The entrepreneurs who provide badly needed quality child care services face ongoing barriers to financing, licensing and property ownership.
“The lack of affordable, accessible, quality child care is just a huge gap in the country for families, communities and the workforce,” said David Lynn of Mission Driven Finance, which launched Care Access Real Estate, or CARE, two years ago to acquire, renovate and lease residential and commercial properties to child care providers. “We see a lot of very good child care providers that can’t expand because of access to real estate.”
These providers are largely women of color often operating in “child care deserts,” low-to-moderate income communities where limited access to reliable care limits economic mobility for working parents.
The San Diego-based private real estate fund has deployed $13 million to acquire 23 homes in Nevada, Colorado and California, leasing them to child care enterprises, most led by women of color.
A $4.5 million line of credit from Ceniarth and Social Finance will give CARE access to critical short-term debt to acquire more childcare properties. MDF has lined up a traditional bank to refinance the loans into long-term, permanent capital once the properties are stabilized.
The new revolving credit facility “effectively doubles the amount we can go out and do with our equity,” Lynn told ImpactAlpha. “So if we’re going to buy a $2 million property to put a childcare provider in, we can use a million of our equity and a million from the facility.”
CARE currently has about $10 million in equity capital. The financing from Ceniarth and Social Finance adds to a $5 million line of credit the fund secured from RSF earlier this year. Mission Driven Finance plans to raise $20 million of equity capital for the strategy next year, with a goal to acquire up to $50 million worth of child care properties, primarily in low-to-moderate income areas.
Lynn said CARE will look to purchase its first commercial properties for child care enterprises looking to expand. It also plans to raise additional debt capital for the acquisitions.
“What we think is so powerful about this opportunity is that there are not a plethora of investable opportunities in early child care,” says Social Finance’s Kirstin Hill. “The angle of real estate as one of the biggest barriers to affordability for childcare business owners, and therefore for the provision of childcare, we think is a really smart approach.”
Ownership economy
With $50 million of buying power, MDF believes CARE can acquire enough residential and commercial properties to create approximately 1,000 “child care slots,” the licensed capacity that providers are allowed to offer based on government regulations.
MDF plans to lease the properties to its providers at affordable rates, but also create a purchase option agreement that allows providers to purchase the properties.
“Our real base goal is there is better quality child care when providers have long-term stability,” Lynn said. “That could be a stable lease with a mission-aligned landlord or that could be owning the properties themselves.”
The purchase option would be open to CARE’s current portfolio, which includes providers such as Stacy, who has run her family child care business out of her home in California for 14 years while homeschooling her children. Stacy now runs the business out of a three-bedroom and two-and-a-half bath home CARE acquired last year in Las Vegas, near her daughter and grandchildren.
Another provider is Estrella, who also operates her child care business out of a three-bedroom and two-and-a-half bath home, which CARE acquired a year ago in rural Colorado. With support from CARE, she has earned her license to care for up to 12 children, the highest level of in-home child care licensing in Colorado.
“Wealth building is definitely part of the strategy here,” says Social Finance’s Stephen Vicinelli. “With CARE, it’s about sharing the growth and value of these homes with the care providers.”
Impact-first
Social Finance provided $2 million for the facility through its Impact First Fund of funds, which Hill said has had a strong fundraising quarter, with commitments from ultra high-net-worth individuals, family offices, foundations and donor-advised funds (see, “Donor-advised recoverable grants power Social Finance’s impact-first fund of funds”).
“We expect to have a meaningful amount of capital to deploy coming into the new year as well,” she added.
Ceniarth, the impact family office of Diane Isenberg, provided the other $2.5 million. Ceniarth’s Greg Neichin, who joined ImpactAlpha’s Agents of Impact Call on the surprising resurgence of impact-first investing, sits on the advisory council of the Social Finance Impact First Fund
Vicinelli says CARE is a good fit for the firm’s impact-first portfolio due to its impact-first approaches, including its ambition to become a real estate investment trust, or REIT, that acquires real estate for child care providers in low-to-moderate income communities.
“Our long-term goal is to become a real estate investment trust and we’re going out and buying childcare properties, everything from existing facilities to partnerships with developers who are building brand new facilities,” Lynn said.
