A report in the Wall Street Journal describes the gold-rush atmosphere that attracts real estate investors to charter schools. The risk in the investment is diminished because the schools have a steady stream of government funds. The charters are almost always non-union. The biggest risk is that the people running the schools are unqualified to run a school and the school may fail.
Real-estate investors are showing an increasing interest in charter school development as the demand grows for classroom seats and some state and local governments become more willing to help finance charter-school projects.
Almost all charter schools are operated by nonprofit organizations. But these groups often rent and buy their buildings from private real-estate developers, and that is creating a new niche asset for some investors.
One of the latest entrants to the charter real-estate business is Northstar Commercial Partners, a Denver-based private-equity firm that is raising a $100 million fund. It will focus on converting charter schools out of vacant office, industrial and retail properties that can be purchased for less than half of what they would cost to build, according to Northstar Chief Executive Brian Watson.
Meanwhile, investment manager Bobby Turner, who founded Turner Impact Capital LLC in 2013, is raising his second fund with tennis legend Andre Agassi for building new charter schools, this one with a goal of $400 million.
And established players in the business are seeing volume increases on chart school developments. For example, a venture of HighMark School Development and EPR Properties, a real-estate investment trust, spent more than $118 million in 2014 on acquisition, renovation and construction, compared with $34 million in 2011.
“There’s no shortage of cash,” said Patrick Beausoleil, a HighMark vice president.
The rise in investment activity partly reflects the growth of the charter school movement, which has been overcoming political opposition in many states. During the 2014-2015 school year, 500 new public charter schools opened nationwide, for a total of more than 6,700 enrolling about 2.9 million students, according to the National Alliance for Public Charter Schools.
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.
But the growing role of for-profit real-estate developers has added a new dimension to the debate over charters, which are taxpayer funded and independently operated schools that are largely free of union rules. Critics say charter schools are in danger of cutting costly deals with developers who are more concerned with investment return than educating children. The result can lead to failed schools.
One of the biggest investment funds is the one created by Turner Impact Capital and tennis star Andre Agassi. Agassi is a high-school dropout. It seems that to start new charter schools, no education is necessary.
Diane Ravitch's blog 
One of these days taxpayers will wake up to the fact that the charter school movement is making big money for corporations, and what the taxpayers get out it is the bill for a system of fragmented schools that are more expensive, less efficient and effective with lots of human disruption for no miracles. Maybe taxpayers will realize that they are underwriting in most cases duplicate services that serve the community and students a lot worse than public education. In the meantime, we must deal with the plundering and dismantling of public services for the general good so that a few can benefit at the expense of many because our government has monetized our children.
In Philadelphia the plundering is out of control as they close numerous schools in poor areas near the central business district. They are selling off prime real estate at bargain basement prices while Harrisburg is at total impasse to reach an acceptable budget. Dysfunction rules. http://www.schoolsmatter.info/2015/10/the-siege-of-philadelphia-public.html
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Yes, retired teacher, the key here is “taxypayer funded and independently operated.”
What a ‘robber baron’ scam to use the taxation of Americans to run charter schools, and their many related businesses, to enrich investors…and now adding to this in-group of vulture investors are the real estate moguls who see the opportunity for massive profiteering.
Developers and real estate leaders have the inside track in many communities, particularly in major cities, where they work hand in glove with elected legislators.
In cities such as LA, Eli Broad, who has been in the real estate business for about 50 years (with his KB group) not only sold the LAUSD the building known here as Beaudry, but also has been involved in hugely detrimental land schemes like Fremont HS and the restructure of the Ambassador Hotel turned into a high school which has not worked to benefit students, and others that have cost the district vast amounts of taxpayer money, and which have failed because of gas leaks and other dangers to occupants of these sites.
The goal of most of these investors and managers of investments, is certainly to work to bankrupt school districts so as to be able to buy up all the districts assets, including vast amounts of real estate, at pennies on the dollar.
These opportunists steal from the public and should be called out repeatedly and nationwide for this use of public money for their own private enrichment.
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Don’t forget that a lot of these Robber Barons are also state legislators.
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Charter schools are about many things: wealth accumulation via the legalized expropriation of public resources, busting unions, social engineering of “dangerous” populations, power. But they’ve also always been about real estate, whether taking over space in public schools with the ultimate intention of getting the city to deed it over to them or provide multi-decade leases, or one-hand-washes-the-other deals where “non-profit” charters rent from for-profit real estate companies that have close connections to the charter Board or management. Here in NYC, one of the largest real estate developers in rapidly-gentrifying Harlem sits on the Board of Eva Moskowitz’s Success Academies. In affluent cities, charters are one of the many prongs of gentrification, with transient white charter school teachers mirroring the transient, but ever-increasing white colonizers pushing out long-term residents. The recently-arrived young TFA colonists help train the future service proletariat that will attend to the luxury lifestyles of those who are considered worthy, via their skin color and bank accounts, of living in places like NYC.
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Reblogged this on 21st Century Theater.
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This is from my earlier post this week about the same article.
Another tool for financing charter schools is the Local Initiatives Support Corporation (LISC), a non-profit founded in 1979 by the Ford Foundation. It has grown to support projects worth $1.1. billion in grants, loans, and investments in a strategy called “Developing Sustainable Communities.” Sounds great, but here is the problem: Public schools are not seen as part of fabric of a sustainable community.
In 2002, the Walton Family Foundation gave LISC money to set up the Educational Facilities Financing Center (EFFC). This fund, a national program of LISC, has financed nearly 200 charter schools in low-income neighborhoods. EFFC receives funds from the Walton Family Foundation, The Bill & Melinda Gates Foundation, Goldman Sachs, Prudential Social Investments and our own US Department of Education via LISC’s—LISC’s affiliate, the New Markers Support Corporation. This “support” entity is set up to receive federal New Market Tax Credits for charter schools (in 2015, $ 9.8 million).
That is only part of the way USDE sends money to LISC. Another is through the Charter School Credit Enhancement Program which “helps charter schools overcome one of the biggest challenges they face—their inability to secure and finance adequate facilities—by providing credit enhancements that leverage private sector capital to buy, construct, renovate, or lease academic facilities. To date (2014-15), LISC has received five grants totaling $41.5 million through the Credit Enhancement Program, which it has used to leverage more than $533 million in private sector investments in 168 charter schools.” http://www.lisc.org/section/ourwork/national/education
Here are some things to think about. Charter schools, known for selective admissions and frequent expulsions of students so they re-enter real public schools, are becoming opportunities for financial profits to investors, at a rate of return about 10%. The money is being invested in low income, segregated, and “distressed” communities where charter schools are actually promoted as instruments for sustaining those segregated and low-income communities under the cover of ”community development.”
In the meantime, public schools in these same communities, open to all and with public oversight are being banished from many discussions of their actual and potential contribution to sustainable communities. Moreover, many of the investors in municipal bonds issued for the support of public schools are being drawn to brokered deals for charter schools that promise a high return on investment.
It is time to stop perpetuating the myth that charter schools are public schools. They are not. They are being financed by tax dollars. The charter industry values those dollars only because they can leverage other money with a potential return to private investors of 10% or more.
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The partiality shown to charters is repugnant especially considering the results they have been getting. The snubbing of public education and the vast majority of America’s children is disgusting, and it should be illegal.
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Brilliant comment, Ms. Chapman. I am surprised that you also did not mention the use of conduit bond funding, an economic development tool sourced in federal tax law that allows charter schools, as non-profit corporations, to utilize tax-exempt bond funding (assuming a state has authorized use by state and or local government and/or quasi-government entities). The bond issues are tax exempt for purchasers and the only guarantee is the asset, not the full faith and credit of the issuer. So, the trust company holding the note of trust can take ownership of the asset if the bond cannot be repaid … raising the whole question of private ownership of a public (?) asset.
Your comment was comprehensive and very insightful. Thank you.
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OMG! Thiis is GROSS and totally UNETHICAL.
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For some context, per the NCES, in the 2011-2012 school year, $66.5 BILLION was spent on traditional public school K-12 capital plans and servicing the interest on school debt. Nearly all of the companies that build, repair, and furnish traditional district schools, as well as buy the bonds that finance such activity, are for-profit.
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Sure they are, but they are providing services for public, not private, institutions.
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On the other hand, could it be, as a wise man recently almost said, that “[t]he distinctions you mention are real, but they fade in importance and relevance when the symbiotic relationships and complexes between [public] and [private institutions] . . . play out in the real world”?
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The NYS Board of Regents, State University of New York, and NYC Department of Education, the three charter school authorizers in New York State, aren’t public institutions? (Well, I sort of see your point with that last one, what with the existence of mayoral control, abhorrent until January 1, 2014, but now okay.)
Charter schools in New York are open to any child living in the state. Their board meetings are open to the public, as opposed to PTA or SLT meetings in NYC. They are audited annually and subject to the stringent reporting rules that govern all nonprofit organizations.
Charter schools are operated for the benefit of the public and are strictly regulated by publicly accountable agencies, the same arrangement that delivers a huge range of taxpayer-funded social services: pre-K, afterschool programs, healthcare, senior services, nutrition, etc. No need for trumped-up red herring concerns about privatization in those areas, though–they don’t threaten the “capture” of traditional district schools, right?
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Tim,
The only reason charters in Néw York are audited is that the legislature overturned a court ruling that chartes can’t be audited. You may recall that the charter association, with Eva in the lead, insisted that the state had no authority to audit charters. The judge agreed, because charters are private, not public. The legislature, before Cuomo became a charter champion, passed a law requiring charters to submit to audit by the state comptroller
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Diane,
I was referring to the annual independent audits that all New York State charters are required to undergo as a condition of receiving a charter. That has been the case since the charter school law was enacted; in addition, authorizers may conduct additional audits and inspections at their discretion.
The New York State constitution places strict limits on what the state comptroller may audit, and two judges have ruled that charter schools are outside the office’s purview as so defined by state law.
Whether or not the comptroller can access the books of an organization that provides a public service doesn’t seem to have any preventative or enforcement impact, anyway: witness the fraud and theft of services in East Ramapo or New York City schools, or massive cost overruns on state infrastructure projects like the Croton Filtration plant and MTA East Side Access.
If we accept the non-profit accountability structure for mostly taxpayer-funded organizations like Meals on Wheels or Mt. Sinai Hospital, then why shouldn’t we accept it for schools?
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Tim,
You refer to an “independent audit,” meaning an audit by a private company hired by the charter corporation. I am referring to a public audit by the state comptroller and/or the city comptroller. Success Academy thinks it should be able to take millions of public dollars without public audit. The legislature passed a law to make clear that even SA must be publicly audited. Mt. Sinai Hospital does not call itself a public hospital; SA should stop saying that its charters are public schools. Harvard too gets public money but no one thinks it is a public university.
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Tim says: “Charter schools in New York are open to any child living in the state.”
As we just saw on the PBS Newshour interview with Eva Moskowitz, Tim has a very UNIQUE definition of “open”. “Open” means that they can’t turn your child away from the lottery, but they can suspend him over and over again at age 5 and then fail him over and over again because of course, he isn’t learning and their teachers prefer to get rid of him rather than teach him. Tim’s definition of “open” means: well, just because Success Academy loses twice as many very young children as KIPP it is only because those thousands of parents desperate for a seat seem to be twice as desperate to leave the school once they get there! And the fact that there is documented evidence that Success believes in making children feel “misery” if they feel they aren’t “working hard enough” (that’s commonly their reason for a child struggling academically) is no reason to be suspicious of the fact that so many leave. It’s by choice!
Most Americans didn’t realize that Tim’s so-called “public” school “open to everyone” is allowed to set their own rules about your child’s responsibility to the school and what they can do to your child if they believe he isn’t meeting that responsibility. Suspend. Make miserable. Suspend. Hold back. Walk the halls back and forth. Humiliate him by making sure his failing work in 2nd grade is prominently displayed for all to see!!! But if your kid is doing good work, don’t worry, we’ll let you pick your suspension day, and if your kid is failing, no such luck. Principal’s discretion you know. And no oversight allowed except by SUNY Charter Institute, the people who laugh and laugh every time they hear of missing kids! What a joke! But we “asked Eva” and she told us it was okay so our job is done!!! That’s the kind of oversight Tim adores! The child is punished because he isn’t read to learn and the proof he wasn’t ready to learn is that he didn’t learn! So he should be punished! No excuses! (well, except lots of excuses for the charter school, just none allowed for the 5 year old whose math skills aren’t acceptable.)
“Open to everyone” is meaningless as long as the charter schools get to decide who can STAY. With not one iota of oversight. Not a single bit. SUNY Charter Institute should be ashamed. But they do seem to be beyond shame, so I won’t hold my breath.
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Yes, Flerp, it could be said in this context, but it would be wrong, because the situations are different, which I think you well know.
However, you just couldn’t resist your overpowering snark impulse, even if it was an irrelevant point.
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I would argue that it was also wrong, or at least very overstated, in the first context as well. But yes, the impulse is sometimes overpowering.
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But at least these contractors are not pretending to offer an education to the kids, and at least some of the contracts will have gone through a sort-of public bidding process (one hopes).
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You are totally correct. How many times do we read about non-bid contracts being handed out to favored companies in Chicago and other big cities?
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Using the numbers (from NCES) for the capital expenses per student in the traditional public schools as a starting point and multiplying the number of K-12 students in 2009, the capital expenditure (building construction and bond costs) can be estimated as $60 Billion which is 10% of the total public school operating costs. All this financing is done by bond issues sold by Wall Street enterprises. The public bond issues are tax breaks for the investors, that means the government is subsidizing these bonds.
All the public school buildings are constructed by private companies or contractors. Public money is spent by for profit private enterprises. I have never heard of a school district building its own buildings.
Another $50 Billion was spent on maintenance costs. This in most cases was spent by the school districts and the money is not raised in Wall Street.
Some one should compare these numbers to the 100s of millions discussed above.
Yes charters must raise money in the market place to build and provide class room space. The public school district does not share even the empty buildings in a majority of cases. Remember it costs the charter schools more (in higher interest rates) because they are not allowed to issue bonds with the backing of the full faith of the public/government (tax benefits or subsidy) to get the lowest cost financing on Wall Street.
I am certain that public employees pension fund managers invest money in hedge funds and other private sector raising money concepts. They have probably invested in schemes such as the one discussed above. Remember any one can invest their money the way they choose.
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Economist John Quiggin writes that for-profit education has been a disaster everywhere it has been tried:
http://johnquiggin.com/2015/10/16/thinking-the-unthinkable/
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They already know for-profit education is a disaster in the US. They have 20 years of evidence in higher ed. If they expand it in K-12 it is despite the record of failure in higher ed, so no one should make excuses for them.
They know for-profit colleges harmed lower income people the most. They have mountains of evidence and they’ve held congressional inquires and issued reports and conducted studies and analyzed data….they know.
If they inflict for-profits on K-12 they did it with their eyes wide open, and knowing the harm it might cause. WHEN (not if) it’s a disaster for K-12 public schools lawmakers should be blamed 100%.
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Duncan Black (Atrios), one of the most popular (and widely read — he writes for USA Today too) liberal bloggers of all time, gets it:
http://www.eschatonblog.com/2015/10/a-whole-lotta-grifting-going-on.html
“A Whole Lotta Grifting Going On
I do wish more well-intended “education reformers” (I think they exist, or maybe they just used to. They’re a lot quieter these days.) would acknowledge whatever the merits of charter schools in principle (and, hey, I don’t even disagree in certain circumstances), that the whole endeavor has just been one big grift from start to finish (#notallcharterschools). The “reform movement” was about destroying public schools and teacher’s unions while hoovering up all the quarters they could find under the cushions. A lot of quarters, apparently.
by Atrios at 12:30 ”
I agree with the “quieter” good guys. They have mostly been silenced or ignored for so long they’ve almost disappeared.
We shall reap the whirlwind over public education in this nation, soon, very soon. . . .
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“We shall reap the whirlwind over public education in this nation, soon, very soon. . . ”
However. It’s going to be very important to hold the adults who either promoted or didn’t question this while it was occurring accountable.
You know how it goes in the US- accountability is for the little people.
When privatization of K-12 schools is a disaster we’ll hear a lot about how “mistakes were made” and “it was all based on pure motives and bipartisan” and no one will ever be held accountable.
Bipartisan is a cover for powerful people in DC. If they can get enough Democrats and Republicans to join and pass disastrous policy then both Parties are complicit and so both Parties are protected. They do it all the time. It’s happened twice just in the last 20 years- it was bipartisan when they deregulated financial markets and it was bipartisan when they invaded and occupied Iraq. In fact, a LOT of the same Democrats who supported those two disasters also support privatization of public schools.
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Look up Carl Paladino and Buffalo…he bought the property of a recently closed Catholic school (Holy Angels) inside the city limits of Buffalo, NY and is now renting it to Charter Middle School for Applied Technologies. AND…he was elected to the Buffalo Public School board in 2013. No conflict of interest there. He is like Buffalo’s Donald Trump – he’s a successful businessman who says horrible things out loud all the time but amazingly, many people like that.
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That’s all right though, because if “choice theory” plays out correctly, markets will sort the whole thing out:
“When charter schools come to serve significant numbers of students, they can no longer fly under the radar on issues like fair admissions and expulsions, special education and student discipline. Parents and civil rights attorneys bring cases, often with the law firmly on their side. Charter schools then need to reach out to excluded families and develop policies, and find ways to admit and serve students with disabilities whom they once just sent back to the school district.
Individual charter schools can’t handle all this on their own: they need to work with other schools on admissions lotteries, student discipline and transfer, and transportation.
Thus, as the charter market share expands, the charter sector is forced to take on an increasing share of the “overheads” of public education that a few isolated charter schools could escape.”
“Parents and civil rights attorneys” ( I guess the ‘civil rights attorneys’ these parents will hire are volunteers) will provide sufficient oversight. Once those lawsuits are filed and completed charter schools “will then” “find ways” to operate as public schools.
If public schools become “places of last resort” that will be the fault of- you guessed it- public schools:
“If LAUSD doesn’t want its schools to become only places of last resort, it must put a greater share of the available money directly into the schools and work constantly to improve what’s offered students — developing new schools to meet emerging needs, expanding or imitating the best existing schools, and closing or re-developing schools that parents and teachers try to avoid.”
I love the passive phrasing – as if “charter schools expanding” is a function of pure markets or an organic event, just operating completely independently of politicians and lobbyists and funders that have specifically targeted this city and announced half the schools will be charters. Broad is using the public system as his backup. Actually, he couldn’t conduct this experiment WITHOUT the public system as “the schools of last resort”.
I feel bad for kids in the public schools, because they won’t have any choice or voice in any of this. Their schools have now been designated “the schools of last resort”.
http://www.dailynews.com/opinion/20151016/are-charter-schools-a-threat-or-opportunity-for-los-angeles
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AND it is not only the charter schools issue
If any of you can get a copy of “In These TIMES”, Nov. issue a great article:
“When the Bank Robs You” tells of the banks gobbling up real estate and then making millions of dollars off the poorest peoples, often the black population.
We should all be aware of the role which greed by the banks and Wall Street are ruining our country – ergo my hope for
Bernie Sanders as our best hope for fighting for all of us.
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Based on the shenanigans of some charter operators, there definitely needs to be some regulation in this area. I’m not opposed to alternate financing options, but states should consider minimum amounts spent on instruction similar to the ACA. For example, if 65% of educational expenditures have to go to instruction as opposed to capital improvement programs, then much of the incentive for “flipping” will be taken away.
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