Advice on LVR and yields childcare

What is the Maximum LVR on childcare freehold centres can obtained (65, 70, 75%)

Also what are people’s views on long term cap rates

I have one in bris
- starting yield 6.88%
- 12yr, 3% inc, all outgoings
The catch here is
- low occupancy 60%
- not a flashy building

People are paying v right yields in metro area which makes no sense to me

How confident are we of childcare fees keeping increasing 3% in a low inflation/ oversupply environment...

Wondering what the cap rates are likely to be on a centre with 7 years left on lease in say 2023/2024

 

Regarding the LVR, 65% was the sweet spot when I did one a couple of months ago. But it would depend on postcode, tenant and property of the particular childcare centre you are looking at.

 

Childcare centres are grade A securities for most lenders so lenders will fight for your business and give you a really good rate. That said lenders don't typically like anything less than 25 places and you will be restricted in the lenders that will take in on. The sweet spot is 60 plus.

Max LVR is 80% for converted residential and 75% for purpose built. Note the lower the LVR the better the better you will get.

Some metrics to look at:

Revenue profile - ensure the there are at least 70% of the children under the age of 6.

Occupancy rate - should be 80% or higher.

Operator experience - the tenant should have a proven record of at least 3 years.

Age mix - ensure that the age mix is appropriate to revenue. So essentially the staff child ratios and indoor space per child.

Demographic - the valuer will make comments about the demand for the area so your concerns about yield will most likely be fleshed out by the valuer.

Another thing to factor is how easy is to to build CC in that area and the potential for developers to come in.