Childcare Centres

What is the common wisdom about childcare centers? I have seen a few advertised and they seem to offer a higher net than many investments. What is the catch?

Thanks.
 
The catch is that they are considered specialised securities (like petrol stations) and hence are harder to finance.
OK.

I understand why petrol stations are riskier but what is it about childcare centers that ups the risk? Do they have a short shelf life? The leases seem to be longer than average.
 
I understand why petrol stations are riskier but what is it about childcare centers that ups the risk? Do they have a short shelf life? The leases seem to be longer than average.
It's because after the GFC the banks were losing a lot of money on childcare centres because lots of them went bust (ABC Learning etc). The numbers on the childcare centres don't really work that well since they are reliant on government funding so funders don't think it is worth that much.
 
It's because after the GFC the banks were losing a lot of money on childcare centres because lots of them went bust (ABC Learning etc).
Yeah, I guessed that might be lurking.

The numbers on the childcare centres don't really work that well since they are reliant on government funding so funders don't think it is worth that much.
OK, that makes sense, too heavily reliant on government policy is always bound to add to private sector nerves!
 
typically, 10 year loan terms are about it : (

We are just doing a highly profitable freehold and the business owned by the same people.

i cant believe how conservative the lenders have been with this puppy.

Not easy to get decent finance for thats for sure

ta
rolf
 
OK.

I understand why petrol stations are riskier but what is it about childcare centers that ups the risk? Do they have a short shelf life? The leases seem to be longer than average.
I think one of the issues is the lack of alternative uses. You buy a shop in the main street and your newsagent moves out, there are a dozen different businesses who could use that space. But you purchase a childcare centre expecting income from a childcare business and then that business goes bad, its hard to replace that tenant.

Add this to that the fact that childcare is a sector in flux, largely dependent on government policy, and you have a riskier proposition than most forms of commercial property.
 
I think one of the issues is the lack of alternative uses. You buy a shop in the main street and your newsagent moves out, there are a dozen different businesses who could use that space. But you purchase a childcare centre expecting income from a childcare business and then that business goes bad, its hard to replace that tenant.
I guess it really depends on what the configuration of the childcare centre was. Some are better than others so it becomes less specialised.
 
I think one of the issues is the lack of alternative uses. You buy a shop in the main street and your newsagent moves out, there are a dozen different businesses who could use that space. But you purchase a childcare centre expecting income from a childcare business and then that business goes bad, its hard to replace that tenant.
I have considered that many could be returned to or altered to resi. That seemed to me to be a reasonable out if all else fails.

Add this to that the fact that childcare is a sector in flux, largely dependent on government policy, and you have a riskier proposition than most forms of commercial property.
How so? I thought that childcare has good policy support from both sides, but I admit that I have not looked that closely yet.
 
I have considered that many could be returned to or altered to resi. That seemed to be a reasonable out if all else fails.
The question with that is does that change the income. If a property is generating $500 a week net as a childcare centre but would only lease for $425 a week gross as a residence then there is risk involved. Conversion costs are likely as well.

How so? I thought that childcare has good policy support from both sides, but I admit that I have not looked that closely yet.
I guess demand for childcare services is dependent on direct government subsidies. Government change, as do policies and while all property classes are influenced by government property, childcare is probably more directly influenced than most.
 
It's because after the GFC the banks were losing a lot of money on childcare centres because lots of them went bust (ABC Learning etc).
My understanding was ABC Learning expanded very quickly and had a very high LVR, and when the share price plummetted they went under.

So more to do with financial/accounting reasons than the childcare business itself.
 
Cant see govt abandoning funding.

Parents wouldnt be able to afford childcare otherwise. Pretty tough as it is.

Just noticed a brand new childcare centre being built next to a Public school. All pretty colours. Another centre just around the corner just got a fresh paint job. Must be big money in it.
 
Cant see govt abandoning funding.
I wouldn't think so either.

But is it impossible for government policy to change in such a way to reduce (not necessarily eliminate) revenue for childcare centres. No, not impossible. So there is perceived to be some risk there.
 
My understanding was ABC Learning expanded very quickly and had a very high LVR, and when the share price plummetted they went under.

So more to do with financial/accounting reasons than the childcare business itself.
Yes but this impacted the banks through the landlords who leased to ABC. There were heaps of mortgagee auctions of childcare centres since the collapse which has led lenders to caution against them as acceptable securities.
 
I wouldn't think so either.

But is it impossible for government policy to change in such a way to reduce (not necessarily eliminate) revenue for childcare centres. No, not impossible. So there is perceived to be some risk there.
IMO that would be political suicide.

It would erode consumer confidence. Many households would have to "tighten the belt" in order to pay their childcare.
 
IMO that would be political suicide.
I would say that is right. IMO policy is leaning toward more rather than less early childhood care and education facilities. They have worked out that it is cheaper to support children and help keep them on the rails than deal with adults that have a lack of support. In western government circles it is considered a good investment in lowering future costs... be they right or wrong this is what the studies are saying.
 
typically, 10 year loan terms are about it : (

We are just doing a highly profitable freehold and the business owned by the same people.

i cant believe how conservative the lenders have been with this puppy.

Not easy to get decent finance for thats for sure

ta
rolf

A friend of ours (and his partner) have managed to finance the building, establishment and running of 13 child care centres over the last few years.

He started around 2007 and has continued to grow in number through the GFC to now.

Don't know the ins and outs of his financial affairs but from what i've been told it can be very profitable.
 
A friend of ours (and his partner) have managed to finance the building, establishment and running of 13 child care centres over the last few years.
I know a very successful retirement home developer that has now switched to child care centers. If his track record counts for anything it is not a bad move to follow his lead.

2c
 
Childare centres can be profitable, but depends enourmously on location, demographics, competition and the quality of your staff.

Some areas are saturated with competitors, so very hard to make a decent $.

In Qld, breakeven is around 80% occupancy on a 70-80 place centre.

Each State is also different, with fees charged varying yp to 15 - 20%.

Very hard to strip down a purpose-built childcare and turn into a residential, with many large communal bathrooms, usually a lot of glass partitioning, unusual room configurations etc.

Large car park also probably lends itself to commercial lease.

Probably better to be the landlord, rather than the operator - as per the OP question.
 
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