Bloomberg News

Andre Agassi Forms Charter-School Fund With Canyon Capital

June 02, 2011

(Updates with comments from Kauffman Foundation in ninth, 10th paragraphs.)

June 2 (Bloomberg) -- Andre Agassi, the former tennis champion, and Canyon Capital Realty Advisors LLC said they created a real estate fund that will spend $500 million to capitalize on and promote the movement for U.S. charter schools.

The Canyon-Agassi Charter School Facilities Fund plans to develop more than 75 urban campuses with space for about 40,000 students over three to four years, according to a statement today from Canyon Capital and Agassi Ventures LLC, which manages the player’s partnerships. Citigroup Inc. and Intel Corp.’s investment arm are contributing to the Los Angeles-based fund.

It’s the first for-profit investment vehicle formed to build charter schools, Canyon Capital said. There are more than 5,400 of the schools serving about 1.7 million children in the U.S., with 465 campuses in 40 states and Washington, D.C., having opened in the last school year, according to the Center for Education Reform. A lack of new facilities is the greatest impediment to further growth, said Bobby Turner, chairman of Canyon Capital Realty Advisors in Los Angeles.

“Unlike the school district, charter schools don’t have facility financing provided to them by the state,” Turner said in a telephone interview. “If you’re a charter school, what you’re relegated to doing is cobbling together philanthropy every time you want to build a school. As you can imagine, that’s very difficult.”

No Taxing Authority

Charter schools typically are open to the public while operating independently of local governments. The schools set their own goals, manage their own budgets and hire and fire teachers using their own criteria. Unlike school districts, charter schools don’t have taxing authority to fund facility construction, leading them to rely on charity.

The Canyon-Agassi fund will develop facilities for charter- school managers, lease them to the operators for about four to six years, and then allow the schools to purchase the campuses. Income from the rental and sale of campuses will provide a “fair, risk-adjusted, market-rate return to investors,” Turner said. He wouldn’t disclose the expected yield.

The new fund will “allow us to access traditional capital,” Agassi, 41, said in a telephone interview from Las Vegas, where he founded the Andre Agassi College Preparatory Academy, a charter school, in 2001. “Philanthropic efforts just aren’t scalable -- philanthropy doesn’t scale.”

$250 Million

Agassi and Turner declined to say how much they plan to raise for the fund or disclose the sizes of investments by individual backers, which also include the Ewing Marion Kauffman Foundation. According to a memo by Timothy Slottow, chief financial officer at the University of Michigan, the Canyon- Agassi fund has “an expected capitalization of $250 million.” The university’s regents last month approved a $15 million investment in the fund.

The Kauffman Foundation participated in the fund as part of its focus on education and entrepreneurship, said Harold Bradley, chief investment officer at the Kansas City, Missouri- based organization. Kauffman, which has almost $2 billion under management, expects its $20 million contribution to the fund to outperform competing investment options, he said.

“We can make money solving big problems,” Bradley said in a telephone interview. “When I make an investment, I look for the sucking sound of demand, and there is a huge sucking sound of demand in urban education across the country.”

Philadelphia School

Contributions to the fund will be augmented by loans to allow for the construction of more than $500 million of facilities, Turner said. Canyon Capital expects it to be the first in a series of funds, he said.

The fund’s first campus, a former industrial building in North Philadelphia’s Allegheny West community, is scheduled to open in August. The facility, managed by the KIPP network of schools, will serve about 500 kindergarten-to-fourth-grade students and will cost about $10 million, Turner said. That’s in line with the $8 million to $12 million the fund expects to spend on a typical 500-pupil school, he said.

Agassi, who won eight Grand Slam titles during a 20-year career that ended with his 2006 retirement, said for-profit investment vehicles like the Canyon-Agassi fund are the best way to get charter schools built quickly.

“The alternative to not doing this means we’re not going to build 40,000 seats,” he said.

--Editors: Kara Wetzel, Christine Maurus

To contact the reporter on this story: Daniel Taub in Los Angeles at dtaub@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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