Child care centre properties

From: Glenn Mott

Does anyone know if there is anything I have to watch out for when looking at Child Care Centre properties?

The one I am looking at is a new building that has a 10+5+5 lease with yearly CPI rent reviews currently returning 8%.

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Reply: 1
From: Duncan M

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The cost of public liability insurance is apparently prohibitive now, I'm
not sure what it'd cost for a ChildCare Centre or even if you'd have to pay
it, but worth looking into.

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<TITLE>RE: Child care centre properties</TITLE>

The cost of public liability insurance is apparently =prohibitive now, I'm not sure what it'd cost for a ChildCare Centre or =even if you'd have to pay it, but worth looking into.

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Reply: 1.1
From: Michael Croft

Hi Glen,

You are dealing with a business which is only as good as the directors and their guarantees. It's all very well to have a 10+10+5 but it will amount to nought should the operators become insolvent.

Commercial property is valued on rental returns; no tenant = no rent = little value. What is the next 'highest and best use'? This will give an indication of market value if council doesn't let another child care operator take over (some councils licence the operator NOT the property/venue even if the property complies).

As always a lot of due diligence is called for - good luck.

Michael Croft
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Reply: 1.1.1
From: Kristine .


Which State are you looking in? I owned and operated a children's services centre in Victoria for nearly five years, and have observed the changes of owners and operators of the centre since I left.

As in all commercial operations, the strength of the tenant is of vital importance, plus growing or shrinking market / market share etc.

The demographic 'wave' of children under 5 years in the catchment area will be critical. What % of the child place weekly fee does the rental represent? What is the benchmark average for rent paid per child place? Is the Centre accredited, and for how long? Does the centre operator offer casual care to boost income, or do they concentrate on long day care only? What about children under 2? Any nursery facilities? Hours of opening, weekend or evening hours etc

In so far as insurances are concerned, the tenant is responsible for all insurances under a commercial lease, repairs & maintenance etc, but not usually items of a capital nature unless specifically related to the operations of the business. As licensed operators, they will be subject to regular checks and audits from local, State and Commonwealth departments. The kitchen, for example, will have to comply with Health Regulations, and staff working in the kitchen will have had to attend food handling courses. The tenant will have to comply with all this, but you, as owner, will have no direct dealings with the business.

Glenn, a good service provider will be an excellent tenant, and quality centres in Melbourne have shown very good capital growth and are in constant demand as high yielding commercial investments.

You are welcome to email me direct should you wish to go into this in more detail.

Good luck

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Reply: 2
From: Rolf Latham

Hi Glenn

Hope you have lots of deposit.

Many lenders have a distaste for these things and many more treat them as a commercial.


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