Agassi's fund cashes in on N. Phila. charter-school venture

Former tennis pro Andre Agassi's charter-school investment fund is poised to turn a $1 million profit when it sells a North Philadelphia classroom building this week to the charter operator that has leased it for five years.

The sale to KIPP Philadelphia Charter School is one of the first by Agassi's partnership with the California-based financier Bobby Turner since they set out in 2011 to deliver attractive returns to investors with a country-spanning portfolio of charter-school properties.

The deal sheds light on a growing niche in real estate that aims to help charter operators secure space they would struggle to acquire on their own by appealing to yield-hungry investors, rather than a more traditional roster of philanthropists and foundations.

"If you want to treat a problem, then philanthropy is fine," Turner said. "But if you want to cure, really cure, you've got to harness market forces to create sustainable solutions that are scalable. And that means making money."

For-profit, charter-building enterprises are growing with school enrollment. The number of students in U.S. charters grew from 1.6 million in 2009-10 to 2.9 million in 2014-15, according to the National Alliance for Public Charter Schools. Charter enrollment within the School District of Philadelphia grew from 33,916 to 64,090 in that time.

Turner and Agassi have raised more than $500 million from investors such as Bank of America and Citigroup. They will have opened 64 schools by September and aim for an additional 100 or more in the next four years, using loans to help finance some deals.

Others cashing in on charter properties include the Denver-based real estate investors Northstar Commercial Partners, the investment bank B.C. Ziegler & Co. of Chicago, and EPR Properties, a Kansas City, Mo., real estate investment trust that locally owns Camden Community Charter School's building.

The KIPP Philadelphia Elementary Academy building, at 2409 W. Westmoreland St. in the city's Tioga section, will be the third to be sold by the Turner-Agassi Charter School Investment Fund so far, after properties in Phoenix and San Jose, Calif.

Its $9.2 million sale price is part of a deal engineered to generate a 9.1 percent return, according to KIPP's financial statements. That's an attractive payout as high real estate prices are driving down yields nationwide.

Many operators agree to deals with that kind of payout because they don't have the credit history, revenue, or development experience to complete the acquisitions on their own, said Reena Abraham, a vice president at Local Initiatives Support Corp. in New York who works with charters on funding plans.

"These aren't real estate people, they're school people," Abraham said. Tapping investors "is not a great solution, but it is one that exists, whereas there aren't a lot of solutions right now."

The Turner-Agassi partnership was forged in 2011, as the eight-time Grand Slam tennis champion was looking beyond the Las Vegas charter he had founded. The two were joined by the charter-school expert Glenn Pierce, who had been running Pacific Charter School Development Corp., a Los Angeles nonprofit on whose board Turner had been active.

At PCSD, Pierce - a Philadelphia native whose father worked at the now-defunct Tastykake factory near the KIPP site - used philanthropy to fund the development of school facilities for Los Angeles charter operators. That kept costs low for the charters, since PCSD didn't have to make a profit, but it was limited by its reliance on donors.

By turning to investors, the pace of development could be massively accelerated. "As long as you can accept the fact that making money and making change needn't be exclusive, then the business model works great," said Turner, whose other celebrity tie-ups have involved real estate ventures with former Lakers star Magic Johnson.

KIPP Philadelphia Elementary Academy, which opened at the start of the 2011-12 year, was the partnership's first project. Its investment of about $8.25 million included the $2.5 million it paid for the 30,000-square-foot former plumbing-fixture factory it retrofitted into modern classrooms, Turner said. The project also included adding a 3,400-square-foot prefabricated annex for a cafeteria and gym.

KIPP Philadelphia, in turn, agreed to lease payments that started far below its rents elsewhere but would more than triple over five years.

That accommodated the finances of a growing charter, since operator revenue is based largely on per-pupil payments from the state, said KIPP Philadelphia chief executive Marc Mannella. But it was also an incentive to buy the building, since debt payments on a purchase would be cheaper than the later years' rent, he said.

The $9.2 million that KIPP plans to spend on the building will be financed with a tax-exempt bond issue that includes an additional $4.9 million to buy and renovate the former M. Hall Stanton School for its middle school, according to the Philadelphia Authority for Industrial Development, which approved the deal.

Comparing the deals makes the elementary school building look expensive: $275 per square foot for the purchase from Turner-Agassi vs. $58 to buy and renovate the 84,770-square-foot Stanton building, according to Inquirer calculations.

Turner said the elementary school's price tag was appropriate for "a state-of-the-art, environmentally friendly" building. Renovations were done by a crew earning union wages on an aggressive 10-week work schedule ahead of a new school year.

On a recent morning, students enjoyed an orderly, if noisy, lunch in the multipurpose room, while others rehearsed for a production of The Wiz in a music room with broad, steel-framed windows set in a painted-brick wall.

The charter will be handling managing the Stanton building job on its own, but what it got from its deal with Turner and Agassi was well worth the price, Mannella said.

"We have a state-of-the-art facility that is everything that we need it to be," he said. "We knew that in order to do a very nice school - and a school that our kids deserve - that we were going to have to pay for it."

jadelman@phillynews.com

215-854-2615@jacobadelman