Financial Planning - - SPECIAL REPORT: REAL ESTATE -

How it works: Sum­mit Trail Advisors, a wealth man­age­ment firm in San Fran­cisco, has part­nered with Amer­i­can In­fras­truc­ture MLP Funds to buy around 50 build­ings hous­ing char­ter schools in 13 states over the past two years. Clients from other in­de­pen­dent firms can also in­vest. Amer­i­can In­fras­truc­ture is a pri­vate eq­uity fund that charges a 2% man­age­ment fee and 20% of prof­its above and be­yond an 8% pre­ferred re­turn to in­vestors.

The fund hopes to take the port­fo­lio of schools pub­lic in an IPO, says Tom Pale­cek, a Sum­mit Trail found­ing part­ner. “To get there, we need to ac­quire enough schools to where the ag­gre­gate of the port­fo­lio in­come is in ex­cess of around $100 mil­lion,” Pale­cek says. Up­side: In­vestors were col­lect­ing an 11% yield in June while the part­ner­ship con­tin­ued to add schools.

If an IPO pro­ceeds and the stock rose in value, in­vestors could “stand to make a sub­stan­tial amount” from share price ap­pre­ci­a­tion, Pale­cek says. If the stock did in­deed gain, he es­ti­mates the yield could drop to 6% to 8%.

Risks: Char­ter schools in the port­fo­lio need to keep seats full for years to come, have high test scores and demon­strate “re­ally great man­age­ment and op­er­a­tions,” Pale­cek says. Any­thing less could mean prob­lems. A reg­u­la­tory change in char­ter school fund­ing at the fed­eral or state level could also spell big trou­ble.

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