How Interest Rates Reprice Childcare Real Estate

When borrowing costs move, childcare real estate reprices — sometimes faster than owners expect. Understanding the mechanics helps you time decisions.

The transmission mechanism

Higher interest rates raise the cost of financing an acquisition, which pushes buyers to demand higher cap rates — and higher cap rates mean lower prices for the same income. The 2022–2023 rate run-up did exactly this across net lease, lifting average STNL cap rates roughly 130 basis points off their late-2022 low. All-in lending rates for NNN assets climbed to around 6% — roughly double the ultra-cheap financing of a few years earlier.

It also lengthened time-on-market and thinned the buyer pool: leveraged, debt-dependent buyers stepped back, leaving private investors (~46% of buyers) and a growing share of institutions (~25–27%) to set pricing, while REITs retreated to single digits.

A tax tailwind worth knowing

Policy can offset rate pressure. The 2025 federal tax law permanently restored 100% bonus depreciation for qualifying property — a meaningful cash-flow benefit for real estate investors that can improve after-tax returns on a childcare acquisition.

For owner-users and investors weighing a purchase, these provisions can change the math even when borrowing costs are elevated. Always model them with your CPA.

Why childcare held up better than most

Despite the rate pressure, quality childcare cap rates held relatively firm, buoyed by essential-service demand and scarce supply. The repricing hit marginal assets harder than institutional-quality ones.

That divergence is a recurring theme: rate environments widen the gap between the best assets and the rest.

Acting in any rate environment

Rising rates can favor patient, well-advised buyers and motivated sellers; falling rates can open a window to sell into stronger pricing. The right move depends on your asset and goals.

We help owners read the rate backdrop and time the market intelligently.