Salvation Army is a residential real estate powerhouse

By day, Henry Graciani oversees a 54-bed treatment center for alcoholics and drug addicts who come to him broke and hopeless. After work, he makes a quick drive to the $1.3-million Santa Monica home he shares with his wife and three children.

Graciani is not a high-paid executive returning to a beach retreat. He and his wife, Dina, are career Salvation Army officers who bring home $25,000 per year -- combined. They are among dozens of the charity’s officers in Southern California who are paid modest salaries but given rent-free housing -- some in high-priced communities such as Rancho Palos Verdes, Seal Beach and Santa Monica.

The subheadline in an earlier online version of this article had said the Salvation Army owns houses in the U.S. with a total value of about $4 billion as of 2008. The $4 billion is the total estimated value of all the charity’s real estate holdings in the U.S., including commercial real estate.

Best known for its red-kettle holiday bell ringers, the Salvation Army is one of the nation’s largest charities. It serves more than 69 million meals a year to the needy, houses thousands of the nation’s homeless and provides ready response to worldwide disasters -- most recently in Haiti. It’s also a real estate powerhouse.

In Los Angeles and Orange counties alone, the charity owns 87 homes and condominiums worth about $52 million. Nationwide, it valued its real estate holdings at about $4 billion in 2008 -- one-third of its total assets.

For more than a century, the Salvation Army has provided a vast social-service safety net throughout the world, offering food for the homeless, shelter for the abused and relief for disaster victims. Founded in 1865 in London, the Salvation Army has an unusual, quasi-military structure and a highly religious mission.

It is led by officers who dress in uniform and carry ranks ranging from cadet -- an officer in training -- to a single general: Shaw Clifton, the group’s London-based worldwide leader. Officers are allowed to marry, so long as their spouses agree to become officers as well. The Salvation Army has been boycotted by gay rights groups because it considers homosexuality to be immoral.

Aspiring officers are trained at four Salvation Army colleges in the United States, including one in Rancho Palos Verdes. Officers practice Christianity by running programs to aid the needy. They are paid small salaries and provided houses that the Salvation Army owns across the country.

Salvation Army officials say the real estate program makes sound business sense because it enables them to pay low salaries and transfer officers throughout the country without the burden and delay that typically accompany executive moves. It’s a policy similar to that of churches that provide housing to their ministers, said Victor A. Leslie, a lieutenant colonel who oversees the Army’s Southern California operations.

A place to live

Graciani’s two-story home is made of terra-cotta stucco and has a Spanish-tile roof and an enormous backyard with a trampoline for his children.

“The house is a nice benefit. It’s not why I do what I do,” Graciani said during an interview in his home’s second-floor master bedroom, a ceiling fan whirling overhead. “I do what I do because of my commitment to God to serve people through the Salvation Army.”

Some charity analysts said these homes conflict with the image of sacrifice and service that the Salvation Army markets to donors. The organization reported receiving $1.7 billion in support from the public in 2008.

“It creates an appearance issue because John Public thinks, ‘I give the Salvation Army my hard-earned 50 bucks and it’s going to go to this fancy home I can’t afford to live in,’ ” said Daniel Borochoff, president of the American Institute of Philanthropy.

The Salvation Army has long been one of the largest and most recognizable charities in the world. It spent more than $3 billion on services in the U.S. in 2008, according to its annual report.

In Los Angeles County, the charity’s programs include a 450-bed homeless shelter in Bell, a community center for youth in a gang-plagued South Los Angeles neighborhood and a Santa Fe Springs transitional center for battered women.

The charity has a reputation as a wise steward of its donors’ money. It spends more than 80% of donor money directly on services, with the rest going to overhead, analysts said.

In 1997, the late management guru Peter Drucker told Forbes magazine that the Salvation Army was “by far the most effective organization in the U.S. No one even comes close to it in respect to clarity of mission, ability to innovate, measurable results, dedication and putting money to maximum use.”

That reputation makes the charity’s real estate holdings a surprise to some observers. The group owns three Santa Monica houses worth $1.1 million to $1.6 million and eight properties in wealthy Rancho Palos Verdes -- all used by officers.

The Salvation Army bought two of the Rancho Palos Verdes homes in 2007 for $940,000 each. The two houses are within a few blocks of neighboring San Pedro, where similar properties sell for considerably less.

When two of the Santa Monica homes became worn by age, the Salvation Army paid to bulldoze them and rebuild from scratch. One project on Pearl Street cost more than $500,000 to rebuild in 2004. That decision made better business sense than selling and buying a different home, Leslie said.

Gunilla Windon, a real estate agent on the Palos Verdes Peninsula, said she was surprised several years ago when she discovered that the Salvation Army was the owner of a property a client was buying. She later learned about the charity’s vast holdings in Southern California.

“I just have a problem with them standing out there with their kettles at Christmastime and people putting their hard-earned money in there when they own millions and millions and millions of dollars of real estate,” said Windon, who has not donated to the charity since learning about its real estate holdings. “It just doesn’t look right. I don’t like it.”

Itinerant existence

Salvation Army officers are ordained Christian ministers who provide faith-based public service throughout the world. In the U.S., officers transfer about once every four years; with each new assignment comes a different furnished house. When they retire, officers are given one-time “housing allowances” to use as down payments on homes.

Graciani, 47, a cancer survivor who beams when he talks about the people who have turned their lives around at his Santa Monica treatment center, said the Salvation Army saved his life when he was an adolescent.

A self-described “delinquent” as a teen in San Francisco, Graciani sought refuge at a Salvation Army youth center, where he played arcade games and shot pool instead of running with gang members. He spent so much time at the center that he eventually nabbed a job cleaning up the place.

Graciani worked as a counselor at the youth center, then went to a Salvation Army officer college to be trained as a minister. He graduated and worked assignments in Modesto, Monterey, Anaheim and Missoula, Mont., before the organization assigned him to Santa Monica supervising its adult rehabilitation center on 11th Street.

“There’s nothing like getting a guy who has lost all hope and in six months seeing the transformation, seeing in him the hope again. There’s no greater pay,” Graciani said. “What’s it worth when a man comes to you and says, ‘Thanks for giving me my son back’?”

The majority of the Salvation Army’s residential real estate in Southern California is in middle-class communities, records show. There are 24 houses in San Pedro, 10 in Torrance, four in Glendale and three in Long Beach.

Factoring in the market value of the free housing -- and free cars they are issued -- officers’ total compensation packages amount to about $60,000 per couple, Salvation Army officials said.

“Nobody is becoming a millionaire,” said William Harfoot, a colonel who oversees the organization’s operations in 13 Western states. He and his wife live in a Salvation Army property in Long Beach.

Fiscal advantage

If the charity sold the property it has acquired through the years, the money would have to be used to pay higher wages to its officers to rent their own places, Harfoot said.

“It would put a stress on our operating budget,” he said. “We think financially this has worked to our advantage.”

From a business perspective, the housing arrangement makes sense and does not appear to be excessive compensation, said Al Osborne, senior associate dean and management professor at the UCLA Anderson School of Management.

“They have made calculations that to keep people focused on their mission, given the low wages they pay, to provide in-kind benefits of housing. I can’t quarrel with it,” Osborne said. “It’s no different from a synagogue or church or corporation that maintains housing for its key people.”

Graciani said he and his family can manage with a $2,100 monthly allowance, using the money to pay for food, clothing, medical appointments and an occasional movie. He likes the house in Santa Monica, but he understands that a new assignment and a new house are probably in his family’s future.

“I didn’t join the Salvation Army so I could live in a Salvation Army house,” he said. “If my motivation was a nice house, I’d get a job that would pay for a nice house.”

Times researcher Scott Wilson contributed to this report.