A report in the Wall Street Journal describes the gold-rush atmosphere that attracts real estate investors to charter schools. The risk in the investment is diminished because the schools have a steady stream of government funds. The charters are almost always non-union. The biggest risk is that the people running the schools are unqualified to run a school and the school may fail.
Real-estate
investors are showing an increasing interest in charter school development as
the demand grows for classroom seats and some state and local governments
become more willing to help finance charter-school projects.
Almost
all charter schools are operated by nonprofit organizations. But these groups
often rent and buy their buildings from private real-estate developers, and
that is creating a new niche asset for some investors.
One of the latest entrants to the charter real-estate business is Northstar Commercial Partners, a Denver-based private-equity firm that is raising a $100 million fund. It will focus on converting charter schools out of vacant office, industrial and retail properties that can be purchased for less than half of what they would cost to build, according to Northstar Chief Executive Brian Watson.
Meanwhile,
investment manager Bobby Turner, who founded Turner Impact Capital LLC in 2013,
is raising his second fund with tennis legend Andre Agassi for building new
charter schools, this one with a goal of $400 million.
And
established players in the business are seeing volume increases on chart school
developments. For example, a venture of HighMark School Development and EPR
Properties, a real-estate investment trust, spent more than $118 million in
2014 on acquisition, renovation and construction, compared with $34 million in
2011.
“There’s
no shortage of cash,” said Patrick Beausoleil, a HighMark vice president.
The
rise in investment activity partly reflects the growth of the charter school
movement, which has been overcoming political opposition in many states. During
the 2014-2015 school year, 500 new public charter schools opened nationwide,
for a total of more than 6,700 enrolling about 2.9 million students, according
to the National Alliance for Public Charter Schools.
Some
states are beginning to make financing tools available to charter schools that
had been limited to traditional public schools. For example, the states of
Texas, Colorado and Utah now backstop tax exempt bond issues for some charter
schools, reducing their capital costs when acquiring facilities, according to
Scott Rolfs, managing director of B.C. Ziegler & Co., a niche
investment-banking firm that has underwritten more than $600 million in charter
school bonds.
But
the growing role of for-profit real-estate developers has added a new dimension
to the debate over charters, which are taxpayer funded and independently
operated schools that are largely free of union rules. Critics say charter
schools are in danger of cutting costly deals with developers who are more
concerned with investment return than educating children. The result can lead
to failed schools.
One
of the biggest investment funds is the one created by Turner Impact Capital and
tennis star Andre Agassi. Agassi is a high-school dropout. It seems that to
start new charter schools, no education is necessary.