Judge approves $10m funding for Edgemere, backtracks on owner
Edgemere, the luxury Dallas retirement home that filed for bankruptcy in mid-April, will be allowed to tap $10.1 million in funding to see it through to the end of the year as it is reorganizing under the supervision of a court.
U.S. Bankruptcy Judge Michelle Larson last week approved the 504-unit community operators’ emergency funding request that allows seniors to age in different levels of care without moving, according to court documents.
The judge said there were numerous objections to the funding, including from the official Unsecured Creditors’ Committee, which represents families seeking reimbursement of entry fees. The committee said he was concerned that $10.1 million would not be enough to cover operating and other administrative expenses.
The judge also ruled that Edgemere did not need to immediately pay rent to its landlord, InterCity Investments, but had to set aside those funds in an escrow account to prove it had the money.
Larson said Edgemere appears to have a genuine interest “in ensuring liquidity and success during the reorganization.”
“They have a vested interest in keeping Edgemere in the best possible condition,” she said.
Edgemere lost $30 million in 2021 partly due to lower occupancy rates. His bankruptcy filing says his assets and liabilities are between $100 million and $500 million, and his creditors total up to 5,000, including families whose relatives made large down payments to move into Edgemere .
The judge was well aware that the relationship between the nursing home and its owner had deteriorated. The owner is upset that Edgemere has been struggling financially, due to increased competition in the area, large capital expenditures and the impact of COVID-19 on move-ins.
Edgemere defaulted on rent payments from last autumn before bondholders spared him by paying the rent he had missed. Edgemere is also angry with the owner, whom he accused of trying to reclaim the land with private equity firm Kong Capital.
“I am aware of the long and acrimonious relationship between the parties over the past two years, and I do not want this litigation to impact this Chapter 11 reorganization any more than necessary,” the judge said.
InterCity holds a 55-year ground lease on the prime property where the 1.55 million square foot facility was built. The judge said InterCity had been unable to prove that its financial interest in the property had diminished or to identify “actual issues with the maintenance of the property”.
The judge said InterCity is entitled to an inspection of the property to ensure it is maintained, but that inspection must be scheduled in advance and “must not be overly intrusive”.
“Property inspection should only go so far as to protect the landlord’s interest under the lease and not be a tool of further protected disturbance, litigation or animosity,” she said. .
In his court case against InterCity filed in April, Edgemere told the judge that InterCity requested three inspections between November 2021 and March 2022. The retirement home said these were the only inspections requested during the entire term of its lease, which started in 1999.
“Intercity and its agent and representative Kong used these inspections to assess how to prepare the community for an alternative use after destroying Edgemere’s business and thereby creating a boon for themselves,” the lawsuit said.
Larson also noted that she did not want to hear about the inspection results in the media.
“I will not tolerate play that is intended to scare residents or create disruption,” she said.
Setting up an escrow account for rent payments was the right move because it’s “too big an expense to ignore”, the judge said. Earlier court documents showed Edgemere paid $350,000 in monthly rent to InterCity.
“This is the property that hundreds of residents live on,” she said. “The court finds that the reserve will provide the protection the landlord wants as well as some comfort to residents and other creditors concerned that debtors may run out of funds to pay these lease obligations. It just can’t happen.