From Forbes Magazine by Addison Wiggin, On Thursday, July 25, dozens of bankers, hedge fund types and private equity investors gathered in New York to hear about the latest and greatest opportunities to collect a cut of your property taxes. Of course, the promotional material for the Capital Roundtable’s conference on “private equity investing in for-profit education companies” didn’t put it in such crass terms, but that’s what’s going on.
It’s not only wealthy Americans making a killing on charter schools. So are foreigners, under a program critics call “green card via red carpet.”
“Wealthy individuals from as far away as China, Nigeria, Russia and Australia are spending tens of millions of dollars to build classrooms, libraries, basketball courts and science labs for American charter schools,” says a 2012 Reuters report.
The formal name of the program is EB-5, and it’s not only for charter schools. Foreigners who pony up $1 million in a wide variety of development projects — or as little as $500,000 in “targeted employment areas” — are entitled to buy immigration visas for themselves and family members.
“In the past two decades,” Reuters reports, “much of the investment has gone into commercial real estate projects, like luxury hotels, ski resorts and even gas stations. Lately, however, enterprising brokers have seen a golden opportunity to match cash-starved charter schools with cash-flush foreigners in investment deals that benefit both.”
So how can you, as a retail investor, grab a piece of this? How can you reclaim some of your property tax dollars from the fat cats?
As with many other instances of “extraction”… good luck.
Sure, you could buy shares of the aforementioned EPR Properties. Unfortunately, you’re buying strip malls and ski parks along with charter schools. It’s not a “pure play.”
The history of publicly traded charter school firms is limited and ugly. Edison Schools traded publicly from 1999-2003. During that period, it reported one profitable quarter. Shares reached nearly $40 in early 2001… only to crash to 14 cents.
“There’s a risk to taking education to Wall Street,” says Education Week — “one that helps explain why so few publicly traded companies cater to the educational needs of students in elementary, middle and high school.”
That risk is spotlighted by the only pure play currently trading on a U.S. exchange. In December 2007, just as the “Great Recession” got underway, K12 Inc. went public under the ticker symbol LRN.
It has proven, at best, a trading vehicle.
Share prices hit nearly a four-year low in December 2012 when The New York Times published an expose on a K12 online charter school venture. Nearly 60% of its students are below grade level in math, and 50% in reading. One-third don’t graduate on schedule.
The story also revealed CEO Ronald Packard collected a salary in 2011 — $5 million — nearly double that of the previous year. And that his bonus is linked not to student performance, but to enrollment.
It’s a lot easier to escape this sort of scrutiny if your charter school venture is privately held — or, in the case of EPR, mixed in with other ventures that have nothing to do with education.
Well, I tried.
“I spend a great deal of time, money and resources looking for new investment ideas that you, dear reader, can act on independently,” I wrote in my Apogee Advisory, early in 2012… “Sometimes what I find instead is outrage.”
For now, the big money in charter schools is confined to those on the inside. In late 2010, Goldman Sachs announced it would lend $25 million to develop 16 charter schools in New York and New Jersey. The news release said the loans would be “credit-enhanced by funds awarded by the U.S. Department of Education.” Of course.