West Street Capital Partners: Building Value from the Ground Up in Early Childhood Education

At Lunchline Partners, "The Lunchline Way" guides our pursuit of building exceptional businesses through a disciplined, hands-on approach. A critical, yet often less visible, component of our strategy in the Early Childhood Education (ECE) sector is West Street Capital Partners. Identified early in our Otter Learning journey, West Street is our dedicated real estate fund focused on ECE assets, and it has proven to be not only a significant value driver for financial returns but also a powerful conduit for deeper industry engagement and a crucible for developing specialized skills that enhance our entire ECE platform.

Unearthing Opportunity: The Genesis of West Street

As we embarked on building Otter Learning, engaging in hundreds of conversations with ECE school owners, a consistent theme emerged. Many of these passionate educators and entrepreneurs also owned the real estate their schools occupied. However, this valuable asset was often underleveraged, its financial potential not fully realized, or it presented a hurdle for sellers seeking a clean exit from operations. This direct insight, gleaned from those on the ground, illuminated a clear opportunity. We recognized that a specialized real estate strategy focused on ECE assets could unlock substantial value, aligning perfectly with "The Lunchline Way's" emphasis on identifying asset-backed opportunities and understanding the nuanced OpCo/PropCo dynamics often present in the lower middle market.  West Street Capital Partners was thus conceived as a strategic initiative managed by Lunchline Partners to capitalize on this insight.

Strategic Alignment: How West Street Embodies "The Lunchline Way"

West Street’s strategy is a natural extension and embodiment of our core investment philosophy:

• Focus on a Niche, Essential Service Market: West Street concentrates exclusively on ECE real estate, a sector we understand intimately through Otter Learning.  This industry is characterized by non-discretionary demand and strong community ties, providing a resilient asset base.

• Proprietary Advantages Through Deep Operational Partnership: The cornerstone of West Street’s success is its exclusive, symbiotic relationship with Otter Learning.  This partnership:

  • Unlocks a value-maximizing acquisition strategy, providing a pipeline of opportunities.

  • Allows West Street to confidently acquire properties, even those with short-term remaining leases, backed by Otter Learning’s guarantee to occupy the space upon renewal.

  • Grants West Street an exclusive first right to purchase real estate assets from Otter Learning’s ongoing school acquisition pipeline, creating a powerful and proprietary deal flow.

• A Disciplined, Value-Add Portfolio Model: West Street employs a clear four-stage model: Buy, Build, Capitalize, and Exit.

  • Buy: We acquire properties at attractive initial entry cap rates, often around 8.0%, leveraging the insights from Otter Learning.

  • Build: Value is actively created by strategically expanding and enhancing locations. This includes site expansions which can drive significant spread, targeted rent increases, and debt paydown.

  • Capitalize: As the portfolio stabilizes and grows, we have the option to refinance on a portfolio basis, optimizing our capital structure.

  • Exit: We plan to opportunistically exit individual assets or groups of assets to investors seeking passive income from strong, resilient tenants in the ECE sector. This model is underpinned by a focus on high-growth geographies and has demonstrated exceptional portfolio performance, with Net Operating Income (NOI) growing 27x since 2019 (a 94% CAGR).

Beyond Financial Engineering: Enhancing Our Core Mission

While the financial returns are compelling, West Street’s strategic importance to Lunchline Partners and Otter Learning extends further:

• Deeper Immersion in a Wonderful End Market: Owning and managing the underlying real estate provides us with another critical layer of engagement with the ECE sector. It deepens our understanding of local market dynamics, operator needs, and the long-term capital requirements of educational facilities, enriching our overall strategic perspective.

• Cultivating Expertise in Enhancing Physical Footprints: West Street is not a passive landlord. We have a dedicated internal team focused on asset optimization, leveraging a robust facilities management function and integrated technology systems.  We actively pursue selective organic expansion opportunities, such as in-place developments targeting a 10-20% increase in leasable area at existing locations, and forge strategic development partnerships to ensure quality and efficiency.  This hands-on approach allows for creative development solutions, like high-ROI modular buildings, to meet evolving needs.  This direct experience in managing and enhancing the physical school environments provides Otter Learning with an invaluable skillset. It means we are continuously learning how to create safer, more engaging, and more efficient learning spaces for children – directly supporting our mission of "What's Best For Children."

Building Value, From the Ground Up

West Street Capital Partners exemplifies the Lunchline Partners philosophy of identifying unique, often overlooked, avenues for value creation and pursuing them with a disciplined, strategic, and hands-on approach. It’s a testament to how integrated thinking – seeing the connections between operating businesses and their underlying real assets – can generate superior returns while simultaneously building capabilities that strengthen our core educational mission. As West Street continues to expand its portfolio of high-quality ECE real estate, it not only contributes significantly to our financial success but also reinforces our commitment to building brighter futures within the communities we serve, quite literally, from the ground up.