Hi, I have recently been approached for a JV regarding a school project to be built requiring investment. In the past, I have worked with local private schools, and have seen the absolute nightmare some of the shareholders go through financially. Is this nightmare translated to the property investor as well? Does anyone have any experience in this field, (Private Schools)?
Disclaimer: I work for a private non-us based school. I have never invested in notes or real estate owned by a private school (for reasons outlined below)
Private schools are a long term, relatively low profit operaton. It takes years to get them to a stage where the initial investment is paid back. The startup costs are huge, and ongoing expenses are high.
I would be leery of investing in a school. The real estate portion might be a little bit better, since the school kinda needs the building and land to keep the doors open. If they are at a stage where they can get financing, they probably have some good financials, a decent track record and some savings.
All that being said, I still would be running significant due diligence and having someone very qualified look at the business books of the institution. Because they are privately owned, good luck getting the right set of books. The only exception would be a non profit community board run school with independent accountants. Those tend to be the most transparent varieties.
Hope that helps!
Absolutely agree with Jim - Private schools are notoriously weak financial operations. Yes the property investor may be in better shape since the school needs to keep its building, but do you really want to invest in a property where your tenant is struggling year-after-year to pay the bills AND you have little in the way of alternative options IF they go out of business?
While the tenant may be locked into your property, you're also stuck with that tenant and I wouldn't be surprised to see them renegotiate the terms of the rent down the road. Be really careful...
I would steer clear of any JVs with a private education institution. Never heard an anecdote indicating success in this kind of case!
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