What You Need to Know About Facilities Development Tuesday, November 29, 2011

1. What You Need to Know About Facilities Development Tuesday, November 29, 2011

2. Presenters • Brian Keenan-BWP • Eric Felczak-BWP • Sarah Kitterman-BCC • Nora Bloch-BCC • Eric Mello-Rising Tide • Rebecca Sullivan-MassDevelopment Agenda • Overview Leasing/Owning • Site Assessment/Section • Costs/Financing • Design, Bidding & Construction

3. About Us • Build with Purpose is a nonprofit real estate development organization specializing in charter facilities such as charter schools. Since our inception in 2003 we have developed 16 charter schools with total development costs exceeding $120 million serving 5,500 children.

4. An Integrated Approach • Charter Schools- Working to take the burden of facility development off the hands of charter schools so they can focus on education. • School Gardens Initiative- Increasing access to healthy foods by establishing healthy living practices, finding sustainable resources, and providing healthy meal options in schools. • Energy Institute- Bringing a variety of nonprofits energy efficiency and renewable energy options. • Community Organizing—Establishing direct service with the groups we serve and their communities through a partnership with the Jesuit Volunteer Corps.

5. The Essentials Leasing/Owing • When does it make sense to lease vs. owning? • What are the cost averages • Start-up considerations • Credit worthiness

6. Site Assessment/Selection • Types of property • Environmental Conditions • Location, location, location • Cafagymatorum/Gotta have it • Competition

7. Costs/Financing • The 100 sq ft rule • The $125/$275 rule • Not credit worthy • Equity • Free money • How to control costs

8. Design, Bidding & Construction • What comes first the chicken or the egg? • Phases in the design process • When is it too late to make a change? • What’s the architect’s job? • What is a change order? • What is the contractor pricing?

9. Design, Bidding & Construction • What comes first the chicken or the egg? • Phases in the design process • When is it too late to make a change? • What’s the architect’s job? • What is a change order? • What is the contractor pricing?

10. Facilities Construction and Legal Requirements

11. Best Practices Examples

12. Facilities Financing Options

13. Build with Purpose Portfolio Newark Educators’ Community Charter School • Newark, NJ • Completion Date: August 2009 • Size: 28,000 sq. ft. • Students Served: 450, K-8 • Architect: Newwork LLC • Contractor: Artco Contracting and Development • Total Interior Development Costs: $1 Million • Financing/Lender: Victoria Foundation

14. Build with Purpose Portfolio Jersey City Community Charter School • Jersey City, NJ • Completion Date: November 2008 • Size: 24,000 sq. ft. • Students Served: 600, K-8 • Architect: Jamel Kizel • Contractor: La Rocca • Total Development Costs: $7.7 Million • Financing/Lender: The Reinvestment Fund

15. Build with Purpose Portfolio Teaneck Community Charter School • Teaneck, NJ • Completion Date: August 2009 • Size: 36,000 sq. ft. • Students Served: 306, K-8 • Architect: Gertler & Wente Architects • Contractor: La Rocca • Total Development Costs: $11 Million • Financing/Lender: Hamlin Capital and New Jersey Community Capital-Tax Exempt Bonds

16. Special Thanks to Today’s Host The University of Massachusetts Boston is an educational institution dedicated to rigorous, open, critical inquiry—a gateway to intellectual discovery in all branches of knowledge, and a crucible for artistic expression.

17. Thank You! www.bwpurpose.org www.bostoncommunitycapital.org www.risingtide.org www.massdevelopment.com

18. Boston Community Capital &Charter School Financing Boston Community Capital Nora Bloch & Sarah Kitterman Senior Loan Officers

19. Boston Community Capital: Our Mission To build healthy communities where low income people live and work

20. Boston Community Capital: Our Business

21. Boston Community Loan Fund • Since inception, BCLF has made more than 500 loans and investments totaling more than $335M to support organizations and businesses that benefit underserved communities. • BCLF serves as a vehicle for a wide range of investors, including individuals, institutions and faith-based organizations.  • Working together with public and private partners, BCLF achieves the cost-effective access to capital that is key to building healthy communities. • BCLF is headquartered in Boston, MA and provides loans across the Northeast and Mid-Atlantic region.

22. Boston Community Loan Fund

23. Boston Community Loan Fund – Charter School Lending • Charter school lending is an important part of BCLF’s lending activity. • BCLF and affiliates have lent over $34M to five charter schools, including over $31M in New Markets Tax Credit leverage loans.  • BCLF has a pipeline of $10M in loans to charter schools; these loans are expected to close in the next 6 months.

24. BCLF - Financing Products • Acquisition Loans • Construction and mini-permanent facility financing (5-7 years) • Leverage loans (NMTC) • Bridge financing (capital campaign or historic tax credit)

25. What do we look for? • Clean annual site visits; ideally at least one renewal cycle • Academic program - mission and trends • BCLF Mission fit – significant free/reduced lunch population • Enrollment and attrition trends - retention, waitlist • Community Relations • Management strength at both board and school level: -- Academic leadership -- Succession planning -- Active board leadership including fundraising capacity -- Strong financial management -- Real estate experience (board, school or consultant)

26. What do we look for? • Rational revenue and expense structure: -- low reliance on fundraising to cover core operating expenses -- facility expense (including lease/debt service) as a % of total expenses • Cash Flow: -- ability to cover debt service with a cushion • Reasonable Projections: -- aggressive reliance on enrollment growth? • Balance Sheet Strength: -- Cash balances for cushion and equity in deal -- Leverage after proposed financing • Collateral value: -- equity contribution from school/foundation --target LTV <80% if no enhancement

27. Complex Financing Structures • New Market Tax Credits • Qualified Zone Academy /Construction Bonds • Historic Tax Credits • Enhancements: --Dept of Education --US Dept of Agriculture --Mass Development

28. New Market Tax Credits • Federal tax credit program. Can be used to finance a range of economic, development and business activities including charter school facilities. • Directed to low income communities and populations. Financed property/business must be in eligible census tracts deemed “distressed” (at least 20% poverty rate or median income up to 80%). • Provides a federal tax credit of 39% over seven years. • Generates roughly .20-.25cents of benefit for every $1 of NMTC allocation. Projects are eligible for allocation = 100% eligible project costs (hard costs, financing costs, no FFE).

29. New Market Tax Credits Pros Cons Must be in eligible area High competition for allocation – must be in pipeline for upcoming allocation. Program uncertainty High level of complexity, high transaction costs. Many parties to bring together - must find allocation, investor, lender • The only Federal Tax Credit product that can be used for charter schools • Can be used for new construction or renovations • Can be used with other products-- tax exempt bonds

30. QZABs and QSCBs QZAB QSCB Can also be used for new construction and land acquisition One time authorization as part of the American Recovery and Reinvestment Act. School must be located in empowerment zone or 35% of students qualify for free or reduced lunch. • For rehab and repair of school facility, equipment purchase, course materials and training • Federal government provides either a tax credit to investors or a cash subsidy payment to issuers based on federal tax rate set daily but fixed for the term of the bond. Note: cash subsidy payment option is no longer available. • $21MM awarded to MA in 2010 (must be used by end of 2012); $5.8MM awarded in 2011. • School must be located in empowerment zone or 35% of students qualify for free or reduced lunch.

31. QZAB/QSCB • No QSCB remaining and limited QZAB allocation remaining • Can be challenging to find an investor of QZAB – limited investor pool • QZABs cannot be used for new construction/land acquisition • Subject to “Davis-Bacon” prevailing wage provisions

32. Enhancement Programs Mass Development Charter School Financing Partnership DOE funded program Flexible enhancement. Typically used with Bond issuance to fund Bond holder required reserves and equity requirements • Covers the lower of 50% of the first mortgage or $3M • Will go up to 100% LTV • Can be used for leasehold improvements up to $1M/90% of costs US Dept of Agriculture • 90% loan guaranty • Community facilities in rural areas (population<20,000) • Can be used for construction and land acquisition

33. Risks • Overspending on facility- stretching to make it work • Increased operating expenses in new facility • Loss of balance sheet and expense structure flexibility to deal with downside • Founder risk/succession planning • Lack of board development • Lack of focus building strong community relations • Charter renewal • Political risks • Exposure to state and municipal budgets

34. How do we Mitigate Risk? • Partnerships • Contingency/liquidity cushions • Enhancement programs • Adding expertise through consultants/board development • Collateral • Charter renewal cycle

35. Lessons Learned • Disciplined approach pays off – plan ahead, build your equity/reserves • Build your team • Real estate expertise • Financing expertise – including familiarity with federal programs • Fundraising expertise • Bring the experts into the process early • Build broad support

36. Questions? Visit Boston Community Capital on the web: www.bostoncommunitycapital.org Call us: (617) 427-8600 Email us: Nora Bloch: nbloch@bostoncommunitycapital.org Sarah Kitterman: skitterman@bostoncommunitycapital.org