Developer Leo Brown Launches Post-Acute Pipeline, Taps Mainstreet Alums

Leo Brown Group has become well-established as a senior housing developer since its founding in 2006, and now the company is branching out with a new push into post-acute care.

The company has tapped two executives formerly with Carmel, Indiana-based Mainstreet, the nation’s largest transitional care developer, to lead the effort.

Up to this point, Indianapolis-based Leo Brown has primarily developed independent living, assisted living, and memory care properties operated by its affiliate, Traditions Management. Traditions now is managing more than 1,500 senior housing units throughout Indiana, Ohio, and Kentucky. While Leo Brown will continue to expand its senior living footprint, it is starting a new push into transitional care properties, which will be operated by third-party management companies.

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In the past, the developer has done some work in the skilled nursing space, with TLC Management.

As part of this new effort, the developer hired two executives in late 2016: Chris King joined the company as vice president of finance and Bill Morton joined as vice president of development. Both previously worked for Mainstreet—King as director of capital markets and Morton as director of business development.

“We’ve brought on two fabulous partners,” Mike Wagner, president of Leo Brown Group, told Senior Housing News. “We see post-acute opportunity in markets we’re currently in as well as outside of markets with Traditions senior living.”

In addition to the Midwest, the Southwest and Southeast are being targeted in particular, King told SHN. High-barrier-to-entry markets, including those with certificate of need requirements, are the sweet spot. Currently, three to five projects are expected to break ground late this year or early in 2018, with development costs in the $12 million to $15 million range per project and 50-60 units on average.

Financing is expected to come through equity partners already established with Leo Brown and debt provided primarily by regional banks. The developer also struck a relationship with Sabra Health Care REIT (Nasdaq: SBRA) in 2015, in which Sabra provided equity in return for purchase options on Leo Brown properties. The two companies continue to have a strong partnership, King said.

Despite the Mainstreet pedigree of King and Morton, they are not necessarily going to create properties strictly in the high-end, resort-like Mainstreet mold.

“It really depends on close market analysis, we’re not going to build extravagant buildings unless it makes sense,” King said. “The building designs are really going to involve the operator, we don’t have a prototype.”

Leo Brown is interested in working with “progressive” skilled nursing operators looking to grow, according to King.

While Traditions will not operate the short-stay building, and Leo Brown does not at this point foresee starting its own post-acute management company, there are co-location opportunities. That is, there are two potential projects in the works involving both a Traditions building and a Leo Brown-developed transitional care building.

“We feel like we can leverage what we’ve done on the senior living side to essentially create a quasi-CCRC [continuing care retirement community],” Wagner said.

Leo Brown foresees its post-acute platform to grow at the same slow-but-steady clip as its senior living arm.

On the senior living side of the business, the developer typically opens two to three properties a year, and this pace will continue, according to Wagner. The company currently is on track to start three projects this year, with total costs exceeding $75 million.

It might seem like a risky time to enter skilled nursing. The sector faces considerable headwinds, including census pressures due to managed care growth, an uncertain regulatory environment, and tight labor markets.

However, King believes that with careful market selection, strong relationships with local referral sources, and best-in-class regional operating partners, there is an opportunity to seize.

“We see it as more opportunity as bigger operators exit,” he said. “We can provide value in terms of capital and development expertise, and identify underserved markets. The average age of a nursing home is 30-plus. There is a lot of aging product and an aging population.”

Written by Tim Mullaney

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