Accessing, Developing & Financing Existing Facilities
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Accessing, Developing & Financing
Existing Facilities
Who We Are
• Incorporated as a 501(c)(3) Nonprofit organization in 1997
• Community Development Financial Institution (CDFI) and nonprofit turnkey facility developer & advisor
• Mission: To promote innovation and excellence in education by financing and developing facilities for great public charter schools nationally
• What sets us apart:
Focused exclusively on the facility and financing needs of new and early stage charter school organizations, CSDC helps charter school entrepreneurs and leaders finance, build and expand their school facilities with the goal of ultimately improving student achievement by increasing school choice within the American K-12 public education system.
CSDC’s Products & Services
• Building Block Fund
– $31.6 million national credit enhancement and partial guaranty fund
• CSDC Direct
– $16 million in regionally-focused loan fund
• Turnkey Development Program & Free Development Services
– Target regions
0-3 years
Start-up
3-5 years
Rapid Growth/Stabilization
5+ years
Community Institution
Facility NeedsRent/Lease/Build-Out
Start-up Space
Acquisition/ Renovation/
New Construction of Permanent
Facility
Expansion & replication (multiple
campuses)/ Permanent
Financing
Types of Financing Leasehold Improvement loan
FF&E loans
Cash flow/working capital
loans
Commercial mortgage loan
Construction loan
Bond financing
- Bank backed LOC
- School credit
- Private placement
Refinance commercial debt to
tax-exempt bond financing
Public and private bond
markets
Types of Credit
Enhancement Additional Collateral
Lease payment reserve
Debt Service Reserve Fund
Additional collateral/ Equity
Substitute
Bond Insurance
Liquid or Debt Service Reserve
Fund
CSDC Program or
Service
Building Block Fund
Turnkey Development
Program
CSDC Direct
Building Block Fund
Turnkey Development Program
CSDC Direct
Building Block Fund
Lifecycle & Stages of Growth -
Summary
• Short term lease (3rd Party Landlords)
• Co-locations (sometimes referred to as “incubators”)
• Lease with option to purchase program (i.e., CSDC’s Turnkey Development
Program)
• Acquisition and renovation of existing building
Facility Options –
Existing Facilities
• Short term lease (3rd Party Landlords)
— Practical for new and early-stage schools
— Interim solution, typically requires credit enhancement
— Investment in tenant improvements to a building that school will never
own
— No equity buildup
— Schools commence operations in space sized to initial enrollment, even
if not ideal
— Forces relocation as enrollment grows
Short-term Leasing
• Schools that lease face unique obstacles
– Landlords require lease payment guarantee to mitigate enrollment risk.
– Leased space needs build-out or tenant improvements forcing the need
for a leasehold improvement loan.
• Building Block Fund Solution
– Partial guarantee of lease payment obligations, typically equal to 12-18
months of lease payments, reducing landlord risk.
– Cash collateral to lenders for a leasehold improvement loan.
• Result
– Schools secure leases or improve space to begin operations.
Credit Enhancement Solutions –
Leases
• Start-up school with 120 students in grades K-1. Full capacity of 300
students in K-4.
• 10 year lease term with option to purchase.
• School was responsible for $260,000 in tenant improvements.
• Lender required 100% collateral as a condition of the leasehold
improvement loan.
• BBF pledged $260,000 as “collateral” to lender.
• The school was able to make improvements and open on time.
Lease Guaranty Case Study: Ricardo Flores Magon Academy (Westminster, CO)
• Viable option when available, especially for start-ups – quality space to fit
small enrollments at affordable price
• Typically requires master tenant and short-term revolving tenants
• Example: Public/private partnership between Building Hope and DC State
Dept of Ed (OOSE). Includes OSSE’s Credit Enhancement.
• Goal is to provide short term, affordable space for start up charter schools
• Rent is based on enrollment. This withholding is for new schools to use on
other facilities-related items
Co-locations
• Lease with option to purchase program (CSDC’s Turnkey
Development Program)
– Long term solution to facility needs
– Open book, fixed cost, affordable rents
– Purchase option from lease commencement
– Eliminates multiple moves as enrollment grows
– Establishes presence in one community
Lease with Option-to-Purchase
TDP Case Study: Paramount School of Excellence
• Start-up school
• Indianapolis, IN
• 51,000 sq. ft.
• Total Project Cost: $5,324,443
• Indy Building Block Fund Credit enhancement: $1.3M
• Completed: September 2010
• Total Enrollment: 370
TDP Case Study: International Spanish Language Academy
• 4th year of operations
• Minnetonka, MN
• 33,400 sq. ft. adaptive reuse
• Total Project Cost: $4,622,500
• Building Block Fund Credit Enhancement: $675k
• Completed: August 2011
• Total Enrollment: 350
• Acquisition and renovation of existing facility
– Viable option with minimum 3 year operating history
– Typically less expansive than new construction
– Adaptive reuse – repurpose existing structures into school
– Exercise purchase option of existing facility or identify new facility
forcing relocation.
– Expansion or replication
– Significant equity requirements
– Allows school to accommodate full enrollment & grade levels
Acquisition
• Obstacles in securing mortgage financing
– Schools have few assets and a relatively short credit history
– Lenders require up-front equity, typically 15-25%
– LTV limit typically 75-80%
– Most schools need to borrow 100% of the project cost
• Building Block Fund Solution
– Additional Collateral – in lieu of equity – up to 25% of loan
– 12-18 month payment/debt service reserve fund
– Collateral to plug appraisal or LTV gap
• Result
– Lenders receive the repayment or collateral assurance needed without
the school investing precious funds into illiquid fixed assets
Credit Enhancements Solutions
• Start-up school with 800 “Intent to Enroll” forms in January
• Senior lender at LTV max
• School needed an additional $300,000 to
complete the project
• Sub-debt lender required 100% collateral
• BBF pledged $300,000 as “collateral” to lender
• The school was able to complete project and open on time
Loan Guaranty Case Study: Salida del Sol (Greely, CO)
Q&A
[financing and uses of credit enhancement]
Getting Your School Ready to Borrow
• Clearly defined school mission: What is it you are doing or plan to do that
no other school is?
• Competition: What makes your school unique in the market? Be prepared
with performance results of surrounding schools. Why would a parent
choose your school over other schools?
• Enrollment: Stable or increasing enrollment; organic growth; no “build it
and they will come” approaches
Build school before building the facility
• Wait List: If you don’t have one, start one!
• Academic/Programmatic Niche: Defined but not narrow, backed
by data (STEM School vs Performing Arts vs Language Immersion)
• Governance:
– Board level
– School level
– Back Office Support
19
What does good governance look like at the Board level?
• Broad expertise of board members (not entirely comprised of teachers
and/or parents)
• Board members with previous experience serving on other charter school
boards & performance results of those schools
• Regular/ongoing board governance training
• Clear delineation of roles & responsibilities between board and
management
• Strong procedures for financial & operational oversight - annual approved
budget, appropriate sub-committees, etc.
Qualifying for Financing Programs &
Services
• Regularly scheduled, properly noticed and documented board meetings
– Posting board meeting minutes on your website
• Succession planning at both board and school leadership level
– What happens when the founding board transitions to a governing board?
– What are the different skill sets needed by the founding vs governing
board?
• Documented conflicts of interest policy
• EMO/CMO (as applicable) – How does the board ensure independent
decision-making at the board level?
• Financial contingency planning – know what your plan is if enrollment falls
short of expectations in the fall, or funding is cut at the last minute.
Governance, cont’d
Board Member Matrix
Board Member Name
Board Member Title
SKILL SET
CHARTER SCHOOL MANAGEMENT
BUSINESS MANAGEMENT
FINANCE
COMMERCIAL REAL ESTATE
MARKETING/PUBLIC RELATIONS
COMMERCIAL LAW
ACCOUNTING
PROPERTY MANAGEMENT
HUMAN RESOURCES
GOVERNMENT RELATIONS
FUNDRAISING
PUBLIC POLICY
STRATEGIC PLANNING
ORGANIZATIONAL DEVELOPMENT
PAST BOARD EXPERIENCE
S=strong experience
L=limited experience
N=no experience
What does good governance look like at the School level?
• School leader recruited either through a program like Building Excellent
Schools or other fellowships or similar programs (“Charter Starter” program in
Arizona)
– Strong leaders have previous exposure to the day to day expectations of
running a school (academic modeling, budgeting/finance, building
maintenance, discipline, etc.) before actually launching their own school.
• Succession planning – if dynamic school leader leaves, what happens next?
• Division of responsibility – academic vs financial vs operational
– Is the person responsible for running the school suddenly tasked with
becoming a real estate or finance expert?
Qualifying for Financing Programs &
Services
• Little or no year over year improvement in academic
results, as applicable
• Concentration of multiple roles within one person (i.e., the school leader is
responsible for curriculum, human resources, facilities, recruitment and back-
office/business management – risk of burn-out)
• High staff turnover
• Marketing & student recruitment plan - No evidence of pre-enrollment by late
spring/early summer
• Unresponsive or hostile charter authorizer
Red Flags - school operations
• Long-term exclusive agreements with real estate brokers
• Expensive pre-payment penalties
• Low Loan-to-Value (75% or less)
• Total facility costs (includes debt service, utilities, maintenance, etc)
exceeding 20% of revenue
Red Flags - lease or loan terms
You’re Qualified! Now what?
Managing the Financing &
Development Process
7
• Predevelopment Consulting – Short term planning
– Early stage facilities consulting – Lease, Buy or Build?
• Needs Assessment, Affordability & Feasibility Analysis
– Analyze multiple options & deliver workable solutions
– Build relationships and trust that lead to future projects
• Project Management Consulting – Long term planning
– Pay fixed fee for specialized expertise & skillset
– Guide the School through the development process
• Sight search, set up financing, assist with
bidding process, analyze budget, etc.
– Deliver a facility on time and on budget
– School owns building
Outsourced Capacity Building
1-2 year development cycle
– Team selection
– Property identification and feasibility analysis
– Acquisition (lease or purchase) negotiations
– Financing
– Design
– Predevelopment – how are you going to pay upfront costs?
– Permit and regulatory improvements
– Implementation
– Certificate of Occupancy
Timing & Responsibilities
Designing and Building Your Own
Facility
Feasibility
Analysis
Project
Strategy
Property
Control
Arrange
Financing
Phase 1 – Design and Development:
Design,
Permits,
and Bids
Financing,
Property and
Permits
Program Needs
Cost Estimates
Timing
Financing
Legal Rights
Community Support
Political Opposition
Scenario Analysis
Land Acquisition
Conceptual Design
Constructability
Program Implications
Timing
Financing/Budget
Entitlements
Community Relations
Political Support
Contingency Planning
Risk Assessment
Negotiation
LOI
Draft Purchase and
Sale Agreements
Manage Due Diligence
Coordinate Timing
Contingency Planning
Risk Assessment
Manage Entitlements
and Variances
Identify and Explore
Financing Options
Recommend Financing
Source and Structure
Ensure Team is
Assembled
Create and Assemble
Required Information
Negotiate Price
Manage Application
Process
Manage Timing of
Process
Ensure Timely Closing
Contingency Planning
Act as Owner’s Rep
Review and Assess Plans
Program Needs Reviews
Cost/Budget Reviews
Timing
Community Support
Ensure Owner’s
Requirements are Met
Obtain Timely Owner
Approvals
Security
Telecommunications
Technology
FFE
Demolition and
Site PrepConstruction Occupancy
Phase 2 – Construction
Punch List and
Warranty
New Home for
Charter School
Act as Owner’s Rep
Cost/Budget Management
Timing/Schedule
Review Draw Requests
Identify and Pursue
Rebates
Review Change Orders
Owner Updates
Deal with Any Unforeseen
Problems
Manage the Draw Process
E Rate
Environmental
remediation &
Coordination with
local jurisdiction to
obtain applicable
governmental
approvals
Act as Owner’s Rep
Cost/Budget Management
Timing/Schedule
Ensure C of O is in Place
Deal with Any Unforeseen
Problems
Act as Owner’s Rep
Help Owner Develop
Punch List
Ensure Owner’s manual is
Created and Transferred
Train Owner in Building
Operations
Ensure all warranties are in
Place
Deal with Any Unforeseen
Problems
• Take project lead on behalf of school (if outsourced)
• Generate cash flow and affordability scenarios
• Manage site control and financing
• Generate and track project schedule
• Generate and track project budget
• Review and negotiate contracts
• Participate in design meetings
• Participate in construction site meetings
• Manage value engineering and quality control
• Secure and participate in construction financing
• Secure take out financing
Developer’s Roles and Responsibilities
• Designate key decision making individuals to participate in design
and steering committee meetings
• Generate design guidelines and program needs
• Enter into lease / sublease
• Provide community outreach
• Maintain and advance program quality
• Recruit and enroll students to meet projections
School’s Roles and Responsibilities
Be honest with yourself about what your school wants vs
what your school needs.
Don’t fall in love with a building that’s never
going to love you back!
Be prepared to walk away – you’ll have incurred substantial
cost (financial and human), but it may be the better option
than taking on debt you can’t afford.
Don’t Want It Too Badly
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