Investors turn their sights to nurseries

Investors are turning their sights to nurseries, as niche assets move out of the shadows.

Earlier this month, investor and asset manager CR Investment Management set up the joint venture CR Bildungsräume GmbH together with KinderHut, a company based in North Rhine-Westphalia specialising in the construction and operation of childcare facilities. The purpose of the joint venture is to plan and build day nurseries throughout Germany.

'This joint venture is part of a wider perspective of what we are doing at CR,’ Claudius Meyer, managing director of CR Investment Management, told REFIRE. ‘We believe that a lot of mega trends are surfacing and that they will change how property is developed. Our entity is translating mega trends into real estate investment.’

CR Investment Management already invests in assets such as serviced apartments and co-living spaces and is also focusing on assisted living and is now adding education. ‘With kindergartens, the lease is pretty much ring-fenced,’ Meyer said. ‘There's very little investment risk, especially if the kindergartens are tied to local authorities, and leases are typically for fifteen years plus. We haven't made a kindergarten investment yet but we’re aiming to build three-or-four kindergartens this year, investing between €10m and €20m in total. KinderHut will run the day nurseries in the long-term.’

Typically, a kindergarten provides spaces for 80 to 100 children, although some of KinderHut's facilities cater to just 20 children, according to Meyer. ‘We will consider investing all over Germany,’ he said. ‘We like larger cities but it's not a must. It's important to have the spaces in residential areas or close to offices. The biggest challenge of investing in kindergartens is that you need both operational and constructional sign off from the local authority – and what they want can vary a lot from city to city. It also takes six-to-nine months to get a building permit and you can't really shortcut that.'

KinderHut has a history of partnering with the public sector and private businesses in the planning, building and sponsorship of employer-supported and company childcare schemes. The group’s facilities offer day care for children between the ages of six months and the time they start school. Formed in 1995, the company operates around 15 day nurseries nationwide and employs around 200 staff. The regional focus is currently still on North Rhine-Westphalia, with a view to expanding the focus going forward.

‘Making it easier for people to reconcile job and family is KinderHut’s primary objective, because this is a societal issue of enormous significance for young families,’ said Till Bremen, authorised signatory of KinderHut. ‘The collaboration with CR will enable us to step up our commitment to the work-life balance considerably in future.’

Demand for day nurseries has been steadily increasing in Germany, given that the birth rate has started to increase over the past six years. Also, since 2013, every child aged one or older is legally entitled to a daycare place. According to the Federal Statistical Office (Destatis), the number of day-care spots for toddlers below the age of three has broadly doubled since 2009. Still, there remains a nationwide shortfall of around 320,000 daycare place for children below the age of three, according to the IW German Economic Institute in Cologne.

Another investor betting big on nurseries is AviaRent Invest, a subsidiary of AviaRent Capital Management, a Luxembourg-based fund manager. Together with its French partner Primonial, AviaRent invests exclusively in social infrastructure, with a combined fund volume of more than €5.5bn in the care and education sectors.

‘We really like kindergartens,’ Hannes Ressel, chief sales officer at AviaRent, told REFIRE. ‘We like the social aspect because we really don’t have enough kindergartens in Germany. We see them as a good investment, partly because they typically have leases of 25 to 30 years.’

AviaRent currently has a mandate from an unnamed institutional investor to invest €80m, including gearing, into kindergartens in Germany. ‘Obviously, it’s harder to invest in a kindergarten than a care home because the lot sizes are about a tenth of the size, at around €2.5m,’ Ressel said. ‘However, we are willing to develop as well as buy existing assets. It’s necessary because a lot more investors are looking at kindergartens today.’

AviaRent is primarily targeting such properties both in Germany’s Big 7 and in other cities, if they have a university or are exhibiting strong growth, Ressel said.

One challenge is that kindergartens are often sold by private investors who may decide to sell to another higher bidder, even if a would-be buyer is already in exclusivity, according to Ressel. ‘You might do all that work and still not get it,’ he said. The multiplier has also changed in the last two years, to around 25-27x today, compared to 19-20x then.’

Other investors are also investing in nurseries if they come with a retail component. As Aberdeen Standard Investments’ head of portfolio management and transactions, Continental Europe, Bernd Bechheim, told us last month: ‘Our strategy has been to target resi and if it comes with a supermarket, drugstore or kindergarten that works very well for us as they have long leases. In total, eight of our funds can invest in mixed-use assets like these.’ Last month, Instone Real Estate sold part of a mixed-use scheme comprising 104 apartments, children’s day care facilities and commercial space in Düsseldorf to LEG for an undisclosed sum. Overall, the project, ‘Wohnen im Hochfeld’, will comprise 360 apartments across the 55,000 sqm site in addition to the commercial space.