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Two Reasons Why Early Childhood Education Has Out-Performed Other Real Estate Sectors

We recently hosted a live discussion with Dominic Sulo of Marcus & Millichaps’ Sulo Group to examine the benefits of investing in Early Childhood Education (ECE). This blog will summarize Sulo’s primary points on the advantages of ECE, but the full conversation can be found here.

Marcus & Millichap has continued to see tremendous activity in the ECE sector and note that it serves as a reliable income generator. Last year, the company sold 34 ECE facilities valued at roughly $130M, compared to the majority of real estate transactions averaging at a price point of $3.7M.

Sulo shares with us what he’s seeing in the market right now and two key reasons as to why investors nationwide should be considering the ECE space. 

1. Early childhood education centers are backed by private equity, offering higher cap rates.

When someone acquires an ECE property, the cap rate environment and steady return is typically higher than the credit worthy product of the marketplace, such as a Walgreens or Autozone that is publicly traded. Daycare centers are usually private equity backed, not publicly traded, which warrants a better return for investors. In addition, rent for early education spaces typically consists of an annual growth rather than a flat lease or a 5 year rent increase, which again, warrants higher investor returns.

2. Company funds and community focus are being reallocated to childhood development opportunities. 

Since the COVID pandemic in 2020, much of the workforce has chosen the opportunity to work remotely rather than commute into the office. That being said, funds that were once used for company activities, utilities, and office space are now being invested elsewhere.

Reports from large banking institutions have shown spending on early education up from prior years since the pandemic. Across the country, various initiatives from local municipalities to government bodies have been put in place to provide support for early childhood education. Ultimately, we have seen an emphasis on children’s development through learning and socializing in a positive environment.

To hear more from Sulo, you may watch his full interview with CMK here.

Stable Investment Fundamentals 

Within today’s evolving market, alternative investments offer unique advantages to combat inflation and recessionary trends. Early childhood education, in particular, provides the upper end of cap rates, favorable lease terms, company-wide support, and many more benefits to investors. In 2023, we can expect to see additional growth in the ECE sector as investors seek out its solid fundamentals for long-term stability.

If you are interested in learning more about investing in early childhood education real estate, please contact us at CMK Properties today! 

John Hopfensperger
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