We sat down with Mark Kalpakgian on the Charter School Insider podcast last week.
Mark is the Chief Operating Officer at The Classical Academies, a seven school charter network in the San Diego region of California. He shared his experiences navigating close to $100M in bond financing to help their network continue to grow and expand... get the executive digest below OR check out the whole episode on your podcast platform of choice.
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1. Buying vs. Renting Facilities:
Mark recommends buying facilities if you plan to stay in a location for at least six or seven years, especially if you envision a long-term commitment of 10 years or more. Buying offers several advantages over renting, including:
- Stable Interest Rates: When you secure a property through conventional loans or bond financing, you can lock in a fixed interest rate over 20, 30, or even 40 years. This stability can be crucial in volatile interest rate markets.
- Hedging Against Rising Property Costs: Buying a facility can protect you from escalating property costs. Waiting to buy could lead to substantial price increases.
- Building Equity: Owning your facility allows you to build equity over time, which can be used for other projects that require lending, improving your credit rating, and enhancing your school's overall financial standing.
- Avoiding Upgrades for Landlords: When renting, you may end up investing in facility upgrades that only benefit the landlord and increase the property's value, potentially costing you more in the long run should you attempt to purchase that facility.
2. Due Diligence for Property Purchase:
Before diving into buying a facility, Mark recommends conducting thorough due diligence, including:
- Property Appraisal: A detailed appraisal helps determine the property's value and can serve as a baseline for negotiations.
- Phase One Environmental Study: This study identifies potential environmental concerns associated with the property, such as contamination, which can significantly affect your plans and costs.
- ALTA Survey: A civil engineering survey ensures you understand the property boundaries, reducing the risk of boundary disputes in the future.
- Property Inspection: While less critical if you've been renting, a property inspection can uncover issues like asbestos or structural problems that may be costly to address.
3. Bond Financing for Charter Schools:
If your school qualifies for bond financing, it can offer numerous advantages:
- No Down Payment: Bond financing allows you to finance 100% of the project or construction costs, eliminating the need for a significant down payment.
- Long-Term Fixed Rates: Bonds offer the opportunity to secure attractive fixed interest rates for 30 to 40 years.
- Investment Opportunities: You can invest the 'bond reserve funds' and generate additional income for your school for other operating purposes.
4. Challenges and Considerations:
While bond financing has clear benefits, there are potential downsides, such as:
- Refinancing Restrictions: Some bond financing arrangements may restrict refinancing for several years, locking you into higher interest rates.
- Inability to Leverage Assets: Bond investors typically have the first claim on assets, limiting your ability to leverage those assets for additional loans.
- Prevailing Wage Rates: In some cases, bond-financed construction may require adhering to higher prevailing wage rates, leading to increased costs.
5. Resources and Support:
For schools exploring bond financing and facility management, Mark suggests attending educational conferences and seeking guidance from financial advisors who can negotiate on your behalf and offer expert insights.
If you want to learn more about The Classical Academies, visit their website at ClassicalAcademy.com and explore their social media channels.
