Louis Archdiocese, which recently has been trying to sell 80 church parcels, turned down the Follieri Group's bids. Tony Huenneke, a spokesman for the St. Louis group, says the archdiocese was less focused on price and more interested in working with local developers. "It's what best suited the property," Mr. Huenneke says.

Mr. Follieri declined repeated requests to discuss his company's bidding experiences. But he says real estate is in his blood and that four generations of his family have fought controversy to work in residential development. The family began building in Foggia in the south of Italy and eventually expanded throughout Europe, Mr. Follieri says.

In an email, Ms. Simon disputes the notion that the company is encountering difficulties and says it is undaunted. "The Follieri Group will continue to participate in the bidding process on properties the Catholic church has for sale," she says.

Mr. Follieri got a better reception from lenders such as Mr. Burkle, whose Los Angeles private-equity firm, Yucaipa Cos., financed two acquisitions in Philadelphia. Wells Fargo & Co. financed a Follieri Group acquisition in suburban Chicago. Wachovia Securities executive Robert Verrone, a high-profile lender, has said he would lend to Mr. Follieri if the opportunity presents itself.

Development of two of the three church properties Follieri Group has purchased so far has been bogged down in community opposition and controversy. Follieri bought Transfiguration Church, a two-acre complex in a working-class Philadelphia community, including a church, school, rectory and convent. Follieri paid $1.1 million for the property last October.

Since then, neighbors have complained repeatedly to city agencies that the new owners have let the property fall into disrepair. Before the sale closed, nuns had acted as caretakers. Now, the hedges haven't been trimmed, the church school caught fire, and a homeless man moved under the porch of the rectory, neighbors say.

"It's really a dangerous place, and there needs something to be done over there before someone really could be hurt," says Mary Whitaker, a neighbor. Anita Dennis, who has owned a house across the street from Transfiguration for 28 years, said the church and school were "the beacon of the community."

Follieri Group representatives met with community residents to hear their concerns. Residents became angrier when the Follieri people told them they were considering building affordable housing on the property. Ms. Simon, the Follieri spokeswoman, says via email that the company is "working with the local planning office to approve plans for the site."

The company's plans for a second Philadelphia property, St. Clement, didn't pan out. Follieri purchased the church from the Archdiocese of Philadelphia for $1.8 million last October and planned to build senior-citizen housing, selling a school building to a group that would have turned it into a school for transitional kids. Residents complained, and last month, Mr. Follieri sold St. Clements to nearby First Baptist Church of Paschall.

The Follieri Group bought a 78.5-acre parcel in the Chicago suburb of Orland Park from the Archdiocese of Chicago. The land exists on wetlands and on a flood plain, which makes building more expensive. "We couldn't find any use for it," says Terry Woolens, an executive at Gallagher & Henry, a major home builder in Orland Park. Follieri Group declined to discuss the purchase price, but Ms. Simon says the company is "proceeding with the local planning office to approve plans for development." According to documents filed with the village of Orland Park, preliminary plans call for residential development.

In Atlantic City, N.J., the Follieri Group is working with St. Nicholas of Tollantine Roman Catholic Church to co-develop a parcel of land the church had been trying to sell for 25 years. Monsignor William Hodge says he welcomes the Follieri Group's help. Other developers rejected the site because it isn't on the boardwalk. "There was no serious interest in this property until the Follieri Group came," says Monsignor Hodge, who hopes to build low-income housing.

Mr. Follieri's spokeswoman said, in an email, that her client "is committed to purchasing and developing properties, including former Catholic church properties, and ensuring that they are developed thoughtfully with a demonstrable benefit to local communities."

The Follieri Group Web site has estimated the combined cost for buying and developing its U.S. projects so far is $100 million.

Stacy Meichtry contributed to this article.


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