Court approves purchaser
Six months after filing for protection in U.S. Bankruptcy Court, the future of The Covenant at South Hills, and its residents, is still unclear.
Although Judge Judith Fitzgerald last Friday approved Lifecare of The South Hills, LLC’s $17-million bid to purchase the B’nai B’rith-sponsored facility, financing for that transaction remains uncertain, and it is possible the deal will not close.
Meanwhile, a group of leaders from the Pittsburgh Jewish community is working to find its own solution to The Covenant’s problems.
The Covenant, located off Bower Hill Road in Mt. Lebanon, filed for bankruptcy relief in January to forestall foreclosure proceedings initiated by its bondholders. The Covenant has been unable to meet its obligations to its creditors since opening in 2002.
If Lifecare can secure the financing needed to buy The Covenant, the deal could be approved at a court-ordered auction on July 28, according to court papers.
Lifecare is an affiliate of The Orchards of Foxcrest, a family-owned business out of West Virginia. Scott Fox, CEO of The Orchards, said financing is still a hurdle that needs to be jumped.
“Funding is still an issue for us,” said Fox, who lives in Sewickley. “I’m an optimist, but I’m also a realist.”
Foxcrest learned about the opportunity at The Covenant earlier this year, but couldn’t take on the project by itself. So Foxcrest and three other health care providers formed an LLC (limited liability company) and approached investors.
Fox said three institutions, including PNC Bank, initially expressed interest in financing the project, but later reneged. Fox’s group is now working with four banks, and he said he has “a much better feeling than a month ago” about the prospects for financing.
Fox said the planning and management of The Covenant project astonished him.
Covenant residents each invested several hundred thousand dollars to purchase living units and the assurance of long-term health care.
Under the terms of the residents’ contracts, The Covenant must refund a large percentage of that investment — in many cases up to 90 percent — if the resident leaves the facility. Fox said the owners spent the residents’ deposits.
“This was a doomed project from the day it opened,” he said. “Even if it had been 100 percent occupied, it wouldn’t have met its debt service obligations. There’s lots of blame to spread around as to why this project failed, dating back to pre-construction.”
Fox said his group is reaching out to residents in an effort to address concerns, and has met more than once with The Covenant’s Residents’ Council and its lawyer. So far, the council is on “good terms” with Lifecare, according to its president, Maury Deul.
“They did everything B’nai B’rith and The Covenant at South Hills never did,” Deul said. “They talked to the residents and discussed things fully. Never did The Covenant at South Hills do any of that in all the years I’ve been here.”
If the sale to Lifecare goes through, Fox said his group would guarantee the life care agreements in the residents’ contracts, and would keep the annual cost of living increases low for the monthly fees residents pay.
By July 10, Lifecare hopes to finalize a profit-sharing arrangement that could allow residents to recoup some of their deposits. But Fox admitted the amount the residents might recover “won’t be anywhere near the amount of their deposits.”
Another major issue is the continuation of Jewish-specific services.
Although kosher food is currently guaranteed in the residents’ contracts, Fox said the cost to run a strictly kosher kitchen at Covenant — more than $400,000 a year — would prevent Lifecare from keeping the service.
However, Lifecare, which is not affiliated with any Jewish organizations, is looking into catering kosher meals for residents who require them.
“We intend to honor all the traditions they’re practicing there today,” Fox said. “We will absolutely maintain [religious] services. We may even enhance some of the things they’re doing by getting the community involved.
Within the local Jewish community, response is divided about how involved to become in The Covenant situation.
Local Jewish leaders formed a committee several months ago to monitor the situation, hiring an attorney and “one of the top accounting firms in the country” for help, according to Jeff Finkelstein, president and CEO of the United Jewish Federation of Pittsburgh.
“We’ve looked into a lot of different issues related to Covenant,” Finkelstein said. “At this point, anything’s possible. I don’t know what will happen. There’s a lot of issues there.”
The committee — which includes representatives from the UJF, the Jewish Healthcare Foundation and the Jewish Association on Aging — is trying “to determine whether it’s in the interest of the community to get involved,” according to its chair, Steve Halpern, who also is chairman of the JHF.
“We’re exploring how the Jewish community might respond,” Halpern said.
Some believe the community response should be quick and forceful.
“I know that some members of various groups are very leery about getting involved in this,” said Casey Neuman, an attorney and long-time resident of the South Hills who has been trying to solve The Covenant problem. “It couldn’t come at a worse time, but that’s when these things happen.”
Neuman believes the Pittsburgh Jewish community should buy The Covenant.
He wants B’nai B’rith to “put up $3 million in exchange for releases, and capitalize a new organization.” He believes a fundraising effort in the South Hills could bring in as much as $500,000, and thinks the UJF and the JHF could be called upon to put up any additional financing needed to purchase the facility.
Neuman and others share a similar concern about a non-Jewish entity taking over the Jewish-affiliated Covenant.
“The Covenant could lose all of its Jewish identity,” said Joel Helmrich, whose mother-in-law is a resident of The Covenant. “It’s a really sad situation and a sad commentary on the Jewish community.”
Helmrich believes B’nai B’rith is responsible for the failings at The Covenant, but doesn’t think the organization is doing enough to solve the problem.
“The sign at The Covenant says it’s a B’nai B’rith facility, and all of these people signed up because of B’nai B’rith. And B’nai B’rith is still sending letters soliciting donations from the residents,” he said. “Hopefully, B’nai B’rith will step up and do something.”
The Covenant at South Hills is a separate corporation from B’nai B’rith, according to Allan Jacobs, president of The Covenant at South Hills. Jacobs noted, however, that some members of The Covenant board of directors are also involved in B’nai B’rith.
“B’nai B’rith does not have any obligation here,” Jacobs said. “B’nai B’rith Housing, Inc. was a sponsor of the project, but The Covenant at South Hills is a separate non-profit corporation. When you’re a sponsor, that doesn’t necessarily mean you have a financial interest, it means you are the organizer of the facility.”
Jacobs said B’nai B’rith Housing, Inc. had prior experience with government funded, low-income housing but The Covenant was its “first episode in operating a market rate facility.”
A downturn in the real estate market following 9/11, combined with inaccurate projections regarding real estate tax obligations and labor costs, caused “a very difficult situation,” Jacobs said.
(Toby Tabachnick can be reached at email@example.com.)