School Daze: Navigating the Facilities Financing MazeNational Charter Schools Conference
July 3rd, 2019
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School Daze: Navigating the Facilities Financing Maze
P r e s e n t e d B y :
Y vo n n e N o l a n , L o c a l I n i t i a t i ve s S u p p o r t C o r p o r a t i o n
A n a n d Ke s ava n , E qu i t a b l e Fa c i l i t i e s Fu n d
D r u D a m i c o , B u i l d i n g H o p e
M o l l y M e l l o h , R e i nve s t m e n t Fu n d
National Charter Schools Conference
July 3rd, 2019
Agenda
Welcome and Introductions
Planning a Successful Project Facilities Development throughout a School’s Life Cycle
Real Estate Planning
Financial Capacity and Affordability
Financing Options
SchoolBuild Project Cost Calculator Demo and Case Study
Worksheet and Guided Small Group Work
Troubleshoot with Experts
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Head to Charterschoolbuild.org to learn more
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one-stop shop for guidance and information
about developing charter school facilities.
Throughout this presentation you will see the
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this icon will highlight information that can
be found in greater detail on our SchoolBuild
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Who is in the Audience?School staff or board members
Planning first real estate project?
Real estate developers/consultants
Financing consultants
Lenders
Authorizers
Others?
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Facilities and Financing Lifecycle
Growth Years
• Lease space that can grow with you
• Secure short-term interim financing
• Nonprofit/CDFI lenders
Stabilization
• Move to ownership of property with longer-term financing
• Nonprofit/CDFI or traditional bank lenders
Replication
• Charter renewed, larger enrollments
• Consolidate financing and develop larger properties
• Tax-exempt bond market
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Facilities Development
Development Options: Manage the Project or Partner with a Developer
Facilities Development
Do you have the skills and time on staff?
Do you have the financial strength to borrow
money?
Make. Do the project yourself
Buy. Hire a third party developer
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Factors to Consider
Facilities Development
Do it Yourself Hire Third Party Developer
People
Broker to find siteLawyer for contractsArchitectOwners RepContractor
One stop shoppingOwners Rep (optional)
FinancesSufficient balance sheet to borrow moneyBanking relationships
One stop shopping
OwnershipYou own the property Property Management
You lease the property with purchase optionYou own the property but hire a fee developer
Costs
Internal staff timeTypical mortgage around 6% of projectcosts
Development feeTypical lease around 8% (non-profits) or 10% (for-profits) of total project costs. Purchase option
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Location Considerations
Area: Geographic and neighborhood preferences
Access: Access to site/public transportation; access to funding by location
Market: Available building stock; distance to other schools/collaborators;
relocation concerns; neighbors
Site Logistics: Drop-off/pick, vehicle circulation/parking, delivery and access,
visibility, etc.
Other: Long-term stability of neighborhood; city revitalization efforts; new
housing projects
Real Estate Planning
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Demand Consideration
Real Estate Planning
Space Planning: Typical Space Sizes
Real Estate Planning
Rule of Thumb: Plan for 75-100 square feet per student
Type of Space Space Allotment
Building Footprint 100 to 110 square feet per student
Classrooms 750 to 1000 square feet; minimum 20 square feet per student
Library 3 to 4 square feet per student
Computer Lab 750 to 1300 square feet or 30 square feet per workstation
Cafeteria 6 to 8 square feet per student
Circulation Space 20 to 30%
Multi-Purpose 6 to 10 square feet per student
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Sample Space Plan (K-12, 650 Students)
Real Estate PlanningReal Estate Planning
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Typical Qty.
Actual Qty.
Room Typical Size Actual Size Typical
Sq.ft./roomActual
Sq.ft./roomTypical Sq.ft. Total
2 Kindergarten Classroom 30’x30’ 900 1,800
2 1st Grade Classroom 30’x30’ 900 1,800
2 2nd Grade Classroom 30’x30’ 900 1,800
2 3rd Grade Classroom 30’x30’ 900 1,800
2 4th Grade Classroom 30’x30’ 900 1,800
2 5th Grade Classroom 30’x30’ 900 1,800
2 6th Grade Classroom 30’x30’ 900 1,800
2 7th Grade Classroom 30’x30’ 900 1,800
2 8th Grade Classroom 30’x30’ 900 1,800
2 9th Grade Classroom 30’x30’ 900 1,800
2 10th Grade Classroom 30’x30’ 900 1,800
2 11th Grade Classroom 30’x30’ 900 1,800
2 12th Grade Classroom 30’x30’ 900 1,800
13 Teacher Collaboration/HVAC/IT/Storage 10’x30’ 300 3,900
6 Administration Offices 10’x30’ 600 3,600
1 Conference/Breakroom 20’x30’ 600 600
1 Sick Room/Nurse 10’x10’ 100 100
SubTotal, students & teachers
3 Bathroom Bank/Drinking Fountains/Janitor/Fire riser 20’x36’ 900 2,700
6 Individual Bathrooms 7.5’x8’ 60 360
2 Library/Computer Lab 50’x42’ 2,100 4,200
2 Gym/Multipurpose 50’x50’ 5,000 10,000
1 Cafeteria/Kitchen 60’x125’ 7,500 7,500
SubTotal 56,360
Load factor - 20% of Subtotal (Circulation) 11,272
Total 67,632
Total Space Needed:• 67,632 square
feet• 104 square feet
per student
Construction Cost Considerations
• Geography: Urban, Suburban, Rural
• Extent of Renovations: Cosmetic, Moderate Rehab, New Construction
• Labor Costs: Davis-Bacon/Prevailing Wage
Real Estate Planning
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DC FL TX NV ID SO CA
ModRehab*
$220/SF $75/SF $85/SF $90/SF $65/SF $95/SF
New** $310/SF $175/SF $185/SF $180/SF $150/SF $195/SF
* Average costs are hard costs only** Average costs are hard costs plus site construction improvements
Project Budget: More than Hard Costs
Property Acquisition and Entitlements
Financing and Legal Costs
Permitting and Impact Fees
Direct Project Costs
Architecture and Engineering
Furniture and Equipment
Other: Contingency, Moving, Ramp-up
Real Estate Planning
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Financial Capacity & Affordability
How much building you can afford is driven by equity (cash) and debt
Project debt needs to have adequate collateral
Project debt should be sustainable: affordable without taking revenue
away from the classroom
Assessing what you can afford at the outset will help you design a
financeable project
Financial Capacity and Affordability
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Key Capacity & Affordability Concepts
Facilities Burden
• No more than 12-15% of public revenue for rent or mortgage payments
• “All-in” facilities cost (utilities, maintenance, security) < 20% of public revenue
Debt Service Coverage Ratio
• Measures excess cash flow available to service debt
• Lenders typically look for 1.10x - 1.25x
Past financial performance
• Audits, tax returns, budget-to-actuals
• Balance sheet strength
• Income statement trends
Financial Capacity and Affordability
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Types of Financing
• Early-stage schools (2-5 yrs) • Single site or small network• Leased or owned facilities• 10% equity • DSCR > 1.10x• Low income student population• LTV ~ 90%
• Expanding and mature schools(3-5 yrs+)
• Multiple campuses, CMOs• Charter renewed or likely• 20-25% equity • DSCR > 1.2x• LTV ~ 75%
Nonprofit/CDFI
Financing
Tax-ExemptBond Market
Bank Financing
• Multiple campuses, CMOs (emphasis on enrollment)
• Charter renewed• Equity may not be
required• DSCR: 1.25x to 2x• LTV ~ 100%
Financing Options
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How Much Can You Afford?
Financing Options
How much you can spend on your facility supports different amounts of
principal, depending on interest rate and amortization
“Multipliers” provide a shortcut between annual debt service and loan
amount
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Amortization (years)
15 20 25 30
Rat
e
4.0% 11.3 13.8 15.8 17.5
5.0% 10.5 12.6 14.3 15.5
6.0% 9.9 11.6 12.9 13.9
7.0% 9.3 10.7 11.8 12.5
8.0% 8.7 10.0 10.8 11.4
9.0% 8.2 9.3 9.9 10.4
What’s Next?
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Questions
SchoolBuild Demo and Case Study
Worksheet and Guided Small Group Work
Troubleshoot with Experts
SchoolBuild Demo and Case Study
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Troubleshooting the Gap
Re-scope Your Project Are you overbuilding? Incubators or other alternative space Phasing
Revisit Assumptions Could you dedicate a higher percentage of your budget to facilities? Could you increase enrollment to boost top-line revenue?
Raise More Money Equity Philanthropy Subordinate Debt Subsidies such as NMTCs and QSCB/QZABs
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Project Cost Calculator Worksheet
You need to know: How many students your building will house Approximate recurring public revenue per student
You need to estimate: Amount of space you want per student How expensive is your market? How much cash (equity) can you spend on the project?
What to keep in mind: Eventually, sources must equal uses Think about the moving pieces that feed into the budget. Where can
adjustments be made?
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Appendix
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Primary Financing Methods
Source: 2017 California Charter School Conference: Ready or Not? Planning for Facilities Financings – Joint Presentation by BAIRD, Buck Financial, and Charter School Growth Fund.
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Types of Financing
Traditional Bank Loans
New Market Tax Credits ("NMTC")
Developer Financed Lease Purchase
CDFI'sCharter School
BondsCIF
Generally Appropriate For:
Newer or seasoned schools, interim construction possible
New or more seasoned, but project must be in a "qualifying area"
defined by census track and poverty levels OR serve targeted population
Newer schools, Interim Financing until Permanent Takeout Available
Seasoned schoolsor new schools of
experienced operators
Generally, more seasoned schools or organizations with
substantial credibility
High performing, High FRL schools with operating and
enrollment history
Amount Financeable (Loan-to-Value):
65-80% + / - 90-100%Flexible but reflected
in cost of lease65-80% ~ 100% ~100%
Typical Term5-10 year terms with
20-25 year amortizationUsually interest only for the first 7 years Flexible 5-7 years 30+ years 30+ years
General Cost: LowLow interest rates
High transaction costsHigh Moderate
Moderate Interest ratesHigh transaction & reserve costs
Low
Appraisal Requirement: Yes Generally, Yes Generally, Yes Yes Generally, no Generally, no
Required to Refinance? Yes YesTypically yes, but restrictions can
applyYes No No
Complexity Low High Medium Low Medium Medium
Typical Time Required to Close
+ / - 30 days + / - 90-120 days (or longer) + / - 60 days + / - 60 -90 days + / - 90 days + / - 90 days
Other: Lender may require all deposits
and credit lines20-25% on loan normally
"forgiven" at end of year 7Can include minimum
ROR. One-stop shoppingFRL & Academic Impact
metricsVarious covenants
requiredFRL & Academic Impact
metrics
“Real Estate” Lenders “Cash Flow” Lenders
LISC SchoolBuild: From Idea to Construction
SchoolBuild: From Idea to Construction is anew research portal to guide schools throughthe entire facility process from start to finish.This research portal is meant to be a onestop shop for charter schools, no matter theirstage of facility development.
Visit SchoolBuild and Download this presentation at
www.charterschoolbuild.org
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