Investors Are Hungry For Florida Charter Schools

Investors are eager to get into the market for charter school facilities in Florida, where state leaders strongly support the charter school movement and the sector is expected to expand.

Colliers International Senior Vice President Achikam Yogev recently brokered a nine-figure charter school deal, and believes there are more deals to come.

"As more and more states go for school choice, we'll see a lot more redevelopment and new development of educational facilities,” Yogev said.

Last week, Colliers International Education Services Group closed the sale of two Florida charter schools for $33M to buyers in Oregon. It was the second part of a $100M seven-school deal. Such facilities are a good bet for investors, he said.

"There's safety of capital, because schools rarely close," he said. "There's a greater chance that a retail location will close than a school.”

Yogev's transaction last week marked the finalization of a deal that began last year. He represented ESJ Capital Partners, which was selling a portfolio of seven schools to Oregon-based buyers, AEP Charter KCC II and AEP Charter Renaissance LLC. Five of the schools sold in November for $72M. 

The last two sales were contingent upon the individual schools having their charters renewed with their respective counties, which was not scheduled until the end of the school year. Those properties, which finally closed last week in the $33M deal, include a 105K SF facility operating as Renaissance Charter School in Tamarac and a 48K SF facility operating as Kid's Community College in Riverview.

Charter schools are considered public schools, but they are privately managed. They operate according to a “contract” or “charter” with local school boards. Each school has its own Charter Management Organization that handles operations.

Yogev said that for his deal, the buyers met with CMOs at the various schools to assess the health of each one.

According to the Florida Department of Education, there are 654 charter schools in Florida serving more than 282,000 students. Those numbers are expected to grow, as an education bill signed in June by Gov. Rick Scott calls for converting 100 low-performing traditional public schools into charters.

“Of state capital aid this year to K-12 public schools, $75M went to the state’s 650 charter schools and the other $75M was divided among about 3,600 traditional public schools,” according to a recent Miami Herald article.

The schools are controversial. Critics see them as siphoning away education funds that would otherwise go to traditional public schools. In Florida, a number of legislators who are making decisions about school funding also stand to profit from the charter industry, an apparent conflict of interest. Yogev said Colliers does not get involved in lobbying the legislature.

Charter schools are growing because parents want them, he said. He suggested investors play an important role.

“States don't have money to build new schools,” Yogev said, and charters are better off spending available funds on teacher salaries rather than constructing buildings.

“In many cases, that's not the best use of capital, so the private world has stepped in, taking some risk,” he said. “They can build schools from scratch or repurpose buildings for schools.”

The strength of the investment is backed by the quality of the school, Yogev said. Should a tenant school go out of business or have its charter revoked, investors would be left with a special-purpose building that could be challenging to offload. At least 300 charter schools in Florida have failed.

Schools need not stay renters forever, Yogev said.

“In many cases, the schools have the right to buy back their building or refinance with the bond market,” Yogev said. “So the bond market is very active in the space. But the market wants stabilized schools. It won't [invest] in startups.”

Yogev said school ownership has little effect on student performance because most charter schools take care of their own facility upkeep.

“It's just a new landlord,” he said.

He said that charters are typically renewed for five-year terms, but schools with back-to-back A-ratings may be awarded 15-year terms.

Yogev started specializing in education-related real estate three years ago, and he said Colliers has become the leader in this space by attending conferences and networking, both at the K-12 and college levels. The company represents parties in transactions and also does site analysis.

“We act as an adviser to both the schools looking for locations and to investors,” Yogev said. “They want location analysis: Why would a school succeed here? How many students will come? What are the demographics of the surrounding area? The population growth? How many 16-year-olds are there?”

Nationally, Colliers has about 20 professionals focusing on education. Yogev is based in Miami. As for the future of charter school deals, Yogev said he sees “more and more of this trend and solid returns for the investors.”

He has two more schools in Florida currently available for sale.