So what the heck is happening in the daycare industry, with sale prices sometimes far exceeding cost to replace? This question is vexing many folks who work with commercial real estate. It’s a good question to ask.
Sales of daycare centers are a bit like sales of mortuaries, bowling alleys, and other specialty properties in that they are often subject to business issues endemic to their use. For daycares, it can be franchise originated management, advertising, transportation, education software contracts (big money generators now) and other business-related components that are hard to meaningfully nail down.
Daycare properties have attracted REIT and other investor pool interest who have determined there is the potential for growth in this industry. Now everyone who owns a daycare center (or an office or clinic or even a tired retail building) wants to tap that demand.
So what you see are prices ranging wildly from $50 to $350/SF… maybe even higher.
But the cost approach still tells us a lot. Spending over $200 per SF to construct a sparsely partitioned 10,000 SF building with child-height restroom fixtures doesn’t make much sense unless you’re getting some valuable business assistance, or considerable leased fee contribution, in the deal.