florida charter school conference session | i need a new facility for my school. now what?

Copyright © 2017 School Capital, Inc. All Rights Reserved. Charter

I Need a New

Facility for My

School. Now

What?

Florida Charter School Conference

11/02/2017

Copyright © 2017 Charter School Capital, Inc. All Rights Reserved.

Welcome

3Copyright © 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

Thom JacksonPresident and CEO

Edison Learning


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/Florida-2017


Market Overview


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)


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


Facilities Funding Structures


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


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


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


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?


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.


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


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


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


Funding Approval and Execution


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


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


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


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


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


Questions?Presentation available at

CharterSchoolCapital.org/Florida-2017


Thank You

Presentation available at:

Charterschoolcapital.org/Florida-2017

Stuart Ellis, Charter School Capital

[email protected]

Mike Morley, American Charter Development

[email protected]

Thom Jackson, Education Learning

[email protected]