Ann Arbor Learning Community Property Facilities Assessment

Ann Arbor Learning Community Property & Facilities Assessment Summary Findings Prepared By: December, 2001 • • • Viola Cheung Anthony Di. Nello Graham Goodrich Chantel Mc. Eldowney Russ Owen

Contents ¨ Review of Project Objectives……………. . 03 ¨ Parent Surveys………………. . 06 ¨ Private & Charter School Comparables…. . 19 ¨ Lease and Buy Considerations…………… 22 ¨ Comparative Financial Analysis…………. 27 ¨ Conclusions & Next Steps……. …………. 34

Project Objectives Current Lease Situation The current facility creates several challenges for AALC management and staff ¨ School facility is crowded with current enrollment size ¨ Does not have the capacity to achieve optimal enrollment size of 300 -350 students needed to achieve financial flexibility (save student grant money) and to meet the target student enrollment stated in the Charter ¨ Location does not offer several desirable utilities (e. g. kitchen, playground, gymnasium, library, etc. ) needed to optimize the learning environment ¨ Current landlord places many unreasonable limitations on AALC ¨ AALC’s current lease is through Dec. 2004 and has paid a non- refundable capital contribution of $60, 000 out total payable of $80, 000

Project Objectives AALC Property & Facilities Assessment Project Objectives: 1) Understand parents’ perceptions and opinions on the caliber of AALC’s facilities in the context of the learning environment 2) Identify AALC staff and parents top priorities for change 3) Benchmark other schools approaches to managing growth and increasing demands on facilities 4) Evaluate the feasibility and expense associated with alternative lease, buy and build options 5) Determine the best possible course of action and identify next steps

Contents ¨ Review of Project Objectives……………. . 03 ¨ Parent Surveys………………. . 06 ¨ Private & Charter School Comparables…. . 19 ¨ Lease and Buy Considerations…………… 22 ¨ Comparative Financial Analysis…………. 27 ¨ Conclusions & Next Steps……. …………. 34

Parent Surveys Objectives of Parent Survey Over 50 parents participated in the survey 1) Gauge parents’ satisfaction with the current state of AALC facilities and operations 2) Evaluate need perceptions for a variety of possible changes and/or additions so as to anticipate reaction 3) Develop a prioritized set of issues and goals to enhance the learning environment of AALC

Parent Surveys Environment, Location & Maintenance The vast majority of parents were satisfied with the safety, sanitations, and efficacy of the learning environment How satisfied are you with the learning environment currently provided by AALC? • 86% of parents are satisfied with the current learning environment • The location of AALC on Packard does not cause much concern for parents • Over 80% of parents are happy with school and classroom maintenance Very Satisfied Somewhat Satisfied Neutral Somewhat Dissatisfied Very Dissatisfied 40% 46% 8% 4% 2% Does the location of AALC cause you any concern for your child’s safety? Yes No 19% 81% How would you rate the school’s facilities in regards to sanitation and general upkeep? Excellent Good Average Below Average 47% 36% 17% 0%

Parent Surveys Curriculum and Class Size Parents express comfort in current class size and express feelings of uniqueness in the curriculum How satisfied are you with the curriculum currently offered by AALC? • The current curriculum at AALC satisfies over 81% of parents • Over 90% of parents consider the curriculum at AALC to hold some uniqueness • Parents are happy with the class size (17 students per) and its contribution to the learning environment Very Satisfied Somewhat Satisfied Neutral Somewhat Dissatisfied Very Dissatisfied 32% 49% 13% 6% 0% How unique do you consider the curriculum currently offered by AALC to be? Very Unique Somewhat Unique Not Unique at all 27% 65% 8% How effective do you feel the learning environment is given the current class size of 17 students? Very Effective Somewhat Effective Neutral Somewhat Ineffective Very Ineffective 58% 6% 0% 0% 35%

Parent Surveys Transportation, Lunch and Playground Equip. All three were viewed as positive additions, with playground equipment as an overwhelming favorite If AALC were to provide daily transportation services, how often would your child use them? • More than 50% of the parents would utilize transportation services regularly • Over half of the children would use a hot-lunch service at least 1 -2 times per week • The addition of physical equipment for exercise would greatly enhance the students’ learning experiences 5 times per week 3 -4 times per week 1 -2 times per week Never 46% 13% 17% 24% If a low-cost hot lunch service were provided, how often would your child utilize this option? 5 times per week 3 -4 times per week 1 -2 times per week Never 13% 25% 46% 17% How would the addition of a gymnasium and/or other common playground equipment affect you child’s learning experience? Greatly Improve Somewhat Improve Not Affect Somewhat Diminish Greatly Diminish 38% 48% 15% 0% 0%

Class Optimization Parent Surveys Parents value small class sizes and are sensitive to the prospect of increasing average class size ¨ According to parents, optimal class size is: – Less than 15…… 27% – 15 to 17………. . . 56% – 18 to 20………. . . 15% – More than 20…… 2% ¨ 85% of parents feel that increasing class size by 3 students would reduce the effectiveness of their children’s education

Parent Surveys AALC Facilities & Amenities Lack of adequate playground facilities cause the most concern for parents 3. 82 2. 97 2. 48 2. 3 re. t Ca en Be fo re / A fte yg r. S ro ch un d oo Eq l. D ui ay pm rv Se h Lu nc Pl a sp or ta tio n Se rv ic ic e es s Chart illustrates importance placed on various school additions (out of possible 5) – Playground equipment overwhelming favorite an ¨ Points of attention – Playground – Lunch Services – Public Transportation – Before/After School Day Care Tr ¨ Average Importance Rating (5 = highest)

Prioritization and Tradeoffs Parent Surveys When forced to choose between options, parents expressed interest in playground and lunch service enhancements • Parents were given five different choices between two independent options • Results are illustrated as follows: ¨ Transportation vs. Lunch Services Trans 51% Lunch 49% ¨ Gymnasium vs. Playground Facilities Gym 49% Plgd 51% ¨ Transportation vs. Playground Facilities Trans 30% Plgd 70% ¨ Day-Care Programs vs. Lunch Services Day-Care 40% ¨ Transportation Services vs. Day-Care Trans 43% Lunch 60% Day-Care 57% • Playground equipment and Gymnasium consistently chosen above other options • Parents appear to value day-care program as their next best option

Survey Conclusions ¨ Parents are generally satisfied with the school’s maintenance and upkeep, and general safety ¨ Parents expressed interest in the addition of all of the following: – Transportation & lunch services, playground and/or gym facilities, library, day-care program ¨ When forced to choose, the majority favorite were the playground and gym facilities ¨ Current facilities limit the ability of AALC’s management to address parents’ concerns and desires for change

Contents ¨ Review of Project Objectives……………. . 03 ¨ Parent Surveys………………. . 06 ¨ Private & Charter School Comparables…. . 19 ¨ Lease and Buy Considerations…………… 22 ¨ Comparative Financial Analysis…………. 27 ¨ Conclusions & Next Steps……. …………. 34

School Comparables Comparable School Characteristics Eleven private and charter schools were interviewed to understand their current operations, facilities and management characteristics General Characteristics ¨ The average enrollment for a school sized K-8 is 300 students ¨ The average school has been in existence for 4. 5 years ¨ The student to teacher ratio is 1822 students per teacher ¨ The common amenities found in over 50% of the 11 schools contacted were playground, gymnasium, and library ¨ 10 of 11 schools have a playground School Facility Characteristics

School Comparables Comparable School Characteristics Funding and Management Characteristics ¨ Over 50% of the schools contacted were associated with an Education Management Organization ¨ 4 of the 5 schools that owned their facilities were associated with an EMO ¨ Ownership - 5 owned their facilities - 4 leased - 2 were unknown ¨ Funding - 3 were funded with grants - 3 were funded with loans - 2 were funded by EMO’s - 3 were unknown

Contents ¨ Review of Project Objectives……………. . 03 ¨ Parent Surveys………………. . 06 ¨ Private & Charter School Comparables…. . 19 ¨ Lease and Buy Considerations…………… 22 ¨ Comparative Financial Analysis…………. 27 ¨ Conclusions & Next Steps……. …………. 34

Lease Considerations Alternative Lease Opportunity Two independent commercial real estate agents were engaged to identify all possible properties (min 25 K sq. ft. ) available for lease in the Ann Arbor and western Ypsilanti region Lease Findings ¨ The number of available properties for lease, capable of housing a school, is extremely limited ¨ Lessor typically should budget $10 -$15 per sq. ft. expense to renovate building to create a suitable school environment* ¨ Office space is more plentiful; however, more expensive ($15 -$20 per sq. ft. vs. $12 -$15)* ¨ Swisher Commercial recently worked with another charter school for 6 months, but could not find a suitable property ¨ Most promising lease opportunity: 2333 South State Street – 50, 400 total square feet on 4. 12 acres of land with abundant parking and easy access to I-94 & US-23* (see next page for details)

Lease Considerations 2333 South St. Offers Best Near-Term Opportunity Details ¨ Two-story building; 25 K sq. ft. per floor ¨ 4. 12 acres ¨ Plenty of parking ¨ Fully air-conditioned ¨ Fully sprinkled building ¨ Build to suit possible ¨ Good location - easy access to I-94 & US-23. ¨ Also opportunity to to buy at $2, 000 (low Scio Township taxes but Ann Arbor address)

Buy Considerations Buy Opportunity Purchase Findings ¨ Similar to the lease market, properties available for purchase in the Ann Arbor and western Ypsilanti area are extremely scarce ¨ AALC’s budget would be in the $1. 5 - $3. 0 million range due to fund restrictions associated with grants ¨ Purchase would likely require two mortgages (primary and secondary for renovations requirements) ¨ Near-term buying opportunity is only realistic if AALC leverage EMO capital and management resources ¨ Most promising buy opportunity: 6200 Jackson Road – Class A office space 20, 000 square feet on 8. 7 acres of land

Buy Considerations 6200 Jackson Road Is Best Near-Term Buy Option Details ¨ 20 K sq. ft. on 8. 7 acres of land ¨ Quiet location ¨ Abundance of green space around the building ¨ Cafeteria ¨ Convenient I-94 access ¨ Room for building expansion ¨ New security system Would require renovation investment of office space to classroom environment

Contents ¨ Review of Project Objectives……………. . 03 ¨ Parent Surveys………………. . 06 ¨ Private & Charter School Comparables…. . 19 ¨ Lease and Buy Considerations…………… 22 ¨ Comparative Financial Analysis…………. 27 ¨ Conclusions & Next Steps……. …………. 34

Financial Analysis Three Scenarios Were Considered Financial Analysis ¨ Option 1: Analyzed the optimization of the current lease situation (10 year NPV analysis) ¨ Option 2: Analyzed a lease for a much larger facility - a little more than twice as big as the current facility (10 year NPV analysis) ¨ Option 3: Analyzed mortgage for much larger facility - also a little more than twice as big as the current facility (10 year NPV analysis)

Option #1: Optimize Current Lease Situation

Option #2: Lease a larger facility (25 K sq. ft. )

Option #3: Mortgage Larger Facility

Financial Analysis Results of Analysis Buying a larger facility (option 3) represents the best long-term solution for AALC ¨ Option #3 (future mortgage) achieves the highest NPV at a little over $1. 30 million and requiring capital of about $1. 35 million ¨ Option #2 (future lease) and it achieves a positive NPV at $0. 18 million and requires capital of about $1. 41 million ¨ Option #1 (current lease) but achieves a negative NPV at -$0. 22 million and requires capital of about $0. 341 million over an extended period (losses over several years)

Contents ¨ Review of Project Objectives……………. . 03 ¨ Parent Surveys………………. . 06 ¨ Private & Charter School Comparables…. . 19 ¨ Lease and Buy Considerations…………… 22 ¨ Comparative Financial Analysis…………. 27 ¨ Conclusions & Next Steps……. …………. 34

Conclusions & Recommendations Move out of current facility ASAP ¨ AALC’s mission, goals and service cannot be fully realized in the current facility ¨ In addition, the constraint on enrollment imposed by the current facility limits the school’s funding from the State Develop plan to purchase a facility in order to capture long-term financial benefits and achieve AALC’s growth and development goals ¨ From financial analysis, owning offers much greater benefit for same capital requirement as leasing, and enables school to achieve growth objectives ¨ Complete control of facility will give administration and staff flexibility needed to optimize the learning environment Engage “flexible” EMO to access capital without compromising curriculum ¨ EMOs allow AALC to immediately own premises without incurring high upfront capital investment ¨ While parents expressed reservation towards partnering with an EMO, some of these organizations such as Helicon Associates offer flexible service arrangements and do NOT interfere into curriculum (see appendix) ¨ A flexible EMO will allow provide management and administrative expertise and allow AALC to focus on curriculum, enrollment and teaching

Next Steps Within next 2 months 1) Build consensus for option 3 or 2 among key stakeholders 2) Conduct risk assessment for the option chosen (e. g. legal and financial ramifications of breaking current lease) 3) Evaluate appropriate financing options, given strategic direction 4) Communicate decision to parents and build support and enthusiasm for new venture

Appendix

Education Management Companies While it is easy to make generalizations about EMOs, the opinions and experience of different schools interviewed varies considerably Advantages Disadvantages 1) EMOs provide expertise in management and administrative support functions 1) Some require the school to give up control of all employment, and business functions and responsibilities 2) EMOs become accountable for keeping the school out of financial trouble 2) Most exert influence and/or total control of curriculum 3) Provide immediate access to capital for purchasing/renovating school facilities 4) Allow educators the time and flexibility to do what they do best TEACH 3) Many EMOs control deed and facilities expansion / renovation decisions 4) Many schools lose “uniqueness” in favor of cookie cutter approach

Helicon Associates Profile of a flexible EMO ¨ Helicon does not dictate any curriculum requirements ¨ Helicon gives their clients the ability to choose only the services that they need including: -Accounts Payable/Receivable -Fiscal Reporting/Compliance -Grant Writing -Budget Development/Management -Board Meeting Development/Direction -Student Data Processing -Consultation on all educational issues ¨ Helicon found financing for 5 new school buildings this year with the requirement of a 1% payment (Each individual school holds the deed to their building)