A look at the Mainstreet business model

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INDIANAPOLIS (AP) — Here's how the nursing home business run by Rep. Eric Turner's family works:

Mainstreet Property Group pays for the construction of a nursing home. It typically uses a mix of its own money, private investments from high-net worth individuals and public financing to secure a short-term construction loan from a bank. Usually, the bank requires Mainstreet to contribute 20 percent of the project cost before lending the company the other 80 percent.

In some cases, Mainstreet will get financing from the cities where the facilities are located. They provide the other 80 percent, or more, of the construction costs by issuing the municipal bonds.

As the facility is being built, Mainstreet leases the property to a nursing home operator, usually for 10 years. Once the nursing home is leased, the company sells it to HealthLease Properties, a Canadian company founded by Turner's son. The sale price is always enough to repay the private investors and the bank, and to provide Mainstreet with a tidy profit — usually between $2 million and $4 million.

Here's an example: In 2012, Mainstreet combined $750,000 of its own money with private loans and public financing from the city of Westfield in the Indianapolis suburbs to build a $14.1 million nursing home named Wellbrooke of Westfield.

Once the building was leased to an operator, Mainstreet sold it for $18.6 million to HealthLease. The deal returned $14.1 million to the private investors and the city of Westfield, netting the company a profit of $4.5 million.

So how does HealthLease afford to buy the nursing homes?

HealthLease raised $110 million (Canadian) in 2012 through its initial public offering on the Toronto Stock Exchange and later bought another company that owns nursing homes that are already producing rent. That connection allowed it to establish a line of credit now worth $250 million. It uses that money, in part, to buy the nursing homes that Mainstreet builds.

What are the risks?

There are two. For HealthLease, it comes if the operators that have leased the nursing homes are unable to fill the beds with patients, in which case they no longer have the money to pay the rent that is HealthLease's primary source of income. For Mainstreet, anything that would keep the company from building nursing homes — such as the proposed Indiana ban — puts its revenue at risk.

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