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Child Care Facilities Planning and Financing Workshop Presented by: Illinois Facilities Fund www. iff. Child Care Facilities Planning and Financing Workshop Presented by: Illinois Facilities Fund www. iff. org (312) 629 -0060

Introduction Workshop Objectives Develop an understanding of: • The importance of planning for a Introduction Workshop Objectives Develop an understanding of: • The importance of planning for a child care facility development project • The tools you will need to define the scope and implement a child care facility development project • How to assess your agency’s capacity to undertake a child care facility development project

Facilities are Key to Program Operations Planning is a Balancing Act • Programming • Facilities are Key to Program Operations Planning is a Balancing Act • Programming • Finances • Management • Board • Facilities

Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Goals • Evaluate Financial Capacity • Plan Your Child Care Space • Estimate Program Expansion Budget • Determine the Real Project Costs • Explore Financing Options • Manage the Development Process

Assess Agency Readiness Consider and evaluate internal and external factors • Internal = Agency Assess Agency Readiness Consider and evaluate internal and external factors • Internal = Agency structures and organization; program • External = Demand (market) for services and facilities

Assess Agency Readiness Evaluate Internal Factors Program Goals and Needs • Look at your Assess Agency Readiness Evaluate Internal Factors Program Goals and Needs • Look at your current operations • Clearly define your long-term program goals • Does your child care facility meet your agency’s current program needs?

Assess Agency Readiness Evaluate Internal Factors Agency Structure and Organization • How effective is Assess Agency Readiness Evaluate Internal Factors Agency Structure and Organization • How effective is your Board? – Strategic plan – Leadership and financial support • Do you have staff buy-in for a facility project?

Assess Agency Readiness Evaluate Internal Factors Meeting Future Growth Needs • If you intend Assess Agency Readiness Evaluate Internal Factors Meeting Future Growth Needs • If you intend to expand in the next 3 -5 years, will your current space meet those future needs? – Room for growth? – Sufficient control of property and associated costs? – External forces considered?

Assess Agency Readiness Evaluate External Factors Demand for Services • Has demand for your Assess Agency Readiness Evaluate External Factors Demand for Services • Has demand for your child care services changed? – Local / National economy – Community changes

Assess Agency Readiness Evaluate External Factors Funding Sources • Have your sources of funding Assess Agency Readiness Evaluate External Factors Funding Sources • Have your sources of funding changed? – Subsidy eligibility policies – Government contracts? – Will these changes affect your operations—staffing and program budgets?

Case Study: ABC Agency • Operates 2 classroom center currently licensed for 68 children Case Study: ABC Agency • Operates 2 classroom center currently licensed for 68 children part day, but only 50 children are enrolled. • Enormous demand among parents for full-day care and infant/toddler care. • ABC leases half of an existing building. The other half was just vacated by medical offices.

Case Study: ABC Agency Here is ABC’s current site plan Gravel yard Half height Case Study: ABC Agency Here is ABC’s current site plan Gravel yard Half height wall Classroom Parent area Reception office REF Director KITCHEN Vestibule REF storage s Stor. Existing Medical Offices REF D/W Parking

Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Goals • Evaluate Financial Capacity

Evaluate Financial Capacity Look at these two components: • Financial Strength – General financial Evaluate Financial Capacity Look at these two components: • Financial Strength – General financial condition – Cash management – Sources of revenue • Financial Systems

Evaluate Financial Capacity Financial Strength General financial condition • Are you operating at a Evaluate Financial Capacity Financial Strength General financial condition • Are you operating at a surplus? • Do your government and parent payments cover your expenses? • How much must you fundraise?

Evaluate Financial Capacity Financial Strength Cash Management • Are you receiving parent payments in Evaluate Financial Capacity Financial Strength Cash Management • Are you receiving parent payments in a timely fashion? • How quickly do you receive reimbursements for government contracts and certificates? • Do you have capacity to “float” any delays / lags in reimbursements? • How are vacancies and seasonal attendance accounted for in cash flow?

Evaluate Financial Capacity Financial Strength Sources of Revenue • How stable are your contracts/certificates? Evaluate Financial Capacity Financial Strength Sources of Revenue • How stable are your contracts/certificates? • Are there ways you can diversify your revenue sources? Can you collaborate? • Fundraise? “I’m taking my voucher and going to circus school. ”

Evaluate Financial Capacity Financial Systems • Are your financial and administrative systems effective? – Evaluate Financial Capacity Financial Systems • Are your financial and administrative systems effective? – Enrollment – Reimbursement – Collection • Is the information in your financial statements and other reports useful for planning purposes and timely decision-making? • Is there a system of checks and balances?

Evaluate Financial Capacity Financial Systems • Does your board do a meaningful review of Evaluate Financial Capacity Financial Systems • Does your board do a meaningful review of finances on a regular basis? • Can your financial and administrative systems expand to meet the growth? – Sufficient technology

Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Goals • Evaluate Financial Capacity • Plan Your Child Care Space

Case Study: ABC Agency Planning for Expansion • Landlord will sell building to ABC Case Study: ABC Agency Planning for Expansion • Landlord will sell building to ABC for $235, 000 or lease entire building. • Center decides to add one infant and one toddler classroom, and convert a 3 -5 year old classroom to full day. • ABC must develop a project budget and explore financing options.

Case Study: ABC Agency Planning for Expansion Things to consider when deciding between Leasing Case Study: ABC Agency Planning for Expansion Things to consider when deciding between Leasing and Buying: ABC decides to pursue purchase!

Case Study: ABC Agency Planning Child Care Space Calculate your space needs: Case Study: ABC Agency Planning Child Care Space Calculate your space needs:

Case Study: ABC Agency Planning Child Care Space Here is ABC’s new site plan: Case Study: ABC Agency Planning Child Care Space Here is ABC’s new site plan: Infant/Toddler Playground OFFICE SUITE D/W storage Toddlers Toddler Classroom Laundry Infant Classroom REF D/W 3 -5 Year Olds 3 -5 Year Old Classroom Reception Infants D/W 3 -5 Year -Old Playground D/W KITCHEN Kitchen D/W Washroom Conf. Room/Parents 3 -5 Year Olds

Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Goals • Evaluate Financial Capacity • Plan Your Child Care Space • Estimate Program Expansion Budget

Estimate Program Expansion Budget Financial Projections Determine Projected Revenue • New numbers of children Estimate Program Expansion Budget Financial Projections Determine Projected Revenue • New numbers of children • New reimbursement rates • New programs • New fundraising Determine Projected Expenses • New personnel • Added costs based on more children • Increased facility size and occupancy costs • Cost savings?

Case Study: ABC Agency Expansion Budget Start by looking at your current Operating Budget Case Study: ABC Agency Expansion Budget Start by looking at your current Operating Budget

Case Study: ABC Agency Expansion Budget Calculate your projected revenue using your new number Case Study: ABC Agency Expansion Budget Calculate your projected revenue using your new number of clients and contract/certificate rates:

Case Study: ABC Agency Expansion Budget Calculate your projected expenses using your new number Case Study: ABC Agency Expansion Budget Calculate your projected expenses using your new number of staff and new size of facility:

Case Study: ABC Agency Expansion Budget Compare your revenues and expenses to project what Case Study: ABC Agency Expansion Budget Compare your revenues and expenses to project what your new budget would look like. Do you have a surplus?

Estimate Program Expansion Budget Start Up Considerations Expenses exceed revenues in first months of Estimate Program Expansion Budget Start Up Considerations Expenses exceed revenues in first months of operation because: • Staff hired before children attend • Agency receives reimbursements with delays Agency must plan for this time!

Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Goals • Evaluate Financial Capacity • Plan Your Child Care Space • Estimate Program Expansion Budget • Determine the Real Project Costs

Determine the Real Costs Facility Costs • Hard Costs – Site Acquisition – Construction Determine the Real Costs Facility Costs • Hard Costs – Site Acquisition – Construction • Soft Costs – – Architecture and Engineering Specialties and Fees Developer / Project Manager Furnishings and Equipment • Other – Contingency (At least 10% of total) – Construction Interest

Case Study: ABC Agency Development Budget Case Study: ABC Agency Development Budget

Determine the Real Costs Organizational Costs • Staff Costs – Staff time working on Determine the Real Costs Organizational Costs • Staff Costs – Staff time working on project • Lost Operating Revenues – Reduced earned income due to curtailed programming – Reduced annual giving due to capital donations • Costs of Growth – Larger administrative staff – Computers, telephones, copier • Start Up Costs – Ramp up – Temporary move – Moving and storage

Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Goals • Evaluate Financial Capacity • Plan Your Child Care Space • Estimate Program Expansion Budget • Determine the Real Project Costs • Explore Financing Options

Explore Financing Options Capital Funding Sources How can we pay for the project? • Explore Financing Options Capital Funding Sources How can we pay for the project? • Use current agency cash – most funders will look for agency to contribute at least 10% in equity • Foundation Grants – Many foundations interested in supporting child care – Some foundations do not give funds for capital

Explore Financing Options Capital Funding Sources How can we pay for the project? • Explore Financing Options Capital Funding Sources How can we pay for the project? • Capital campaign – – – Coordinate your efforts Clear message to known audience Set clear and realistic goal Consider using a consultant Beware: Capital may “poach” operating support

Explore Financing Options Capital Funding Sources How can we pay for the project? • Explore Financing Options Capital Funding Sources How can we pay for the project? • Government Resources – Federal Head Start Capital – Illinois Dept. of Commerce & Community Affairs – U. S. Dept. of Agriculture – City Government

Explore Financing Options Capital Funding Sources How can we pay for the project? • Explore Financing Options Capital Funding Sources How can we pay for the project? • Borrow the funds – Local Bank – CDFI BUT. . .

Explore Financing Options Common Questions About Borrowing • “We’re a nonprofit…We can’t borrow” • Explore Financing Options Common Questions About Borrowing • “We’re a nonprofit…We can’t borrow” • “No bank will lend to us” • “Our revenues vary. Can we really make long-term commitments? ” • “Our board doesn’t believe we should borrow” • “How much can we borrow? ”

Case Study: ABC Agency What Can They Borrow? • What is their surplus? Revenues Case Study: ABC Agency What Can They Borrow? • What is their surplus? Revenues - Expenses = $82, 920 • What debt can that support annually? (debt coverage) $82, 920/1. 2 = $69, 100 • What is their monthly payment? $69, 100/12 = $5, 758/month • How much can they borrow? TERM OF LOAN IN YEARS

Explore Financing Options Loan Evaluation Factors • Loan to Value Ratio • Security and Explore Financing Options Loan Evaluation Factors • Loan to Value Ratio • Security and Collateral • Equity

Explore Financing Options What Funders Want to Know • Demonstrate agency strength – Organizational Explore Financing Options What Funders Want to Know • Demonstrate agency strength – Organizational history – Management team • Make the case for the project – Demand, market analysis – Financial Program Projections • Project Planning – Project Development Team – Project Budget – Sources of Funding

Case Study: ABC Agency Putting It All Together: A Financing Plan We know that: Case Study: ABC Agency Putting It All Together: A Financing Plan We know that: Project Costs are: $772, 257 ABC can afford to borrow up to: $640, 612 @ 7% interest over 15 years BUT…

Case Study: ABC Agency Filling the Gap è Local Bank will only lend 75% Case Study: ABC Agency Filling the Gap è Local Bank will only lend 75% of appraised value (LTV) è Building appraises at $75 per square foot = $435, 000 è Therefore, Local Bank will only make a loan of $326, 250 è This leaves a gap of $446, 007 How can ABC afford this project?

Case Study: ABC Agency Filling the Gap = $446, 007 • Architectural scope of Case Study: ABC Agency Filling the Gap = $446, 007 • Architectural scope of project should be reviewed to see if it can be reduced • ABC should seek donations for furniture and play equipment • ABC will make an equity contribution to the project

Case Study: ABC Agency Filling the Gap Here’s what ABC decided to do: ABC Case Study: ABC Agency Filling the Gap Here’s what ABC decided to do: ABC will raise 10% of project costs through a capital campaign: $77, 226 Now the gap is $368, 781 ABC knows it can take on more debt…

Case Study: ABC Agency Filling the Gap Recall that ABC can afford $5, 758 Case Study: ABC Agency Filling the Gap Recall that ABC can afford $5, 758 per month in loan payments. Local Bank’s loan costs them $2, 932 per month. They can afford $2, 826 more in loan payments each month. Let’s take a closer look at how a CDFI loan at 5% can make the numbers work: ABC is almost there. The gap is down to $11, 418

Case Study: ABC Agency Filling the Gap Let’s see how the financial package looks Case Study: ABC Agency Filling the Gap Let’s see how the financial package looks now.

Lunch Break “We’ve done a lot of important playing here today. ” Lunch Break “We’ve done a lot of important playing here today. ”

Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Goals • Evaluate Financial Capacity • Plan Your Child Care Space • Estimate Program Expansion Budget • Determine the Real Project Costs • Explore Financing Options • Manage the Development Process

Manage the Development Process “That’s my little brother. He’s all messed up on skittles Manage the Development Process “That’s my little brother. He’s all messed up on skittles and Mountain Dew. ”

Manage the Development Process • Predevelopment • Closing Your Financing • Construction Manage the Development Process • Predevelopment • Closing Your Financing • Construction

Manage the Development Process Predevelopment Site Selection and Acquisition • Site Parameters • Property Manage the Development Process Predevelopment Site Selection and Acquisition • Site Parameters • Property Condition • Appraisal • Zoning / Code Issues • Environmental Condition • Legal Issues • Operating Costs

Manage the Development Process Predevelopment Development Team Selection Key players: 1. Project Manager 2. Manage the Development Process Predevelopment Development Team Selection Key players: 1. Project Manager 2. Architect 3. General Contractor

Manage the Development Process Predevelopment Development Team Selection: Project Manager • Skilled in all Manage the Development Process Predevelopment Development Team Selection: Project Manager • Skilled in all phases of the development process • Guides the agency through each step of the process • Negotiates prices and coordinates the activities of all professions involved

Manage the Development Process Predevelopment Development Team Selection: Architect • Should have experience with Manage the Development Process Predevelopment Development Team Selection: Architect • Should have experience with similar projects (scope and specialty) • Should have experience with nonprofit organizations • Should have offices near project and have sufficient staff to handle project

Manage the Development Process Predevelopment Development Team Selection: General Contractor • On site management Manage the Development Process Predevelopment Development Team Selection: General Contractor • On site management of entire construction process • Performs actual work or hires subcontractors

Manage the Development Process Predevelopment Design/Cost Estimating 1. Schematic Design 2. Design Development 3. Manage the Development Process Predevelopment Design/Cost Estimating 1. Schematic Design 2. Design Development 3. Contract (Construction) Documents 4. Cost Estimation 5. Value Engineering

Manage the Development Process Predevelopment Hire Your General Contractor • Types of Contracts – Manage the Development Process Predevelopment Hire Your General Contractor • Types of Contracts – Guaranteed maximum price – Lump sum – Design/Build • Bid Process

Manage the Development Process Closing Your Financing • Refine Budgets • Secure Financing Commitments Manage the Development Process Closing Your Financing • Refine Budgets • Secure Financing Commitments – Meet with Lenders / Funders – Apply for Gov’t capital resources – Kick off Capital Campaign

Manage the Development Process Closing Your Financing • The Paper Chase – Corporate Documents Manage the Development Process Closing Your Financing • The Paper Chase – Corporate Documents – Government Approvals and Contracts – Surveys, Flood certificates, and Title Insurance • Typical Documents – Loan Documents – Escrow Agreements – Sworn Statements

Manage the Development Process Construction • The Process – Permit – Construction meetings – Manage the Development Process Construction • The Process – Permit – Construction meetings – Payouts • lien waivers • retainage – Change orders – Substantial completion / occupancy – Punchlist

Manage the Development Process Construction • Licensing – Business license – DCFS license • Manage the Development Process Construction • Licensing – Business license – DCFS license • Closeout – Warranties – As-built drawings – Training

Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Keys to a Successful Child Care Facilities Project • Assess Agency Readiness and Determine Goals • Evaluate Financial Capacity • Plan Your Child Care Space • Estimate Program Expansion Budget • Determine the Real Project Costs • Explore Financing Options • Manage the Development Process

Lessons Learned • Plan, plan, re-plan, and plan some more! • Continuously adjust and Lessons Learned • Plan, plan, re-plan, and plan some more! • Continuously adjust and revise numbers • The tendency to low ball • Contingency plans and money Don’t do it alone!