Bondholders outweigh elderly residents in Long Island CCRC bankruptcy

Terie Gelberg has lived at the Harborside, a retirement community on Long Island’s North Shore, for almost two decades. It was supposed to be the last home for the 99-year-old wheelchair user with memory issues, but plans to sell the bankrupt municipal bond financed facility to a private equity firm threaten to upend her care.

She, alongside other residents of Harborside’s Port Washington nursing home, memory-care and assisted-living units will be forced to relocate if a bankruptcy court judge approves Focus Healthcare Partners’ $80 million deal to buy the complex in February. There are at least 40 residents that will have to move to other facilities while some 70 people in its independent-living units have the option to remain, according to data from New York State Department of Health. 

The deal has sparked outrage among residents and their families, especially because a sale to another company — that would have left the residents of the 100-unit health center in place — fell through. 

Pandemic restrictions, labor shortages, soaring wages and supply costs helped push Harborside to the brink. It’s a common thread among continuing care retirement communities, or CCRCs, many of which rely on a steady stream of entrance fees to pay operating costs, debt service and resident refunds. Harborside was unable to pay its bills as occupancy slumped. The site is among at least 16 CCRCs that filed for bankruptcy since 2020. 

Focus Healthcare’s purchase also risks leaving current and former residents owed $130 million in entrance refunds empty-handed. The senior citizens and their families who plunked down hundreds of thousands of dollars in exchange for an apartment and unlimited health care were promised as much as 90% of the entrance fee refunded if they move or die.

Instead, municipal bondholders owed around $168 million on debt issued through the Nassau County Industrial Development Agency are considered secured creditors, putting their debt ahead of residents in the Chapter 11 repayment line. Municipal bond mutual funds held almost 90% of the Harborside’s bonds, according to data compiled by Bloomberg.

Families of the residents argue that moving those living in Harborside’s nursing home, memory-care and assisted-living units would be disruptive and traumatic. 

“I am frankly shocked that the court is even contemplating a resolution to this bankruptcy that would evict her and other similarly situated residents,” Gelberg’s son Jonathan wrote in a Jan. 2 letter to the bankruptcy court judge. “As proposed, the buyer has no obligation to either provide for current residents, and no responsibility for honoring the obligation to refund 85 percent of the original purchase price within a year of her passing.” 

Mark Pancirer, the chief financial officer of the Harborside’s parent Amsterdam Nursing Home Corp., didn’t return a call seeking comment. The facility’s lawyers defended the deal in a filing.

“Without the sale, the debtor will be forced to shut down, needlessly destroying value, eliminating jobs and displacing all of its elderly residents,” they wrote. 

Focus Healthcare, which owns some 15 senior living and health-care properties across the US, said keeping the doors open is a better outcome than a total liquidation and pointed out it’d accommodate some of the current residents. The firm will seek licenses from New York state to offer assisted living and memory care in the future, according to a Monday court filing.

“Unfortunately we can’t undo money lost by others that led to this bankruptcy,” Curt Schaller a partner at the Chicago-based PE firm, said via email. “As the purchasers in this bankruptcy process, we can’t direct who receives the sale proceeds. That allocation is a decision for the seller, bondholders, and residents who are owed entrance fees, overseen by the court.” 

In October, New York health regulators blocked the sale of Harborside to an Iowa company that would have maintained current operations and honored partial refunds of entrance fees, shocking residents.

Under that deal, Harborside’s parent agreed to contribute about $41 million from the sale of a Manhattan nursing home to fund entrance fee refunds. It hasn’t agreed to contribute anything in the current deal.

The state’s health department said the application of the proposed buyer, LCS, was deficient. LCS refused to provide financial statements and details on rate increases and its ownership structure didn’t meet statutory requirements, according to the state. 

For its part, LCS said they believed their application didn’t violate state law and said the state’s assertions are “baseless and false.” The state didn’t respond to numerous requests for clarification about its expectations, LCS said. 

Amid the blowback, Governor Kathy Hochul promised residents they wouldn’t be left homeless, Newsday reported earlier in January. 

“The Department will ensure the Harborside operator and administrator carry out a safe and orderly transfer of residents that respects the needs and desires of — and is as minimally disruptive as possible to — the residents and their families,” Gordon Tepper, Long Island press secretary for the governor said, referring to the state’s health department.

Other private equity deals for health-care facilities have fallen under Congressional scrutiny of late. Focus Healthcare expects to invest more than $950 million in senior housing in the coming years, according to the firm’s website.
Harborside’s sale must be approved by US Bankruptcy Chief Judge Alan S. Trust. Creditors have a Feb. 5 deadline to object.