Kindred Nursing Centers West

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Kindred Nursing Centers West

Investment Thesis

On July 25, 2014, we funded a $5,600,000 second mortgage development loan for Bioscience Development Partners, LLC for the build-to-suit of a 81,371 square foot transitional care center (TCC) developed by Bioscience Development Partners, LLC for Kindred Nursing Centers West, LLC in Phoenix, AZ on the St. Luke’s Medical Center campus (SLMCC).

  • 81,371 sf, 120 bed prototype TCC.
  • $18.2 million total project cost. $5.6 million investment by Gladstone Commercial.
  • Completed property is encumbered by a 15-year Absolute NNN lease with three (3) ten-year extension options.
  • The property is subject to a 99-year Ground Lease with St. Luke’s Hospital on a 3.1 acre parcel on the SLMCC in Phoenix, AZ.
  • The property is centrally located within the downtown perimeter of Phoenix with direct access to Interstate-10, Loop 202 and Route-51.
  • Phoenix is one of sixteen Integrated Care Markets for Kindred, which already has two transitional care hospitals and one home health affiliate in Phoenix.

Property Photos

Investment Thesis

  • Great Real Estate – Build-to-suit on-campus medical facility is mission critical to Kindred and hospital service providers
  • Strong Credit – Lessee is Kindred Nursing Centers West, LLC, a Delaware based subsidiary of Kindred Healthcare Inc. which is rated B1 by Moody’s and B+ by S&P
  • Structure Reduces Risk, Delivers Strong Returns – Structured as a second mortgage, our development loan’s underwritten returns were fully supported by sale comps of high quality, long term net leased medical facilities.
  • Well located, Mission Critical Location – The property is part of the SLMCC, which will house more than 2 million SF of new healthcare, research and supporting facilities just blocks from the Phoenix central business district (CBD). The SLMCC campus is a rare urban infil development site earmarked for medical and research development.
  • Exit Validates Investment Thesis – The building sold in January 2016, well above the projected sale value. Upon sale of the building we realized a 22% IRR on the investment.

Market Description

The Phoenix metropolitan statistical area (MSA) is one of the fastest growing in the U.S. and has benefited from recent biotech migrations and redevelopments surrounding the CBD. The property is subject to a 99-year Ground Lease with St. Luke’s Hospital on a 3.1 acre parcel on the SLMCC in Phoenix, AZ. The property is centrally located within the downtown perimeter of Phoenix with direct access to Interstate-10, Loop 202 and Route-51. Phoenix is one of sixteen Integrated Care Markets for Kindred, which already has two transitional care hospitals and one home health affiliate in Phoenix.

Tenant Description

Kindred Healthcare Inc., based in Louisville, KY, is an integrated healthcare services company providing rehabilitation services and post-acute care across 46 states. Kindred was incorporated in 1998 as a result of a spin-off of the healthcare operations of Ventas, Inc.  Kindred operates the largest network of transitional care (“TC”) hospitals and inpatient rehabilitation hospitals (“IRFs”) and is the largest operator of skilled nursing contract rehabilitation therapy services in the United States. It is also the fourth largest operator of skilled nursing and rehabilitation centers in the United States.

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