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The Dose

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Health Care / Health Care & Insurance / Health Care & Life Sciences / Real Estate & Retail

Mainstreet accused of not paying nearly $2M in fees to adviser

October 17, 2016

Much of business is about setting up relationships and nurturing them.

But a Chicago company that specializes in introducing companies to each other in the senior-housing industry is accusing Carmel-based Mainstreet Property Group of not holding up its end of the deal.

Heavenrich & Co. has filed suit in U.S. District Court, alleging that Mainstreet owes up to nearly $2 million for finding a big investor for several projects and refusing to pay.

Mainstreet, one of the fastest-growing companies in central Indiana, denied the allegation, saying it had no signed contract with Heavenrich.

Mainstreet specializes in building “transitional care properties,” which provide short-term stays for patients after they are discharged from a hospital. The company has developed 24 transitional care properties in Indiana and a total of 29 across the country, with an additional 30 projects in development.

All those projects can cost millions of dollars to build, requiring a steady infusion of funds. Heavenrich, a boutique investment brokerage firm that has help closed dozens of deals in senior housing, said it was instrumental in helping Mainstreet raise $130 million.

According to the complaint, the dispute unfolded this way:

Mainstreet approached Heavenrich in 2014, asking for help in finding investors to help finance up to 45 transitional care properties.

“Let’s get this done. A win for both of us,” Mainstreet executive Scott White wrote in an email to the Chicago firm’s managing director, Adam Heavenrich, in August 2014.

A month later, White said Mainstreet was looking to raise money for a second deal: buying existing senior housing facilities.

White and Heavenrich met on Sept. 14, 2014, to discuss the projects. In the course of the discussion, Heavenrich said he had “a funding source who would be a good fit” for both deals.

White asked for the investor’s name. Heavenrich identified the investor as Magnetar Capital LLC, a $13 billion asset management company based in Evanston, Illinois.

The complaint does not say whether Heavenrich and Mainstreet ever had a signed contract. But it said the Heavenrich had already explained that his firm “would expect and demand a fee for the service of introducing an equity investor who ended up making investments with Mainstreet.”

It continued: “Therefore, when White asked Adam [Heavenrich] to disclose the name of Heavenrich & Co.’s equity source, Adam understood that Mainstreet had hired Heavenrich & Co. and that Mainstreet would pay Heavenrich & Co. a fee for any funds Mainstreet received.”

The investment route took several twists and turns over the two deal proposals. But, in the end, Magnetar invested $130 million in Mainstreet, much of it in the second deal.

In February 2015, White sent another email to Heavenrich, saying: “Thank you very much for bringing [Magnetar] to us.”

The typical fee paid to a broker is 1 percent to 1.5 percent, Heavenrich said. That means he was entitled to $1.3 million to $1.95 million in fees by Mainstreet.

But instead, Mainstreet sent a letter on May 25, 2016, saying it would not be paying a fee. It claimed that Heavenrich had originally introduced Magnetar “for the sole purpose” of an initial, small deal that turned into a “friends and family deal.”

Heavenrich said he agreed to pass on fees for the first deal, but expected a fee on the second, large deal.

“Mainstreet and Heavenrich & Co. had a contract implied in law from which Mainstreet received a valuable benefit,” the complaint said. “Mainstreet’s unjust retention of the benefit … without compensating Heavenrich & Co. violates the fundamental principles of justice, equity and good conscience.”

Heavenrich pointed out that Mainstreet credited his firm for both deals in press releases. "Heavenrich & Company Inc. acted, in part, as an advisor to Mainstreet," a press release on the first deal said.

On the second deal, Mainstreet approved of language that Heavenrich & Co. had "identified" a large capital partner, meaning Magnetar, the complaint said.

In a written statement Monday, Mainstreet denied that it owed Heavenrich & Co. any money.

“We take this allegation very seriously,” Mainstreet said. “The plaintiff introduced Mainstreet to a potential investor with the understanding no fee would be paid by Mainstreet, thus no contract was signed by the parties. As a result, we do not believe we owe the plaintiff anything.”

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