Affordable Housing REIT CDT Expands into Charter Schools

Community Development Trust (CDT) has launched a new platform that provides long-term, fixed-rate financing for charter schools.

Founded in 1998, New York City-based CDT is a private, hybrid REIT that is active on the debt and equity side of affordable housing projects. CDT’s Charter School Lending Program, launched in September, aims to address the problems traditionally faced by charter schools in obtaining suitable financing, said Shelly Cleary, senior vice president of CDT.

“Unlike affordable housing, there has been limited availability for long-term, fixed-rate, well-priced capital. Given the strength of the asset class, that’s where we thought we could add value,” Cleary said in an interview with REIT.com.

CDT President and CEO Joseph Reilly added that the private REIT recognizes that there are more aspects to a successful community than just housing. Supporting charter schools, he said, “is a good way to use the CDT platform and the strength of our balance sheet.”

Cleary emphasized that the charter school lending model is structured the same as other CDT programs. She added that by expanding its mission, CDT is offering its shareholders a diversification of risk.

Second Try with Charter Schools

CDT joins EPR Properties (NYSE: EPR) in getting involved with charter schools. Whereas CDT is taking on a role in financing them, EPR has made investments in 64 public charter schools.

CDT briefly entered the charter school financing arena in the mid-2000s, but the retrenchment of available capital sources as a result of the financial crisis soon ended its involvement. However, after receiving $125 million in financing from the Community Development Financial Institutions Bond Guarantee Program in 2013, “we decided this was a good time to refocus on charter schools,” Cleary said.

Cleary explained that as the number of charter schools increases and the asset class becomes more accepted in the financing community, it has become evident that the underlying capital infrastructure needs to be shored up.

Data from the National Alliance for Public Charter Schools show that the number of charter school students in the 2013 to 2014 school year rose to 2.57 million from 1.29 million in the 2007 to 2008 school year, a gain of 99 percent.

Generally, the CDT charter school program seeks to serve schools with permanent financing needs of $7 million or less. CDT also looks for schools with strong academic records, full enrollment and strong operational management. Schools also need to have had their charters renewed at least once.

Although Cleary did not offer a long-term estimate for growth in CDT’s charter school financing platform, she noted that the company has been “very heartened by the fact that there has been relatively rapid acceptance of the program.”