Ah, the Brave New World of free-market schooling! The for-profit corporation Imagine Schools just sold its campus in east Manatee, Florida, for $6.6 million. The school will continue to operate there; it has a capacity of 650, and an enrollment of 500 students.
The school, which has about 500 students and a capacity for 650, has roughly nine years left on a lease commitment for the two buildings involved in the sale.
Completed in 2009, the school at 10535 Portal Crossing occupies about three acres. The sale equated to a 10% capitalization rate based on the school’s rent, says Ian Black, whose commercial real estate brokerage firm represented both sides in the transaction.
“What made this transaction somewhat unusual was that Hemisphere didn’t know where Lakewood Ranch was at first, but as they conducted their due diligence and discovered that the ranch had just turned 20 years old, they began to recognize the area’s value and the value of the school, which is a beautiful facility that’s well located,” says Black, founder and president of Ian Black Real Estate.
The Imagine School in Lakewood Ranch is one of 17 such charter schools in Florida, and among 71 Imagine campuses nationwide. In 2013, Imagine’s parent company generated revenue of $250 million, according to marketing materials compiled for the sales effort.
Meanwhile, in Ohio, Imagine Schools was fined nearly $1 million by a federal judge for forcing a lucrative lease agreement on a school it operated.
Under the complex deal, Imagine Schools negotiated the pricey lease with SchoolHouse Finance and presented it to the school board of the Renaissance Academy for Math and Science for approval. Imagine Schools owns SchoolHouse Finance and directly benefited by the agreement.
“This clearly constituted self-dealing,” U.S. District Judge Judge Nanette K. Laughrey wrote in a blistering 29-page ruling.
The Columbus Dispatch added:
Sound familiar? The Dispatch in October reported about a North Side charter school spending more than half of the tax dollars it receives on rent in a very similar lease deal with Imagine Schools and SchoolHouse Finance. The board of the Imagine Columbus Primary Academy asked Imagine to renegotiate the lease but that has not happened.
Other Ohio charter-school operators use similar lease deals, and while apparently legal, supporters and opponents complained that they wasted tax dollars and lawmakers pledged to take a look.
In the earlier story, the Columbus Dispatch learned that an Imagine Schools charter school was paying more in rent than to staff and other costs.
A North Side charter school expects to spend more of the tax dollars it receives this school year on rent than on teachers and staff.
Imagine Columbus Primary Academy projects building-lease payments of $700,000, making rent the school’s top expense, eating up more than half its annual state revenue, according to a school financial report. The school expects to pay $614,000 on salaries and benefits this year.
Similar arrangements are in place for the other five Imagine Schools in Franklin County.
Who is charging the charter schools such high rent? A company called SchoolHouse Finance — which is a subsidiary of Imagine.
It gets even more complicated: SchoolHouse buys the buildings, resells them typically for two or three times the purchase price, and then leases the facility from the new owner so it can rent the space back to Imagine.
Five of the schools in Franklin County received a combined $20.2 million in the 2012-13 school year, according to their most recent state audits. A quarter of that money — more than $5.1 million — was spent on rent, all under long-term leases with SchoolHouse Finance.
A sixth school, Imagine Integrity Academy, spent 81 percent of its $440,009 in state aid on rent, according to an audit for the 2011-12 school year, the most recent available.
And on top of the leases, Imagine is being paid hundreds of thousands of dollars for “indirect costs” as operator of the schools, records show.
The upshot is that the complex deals are diverting hundreds of thousands of public dollars to one of the nation’s largest charter-school operators, Imagine Schools Inc., and its affiliates. Imagine operates 67 charter schools in 11 states and the District of Columbia. At least three states and Washington, D.C., are investigating Imagine for real-estate maneuvers like those in Ohio, and a fourth state, Missouri, already has shut down several Imagine schools.
Why aren’t these for-profit schemes illegal? Why should tax dollars enrich profiteers?