Browse Tag: entertainment properties

Charter Schools: Commercial Property Lessons Learned

(Photo credit: cayoup)

The marketization of public education is a trend gaining traction across the country. Commercial real estate transactions and investments in the charter school space are following suit.  What happens when expert commercial real estate investors take on the task of displacing the public interest in education with shareholder interest?

In at least one case, some tough business lessons were learned.

A.D. Pruitt’s piece in the Wall Street Journal tells the cautionary tale of one expert in commercial real estate and its foray into charter school property deals. Entertainment Properties Trust is a movie-theater REIT owning 112 theaters in 35 states.  Entertainment Properties got into the charter school building market, adding 37 charter school properties to its portfolio n exhange for about $72 million.  Most of these schools are operated by a for-profit charter-school operator.  The outcome?  Vacant buildings, lost contracts, and most sadly, poorly served kids.

But the investment into charter schools has gotten bad marks of late. In the past few months, [for-profit school operator] Imagine lost its contracts to manage seven schools in Missouri and two in Georgia due to criticism about poor test scores and financial mismanagement. Those schools were owned by Entertainment Properties, which was then in a pinch to fill the vacant buildings.

Those nine schools represent a $72 million investment for Entertainment Properties and one-third of the number of leases the company has signed with Imagine, which currently operates about 75 schools nationwide.

The turn of events has revived concerns among investors that Entertainment Properties is veering too far from its expertise in the theater business.

“I think the Street is going to be a little hard on the stock” until the company resolves the issues that it faces with Imagine, said Rich Moore, an analyst at RBC Capital Markets.

Indeed, since the Missouri Department of Elementary and Secondary Education revoked the charter for Imagine Schools in St. Louis in mid-April, Entertainment Properties’ stock has declined 12.9%, while the broader REIT market is basically flat.

The story’s about more than one commercial property portfolio’s setback while moving to profit from the marketization of public education.  Entertainment Properties isn’t taking its ball and going home; CEO David Brain sees “an increasingly favorable political climate for alternative education,” and expects to continue its foray into charter school property.

The wider story is about fundamental changes in communities.  The United States was the world pioneer in mass education, first in primary education in the 19th century, then secondary in the 20th.  The resulting enormous power of the country’s economy speaks directly to that commitment to public education. Competition, profit and private interest were not drivers of that commitment; access and society-wide insistence on quality education were.

While it’s not clear that charging rent to school boards will improve educational outcomes; it is clear that the marketization of primary education presents risks to CRE investors as well as to kids and to the future they represent.

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