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Copyright © 2017 Charter School Capital, Inc. All Rights Reserved.
New Year, New Charter
School Facilities
Knowledge
Webinar2/16/2017
Copyright © 2015 Charter School Capital, Inc. All Rights Reserved.
Welcome
3Copyright © 2017 Charter School Capital, Inc. All Rights Reserved.
WELCOME
Stuart Ellis, President and CEOCharter School Capital
Larry Rieder, PresidentCharter School Property Solutions
4Copyright © 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 athttp://charterschoolcapital.org/webinars
Copyright © 2015 Charter School Capital, Inc. All Rights Reserved.
Market Overview
6Copyright © 2015 Charter School Capital, Inc. All Rights Reserved.
CURRENT MARKET IMPACT
• Lack of facilities access is an obstacle to growth
– With more than 3 million charter students nationwide, there are still 1 million on
waitlists
– 7,000 charters in U.S. yet many have suboptimal facilities hindering growth
– With more financing options available today, charters can expand enrollment
• Charter financing options have expanded, but markets have been recently “disrupted”
– Long term and short term rates have been rising
– Refinancing and locking in long term financing could be beneficial
– Turbulent markets make for uncertainty that should be taken into consideration
• Alternatives for your specific situation vary depending upon
– CMO vs. EMO vs. individual school
– Refinance vs. expansion
– Long-term lease vs. bank financing vs. bond
Copyright © 2015 Charter School Capital, Inc. All Rights Reserved.
Facilities Funding Structures
8Copyright © 2015 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
9Copyright © 2015 Charter School Capital, Inc. All Rights Reserved.
FACILITIES BUDGETING
How much can we afford?
$0mm $2mm $4mm $6mm $8mm $10mm$0mm
$2mm
$4mm
$6mm
$8mm
$10mm
$12mm
$14mm
$16mm
$18mm
$20mm
Facilities Budget vs. School Revenues10% Facilities Cost/Rev 15% Facilities Cost/Rev 20% Facilities Cost/Rev
Annual School Revenue
Potential Project Budget
10Copyright © 2015 Charter School Capital, Inc. All Rights Reserved.
AVAILABLE OPTIONS VARY
# of Years of Operation
$ Size of Financing
Large
Small0 10+
DeveloperLong-term Lease
BankLong-term Lease
BondLong-term Lease
Bank
Short-term LeaseLong-term Lease
Developer
Alternative capital sources expand with school/network size and maturity1st Renewed Charter
~$7 -10mm
11Copyright © 2015 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?
12Copyright © 2015 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 yrsSurplusAssets + Revenue
Min 3 yrsDebt coverageSurplusRating?
No minimumAcademic successFlexible
Security interest None Real estate + all assets
Real estate + all assets
None
Growth options Cash = Build Refinance risk Rate risk
10 yr minimum Refinance riskCovenants
Scalable, expandable
Considerations/challenges
Reserves? 20+/- 40% equity 5-20yr term and amortization
100% financing Transaction costs “Road show”
100% financing No amortizationBuy 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.
13Copyright © 2015 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, School Bond Issuance: A Complete History Vol 3
14Copyright © 2015 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 BondTraditional Bank
Long Term Lease
15Copyright © 2015 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 BondTraditional Bank
Long Term Lease
Copyright © 2015 Charter School Capital, Inc. All Rights Reserved.
Funding Approval and Execution
17Copyright © 2015 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
18Copyright © 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
19Copyright © 2015 Charter School Capital, Inc. All Rights Reserved.
PROJECT EXECUTION
Execution requires significant time
Plan Construct Design Acquire
Space Programming
Features Budget Timeline Charter
approvals
Select team Design/build
options GC bidding Bldg. permit Timing; big
bang or phased
Locate Site Acquisition Use Permit Land prep
Move dirt Raise the
roof Control:
Project manager or owners rep
Fund
Cash Bank Bond Lease
20Copyright © 2015 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
21Copyright © 2015 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
Copyright © 2015 Charter School Capital, Inc. All Rights Reserved.
Questions?
23Copyright © 2015 Charter School Capital, Inc. All Rights Reserved.
Thank YouPresentation available at: Charterschoolcapital.org/Webinars
Stuart Ellis [email protected]
Larry [email protected]