City View: Sinead Cruise
Caravan parks, garden centres, nursing homes, car parks, private hospitals and even theme parks. Forward-thinking property investors have scoured every last inch of these most unlikely of property markets in their never-ending quest for yield.
But where next? Can there possibly be any fragment of the asset-backed business world that the Chad Pikes and Marc Mogulls of our market have not already scrutinised and subsequently rejected or conquered? Well, maybe.
Nexus Pine, the Jersey-domiciled investment vehicle backed by Primary Healthcare Properties' Harry Hyman and entrepreneur Alan Proto, believes it may well be making strides into one of the last virgin territories that private equity investors are yet to invade: children's day nurseries.
There are around 14,600 nursery schools sitting on £3bn of freehold property across the UK, making the potential pool of opportunity roughly one-third of that of the pub sector. Like GP surgeries where rents are paid by centrally funded Primary Care Trusts, the operating business of a registered children's day nursery enjoys robust financial backing in the form of government funds, which help operators cover their rents. The government has pledged to give all children up to 38 weeks of free education before reaching statutory school age.
Pre-school education was once considered too expensive for many families, putting a natural block on demand for nursery places. But since every child is now entitled to attend for free, the need for more places, and hence more nurseries, is feeding into the hands of keen developers and investors.
An entire new asset class is poised to emerge right before our eyes. The fragmented nature of the sector has meant that while building up a portfolio is both labour and time intensive, the yield rewards - 7% on average - are attractive and the 'aggregation theory', popularised by Grainger Trust and the Local Shopping REIT, means risk is inversely proportional to the number of assets bought.
Existing operations have 'sale-and-leaseback opportunity' slapped all over them. While many private sector operators are grappling with increasing costs and reducing profits, the sale and leaseback offers a lifeline to operators, which can recycle capital tied up in their property.
Pine's standard lease gives right of occupation for up to 35 years at the outset and is structured on the Retail Prices Index, enabling operators to forecast their rental outgoings. Since nursery fees are rising faster than RPI, rent should actually decrease as a percentage of turnover over time.
Proto and Hyman, the latter of which helped bring healthcare property into the mainstream, have uncovered what could be property's hottest new sub-sector.
Sinead Cruise is deputy finance editor of Property Week
