Charter school strikes $14 million deal, raises big questions

In an unprecedented real estate move, a DeKalb charter school will buy the strip mall it is located in, a move that solves one problem but raises concerns about financial risks and the privatization of public education.

It’s one solution to the most vexing problem charters face — finding a permanent facility. But the deal means the school, Ivy Preparatory Academy at Kirkwood, must collect rent, manage and repair property and face the prospect, if its three other tenants move, of losing the rental income used to help pay off $14 million in bonds used to purchase the property.

The deal, described by the State Charter Schools Commission as a “first of its kind” for a charter school in Georgia, has been praised by some as the type of creative masterstroke charter schools need to survive in a tough economic environment. Detractors, however, see the move as yet more step toward privatizing and profiting from public schools.

The Development Authority of DeKalb County and Ivy Prep sold the $14 million in bonds to Hamlin Capital, a for-profit, New York investment firm that has invested in similar charter school deals. Hamlin could foreclose if Ivy Prep fails to make bond payments.

A foreclosure could force Ivy Prep to find another building or close. Christopher Kunney, the chairman of the board that oversees Ivy said that is a scenario he does not foresee.

Kunney said the county would not be on the hook if the school defaulted because Hamlin has accepted the property, located on the 1800 block of Memorial Drive in Atlanta, as collateral. The Atlanta Journal-Constitution has requested copies of the bond documents.

School officials said they are thrilled with the deal.

“Now we have the ability to control our own destiny,” Monty Green, vice chairman of the governing board that oversees Ivy Prep, said in a statement released by the school. “This whole thing is a positive step for the school, for the Ivy Prep brand, and for this community.”

But the deal heightens concerns from those who see charter schools and the private companies that manage them as avenues toward privatization and money-making and away from a focus on education.

“The question is, ‘Should these schools be real estate developers?’” asked state Sen. Vincent Fort, D-Atlanta. “I’m not sure they should be. I’m very skeptical of what they’re doing.”

The deal allowed Ivy Prep, in operation since 2011, to spend $11.2 million to purchase the strip mall on Memorial Drive where it was once one of four tenants along with a Pizza Hut, a LIV Fitness center and the Kirkwood Family Medicine clinic. The school building had been the site for another charter school that failed.

Those tenants will now pay about $21,000 a month in rent to Ivy Prep, which itself was paying $31,250 per month before buying the strip mall.

LIV Fitness is in the fourth year of a five-year lease and has two five-year options. Its rent is scheduled to increase by $250 per month each January, school officials say. Kirkwood Family Medicine signed a 10-year lease in 2010, and its rent payments rise by 2 percent each year. The Pizza Hut, a 10-year tenant, is on a month-to-month lease.

Ivy Prep plans to use $650,000 of the bond proceeds to expand its facility by an additional 15,000 square feet.

The strip mall’s previous owner paid some $52,000 in property taxes on the Ivy Prep property last year, school officials said. But now, as a non-profit landlord, the school will be exempt from those taxes.

The money Ivy Prep saves and its rent income will go to cover school expenses and bond payments, which average $95,800 per month, according to information supplied by the school.

Verdaillia Turner, president of the Georgia Federation of Teachers, said the deal is a step in the wrong direction.

“Public charter schools should have a singular focus on providing students with a rich academic program with stable resources and lots of support, not on potentially complicated and questionable real estate and landlord issues,” Turner said. “Ivy Preparatory’s purchase of the strip mall raises very serious financial, safety and academic issues.”

For example, Turner questioned whether employees of the Pizza Hut, the fitness center and the health clinic will be given criminal background checks, given that they work in the same strip center as the school.

But Kendra Shipmon, principal of Ivy’s girls school, dismissed that concern. “I don’t think it’s any more or less secure than any school that’s located near a Pizza Hut or a clinic,” she said.

Ivy Prep Kirkwood is locked during school hours. Visitors must identify themselves and be buzzed in, school officials said.

Ivy Prep is a public charter school whose charter application was approved by the state after school boards in Gwinnett and DeKalb counties rejected it. Like other charter schools in Georgia, Ivy Prep was granted instructional and organizational flexibility in exchange for a promise to pursue specific academic goals.

Also like other charter schools in Georgia, Ivy Prep receives state and federal funding. But because it was not approved by a local school board, it does not receive any local property tax revenue. The state provides charter schools with more funding on a per pupil basis than it gives traditional public schools, but that additional state money does not make up for the absence of local property tax money.

Charter school advocates, who see the schools as alternatives for parents whose children attend low-performing traditional public schools, say charters are at a significant financial disadvantage. Not only do they frequently not get local property tax revenue, they often struggle to identify and pay for a facility.

Others, however, say charters are not a panacea for the ills of public education and argue that the focus on them takes attention and resources from traditional public schools, which educate the vast majority of Georgia children.

Ivy Prep operates a school for girls and another for boys at its Memorial Drive location. The state charter for its boys school is up for renewal next year. The charter for its girls school is up for renewal in 2017. It is not clear precisely what would happen if the state declined to renew the charters and Ivy Prep was forced to close.

While others have noted the unusual nature of the deal, Kunney said it was not the school’s intent “to create a precedent.”

“Our approach was to create a model for these schools to survive,” he said.