Texas Charter School Conference: I Need a Better Facility for My School. Now What?
•Download as PPTX, PDF•
0 likes•120 views
October 13, 2017 Facilities financing session for charter schools at the Texas Charter School Conference in Grapevine, Texas.
Recommended
Recommended
More Related Content
What's hot
What's hot (9)
Similar to Texas Charter School Conference: I Need a Better Facility for My School. Now What?
Similar to Texas Charter School Conference: I Need a Better Facility for My School. Now What? (20)
More from Charter School Capital
More from Charter School Capital (20)
Recently uploaded
Recently uploaded (20)
Texas Charter School Conference: I Need a Better Facility for My School. Now What?
- 1. Copyright © 2017 School Capital, Inc. All Rights Reserved. Charter I Need a Better Facility for My School. Now What? Texas Charter Schools Conference 10/13/2017
- 2. Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. Welcome
- 3. 3 Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. Mike Morley President and CEO American Charter Development WELCOME Stuart Ellis President and CEO Charter School Capital
- 4. 4 Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. WHAT WE’LL COVER • Market overview and impact • Balancing facilities dreams and budget realities • Understanding and choosing a funding structure • Funding approval - keys areas of focus • Project execution and timing • Other considerations Agenda Presentation will be available to download at http://CharterSchoolCapital.org/
- 5. Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. Market Overview
- 6. 6 Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. CURRENT MARKET IMPACT • Lack of facilities access is an obstacle to growth – 3 million charter students nationally; 1 million on waitlists – 7,000 charters in U.S. yet many have suboptimal facilities that hinder their growth – With more financing options, charters can expand enrollment • Money is cheaper than it's been, but markets recently “disrupted” – With rates currently rising, consider locking in long-term – Refinancing may also be attractive now • Options for your situation – Refinance and expansion – Long-term lease vs. bank funding vs. bond • Current real estate market (what are trends)
- 7. 7 Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. PROGRAMS AND REGS • Credit enhancement program • Charter Schools Facilities Incentive Grant • State bond program • Legislative and Regulatory developments for charter school facilities • Other programs Federal regulations and programs
- 8. Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. Facilities Funding Structures
- 9. 9 Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. CONSIDERATIONS What can we afford? What is required? Existing reserves Academic mission Ongoing % of revenue Growth plan for attendance Fundraising – public/private Specialty requirements Funding alternatives Local considerations Want – need – budget
- 10. 10 Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. FACILITIES BUDGETING How much can we afford? $0mm $2mm $4mm $6mm $8mm $10mm $12mm $14mm $16mm $18mm $20mm $0mm $2mm $4mm $6mm $8mm $10mm Potential Project Budget Annual School Revenue Facilities Budget vs. School Revenues 10% Facilities Cost/Rev 15% Facilities Cost/Rev 20% Facilities Cost/Rev
- 11. 11 Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. AVAILABLE OPTIONS VARY # of Years of Operation $ Size of Financing Large Small 0 10+ Developer Long-term Lease Bank Long-term Lease Bond Long-term Lease Bank Short-term Lease Long-term Lease Developer Alternative capital sources expand with school/network size and maturity 1st Renewed Charter ~$7 -10mm
- 12. 12 Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. CONSIDERATIONS • Control versus Ownership – Control is critical to maintain stability, growth and financial predictability – Ownership is an investment • Evaluate total dollars spent not percentage rates • Cost is not just money, but time and opportunity – Risk of funding effort failure – Total elapsed time to complete funding • Structural constraints and impact on future options What to consider in a financing structure How do different options compare for my particular school?
- 13. 13 Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. FINANCING OPTIONS Criteria Cash Bank Bond Long Term Lease Cash needed to close $7M $2.1 – 2.8M ~$200 – 500K $0 – 100K Annual cost (example) $0 $350 – 700K $600 – 800K $630 – 700K Underwriting None Min 5 yrs Surplus Assets + Revenue Min 3 yrs Debt coverage Surplus Rating? No minimum Academic success Flexible Security interest None Real estate + all assets Real estate + all assets None Growth options Cash = Build Refinance risk Rate risk 10 yr minimum Refinance risk Covenants Scalable, expandable Considerations/chall enges Reserves? 20+/- 40% equity 5-20yr term and amortization 100% financing Transaction costs “Road show” 100% financing No amortization Buy back Note: $7 million project example; bank assumptions 6-8% interest on debt, 30-40% equity, 10-20yr amortization; bond assumptions 6-9% interest rate, 18% transaction cost/additional financing, 30yr amortization; lease options assumptions 100% financing, 9-10% cap rate.
- 14. 14 Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. THE BOND MARKET SOLUTION • Bond market financing of charters has increased as the charter school market has grown • Bonds fit well for larger, more mature charters • Other alternatives exist today to serve the remaining 88% of the charter school market Since 1990s, ~12% of charters nationwide received bond market funding Source: 2015 LISC report, Charter School Facility Finance Landscape
- 15. 15 Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. EXAMPLE - PROJECT $5MM Security Interest Growth Options Underwriting Annual cost Cash needed Comparison for illustrative purposes only. Rankings are based on how hypothetical “School A” might view its options based on unique attributes and objectives. Criteria Cash Bond Traditional Bank Long Term Lease
- 16. 16 Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. EXAMPLE - PROJECT $20MM Security Interest Growth Options Underwriting Annual cost Cash needed Comparison for illustrative purposes only. Rankings are based on how hypothetical “School A” might view its options based on unique attributes and objectives. Criteria Cash Bond Traditional Bank Long Term Lease
- 17. Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. Funding Approval and Execution
- 18. 18 Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. PASSING THE TEST • Enrollment – Stable or increasing enrollment – Strong demand – waiting list, expanding grades, market growth • School / Leadership History – Experienced leadership team with proven track record – Market leading academic performance (local peers, district, state) • Numbers have to “pencil” – Sound financial performance and pro forma – Debt service / lease payment target < 20% of total revenue – Valuation of target property • Governance issues – Authorizer relationship – Operational excellence and adherence to internal controls Funding structure requirements
- 19. 19 Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. FACILITY CONSIDERATIONS • Plan ahead – Collaborate with the programmatic side of the organization – Lock in a stable leadership and management team – Understand academic performance – Plan financial performance measures • Watch the market – Keep an eye on rates and available products – Understand the real estate opportunities and challenges – Have realistic expectations • Line up internal resources – Legal, financial and academic • Prepare for the deal – Work with a partner – Charter school experience – Line up your financing ahead of time Four key components
- 20. 20 Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. PROJECT EXECUTION Execution requires significant time Plan BuildDesignAcquire Space Programming Features Budget Timeline Charter approvals Select team Design/build options GC bidding Bldg. permit Timing: big bang or phased Locate Site Requirements + restrictions Leasing/purc hasing Acquisition Use Permit Land prep Move dirt Raise the roof Control: Project manager or owners rep Fund Cash Bank Bond Lease
- 21. 21 Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. KEY CONSIDERATIONS • Full-service resource –Funding partner / structure –Commercial developer –Architect –General Contractor • Flexible / Adaptive to your unique project • Guarantor / Sponsor / Investor • Access to working / growth capital • Total cost of ownership (now and later) Choose a strong partner
- 22. 22 Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. OTHER OPTIONS • Long-term lease • State bond • CDFI • Private bond • Cash reserves • New market tax credits • EB-5 • USDA (rural development funds) Options expand as organization matures
- 23. Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. Questions? Presentation available at CharterSchoolCapital.org/
- 24. 24 Copyright © 2017 Charter School Capital, Inc. All Rights Reserved. Thank You Presentation available at: Charterschoolcapital.org/ Stuart Ellis, Charter School Capital sellis@charterschoolcapital.org Mike Morley, American Charter Development mike@amercd.com
Editor's Notes
- Credit Enhancement Grant: o Provides grants to eligible entities to permit them to enhance the credit of charter schools so that the charter schools can access private-sector and other non-Federal capital in order to acquire, construct, and renovate facilities at a reasonable cost. o Eligible entities receiving a grant must use the funds deposited in the reserve account to assist one or more charter schools to access private-sector capital to accomplish one or more of the following objectives: § The acquisition (by purchase, lease, donation, or otherwise) of an interest (including an interest held by a third party for the benefit of a charter school) in improved or unimproved real property that is necessary to commence or continue the operation of a charter school. § The construction of new facilities, or the renovation, repair, or alteration of existing facilities, necessary to commence or continue the operation of a charter school. § The predevelopment costs required to assess sites and to commence or continue the operation of a charter school. o State applications for 2017 application round were due May 11, 2017. o $16m available and the ED expects to make about three awards o Recent awards have gone to: § Low Income Investment Fund in San Francisco, CA § Community Loan Fund of New Jersey, Inc. in New Jersey § Boston Community Loan Fund, Inc. in Boston, Mass § Charter Schools Development Corporation in Hanover, Maryland o Check to see if there are still funds available in your state · Charter School Facilities Incentive Grant: o Provides competitive grants to help states establish and enhance or administer "per-pupil facilities aid" for charter schools. The federal funds are used to match programs funded with nonfederal dollars that make payments, on a per-pupil basis, to provide charter schools with facilities financing. The program is intended to encourage states to share in the costs associated with charter schools facilities funding, and as a result states pay an increasing share of the cost of the program. Under this grant, the maximum federal share of facilities funds decreases each year (from 90 percent in the first year to 20 percent in year five) and phases out entirely after five years. o Current competition is closed – Indiana and California have received awards in the past. · Many states have state level programs o A good resource – Charter School Facilities Initiative o 16 states have a per-pupil facilities allowance for charter schools § Arizona § California § Colorado § Florida § Georgia § Idaho § Indiana § Massachusetts § Minnesota § New Mexico § New York § Ohio § Pennsylvania § Tennessee § Utah § Washington DC o 16 states have created a charter school facility grant program: § Arizona § Arkansas § California § Connecticut § Delaware § Georgia § Hawaii § Indiana § New Hampshire § New Mexico § New York § Ohio § Oklahoma § Oregon § Pennsylvania § Washington DC o 12 states have created a charter school facility loan program § Arkansas § California § Illinois § Indiana § Louisiana § Nevada § Ohio § Oregon § Rhode Island § South Carolina § Utah § Washington DC o Seven states ensure that charter schools have access to existing state facilities programs for district-run public schools: § Alaska § Colorado § Delaware § New Hampshire § Oklahoma § Rhode Island § Wyoming o Five states provide charter schools with access to local property tax dollars: § Alaska § Colorado § Florida § New Mexico § Ohio