Transcript PRESENTATION NAME

What You Need to Know
About Facilities Development
Tuesday, November 29, 2011
Presenters
Brian Keenan-BWP
Eric Felczak-BWP
Sarah Kitterman-BCC
Nora Bloch-BCC
Eric Mello-Rising Tide
Rebecca Sullivan-MassDevelopment
Agenda
I. Overview Leasing/Owning
II. Site Assessment/Section
III. Costs/Financing
IV.Design, Bidding & Construction
About Us
• Build with Purpose is a nonprofit real estate
development organization specializing in charter
facilities such as charter schools. Since our
inception in 2003 we have developed 16 charter
schools with total development costs exceeding
$120 million serving 5,500 children.
An Integrated Approach
• Charter Schools- Working to take the burden of facility
development off the hands of charter schools so they can
focus on education.
• School Gardens Initiative- Increasing access to
healthy foods by establishing healthy living practices,
finding sustainable resources, and providing healthy meal
options in schools.
• Energy Institute- Bringing a variety of nonprofits energy
efficiency and renewable energy options.
• Community Organizing—Establishing direct service
with the groups we serve and their communities through a
partnership with the Jesuit Volunteer Corps.
The Essentials Leasing/Owing
• When does it make sense to lease vs.
owning?
• What are the cost averages
• Start-up considerations
• Credit worthiness
Site Assessment/Selection
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Types of property
Environmental Conditions
Location, location, location
Cafagymatorum/Gotta have it
Competition
Costs/Financing
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The 100 sq ft rule
The $125/$275 rule
Not credit worthy
Equity
Free money
How to control costs
Design, Bidding & Construction
• What comes first the chicken
or the egg?
• Phases in the design process
• When is it too late to make a change?
• What’s the architect’s job?
• What is a change order?
• What is the contractor pricing?
Design, Bidding & Construction
• What comes first the chicken
or the egg?
• Phases in the design process
• When is it too late to make a change?
• What’s the architect’s job?
• What is a change order?
• What is the contractor pricing?
Facilities Construction and
Legal Requirements
State
Prevailing Wage
Public Bidding
Not required
NY
No
MA
Yes
Yes
NH
No
No
RI
Yes
Yes
CT
Yes
Yes
(but many do)
Best Practices Examples
State
NY
MA
CT
Best Practice 1
Best Practice 2
Requiring Charters to Vendor Analysis for
Have Policies &
Equipment or
Procedures
Consulting
Best Practice 3
Improving Charter
School Leadership
Creating Positive
School Culture
through Character
Education
Using Community
Resources to
Enhance the
Teaching of History
Classroom
Differentiation
Student-Created
Goals
Social Programs
Highlighting
Important Social
Skills
Academic Growth
Monitored through
“Must Pass Policy”
Facilities Financing Options
Qualified School
Allows qualifying schools and/or
Construction Bonds
communities to borrow at little
(QSCBs ) and Qualified or no interest cost.
Zone Academy Bonds
Tax-exempt Bonds
Need authorized issuer, but
keeps interest expense down.
Community
Development Financial
Institutions
Assist with subordinate debt and
loan-to-value concerns
Charter School Credit
Enhancement
Assists schools with an ability to
borrow more
Build with Purpose Portfolio
Newark Educators’ Community Charter School
Newark, NJ
•Completion Date: August 2009
•Size: 28,000 sq. ft.
•Students Served: 450, K-8
•Architect: Newwork LLC
•Contractor: Artco Contracting and
Development
•Total Interior Development Costs: $1
Million
•Financing/Lender: Victoria Foundation
Build with Purpose Portfolio
Jersey City Community Charter School
Jersey City, NJ
•Completion Date: November 2008
•Size: 24,000 sq. ft.
•Students Served: 600, K-8
•Architect: Jamel Kizel
•Contractor: La Rocca
•Total Development Costs: $7.7 Million
•Financing/Lender: The Reinvestment
Fund
Build with Purpose Portfolio
Teaneck Community Charter School
Teaneck, NJ
•Completion Date: August 2009
•Size: 36,000 sq. ft.
•Students Served: 306, K-8
•Architect: Gertler & Wente Architects
•Contractor: La Rocca
•Total Development Costs: $11 Million
•Financing/Lender: Hamlin Capital and
New Jersey Community Capital-Tax
Exempt Bonds
Special Thanks to Today’s Host
The University of Massachusetts Boston is an
educational institution dedicated to rigorous,
open, critical inquiry—a gateway to intellectual
discovery in all branches of knowledge, and a
crucible for artistic expression.
www.bwpurpose.org
www.bostoncommunitycapital.org
www.risingtide.org
www.massdevelopment.com
Boston Community Capital &
Charter School Financing
Boston Community Capital
Nora Bloch & Sarah Kitterman
Senior Loan Officers
Boston Community Capital: Our Mission
To build healthy communities where low
income people live and work
Boston Community Capital: Our Business
Boston Community Loan Fund
• Since inception, BCLF has made more than 500 loans and
investments totaling more than $335M to support organizations and
businesses that benefit underserved communities.
• BCLF serves as a vehicle for a wide range of investors, including
individuals, institutions and faith-based organizations.
• Working together with public and private partners, BCLF achieves
the cost-effective access to capital that is key to building healthy
communities.
• BCLF is headquartered in Boston, MA and provides loans across
the Northeast and Mid-Atlantic region.
Boston Community Loan Fund
Boston Community Loan Fund –
Charter School Lending
• Charter school lending is an important part of BCLF’s
lending activity.
• BCLF and affiliates have lent over $34M to five charter
schools, including over $31M in New Markets Tax
Credit leverage loans.
• BCLF has a pipeline of $10M in loans to charter
schools; these loans are expected to close in the next 6
months.
BCLF - Financing Products
• Acquisition Loans
• Construction and mini-permanent facility
financing (5-7 years)
• Leverage loans (NMTC)
• Bridge financing
(capital campaign or
historic tax credit)
What do we look for?
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Clean annual site visits; ideally at least one renewal cycle
Academic program - mission and trends
BCLF Mission fit – significant free/reduced lunch population
Enrollment and attrition trends - retention, waitlist
Community Relations
Management strength at both board and school level:
-- Academic leadership
-- Succession planning
-- Active board leadership including fundraising capacity
-- Strong financial management
-- Real estate experience (board, school or consultant)
What do we look for?
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Rational revenue and expense structure:
-- low reliance on fundraising to cover core operating expenses
-- facility expense (including lease/debt service) as a % of total expenses
Cash Flow:
-- ability to cover debt service with a cushion
Reasonable Projections:
-- aggressive reliance on enrollment growth?
Balance Sheet Strength:
-- Cash balances for cushion and equity in deal
-- Leverage after proposed financing
Collateral value:
-- equity contribution from school/foundation
--target LTV <80% if no enhancement
Complex Financing Structures
• New Market Tax Credits
• Qualified Zone Academy
/Construction Bonds
• Historic Tax Credits
• Enhancements:
--Dept of Education
--US Dept of Agriculture
--Mass Development
New Market Tax Credits
• Federal tax credit program. Can be used to finance a
range of economic, development and business activities
including charter school facilities.
• Directed to low income communities and populations.
Financed property/business must be in eligible census
tracts deemed “distressed” (at least 20% poverty rate or
median income up to 80%).
• Provides a federal tax credit of 39% over seven years.
• Generates roughly .20-.25cents of benefit for every $1
of NMTC allocation. Projects are eligible for allocation
= 100% eligible project costs (hard costs, financing
costs, no FFE).
New Market Tax Credits
Pros
• The only Federal Tax Credit
product that can be used for charter
schools
• Can be used for new construction or
renovations
• Can be used with other products-tax exempt bonds
Cons
• Must be in eligible area
• High competition for allocation –
must be in pipeline for upcoming
allocation.
• Program uncertainty
• High level of complexity, high
transaction costs.
• Many parties to bring together must find allocation, investor,
lender
QZABs and QSCBs
QZAB
QSCB
• For rehab and repair of school
facility, equipment purchase, course
materials and training
• Federal government provides either a tax
credit to investors or a cash subsidy
payment to issuers based on federal tax
rate set daily but fixed for the term of the
bond. Note: cash subsidy payment option
is no longer available.
• $21MM awarded to MA in 2010
(must be used by end of 2012);
$5.8MM awarded in 2011.
• School must be located in empowerment
zone or 35% of students qualify for free or
reduced lunch.
• Can also be used for new
construction and land acquisition
• One time authorization as part of
the American Recovery and
Reinvestment Act.
• School must be located in
empowerment zone or 35% of
students qualify for free or reduced
lunch.
QZAB/QSCB
• No QSCB remaining and limited QZAB
allocation remaining
• Can be challenging to find an investor of QZAB
– limited investor pool
• QZABs cannot be used for new
construction/land acquisition
• Subject to “Davis-Bacon” prevailing wage
provisions
Enhancement Programs
Mass Development
• Covers the lower of 50% of the
first mortgage or $3M
• Will go up to 100% LTV
• Can be used for leasehold
improvements up to $1M/90% of
costs
Charter School Financing
Partnership
• DOE funded program
• Flexible enhancement. Typically
used with Bond issuance to fund
Bond holder required reserves and
equity requirements
US Dept of Agriculture
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90% loan guaranty
Community facilities in rural
areas (population<20,000)
Can be used for construction
and land acquisition
Risks
• Overspending on facilitystretching to make it work
• Increased operating expenses in
new facility
• Loss of balance sheet and
expense structure flexibility
to deal with downside
• Founder risk/succession planning
• Lack of board development
• Lack of focus building
strong community relations
• Charter renewal
• Political risks
• Exposure to state and municipal budgets
How do we Mitigate Risk?
• Partnerships
• Contingency/liquidity
cushions
• Enhancement programs
• Adding expertise through
consultants/board
development
• Collateral
• Charter renewal cycle
Lessons Learned
• Disciplined approach pays off – plan ahead,
build your equity/reserves
• Build your team
– Real estate expertise
– Financing expertise – including familiarity with
federal programs
– Fundraising expertise
• Bring the experts into the process early
• Build broad support
Questions?
Visit Boston Community Capital on the web:
www.bostoncommunitycapital.org
Call us: (617) 427-8600
Email us:
Nora Bloch: [email protected]
Sarah Kitterman: [email protected]