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Episode #056- A Deep Dive Into Criterions' TWO NEW Kiddie Academy Acquisitions!

by Criterion, Braden Cheek, Brian Duck
April 11th 2022

Today our hosts Braden Cheek & Brian Duck from The Criterion Fund and Joel Thompson from Precision Equity discuss the purchase of two new Kitty Academy properties, and what type of returns inve... More

On a seven cap exit which I think is very much give us give us a seven, give us a 6.5 maybe. Yes so 22% ir are on a seven cap and again that's 13 months i. r. r. Um on you know lower than that I think this deal could could get close or surpass 30 And it gets a little skewed when you start to analyze and I are under a year but right around in a year we should be a 1.2-1.35 equity multiple. Pretty easy. I feel pretty good about it. Welcome back to how to invest in first real estate. And today we are going over our second new deal for the month of March, probably close in april but we're going to call it the month of March and it is the Kiddie Academy redevelopment fund one. Tell us about it. Brandon, yep. So I know which I know what you're thinking, you're thinking Brandon, what do you mean redevelopment we developed? Kiddie academy's, why would we redevelop a kiddie academy and I'm going to tell you, why is this one different than the other Kiddie academy did. Yeah so there's two Kiddie academy's there's two, there's one in Cyprus, right outside of Houston, there's a map there.

It is, it's right outside of Houston. The second one leave it up, leave it up is in lapa kong it's in New Jersey in New Jersey, it's in New Jersey. The one in New Jersey, another early childhood education company bought out the whole state worth of franchises and those didn't do well. They ended up shutting them down. Kiddie Academy came back into the state once they failed and said, hey, we want to buy some of our locations back. So they, they cherry picked the best locations, they cherry pick the best locations, they sent them over to us and they were like, hey, you should buy them, we'll find you a franchisee for this location. And us being good stewards of the franchisor were like, yeah, of course, that sounds great. If you can put a franchise in this, we love the location, let's do it. That's the first one, the second one in Cyprus, um an elderly, I don't know how old they were, but a couple, you know, was owning and operating them. One of the members of the couple, you know, had a heart attack, the other member was still working a full time job, trying to do the daycare facility.

The kiddie Academy operate that her full time job, his or her full time job and watch out for the spouse who just had a heart attack. It was just too much. They kind of put feelers out to the market, touch base with the franchisor and said, hey, we're struggling a little bit with this kiddie academy. Do you think you can find somebody who can come in and operate this for us, We would love a sale. There's another big operator in texas. He operates five units total, I believe kitty academy units he owns and operates five of them. And he typically owns his real estate, which is a good sign. That means he's super committed to that business in that real estate. Um he came in and bought this franchise out and he is now operating in, we're putting brand new 15 year leases with two, Yeah, annual increases. Um, 15 year leases on both of them and little t. I allowance, freshen up the building, new paint, um some more playground equipment, get enrollments back up to where they should be immediately put them on the market. Um, if you've been involved in any of our previous kiddie academy developments, you've seen that we've seen a ton of cap rate compression in these assets.

So I think we're underwriting a seven caps sale on these and we should be able to do significantly better than that well. And I like that were coming in second generation where someone has struggled and they're going to sell it cheaper than they would otherwise, we're not having to build ground up brand new. So the cost point, the price per foot is lower than a typical kiddie academy. The one in the one in Cyprus is open and operating. So I mean, talk about no entitlement, no, no crap. I mean the lease is done. He's operating already far less risk with coming in with one that's already built, Rehab dollars, but already zoned already permitted brand new 15 year lease. We're excited about him. The first one we did out of out of Denver went really well. We exceeded expectations. We have another one in Dallas that's finishing up. So you know we're excited that these two will do pretty well. Yeah they're both put together like I said we're we're signing the pre leases now. Um We should be in and out within a year and it should be, I don't want to say easy but it tell us about what the numbers, what are the expectations?

There's no cash on cash with these deals or at least there's not going to be in the first year, Correent? Yes. So they get 50% rent for the 1st 12 months. Um so it does produce a little bit of excess cash but not really enough to distribute. We just build that up in the account for a rainy day, so to speak. The distributions come at the sale of each property. Um which like I said, we're going to go in and rehab them, put them on the market immediately. So we're looking at 12:18 months max. I mean 18 months. No, I don't see any way this is getting 18 months. I think these are I said max but okay we're shooting for a year a flip. What is the I. R. R. That we're projecting on a seven cap exit which I think is very much A seven give us a 6.5 maybe. Yes so 22% ir are on a seven cap and again that's 13 months i. r. r. Um on you know lower than that. I think this deal could could get close or surpass 30 And it gets a little skewed when you start to analyze and I are under a year but right around in a year we should be a 1.2-1.35 equity multiple.

Pretty easy. I feel pretty good about it. Okay but with two of these in the same fund, what happens if you sell one? You don't sell the other one? Um We distribute cash and then to wait for the other one to sell. You know It would be just a prorated, prorated amount of cash. They may they could get 50% of their cash back, they could get 75% of their cash back until we sell the lot. The other one, correct? And and because you know redevelopment of Kiddie Academy's doesn't happen very often. There's not a lot of failed Kiddie Academy's or redevelopment out there. Um We funded these together and they're they're super super small equity checks I think separately. They were you know, one was $350,000 equity check, the other one was a $450,000 equity check. And those are just hard to make sense of when it's that small. So we took both of them, we shoved them together, Same timeline, same business plan, same brand, same exit, probably the same listing broker on both. It made sense to us. Okay, so someone's listening to this. Is there still time to get in, Man? This sold out in 48 hours, 48 hours. It was a 1,041,000 equity raise and it was gone.

It was immediately now that could have had something to do with us. Uh, selling one of our first kiddie academy developments and exceeding expectations given all this profit back to our investors. Yeah, so the first kiddie academy we did was in Columbine, just south of Denver. Um, I think the investor got a 19.6 ir are for the 24 months we had the money, we pitched a 20% are are we pitched 18, months. We hit it right on the head. So we had, we even had some delays and we still hit expectation. Yeah, we had Covid, we had Covid and we still had expectation the next deal. And that was with Woodmont. This the kiddie academy redevelopment deals in Woodmont, we just exited another deal with Woodmont. It was a deal in Henderson right outside of Las Vegas affluent suburb of Vegas. Yeah, it was a single tenant mexican restaurant. It was on Stephanie street and he said Stephanie street and I was immediately like I want it, I'm in, I don't care what it is if it's on Stephanie ST I'm in. I want it. We bid heavily. They were getting an offer a day, multiple offers a day. The only reason we got the seal is because of the, the relationship we had with this broker in the relationship we have with Woodmont, we were in and out in eight months.

It was a redevelopment, just like this Kiddie Academy redevelopment, existing building you're going and sprucing it up, putting a new tenant and putting a new 15 year lease with 2% bumps and we exited at a five and a quarter cap on a one unit operator, one unit single tenant operator and the investor got a 78% I RR in eight months, 78%. Now, once again, we mentioned it's kind of skewed when you go under a year. Um, and we pitched the same returns as this deal, but we still, we still hit more than 50% return in eight months, 70 something percent of our turns out when you make investors 70 something percent ir are you? They reinvest with you? And that's why these kiddie Academy's, I think sold out so quick. There was, I mean, I hate it. But there was a lot of investors who got their distribution check and they literally just missed the reinvestment and they were sending me emails. Hey man, so sorry, I was on vacation. I saw the deal filled up. I hate that just as much as anybody else. A lot of them were trying to squeeze in. Believe me, we're arguing over who we can back down, how much we're backing ourselves down O'brien's in more than me jules in more than me.

Oh, I got to get them in and it's, it's hard to do this to make everyone happy. But the point is, we can't advertise these deals. There's not a lot of time once we launch the deal, there's a lot of competition to get in the deals. And if you want to get in, you've got to be on the investor list. You've got to respond to the email and you've got to reserve your Spot. Here's a tip. By the time you're listening to this, of course you won't be able to invest in this deal. But we are, we are now already working on our next deal that will be coming out in the next 30 days. So uh maybe stay tuned and make sure you're on our investor list so you can get access to the investments. Absolutely. Anyway, this was a deep dive into the kiddie academy redevelopment fund. Like Joel said, it's already full. We're super excited about it. I think it's our third or fourth deal with Woodmont, I think it's the fourth. Um and we should be in and out super quick. We've met the timeline on all of the other deals. Um It's, it's, it's gonna be an awesome one. We're looking forward for more anyway until next time. Alright guys. Thanks. Thank you. Mhm.

Episode #056- A Deep Dive Into Criterions' TWO NEW Kiddie Academy Acquisitions!
Episode #056- A Deep Dive Into Criterions' TWO NEW Kiddie Academy Acquisitions!
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