What LVR do lenders offer on childcare centres?
Why the LVR is lower than a warehouse
A warehouse can be re-let to almost any business. A childcare centre is purpose-built, licensed for a set number of places, and if the operator fails there is a limited pool of replacement tenants who can take over the licence and the rooms. Lenders price that re-letting risk into the LVR. The more the property looks like a generic commercial asset with a bankable tenant, the closer the LVR gets to standard commercial levels.
What pushes the LVR up
- A national or large multi-site operator as tenant, ideally ASX listed or with audited accounts
- Ten or more years remaining on the lease, with options and fixed or CPI rent reviews
- Metro or growth-corridor location with demonstrated occupancy above 80 per cent
- A Meeting or Exceeding rating under the National Quality Standard
- Purpose-built centre less than fifteen years old with no compliance issues
- A borrower with commercial property experience and clean credit
What pushes it down
- Owner-operator tenant with a short or informal lease
- Regional location with thin comparable sales
- A Working Towards rating or recent compliance action
- Occupancy below 70 per cent or heavy reliance on a single referral source
- Conversion from a house or former commercial building rather than purpose built
- SMSF borrower, which caps most lenders at 65 to 70 per cent
How the valuation is done
Valuers capitalise the passing rent at a yield derived from recent childcare sales, then cross-check against sales of comparable centres on a per-place basis. If the rent is above market, the valuer will adjust it down, which lowers the value and the loan. If the lease is to a related party, the valuer will want evidence the rent is market. Get the lease and the rent right before the valuation, not after.
Not sure which lender fits your situation?
Get help with childcare centre finance
Childcare centres are a specialised commercial security. Lender appetite, LVR and lease requirements vary widely, and the wrong lender wastes months. We connect you with a finance specialist who handles childcare centre deals.
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Property Finance Help is a lead generation service, not a lender, broker, or financial adviser. All information on this website is general in nature and does not take into account your personal objectives, financial situation, or needs. Consider seeking independent professional advice before making any financial decision.
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