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PredevelopmentPredevelopment
Suzanne KeechCorporate Managing Director, Studley, Inc.
June 2010
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Facilities Process Overview
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Real estate—second highest expense for schools
Financial viability—dependent on “smart” decisions
Quality of space—linked to student performance
Error/misstep—significantly impacts space quality and cost
Why Is Predevelopment So Important?
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Thurgood Marshall Academy’s First School
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Blue Castle/Thurgood Marshall Academy Facilities
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Predevelopment Topics
The process The team Site selection• Qualitative and quantitative evaluation
Ownership vs. lease Feasibility analysis
• Sources and uses document• Pro forma
Due diligence
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The Predevelopment Process
Step 1: Build the team.Step 2: Review and refine the educational
facilities plan.Step 3: Identify all feasible real estate
alternatives.Step 4: Evaluate each alternative.
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The Predevelopment Process
Step 5: Rank alternatives.
Step 6: Recommend site to Board of Directors.
Step 7: Negotiate terms and finalize documentation.
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“School”Charter School
Board of DirectorsParents/Students
Owner’s Representativeand Construction/Project Manager
SchoolDesignated
Representative
Legal Counsel
Government Relations AdvisorReal Estate Broker
Architect
EngineerGeneral Contractor
Environmental ConsultantOther Consultants
The Team
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Selection Criteria for Team Members
Qualifications/experience on similar projectsProfessionals dedicated to projectFee structureReferences
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Advice for Building a Successful Team
Hire based on qualifications/experience, team, references, and fee.
Outline scope of services, method of payment, and time frame for completion in each contract.
Exercise right of termination if performance is unsatisfactory.
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Property’s conformance to education specifications
LocationCondition of property and physical features
of site
Site Selection: Qualitative Evaluation Criteria
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Lease terms• Length of term• Sublease and assignment• Renewal rights
Legal and timing issues
Other risk factors
Site Selection: Qualitative Evaluation Criteria
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Site Selection: Quantitative Evaluation Criteria
Lease or own• Economic terms—purchase price or lease rate
Budget• Operating—cost of utilities, repairs and
maintenance, taxes (if applicable)• Capital—cost to improve the space, renovate
the existing structure, or build a new one
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Ownership or Lease: Economic Terms
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Own Lease
Purchase price—equity and debt required
Rent and rent escalations
Cost of operating expenses and real estate taxes (if applicable)
Cost of operating expenses and real estate taxes (if applicable)
Cost of capital improvements
Cost of tenant improvements and landlord’s contribution
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Ownership: Advantages and Disadvantages
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Advantages Disadvantages
Long-term control of property
Amount of money required upfront
Asset appreciation Ongoing capital and maintenance responsibilities
Control of operating costs by elimination of rent escalation
Potential savings in real estate tax exemption
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Advantages Disadvantages
Less capital required up front
Expend capital on a building you don’t own
Limited time commitment to property
Term is limited
Flexibility
May have less responsibility for capital maintenance of property
Lease: Advantages and Disadvantages
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Feasibility Analysis
Process of combining the economic terms of each alternative with the economic resources of the school
Key documents• Sources and uses• Pro forma
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Sources and Uses
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Pro Forma
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Due Diligence
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Conduct environmental survey.Conduct title search and review. Ensure conformance with zoning.Identify the “unknowns” and ensure that
both the risk and associated monetary obligations are accounted for in the program.
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Ensure team synergy. “Am I responsible for that?”
• Outline scope of work in every contract. Feasibility analysis demonstrates school’s
long-term economic viability.Who created that budget anyway?• Refining and updating the budget at every stage
is critical.
Predevelopment: Key Take-Aways
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Q & A
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Thurgood Marshall Academy’s Home
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Suzanne KeechCorporate Managing Director, Studley, Inc.P: 202-624-8504 > F: 202-624-8555E-Mail: [email protected]
National Charter School Resource Center1100 17th Street NW, Suite 500Washington, DC 20036-4632Phone: 877-277-2744Fax: 202-223-8939E-Mail: [email protected]
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