Kindergarten investment on the up

Kindergarten investment is gaining traction as more and more investors look to diversify in the chase for higher returns.

While the market is still ‘very niche’, more investors are open to investing in it, according to Peter Tölzel, senior director, valuation and transaction advisory at JLL. ‘I think we’ll see more interest in kindergarten acquisitions in the future as investors move more into niche products,’ he said. ‘It’s the natural follow on from nursing homes and student housing. Cities could be interested in selling off more kindergartens as long as there is not a change of use.’

One investor eyeing kindergartens is Cologne-based Omega Immobilien. ‘Our investment in kindergartens came about by chance,’ Omega Immobilien’s CEO, Achim Gräfen, told REFIRE.

‘We were talking to a German pension fund about their investment appetite and they mentioned that they would be interested in kindergartens because of the social aspect.’

In September, Omega Immobilien lunched a kindergarten fund, OMEGA Kita-Welten Rheinland, on behalf of the aforementioned dentist association’s pension fund, Versorgungswerk der Zahnärztekammer Nordrhein(VZN), with the pension fund as sole investor. The VZN has committed €30m of capital which, with leverage, gives an investment pot of €55m, according to Gräfen. ‘We have several investment opportunities in the pipeline,’ he said, declining to provide further details.

The Rhineland, which includes the Middle and Lower Rhine areas, is one of Germany’s most densely populated regions with around 10m inhabitants. Omega Immobilien is focusing on ongoing and recently completed projects with experienced nursery providers as well as existing daycare centres and portfolios. The leases have a long term of 20 to 30 years and are secured by statutory local benefit obligations.

‘With this fund, we are actively tackling the supply crisis in nursery care,’ said Uwe Zeidler, managing director of the VZN in Düsseldorf. ‘By supporting public and non-profit providers, providing them with new nurseries and helping them run sustainably, we are also meeting our social and educational responsibilities in our home region, explaining the basis for the investment.’

There is already a shortfall of more than 70,000 daycare places in North Rhine-Westphalia due to rising birth rates and an increase in demand for places. Local councils are also expected to push for more nursery places as a result of the legal right to such a place, making for an interesting project pipeline, according to Omega Immobilien.

Nonetheless, kindergartens typically sell for between €1m and €3m, which is below the €5m threshold for many institutional investors, according to Tölzel. ‘For that reason, nursing homes can be more attractive as the lot sizes are bigger. Kindergartens offer very secure income not least because the local authorities pay some of the rent and they have very long leases.’

An unidentified German fund manager is believed to be the process of acquiring nine kindergarten properties across three states from an operator, according to market sources. The deal is expected to close by the year end.