The big business of charter schools

This post was originally written by Valerie Strauss and appeared in the Washington Post.

If you are wondering why you should add charter schools to your investment portfolios, here’s David Brain, head of a major investment concern called Entertainment Properties Trust, to tell you.

This isn’t a joke.

You may think charter schools are just one option for parents looking for an alternative to traditional public schools for their children, but they are big business in some quarters.

What is Entertainment Properties Trust? According to its website, it is “a specialty real estate investment trust (REIT) that invests in properties in select categories which require unique industry knowledge, and offer stable and attractive returns.”

And the website also says this: “Our investment portfolio of nearly $3 billion includes megaplex movie theatres and adjacent retail, public charter schools, and other destination recreational and specialty investments. This portfolio includes over 160 locations spread across 34 states with over 200 tenants.”

DB: Well I think it’s a very stable business, very recession-resistant. It’s a very high-demand product. There’s 400,000 kids on waiting lists for charter schools … the industry’s growing about 12-14% a year. So it’s a high-growth, very stable, recession-resistant business. It’s a public payer, the state is the payer on this, uh, category, and uh, if you do business with states with solid treasuries. then it’s a very solid business.

Anchor: Well let me ask you about potential risks, here, to your charter school portfolio, because I understand that three of your nine “Imagine” schools are scheduled to actually lose their charters for the next school year. Does this pose a risk to investors?

DB: Well, occasionally — we have Imagine arrangements on a master lease, so there’s no loss of rents to the company, although occasionally there are losses of charters in certain areas and they’re used to peculiar, ug, particular circumstances. In this case it’s a combination of relationship with the supervisory authorities and educational quality. Sometimes educational quality is very difficult to change in one, two, or three years. It’s a long-term proposition, so uh, there are some of these that occur, but we’ve structured our affairs so this is not going to impact our rent-roll and in fact we see this as uh maybe even a good experience as the industry thins out some of the less-performing schools and we move on to the best-performing schools.

Anchor: David, there has been somewhat of a public backlash to charter schools in some areas given their use of public money, as you noted. Any risk to the growth of charter schools generally?

DB: I don’t — there’s not a lost of risk, there’s probably risk to everything but the fact is, this has bipartisan support. It’s part of the Republican platform and Arne Duncan, secretary of education in the Obama administration, has been very high on it throughout their work in public education. So we have both political parties very solidly behind it, you have high demand, high growth, you have good performance across the board. Most of the studies have charter schools at even or better than district public education. So, I think it has some risk because it’s new and it’s emerging and it is a high-growth category. But at the same time I think … much more’s going forward so it’s still a safe area for investment.

Anchor: You’ve invested in retail centers, ski parks, you’ve got charter schools, you’ve got movie theaters…. If you could buy one thing right now, David, one type of asset in real estate, what would it be?

DB: Well, probably the charter school business. We said it’s our highest growth and most appealing sector right now of the portfolio. It’s the most high in demand, it’s the most recession-resistant. And a great opportunity set with 500 schools starting every year. It’s a two and a half billion dollar opportunity set in rough measure annually.

By the way, it isn’t true that “most of the studies have charter schools at even or better than district public education.”

But why let facts get in the way?