Property investors have sought out ways to diversify their portfolios as the real estate market has sputtered during the recession. Now, more investors are putting their money behind a rising demand for charter schools in the United States.
Charter schools, which receive public funding, are free to attend but operate outside of traditional school districts. The schools have an eager appetite for growth. However, many are hindered by the lack of real estate available or a lack of financing to buy properties. Most charter schools don’t have access to public funds in order to buy or develop property.
So private investors, who see charter schools as dependable long-term tenants, are stepping in to the real estate mix. Several deals between commercial investors and charter schools have been completed within the past several years. Most recently one company, Canyon Capital Realty Advisors, teamed with tennis icon Andre Agassi to develop a charter school in Milwaukee at the site of a former steel mill. The Canyon-Agassi fund will spend up to $500 million to develop around 75 charter school campuses over the next four years.
Another real estate investment firm that typically specializes in developing movie theaters and retail centers has been diversifying its holdings by acquiring charter schools. Entertainment Properties Trust owns about 30 schools in 10 states. Imagine Schools rents all of Entertainment Properties Trusts’ schools and rental income from those school account for about 9% of the REIT’s revenue.
Inland American Real Estate also is in the charter school real estate business. In 2010 Inland bought seven charter school from Imagine and leased them back to the school operator.
At a time when retail companies are going bankrupt and closing shops, the education facilities sector provides property investors with an attractive opportunity for growth. According to the National Alliance for Public Charter Schools, 500 schools opened in 2011. There is a total of about 5,600 charter school campuses around the nation and that number is expected to grow as demand increases and parents seek alternatives to traditional public schools. More than 400,000 children are on charter school waiting lists and 2 million are enrolled.
Property investors go where the money is, and for now there seems to be opportunity in charter schools. Box office sales are down, consumer spending is languishing, and in return, commercial real estate is suffering. However, there is big interest in the public school system in the United States, and charter schools provide a way for commercial entities to get in on the trend.