Debunking the Real Estate Risk of Charter Schools

Justin Torres

Ewing Marion Kauffman Foundation
July 2005

Homeownership is the American Dream, but for many charter schools finding a permanent place to lay down roots is more like a nightmare. Lenders and real estate brokers get nervous about charter schools because the market is so new, the charters relatively short-lived, and the risk of default unknown. This creates what the Kauffman Foundation, in this fine and refreshingly hardheaded report, calls a circular dilemma: The greatest cause of charter school closure is failure to secure an adequate building, yet the risk of closure is the greatest obstacle to charter schools securing an adequate building. You couldn't plan a more perverse catch-22. In fact, though many lenders take as gospel reports that 10 percent of charter schools have closed, Kauffman notes that many of those schools simply "changed organizational structure, and continued to occupy and pay on their buildings." Kauffman estimates that the real closure rate is more like 6 percent. Furthermore, while many lenders fear that buildings re-fitted to be schools are hard to resell or lease, the current rate of re-use for such properties is more than 95 percent. Finally, bigger schools, older schools (especially those started more than one year after a state's charter law was enacted), and schools run by EMOs all have close-to-negligible default rates. The arrival of this report is timely indeed, not only because it might help to put lenders at ease about this market, but also because it's great to see funders like Kauffman wading into the nitty-gritty of making charter schools work. Worth reading, and available here.

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