In certain markets across the U.S., increasing demand for quality in education is driving parents to look for something beyond traditional public and public charter school options.
- Demand for quality education beyond traditional, public options continues to outpace supply for best-in-class locations, which translates to large waiting lists at the top private schools.
- Large, proven school groups, many of which have historically existed outside the U.S., are now entering into the U.S. market to provide an alternative to existing schools.
- The emerging asset class is K-12 schools in the mid-market plus segment and above located in gateway cities.
Introduction to Private Schools
Private schools date back more than 200 years, but increasing demand for quality in education is driving parents to look for something beyond existing options. This has created opportunities for large, proven school groups to enter the U.S. private school market.
In a time when parents have more options than ever, private schools and charter schools stand out because they offer a more tailored approach to education. Private schools closely resemble public charter schools in many areas, but include some key differences:
- Funding. Private schools are funded by per pupil revenue that comes from tuition, whereas charter schools are funded mostly by government sources.
- Requirements. Unlike charter schools, private schools can allow entrance requirements, meaning they are able to more effectively match up with students who can benefit best from their curriculum and structure.
- Performance measure. Private schools have a broader discretion for how success is measured than do public charter schools, allowing operators flexibility to focus curriculum on the standards that matter.
- Focus on kids. The make-up of private schools is 60% elementary-only, 30% K-12 and 10% are high school only. However, K-12 is a growing asset class, with previously elementary-only schools looking to expand into the K-12 section.
Identifying a Need
The need for well-managed private schools exists in select markets throughout the U.S. Affluent areas—especially those that have seen residential growth without new school builds in several decades—have a high demand for top-rate education options. In many situations, the public school offering is stale in these areas or doesn’t meet the standards of the core demographic. In these communities, location and quality of real estate are considered top priorities.
A majority of private schools are in cities and their surrounding highly populated suburban areas. In those areas, demand is often so high that waiting lists become common. In downtown Chicago, for example, many high-income families living downtown have come up empty looking for options. As a result, private schools have expanded into that market. Today, the urban, high-income private school segment is stable. The Independent Schools Association of the Central States called it a simple case of economics. “Demand is greater than supply,” it reported. In cases such as this, top schools maintain extensive waitlists.
While many parochial schools have seen diminishing enrollments during the past two decades, secular schools have remained more constant. Why? Because for many families, quality of education stands alone as the leading factor in this high-priority decision. The highest performing schools are in great demand. Parents want the best and are even willing to pay a premium or sacrifice religious affiliation when selecting the right school.
Signs of Growth
As some areas work to expand their school options, new operators are entering the business. Strong school operators like BASIS and GEMS Education have the power to drive enrollment, build excitement and create new demand for private schools.
These types of operators are able to identify and secure best-in-class locations, further expanding the private school segment to fill the needs of the selective demographics that have boosted the industry.
Private Schools Top That $40,000 Tuition Mark. New York Times. Web. 2012. 23. Jan. 2014.
Staying on Board: Recession Has Done Little to Dent Demand for Private Education. The Economist. Web. 2009. 23. Jan. 2014.
Private Schools Universe Survey. U.S. Department of Education, National Center for Education Statistics. Web. 2012. 14. Dec. 2013.
World’s Biggest Private School Operator GEMS Seeks $1 Billion. Bloomberg.com. Web. 2013. 15. Feb. 2014.