How KIPP Bay Area Schools evaluates new facilities opportunities
by Anand Kesavan, Prabhu Reddy, and Adam Kaye
In 2014, KIPP Bay Area Schools (“KIPP”) served roughly 3k students across 10 schools. Nearly every school was located in a district building thanks to California’s Proposition 39, which allows charter schools to seek space from school districts. But the world was changing. First, the Proposition 39 process was becoming more political (and uncertain). And second, KIPP felt it needed more options when seeking facilities, including private options.
Since KIPP Bay Area Schools had never done a private facility, they needed to build their real estate development and financing muscle.
The first step was to do an honest review of their strengths and capacity similar to the process described in the first blog in this series (Should I hire a developer to build my next charter school or do it myself?).
Based on that review, KIPP determined that they would:
- Outsource project management of new building projects to tap external expertise and reduce project risk;
- Build internal expertise and capacity around construction financing so the network was not always reliant on developer financing;
- Leverage partners to help navigate a difficult Bay Area real estate market (i.e., tight inventory, high costs, complicated entitlement processes)
The organization is fortunate that there are multiple Bay Area development partners with charter school expertise:
- Pacific Charter School Development (non-profit)
- Strategic Growth Partners (double bottom-line, for-profit)
- Turner Impact Capital (for-profit)
With multiple potential partners in the mix, KIPP needed to build its expertise in evaluating new development projects.
Financial Criteria for Evaluating Development Projects
KIPP Bay Area Schools created two sets of financial criteria to evaluate new development projects. The first set of criteria is project-specific and essentially asks the question, can the school afford the building?
The second set of criteria measures how a particular project impacts the charter school network as a whole. What is the impact on the organization’s creditworthiness, liquidity, etc.?
Real Estate Criteria
In addition to determining if a project pencils financially, KIPP evaluates developers on a set of real estate criteria. These criteria include:
- Responsiveness to RFP and eagerness
- Management team
- Availability and capacity
- KIPP experience with developer
- Charter school expertise
- Number of charter school projects completed
- Number of charter school projects completed in California
KIPP does deep due diligence on every potential development partner. This includes meeting with the management team, referencing past projects to see if they were completed on-time and on-budget, gauging the quality of their questions and answers, understanding the depth of their local market knowledge and relationships, etc.
In addition, some developers have unique capabilities. For example, Turner Impact might already own a property and can bring their own “deal flow.” And Strategic Growth Partners builds schools in conjunction with low-income housing that brings a new set of potential benefits like lower project costs, new pools of financing, and broader political support.
Update (May 2017)
In December 2016, the KIPP Bay Area Schools board approved the selection of Turner Impact to lead the KIPP San Jose Collegiate construction project, a new 50k square foot building that will serve 800 students . The network is also working with Pacific Charter School Development on facilities for its KIPP Heritage and KIPP Bridge schools. KIPP is currently contemplating partners for other potential projects.
To date, KIPP has not pursued a self-develop option where they hire project managers and other needed capacity a la carte. The torrid Bay Area commercial real estate market makes it difficult to establish these relationships but it is an option KIPP can consider down the road.
KIPP Bay Area Schools is still building their internal real estate capacity and refining their processes. But they have come a long way in three years and have another tool in their belt for doing right by their students and families.
This is Part 3 of a 3-part series on for-profit and nonprofit charter school developers.
*SUBSCRIBE to Charter School Growth Fund’s Weekly Finance Newsletter*