What You Need to Know About Facilities Development Tuesday, November 29, 2011.

What You Need to Know

About Facilities DevelopmentTuesday, November 29, 2011

PresentersBrian Keenan-BWPEric Felczak-BWPSarah Kitterman-BCCNora Bloch-BCCEric Mello-Rising TideRebecca Sullivan-MassDevelopment

AgendaI. Overview Leasing/OwningII. Site Assessment/SectionIII. Costs/FinancingIV.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

• Types of property• Environmental Conditions• Location, location, location• Cafagymatorum/Gotta have it• Competition

Costs/Financing • 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

NY No Not required

(but many do)

MA Yes Yes

NH No No

RI Yes Yes

CT Yes Yes

Best Practices Examples

State Best Practice 1 Best Practice 2 Best Practice 3

NYRequiring Charters to

Have Policies & Procedures

Vendor Analysis for Equipment or

Consulting

Improving Charter School Leadership

MACreating Positive

School Culture through Character

Education

Using Community Resources to Enhance the

Teaching of History

Classroom Differentiation

CT Student-Created Goals

Social Programs Highlighting

Important Social Skills

Academic Growth Monitored through “Must Pass Policy”

Facilities Financing OptionsQualified School Construction Bonds (QSCBs ) and Qualified Zone Academy Bonds

Allows qualifying schools and/or communities to borrow at little or no interest cost.

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 PortfolioNewark 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 PortfolioJersey 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 PortfolioTeaneck 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.orgwww.bwpurpose.org www.bostoncommunitycapital.orgwww.bostoncommunitycapital.org

www.risingtide.orgwww.risingtide.org www.massdevelopment.comwww.massdevelopment.com

Boston Community Capital &Charter School Financing

Boston Community CapitalNora 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?• 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?• 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 Cons

•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

•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 ProgramsMass Development Charter School Financing

Partnership• 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

• DOE funded program

• Flexible enhancement. Typically used with Bond issuance to fund Bond holder required reserves and equity requirements

US Dept of Agriculture

• 90% loan guaranty• Community facilities in rural

areas (population<20,000)• Can be used for construction

and land acquisition

Risks• Overspending on facility-

stretching 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] Kitterman: [email protected]