Winning bidder announced in Cedars mortgage sale

BY MIKE SHERWIN AND ROBERT A. COHN, ASSISTANT EDITOR AND EDITOR-IN-CHIEF EMERITUS

UPDATE: In his regular email update sent on Friday afternoon, Barry Rosenberg, Jewish Federation executive vice president, announced the name of the winning bidder of the U.S. Department of Housing and Urban Development auction of the mortgage note for the Cedars at the JCA.

“The note was acquired by PAMI Autumn, an investment firm affiliated with Lehman Bros.,” wrote Rosenberg.

A HUD spokesperson declined to confirm the identity of the winning bidder on Friday afternoon, stating that HUD is “still tying up loose ends.”

PREVIOUS STORY, PUBLISHED OCT. 3, 2007:

The Jewish Federation of St. Louis announced last week that it lost its bid to purchase the $55-million mortgage of the Cedars at the JCA, which the U.S. Department of Housing and Urban Development sold in a sealed-bid auction.

A HUD spokesperson said the agency would not announce the winning bidder until the sale is finalized, which leaves questions about who will own the mortgage note of the Cedars, the 252-bed long-term senior care facility in Town and Country.

However, Jewish community leaders and the HUD spokesperson stressed that the auction was for the Cedars’ mortgage note, and not for the facility itself, which means the Jewish Center for Aged will continue to own and operate the facility.

“The HUD auction is totally unrelated to the day-to-day operation. It’s a financing situation,” said Kenneth Rubin, president of the Board of Directors of the Jewish Center for Aged. “We have every expectation to continue to operate the facility as usual,” Rubin said.

“The current borrower and operator of the facility remain the same after this sale,” said Lemar C. Wooley, a spokesman for HUD. “This is a routine transaction that has no affect whatsoever on the residents, akin to when a homeowner gets a letter in the mail saying that their mortgage has been transferred from bank A to bank B,” he said.

While the JCA still remains the owner and operator of the Cedars, it will owe mortgage payments to a new lender, said Barry Rosenberg, executive vice president of the Jewish Federation of St. Louis.

“The short-term impact is that the JCA owns the facility, and will continue to operate the facility as it has in the past,” Rosenberg said. “At some point, whoever owns that note may be interested in other alternatives about what to do with that property and that would be an issue that we would have to address. But our expectation is that there are a variety of scenarios that could be played out and a variety of approaches to deal with the note holder that need to explored.”

Rosenberg said that while it is too early to speculate on the future of the Cedars at the JCA without knowing the identity of the buyer, there are a number of options for the Jewish community to make certain that the Cedars remains a Jewish community institution.

“The fact that our bid wasn’t accepted is really not the end of this part of the story by any means,” Rosenberg said. “There are possibilities, even with a new bidder, of reacquiring the note from the bidder, and of working with that note-holder,” he said.

“We are very focused on maintaining the JCA as an institution and its ability to meet the mission that it has for taking care of senior adults in need, particularly low income and indigent Jews,” Rosenberg said.

The $60-million Cedars facility, which opened in September 2003, was financed with $55 million in HUD-insured bonds.

Rosenberg said the JCA has struggled with its level of debt since the opening of the Cedars, although he noted that the facility has made “substantial progress” in increasing revenue, cutting costs, and strengthening ties to the Jewish community. One of the financial challenges, he said, is continuing the Cedars’ mission to provide the same level of amenities to all residents, including low-income residents supported by Medicaid. The Cedars loses $40,000 each year for each Medicaid-supported resident, he said. The facility currently has 65-70 Medicaid-supported residents, according to a Cedars spokesperson.

The Cedars also faced skyrocketing increases in insurance and security costs after 9/11. The inability to raise sufficient funds to make up for the shortfall caused considerable distress within the community in 2003 and 2004 from the families of residents who worried that their elderly residents at the Cedars would not be properly cared for, and concerns by groups like Jews United for Justice that the original commitment by the Jewish Center for Aged to provide Jewishly sensitive care for the indigent elderly was in jeopardy. A series of public forums in 2003 and 2004 on the JCA fiscal crisis often became acrimonious and highly emotional.

At one point, the Cedars was repeatedly experiencing a deficit of several hundred thousand dollars a month, and concern was expressed over its ability to survive financially. The Jewish Federation stepped in with a line of credit to sustain the Cedars, and its submission of a bid on the HUD note was consistent with the Federation’s commitment, along with that of the reconstituted JCA Board, that the needs of the indigent elderly in the Jewish community will continue to be met as in the past.

Rosenberg said that at HUD’s suggestion, the JCA consulted with a health-care financing company to restructure its debt. As part of the arrangement, the Cedars ceased making mortgage payments, prompting HUD to repay bondholders and acquire the mortgage note in October 2006.

Rubin said the JCA and the consulting firm were unsuccessful in attempts to negotiate repayment terms with HUD. In August, HUD announced it would auction off the note, bundled with those of two other assisted living facilities: one in Michigan and another in Pennsylvania, Rosenberg said.

The Jewish Federation, which gives the JCA about $180,000 each year, submitted a bid for the HUD auction and was informed by HUD on Sept. 21 that it was not the winning bidder.

Rosenberg said the Jewish community will continue looking for ways to ensure a positive outcome for the Cedars.

“There has been an incredible amount of effort made by the leadership of the JCA as well as the leadership of the Federation to seek solutions to the Cedars’ financial difficulties and to ensure the mission of meeting the needs of senior adults,” he said. “That work has been driven by an unbreakable commitment to meet the needs of senior adults. And that’s going to continue after the auction.”

Rosenberg said a joint task force between the Jewish Federation and the JCA, chaired by Jay Sarver, will continue to work together for the future of the Cedars.

Rubin said that the JCA has been informed of the identity of the winning bidder, although he declined to give their name. He said the JCA has had “initial conversations,” with the winning bidder, although he does not know when substantive discussions would begin.

Rubin said he is optimistic that the Cedars will be able to make its mortgage payments to the new note holder. “Realistically, we feel very positive that we will be able to work the debt structure out and continue to service the community and the Jewish community with top quality care at the Cedars,” he said.

Local rabbinic leaders expressed their concern for the future of the Cedars, an institution they say is vital to serving the needs of Jewish seniors.

“It is critical that we provide our elderly with quality care specifically within an environment that is Jewish in character, and most importantly, one that meets their essential Jewish religious needs,” said Rabbi Yosef Landa, chairman of the St. Louis Rabbinical Council. “The Rabbinical Council is deeply concerned about the implications this event might hold for the future of our Jewish seniors and hopes the community will marshal the necessary resources to meet this challenge.”

Rabbi Mark Fasman, president of the St. Louis Rabbinical Association, said, “As rabbis, we work tirelessly to make the case for Jewish identity in the 21st Century. Our hope is that the change in financing of the Cedars will not compromise the Jewish history and tradition of the institution or the JCA’s ability to deliver a welcoming and respectful environment for its Jewish residents to practice their faith.”

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