FCSC Facilities Financing

Copyright © 2014 Charter School Capital, Inc.

Charter School

Facility

Financing

Options

Florida Charter

School Conference

11/19/14


Welcome

3Copyright © 2014 Charter School Capital, Inc.

WELCOME

• Mike Nine, President, Campus Real Estate Solutions

• Stuart Ellis, President and CEO, Charter School Capital

Panelists


FACILITIES

• Understanding and choosing a funding structure

• Balancing facilities dreams and budget realities

• Funding approval - keys areas of focus

• Project execution and timing

• Other considerations and best practices

• What does the future hold?

What we will cover today

Copyright © 2014Charter School Capital, Inc.

Focused on Charter Schools


WHAT WE DO

• Working and growth capital

– Attendance-based funding

– Receivables purchase model

• Facilities financing

– Expansion and new development

– Relocation and refinancing

– Newly funded $500 million capital pool

• Resource development

– Matching clients with grant, entitlement and philanthropic funds

Provide charter schools access to funding


WHO WE ARE

• Specialty finance company empowering charter school growth

• Headquartered in Portland, Oregon

• Began funding charter schools in California in 2007

• Over $800M of funding provided to date

• Team of 40+ professionals dedicated to delivering timely and flexible solutions

• Relationships with over 400 charter schools serving 450,000 students

• Stellar track record with schools and investors

100% dedicated to charter schools


WHERE WE ARE

400

5

519,000

1,130

184,400

605

44,100

149

253,245

280239,996

625

141,204

297

119,533

400

130,842

176

Current Clients –

Working Capital +

Facilities

# Students

# Schools

99,328

197

91,813

233

69,392

110

58,933

127

63,175

14554,906

95

58,691

117

47,689

245

35,353

81

31,743

87

34,347

75

29,718

124

19,439

38

22,384

59

19,409

47

21,911

95

26,022

34

16,051

39

10,370

21

10,398

33

15,533

7116,137

25

2,446

11

7,131

18

2,133

19

725

6

315

3

382

4

5,980

27

6,215

19

Anticipated

Working Capital

2015

Facilities

Only

TB

D

31

21,397

52

35,000

57


Facilities Funding Structures


CONSIDERATIONS

• Ownership is an investment

• Control is critical to maintain stability or growth

• Evaluate dollars spent not percentage rates

• Cost is not just money, but time and opportunity

• Leadership and management time is most valuable resource at your school

• Unrealistic expectations from advisors and your team

What to think about in financing your facility


WANT – NEED – BUDGET

What Can We Afford? What Is Required?

Existing reserves Academic mission

Ongoing % of revenue Growth plan for attendance

Fundraising – public/private Specialty requirements

Funding alternatives Local considerations

Things to consider


FUNDING COMPARISON

Criteria Cash Bank Bond Lease Option

Cash needed to

close

$7M $2.1 – 2.8M ~$200 – 500K $0 – 100K

Annual cost $0 $350 – 700K $600 – 800K $630 – 700K

Underwriting None Min 5 yrs

Surplus

Assets + Revenue

Min 3 yrs

Surplus

Rating?

No minimum

Academic

success

Flexible

Security Interest None Real estate + all

assets

Real estate + all

assets

None

Growth Options Cash = Build Refinance risk

Rate risk

Refinance risk

Covenants

Scalable,

expandable

Considerations/Chal

lenges

Reserves? 20+ - 40% equity

5-20yr

amortization

100% financing

Transaction costs

“Road show”

100% financing

No amortization

Note: $7 million project example; bank assumptions 6-8% interest on debt, 30-40% equity, 10-20yr amortization; bond assumptions 6-9%

interest rate, 20% transaction cost/additional financing, 30yr amortization; lease options assumptions 100% financing, 9-10% cap rate.


BOND REQUIREMENTS

• Pledge of state funding assigned to trustee

• Fully funded debt service reserve

• First mortgage collateral

• Level annual debt service amortization

• Liquidity covenant 45 days cash on hand

• Debt service ration covenant of 1.10x

• Debt service default covenant of 1.0x

• Capital improvement reserve funding


PROJECT $5mm

Security Interest

Growth Options

Underwriting

Annual cost

Cash needed

Comparison for illustrative purposes only. Rankings are based on how hypothetical “School A”

might view its options based on unique attributes and objectives.

Criteria Cash BondTraditional

BankLease Option


PROJECT $20mm

Security Interest

Growth Options

Underwriting

Annual cost

Cash needed

Comparison for illustrative purposes only. Rankings are based on how hypothetical “School A”

might view its options based on unique attributes and objectives.

Criteria Cash BondTraditional

BankLease Option


FUNDING OPTIONS

• New market tax credit (NMTC)

• CDFI

• EB-5

• Rural development funds

• Other

Other creative options


Funding Approval and Execution


PASSING THE TEST

• Attendance

– Stable or increasing enrollment

– Strong demand – waiting list, expanding grades, market growth

• School / Leadership History

– Experienced leadership team with successfully history

– Market leading academic performance(local peers, district, state)

• Numbers have to “pencil”

– Sound financial performance and pro forma

– Debt service / lease payment target <20% of total revenue

– Valuation of target property (land)

• Governance issues

– Authorizer relationship

– Operational excellence and adherence to internal controls

Funding structure requirements


FACILITY CONSIDERATIONS

• Plan ahead

– Collaborate with the programmatic side of the organization

– Lock in a stable leadership and management team

– Understand academic performance

– Plan financial performance measures

• Watch the market

– Keep an eye on rates and available products

– Understand the real estate opportunities and challenges

– Have realistic expectations

• Line up internal resources

– Legal, financial and academic

• Prepare for the deal

– Work with a partner or do the deal on your own?

o Have a beauty pageant

o References and last three deals

Four key components


PROJECT EXECUTION

Execution requires significant time

Plan ConstructDesignAcquire

Space

Features

Budget

Timeline

Charter

issues

Select firm(s)

Design/build

options

GC input

Timing; big

bang or

phased

Locate Site

Acquisition

Permitting

Land prep

Move dirt

Raise the

roof

Control:

Project

manager or

owners rep

Fund

Cash

Bank

Bond

Lease

Option


Construct

ion

PROJECT EXECUTION

Building is almost the easy part


KEY CONSIDERATIONS

• Full-Service resource

– Selecting the right funding partner / structure

o Bond

o Loan

o Lease

– Site selection

– Commercial developer

– Architect

– General contractor

• Flexible / adaptive to your unique project

• Guarantor / sponsor / investor

• Provide access to working / growth capital

• Calculate total cost of ownership (now and later)

Choose a strong partner


Thank YouPresentation available at:

SlideShare.net/CharterSchoolCapital

Matt Nine

[email protected]

Stuart Ellis

[email protected]

877-272-1001

FCSC Facilities Financing

Education

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