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 trying to take back the prime property for a “windfall profit.”

Edgemere, a continuing care retirement community with over 400 residents that allows seniors to age into different levels of care without moving, said it’s negotiating with its financial stakeholders on a restructuring plan.

Families owed millions of dollars in entrance fee refunds will now become unsecured creditors in the bankruptcy. In its court filing, Edgemere said it intends to honor refund obligations to former and existing residents.

Despite that pledge, some creditors aren’t convinced.

“This filing pretty much confirms for me that we won’t get the money back,” said William Thomas, whose family is awaiting a $293,411 refund from when his late father-in-law, John Stallings, moved out nearly three years ago.

Edgemere said the 1.55-million-square-foot facility with 304 independent living apartments, 113 assisted living suites and 87 nursing beds will continue operating throughout the bankruptcy proceedings.

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

Besides the pandemic’s effect on occupancy and “dramatically” higher labor costs, Edgemere said its 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 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 entrance 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. In addition, Edgemere’s monthly service fees start at about $4,000 a month, higher than the $2,000 to $3,000 a month charged by competitors.

Jesse Jantzen, CEO of Edgemere’s parent company, Lifespace Communities Inc., said in a statement that Edgemere filed for Chapter 11 bankruptcy protection with the support of its bondholders. 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 in a manner that will allow current and future residents to enjoy all that Edgemere has to offer for many years to come,” Jantzen said in the bankruptcy announcement.

Taking on its landlord

Simultaneously with its bankruptcy filing, Edgemere also sued its landlord, Intercity Investments Inc., and private equity firm Kong Capital, which has been working with Intercity.

The 188-page lawsuit accuses Intercity of working with Kong Capital to terminate Edgemere’s 55-year ground lease so it could “make a windfall profit” by turning it into a senior living rental community. Edgemere said it “intends to pursue the lawsuit vigorously.”

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

Intercity Investments declined to comment on the allegations.

During discussions in late 2021 about restructuring the lease, 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 form its own plan to destroy Edgemere, according to the lawsuit. It claims Intercity contacted residents through social media in an attempt to “frighten them that Edgemere would be unable to repay their entrance fees,” while leaving out its plan to repurpose the property and “leave the residents no hope of a refund.”

The News first reported on Edgemere’s financial woes 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 of outstanding debt. Court filings showed Edgemere’s monthly rent payment was $357,878.

Because Intercity and Kong Capital went public with Edgemere’s financial condition, the lawsuit said, call volume from prospective residents dropped, tours for potential new residents diminished and people previously committed to moving in delayed signing contracts.

In 2021, Edgemere signed contracts for units with 48 new residents, an average of four each month. Since February, Edgemere has not made any new sales, the lawsuit said.

How are residents feeling?

Edgemere posted a Q&A for residents assuring them that filing for Chapter 11 doesn’t mean it’s going out of business and is a “positive step” for current and future residents.

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

“I was expecting a lot of gasps and concern and, to my surprise, everyone was very pleased it had taken place,” he said. “Everyone was very happy because they felt it was the right move.”

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

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

Edgemere’s continuing care operates on an entrance fee model and requires a large sum upfront of between $345,000 to $1.45 million and then a monthly fee, which ranges from $4,176 to $8,933 for independent living. Many residents sell their homes to afford the fee because their contract states that up to 90% is refundable to them or their estates, provided that Edgemere resells their unit to a new resident who pays a new entrance fee and moves into the unit.

But with Edgemere’s falling occupancy rates — dropping from 93.3% in 2018 to 74% last year — it hasn’t been able to resell units and return deposits to families.

Edgemere is continuing to give refunds, with the latest being issued April 8, said spokeswoman Rachel Chesley. Recent refunds went to residents who recently died or left the community after two conditions had been met: the resident moved out of their unit and into a higher level of care within the community before Sept. 27, 2021, and Edgemere resold the unit prior to Sept. 27.

When Edgemere wasn’t able to pay its rent last fall, it took steps to protect new resident deposits received after Sept. 27 by placing them with an escrow agent.

Frost’s mother moved out in March 2018 and died a little over a year ago. Her unit sat empty for nearly three years before it was leased in November. But because that came after Sept. 27, the new entrance fee is being held by the escrow agent and Frost hasn’t received a refund.

As of April 13, Edgemere had entrance fee liabilities to current residents totaling $122.8 million, which will come due as residents die or move out. It also owes $25.5 million to former residents whose units haven’t been resold.

Edgemere’s bankruptcy filing lists its 30 largest unsecured claims, which total $25.5 million and include one resident owed $1.3 million.

There is at least one family lawsuit already against Edgemere.

Pamela Siviglia and Andrew Adams sued Edgemere in February on behalf of the estate of their mother, Patricia Adams, who died Feb. 18, 2019. The siblings’ lawsuit said they’re awaiting a $449,100 refund after three years.

Edgemere’s disclosure documents specify that refunds aren’t issued until a resident’s unit is resold and a new entrance fee is paid. Adams said in his lawsuit that the disclosure statement wasn’t 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 in Sidley Austin’s restructuring group who has represented care communities in numerous bankruptcies.

“Communication is key to a successful restructuring,” he said. “You want to give the residents confidence that you’re doing the right thing, and the best way to do that is to help them get competent legal counsel.”

Since residents and their families are considered unsecured creditors, they have to get in line to get paid. Holders of secured bonds have first priority rights and must be paid the value of their collateral, Califano said. Other assets aren’t subject to secured claims and everyone, including residents and vendors, have equal opportunities to recoup their money.

Califano said in the two dozen cases he’s been involved with across the country, he’s been able to protect entrance fees in every case. He said bondholders recognize that if entrance fees aren’t repaid, it permanently harms the facility.

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

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

The bankruptcy resulted in the Buckingham attaching conditions to paying back its unsecured creditors, such as having 135 days of cash on hand. Otto said he was told by lawyers and other unsecured creditors with financial backgrounds that the conditions are so unlikely, he shouldn’t expect to see the money.

“I feel really bad for the people in Dallas because I know what’s gonna happen,” he said. “They’re going to lose their money.”

Edgemere is a high-end retirement home in Dallas with 304 independent living apartments, 113...
Edgemere, one of Dallas' premier retirement communities, is battling falling occupancy...