In a Volatile Market, Investors View Early Childhood Education Centers with Greater Interest
In an environment of rising interest rates, net lease assets occupied by early childhood education centers are growing in popularity.
Investment brokerage firm B+E released a report recently that shows early learning and day care assets are seeing their cap rates compressed. The high levels of development of new early learning centers “show no signs of slowing as demand from customers in this segment is sky-high and growing,” the firm’s researchers note.
Historically, net lease assets occupied by early learning centers have traded at higher cap rates in comparison to other net lease assets such as quick-service restaurants, according to Jim Ceresnak, a director at B+E who specializes in sale-leaseback transactions.
This trend has shifted as the reputations and creditworthiness of the larger early learning tenants have steadily grown, alongside the expansion of their businesses and nationwide footprints, Ceresnak says.
Market listings for such assets during the fourth quarter featured a higher number of properties with more than 10 years of remaining lease term and larger average offering prices, B+E notes.
Investors favor the internet-resistant nature, long lease terms, quality of underlying real estate and growing demand for these assets, Ceresnak says. This has amalgamated to record-low on-market cap rates in the third quarter, with the average breaking the 6.00 percent threshold at a 5.99 percent cap, he adds.
“Early learning assets have tended to trade at higher caps, largely because of their smaller guarantees,” Ceresnak says. “But more and more investors and lenders have become familiar with the growing players in this market, which has helped their growth in popularity.”