As part of our mission, Colorado Charter Facility Solution provides support to schools seeking to acquire, build or lease a school building. Among supports, this toolkit is designed as a practical resource to learn about school facility projects in preparation for your specific project. Facility projects are complex, expensive and risky. We hope that this toolkit can help breakdown the complexity for school leaders and board members, thus improving affordability and decreasing risk. This toolkit references several resources developed by other organizations including other lenders. The purpose of the toolkit is not to convince a school to borrow from or work with CCFS; instead, we want to share information that will be helpful regardless of how a school chooses to pay for its facility. Furthermore, the information contained in this toolkit should not be construed as financial advice.
Are you a start-up school or an existing school? Who is your point person?
Start-up Schools. A start-up school may be in its pre-opening year, or even first year of operations. Start-up schools face unique challenges, particularly in the year prior to opening where they need to complete critical activities in parallel, even though the activities would be easier in sequence.
The graphic to the left illustrates how core start-up activities depend on one another. Enrollment defines the facility size a school should obtain, but already having a facility is a critical tool in recruiting enrollment. Enrollment ultimately drives revenues once a school is open, but the school needs money in order to market and advertise as part of its enrollment efforts. Schools need money in order to make down payments on leases or purchases of facilities, but schools need facilities in place in order to serve students and obtain money.
There is no magic fix to the conundrum of how to complete these critical start-up activities simultaneously. CCFS encourages schools to:
• Consider leasing first, as opposed to buying property right away
• Be conservative with enrollment projections
• Only arrange for space that is big enough for the first year or two years, not the full-scale school
• Focus on safe and adequate space, not high-end buildings
Schools that stretch too far on the facility often can’t afford sufficient staffing and supports to run a strong academic program. For more suggestions about securing facilities during school start-up, visit the Start-Up Schools section of SchoolBuild.
Existing Schools. If you have been open for at least a couple years, you’ve established a presence at a temporary facility and are facing a new set of challenges to secure a permanent facility. You are balancing four pieces of the facility puzzle: location, availability, condition and cost.
The pieces of the puzzle impact one another and create challenges for schools:
• Availability may be scarce in neighborhoods, creating a tradeoff between location and availability
• Costs may be too high due to the broader real estate market
• Properties on the market may be in poor condition or have insufficient space to accommodate both buildings and outdoor spaces such as fields, playgrounds and parking lots, driving up costs
• Available buildings may not be located in areas with sufficient public transportation
As an existing school, you are well aware of these and other challenges. This toolkit cannot solve all the challenges, but it can equip school leaders and board members to navigate the facility search, acquisition and renovation process more smoothly.
Project Point Person. CCFS recommends identifying a senior staff member to run point for the duration facility project. Sometimes the point person is the principal and sometimes not. It takes time to do the work and see facility projects through to completion. Be sure that the point person has available capacity and a long-term commitment. Where possible, involve a facility committee of board members with relevant expertise.
If staff and board capacity are a concern, you may prefer to work with a facility developer who acquires a site and oversees construction to meet your needs. Sometimes, using a developer adds expense. This expense may be partially offset if developers are able to secure more favorable purchase and construction terms based on their own credit worthiness and experience. Some developers will pass these savings on a to school. To learn more about deciding whether to oversee the project yourself or work with a developer, click through on the prior link to the SchoolBuild site.
Learn About Facility Projects. Regardless of where you are in the life cycle of a school, the best first step in a facility project is to learn. Read about the timelines, steps and service providers in a facility project. Learn terminology and concepts relevant to real estate purchase, construction, renovation and leasing.
If you simply Google “charter facility” you will get thousands of results. Be strategic about what sources you use to self-educate since parties who stand to profit from facility projects may provide biased information. While every entity has some version of bias, we suggest using the following sources to start to learn about facility projects:
• SchoolBuild – an online resource that provides step-by-step information and resources for schools engaging in a facility project. SchoolBuild was developed by the Local Initiatives Support Coproration (LISC); LISC is a non-profit community development financial institution that has been working with charter schools for over two decades. The tool attempts to provide unbiased information without endorsing one approach.
• The Answer Key – a publication that provides in depth information about charter facility projects. Capital Impact Partners developed The Answer Key; Capital Impact Partners is a community development financial institution that supports a variety of community lending needs. To get started with a project, CCFS recommends reading pages 1 to 13.
• Charter Facility Landscape – Colorado – a publication that goes into details about how charters in the state of Colorado have addressed their facility needs, as of 2017. Uniquely, this report can help you estimate costs and understand unique resources and challenges in Colorado. This publication was created by the Charter School Facilities Initiative with grant funding from the federal government.
Process At A Glance. A facility project generally includes the following steps, though steps may overlap and/or iterate over the course of the project. The total timeline varies, but for a medium sized purchase and construction project, plan for at least 15 months in a competitive real estate market.
Needs Assessment. Before you engage the paid real estate professionals, it is important to get clear about your needs. How many classrooms will you need? Of what approximate size? Breakout rooms? Offices? Outdoor space? You will save time, confusion and expense if you identify the “must haves” vs. “nice-to-haves” when it comes to a permanent facility.
While architects and developers will offer to help you identify your needs, CCFS recommends that you do some independent work before engaging these professionals. Try starting with this simple Needs Assessment Worksheet provided by Capital Impact Partners. If you are new to real estate acquisition and development, read through essential terms and concepts for assessing your space needs here.
The square footage that you need depends not only on enrollment, but also on how you schedule your day. Push yourself to explore ways for the school schedule to help maximize space utilization. For example, English language development supports can be provided in a normal literacy classroom so long as the two subjects are taught in sequence rather than concurrently.
Feasibility & Preliminary Budget. Exploring the feasibility of a facility project goes hand-in-hand with creating a preliminary budget. Feasibility should explore the physical attributes of your current space and determine whether it could meet your long-term needs. If other charter schools in your area have recently acquired or renovated building space, reach out to them and learn about their projects. What did they spend? What lessons did they learn? Talk to your charter authorizer to understand what approvals may be required to expand enrollment and/or relocate. Begin to research regulations and codes that apply to public schools in your area.
From the financial perspective, take an honest look at your budget. Identify a target percentage of total revenue that you are willing to spend on your facility. Be sure that you are factoring in not only the costs to acquire a facility, but also the operating costs of the building such as utilities, janitorial services, insurance and maintenance. What reserves do you have to contribute?
Once you’ve answered some of these preliminary questions, move to creating a capital budget. Consult the capital budgeting resources at SchoolBuild, including their project cost calculator.
Build a Team. Once you have identified your needs and completed a preliminary budget, begin
building the team of professionals that will support the process. Be sure that you interview more than one realtor, architect or project manager, depending on your needs. Look for recommendations from other schools and find out who your local school district uses. Before you commit to any paid professional, be sure to check references.
It can be helpful to engage an architect and/or project manager early in the process. These individuals should be willing to perform preliminary work for a fixed fee that doesn’t necessarily bind you to future work. Read more about the professionals you may need to engage here.
Site Selection. Many school leaders attempt to select a site before completing a thorough needs assessment and preliminary budget. Don’t make this mistake. You will waste time shopping if you are not clear on what you want to buy and what you can afford.
School buildings are often acquired and developed through the commercial real estate markets, as opposed to the residential markets. If you are going to work with a realtor, select an individual who has experience with commercial real estate and ideally, specific school experience. Sometimes realtors will have worked with private schools even if they haven’t worked with charter schools. This is still valuable experience. If you are leaning towards working with a developer, the developer may generate a list of potential sites directly for you rather than needing to engage a realtor.
Both realtors and developers will ask you whether you prefer to own a building or lease a building. If you are not prepared to answer this question, look at both options. Before starting site selection, consider reading pages 21 – 27 of The Answer Key.
Preliminary Design. Once you have begun to collect data on potential school sites, you will need to start to engage in preliminary design work. This preliminary design work costs money but can critically inform your site selection. If you are contemplating a large-scale project, you may choose to engage an architect for a limited scope of preliminary design work before bidding the entire project. If you are working with a developer, the developer may start to pay for preliminary design services, but only if you have committed to the developer.
Architects use the following language to describe the design process:
The “Pre-Schematic Design” work can be limited in scope and may help you determine whether a specific site is feasible. Alternatively, it may provide a very rough drawing of a school plan, if ground-up construction is in your future. If you plan to lease space, the landlord may already have a pre-schematic design to share with you as part of their marketing efforts. Read pages 30-32 of The Answer Key to learn more about the design process.
Budget & Preliminary Financing. Once you have a few site options and a pre-schematic design, it is time to begin to build a project budget. The preliminary budget you prepared earlier in the process should have told you what you can afford. This new project budget will begin to outline what different sites and options costs. Ideally, the two budgets match.
With your project budget in hand, consider reaching out to lenders if you intend to borrow money as part of your project. Reach out to a couple banks or community development financial institutions to describe your potential project and learn about the financing they may be able to provide. Be prepared to share specific numbers with your prospective lenders. As you find out what you might need to spend to borrow funds, revise your multi-year budgets so that you can better assess feasibility.
There are several different ways to finance a charter school building in the state of Colorado. For more in depth information about Colorado specific financial resources, click here.
Schools may need to bid out design work (architects), construction work (contractors) and potentially project management services. These may be bid separately or as a single-sourced service. In addition, schools will want to obtain the most cost effective and appropriate financing for their project by comparing financing offers from different lenders. Bidding may happen before, during or after obtaining formal financing. It depends on the project size, timing and school characteristics.
Financing. It takes time to arrange formal financing, so consider dialoguing with lenders or credit institutions well in advance of a potential purchase. For a purchase and construction project, it is best to plan for at least two months from initial loan application to closing. No matter where you obtain financing, you will need to submit a detailed set of documents describing your project and your capacity to repay the loan. The types of documents that a lender is likely to request include:
• Audited financials (last three years)
• Five-year cash flow projection
• Needs assessment for school building
• Project cost estimate (supplied by architect, contractor or developer)
• Site information
• School’s business plan
• Charter contract
• Academic performance data
• Resumes/biographies for leadership and board
These items will enable a lender to understand your financial needs and your capacity to repay a loan. The lender will likely conduct due diligence in the form of interviews and site visits. Once a term sheet has been provided and agreed upon, the lender will likely order a formal appraisal of the “as complete” project. Follow these links to learn more about how to apply for a loan, loan terminology and loan categories. Be sure to also review the Colorado specific financial information here.
Bidding. Most charter schools will need to conduct a bidding process for the professional services of a facility project (e.g., architects, contractors, project managers). Some states have laws about how publicly funded entities should conduct the bidding process. Your charter contract may explain these requirements, or you may need to look up the requirements directly in state statute or rules. The bidding process takes time. Allow at least a month or more to collect bids. To learn more about selecting a general contractor, click here. To learn about bidding services as a whole or individually, read pages 40-44 of The Answer Key.
Before your contractor can commence construction, the project architect must complete the detailed drawings (called construction documents). These drawings must be submitted for review in order to obtain building permits. The permitting process can involve back and forth between the reviewers, the architect and the general contractors. The construction schedule should allow sufficient time for the completion of detailed drawings and permitting process.
The construction process for a school comes with its own risks and challenges. Not every school facility project includes construction. Sometimes, a school is able to find and purchase a facility that was formerly a school and in good enough shape to serve their needs. But many projects, including leased space, require some degree of construction and/or renovation. To learn more about school construction projects, visit the Construction page of SchoolBuild.
In the construction process, you will also need to arrange for all the furniture and equipment that you need for your school facility. Sometimes you already have most of it. Other times, you will need to purchase these items new or used. If you have arranged for it, your loan funds may be used for these purchases. Alternatively, your developer may be providing these to you under a lease agreement.
At the conclusion of a construction project, your building must be inspected by various officials from the local code and enforcement offices. Passing these inspections will enable a school to obtain a Certificate of Occupancy. The Certificate of Occupancy is required before you begin serving students in the school site.
Colorado has unique regulations, real estate markets and financial resources for charter schools and their facilities.
Building Codes. Charter schools are subject to building and safety codes the same as district schools. These codes and regulations are established by municipalities, the state and even the federal government. To engage in a facility project, you do not need to become an expert on school building codes. However, it is useful to remember that schools must have specific fire suppression systems, ventilation systems, bathroom access, entry and exit options and various accommodations for individuals with disabilities. Do not assume that an existing structure that has served as an office building is suitable for use as a school. The Colorado Division of Fire Prevention and Control maintains useful resources here that discuss the permitting process and requirements for a school facility.
Entities Permitted to Issue Debt. Colorado has specific laws about how governmental entities can borrow funds and the process generally involves voter approval. Because charter schools are considered component units of school districts, these laws extend to charter schools. The non-profit chartered corporation is only authorized to make multi-year promises to pay (i.e., borrow money) under certain arrangements. Charter schools (and school districts) may enter into multi-year leases without going through voter referendums. As such, many charter schools form special purpose entities or building corporations that acquire real estate and then lease the real estate to the charter school. Schools should consult with their own legal counsel to ensure that they are respecting state law in these areas.
The National Charter School Resource Center collects and publishes data about facility costs, markets and conditions in various states. To review a recent report about the charter facility landscape in Colorado, click here. The report explains what percentage of schools are in privately held versus publicly owned facilities in Colorado.
Privately Held Properties. Privately held properties are simply those properties owned by a non-governmental person or entity within the private sector. The bulk of real estate is held by the private sector. Many parts of Colorado have experienced rapid economic and population growth that has driven up real estate costs. Other parts of Colorado have unique space and labor constraints that result in high real estate expense. These market forces have made currently available properties in certain markets unaffordable.
Publicly Owned Buildings. Because real estate is expensive, many charter schools try first to arrange space within existing publicly owned school buildings. Existing district-owned buildings that are vacant or under-utilized can be substantially less expensive. As a note, Colorado state statute does not permit a school district to charge rent to its public charter schools. However, the district may pass along maintenance and operating expenses for these facilities in the form of a use fee. Schools should also research potential facilities owned by other governmental entities (e.g., cities, agencies, etc.)
The following information pertains to Colorado-specific financial resources, some of which are guaranteed and others competitive.
Charter Capital Construction Funds. All charter schools are eligible to receive supplemental funds to help defray eligible facility expenses. The funding is districted on a per full-time equivalent (FTE) student basis. CDE uses the school’s October 1st pupil count data to determine the amount of funding. Funds can be used to pay for construction, renovation, maintenance, financing or purchase/lease of facilities. In school year 2018-19, the funding amounted to about $300 per full-time equivalent. Charters should budget for this supplemental revenue source. Read more here.
BEST Grant Program – Competitive Grants. In Colorado, The BEST grant provides competitive grant funding on an annual cycle for schools with health and safety-based facility needs. The grants are specifically targeted at health and safety needs, not general facility needs. If you are in an existing facility that has safety compromises (e.g., classrooms with doors that open to the outdoors rather than a monitored single access point for the building) or lacks adequate facilities (e.g., no nurse’s suite or inadequate bathrooms), you should consider applying to the BEST program. The Colorado Department of Education runs the program. Read more at the Best Grant Program website.
Tax-Exempt Bond Financing. Charters can access tax exempt bonds in one of two-ways: 1) including their building project in a voter-approved bond referendum or 2) obtaining tax exempt bonds through the state’s program and private placement of the bonds. Charters may go direct to voters or join their resident district in a voter referendum. The process to obtain voter-approved financing takes time, often a year or more. It can be well worth the wait however, because a voter approved bond referendum typically comes with dedicated tax revenue to pay for the bonds and thus the charter school does not bear the cost of the financing out of its operating funds. This is the financing mechanism that public school districts most commonly use for their facilities and the state of Colorado has laws permitting charter access to these same mechanisms. If the voter approved bonds are not an option, schools may seek their own tax exempt bonds. These bonds require the involvement of the Colorado Educational and Cultural Facilities Authority (CECFA).
What does it mean to be tax exempt? It simply means that the interest received by the bond holder is not taxed by the federal government and sometimes, by the bond holder’s resident state. Because of this tax advantage, the tax exempt bonds may be issued at more favorable interest rates. However, the other important component of cost of any bond is the underlying risk of the project and the borrower. Charter schools with longer operating histories who are seeking to purchase or construct buildings that have strong value in comparison to their cost may realize savings and advantages from tax exempt bonds.