After over 20 years of leading and growing two of the largest childcare operators in the U.S., Robert Moffett and Scott Cotter decided it was time to develop their own program. Since 2020, they have opened 3 AIM Academy centers with 2 more set to open in the winter of 2023. Read more →
August 28, 2023 – By Max Freedman. What makes up the ideal investment? Investors typically want lower risk, while also getting higher yield. The early education real estate asset class ticks both of these boxes but remains a niche investment today. This is because people are often unfamiliar with the sector’s for-profit business model and somewhat atypical, specialty purpose buildings. Here we’ll unpack the opportunity in the early education real estate sector for triple net investors to demystify it.
Risk Profile
Commonly, the early education asset class is immune to what is happening in the wider market. In a downturn, child care is a necessity so that parents can maximize their income with dual-parent full-time jobs. In an upturn, it’s a privilege because parents have disposable income and can afford child care. This means that there is demand for child care in both good times and bad.
In addition, the federal government considers early education so important that it backstopped with billions of dollars during the pandemic – the American Rescue Plan alone committed $24 billion to child care. What better guarantee of your ability to collect rent as a landlord? (By the way, this amount excludes generous state subsidies as well.)
Even so, potential investors can get stuck on the opportunity to re-lease early education real estate assets, especially if they’re more familiar with fast-moving industries such as restaurants. But early education flips the model. Leases in the early education sector are often longer than average. The lease for an early education property is typically 10 – 15 years, providing stability for both the landlord and tenant.
In addition, the early education business model has a much lower break-even and profitability threshold than businesses such as restaurants. There is constant, growing, unmet demand for child care: as an asset class it only grew by 0.6% between 2017 and 2022 yet the need for early education continues to increase as the US population grows.
So, where tenant replaceability is an issue with other triple net deals, the stickiness of early education businesses more than compensates for the risk of having to re-lease the building. As mentioned, early education tenants are safe tenants. They are government-backed, demand for their service outstrips supply, and their success doesn’t depend on current trends and whims of the market.
Higher Yield
Irrespective of what is going on in the markets, such as the price correction in real estate over the last 18 months, early education typically trades in the 6% to 7% yield range, an above-average yield over comparable triple net assets. This means that, with interest rates rising, early education is a great asset class that still gives investors a positive cash flow with today’s market interest rates.
Couple that with credit profiles that are at a premium compared to franchised triple net assets, and it’s not surprising their early education is starting to attract interest from investors who had previously disregarded it. With early education, landlords get more yield and a better balance sheet to back their lease, which is a compelling combination.
Financial Accessibility
It’s also worth pointing out that although the average price of early education assets we have listed at Sands Investment Group is $5 million, the range is broad, starting at $1 million through to $7 million+, making this an accessible asset for many investors. Too good to be true?
Investors might be now wondering what the gotchas are. Despite these obvious strengths and benefits of the asset class, how do investors choose the best individual deal, and what should they look out for?
Firstly, investors need to know that this is a highly fragmented market and there are implications if they choose to invest in an independent operator versus a corporate owner. The corporate-owned portion of the markets is typically more predictable and lower risk but makes up less than 10% of the entire market. So simply finding a deal can be a challenge. Part of the discovery process is knowing how the education business model works to evaluate the right real estate opportunity. Next, investors need to match the deal with the best credit.
This is where the Sands Investment Group team comes in. Our access to developers and the largest corporate operators in the early education space gives us inventory beyond the open market. Based on the investor’s target yield, we can best match early education triple net deals to the right credit profile for their portfolio.
Consult a SIG Early Education Real Estate Advisor
If you’re looking to get started, we have a team that specializes in Early Education Real Estate. We work with Franchisees and Corporations across the country as an outsourced real estate arm to assist with their growth and expansion.
View our Early Education Listings to explore available properties.
From a single unit Franchisee to Publicly Traded Companies, we can provide a multitude of financing and construction options to fuel growth.
We’re truly a one-stop-shop for all of your real estate needs. Call 844.4.SIG.NNN or contact us here to learn how we can support your next investment.
Charleston, SC (August 15, 2023) – For the fourth time in a row, Sands Investment Group (SIG) is elated to report today that they have made the Inc. Magazine’s list of America’s Fastest-Growing Private Companies. The annual Inc. 5000 list is the most prestigious ranking of the fastest-growing private companies in America. Determination paired with data-driven advancements allowed for growth in both physical presence in the community and the scope of the success of the company’s pursuits. Read more →
In an ever-changing economic landscape, finding recession-resistant investment opportunities is paramount for smart investors. One sector that has consistently proven its resilience, even during economic downturns, is the medical office industry. With a growing demand for healthcare services and evolving trends in the healthcare landscape, medical offices present an enticing investment opportunity for commercial real estate and investment firms. In this blog post, we will delve into the reasons why medical offices are a good investment and explore their recession resilience.
Strong and Stable Demand
Healthcare is a fundamental necessity for individuals, regardless of economic conditions. In fact, the demand for healthcare services tends to remain stable or even increase during times of recession. People continue to require medical attention, and doctors and healthcare practitioners need suitable spaces to operate. This unwavering demand ensures a steady stream of tenants and offers long-term stability for investors.
Aging Population and Chronic Disease Prevalence
As the baby boomer generation continues to age, the demand for healthcare services is poised to soar. This demographic shift is a significant driving force behind the increased need for medical facilities. Medical offices cater to a range of services, including primary care, specialists, diagnostic centers, and outpatient procedures. Additionally, the prevalence of chronic diseases, such as diabetes and heart disease, has increased over the years. Investing in medical offices positions you to tap into this expanding market and benefit from the growing demand for healthcare services.
Lease Stability and Longer-Term Tenancies
Medical office leases typically span several years, often ranging from ten to fifteen years with renewal options. These longer-term leases provide stability and minimize vacancy risks and tenant turnover, which can be particularly valuable during recessions. Additionally, medical office tenants are often creditworthy and financially stable, as they include healthcare providers and institutions with solid financial backing. This reduces the likelihood of lease defaults and ensures a more reliable income stream for investors. Furthermore, medical practices tend to establish deep roots in their communities, making relocation less likely. This ensures a consistent and predictable rental income for investors.
Limited Competition and High Barriers to Entry
The supply of real estate for healthcare is often limited due to the high barriers to entry in the healthcare real estate market. Constructing medical facilities requires compliance with strict regulations and building codes, making it difficult for new competitors to enter the market. Additionally, the development and construction of medical offices demand considerable capital investment and expertise, further limiting the number of new properties entering the market. This limited supply, coupled with the steady demand for healthcare services, contributes to the resilience of medical office properties during recessions.
Technological Advancements and Changing Healthcare Model
Advancements in medical technology and changing healthcare models are driving the need for modern and specialized medical office spaces. As the industry evolves, older facilities may become obsolete, creating opportunities for investors to acquire and upgrade properties to meet the changing demands of healthcare providers. By staying ahead of these trends, investors can position themselves for long-term success.
Diversification and Risk Mitigation
Investing in commercial medical office spaces allows for diversification and risk mitigation in investment portfolios. These properties offer a unique asset class with low correlation to other sectors, reducing portfolio volatility. The stable demand for healthcare services regardless of economic conditions provides a reliable revenue stream. By diversifying within the medical office sector, such as through geographic location or healthcare specialties, investors can further spread risks and enhance the resilience of their portfolio.
Investing in medical offices is a strategic move for investors seeking recession-resistant opportunities. The stable and growing demand for healthcare services, the aging population, favorable industry dynamics, longer-term leases, limited market competition, and the evolving healthcare landscape all contribute to the resilience and profitability of medical offices. By capitalizing on these factors, investors can secure steady income, potential appreciation, and long-term wealth accumulation, even in times of economic uncertainty. As you explore investment options, consider the immense potential offered by medical offices—the future of healthcare real estate investment.
If you’re interested in exploring investment opportunities in medical office properties, consult with a professional real estate investment advisor. They can guide you through the process and help you make informed decisions to maximize your investment returns while minimizing risks. With the right guidance and due diligence, investing in medical office properties can be a valuable addition to your investment portfolio, even during economic downturns.
July 31, 2023 – Atlanta, GA | In the dynamic landscape of commercial real estate, the convenience store market stands out as a sector that is both susceptible to threats and brimming with opportunities. Working exclusively in the convenience store asset class, SIG Investment Advisor Matthew Riznyk has a good pulse and keeps a close eye on industry trends and data. With changing consumer preferences and advancements in technology, convenience store operators and investors alike must navigate a rapidly evolving market to stay competitive and capitalize on emerging trends. Read more →
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