Working exclusively with charter schools, we measure our success by the number of students we serve. Our team works with all sizes – and types – of charter schools to budget and plan for current needs and future growth – whether your school requires operational capital, growth funding, or facilities expansion. We partner with our clients so they can focus on what’s most important – educating students.
Long-Term Lease Financing
Our lease product allows schools to access funding through all stages of growth – from startup to expansion through maturity. Our transparent lease terms mean that there are no artificial incentives to seek refinancing – another great benefit. As a long-term partner, our team carefully evaluates each school’s unique operation to help them determine the revenue that can be committed to supporting facilities.
Benefits of Long-Term Lease Financing
Finances 100% of your total project cost
Retain control of your facilities
Enhancements of existing buildings and ground-up construction
Ensures long term affordability
Tenant improvements included in the financing
Customized to school specifications (blended learning model, traditional, etc.)
Charter School Capital Facilities Program Overview
As part of our ongoing support of charter school growth, our Facilities team assists charter leaders in finding appropriate real estate, providing long-term lease financing as well as managing leases and facilities development. We are building our portfolio specifically with charter school properties in order to service a niche market with niche needs. We currently own 42 school properties in 11 states, more than $350 million in assets.
Financing Approval Criteria
Our experienced team will support you every step of the way and answer any questions you may have.
Experienced school leadership
Proven and consistent track record of operational success
History of good academic performance
Stable or increasing enrollment
Strong community demand (student waitlists, expanding grades)
Sound financial performance
Lease payment target that’s less than 20% of total revenue
A healthy relationship with the school’s authorizer
The Ultimate Guide to Charter School Facility Financing:
Thinking about a new facility for your charter school or enhancing your current one? This guide shares straightforward and actionable advice on facilities planning, financing options, getting approved, choosing a partner, and much more! Download it here.
As of 2019, there were up to 13.8 million missed school days each year due to asthma.
Kids can face adverse environmental exposures associated with building decay, such as water damage, mold growth, poor plumbing, and legacy pollutants that persist in the environment.
Common indoor air pollutants in schools have been associated with acute, chronic health effects. Elevated CO2 levels in classrooms have been linked to increased student absence.
Thermal conditions can impact focus and performance. Low absolute humidity has been associated with increased transmission of seasonal influenza outbreaks, leading to absenteeism.
Students in schools with the noisiest types of HVAC systems were found to underperform on student achievement tests.
Students’ perceived sense of security can impact their mental health, engagement in school activities, and academic achievement.
Allergens common in schools can affect student attendance, comfort, and performance.
Students exposed to blue-enriched white light in the morning have shown faster cognitive processing speed and better concentration performance.
Resources for Building Upgrades
The scientific evidence presented in the Harvard study represents only a fraction of the vast body of research supporting the need to upgrade and improve school buildings.
The good news is that when schools take action, tangible results follow. Here are more resources to help you if you’re starting a building renovation project.
If you feel that finding the perfect facility for your charter school seems like a huge, complicated undertaking, you’re in good company. Across the U.S., facilities are, by far, the greatest challenge faced by charter schools. Planning and financing any facility project is complex, time consuming, and has the potential to distract your team from its core mission: serving your students. Check out these five key considerations when considering charter school facility financing.
1. Before you do anything else, understand what you can afford.
Take the time to understand your revenue and expenses. Knowing what you can afford for rent will inform how much you can borrow for your new facility or facility expansion.
2. Plan at least a year ahead.
Any kind of facility expansion will involve quite a lot of effort and likely involve your entire team. The range of burden varies, but moving staff, students, furniture, and equipment is an enormous undertaking. If you’re renovating your current facility, you still need to plan ahead so your programs aren’t disrupted.
3. Look at market trends
The charter school market boils down to this: Plenty of kids want to attend charter schools, but there just aren’t enough seats, classrooms, and schools to serve all of them. Looking at market trends, money is cheaper than it was a decade ago or even five years ago, but interest rates have actually been rising over the last few years and are expected to continue to rise even more. The Federal Reserve Board is always analyzing the effect of interest rates on inflation and economic growth and has the ability to raise or lower them at any time. Changing interest rates affect every aspect of the capital markets.
4. Reconcile your dreams with your budget realities
Three key considerations here are:
Requirements: Everyone wants a school that they can be proud of, but that isn’t as important as having a facility that enables you to meet your academic mission, fulfill the promises made in your charter, and meet your charter’s enrollment goals in the near term. So, go back to your mission and your board of advisors and dive deeply into what your facility must have to carry out your mission. Science lab for a STEM school? Auditorium or music room for a performing arts school?
Curb Appeal: What are the minimum requirements needed to attract enough families to meet your enrollment goals? The way your facility looks isn’t as important as what it can do—but it’s still important. Depending on the area, the way a school looks can have a significant impact on student enrollment, and enrollment numbers drive operating revenue, which in turn affects the quality of your academic programs.
Budget: Taking into account revenue and financing streams, what can you afford? Getting prequalified is the key first step in the process of renovating, expanding, or finding a new facility.
5. Understand the financing options available to your school
There are four main types of financing that charter schools use to finance facilities:
Cash
Investment Banks
Bonds
Long-term Leases
Your financing options may expand as your school matures. After a school secures its first charter renewal, more options become available, and the more conservative players in the capital markets begin to feel more confident about participating.
Depending on your school’s specific situation, one option may be the obvious best choice, or maybe you’ll need to weigh the pros and cons of a few different options. For each option, compare and contrast the amount of funds you’ll spend up front and annually to get the facility that you need. The time and opportunity costs associated with each option can vary widely, with bonds generally on the high end and long-term leases on the low end. Some transactions can take six to 12 months; a long-term lease typically takes between 60 and 90 days.
Charter school facility financing is complex, that’s why it’s so important to find the right funding partner to help guide you through the process and help you succeed. Charter School Capital has years of experience in navigating the unique needs and challenges of charter schools and has helped schools achieve their facility goals using each of those methods—and our team of dedicated charter school experts will help you see which solutions might be best for your school’s situation. Connect with one of our charter school advisors to learn how we can help you achieve your goals.
If you’re still feeling overwhelmed, don’t worry, we’ve developed a manual to cover our perspectives on the charter school facilities landscape market and provide you with practical and actionable advice on planning and realistically balancing your team’s facility dreams with budget realities. We also cover in-depth the four primary funding structures that charter schools use to finance facilities mentioned above: cash, banks, bonds, and long-term leases.
Download this guide to get a deeper dive into the five keys to charter school facilities financing we’ve mentioned in this blog post.
The Ultimate Guide to Charter School Facility Financing:
Thinking about a new facility for your charter school or enhancing your current one? This guide shares straightforward and actionable advice on facilities planning, financing options, getting approved, choosing a partner, and much more! Download it here.
Your Ultimate Guide to Charter School Facilities Financing
If you clicked from somewhere to read this blog post, you probably already feel that finding charter school facility financing finding or locating the perfect facility for your charter school is a huge, complicated undertaking. Not to worry, you’re in good company. We understand that most charter school leaders aren’t financial or real estate experts, and for a good reason—you’re focused 100% on educating children. And, you want the best for them. Planning and financing any facility project is complex, time-consuming, and has the potential to distract your team from its core mission: serving your students.
Across the U.S., accessing charter school facilities is, by far, the greatest challenge faced by charter schools. In addition, planning and financing any facility project is complex,time-consumingg, and has the potential to distract your team from its core mission: serving your students.
We’ve created this manual to share our insights and perspectives on the charter school facilities landscape market and also share advice on planning—and realistically balancing—your team’s facility dreams with budget realities.
In it, we also cover the four primary funding structures that charter schools use to finance facilities: cash, banks, bonds, and long-term leases.
It can indeed be a complicated endeavor and that’s a key reason as to why it’s so important to find the right funding partner to help guide you through the process and help you succeed. Charter School Capital is 100% dedicated to charter schools and has years of experience in navigating the unique needs and challenges they face. We have helped schools achieve their facility goals using each of those methods—and we’ll help you determine which options might be the best fit for your school’s unique situation.
Over the past ten years, we’ve invested almost $2 billion in more than 600 charter schools to help them grow, finance facilities, and achieve academic excellence and operational stability. We view ourselves as a long-term partner of charter schools and a strong advocate of the charter school movement.
Download this free guide to get all of your facilities questions answered!
In it, you’ll get straightforward, actionable advice on:
If you are trying to meet operational expenses, expand, acquire or renovate your school building, add an athletic department, enhance school safety/security, or even buy new technology, complete the online application below and we’ll contact you to set up a meeting. Our team works with you to determine funding and facilities options based on your school’s unique needs and mission. Contact us, we’d love to get to know you.
Learn the Five Essential Steps to Charter School Facilities Planning
Charter school facilities planning can be daunting. We’ve created this handy checklist as a starting point to help you move towards realizing your facility expansion or relocation goals. We understand that the planning and financing of any facility project are complex, time-consuming, and have the potential to distract your team from its core mission: serving your students. Download this manual to get concrete, actionable steps for success!
The 5 Essential Steps to Charter School Facilities Planning
If you think that finding the perfect facility for your charter school seems like a huge, complicated undertaking, you’re in good company. This handy, information-packed guide, will help as you move towards realizing your facility expansion or relocation goals.
In it, we cover these five essential charter school facility planning steps—in detail:
Plan – Begin planning at least one year in advance
Fund – Understand your options to make savvy decisions
Acquire – You know what you can afford and how you’ll pay for it … now go get it
Design – Partner with experts to design your new space
Execute – Let the construction begin and get ready to move in
Your Facilities Financing Journey with Charter School Capital
We are 100% dedicated to the charter school space and measure our success by the number of students we serve.
We’ve created this infographic to show you what a typical facilities funding journey with Charter School Capital looks like. Our team works closely with you to find innovative solutions to your facilities challenges. We pride ourselves on having the ability to be as creative, flexible, and innovative as possible to meet your specific needs so you can focus on your mission — educating students. You can download a PDF of the infographic here!
We are so excited to share this new infographic with you, so let us know what you think!
Proudly Announcing Our New Charter School Energy Program!
We are so proud to announce the official launch of our newest program exclusively for charter schools, Charter School Energy Powered by BioStar Renewables program.
We’re always listening to our school partners to better understand how we can best serve your needs and help you succeed—this new program was designed to do just that. With Charter School Energy Powered by Biostar Renewables, we are now able to offer access to energy efficient and renewable energy solutions for your school building.
These upgrades are designed to not only improve the learning environment for your students but also dramatically reduce your utility and maintenance expenses—positively impacting your bottom line. If you are interested in learning more details about this program, please visit our Charter School Energy page.
Charter School Energy is a full-service energy upgrade program with flexible financing options that enable school leaders to greatly reduce energy costs and enhance student learning environments through improved lighting, HVAC and thermostat upgrades and building controls. Renewable solutions such as solar allow the school to offset some or all of the building’s remaining energy consumption.
As always, we would welcome the opportunity of working with you to find sustainable solutions for your school’s success. Contact our team of dedicated professionals to learn how you can now access energy efficiency and renewable energy solutions for your charter school building.
Charter School Students Deserve Access to Quality Public School Facilities
Editor’s Note: This post was originally written by Nina Rees on October 18, 2018. Nina Rees is the president and chief executive officer of the National Alliance for Public Charter Schools and former deputy assistant for domestic policy to Vice President Dick Cheney. Follow her on Twitter @Ninacharters.
Though charter schools are public schools, supported by state and local tax dollars, they don’t usually have the same access to public school buildings, let alone funding for new facilities. Unfortunately, even when district-owned buildings are underused or completely abandoned, districts don’t like to give, sell, or lease them to charter schools, which are viewed by much of the educational establishment as their competitors.
Read on to learn about some potential solutions to this issue and what can be done to ensure that all students, both from traditional public district-run schools and public charter schools have access to school facilities that provide optimal learning environments for our nation’s children.
We think it’s vital to keep tabs on the pulse of all things related to charter schools, including informational resources, and how to support charter school growth and the advancement of the charter school movement as a whole. We hope you find this—and any other article we curate—both interesting and valuable.
Public school buildings belong to public school students — including charter students
As children conclude their first weeks of school across America, how do you envision their school buildings? The traditional brick-front building with big windows and rows of tidy desks? A more modern structure with laptops at workstations and a dual-use gym and theater?
How about an abandoned big box store in a strip mall?
For charter school students in many states, this last option is too familiar. Even though charter schools are public schools, supported by state and local tax dollars, they don’t usually have the same access to public school buildings, let alone funding for new facilities. As a result, they must dip into funds that would otherwise be used for instruction to pay for rents or mortgages. While charter schools are safe havens for learning, they don’t always have the amenities that one would typically associate with a school. Gyms, libraries, even cafeterias aren’t guaranteed for charter school students, because the schools are often located in buildings that were never designed to educate children.
Many students in district-run schools are learning in outdated spaces. But unlike most charter schools, district-run schools have free access to public buildings, and public financing options are more easily available to them. They get direct support from their state or community, or they can issue bonds that offer tax advantages to buyers, while taxpayers foot the bill for the added debt. Additionally, school districts usually maintain large inventories of school buildings that can be renovated to accommodate growing school enrollments. Charter schools rarely have these options.
Adding to the challenge is that school districts tend to be parsimonious with their own buildings. Even when district-owned buildings are underused or completely abandoned, districts don’t like to give, sell, or lease them to charter schools, which are viewed by much of the educational establishment as competitors. The anti-charter behavior can get so extreme that some school districts have not only refused to sell or rent school buildings to charter schools, but they’ve also attached legal riders that prevent private buyers from selling or renting their buildings to charter schools. Better to convert those old classrooms into condos than to allow a growing, high-demand charter school to teach students in them.
Some states, however, are rising to the challenge and giving charter schools a fair shake. Nine states include charter schools in district capital planning and bond issuance. However, existing efforts don’t even come close to meeting the estimated $375 million in additional funding needed annually to meet the facilities needs resulting from increased parental demand for charter schools.
With the need so great, state governments, the federal government, and private investors can all be part of the solution.
Every state should give charter schools the first right to unused district facilities. Public school buildings no longer needed by a school district should be used by other public schools — i.e. charter schools — if those schools need the space. Opposition to that is simply unjustifiable.
States could also provide facilities funding to charter schools in the form of a per-pupil facilities allowance, establishing a state grant program for charter school facilities, and requiring that charter schools be included in school district bonding and mill levy requests.
The federal government can help, too. Several federal programs exist to help charter schools access facilities, but funding is limited both numerically and geographically. Other programs require technical financial expertise that may be beyond the reach of local school founders. Many current programs are inaccessible to all but the largest charter school networks.
Support for charter schools is a rare issue that President Trump and congressional leaders of both parties agree on. The federal government can use public funding to incentivize better state policies, or private investment — for instance, by enabling the sale of charter school infrastructure bonds and notes to investors in the capital markets, in the same way, that other tax-advantaged bonds and notes are sold. The newly enacted Opportunity Zone tax incentives may provide help for charter schools that open facilities in the most economically distressed parts of the country, but it depends on investors willing to create funds that will invest in charter schools.
There are many possible solutions to the charter school facilities funding challenge, but action is needed now. Millions of parents want to choose their child’s school but can’t because a lack of facilities funding limits charters’ growth. And too many charter school students and teachers are making the best of inadequate facilities that lack essential school features. With smart investments now, policymakers can help more students start future school years in buildings designed for learning.
The Ultimate Guide to Charter School Facility Financing:
Thinking about a new facility for your charter school or enhancing your current one? This guide shares straightforward and actionable advice on facilities planning, financing options, getting approved, choosing a partner, and much more! Download it here.
Charter School Facilities Funding: It’s Time to Fill the Gap
Editor’s Note: This content originated here and was posted by the National Alliance for Public Charter Schools. Across the U.S., facilities are, by far, the greatest challenge faced by charter schools and accessing a school building is often the biggest obstacle in expanding charter school options. And, it’s one of the main reasons we have over one million students sitting on charter school waiting lists. Most charter school leaders have to jump over serious hurdles to cobble together the charter school facilities funding to provide their students with an adequate school building. It’s time to fill the gap in public school funding.
Note: The following content is also from The National Alliance for Public Charter Schools on September 18, 2018, and was originally published here.
Here are the five things we think you need to know about charter school facilities:
Charter schools rarely have access to taxpayer-funded facilities, even when they’re vacant.
Taxpayers own public school buildings and they should be available to all public school students, but that’s not the reality. Unlike district schools, charter schools don’t have an inventory of buildings to choose from. And in many places – like Detroit, Indianapolis, and Minneapolis – districts refuse to allow charter schools to lease or purchase buildings even when they’re vacant. As a result, you can find charter schools operating in shopping malls, office buildings, repurposed factories, or co-located with other schools.
Charter schools on average spend about 10% of per-pupil funding on facility space.
While some charter schools access federal or state programs these initiatives have limited funding and reach. They don’t work for all charter schools. Moreover, many of these programs simply reduce the cost of borrowing money – schools still need to cover the debt which shifts much needed funds from the classroom and to the building.
Charter school facilities often lack amenities like gymnasiums, libraries, or science labs.
Specialized instructional spaces, such as science labs, libraries, and computer labs, are an important part of a comprehensive educational program, but about 40 percent of charter schools do not have the right amenities or specialized classrooms to best implement their educational model.
Access to school buildings is one of the biggest obstacles to expanding charter school options.
Charter school leaders report that lack of access to adequate facilities is one of their primary concerns and one of the biggest barriers to growth. In fact, nearly one in five charter schools had to delay their opening date by a year or more due to facilities related issues. Even celebrities can’t avoid the facilities challenge.
5 million parents want to send their child to a charter school, but don’t have the option.
Based on parent demand, estimates suggest that the potential number of charter school students is 8.5 million – almost three times larger than today’s actual enrollment. Thirty percent of parents surveyed would be interested in sending their child to a charter school, with 10 percent saying that a charter school would be their top choice. Of interested parents with charter schools in their community, over half cited access problems – such as the school is too far away or has a wait list – as the reason their children do not attend a charter school. Learn more about the facilities challenge many charter schools face and help ensure charter schools can open their doors to students!
The Ultimate Guide to Charter School Facility Financing:
Thinking about a new facility for your charter school or enhancing your current one? This guide shares straightforward and actionable advice on facilities planning, financing options, getting approved, choosing a partner, and much more! Download it here.
Expert Advice on Accessing and Funding Charter School Facilities
In this CHARTER EDtalk, we sat down with Mike Morely, Founder and Principal at American Charter Development to talk about charter school facilities. Mike shares his years of experience in working with charter schools and supporting charter school success. Learn some insights on how to know when you’re ready for a new facility, what your funding options are, some pitfalls to avoid, and how to set yourself up for success whether building from the ground up or renovating your charter school facility.
Janet Johnson (JJ): Good day. This is Janet Johnson with Charter School Capital at the National Charter School Convention in Austin, Texas, and we’re honored today to be talking with Mike Morely with is ACD, who is a developer of charter schools. Mike Morely (MM): That’s correct, yes. JJ: John Dahlberg from Charter School Capital, and we’re going to have a conversation about charter school facilities. Take it away gents. Jon Dahlberg (JD): Thank you. Hey Mike, thanks for making the time. MM: My pleasure.
Why Charter Schools?
JD: We’re doing a campaign, We Love Charter Schools, can you share what you love about charter schools in less than 20 minutes. MM: That may be hard, but I can sure try. You may know, in fact I know you know that we’ve got a large family. I come from 13 kids and have nine children of my own and so we’re into kids, and so we’re into whatever is good for kids. Several years ago I was in the legislature in Utah and was introduced to charter schools, didn’t really know much about them. A wise senator told me, as I was looking at that in terms of policy decision, that if parents can vote with their feet we’re going have a lot less administrative and regulatory needs for schools.
I got into charter schools, started looking at them, seeing that they were doing more with less, and in many cases outperforming schools that were run by districts with seemingly unlimited funds. Not obviously that, it is something that is debatable, but certainly on less funds that are being provided for district schools and being successful. We fell in love with the choice in education. We started a couple charter schools, started doing facilities for charter schools, and they were accepted well and been successful. My children, at least those that were growing up during the years that we were in charters schools and been in them, and we’ve been really pleased with the outcome. We love philosophically the choice option and we also are committed to providing that opportunity for others.
How to Know When You’re Ready for a New Facility
JD: That’s great. Well, so let’s take that to our listeners here. How do you know when a school is ready for a new facility? MM: Well, we have been in the business of trying to help schools get facilities from the beginning, and we initially started back in the early 2000s trying to figure out how to bring construction and development funds into the charter school. Because obviously, it’s not available through state funding, they get funded based on the kids that they have in the seats. It’s kind of cart before the horse because they don’t have any kids in the seats when they’re starting out. We have funded schools from inception or even before inception and help them get their charters, help them establish a board, help them move through the process and having a school, a brand new school, ready for them to start in the first year.
Not all schools are able to do that, and it may not even be wise for all schools to do that. It really has a lot to do with the demand in the area, what the curriculum is going to be. I mean we’ve helped schools from project-based, sports, STEM and STEAM. We’ve helped classical education schools, and there are schools that are focused on a particular niche that may not be as widely accepted as maybe some other schools.
We look at the experience of a board. We like to see a wide diversity of experience on a board. We like to see the somebody that has accounting experience, marketing experience, legal experience business experience, school experience, but usually, that’s not the problem. Usually, most of them have good education experience, but we like to see a really diversified board with experts in many areas so that they can pull from that. We like to see some experience in the charter school world now. In the beginning not many had it, but now there’s usually good experience to be had on a board from the charter world. If we’ve got that, and we are comfortable with their curriculum, and their focus, and their direction, we may take them on right out of the chute.
If not, we like to see them have a year or two in maybe a rental facility, and it’s hard sometimes to find. But they may have to start out a little small and rent some space from a church, or some other local facility that’s not going to be maybe the best situation for the first year or two, but to build a little bit of a track record to see if they’re going to be successful. It really is ultimately a business and ultimately it’s pretty risky. We’ve had a few of those, as you know, that hasn’t been quite as stellar and so we’re trying to make sure that we don’t repeat those that are not quite as well prepared as others. JD: Well, I think to the point about the risk, I think that proof of concept starting in any space where you can get your school open and get the kids coming and prove your operation of success and your academic success, that momentum builds and builds and creates opportunity in the future. MM: It does.
Avoiding Mistakes
JD: When you talk about the business aspect of it, right? The education is not hard. What are some of the avoidable mistakes that a school should be mindful of as they’re building and growing in to their next facility project? MM: You know, to be honest, most of the mistakes that we have seen have been very preventable and most of them have been friction within the board, within the founding boards. When the schools have the most trouble it’s typically when the board itself gets heavily in two separate directions and end up in a collision course with each other, and end up destroying what they created or trying to change direction from what was originally envisioned. Because of that they lose half the parents, they pick sides, and it becomes a disaster. Cohesiveness on board is really key and to avoid that they need good board training, they need to recognize what a board does, how a board operates and the way that a board should function with regard to the administration, and the product that they’re proving. They’re really providing an education product, and they need to be on board with that and need to understand how a board effectively is to run, so that’s been our biggest problem.
There are mistakes. They get into a building that doesn’t meet their needs, they get into a building that they didn’t really clearly think out what their program was or growth options. They could then be unable to grow in that position in that particular building and then be tied into either a long-term lease, or they purchased the building, and it isn’t suitable for their current needs or expanding needs. It’s really important that you really sit down with somebody that understands and lay out a long-term vision of the school.
Have the board be on board with that decision as well. Make sure that everybody is kind of firing with the same cylinders and moving in the right direction. Recognizing that, “Hey, we want to be a 400-student school forever. We want to grow to a K-12, or we’re going to stay at K-6, or we want to grow to 600.” Come up with what your ultimate vision is because if you’re in a place that can’t be expanded and you’re tapped out at 200 kids and you got a long-term commitment and you want to grow, you’ve contract yourself. Those are some concerns that need some- JD: I think the advice that you gave to our audience about making sure that your building and your charter are in sync is really, really sound advice here. The building is going to create the culture of your school. We do speak with leaders who are very intentional, and we also speak with leaders who have that aha moment that goes, “Oh, a stem school but I don’t have a science lab.” That’s a good … MM: A sports school and don’t have a gym or a … JD: Right. MM: … or a performing arts school and no place to perform. Yeah, those are a lot of the issues. JD: If you’ve got a board that’s cast division and everybody’s on board, what are some of the guidelines and guiding principles that schools should pay attention to when they’re thinking about that next facility? MM: Well, if everybody’s locked stamp, then I think it’s important to maybe look at what’s the most economical and formal way to provide those facilities. It always seems to be the vision of every school to bond. That’s the goal. We just come out of a situation not too long ago where the school was ready to bond, they were so excited about it. They were saying, “Hey the cost of this building is too high, we can’t really bond because we’re going to be paying $106,000 a month for our facility.” I said, “Whoa, what are you paying for it now?” In a lease scenario, they were paying $65,000 and they were expanding with the bond. They were going to add on a gymnasium and some other classroom, but we’d already priced that out, and under the lease scenario they were going to be at $85,000 a month with total expansion taken into account. I said, “Why are you so anxious to bond and pay $20,000 more a month for a facility that you can control and have long-term security for $85,000.” That was the A-ha moment.
“But their interest rate is lower than your PACT rate.” Okay, let’s look at that, what that means. Interest rates are easy to talk, but they were adding on several million dollars in reserves, they had the cost of issuance, they had attorneys fees that were building up this huge amount that they would have to bond and pay interest on. Then it was advertised rather than just an interest only, so by the time you take all that into account the interest rate of the bond had very little to do with the cost of the facility on a monthly basis. Be careful that you’re not misled by some arbitrary interest rate or some lost leader kind of thing, and becoming so consumed with owning the facility.
Ownership is great and there are some times when it is a good decision, but ultimately if you own it you really own it. You’re responsible for all of the future expansions, you’re responsible for whatever taxes or insurance or other things, and you may have those kinds of things in the lease agreement as well, but you’re amortizing the facility and the ultimate goal is to own it, and if it’s a 30-year bond you own it just in time to completely refurbish it and start over. I’m not saying ownership is not a good thing, but it’s not the only way to do it. JD: What’s in the middle? There’s the bond, which historically meets the need of about 12% of the charter schools since the exception. Then we talk about the lease. You’re in the market, are there other options besides the lease or beside a bond that you’re seeing schools take advantage of right now? MM: Well, you know, there are organizations like the CSC that have purchased facilities and leveled the lease market and created an option for schools. That we have worked together on a couple of schools where you would’ve been able to purchase the school and put them in a better position than they would’ve been in a bond situation. It’s an interesting dynamic because right now the cost of constructions is going up. JD: And so is the cost of money. MM: And so is the cost of money, which is hard. You got the cost of construction, cost of land skyrocketing in this market which is … The fed just raised the rates again last week, and so we’ve got interest rates going up. And they’re indicating that there will probably a couple more bumps, in trying to cool inflation. In a market where cost and money are going up even though we are seeing increases in education funding that are a much lower rate, you may get a two or three percent bump each year, while we’re seeing double digit increases in funding cost and in construction cost. We are in a kind of a paralysis market right now, and it is hard. We’re struggling to try and balance those things and make sure that schools are getting affordable facilities for themselves. It’s a bit of a challenge. JJ: It’s a dance. MM: It is. JD: It’s a dance. MM: We’re in that dance, and you’re in that dance, and we’re all trying to … JD: It’s a fun place to be. MM: It is. JD: It’s work, because if it was easy they would call it a PTO. MM: A while back it was kind of easy you know because the cost were fair. Right now, we’ve talked about this multiple times, there is a point where the school can’t pay any more than maybe 20% max of their gross revenue. If the cost of facilities goes beyond that then it really does make it difficult, if not impossible, for them to go for owning. There are places in the country like that. JJ: But you’re here to help. MM: We’re here to do what we can. JJ: Right, yeah. That’s right. That’s great. Well, we’re very grateful for your time today Mike, and John thank you for facilitating this discussion and I know you guys speak a lot on the road so I’m sure that our viewers will see you again soon. Thanks for your time.
MM: You’re welcome. My pleasure, thank you for inviting me.
