A shortsighted law, a lack of funding and inadequate oversight have left New Jersey’s charter schools to find their own way when it comes to filling a basic need: finding a home.
The result is a system that allows charter school operators to use public money to pay for buildings that are privately owned. It can push charter schools and the support groups that own and finance real estate on their behalf into unusual and costly building deals, leaving taxpayers to pick up the tab.
It’s a system in which financial transactions often play out behind a wall of secrecy, away from the public eye and beyond the reach of open records laws.
More than 20 years after the first charter schools opened in New Jersey, many still struggle with finding and funding a facility for their students, and experts say change is long overdue.
Bruce Baker, a Rutgers University professor and an authority on education financing, said the absence of a clear path for charter schools to obtain funding for buildings has “left the door open for this to go haywire and get kind of creative and out of control over time.”
“Now’s the time to rein it in,” he said. “Clearly it has gotten out of hand. We’ve got these transactions which are anything but transparent and anything but efficient.”
In many cases, private companies are created to own the real estate, and the rent they collect from charter schools — money that comes from taxpayers — is used to repay the debt on the buildings. Hundreds of millions of dollars in federal aid is going to some of the largest charter operators to construct or renovate buildings that are used by charter schools but are privately owned.
In interviews and emails, advocates and critics offered an array of ideas for improving the way that charter schools acquire and finance buildings, including loosening restrictions on spending and increasing public funding and transparency.
"Now’s the time to rein it in. Clearly it has gotten out of hand. We’ve got these transactions which are anything but transparent and anything but efficient."
Their suggestions include:
- Providing funding for charter schools that is earmarked for facilities. Closing the funding gap between traditional districts and charters.
- Removing a provision in the state’s charter school law that bars charters from using state and local money to construct new buildings.
- Ensuring that publicly funded charter school buildings are owned by the public — at least once the debt on the building is repaid.
- Improving coordination between charter and traditional public schools on facilities, and requiring that surplus or underused space in district schools be offered to charter schools first.
- Creating an authority that would issue bonds to finance publicly owned facilities for both charter schools and traditional districts.
- Requiring state officials to review lease and finance agreements before they are signed; improving oversight of charter school building projects.
- Looking into whether the state should provide direct loans or loan guarantees to charter schools.
- Requiring private companies that are created to support charter schools in real estate transactions to be transparent, and to open their books to show how they are spending public money.
“This is public money, and this is a major issue,” said Preston Green, a professor of education, leadership and law at the University of Connecticut. “There has to be some type of examination, and I don’t think that the argument that there’s a private entity should prevent that money from being analyzed to see how it’s being spent.”
It's not an easy fix. Public policy in this area has been lacking for two decades. The administration of Gov. Phil Murphy is only now reviewing the law — something that was required to be done within five years of its passage.
“This is public money, and this is a major issue. There has to be some type of examination, and I don’t think that the argument that there’s a private entity should prevent that money from being analyzed to see how it’s being spent.”
And there are plenty of complications.
Charter schools are publicly funded but operate independently of local school districts. They have their own boards and make their own decisions.
Supporters of charter schools say they provide opportunities for choice and innovation and should be better supported, noting that more than 35,000 students are on waiting lists for seats statewide. There are many who believe more autonomy and flexibility — and less regulation — is in keeping with the core principles of running a charter school.
Yet there is tension between charter schools and regular public districts. Critics say charters undermine public education by draining cash and pupils from traditional public schools, ensuring resistance from teachers unions and districts on any proposed funding hikes for charters or requirements for shared space.
The state Education Department, meanwhile, has limited ability to oversee charter schools. Its charter school office has a staff of five and has had high turnover in its leadership. There have been six directors in the last decade.
Since the private companies created by charter operators do not have to show their records, it’s unclear how they would react to a requirement to share information, and how it would be enforced.
Even though charter schools ultimately supply the money that pays for building projects, in many cases they do not possess documents related to the financing and construction of their facilities. While a few charter schools were able to provide information from a support group, others — including the state’s largest, TEAM Academy and North Star Academy — said they had no information about the debt on the buildings they use — debt that is covered by the rents the schools pay to their private partners.
In a few instances, members of charter school boards said they had been unable to get information about real estate owned by their own support groups.
Dawn Armstrong, a former president of the now-defunct Central Jersey Arts Charter School in Plainfield, said she hit a dead end when she tried to research costs on a building owned by the school’s support group, and never got answers from the company that managed the school.
“I was never privy to the original note,” Armstrong said of the financing. “What is this payment doing? Covering us 100 percent? Is this interest only? A partial payment? Is there anything held at the back end? I never could get that information.”
TEAM Academy Charter School in Newark, which is run by KIPP New Jersey, provided this response when asked about the debt on buildings it rents from support groups:
“Your request requires the creation of a record which does not presently exist, in paper, electronic or any other form. It also would require the School to conduct research, as the precise analysis required to reply to your request had not been conducted by the School.”
“I was never privy to the original note. 'What is this payment doing? Covering us 100 percent? Is this interest only? A partial payment? Is there anything held at the back end?' I never could get that information.”
Newark’s North Star Academy, operated by Uncommon Schools, responded similarly.
“Since the school is not a party to the loan documents, we do not have records responsive to the debt-service portion of this request,” officials said.
The Marion P. Thomas Charter School, also in Newark, said it didn’t have records related to one of its support groups that holds real estate — a group that an official there said has an office in one of its school buildings.
Private groups tied to charter schools — many of them created solely to hold real estate — also declined to provide records related to projects and their financing, saying they are not subject to public records laws.
In many cases, both the schools and their support groups declined to discuss details of financial transactions related to construction projects.
The state Education Department said it “does not have the authority to review financing or lease agreements before they are signed” and that it “doesn’t oversee private related companies.”
“I disagree; I think they have the authority because they’re using public money,” said Joseph V. Doria Jr., a former state legislator who was an author of the state’s charter school law. “If they feel they don’t have the authority, just introduce legislation.”
National experts, too, believe agencies that authorize and oversee charter schools can — and should — be looking at private groups and their financial dealings.
“I believe a quality authorizer has the ability to intervene and protect the school and the taxpayers from groups entering into related party transactions that aren’t in the best interests of students and taxpayers,” said James Goenner, president and CEO of the National Charter Schools Institute.
“Your request requires the creation of a record which does not presently exist, in paper, electronic or any other form. It also would require the School to conduct research, as the precise analysis required to reply to your request had not been conducted by the School.”
The dearth of public information means, for example, that taxpayers can’t see why the Friends of TEAM Academy, which supports the Newark charter school, has earned millions of dollars in development fees or how that money is spent.
Taxpayers won’t know why Uncommon Schools donated millions to North Star Academy but then required that the money be spent on a building owned by a related company.
Taxpayers can’t see the agreement that the Friends of Marion P. Thomas Charter School signed with a developer that had the Friends pay out $6.4 million in fees as part of a two-building deal. The group’s attorney would not provide it and the charter school said it did not have a copy.
And the public won’t know precisely how the nonprofit groups that own real estate and rent it to charter schools in Camden and Paterson spend the money they receive in rent that is over and above what is needed to cover the debt on the buildings.
“We remind you that the Network is not a public entity and therefore is not subject to public disclosure requirement, but we encourage you to follow up with any relevant charter school in order to obtain the documents you seek,” the executive director of Camden’s Charter Network said in a letter to reporters.
The public also has no way of knowing the financial details of one of the largest charter school construction projects in the state, such as the interest rates on some loans or the debt on the building.
Uncommon Schools recently completed an ambitious $69 million project in Newark, opening a six-story building at the start of this school year that was funded with a construction loan and millions of dollars in federal bonds and tax credits.
A real estate entrepreneur made millions of dollars buying the property and flipping it in a little more than a year to the charter school operator. A bank is claiming millions in federal tax credits. The federal government is chipping in tens of millions more in school construction aid while state and local taxpayers are paying $3 million a year in rent to repay loans.
But many of the details of the transaction are not publicly available, and Uncommon Schools has declined to discuss them.
The building is owned by a private company that was created to hold the property and rent it to the public charter school, North Star Academy.
Adding to the lack of transparency is the number of companies involved in transactions by the largest charter operators.
“North Star and Uncommon have been able to access government programs that were created specifically to spur development and improvements in cities like Newark.”
For example, KIPP New Jersey uses more than a half-dozen companies with roles in multiple financial transactions.
And Uncommon Schools has at least two dozen companies that have been involved in real estate and in the financing of projects in Newark, some created for a single transaction. Six of these, called Uncommon Lenders, primarily lend money. Seven others, called Uncommon Properties, borrow the money. Another 11 companies have been involved in property transactions; most of them own or lease buildings.
Uncommon Schools and North Star said in a statement that because charter schools don’t have “the same access to facilities or opportunities for financing as district schools,” they “are forced to work with the capital markets to find facilities and financing — all of which happens with more complexity than for district schools.”
“North Star and Uncommon have been able to access government programs that were created specifically to spur development and improvements in cities like Newark,” Uncommon’s spokeswoman Barbara Martinez wrote in the statement. The programs, she added, lowered the cost of the school’s building projects.
“You can imagine a private company is going to say, ‘We’re a private company; that’s none of your business.’ Or they could say, ‘We’re a private company, but we’ll share that information — [and be] transparent and open.’ ”
Some charter operators sought to distance their schools from the groups that own the buildings they use and participate in facilities financing.
“Although these entities may be affiliated with Team Academy charter school, they are neither created nor controlled by it, nor related to it for federal income tax purposes (or accounting purposes.),” one lawyer wrote in response to a request for records. “The School does not control the manner in which these entities operate or perform. The School’s board does not appoint members or trustees of any entities.”
North Star Academy declined to disclose information about the debt on its buildings or to provide financial documents for companies that are subsidiaries of Uncommon Schools, which runs the school. It wrote that those companies “are separate entities from North Star that are not under North Star’s control.”
Goenner, of the National Charter Schools Institute, said nothing prevents the private groups from being more open.
“You can imagine a private company is going to say, ‘We’re a private company; that’s none of your business.’ Or they could say, ‘We’re a private company, but we’ll share that information — [and be] transparent and open.’”
The state requires charter schools to submit copies of leases and mortgages annually, but only for new locations. Officials said they look to ensure that the length of the lease doesn’t exceed the length of the school’s charter and that the actual rent is in line with the amount set aside for that purpose in the school’s budget.
But the state accepted leases that schools signed with one nonprofit management company, College Achieve Public Charter Schools, that did not include the amount they were paying in rent. That figure could be calculated only with information in the master lease — the contract between the management company and the property owner. The state said it does not collect master leases.
Moreover, charter schools that College Achieve is paid to operate did not always have key details related to their facilities.
One could not provide a rent schedule, or the project cost for its North Plainfield location — a refurbished and expanded Catholic school it subleases from the management company. The Paterson school, meanwhile, could show what it pays to College Achieve, but had no document showing what the management company now pays to lease the building from a third party.
Many of the documents that NorthJersey.com and the USA TODAY NETWORK New Jersey were initially able to obtain under the state’s open public records law required the intervention of an attorney.
Those documents indicate that the management company — and not the charter school — holds the purchase option on at least two buildings.
“Different attorneys draw different lines, and you get all these differing viewpoints of how it’s supposed to work. To me, that’s why it’s not a smart law, right? Why would you have a law that says a school could buy a building but not a law that says a school could buy a piece of land and construct a building? There doesn’t seem to be anything positive from that law other than for years I know it’s pushed schools away from the smart thing of permanently owning their facilities.”
Law leads to private ownership
Some say the charter school law and regulations have pushed the schools away from building ownership and toward renting from commercial landlords or creating separate companies to own real estate.
The schools are prohibited from having long-term debt that exceeds the value of their property, and from entering loans that allow lenders to go after assets other than real estate if they default. And they can’t use state or local dollars to build a school — a provision some say hamstrings charters and leads to confusion over what is permitted. That rule has been clarified to say charter schools can't use public money to erect a completely new building, allowing for the funding of additions and renovations.
Dwight Berg, an economist who has served as a financial consultant on charter school projects around the country, said, “It’s not a smart law.”
“In a triple-net lease, if the roof leaks and you pay to fix it as the school board and then you decide to leave for another facility, you essentially leave your investment in that roof behind."
“Different attorneys draw different lines, and you get all these differing viewpoints of how it’s supposed to work,” Berg said. “To me, that’s why it’s not a smart law, right? Why would you have a law that says a school could buy a building but not a law that says a school could buy a piece of land and construct a building? There doesn’t seem to be anything positive from that law other than for years I know it’s pushed schools away from the smart thing of permanently owning their facilities.”
The groups that hold property for charter schools obtain loans based on a school’s public revenues and leases, showing how the debt will be covered. Yet charter school experts said lenders have shown a preference for financing school construction projects through private entities instead of the public charter schools.
“I believe this is just a feeling of the lenders that here’s a charter school, which can be closed at any time,” said Rick Pressler, director of school services for the New Jersey Charter Schools Association.
Lenders, he said, figure that nonprofit groups would continue to operate after the school closes, though they would have no income of their own.
“Without the charter school in existence and paying its rent, those other entities in most cases would not be able to pay anything — although they would be in a position to rent the building,” Pressler said.
Patrick Beausoleil, vice president of portfolio development at HighMark Schools Development in Utah, said the presence of a Friends group in a transaction is “a perceived comfort” for lenders — but one that is “illusory.”
“It’s largely a legal comfort level in that, if the school did dry up and blow away, technically there is recourse with the Friends,” said Beausoleil, whose firm has developed charter school facilities in New Jersey and elsewhere in the country. “And we all know if the school dries up and blows away, it doesn’t matter how many layers of others are in the mix. If the revenue stream is gone, we’ve got an empty building and we need another tenant.”
Fewer than 20 of New Jersey’s 88 charter schools own at least one of their buildings directly. Most rent from private landlords, including commercial developers and private nonprofit groups, many of which were created to help the charter schools.
“We argue that if they are public schools, we should own [the buildings]. That fell on deaf ears. No one in government really paid attention to that. The bottom line is, when they build, there should be some way for it to come back to the taxpayers."
Many of the leases reviewed for this series require the charter schools to pay all expenses related to the buildings, including taxes, maintenance and repairs. They are known as triple-net leases.
Goenner said it is “not necessarily the best use of taxpayers’ money” when schools invest heavily in a building that somebody else owns.
“In a triple-net lease, if the roof leaks and you pay to fix it as the school board and then you decide to leave for another facility, you essentially leave your investment in that roof behind,” Goenner said.
Private ownership of public charter school buildings has struck a nerve, particularly in Newark, where the school district has been selling off buildings.
State Sen. Ronald L. Rice said he’s concerned about what might happen to privately owned charter school buildings in the city. Private groups, he said, could sell them years from now, and might want to “gut and rehab” one building and “turn it into luxury condos” with a view of the New York City skyline.
“Without the charter school in existence and paying its rent, those other entities in most cases would not be able to pay anything — although they would be in a position to rent the building."
“We argue that if they are public schools, we should own” the buildings, said Rice, a Democrat whose district includes part of Newark, referring to the public. “That fell on deaf ears. No one in government really paid attention to that.”
“The bottom line is, when they build, there should be some way for it to come back to the taxpayers,” he added.
TEAM Academy Charter School recently purchased its first building — a former Essex County school on 13th Street in Newark — but only because public ownership was a requirement of the sale. TEAM’s support groups own five other facilities.
The state issued $12.7 million in tax-exempt bonds, of which $7.5 million was designated for the purchase and renovations of the building. The rest went to renovate other TEAM buildings. The loan documents show that the bond proceeds went to the Friends of TEAM, which planned to lend the school $11.6 million.
Berg, the financial adviser who represented the Friends in the transaction, said public ownership of buildings might become more common if the law is changed.
“My own personal feeling is that owning is probably better in the long run for the school and therefore for the public good,” he said. “In the long run, real estate is probably going up, not down,” in price, he added, and schools that own their own buildings wouldn’t be “subject to increasing rents.”
Experts say solutions lie in fair funding, shared resources and public policy that makes clear how charter schools are supposed to obtain and pay for buildings.
Charter school advocates want access to unused school district buildings, and designated funding for facilities.
“I think the best solution is to fund charter schools the way we fund all public schools, and then we get rid of the problem entirely,” Pressler said. “The situation that we’ve created in New Jersey by denying charter schools access to all of these facilities funds has led us to try to find ways to get this done. We need buildings.”
Unlike many other states, New Jersey has no clear mechanism for charter schools to access buildings owned by public school districts.
“The access to buildings we feel like is a really simple one in the sense that these are already buildings that are publicly owned; we want to use them for a public school, and we should be allowed to do it,” Pressler added.
He said it’s unclear how many such buildings are available, and many “need serious renovation, so we’re still going to have an issue with how do we bring them up to code if it’s an older building.”
Since charter schools get no facilities aid from the state, every dollar spent on a building comes out of each school’s operating budget. Charters spend an average of 13 percent of their revenues on their buildings, according to the National Alliance for Public Charter Schools.
“The access to buildings we feel like is a really simple one in the sense that these are already buildings that are publicly owned; we want to use them for a public school, and we should be allowed to do it.”
Pressler noted that whenever a traditional public school district needs money to acquire or build a new structure, it simply asks voters “to pass referenda that generate additional tax revenues that effectively shield their operating budgets from debt payments.”
Traditional public schools may get facilities funding from the state for their projects. And the state Schools Development Authority funds and manages school construction projects for New Jersey’s 31 poorest districts. It also has provided grants to regular districts.
Pressler acknowledged that in some cases federal money has been attached to bonds that are issued to finance charter school projects. But he said state and local taxpayers don’t see a rate increase when a charter school constructs or renovates a building.
“If you’re paying a charter school a million dollars a year and they build a building, you’re still only paying that charter school a million dollars a year,” he said. “My tax bill doesn’t go up when the charter school builds a building. It does go up when the district builds a building.”
Charter schools on average receive about 73 cents on the dollar in local and state aid compared with traditional public schools, according to the state charter association. The law requires districts to send charter schools 90 percent of what they receive in local taxes and in some state aid for each student. Much of the disparity is due to so-called “adjustment aid” that some districts receive.
Some schools receive much less. For example, Asbury Park charter schools received 42 percent of district per-pupil funding in the 2017-18 school year while those in Jersey City got 60 percent, according to the association.
“If you’re paying a charter school a million dollars a year and they build a building, you’re still only paying that charter school a million dollars a year. My tax bill doesn’t go up when the charter school builds a building. It does go up when the district builds a building.”
Charter school advocates said the funding disparity makes it difficult for some schools to find affordable financing. Schools and their support groups have taken out interest-only loans and are required to pay hefty fees to get out of the agreements once they become financially stable and are able to get a better deal.
The BelovED Community Charter School in Jersey City, for example, plans to pay such a fee next year.
“If you had the funding formula working the way it was intended to when the charter law was passed, that by itself would have enabled a school to directly buy and hold real estate because it could have afforded to pay principal and interest,” said Bret Schundler, BelovED’s founder and a former state education commissioner. “All charter schools in my opinion should get some kind of increment for facility purposes.”
He said an additional $1,500 per pupil would be enough for most charter schools.
Education experts say that some charter school boards are not equipped to navigate real estate transactions, leading to costly deals that can drain money from education.
The Friends of Marion P. Thomas Charter School paid a 67 percent premium — in addition to renovation costs — when it exited a lease early and bought two buildings from a developer. The group could have purchased them for $6 million but couldn’t find financing. Instead it paid the developer — who owned one of the buildings for only two months — $16 million.
Green, the University of Connecticut professor, said that avoiding such deals “would require a level of sophistication that many charter school boards simply can’t muster."
“I think that one of the things that maybe the state could do is to actually educate charter school boards on real estate arrangements as part of the training of what your fiduciary duties are,” he said.
New Jersey has just one office tasked with authorizing and overseeing charter schools. Goenner advocates for multiple authorizers in each state, and ensuring they’re adequately staffed. Nine years ago, he directed an authorizing office at Central Michigan University that had a staff of 30 to oversee 60 Michigan charter schools. That’s six times the staff that oversees New Jersey’s 88 charter schools.
Twenty states have more than one office tasked with authorizing and overseeing charters.
“We can invest public dollars in buildings that are still owned by the public but perhaps used by the charters. These would be need-based, publicly owned facilities, financed with more traditional public financing mechanisms.”
The New Jersey Charter Schools Association has suggested that the state’s law be amended to allow for “an independent chartering board” as an additional authorizer.
Having multiple authorizers, Goenner said, allows for trying different approaches that lead to “continuous improvement and evolution.” And proper staffing, he said, is critical because authorizers “serve an important check and balance to ensure that the kids are learning and that the taxpayers’ money is well-stewarded.”
Baker, the Rutgers professor, said there should be more coordination among school districts and charter schools. Like Pressler, he suggested funding charter school facilities like traditional schools — with the provision that the buildings are owned by the public.
He said the state should create “some centralized authority” that would issue bonds to finance construction of charter school buildings or to make improvements. The bonds could be issued by traditional districts with voter approval. It would work like other bond debt for public projects, he said, and taxpayers would pay for it.
“We can invest public dollars in buildings that are still owned by the public but perhaps used by the charters,” Baker said. “These would be need-based, publicly owned facilities, financed with more traditional public financing mechanisms.”
In Los Angeles, for example, the city’s school district used $600 million in federal school construction bonds to build schools that are owned by the public and used by both traditional and charter schools. The district bills the charter schools based on the amount of space they use to cover their share of annual debt payments on the bonds, maintenance and other costs, including security.
In contrast, New Jersey gave most of its share of the federal bonds — more than $400 million — to the state’s two largest charter operators over the past 10 years to fund building projects that are owned by private groups that support the schools.
Baker said moving to “a public ownership and public investment model” would take care of other problems, such as a lack of transparency on the part of some private groups that own charter school buildings.
“I don’t know that we can fully imagine all of the types of transactions we would have to identify” to regulate them, he said. “The better, more efficient way to go about it is just to eliminate entirely all these complex mechanisms.”
Charters that own their buildings
Charter schools have become a familiar part of the education landscape. Yet finding and financing a facility can still be difficult and costly for many of them. Elements of the law remain a problem, and some experts say proper funding, assistance in obtaining loans, and a clear way to access unused space in the traditional public school districts are lacking. Academics point to an absence of public policy on the matter.
As a result, most charter schools do not own their buildings. This means the public puts money into facilities it does not own and cannot recoup if the property is sold.
But a smaller number of charter schools have managed to own at least one of their buildings directly.
Here’s how they did it.
Princeton Charter School
Before the Princeton Charter School opened in 1997, its founders had a lot to contemplate.
How do you fundraise for a building when you have no school? How do you buy one when you have no money? How do you build a school when state law says you can’t use public funds to construct one?
Peter N. Yianilos, one of the founders, said they pondered that “chicken and egg problem” along with a host of others.
Today, the school has a thriving 7-acre campus of 424 students and four buildings: one for kindergarten through fourth-graders, another for fifth- through eighth-graders, and a Campus Center that opened in 2010 that includes a theater, a gymnasium, an art studio and music classrooms.
“I’m very proud of how this happened,” Yianilos said, noting this “isn’t a school that was built by a single big grant, or one wealthy person that simply did it. It started with nothing.”
“The only way I was able to get the building was to ignore the realtor and walk in the front door, introduce myself and say I want to buy your building.”
The group’s first challenge was a practical one: finding usable space within Princeton.
“We looked around and we had very few options,” Yianilos recalled.
The group pinned its hopes on a large tract with two buildings — a farmhouse and an office building. But the realtor didn’t want to talk to them, didn’t know what a charter school was, and wanted “a bona fide buyer.”
“The only way I was able to get the building was to ignore the realtor and walk in the front door, introduce myself and say I want to buy your building,” Yianilos recalled.
The price struck was $2.8 million. But like any newly approved charter it had no money — just a fast-approaching deadline to get the school up and running.
“You have no public funds because the students haven’t attended yet,” Yianilos said.
They talked to banks — a lot of them. They did some fundraising.
“We didn’t have a large down payment,” Yianilos said. “It’s also difficult to fundraise when there is no school.”
He persuaded bankers to agree that if a substantial portion of the loan was guaranteed, it would be viewed as equity in the property and the bank would loan against it.
In all, there were 21 guarantors that secured amounts between $10,000 and $50,000; most were in the $20,000 to $25,000 range. The bank, meanwhile, agreed to accept statements from accountants confirming their net worth was sufficient to back whatever portion of the loan they guaranteed.
“Their downside was limited, and that made it something that people could contemplate doing,” Yianilos said.
The school borrowed $2.15 million from a bank, and another $500,000 from the owner. And records show Yianilos and three others lent the school another $200,000.
Money was just one piece of the equation. The founders, Yianilos said, were “scratching our heads at the time and thinking a lot about who owns the building.”
Founders ultimately decided that having the school own the property “was a straightforward, simple approach to take,” he said.
That way, tax dollars put into the buildings wouldn’t be lost to the public.
Hope Academy in Asbury
Asbury Park’s Hope Academy Charter School opened in 2001 in a church-owned property and, as it grew, rented more space at another nearby church. When it learned that one of the buildings was up for sale, it started looking for a new home.
As a result, Hope Academy landed in a multi-story office building on Grand Avenue.
Its rent began at $144,000 annually, with the school responsible for repairs and maintenance as well as a proportionate share of real estate taxes and other building costs. The landlord fell into financial trouble, and the school was eventually making lease payments to a court-appointed rent receiver.
Chief School Administrator DaVisha Pratt said the owner was on the verge of losing the building, which she described as “neglected.”
But Alexis Crawford, the school’s founder and retired director, said the charter school was not in a position to buy it.
“We were just putting out a lot of money for improvements. I didn’t like improving a building that wasn’t ours and then not even knowing if they sold it what would happen."
“That was always a part of the vision, to own the building,” Crawford said.
In 2011, a non-profit called Build With Purpose intervened, agreeing to purchase and renovate the building and lease it to the charter school.
“We bought the property as a service, an emergency interim measure, and then took out financing to improve the property,” said Brian Keenan, president of Build With Purpose.
The school’s new lease started rent at $345,000 annually. It could buy the building at any time “at a price to be reasonable determined” by landlord and tenant. It was required to pay a $50,000 purchase option fee and make a $125,000 contribution to building improvements.
Under the lease, the landlord picked up roof and structural repairs, but the school was responsible for everything else from windows, doors and floors to plumbing, heating and air-conditioning systems.
“We were just putting out a lot of money for improvements. I didn’t like improving a building that wasn’t ours and then not even knowing if they sold it what would happen,” said Hope Academy’s business administrator, Donna Torres. She added that buying the building “would give us stability, and then when we did the improvements we’d be improving our own building since we were paying for it anyway.”
At the end of 2016, Hope Academy bought the building for $4.3 million. It received a more than $1 million direct loan from the New Jersey Economic Development Authority, which also issued $3 million in tax-exempt bonds for the school’s benefit.
“Literally, they can call it their home,” Pratt said of the students. “We don’t have to worry about being uprooted.”
Today, Hope Academy’s combined annual payments on those debts are $240,937 — nearly 45 percent less than the $435,750 they would have been paying in rent this school year had they continued to lease.
Classical Academy in Clifton
Vincent DeRosa, a former public school teacher in Glen Rock, had his eye on a nursing home perched on a hill for a new charter school he planned to open in Clifton a little more than 20 years ago
When he was told the nursing home was moving out, he quickly moved to rent it.
The Classical Academy Charter School opened in 1998, the second year that charter schools could operate in the state.
The school rented the former nursing home overlooking Valley Road, with an option to purchase it, for more than three years.
It paid $710,000 to purchase the building in 2002, using two separate loans from the same bank. The first loan was scheduled to be repaid in five years, the second in 15 years.
There was never any question about whether the school could own its own building, DeRosa said.
“The state was always aware of our actions and it never became any kind of issue,” he said.
The second loan was repaid early, DeRosa said, and the school owned the building free and clear in 2009.
That allowed the small school — 120 students in Grades 6 through 8 — to save on interest payments and put away some of its public revenue. DeRosa said he was able to have the building painted and wire it for computers.
“If you don’t have control of your facility and it’s in the hands of another party, anything can happen,” DeRosa said. “We felt the sooner we paid off the building that would free up money for education costs.”
When DeRosa retired a few years ago, he said, the school had $1 million in cash surplus. Then, he said, new leadership took over.
Two years ago, they moved out of the Valley Road building and began renting a school building owned by St. Paul’s Roman Catholic parish.
The new building has more than 23,000 square feet of space, according to the Paterson Diocese website, including a gym, cafeteria and library.
Classical Academy was approved last month to expand by 60 students, 20 per class for a total of 180, for the next school year, according to records that the school provided in response to a public records request. Last year, the state rejected the school’s first request to expand, which was made shortly after it moved.
State records show that Classical Academy was scheduled to pay a little more than $260,000 in annual rent in its first two years in its new home. It has an option to renew its lease for three years at the end of this school year.
The head of the school, Sandra Giordano, declined to discuss the academy’s finances and real estate transactions. She did not respond to questions emailed to her about the school’s plans.
DeRosa said the school took a risk by moving into a new building before it received the state’s approval to increase its enrollment. The rent over the past two years, he said, was high for such a small school.
He followed up in a letter, writing that by the end of this school year the academy’s administration “will have needlessly spent over $500,000 of school money on a lease for a privately-owned building when they themselves own a fully-paid school building in which for 16 years students had received the best of public school education.”
The move, he wrote, was a “shockingly poor... spending decision.”