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Charter School Facilities 101


CIVIC BUILDERS, INC. Civic Builders is a mission-driven, nonprofit charter school developer. We offer a comprehensive suite of services to meet your schools’ facilities needs. With over 14 years of experience, Civic Builders has developed space for over 11,000 students across 22 school buildings.

Planning and Technical Assistance

Create personalized private facility plans, vet short- and long-term site options, and provide incubation space while schools scale and develop long-term sites.

Contact us to Learn More info@civicbuilders.org

212-571-7260 www.civicbuilders.org

Development and Construction

Identify and develop sites to be subleased or sold to schools, help schools navigate the complexities of the construction process, and manage contractors to deliver school projects on time and on budget.

Financial Services

Find affordable financing packages for facilities development, secure government subsidies and philanthropic dollars to lower the cost of a transaction, and provide lending products for charters seeking low2 interest loans.


FACILITIES 101 Your beginner’s guide to the world of charter school facilities.

What’s inside: • Planning • Financials and Affordability • Finding and Developing Your Site

This guide is built to bring you an overview of the charter facilities process. Inside you will find information and advice on beginning your facilities and strategic planning process. 3


PLANNING Thorough planning is paramount to the successful development of a private charter school facility. In this section, you will learn about: • Development and financial timelines • Value of a short-term site • Steps to take to secure your permanent site • Access to per pupil facilities dollars

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The Intersecting Timelines Several aspects of the facilities process need short-term and permanent sites in

Short-Term Site

• Securing a short-term site takes • Begin this step as soon as you ar without relying on DOE co-locatio

Permanent Site

• Securing and developing a perma months to 42 months • Begin planning and seeking your chartered

Financials

• Your first step in permanent facil what you can afford • Building credit and financial wort planning and seeking real estate 6


of Your Facility Siting to be addressed in tandem to develop time for the start of school.

about 9 months to 12 months re chartered and continue diligently on

anent site can take anywhere from 24 permanent site as soon as you are

ities development must be identifying

thiness should begin in tandem with 7


Getting Started Begin considering various factors that will influence your facilities experience. Remember that throughout this planning process, compromises and changes will be made. Internal Real Estate Team

• Build a strong, in-house team to manage facilities • Determine the role of your Board in facilities planning

Development Options

• School Can: •Internally manage a suite of consultants including architects, engineers, contractors, etc. •Use a landlord to finance and manage development •Partner with a charter school developer

Space Needs

• On a per student basis, size needs can range anywhere from 75-130 SF per student • Outline what is unique about your program that may require distinctive spaces in a building

Scaling Approach

• Identify options for short-term space, including DOE space, private short-term space, renting space from another scaling school

CSD Selection

• How affordable and available is real estate in your desired CSD? • Based on that availability and affordability of real estate in your desired CSD, consider CSD flexibility if necessary 8


Short-Term Site Planning OPTIONS Co-location space: DOE or scaling charter school

Private, short-term leased space

BENEFITS • DOE co-located space is not a guarantee • Most permanent sites cannot be developed within the 12 months from when a school is chartered to their opening year. • A short-term space will give faster access to school opening while a permanent site is developed • You will build credit and track-record to finance your permanent site • You will save capital for your permanent site

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Apply for Rental Assistance For eligible schools, the NYC DOE must provide a suitable: • Co-location option or appropriate alternative facility at no cost to charters • If the DOE does not provide space, schools can appeal for rental assistance • For eligible schools, funding for the lesser of actual rental cost or 20% of per pupil funding Eligibility Requirements Charter Schools that:

Not expanding after 4/1/14

Expanding after 4/1/14

Operate in private space Not Eligible

Eligible

Operate in NYC DOE space

Eligible if current space does not accommodate expansion plan

Not Eligible

Authorized and N/A commencing instruction after 4/1/14

Eligible if co-location space does not accommodate grade levels

Not yet authorized

Eligible

N/A

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Facility Funding Access Process for Eligible Charter Schools START Charter School submits written request to DOE

Does the DOE offer co-located or other space before the deadline? Does the charter school consider the offered space to be “reasonable, appropriate and comparable”; in the charter school’s CSD; and “otherwise in reasonable proximity?

Charter school may move in to offered space, or not

YES

Is the appeal successful?

Charter school receives rental assistance

YES

NO

YES

NO

NO

Charter school may file an appeal

Charter school is not eligible for rental assistance, but may choose to accept space previously offered

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Planning Worksheet Start by giving some thought to what your schools’ priorities are when it comes to space and location needs. What are your school’s priorities? What school district are you chartered in: ________ Rank the following factors (1=most important and 6 = least important: ____ Within your CSD

____ Access to recreation space

____ Access to transit

____ Cost /Affordability

____ Gym/Cafeteria

How Much Space Do You Need? How many students are you serving at scale? ______ students Schools can often range from 75 to 130 SF per student depending on programmatic needs, with an average of 88 SF per student. ____ students X 88 SF per student = __________ SF of Space 12


Internal Action Plan Objective

Notes

1. Assemble Internal Team

Who’s on my short list?

2. Identify Role of Board of Directors

Who has Real Estate experience? Who has a strong financial background?

Timeframe

1. 2. 3. 4.

1. 2. 3. 3. Host First Team Meeting

What are my agenda items? 1. 2. 3.

4. 5. 6. 13


FINANCIALS & AFFORDABILITY Your private real estate choices are some of the biggest and most expensive decisions to be made in your first months and years of operation. Having a clear vision and understanding of what you can afford will be invaluable.

In this section, you will learn about: 1. Identifying your budget 2. Key cost considerations 3. Average market rent by location 4. Building your credit 14


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School Economics: A Case Study This is ABC Charter School. They just received their charter, and are exploring their facilities options, knowing they need 27,000 SF of space.

At scale, ABC is going to serve 300 students. ABC is eligible for facilities funding for all 300 Students. They receive $2,891 per student. $2,891 for each of the 300 students gives ABC a base budget of $867,300 or $32 PSF for facilities. ABC Charter School is chartered in Brooklyn, where current market rents for unimproved space are about $35 Per Square Foot.

Once ABC makes improvements to the space to meet their needs, they expect that their rent will be $48 Per Square Foot. For their 27,000 SF school in Brooklyn, ABC projects that their rent will be $1,296,000 per year. 16


School Economics: A Case Study For ABC Charter School, there is a gap of $428,700 or $16 per square foot. In order to fill this gap, ABC identifies a percentage of its operating revenue that it will divert to facilities costs. ABC assumes that they will have to divert 10% of their operating revenue towards rent costs.

Facilities Funding (base)

$32 per SF

Facilities Funding + 5% of Per Pupil

$40 per SF

Facilities Funding + 10% of Per Pupil

$48 per SF

Facilities Funding + 15% of Per Pupil

$56 per SF

Knowing that they should expect to have additional operating expenses outside of their rent of about $12 per square foot, ABC identifies another 7% of operating revenue for these Costs, making their total operating revenue utilized for facilities costs 17%.

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Site Cost Considerations See below for the general market rate per square foot cost by neighborhood for vanilla box space. Additional capital improvements to a space will increase rental costs. Upper Manhattan: +/- $40-$50 PSF

South Bronx: +/- $30-$35 PSF

Harlem: +/- $50-$60 PSF Queens: +/- $35-$45 PSF

Central Brooklyn: +/- $35-$45 PSF

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The 4 C’s of Credit The lenders who will help make your building possible want to avoid risk. When it comes to Charter Schools, there are 4 important risk profiles that you should work to avoid, manage and mitigate as best as possible: Character:

Schools with staying power

A strong mission, proven market demand to support enrollment, community support, strong academic performance, a diverse and committed board, and strong school leadership. Cash Flow:

Schools with repayment power

Charter:

Schools with renewal power

Collateral:

Schools with the capacity to take on a loan

You are budgeting realistic operating and growth assumptions, with enrollment demand to support projections and a strong fundraising record. A strong relationship with your reputable authorizer, approval for your projected enrollment, academic performance to maintain good standing and positioned for renewal.

You have the resources to may a down payment on a property, and existing assets that can serve as collateral; you’ve found a site that is worth what you are paying, and have a financial track record to support it. 19


Finding & Developing Your Permanent Site Locating, acquiring, and developing you permanent school space will take longer than you might expect! The process can take anywhere from 24-42 months and requires expertise across a broad spectrum of fields. Begin early and work with the right partners to ensure a smooth and successful process. In this section, you will learn about: 1. Permanent site development 2. Items to look for in a lease 3. Helpful facilities terminology 20


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Developing Your School Prep

Site Selection & Pre –Dev 6-9 Months $$

• • • •

Form an in-house team to plan and manage your facilities process Determine the role of your Board in private facilities work Assess preliminary space needs Consider your development approach options • Manage internally • Engage development partner School Team

• • •

Commence your site search by leveraging relationships with churches, non-profits, and Board connections or engaging with a development partner Decide whether you will renovate and existing space or build new Select a site, complete your due diligence, and make an offer on the site Negotiate your lease School Team Broker Developer Lawyer Environmental Consultant

Each phase of facilities development has significant time and cost implications that go along with it, along with a need for specialized staff and consultants throughout the process.

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Permanent Site Design & Development 6 – 9 Months $$$

Bid & Financing 3 - 6 Months $$

• Engage architect, developer, • Determine whether you are engineers, and consultant credible borrower team • Assess if the project would • Develop detailed design plans benefit from alternative funding for your school space. • Assemble the required • Acquire necessary city documents to secure your variances and permits financing • Bid and award process with trades

Construction 12+ Months $$$$$$$

• Engage General Contractor or Owner’s Representative • Manage and oversee 12+ month construction • Obtain occupancy permit • Pass all necessary DOB inspections • Solve property violations

School Team

School Team

School Team

Architect

Architect

Architect

Developer

Developer

Developer

Project Manager

Project Manager

Project Manager

Engineers

General Contractor

General Contractor

Environmental Consultant

Lawyer

Engineers

Expediter

Bank

Expediter

Financial Consultant

Trades Lawyer Bank Financial Consultant 23


Development Approach Follow the path below to help you determine the right development approach for your school. START Do you have the expertise, resources, time and staff to manage the facilities development process?

NO

YES

Engage with a development partner to manage the facilities process

Do you have the financial trackrecord and expertise to finance the real estate transaction?

NO Engage with a development partner to manage the facilities process

YES

Manage the facilities process in-house 24


What to Look For in a Lease? Repairs • Clarity on who is responsible for repairs • Specific language on large items like mechanical systems and roof Landlord Improvements • Detailed information on the nature of improvements (e.g. drawings) • Landlord completion guaranty • Will the landlord pay damages if facility is not delivered on time? Tenant Improvements • The right to do tenant improvements • Ability to assign the lease as collateral to the lender • Ability to record the lease and a leasehold mortgage on that lease Avoid • Vague language around rent increases • Total rent costs exceed 15% of your per pupil operating revenue (in addition to your per pupil facilities funding) • Restrictions on entering additional leases or assuming new debt

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Facilities Dictionary Capital Stack: The project sources that together add up to total project costs. Typically the sources are represented in order of seniority, with the senior lender first. Debt-coverage Ratio: Lenders may require a higher ratio of surplus savings if there is a balloon payment at the end of the loan term, because they want to see the borrower accumulating cash to mitigate the risk that refinancing proceeds will not entirely cover the balloon payment. Landlord Delivered Space: This is the space that is turned over to you, the tenant, by the landlord. Often this will be delivered as "white box", meaning a structurally and mechanically sound empty space. Leasehold Improvement: Improvements that are paid for by the tenant, as opposed to the landlord, that are over and above the condition of the Landlord Delivered Space. Market Rate: The current listed rent for unimproved space in a given neighborhood. This rate will not factor in any improvement costs or negotiated lease rates that would otherwise impact your final rent number. Operating Expenses: These are the costs associated with your building that are not included in your rent. This includes utilities, property taxes, insurance and other items, and can vary based upon 26 the structure of your lease.


Congratulations on completing Facilities 101! Now what? Your next steps to stay on course for opening your new school building: Assemble your internal facilities team Apply for DOE space and appeal for per-pupil facilities dollars Assess your facilities needs and establish your vision Understand development timelines Assess your internal capacity to achieve your facilities vision Determine your development approach and partners Review your finances and decide what you can afford Find and acquire space: short-term and permanent sites Develop your new school building!

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info@civicbuilders.org | 212-571-7260


Facilities 101: January 2017