Sunday, October 18, 2015

Charter Real Estate

You know who really loves the charter school movement? According to the Wall Street Journal, real estate investors are just loving the growth of the charter school biz.

There's a real estate boom that comes attached to charter growth. In LA, I've watched a huge new charter go up on a several-lot parcel across the street from my son's apartment building in Koreatown. It doesn't look cheap. But according to the WSJ piece, it's extra-popular to buy and convert it into school space-- McDonalds meets education meets Flip This House.

This can happen because of the ready availability of money. The article quotes the VP of Highmark School Development: "There's no shortage of cash."

Highmark School Development is a good example of the kind of players working this part of the business. They were founded in Utah in 2005, then grabbed up by Stephens Capital Partners in 2008 (that group appears to be headquartered in Little Rock). The Highmark mission?

HighMark School Development will drive educational excellence by developing world-class educational facility solutions while exceeding the expectations of our clients, investors, partners and associates.

Their vision?

HighMark will be recognized as the premier developer of school facilities in the United States. We will seek to partner with schools that are well positioned for growth, demonstrate strong and consistent academic performance, and exhibit solid and effective board governance.

Note particularly the part about "solid and effective board governance." That would be different from, say, "transparent and open governance that is controlled democratically by and accountable to the community."  Their business model is to help school operators get charters up and running and help the new board "avoid many of the common pitfalls and mistakes made in developing a new school facility." Highmark has a whole team of charter expertise, and if you look down the list, you will see people tasked with handling construction and finance and management, but none whose expertise is listed as "actually educating young human beings." They have a page "about charter schools," but it's under construction at the moment.

Highmark has built several schools in Colorado, North Carolina, and Utah, plus others here and there across the country. They appear to be moving into New Jersey as we speak.

Because there's no shortage of cash. And as the WSJ lays out, that's what drives much of this development-- not questions of what the community needs educationally, but questions of where the market is ripe to provide a good return on this sort of investment and development. Folks don't ask, "What does the community need" but instead "what can we get money for?" (And yes, public schools sometimes do the same thing. It rarely ends well.)

Part of that ripeness is related to that readily available cash. A month ago, Alex Wigglesworth and Ryan Biggs at laid out how a tasty loophole in Pennsylvania law allowed charter real estate developers to borrow have a billion-with-a-B dollars at taxpayer expense.

And sure enough-- in Pennsylvania, you can find companies like Universal Companies, a corporation that operates charter schools and is also a real estate business. And as the WSJ notes:

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.

The real estate side of the business is one more way for investors and corporations to privatize rewards while letting the taxpayers bear the risk. As Wigglesworth and Biggs outline, a developer can use school bond money to renovate a property, and if the charter school goes belly-up, the charter operators (and ultimately the taxpayers) must carry the burden of debt. Meanwhile, the real estate developer now has an empty, recently-renovated property ready to lease to a new client.

In fact, just as the educational programs of many charters reflect the problems that come with letting amateurs play school, the business of real state investment in charters is suffering from folks who aren't really sure what they're doing. Once again, from the WSJ, talking to Scott Rolfs, managing director of B.C. Ziegler & Co. (another charter real estate loan bond financier):

Even people in the business warn that the charter school owners need to beware when agreeing to lease and buy buildings from private players. Charter schools often are launched in church basements or donated space by well-intentioned people who lack the financial sophistication to take their operations to the next level.

“There is a ton of capital coming into the industry,” Mr. Rolfs said. “The question is: Does it know what it’s doing? I don’t know yet.”

Well, that's certainly re-assuring.

As always, I'm not here to argue that any business that tries to make money is evil. But business and education don't mix, because when you're primary concern is, say, putting money into a piece of real estate for the purpose of getting a good return on your investment, things like transparency, local control, listening to the community you serve, and actually providing the best possible education for all students-- those things just don't land very far up your list of priorities. What you end up with something that looks vaguely like a school, but is actually aligned with purposes other than the purposes we associate with actual public schools.

Additionally, we are talking about opportunity cost. It's not just that the charter school will drain financial resources from public schools, but that the money that's being steered toward charter real estate adventures is money that is NOT being spent elsewhere. And nobody, anywhere, seems to be looking at what the opportunity costs of this charter real estate boom might be.

Charters of this sort may be a great idea for investors; on the other hand, they may be a short-term-thinking financial mess. But they are definitely a lousy idea for public education and actual students.


  1. Connecting all the dots that lead to an unregulated education industry. This is why they need pseudo data (ie:comparable test scores then rating systems) This parallels the building of the financial industry's "too big to fail" where taxpayers were left on the hook and traders made millions off of trading derivatives that were worth nothing. They have a similar "data" rating system, they trade and invest in the bubble, watch closely and trade right when it bursts, making money by betting it will burst. Moody's rating scale was a big part of the delusion. We need to opt out of the data mining of our kids that creates a false rating for schools, that creates a real estate bubble.

    "Buyers have long paid premiums for homes served by top-rated schools. But research has shown that simplifying school ratings can magnify those premiums.

    And that’s just what online school ratings are doing: distilling school test results into scores ranging from 1 to 10.

    Andrew Schiller, founder of data provider Location Inc. and the website NeighborhoodScout, previously told Inman that the proliferation of school ratings has already produced “a greater discrepancy in home values between the haves and have-nots of good-quality schools than there has been in the past.”

    Email Teke Wiggin.

  2. Boy, the charter supporters must be getting hot under the collar. They've been found far and wide lately trying to deny - with a straight face - that anyone is profiting off of charters. Then the WSJ has to go and blow the lid off for them. With friends like those....

  3. Cayman Islands real estate on the market. Homes available for sale in the Cayman Islands range from handily sized and situated condo apartments to multi-million dollar beach properties. There's a property to suit every budget and lifestyle.