School Daze: Navigating the Facilities Financing MazeNational Charter Schools Conference

July 3rd, 2019

Enter our raffle, share your business card in the bowl in the back of the room, and

you could win an hour of TA!

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

3

Head to Charterschoolbuild.org to learn more

SchoolBuild: From Idea to Construction is a

one-stop shop for guidance and information

about developing charter school facilities.

Throughout this presentation you will see the

SchoolBuild Icon on the top right of slides,

this icon will highlight information that can

be found in greater detail on our SchoolBuild

research portal.

4

Who is in the Audience?School staff or board members

Planning first real estate project?

Real estate developers/consultants

Financing consultants

Lenders

Authorizers

Others?

5

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

6

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

7

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

8

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

9

10

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

11

Sample Space Plan (K-12, 650 Students)

Real Estate PlanningReal Estate Planning

12

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

13

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

14

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

15

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

16

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

17

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

18

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?

19

Questions

SchoolBuild Demo and Case Study

Worksheet and Guided Small Group Work

Troubleshoot with Experts

SchoolBuild Demo and Case Study

20

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

21

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?

22

Appendix

23

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.

24

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

25