Both child care centers started small, which is a requirement when you open in a church basement. But neither stayed that way.

Friends Center for Children in New Haven, Connecticut, began with four children in 2007, but now has about 160 in three facilities. And Hope Child Development Center (also in New Haven) now has nearly 90 children after starting with 30 in 2001.

Still, both centers are struggling to meet surging demand for child care because space is so expensive. 

Hope wants to buy a 30,000 square foot building, but it can’t afford one – not while paying $180,000 annually in rent, according to Executive Director Georgia Goldburn. Meanwhile, Friends Center is expanding to a fourth building, but still needs to rent at two of the four because of a lack of affordable financing.

“If we didn’t have to pay rent, we could pay our teachers $10,000 more overnight,” said Allyx Schiavone, executive director at Friends Center.

What are some way to finance new child care facilities?

The nationwide lack of affordable, high-quality child care impacts people's ability to work, and that's one reason it's become a priority to finance more facilities, whether in a commercial center or someone’s home. In September, the Federal Reserve Banks of Boston and New York brought together providers, investors, bankers, and philanthropists in Bridgeport, Connecticut, to look at ways that can happen.

Among the strategies discussed: opening child care facility “incubators” or colocating facilities in affordable housing developments. Another model buys up child care facilities as investment properties.

Pierre Joseph, who works in the Boston Fed’s community development arm, said the gathering was a chance to consider new thinking, tactics, and ways to get more dollars into the child care sector.

“If we are going to create inclusive economies, we need communities to have access to more opportunities in child care,” Joseph said. “We also need more investment flowing to these types of community businesses, because they help communities thrive.”

Can new child care facilities be colocated with affordable housing?

During her panel, Kimberly Latimer-Nelligan, president of the San Francisco-based Low Income Investment Fund, said affordable housing developers are proving to be open to including new child care facilities in their plans.

She pointed to legislation in Oregon that set aside $10 million to help “housing development projects to maintain, improve or build co-located early child care and education facilities.”

“I do believe colocation is one of those strategies and approaches that is really often overlooked,” she said.

On the same panel, Liz Fraser of the Local Initiatives Support Coalition (or LISC) Connecticut spoke about her organization’s “Facilities Fund,” which distributes federal dollars for early childhood renovation and construction projects.

One project that received LISC funding is a child care “incubator” planned for Waterbury, Connecticut. This facility will be shared by multiple home-based providers until they’re ready to launch in their own space.

Fraser said this LISC program assessed applicants “from the heart, not from the wallet.” For instance, they didn’t require them to prove their financial health. Otherwise, too many applicants would be shut out, worsening inequalities, she said.

Fraser added that meant their choices “might not have been the most financially viable projects,” and that has made technical assistance crucial.

“Every single family provider has a coach,” she said. “Every single family provider … has a business bank account.”

Seeing child care facilities as investments

The event’s final panel explored work by the Mission Driven Finance investment firm to acquire and combine child care facilities in a Real Estate Investment Fund, or REIT.

Their REIT is called CARE (Care Access Real Estate), and it pays its investors dividends derived from the annual rental income the firm charges its child care facilities. Investors understand they aren’t getting the maximum return, because they know the firm prioritizes the financial health of the child care operations, said Laura Kohn, a vice president of Care & Education at the firm.

Mission Driven Finance has focused on family child care operations and has purchased several properties that host them. (They have 17 such properties in the Las Vegas area, two in the San Diego area). To help tenants build wealth, they get a chance to buy the property after two years. And if the property’s value has risen, the firm splits split the profit with them.

“We’re just getting started, and we hope this will continue to grow, because it’s a way for more capital to flow into our sector, which desperately needs more capital in it,” Kohn said.