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High-end Dallas retirement communities’ problems with finances worry investors and the landlord.

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Edgemere, one of Dallas' premier retirement communities, is battling falling occupancy levels, dwindling cash on hand and bondholders and a landlord wanting payment.(Tom Fox / Staff Photographer )

High-end Dallas retirement communities. The declining occupancy rate and an expired forbearance contract have raised questions about the financial condition in one of Chicago’s top retirement communities.

The financial condition of Edgemere, one of Dallas’ top senior communities, is affected by a decline in occupancy and an unfinished deal with its bondholders and landlords, which allowed it to put off the payment of monthly installments since October.

Edgemere’s financial disclosures and independent assessments by an investment firm that was hired by the landlord and an important credit-rating agency show the luxurious senior living facility’s difficult cash situation.

The company that runs the community, which allows residents to pay fees for entrance up to $1.4 million, warned bond investors that they have fallen well short of a requirement of keeping at least 150 days’ worth of cash in reserve in a report filed that was filed with Electronic Municipal Market Access. EMMA is a part that is part of the Municipal Securities Rulemaking Board, which safeguards investors, local and state authorities, as well as those in the public interest.

As of December. 31 Edgemere reported it had the equivalent of 62 days’ worth of money — or enough to cover the month of March 3.

The risk is compounded by an expiring forbearance contract with the Dallas-based Intercity Investment Properties Inc. The company owns sixteen acres of North Dallas land wedged between Preston Hollow and University Park, in which Edgemere first opened its doors in 2001. This agreement allowed Edgemere to postpone the payments of its monthly rent and the principal and interest on the outstanding $109 million debt, according to Edgemere’s financial report for the year 2021.

“It’s unfair to allow Edgemere to continue collecting deposits from prospective residents in conditions currently in place,” said Coe Schlicher, the director of Kong Capital, an Austin-based real estate private equity company specializing in strategic investments investment that focuses on senior homes.

The financial loss of Edgemere can impact the quality of life and health of hundreds of senior citizens. According to Schlicher, Intercity Investment hired Schlicher’s firm to assist in finding an answer. The 1.55-million-square-foot facility contains 304 independent living apartments, 113 assisted living suites, and 87 nursing beds.

“I am afraid that the people living there are on the verge of sinking, and some might not even be aware of it,” Schlicher added.

Rachel Chesley, senior managing director of Washington, D.C.-based FTI Consulting, has responded to The Dallas Morning News queries on behalf of Edgemere. Chesley stated that Edgemere has been in “productive conversations” in discussions with Intercity Investment over the delayed rent payment as it tries to preserve Edgemere’s cash.

“Unfortunately, even though we have been in complete respect for the conditions of the forbearance agreement and constructive discussions with the landlord, they have failed to extend the agreement and have proposed to terminate the lease in violation of previous statements,” Chesley said.

Edgemere isn’t yet deciding which direction it’ll take; however, “an option will permit Edgemere to continue operating continuously while ensuring our citizens’ lifestyle and health,” Chesley said. 29th, she explained that Edgemere established an Escrow account “to ensure that they aren’t in danger.” To safeguard the deposit at the entry of residents who signed contracts since September.

Edgemere has over $124 million worth of total deposits from residents currently living there and residents who left in the last financial report, which was released in February. 14.

Chesley has criticized Intercity Investment for “its interference in Edgemere’s relationships with its bondholders, regulators, and residents” and maintained that the discussions will result in “no consequences for the residents of Edgemere currently.”

In response to claims made by Edgemere, Intercity Investment said through Schlicher: “Years of operating losses as well as mountains of debt and an over-balance sheet are the responsibility of Edgemere.”

The bondholders represented by UMB Bank said they are not waiting any longer and are seeking immediate settlement by Edgemere of its debt.

The ‘Ritz-Carlton of senior living.’

Edgemere’s decline in occupancy during COVID-19 was viewed broadly throughout the senior housing sector that has been “hammered,” according to an annual report from research company Integra Realty Resources. The firm predicts that demand will grow in the coming twelve months as those awaiting the move into retirement homes begin to sign their agreements.

HOWEVER, while COVID-19 weighed on Edgemere’s financials, the problems began before.

When Edgemere first was opened when it first opened, it “immediately set the bar for senior living that was luxurious,” according to the not-for-profit’s website. Schlicher described Edgemere’s Mediterranean-style neighborhood as “the “Ritz-Carlton in senior care.”

However, Edgemere is now being challenged by Dallas’s newer luxury senior living facilities.

The Tradition-Prestonwood opened in 2010, followed by a Lovers Lane location in 2015; Belmont Village Turtle Creek opened in 2013; Preston of the Park Cities opened in 2018, and the $140 million Ventana high-rise opened in 2019.

In the past few years, Edgemere’s occupancy for its living spaces for independent residents has been decreasing steadily, dropping from 93.3 percent in 2018 to 74% in the last year, as per the financial report for 2021.

Lifespace Communities bought Edgemere and two other Texas properties in 2019, just before the outbreak, and could have hindered its plans for a turnaround of Edgemere. The Iowa-based Lifespace is the nation’s fifth-largest multisite not-for-profit senior living provider having 15 locations, as per the 2021 report by LeadingAge along with Ziegler.

Edgemere’s cash position is not restricted from around $37 million at the end of 2019 to just $7 million at the close of 2021. This is based on its fiscal 2020 and 2021 reports for 2020 and 2021.

Edgemere is described as a continued care retirement community. It is an alternative to traditional assisted living or nursing care homes. It permits residents to move into different stages of health without needing to relocate to a new facility.

The communities have substantial cash reserves that are derived from deposits of residents. However, should they fail to make a profit each year, the account is eventually empty, Schlicher explained.

Schlicher said many continuing care institutions could borrow money for a long time to continue operations. However, that’s not the case for Edgemere.

Edgemere does not have an indefinite duration of time to pay its debtors. Northwest Senior Housing Corp. operating under the name Edgemere was the signer of an agreement for a 55-year lease signed in 1999 by Intercity Investment, according to an original lease, which was filed in Dallas County.

After the 55-year lease is over or If Edgemere cannot pay its rent and the rent is not paid, then Intercity Investment has no obligation to maintain the facility for senior living, Schlicher said. Edgemere has reached 22 years of its lease, meaning that it has 33 years left to pay its debts fully.

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What happens to Dallas entrance costs?

As per Edgemere’s website, Edgemere has a contract in which the residents and their estate get up to 90% of their entry fees back after they leave or die. The money is returned after Edgemere has received a payment from a new resident who will take over the property.

The costs for residents range between $346,000 and $1.45 million, based on the size of the apartment per an informational statement Edgemere gives to prospective residents. According to Kiplinger, the majority of people pay entrance fees for continuing care retirement facilities by selling their homes.

Additionally, Edgemere residents pay monthly fees for services ranging from $4,176 up or $8,933, as per the disclosure statement. Residents in memory care or assisted living facilities are charged monthly charges from $7,033 to $10.486.

Deposits or entrance fees are used first to refund previous residents. They can then be utilized for operating expenses and capital improvements and the repayment of the debt, said Edgemere spokesperson Chesley.

The residents could lose some of their savings should there be a bankruptcy proceeding, Schlicher said.

“Based on the publicly released quarterly financial statements, Edgemere does not appear to have the assets required to pay its bondholders, its landlord’s residents’ refunds, its bondholders, and other lenders,” He said.

Edgemere’s losses per year have grown over the past few years. They went from the red ink amount of $12 million in 2018 to around $30 million in 2017 in 2018, according to its financial reports for 2018 and 2021. reports.

Bondholders await payment, too.

In all, Edgemere has issued four municipal bond sales worth $317 million, with outstanding debt of $109 million, according to Electronic Municipal Market Access.

EMMA data indicates that Edgemere’s bonds traded at around 80 cents per dollar in January. 26. The following day, they changed about 22 cents on the dollar following 22.7 percent of Edgemere’s bonds were sold, a decrease of more than 72 percent. On February. 24, Bloomberg reports valued them at 30 cents per dollar.

Fitch Ratings, one of the top three credit rating agencies, evaluates companies’ ability to pay back the debt promptly and thoroughly. As per Fitch’s website, the agency downgraded Edgemere’s bond in November to a “D,” which stands for default

“Once an organization is graded to a D and a D, there’s not much surveillance left that we can conduct because it’s the worst-case situation,” said Kevin Holloran. He is the Fitch Director of the senior level and sector head of its not-for-profit health care company.

Fitch scores 160 retirement communities similar to the one it rates with similar retirement communities, which means that Edgemere stands out as the sole one to have the lowest D score, Holloran said. Edgemere was downgraded previously in March 2021 to below investment grade and then to “CC,” which meant the possibility of default was high as per Fitch.

“This was a lengthy slowdown,” said Fitch associate director Rebecca Grieve, noting that the team thoroughly examined Edgemere.

Edgemere’s decline is tied to the decrease in occupancy of the hotel, Grieve said.

“The Dallas market is highly competitive,” she said. “Once occupancy falls and fails to recover, it’s extremely challenging, especially if you’re carrying a huge debt load such as Edgemere.”

What do residents know about?

Thomas Murphy, CEO of the financial planners Murphy & Sylvest in Dallas, said that he has regularly visited his mother-in-law in Edgemere and noticed a drastic reduction in occupancy.

“There are significantly fewer residents than a couple of years back,” Murphy said. “It’s an observation that I’ve made; however, I’d estimate that there’s less than half of the population.”

Murphy claimed he was unaware Edgemere was not paying rentals since the beginning of the year, even though he did recall that residents were invited to community gatherings in December to discuss their finances.

Murphy, who described Edgemere as having come “through the pandemic in flying colors” in terms of the care offered to residents, stated that he was not present at the meetings.

Edgemere spokeswoman Chesley informed residents who are moving in to get a disclosure document that outlines its financial standing. The disclosure states that Intercity when its Edgemere ground lease expires, or default occurs, will orally continue residency agreements and life care agreements or cancel them.

She also stated that Edgemere staff keep residents’ council and residents’ families updated and sent out emails in December and September about discussions on forbearance with bondholders and the landlord.

Murphy stated that he was not aware that Intercity Investment could bring in another tenant if Edgemere could not pay its rent.

“That is a huge hassle,” Murphy said.

In Texas the state of Texas, the insurance department oversees the financial status of continuing care retirement homes such as Edgemere. According to department spokesperson Ben Gonzales, this includes reviewing the disclosures made to residents who are currently or maybe in the future.

Gonzales did not comment on what state officials are investigating Edgemere’s public disclosures.

Dr. Paul Radman, a former endodontist who was director of the Edgemere Resident Association, said the chief executive of Lifespace informed residents of the association about the agreement to forbear in the latter half of 2021. He added that he has complete faith in Edgemere management.

“I’m not concerned,” he said. “I’m presuming, and realistically I believe that Edgemere will make it.”

COVID-19 was “no doubt the most terrible thing that could have been happening” to Edgemere. He said that COVID-19 is “no doubt the worst thing that could be the primary reason for its financial woes.

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