Westwood’s NNN Tenant of the Quarter – Child Care Assets

Sep 16, 2021 | Blog, CRE - Commercial Real Estate, Real Estate Investment, Triple Net - NNN or Net Net Net

When it comes to triple net (NNN) investing, child care assets, such as KinderCare and The Learning Experience, offer multiple investor benefits, including easy, reliable monthly income for up to 15+ years, and typically, minimal landlord responsibilities. These often-overlooked asset types are on a growth trajectory with stability and more competitive cap rates than one would expect.

For these reasons and more, NNN child care assets fit Westwood Net Lease Advisors’ criteria for Tenant of the Quarter.

Measured by revenue, the 2021 daycare industry market size is $54.1 billion. – IBISWorld

Why Child Care Assets Are a Top Investment Opportunity

As a new or seasoned NNN investor, you want an income-producing investment with few, if any, responsibilities. You want a long-term lease and solid rate of return from a creditworthy tenant who takes care of the property and deposits rent without delay. You want a predictable, profitable investment in this unpredictable economy. Child care assets fulfill these conditions and more, providing a strong NNN investment opportunity.

Here are the top 3 reasons child care assets are a wise NNN choice.

1. Creditworthy tenant.

Most of the national daycare and preschool brands are creditworthy; some are investment-grade and others privately owned. If you plan to pay cash or obtain a commercial mortgage to purchase a child care NNN investment, before going forward with an offer, we recommend examining the:

  • Tenant/franchisee credit
  • Location profitability (if already running)
  • Corporation/owner credit rating and overall stability

One example of a creditworthy operator is KinderCare. Founded in 1969, it is the third-largest privately held company headquartered in Oregon. It operates 1600+ early childhood education community centers and 600 before-and-after-school programs in 39 states and the District of Columbia, with roughly 200,000 children enrolled. In this case, KinderCare, as well as many others, would be considered mortgage-worthy and a reliable NNN investment.

2. Location.

You may have noticed daycares and preschools are cropping up in higher-income, strategically located locations on prime real estate near schools, neighborhoods, and consumer necessities. A prime location in one of the determining factors of a strong NNN investment.

3. Lower risk than before and steady cap rates.

After a rough start in 2020 due to Covid, by mid-year, it became clear that child care centers are needed no matter what, which garnered them an “essential” classification. This also helped the asset class became less of a financial risk. As such, capitalization rates on national child care brands, such as Bright Horizons, The Learning Care Group, KinderCare, The Goddard School, and Little Sunshine’s Playhouse & Preschool, and Kiddie Academy, have come closer to other NNN asset types, such as dollar stores, pharmacies, and fast-food restaurants. They are closing in the 6–7% cap rate range. Creditworthiness, location, and a higher-than-average cap rate make a great recipe for a top investment with a high net operating income (NOI).

Established child care centers tend to experience sales predictability, with an equally positive and reliable return for the landlord.

Summary of Child Care Property Attributes that Make for a Strong Investment

  • Price-point – start as low as $1.5M and go as high as $8M.
  • Location – prime parcels of land with excellent visibility.
  • Competitive cap rates – 6-7% range.
  • Most often, 10- to 20-year NN and NNN leases.
  • Minimal landlord responsibilities.
  • Guaranteed leases – corporate, franchise, and/or owner guarantees.
  • Generally, rent escalations built into the base lease, i.e., in years 6 and 11, 10% increase; 10% every 5 years, etc.
  • Recession-proof and classified as essential.
  • Internet-resistant business model.
  • Adaptable to changing parental and child care needs.

To Wrap it Up –  Westwood’s “Tenant of the Quarter” NNN Child Care Assets Are Available & Offer Worry-Free Income

As Westwood’s Tenant of the Quarter, child care assets make a profitable addition to any investment portfolio. A range of price points makes them a great fit for first-time investors, as well as experienced investors who want to diversify asset classes within their real estate portfolio.

As for accessibility, these properties are not fighting the supply-and-demand situation we’re seeing with other NNNs, and child care property expansion is in the works for the next 12 to 24 months. While other NNN properties are being sold at a record pace, child care investments are not as well known, making them ideal if you’re under the time constraints of a 1031 exchange. If you don’t already own a daycare or preschool property, now’s the time to get in on the best-kept secret in NNN investments before demand exceeds supply.

Westwood Logo in blue/goldNo-Obligation Conversation About Child Care Assets

If you’re interested in purchasing a daycare or preschool NNN property, or you’re under a time crunch to meet the 1031 exchange timeline, be sure to engage a Westwood Net Lease Advisor right away. Our advisors review the national market daily and find off-market and developing properties rapidly to meet deadlines and financial objectives. We represent your best interests throughout every step of the process, at no cost to you! Contact us today for a no-obligation conversation, 314-997-5227


 

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