Help Leasing a Daycare Center in an Apartment Community

1 Reply

Hello!

I am new to the BP forums and I would appreciate any assistance on how to lease a commercial property, specifically a daycare center. I have searched the forums, but could not find any posts similar to my situation.

Background:

My company owns and manages an Apartment Community in Atlanta, 144 units that is currently 75% occupied. We have liability insurance on the property. When we originally purchased the apartments there was a standalone building (1695 sqft) in the middle of the property that was being used for an after school program for the kids of the Apartment Community.

Shortly after purchase, the operators closed the program and we decided to market the building as a residential unit. However, when I called the post office I was told I could not get a residential-type address for this building because its intended use was a daycare center. I was told to contact zoning, which I did, who stated I would need to get the building rezoned for residential. This would involve getting drawings, making modifications to the building, contracting a GC, etc.

To avoid the hassle of rezoning (although the property itself is zoned RG2), we decided to go back with a daycare center. Take note that the building is ideal for a daycare center, as there is a large, fenced-in yard with a playground and the building has a number of classrooms as well as a side room for an office. However, I am out of my element when it comes to leasing a commercial property. I have the following questions if anyone would be kind enough to answer.

Questions:

1. What is the screening/verification process for a commercial tenant, specifically a daycare operator? I read in another post that I should get a copy of the State Business License to run a daycare, two years of tax returns, as well as their liability insurance. I assume I should also request any certifications. Is there a good resource for an application for a commercial/daycare tenant? Our residential screening service will not be able to screen a commercial applicant. What screening service should I use and what other information should I request from the applicant to vet them for tenancy?

2. What is the monthly rent for a 1695 sqft building? I was thinking $21/sqft, or $3000/month. I know location is also a big factor. The Apartment Community itself is gated and there is a 24-hour courtesy officer. We also made a lot of upgrades to the center, with all new vinyl flooring, recessed lighting, new paint, new HVAC, and an updated playground. When we originally purchased the property it is was not in the best of shape, but we cleaned house and we are actively renovating and beautifying the property.

3. Water on the property is not individually metered. What would be an appropriate charge for water passthrough? I read somewhere that a daycare center requires 25 sqft per child. However, I am not sure if this is correct, as another website I found said 35 sqft per child. At any rate, that’s a maximum capacity of 48-67 kids. At $5 per month per child, that would be around $250 per month for water with 48 kids. Is that reasonable?

4. What would be a good resource for a commercial daycare lease? I believe typical commercial leases are longer than just 1 year. Should I lease it for 2 or 3 years? Do I keep the rent stable, or should I increase the rent by a certain percent (5%?) for each year?

5. Do I need a Certificate of Occupancy before the tenant can move in? Are any inspections required by the City? For example, will the Fire Marshal need to do an inspection? We do not have a built-in sprinkler system, will we be grandfathered in? Do I call for the inspections or does the tenant?

6. Is there anything else I need to do or instruct the tenant to do before they can assume control of a business on our property? For example, when I called the Zoning Department about whether or not I could have a daycare center on our property they said the operator would need to get a Special Use Permit as part of their application for their business license. The application will require authorization from the owner, which we can provide and have notarized. As I said, I’ve never leased a commercial property. If I had not called the Zoning Department and inquired about this, then I would have never known. What else might I be missing?

Thanks in advance to anyone who can provide assistance!

Andy,

I know that it is tempting to put this deal together yourself but from your questions you need to work with:

1.  Commercial Realtor with experience in leasing space to Daycares.

2.  Attorney experienced in Commercial leases

3.  Insurance agent that knows Daycare

I know the Insurance end more than the others.  I would make sure the daycare operation will not impact your current coverage.  If there is no impact you should seek guideance on what you can require contractually that will protect you if a problem occurs on the daycare site.   Things like:

- limits of Liability of $1,000,000 per occurance

- additional liability limits in an Umbrella policy

- having them name you as an Additional Insured and requiring 30 day notice of cancellation

- requiring that they hold you harmless and indemnify you if there is a claim

- making their policy Primary

There are a lot of other things that can be required and what you ask form will depend on what is available, cost, and how it will impact getting a tenant.

Talk to your Agent about what protections (alarm, fire doors, extinguishers, etc.) you need to have in place as a landlord for a business with children there all day.   You should also check with your Attorney on what might have to be done to comply with ADA (Americans with Disability Act) to determine if you have to upgrade any of the entrances, bathrooms, etc.

On your question on the water use, if you get records going back to when there was a daycare operating they may show the difference in average water use before and then after the daycare closed.

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