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The catch is that they are considered specialised securities (like petrol stations) and hence are harder to finance.
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.
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.
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 have considered that many could be returned to or altered to resi. That seemed to be a reasonable out if all else fails.
How so? I thought that childcare has good policy support from both sides, but I admit that I have not looked that closely yet.
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).
Cant see govt abandoning funding.
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.
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.
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.