What changes the funding
A childcare centre is funded as an investment asset, not a for-sale product. The lender's key question is the completed, leased value — the net rent under the operator lease capitalised at a market yield — and the covenant of the operator standing behind it. Approved places, catchment demand and the lease terms drive the number more than construction cost does.
We package the submission around the lease and yield evidence, so the completed-value case is defensible before it reaches a funder.
| Valuation basis | Net rent capitalised at a market yield (investment value) |
|---|---|
| Key credit test | Operator covenant, lease terms, approved places, catchment |
| Typical leverage | Against completed value and total cost |
| Repaid by | Investment sale or refinance onto a completed-asset facility |
Worked example
A 110-place early learning centre valued at a $9.0m completed value on capitalised operator rent. Specialty senior is sized against that completed value and the total cost.
| Layer | Amount | % of cost |
|---|---|---|
| Senior debt @ 8.50% | $4.30m | 65% |
| Developer equity | $2.31m | 35% |
| Total development cost | $6.61m | 100% |
| Completed value | $9.00m |
|---|---|
| Loan to value (LVR) | 47.7% |
| Loan to cost (LTC) | 65.0% |
| Cost of debt | 8.50% |
| Finance cost (interest) | $365,095 |
| Brokerage — BluCow (indic.) | $42,952 + GST |
| Development profit | $2.26m |
| Margin on cost | 34.2% |
| Return on equity | 97.6% |
| Equity multiple | 1.98x |
Illustrative only — actual leverage, pricing and returns depend on the lender, valuation, QS report and the specific project.
When it's the right structure
Childcare finance suits developers building to a pre-committed operator lease and holding or trading the completed investment. The stronger the covenant and lease, the sharper the funding.
Advantages and limitations
Advantages: leverage tied to a leased investment value, and no for-sale presale risk. Limitations: the funding lives or dies on the operator covenant and lease, and specialised assets have a narrower buyer and lender pool.
Related services
- Property development finance (overview) →
- Service station development finance →
- Commercial development finance →
Frequently asked questions
How is a childcare centre valued for finance?
Unlike a residential build valued on comparable sales, a childcare centre is usually valued as an investment: the net rent under the operator lease capitalised at a market yield. The strength of that lease and the operator covenant is central to how much a lender will advance.
Do I need a signed operator lease before funding?
Usually a pre-committed lease (or agreement to lease) with a credible operator materially strengthens the funding, because it establishes the passing rent and therefore the completed value. Some lenders will proceed on a strong heads of agreement with conditions.
Is childcare finance different from standard construction finance?
Yes. The build is straightforward, but leverage is set against the completed, leased value and the lender underwrites the tenant covenant, the number of approved places and catchment demand — not just construction cost.