Patient Capital and “CDFI Plus” Support Provide Indianapolis Charter School with On-ramp to Achieve Growth Goals March 15, 2022

IFF helps nonprofits access the capital they need to do the meaningful work their communities require, but access to capital is only part of the equation for successful community development. Equally important is a willingness to provide borrowers with the flexibility needed to ensure the intended social impact – especially when things don’t go according to plan.

Doing this requires patience and the ability to lean in to identify challenges, provide support, and implement changes that bolster the organization’s financial outlook; help it pay off the loan; and, most importantly, grow its capacity to provide critical services that strengthen communities in a facility optimized for its needs.

In a Nutshell

What: An overview of public charter school ACE Prep’s evolution, and how patient capital and high-touch technical assistance from IFF helped the school overcome initial challenges to provide quality education to students from economically diverse backgrounds in a neighborhood with a shortage of high-performing student seats.
Sector: Schools
Location: Indianapolis, IN (Broad Ripple)
IFF Support: $2.4 million in loans closed in 2015; ongoing high-touch technical assistance to bolster ACE Prep’s financial capacity; financial feasibility analysis completed in 2021
IFF Staff Leads: Andy Waters, Managing Director of Portfolio Management & John Kuhnen, Vice President of Asset Management
Impact: 150 quality school seats created

Few IFF customers illustrate the benefits of this approach more than ACE Prep Academy (ACE Prep) in Indianapolis. A K-5 public charter school in the city’s Broad Ripple neighborhood, ACE Prep had a dynamic leader, an audacious vision for equity-driven, literacy-focused education, and a solid plan for growth when the school opened in 2016. What it didn’t have on the first day of classes was students, with only eight of the 132 students who had enrolled in the school actually attending due to a state policy that allowed parents to enroll their children in more than one school before deciding which school they would ultimately attend.

Six years later, ACE Prep is a thriving school with approximately 150 students in a strong financial position and with a clear path to acquire its facility. How ACE Prep got from point A to point B is a testament to the value of patient capital and layered, “CDFI Plus” support that meets nonprofits where they are to overcome obstacles and facilitate growth.

Launching ACE Prep

After being selected as the State of Indiana’s Teacher of the Year, visiting every school district in the state during a sabbatical, and working outside of the classroom to change the education system because of the inequities she witnessed, ACE Prep Founder and Head of School Anna Shults was ready to take on a new challenge.

So, when a national organization that identifies and trains individuals to design, found, lead, and sustain high-performing charter schools in urban communities recruited her to launch her own charter school, the opportunity to design an educational experience and facility based on all she had learned was an appealing option.

Following a yearlong engagement process designed to better understand where in Indianapolis a new charter school could achieve the greatest impact, Shults chose the Broad Ripple neighborhood – where a 2013 IFF research study identified a need for additional student seats in quality schools – and found a former office building that required $3.15 million in capital to acquire and renovate for ACE Prep’s use. Through the organization that recruited and guided Shults on launching the new school, IFF provided a $1.5 million loan for the project, with additional financing coming from other sources.

Overcoming startup challenges

In the months that followed, renovations proceeded as planned while ACE Prep proactively engaged the community to recruit students for the school. By the summer before ACE Prep’s inaugural school year, more than 100 kindergarten students and first graders had been enrolled, with the number growing to 132 by the first day of classes – consistent with the target ACE Prep needed to hit to become financially sustainable during its first year.

But when only eight students showed up for the first day in the newly renovated facility staffed with recently hired teachers, years of planning were jeopardized and the school faced the prospect of not only being unable to service its debt, but also having to reimburse the State of Indiana for funds already disbursed to the school based on the number of students enrolled.

“We had everything prepared for the first day of school, had recruited teachers who left jobs to work at ACE Prep because of the school’s mission and a shared vision for what it could become, and we were feeling like we had actually pulled this off,” says Shults. “Then the realization came quickly on that first day of school that our classrooms didn’t have scholars in them and that it wouldn’t be possible financially to sustain the school.”

As a school leader dealing with lots of challenges, never once did I question whether IFF would pull out of the relationship. Everyone was incredibly supportive and focused on finding a way to make this work.

It was at this inflection point when a series of decisions were made that have facilitated the school’s growth in the past six years. When it became clear that the school’s plans needed to change to account for much lower enrollment than expected, IFF’s portfolio management team began providing high-touch technical assistance to help Shults think through the options for serving the students it did have while positioning the school for long-term success. And, after discussions with another lender for the project that did not have the flexibility to wait for the school to become financially sustainable, IFF decided to buy out its loan to provide ACE Prep with the time needed to overcome its startup challenges.

With breathing room, Shults quickly pivoted, focusing first on how to provide the best educational experience possible for the eight scholars who were attending the school and immediately after that on how to increase enrollment to prevent the school from closing. Overnight, teachers became recruiters, going door to door in the community to check in with families whose children were enrolled at the school but not attending and to enroll as many students as possible.

While these efforts quadrupled ACE Prep’s enrollment by the end of the school year, a sizable gap remained between the number of students attending the school and the number initially expected. To ensure the school could continue to serve the community while working to increase enrollment, IFF assumed ownership of the facility and leased it back to ACE Prep. Rent increases were tied to enrollment increases – providing the school with flexibility when it was most needed – while an option to eventually purchase the building at cost from IFF preserved ACE Prep’s long-term path to ownership of the facility.

“As a school leader dealing with lots of challenges, never once did I question whether IFF would pull out of the relationship,” says Shults. “Everyone was incredibly supportive and focused on finding a way to make this work. I knew that our end game of having a quality school in the community was the same, and that created trust. That shared vision is ultimately what enabled ACE Prep’s success.”

A pathway for continued growth

There’s absolutely no way we would’ve been able to sustain the school early on and get to where we are now without that type of partner who believed in us, and I’m overwhelmingly grateful IFF took a chance on me and took a chance on ACE Prep.

After overcoming its startup challenges, ACE Prep successfully executed a plan for steady growth by adding one grade per year until expanding into a K-5 school. As enrollment grew – helped by a retention rate of more than 90 percent among the school’s founding kindergarten class – Shults and ACE Prep began to consider how to accommodate growth beyond the existing capacity of its facility with the help of IFF’s real estate team in Indiana, which developed three facility plans as part of a financial feasibility analysis.

On solid financial footing, ACE Prep also began to consider its path to ownership of the facility. Having worked with Charter School Capital while leasing its facility from IFF, the school was presented with an unexpected opportunity for Charter School Capital to acquire the building from IFF – with the potential for the facility to be donated back to ACE Prep if the school met pre-established, long-term conditions. With the organization also providing dedicated support to charter schools for functions like marketing and enrollment support, it was an opportunity ACE Prep couldn’t afford to pass on. In December, the sale of the facility closed, ushering ACE Prep into the next phase of its growth cycle.

“For seven years, IFF supported ACE Prep and was 110 percent in our corner, and I was dreading the call letting John [Kuhnen, IFF’s Vice President of Asset Management] know that we were considering going in this direction,” says Shults. “But after talking through what the sale to Charter School Capital would mean for ACE Prep, he was fully supportive. There’s absolutely no way we would’ve been able to sustain the school early on and get to where we are now without that type of partner who believed in us, and I’m overwhelmingly grateful IFF took a chance on me and took a chance on ACE Prep.”

Learn about additional schools IFF has supported with loans and real estate solutions, including Paramount Schools of Excellence in Indiana and Seeds of Health’s charter school network in Wisconsin.