Dallas retirement community Edgemere filed for bankruptcy Thursday, citing financial pressures from the COVID-19 pandemic and last year’s Texas freeze, and accused its landlord of attempting to repossess the prime property for a “windfall gain.”
Edgemere, a continuous care senior living community with over 400 residents that allows seniors to age without moving to different levels of care, said it is negotiating a restructuring plan with its financial stakeholders.
Families owed millions of dollars in admission fees are now becoming unsecured creditors in bankruptcy. In its court filing, Edgemere said it intends to honor reimbursement obligations to former and existing residents.
Despite this promise, some believers are not convinced.
“This application pretty much reassures me that we’re not going to get the money back,” said William Thomas, whose family is awaiting a $293,411 refund after his late father-in-law John Stallings moved out nearly three years ago.
Edgemere said the 1.55 million square foot facility, which has 304 self-contained apartments, 113 assisted living suites and 87 nursing beds, will continue to operate during the bankruptcy proceedings.
The bankruptcy filing estimates that Edgemere has between 1,000 and 5,000 creditors. Its assets and liabilities are estimated to be between $100 million and $500 million.
Along with the impact of the pandemic on occupancy and “dramatically” higher labor costs, Edgemere said his property insurance increased from $92,000 in 2019 to $582,000 in 2020 due to the ice storm and its location in a high-risk area for wind and hail.
Edgemere also noted increased competition from lower-cost options in Dallas. There are nine ongoing care senior communities within a 10-mile radius of Edgemere, including Ventana by Buckner, which opened in 2019, and Legacy Senior Communities, which opened in August 2020.
Edgemere’s entry fees range from $345,000 to $1.4 million, while the average for foster communities in the Dallas market is $435,254, according to a filing. Additionally, Edgemere’s monthly service fees start at around $4,000 per month, higher than the $2,000 to $3,000 per month charged by its competitors.
Jesse Jantzen, CEO of Edgemere’s parent company, Lifespace Communities Inc., said in a statement that Edgemere, with the support of its bondholders, has filed for Chapter 11 bankruptcy protection. He declined an additional interview with The Dallas Morning News.
“We remain steadfast in our commitment to our residents as we work through this process so that current and future residents can enjoy all that Edgemere has to offer for years to come,” Jantzen said in the bankruptcy filing.
takeover of his landlord
Concurrent with its bankruptcy filing, Edgemere also sued its landlord, Intercity Investments Inc., and the private equity firm Kong Capital, which has worked with Intercity.
The 188-page lawsuit alleges Intercity worked with Kong Capital to terminate Edgemere’s 55-year leasehold lease so it could “reap an unexpected profit” by converting it into a senior citizens’ residential community. Edgemere said it “intends to vigorously pursue the lawsuit.”
The lawsuit accuses Intercity of “outrageous conduct” in destroying Edgemere’s business so it could retake the property in one of Dallas’ most desirable areas. The allegations include breach of contract, fraud, business interference and civil conspiracy.
Intercity Investments declined to comment on the allegations.
During late 2021 talks on lease restructuring, Edgemere said it had provided Intercity with “a significant volume of highly confidential and proprietary information, including financial and operational information,” under a non-disclosure agreement.
Intercity then used this information to develop its own plan to destroy Edgemere, according to the lawsuit. It is claimed Intercity has contacted residents via social media to try to do so “They’re appalled that Edgemere won’t be able to repay their entrance fees,” while abandoning his plan to repurpose the property and “leaving residents no hope of a refund.”
The news first reported Edgemere’s financial woes in February after an agreement that allowed the company to defer monthly rent payments to Intercity and interest and principal on its $109 million outstanding debt expired. Court records showed Edgemere’s monthly rent payment was $357,878.
As Intercity and Kong Capital went public about Edgemere’s financial condition, the lawsuit said call volumes from potential residents decreased, tours for potential new residents decreased, and people who had previously committed signed contracts with delays.
In 2021, Edgemere signed contracts for units with 48 new residents, an average of four per month. Edgemere has not made any new sales since February, the lawsuit said.
How are the residents?
Edgemere released a Q&A for residents, assuring them that filing for Chapter 11 does not mean it is going out of business and is a “positive step” for current and future residents.
Residents are not upset or concerned, said Dr. Paul Radman, a former endodontist and President of the Edgemere Resident Association. When Lifespace CEO Jantzen met with Edgemere residents Thursday to explain the filing, residents felt relieved, he said.
“I was expecting a lot of gasping and concern and to my surprise everyone was very pleased that it had taken place,” he said. “Everyone was very happy because they felt it was the right move.”
For families awaiting payment from Edgemere, sentiment is less positive.
“We’re very disappointed,” said Michael Frost of Austin, who is awaiting a refund of his mother’s approximately $270,000 bail from 2016. “The bail was key to our decision to choose Edgemere. The down payment gave us the assurance that my mother would have somewhere to live for the rest of her life.”
Edgemere’s ongoing care is based on an entry fee model and requires a large upfront fee of $345,000 to $1.45 million and then a monthly fee that ranges from $4,176 to $8,933 for independent living. Many residents sell their homes to afford the fee as their contract states that up to 90% will be returned to them or their properties provided Edgemere resells their unit to a new resident who pays a new entry fee and moves into the unit.
But with Edgemere’s declining occupancy rate — which has fallen from 93.3% in 2018 to 74% last year — it hasn’t been able to resell units and repay deposits to families.
Edgemere continues to issue refunds, with the latest being issued on April 8, spokeswoman Rachel Chesley said. Recent refunds have gone to residents who have recently died or left the community after two conditions were met: the resident moved from their unit to a higher tier of care within the community before September 27, 2021, and Edgemere resold the unit prior to that 27 Sep
When Edgemere was unable to pay its rent last fall, it took steps to protect deposits from new residents received after September 27 by placing them with a trustee.
Frost’s mother moved out in March 2018 and died just over a year ago. Her unit sat vacant for almost three years before being rented out in November. But because that came after September 27, the new entry fee will be withheld by the trustee and Frost has not received a refund.
As of April 13, Edgemere had gatekeeping liabilities to current residents totaling $122.8 million that become due when the residents die or move out. It also owes $25.5 million to former residents whose units were not resold.
Edgemere’s bankruptcy filing lists its top 30 unsecured debts, totaling $25.5 million, of which a resident owes $1.3 million.
There is already at least one family lawsuit against Edgemere.
Pamela Siviglia and Andrew Adams sued Edgemere in February on behalf of the estate of their mother, Patricia Adams, who died on February 18, 2019. The siblings’ lawsuit says they are waiting for a $449,100 refund after three years.
Edgemere’s disclosure documents state that refunds will not be issued until a unit has been resold and a new entry fee has been paid. Adams said in his lawsuit that the disclosure statement was not attached to the agreement he signed.
What happens next?
Senior communities with ongoing care that enter bankruptcy proceedings will often hire an attorney to represent residents and their interests, said Thomas Califano, a partner in Sidley Austin’s restructuring group, who has represented care communities in numerous bankruptcies.
“Communication is the key to a successful restructuring,” he said. “You want to give residents confidence that you are doing the right thing, and the best way to do that is to help them find competent legal counsel.”
Because residents and their families are considered unsecured creditors, they have to queue to get paid. Secured bondholders have priority rights and must preserve the value of their collateral, Califano said. Other assets are not subject to secured claims and everyone, including residents and sellers, has equal opportunities to get their money back.
Califano said that in the two dozen cases he was involved in across the country, he was able to protect the entrance fees in every case. He said bondholders recognize that failure to repay admission fees is causing lasting damage to the facility.
The COVID-19 pandemic has hit senior living communities hard, leading to a series of bankruptcies including the Buckingham in Houston, the AltaVita Village in Riverside, California, the Inverness Village in West Tulsa, Okla., and the Barrington of Carmel in Carmel, Indiana.
Driscoll Otto is an unsecured creditor in the Buckingham case in Houston. His mother, Ruthe Wilson, moved into the home in 2015 and died in October 2020. He owed him a $539,100 refund.
The bankruptcy resulted in Buckingham placing conditions on the repayment of its unsecured creditors, e.g. B. Having cash available for 135 days. Otto said he was told by lawyers and other unsecured creditors with a financial background that the terms were so unlikely that he shouldn’t expect to see the money.
“I feel really bad for the people of Dallas because I know what’s going to happen,” he said. “You will lose your money.”