How Avenue Development Built Two High-End Skilled Nursing Facilities — From Research to a $38M Deal

When LTC Properties (NYSE: LTC) announced a $38 million deal to buy a pair of high-end transitional rehab facilities in Missouri, it marked the end of a multi-year planning process that saw a skilled nursing developer try to plug holes in the area’s health care system.

The transaction covered a completed skilled nursing facility in Kansas City and a site currently under development in Blue Springs, Mo., both under the operation of specialty post-acute provider Ignite Medical Resorts.

Executives at the real estate investment trust (REIT) touted the deal as a “unique” opportunity in the current acquisition landscape during the company’s second-quarter earnings call last week, citing the 90% occupancy at the completed building and the opportunity to have a new ground-up development in its portfolio.

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But the story of the two properties stretches all the way back to 2016, when leaders at Avenue Development began probing the greater Kansas City marketplace for opportunities.

“We spent six months vetting the market and talking to the health systems and the payers in that market — the gaps in the partnerships that they were in dire need of,” Michael Mattingly, principal at the Indianapolis-based developer of health care and senior living properties, told SNN.

Those discussions included talks with Medicare Advantage heavyweights such as Blue Cross Blue Shield and Humana, as well as key hospital referral partners in the area like North Kansas City Hospital and Saint Luke’s.

“Could a post-acute partner survive?” Mattingly said of his mindset during the exploratory phase. “Would they add value to these other health systems?”

Mattingly and Avenue Development soon determined the answer was yes, and set about sourcing the land and requisite certificate of need (CON) approval for the twin 90-bed facilities. Avenue additionally served as the developer for the properties, and secured its own financing to fund the project, Mattingly said.

“We have always liked the complexity of skilled nursing,” he said. “For us, it’s really important for our development company to understand what it takes for our operating partners to become successful. I think that anyone can kind of put together a real estate investment package and build the building, but our mission really is to enter and penetrate the markets.”

Ignite came aboard as a partner last year, serving as the inaugural operator of the Kansas City facility and positioning itself as the heir apparent for the Blue Springs property when it opens in the fall of 2020. The Niles, Ill.-based operator has seen gradual but steady growth since its co-founding in 2017 by former Symphony Post Acute Network president Tim Fields, inaugurating the Kansas City building in 2018 and plotting developments in McHenry, Ill. and the greater Milwaukee market.

In keeping with the “medical resort” style, Ignite’s buildings primarily target short-stay residents who need a few days of rehabilitation following a surgery, with a blend of hotel-style hospitality — such as a touchscreen food ordering system and an on-site barbecue restaurant — and high-level medical services, including on-site laboratory capabilities.

That focus on short-stay residents played into Avenue Development’s decision to partner with Ignite on the Missouri properties, Mattingly said.

“We can’t fit a really solid group that operates 80% long-term care into a post-acute setting,” he said. “Those things just don’t mold well.”

The Milwaukee facility also attracted the attention of National Health Investors (NYSE: NHI), which backed the 144-bed development with $25 million late last year in conjunction with Villa Healthcare.

Michelle Kelly, senior vice president of investments at the REIT, told SNN earlier this year that the impending implementation of the Patient-Driven Payment Model — which will at least theoretically reward SNFs that can care for higher-acuity patients — made the deal attractive, despite NHI’s overall desire to keep its mix of skilled nursing facilities steady at around 30%.

“It feels like it should be a home run,” Kelly said. “And I wouldn’t say that about a lot of skilled nursing, but this certainly checked off a lot of boxes.”

As for the Missouri properties, Mattingly said he fielded interest from several potential buyers that were interested in picking up both facilities to help develop a footprint in the region, with LTC eventually emerging as the real estate partner; the transaction marks the first pairing between the REIT and Ignite, Fields told SNN.

Avenue continues to chase potential skilled nursing, private-pay senior living, and medical office development deals across the Midwest; the company also soon plans to launch its own construction arm, according to Mattingly. And as the development firm grows, the importance of detailed market research will only increase, as Medicare Advantage penetration — itself a highly local metric — continues to rise and other market factors can shift even in a matter of months.

“We really dig in deep in what it takes — what kind of mix is actually reality in this market in order to underwrite it before we even bring it to one of our operating partners’ tables,” Mattingly said. “It’s not in anyone’s interest to put something that may or may not survive in front of somebody.”

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