Dallas luxury retirement home Edgemere files for bankruptcy and sues owner

Dallas retirement community Edgemere filed for bankruptcy on Thursday, citing financial pressures from the COVID-19 pandemic and last year’s Texas freeze, and accused its landlord of trying to repossess the property principal for “exceptional profit”.

Edgemere, a continuing care retirement community with over 400 residents that allows seniors to age in different levels of care without relocating, mentioned it negotiates a restructuring plan with its financial stakeholders.

Families who owed millions of dollars in entry fee refunds will now become unsecured creditors in bankruptcy. In her court filing, Edgemere said she intended to honor former and existing residents’ repayment obligations.

Despite this promise, some creditors are not convinced.

“This file pretty much confirms to me that we won’t get the money back,” said William Thomas, whose family has been waiting for a $293,411 refund since his late father-in-law John Stallings left nearly a year ago. of three years.

Edgemere said the 1.55 million square foot facility with 304 self-contained living apartments, 113 assisted living suites and 87 care beds will continue to operate throughout the bankruptcy proceedings.

The bankruptcy filing estimates that Edgemere has between 1,000 and 5,000 creditors. Its assets and liabilities are both estimated between $100 million and $500 million.

Along with the pandemic’s effect on occupancy and “significantly” higher labor costs, Edgemere also cited increased competition from lower-cost options in Dallas. There are nine continuing care retirement communities within 10 miles of Edgemere, including Ventana by Buckner, which opened in 2019, and Legacy Senior Communities, which opened in August 2020.

Edgemere’s entry fees range between $345,000 and $1.4 million, while the average for continuing care 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, which is higher than the $2,000 to $3,000 per month charged by competitors.

Jesse Jantzen, CEO of Edgemere’s parent company, Lifespace Communities Inc., said in a statement that Edgemere has filed for Chapter 11 bankruptcy protection with the support of its bondholders. He declined a further interview with The Dallas Morning News.

“We remain true to our commitment to our residents as we work through this process in a way that will allow current and future residents to enjoy all that Edgemere has to offer for many years to come,” said Jantzen in the bankruptcy announcement.

Take it out on its owner

Simultaneously with its bankruptcy filing, Edgemere also sued its owner, Intercity Investments Inc., and private equity firm Kong Capital, which works with Intercity.

The 188-page lawsuit accuses Intercity of working with Kong Capital to terminate Edgemere’s 99-year land lease so it can “make a windfall profit” by turning it into a rental community for seniors. Edgemere said he “intends to pursue the lawsuit vigorously.”

The lawsuit accuses Intercity of “outrageous conduct” to destroy Edgemere’s business so it can take over property in one of Dallas’ most desirable neighborhoods. The allegations include breach of contract, fraud, interference with its business and civil conspiracy.

Intercity Investments declined to comment on the allegations.

During late 2021 lease restructuring discussions, Edgemere said it provided Intercity with “a substantial volume of highly confidential and proprietary information, including financial and operational information” under a nondisclosure agreement.

Intercity then used that information to come up with its own plan to destroy Edgemere, according to the lawsuit. He claims that Intercity contacted residents via social media in an attempt to “frightening them that Edgemere would not be able to refund their entrance fees”, while shelving its plan to repurpose the property and “leaving residents no hope of reimbursement”.

The news first reported on Edgemere’s financial difficulties in February, following the expiration of an agreement that allowed the company to delay monthly rent payments to Intercity as well as interest and principal on its $109 million in outstanding debt. Court filings showed Edgemere’s monthly rent payment was $357,878.

Because Intercity and Kong Capital made Edgemere’s financial situation public, according to the lawsuit, call volume from potential residents dropped, visits from potential new residents declined, and people previously hired to move into contracts delayed signatures.

In 2021, Edgemere signed contracts for units with 48 new residents, an average of four per month. Since February, Edgemere has not entered into any new residency contracts, according to the lawsuit.

How do the locals feel?

Edgemere published a Questions and answers for residents assuring them that filing for Chapter 11 does not mean he is bankrupt and that it is a “positive step” for current and future residents.

Residents aren’t angry or worried, said Dr. Paul Radman, a former endodontist and president of the Edgemere Resident Association. When Lifespace CEO Jantzen met with Edgemere residents on Thursday to explain the case, residents felt relieved, he said.

“I expected a lot of gasps and worries and to my surprise everyone was very happy that it happened,” he said. “Everyone was very happy because they thought it was the right decision.”

For families awaiting payment from Edgemere, feelings are less positive.

“We are very disappointed,” said Michael Frost of Austin, who is awaiting a refund on his mother’s deposit of approximately $270,000 from 2016. “The deposit was key for us to choose Edgemere. deposit gave us the comfort of knowing that my mother would have a place to live for the rest of her life.

Edgemere Continuing Care operates on an entry fee model and requires a large initial sum of between $345,000 and $1.45 million, then monthly fees ranging from $4,176 to $8,933 for a lifetime independent. Many residents sell their home to pay the fees, as their contract states that up to 90% is refundable to them or their estate, provided that Edgemere sells their home to a new resident who pays a new entrance fee and moves in. in the accommodation.

But with Edgemere’s occupancy rates declining — from 93.3% in 2018 to 74% last year — it has been unable to resell units and return deposits to families.

Edgemere is continuing to issue refunds, with the latest being issued on April 8, spokeswoman Rachel Chesley said. Recent refunds have been granted to residents who have recently died or left the community after two conditions have been met: the resident left their unit and moved to a higher level of care within the community before September 27 2021, and Edgemere resold the unit by September 27.

When Edgemere was unable to pay rent last fall, it took steps to protect new residents’ deposits received after September 27 by placing them with an escrow agent.

Frost’s mother moved out in March 2018 and died just over a year ago. His unit sat empty for nearly three years before being rented out in November. But because it happened after September 27, the new entry fee is held by the trustee and Frost has not received a refund.

As of April 13, Edgemere had entrance fee debts to current residents totaling $122.8 million, which will mature as residents die or move out. She also owes $25.5 million to former residents whose homes have not been resold.

Edgemere’s bankruptcy filing lists its 30 largest unsecured debtswhich total $25.5 million and include a resident who owed $1.3 million.

There’s 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 said they were expecting a refund of $449,100 after three years.

Edgemere’s disclosure documents specify that refunds are not issued until a resident’s unit is resold and a new entrance fee is paid. Adams said in his lawsuit that the disclosure statement was not attached to the agreement he signed.

What happens next?

Continuing care retirement communities entering the bankruptcy process will often hire an attorney to represent residents and their interests, said Thomas Califano, a partner at Sidley Austin’s restructuring group who has represented CCRCs in numerous bankruptcies.

“Communication is the key to a successful restructuring,” he said. “You want to reassure residents that you are doing the right thing and the best way to do that is to help them find a competent lawyer.

Since residents and their families are considered unsecured creditors, they must line up to be paid. Secured bondholders have first priority rights and must receive the value of their collateral, Califano said. Other assets are not subject to guaranteed claims and everyone, including residents and sellers, has an equal chance of getting their money back.

Califano said in the two dozen cases he’s been involved in across the country, he’s been able to protect the entry fee in all cases. He said bondholders recognize that if entry fees are not refunded, it permanently harms the facility.

The COVID-19 pandemic has hit senior communities hard, leading to a series of bankruptcies, including the Buckingham in Houston, AltaVita Village in Riverside, Calif., Inverness Village in West Tulsa, Oklahoma, and Barrington of Carmel in Carmel, Ind. .

Driscoll Otto is an unsecured creditor in the Buckingham case in Houston. His mother, Ruthe Wilson, moved into the house in 2015 and died in October 2020. He owed a refund of $539,100.

The bankruptcy led Buckingham to attach conditions to the repayment of its unsecured creditors, such as having 135 days of cash on hand. Otto said lawyers and other unsecured creditors with financial histories told him the terms were so unlikely 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. “They will lose their money.

Edgemere, one of Dallas' premier retirement communities, is battling declining occupancy...

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