One Dallas luxury senior living facility isn’t going down without a fight.
Edgemere, once called the “Ritz-Carlton of senior living,” filed for Chapter 11 bankruptcy last week, citing financial pressures from the COVID-19 pandemic and last year’s Texas freeze.
On top of that, the facility filed a 188-page lawsuit claiming its landlord and private equity investor conspired to terminate a 55-year ground lease and “make a windfall profit” off of a new endeavor on the high-value property. The allegations include breach of contract, fraud, interference with its business and civil conspiracy, according to the Dallas Morning News.
Over the weekend, its landlord, InterCity Investment, clapped back.
“Put bluntly, the Edgemere is a sinking ship, taking on water faster than it will ever be able to bail it out,” said the filing from InterCity, which has owned the land Edgemere sits on since 1948.
Edgemere has less than $420,000 in cash and investments and has been losing $2 million a month to operate the 1.55-million-square-foot facility, InterCity claimed in court documents. The monthly loss doesn’t include the facility’s rent or the $930,000 it has in restructuring-related expenses. Court filings pulled by DMN reveal Edgemere’s monthly rent payment was $357,878.
Intercity, whose portfolio includes an Uptown shopping district and Miracle Mile Mall in Minnesota, described Edgemere’s lawsuit as, “Edgemere’s last-ditch effort” to distract from the facts of its financial mismanagement “by trying to pin blame on the landlord after the fact.”
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The legal battle marks the latest installment of the Edgemere insolvency saga first reported on by DMN. Edgemere’s annual losses went from $12 million in 2018 to about $30 million in red ink last year, according to financial reports analyzed by DMN. By the end of 2021, the facility allegedly had $109 million in outstanding debt and said it only had 62 days’ worth of cash — far below a requirement to keep 150 days of cash on hand.
“It’s unfair and unjust for Edgemere to continue to take deposits from future residents under current circumstances,” Kong Capital CEO Coe Schlicher told DMN when the paper first reported on Edgemere’s dire financial situation. The Austin-based real estate private equity firm is also named in Edgemere’s suit alleging that Kong and Intercity used publicity to push out and dissuade current and potential residents.
Edgemere also accused Intercity of contacting residents on social media to “frighten them” that the facility couldn’t pay back their deposits. Since February, Edgemere has not made any new sales, the lawsuit said.
The families of former residents who are still owed millions of dollars in deposit repayments will now become unsecured creditors in the bankruptcy. While Edgemere said in court filings that it intends to honor refund obligations to former and existing residents, most 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.
Intercity’s counter-filing claims that Edgemere misled new residents about its financial situation between late 2021 and early 2022. Residents were given “a false sense of security” about Edgemere’s finances and a potential payout of millions of dollars at the end of their leases, InterCity claimed.