Judge approves Concordia’s $15M purchase of Covenant

By Toby Tabachnick September 23, 2009, 3:32 pm 0 Edit

Concordia Lutheran Ministries’ has bought the bankrupt Covenant at South Hills for $15 million.
At a hearing on Thursday, Sept. 17, U.S. Bankruptcy Court Judge Judith Fitzgerald approved the bid from the Butler-based non-profit. No other entities submitted bids to purchase the B’nai B’rith-sponsored senior living facility located in Mt. Lebanon.
Under the terms of the purchase agreement, Concordia is not required to refund any of the residents’ entrance fee deposits, meaning each resident could lose hundreds of thousands of dollars. Concordia is also not required to maintain a kosher kitchen.
Concordia will, however, honor current life care costs discounts, the monthly fees residents pay to guarantee health or nursing services will be available if needed.
The sale ends a period of stress and uncertainty for the residents of The Covenant, which has been in financial shambles almost since it opened in 2002, but the promise of lawsuits against B’nai B’rith means the story of The Covenant remains unresolved.
The Covenant filed for bankruptcy protection this past January, after some of its bondholders initiated foreclosure proceedings. The filing prompted worry among the residents, who didn’t know if they would still have a place to live at the end of the bankruptcy court proceedings.
Most residents are relieved to know they will still have a roof over their heads, even if it means the losing their entrance fees. Under the original contracts, The Covenant was obligated to refund around 90 percent of those entrance fee deposits if a resident left the facility or died and someone new moved into the vacated apartment.
“I’m sure most of the residents are very happy the situation turned out as well as it could have under the circumstances,” said Charles Prine, who chairs the Official Committee of Unsecured Creditors, which represents The Covenant’s residents.
“We’re obviously disappointed that we’re not getting our $20 million-plus refunds we had contracted to receive,” Prine continued. “But Concordia is a qualified and experienced operator, and they are putting together a marketing program. People are looking forward to an excellent facility in which to spend their lives.”
Concordia currently operates five other continuing care communities in Western Pennsylvania. It plans to change the name of Covenant to Concordia of The South Hills, according to Keith Frndak, CEO of Concordia Lutheran Ministries.
“We’re very excited [about The Covenant purchase],” Frndak said. “It’s been a financial train wreck for the last few years, but we’ll fix that.”
While no new residents have entered The Covenant in the last two years, Frndak said Concordia received eight or nine inquiries from interested parties immediately following news of Concordia’s purchase of the facility last week.
“We’re going to make a big push to have people sign up for 20 apartments by 2010,” said Frndak. “Once people know the facility is on strong ground, they will show a lot of interest. And it’s going to be far more affordable than the original program.”
Frndak said that Concordia will offer new residents an entrance fee option whereby their funds will be “secured and protected” in an escrow account, and said that 80 percent of the deposit would be refunded when a resident leaves the facility.
The Covenant did not offer similar escrow protection to its residents.
New residents will also be offered month-to-month leases and the option to recover some of their entrance fees if they leave Concordia within seven years.
Although Concordia will not be specifically targeting the Jewish population in its marketing campaign, Frndak said that Concordia “will make it known that we’re a facility that prides itself on accommodating Jewish residents.”
Although the kitchen at the facility will no longer be kosher, Frndak said that he would be meeting with Rabbi Alex Greenbaum of Beth El of the South Hills, and talking to some of the residents, to work out the best way to provide kosher food to those residents who require it.
Frndak also said he was committed to “doing everything we possibly can do to facilitate worship for Jewish residents,” including providing transportation to Temple Emanuel for residents to worship there.
While most residents seem relieved to know their home will now be run by a financially sound operator, some are still upset that local Jewish agencies did not make a greater attempt to preserve The Covenant as a Jewish institution and to help its residents.
“I feel we’ve been given a very, very poor shake by the community,” said Maury Deul, president of The Covenant’s residents’ council.
Although a “high level committee” of Jewish leaders “worked for months on end, exploring the potential purchase of The Covenant,” it ultimately decided that buying the facility didn’t make good financial sense, said Jeff Finkelstein, president and CEO of the United Jewish Federation.
“We spent more than $100,000 in attorneys fees and accountants,” Finkelstein said, “but, at the price it [The Covenant] sold at, we didn’t think we could run this in any way that was appropriate for the community. There were certain points [in the evaluation process] where we thought this could be a deal that would at least break even, but, at the price that it sold at, it would’ve been iffy, and might have been a big financial drain. It didn’t make sense to buy it at that amount of money and then have the debt to pay off. That was something B’nai B’rith didn’t understand: how much the debt service was going to cost and the amount it would cost to run the facility.”
“We really did look into it,” he continued. “There’s a need to explore things from a moral perspective, but you can’t do everything, unfortunately.”
Finkelstein added that the UJF and the Jewish Association on Aging told B’nai B’rith 10 years ago that its financial model for The Covenant was not sound.
“It’s a sad day for the Jewish community,” Finkelstein said. “It’s sad that this was built the way it was.”
Many residents plan to seek retribution from B’nai B’rith, saying the assurance of B’nai B’rith “sponsorship” convinced them to pay hundreds of thousands of dollars in deposits to buy into the facility.
Six Covenant families are currently pursuing claims against B’nai B’rith within The Covenant’s bankruptcy proceeding, and several more are contemplating filing other suits.
Deul called Concordia’s purchase of The Covenant “the best of the worst outcomes.”
“Now we’ll lick our wounds and see how we can go about a suit,” he said. “If I don’t get any money, I still want my pound of flesh.”