Transcript SC Charter School Conference November 2013 Facilities Financing 101 Agenda • • • • Key findings of SC CS Facility Landscape Study Lessons learned Sources of capital Determining how much.

SC Charter School Conference
November 2013
Facilities Financing 101
Agenda
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Key findings of SC CS Facility Landscape Study
Lessons learned
Sources of capital
Determining how much building a school can
afford
• Calculating borrower capacity and the cost of debt
• How lenders evaluate charter schools
• Loan process and timeline
Key Findings from “An Analysis of the Charter School Facility
Landscape in SC”
November 2013
1.
Over 70% of SC’s charter schools spend operating dollars on facilities.
Costs of rent, bond or loan payments range from $473 to $646 per pupil.
2.
SC charter schools are smaller than prescribed standards. Only 26% meet grade
level for gross square footage per student.
2.
Few SC charter brick and mortar charter schools have access to underutilized
district buildings or local funding sources.
<30% of charters are located in district-controlled buildings;
Only 15% of charter schools (2) in districts that have held bond elections since July
2006 have received facilities funding from bond proceeds;
41% of SC school districts have not offered co-location; and
46% disagreed that “the selection of schools that are given the opportunity to use
available space for co-location is fair and transparent.”
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Key Findings from “An Analysis of the Charter School Facility Landscape
in SC” November 2013 [continued]
4.
Physical education and recreational options are limited for SC charter school
students.
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<27% of charter schools serving elementary grades reported that the facility has no
playground and no access to one nearby.
42% of charter schools serving secondary students had neither an on-site gym nor access
to a gym nearby to use for physical education purposes.
Over 60% of SC charter schools reported having no play/athletic field and no access to one
nearby.
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5.
SC charter schools in shared facilities face a number of challenges.
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Almost 40% of SC charter schools share space with at lease one traditional public school
or other type of organization.
40% of charter schools sharing space report that their students do nothave adequate access
to a gym.
33% of charter schools sharing space report having inadequate access to specialized
classroom space, such as libraries, science labs, art or music rooms.
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6.
60% of SC charter schools lack a full-preparatory, federally compliant food kitchen.
Who is Self-Help?
• Non-profit CDFI founded in
1980
• Mission: Creating and
protecting ownership and
economic opportunity for
all.
• Over $6 billion lent to lowwealth individuals, businesses
and communities, including
more than $200 million for
charter school facilities
nationwide since 1997.
The Charter School “Ecosystem”
A successful charter
school demands more
than just stellar
academics – it must
be a sound business
enterprise as well.
Operations
Facility
Academics
Key advice for start-ups or early stage schools
1. Find the cheapest, code compliant facility you can find to
rent in or near the target neighborhood and get open. Target
is to spend 15% or less of gross revenue on occupancy.
2. Establish a sound academic program. Academic
performance drives enrollment demand.
3. Get business and compliance reporting systems in place.
4. Recruit board members with diverse skills. Train them.
5. Bank cash. Lenders will expect a charter school to put
equity into the purchase of a permanent facility.
Key advice for established charter schools
1. Continue to save money for a down-payment.
2. Schools should evaluate the amount of building they can afford. A
charter school should spend no more than 15% of its gross revenues on
occupancy.
2. Hire professionals (architects, engineers, etc) to help evaluate potential
facilities. Note that some real estate professionals have a financial
incentives to find the most expensive building to buy or rent.
3. Get audits, budget, financial projections and organizational documents
in order.
4. Shop the project to multiple lenders and construction companies.
5. Continue to build the school’s reputation and demand.
Sources of Capital
• Lender
– Traditional Bank
– CDFI – Community
Development Financial
Institution
– US Department of Agriculture
(Rural schools only)
• Foundation and
Government Grants
• Fundraising
– Capital Campaign
– Parents
– Board
• Bonds
Government Grants and Programs
• Federal credit
enhancement for charter
school facilities program
• USDA grants and loans
– For rural charter schools
• Federal and State-issued
start-up grants
• Historic Preservation Tax
Incentive
• New Markets Tax Credit
Charter School Revenue Breakdown
Ideal Budget Ratios
Teaching Budget
10%
10%
Occupancy Costs
Administration
10%
55%
Cash Reserves
15%
Contingency
How much building can my school afford?
1. Determine likely gross annual revenue
(90% of projected enrollment) x per pupil revenue
2. Determine max facility expenses
15% x (likely gross annual revenue)
3. Determine minimum size of building
(75 ft2 per student) x projected enrollment
How much building can my school afford?
(cont’d)
4. Determine max rent or mortgage per ft2
(max facility expense) ÷ (min square footage)
5. Determine max mortgage or non-inclusive rent
(Max cost per ft2)-$6
6. Determine max annual rent or mortgage
payment
(max mortgage or non-inclusive rent) x (min building
size)
More Than Just Rent: Operating Costs
• Though rent or mortgage will be most of your facilities expense,
it won’t be all of it.
• Here are some other items you’ll need to consider. These will not
be included in a mortgage, and may or may not be included in a
lease.
Expense Item
Typical Cost/ft2/Year
Utilities
$1 -$2
Repair/Maintenance
$1.00
Roads and grounds
$0 - $.50
Cleaning
$.90
Security
$0 - $.75
Administrative
Total Operating Expenses
Fixed Expenses
Total Operating and Fixed Expenses
$.75 - $1.55
$4.5 – 6.5
$1 - $2
$6-7
Calculating Borrowing Capacity
• Occupancy costs should not exceed 15 % of revenue
– Total occupancy includes mortgage payment, janitors, utilities,
maintenance and upkeep of the building.
– Note: According to one national survey of charters,
20-25% debt/revenue is not unusual, especially in early stage
schools.
• Debt Coverage Ratio = Total Cash Flow/Total Cost of
Debt Service  1.20
• “6-Cs”of Charter Financing
– Character, Cash flow/Capacity, Collateral, Climate, Credit,
Capital/Cash Equity
• Also consider competition
How do lenders evaluate potential
borrowers?
• Organizational
Capacity
• Financial Management
and Capacity
• Academic Program
and Performance
How do lenders assess
organizational capacity?
• Site visits and interviews
• Reference checks
• Comprehensive review of
audits, resumes, policies,
and procedures
• Credit checks on school,
and school leadership
• “Performance” of school
during the loan process
Why is a good relationship with your
authorizer helpful ?
• Authorizers can serve as references for
potential lenders.
• Authorizers can provide access to public
documents, including information not
available online through open records
requests.
• Authorizers are key in the charter renewal
process.
What charter schools need to
demonstrate…
Governance:
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Clearly defined roles and responsibilities
Authorizer↔Board↔Management
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Orderly documents, plans, and controls
– 501(c)3 letter, charter, by-laws, audits, policies,
enrollment plan, security, etc.
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Committed community-centric board
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Well defined roles and responsibilities
Diverse Skill Sets: Attorney, Appraiser, Accountant,
General Contractor, Engineer, Realtor
Succession Planning
Distribution of Power
No Conflicts of Interest
What charter schools need to
demonstrate . . .
Academic results:
• Solid research-based curriculum,
especially if a start-up
• Stanford CREDO study found
that charter school academic
performance in the first 3 years is
predictive of performance
thereafter (~90% prob.).
• State & federal academic goals
met.
• Increasing (or stabilized)
enrollment.
What charter schools need to
demonstrate . . .
Financial Control and Sustainability:
• Credit and Financial History
– Report, tax returns, audited financial
statements, year-to-date results, projections
• Cash Flow
– Positive with increasing enrollment
• Collateral
– Value of school property
– May need to fill gap (other real estate, cash
pledges in CDs, equipment, personal
guarantees, etc)
• Cash Equity
– Standard down-payment is 20% or more
(community development lenders can be
flexible)
What charter schools need to
demonstrate…
Project Evaluation/Management:
• Internal Capacity
– Key Use of Board
• Professional Capacity
• Realistic Timeline
– Pre-Construction (e.g. need
to buy property)
– Construction Process, quotes
from general contractors
• Realistic Budget
– Minimum 10% contingency
Loan Process and Timeline . . .
• Pre-Application
– 3 months to 3 years
– Build equity for investment
(min 10%)
– Acquire construction
project capacity by
retaining qualified (bonded)
professionals
– Plan, plan, plan
• Write business plan
• Assemble financial,
academic, and enrollment
records
Loan Process and Timeline . . .
• Application and Contact
– 4 weeks
• Approval/Commitment
Letter
– 4 weeks
• Closing
– 3 weeks to 6+ months
• Post-Closing
– multi-year relationship
5 Key Take-Aways
1. Academic and financial performance, and
governance oversight need to be stellar.
2. Facility budget = Max 15% of likely gross revenue.
3. Teacher staffing budget = at least 55% of likely
gross revenue.
4. Know the requirements & standards for educational
facilities, or hire an expert who does.
5. Be aware of the personal interests of realtors or other
professionals.
6. Do not sign any single-source agreements.
Questions? Contact Us!
Jane Ellis
Director, Charter School Lending
Self-Help
(919) 956-4407
[email protected]