When 89-year-old John Stallings was ready for a retirement home in 2012, he didn’t need to look around.
“Edgemere was the only place Dad would go. He knew it was nice,” said his daughter, Jay Thomas, about the luxury retirement community in the heart of Dallas.
Stallings put down a deposit of $326,012 to reserve a spot in the Mediterranean-styled community that enables residents to age into different levels of care. Ninety percent of that deposit — $293,411 — would be refunded to him or his estate when he moved out or died, according to a copy of the contract provided to The Dallas Morning News.
Stallings wanted his refund to be an inheritance for his three granddaughters, according to his daughter.
It’s been almost three years since Stallings moved out and over two years since he died, and the family still has not received its deposit back from Edgemere, said Jay Thomas and her husband, William.
“We don’t feel very sure at all that we will see that money again,” William Thomas said.
Last month, The Dallas Morning News reported that Edgemere’s financial health was being threatened by falling occupancy levels and an expired deal with its landlord and bondholders that had allowed it to delay making monthly payments since October. That has left families like the Thomases fearing they’ll never see the deposits their loved ones paid to secure a spot in the high-end retirement community.
How occupancy affects deposits
Occupancy in Edgemere’s 304 independent living apartments has been steadily dropping — from 93.3% in 2018 to 74% last year, according to its 2021 financial report. Margaret Johnson, head of the senior living space at Fitch Ratings, said occupancy in the 90% to 95% range is considered good for continuing care retirement communities but higher is better.
Because refunds of deposits, which range up to $1.4 million, aren’t initiated until a new tenant moves in and hands over a deposit, according to resident contracts, there’s a growing line of former residents or their family members waiting for their units to be rented.
But when a retirement community is struggling to fill units, it’s not able to complete the cycle by returning the original deposit. That’s how Edgemere addressed the Stallings family’s situation to The News, without specifically discussing their case.
“Edgemere is compliant with all of its contractual obligations and former residents or their families are receiving refunds pursuant to their respective entrance fee contracts to the extent Edgemere has received a corresponding entrance fee from a new tenant,” said Rachel Chesley, senior managing director of Washington, D.C.-based FTI Consulting.
FTI Consulting was hired in early 2021 by Edgemere’s parent company to evaluate operations and marketing strategies and advise it on addressing financial issues, according to a call open to the public on March 10 about Edgemere’s finances.
Besides declining occupancy, Edgemere also faced an expired forbearance deal with its landlord and bondholders. On March 9, Edgemere said it reached a new agreement with bondholders and had paid back the rent it owed to the landowner, giving it time for discussions about strengthening its finances. Edgemere also said it had made arrangements for upcoming lease payments.
Chesley declined to address how long the provisions would last or to say where the money came from or the amount. She also declined to specify how many former residents are waiting for refunds.
‘You don’t have any control’
For Stallings’ family, their wait has been marked by what they said has been an inability to get answers about everything from why his unit hasn’t been updated to whether prospective tenants have toured it.
“The problem with the whole process is it’s treated like you bought this unit from them but you don’t have any control of it,” William Thomas said. “You’re really leasing it from them.”
The Thomases said they contacted Edgemere management many times but didn’t receive communication from the company until the family hired an attorney last fall. On Jan. 19, their attorney received an e-mail from Edgemere executive director John Falladine indicating he hoped to have a response by the end of the week. That never came.
After The News’ original story, William Thomas said Edgemere lawyers tried to set up a call with his lawyer but the attorneys weren’t able to find a mutually available time. Edgemere has since hired a new law firm, Polsinelli, which has 21 U.S. offices, according to its latest announcement.
“We can’t close his estate until the money comes in,” William Thomas said. “We just filed for a tax extension for him this year hoping that maybe in a few months we may have some resolution to this.”
To protect incoming resident deposits, fees received after Sept. 27, 2021, are being held by an escrow agent during debt restructuring negotiations, Chesley said. William Thomas said he and his family assumed Stallings’ deposit in 2012 was escrowed but that wasn’t expressly stated in their contract.
In Texas and other states, retirement communities like Edgemere that require entrance fees exceeding three months payments are required to keep the money in escrow until it reaches a certain level of viability. At that point, the funds are released and can be used for operating costs, said Ben Gonzales, spokesman for the Texas Department of Insurance, which regulates licensed senior care facilities like Edgemere.
The idea is that once a retirement community reaches a certain level of occupancy, it will be able to maintain it and residents won’t have trouble getting their deposits back in a timely manner.
Previously, Edgemere was running at high occupancy levels when there weren’t competing facilities in the area. That gave it the freedom to dip into the escrow. The funds are first used to issue refunds to prior residents and then can be used for operating expenses, capital improvements and debt repayment, Chesley previously said.
But once its occupancy levels dropped, Edgemere couldn’t keep up with the cycle.
Jesse Jantzen, CEO of Edgemere’s parent company, Lifespace, declined an interview but said in an e-mailed statement to The News that the company has revamped its marketing and sales process to address “the growing competitive market” because occupancy is the “most important factor to the community’s financial health.” He said the results have been positive with 48 move-ins last year.
“For those residents awaiting refunds, it’s important that the pace continues because the more move-ins to Edgemere, the more refunds will be able to be paid as soon as the [debt] restructuring is completed and the funds are released to Edgemere from the escrow account,” Jantzen said.
‘Edgemere is more of an outlier’
Fitch Ratings, one of the three big credit rating agencies, downgraded Edgemere’s $109 million in bonds to a “D” for default in November. This week, Fitch withdrew its rating entirely, citing Edgemere’s default.
Further complicating Edgemere’s situation is a 55-year ground lease with the owner of the 16 acres of land where the 1.55 million-square-foot facility sits. When Edgemere’s lease with its landowner terminates, including through default, the landowner can cancel residency agreements and contracts, according to a copy of a disclosure statement that Edgemere gives residents. FTI Consulting provided the disclosure to The News.
“Edgemere takes no position as to the enforceability of this lease or its provisions,” the disclosure said.
Most of the 169 life plan communities that Fitch rates use an entrance fee model and are able to maintain it, Johnson said.
“Edgemere is more of an outlier,” Johnson said. “It didn’t happen overnight. The new competition played a role in their ability to recover and build up their occupancy, which then feeds into negative operations. If you don’t have solid operations, then you’re drawing down cash and that led to what happened.”
Edgemere’s annual losses have accelerated in recent years, from $12 million in red ink in 2018 to about $30 million last year, according to its 2018 and 2021 financial reports. Its net operating margin fell from -2.2% at the end of 2020 to -26% at the close of 2021, according to its 2021 annual report. It also failed to meet its historical debt service coverage ratio covenant with bondholders in 2019, 2020 and 2021.
The COVID-19 pandemic hit the senior housing industry hard as seniors delayed signing contracts for units. Among life plan communities tracked by Fitch, median net operating margins, including entrance fees, fell from 23% in 2019 to 18% in 2020 for investment-grade borrowers, Johnson said. Fitch doesn’t have data for 2021 yet.
‘I am livid’
Michael Frost of Austin said his mother put down a deposit of about $270,000 to move into Edgemere in 2016. She moved out of her unit in March 2018 and died a little over a year ago. After it sat empty for nearly three years, Edgemere leased her unit in November, but Frost hasn’t received her deposit back.
“I am livid,” he said. “It’s not just about the money. It’s the principle.”
He contacted Edgemere after The News’ original article and was told someone would get back to him. On March 14, Polsinelli associate Eliza Dawson contacted Frost, according to a voicemail provided to The News. Dawson told Frost that he won’t receive the money until Edgemere has cleaned up its financial situation, which will trigger the release of the deposits taken in after Sept. 27 that are in escrow.
Dawson didn’t provide a timeline but said she would contact him with monthly updates, Frost said. He asked for biweekly updates instead.
“We are very nervous we won’t see any of that money,” Frost said.
Toni Weinstein recalls visiting Edgemere in 2018 to scout the place for her mother. The entrance fee was going to be about $1 million for the unit she viewed. As a Dallas lawyer at global law firm Dentons, Weinstein knew to ask questions.
She said she asked an Edgemere employee in the leasing office how the money was protected once handed over.
“I’ll never forget. She looked at me and said ‘easy peasy’ and I thought it was extremely cavalier when we’re talking about almost $1 million,” she said.
Weinstein asked if the deposits were kept in a segregated account and she said she didn’t receive an answer. She then asked whether she was dependent on Edgemere to rent out the apartment in order to receive the deposit back and what would happen to the money in the event of a bankruptcy.
“She said, ‘I don’t know why you’re asking these questions’ and I said, ‘Well, because this is a lot of money to me,’ ” Weinstein said.
At that point, Weinstein said, the Edgemere employee accused her of shopping the property on behalf of a competitor and had a tour guide escort her out of the building.
“I was a little shaken because it’s all a very stressful process to find a home regardless of who you’re doing it for,” Weinstein said. “And I think what really upset me is that this is a vulnerable population, and as a society, we should do better by them.”
Afterward, an Edgemere employee sent flowers to Weinstein’s law office and called to apologize, she said. But Weinstein decided to look elsewhere.
“For a long time in Dallas, Edgemere was the gold standard and everybody in the Park Cities had their parents living there,” Weinstein said. “But it all just feels wrong. And I could see from a cursory glance that it was ground lease land so my next question was going to be, ‘What happens when the ground lease comes due?’ ”
Considering that Edgemere’s monthly rent payments are also high, Weinstein said, she doesn’t understand where all the money has gone. Edgemere residents pay monthly service fees of $4,176 to $8,933, according to its disclosure document. Those in assisted living or memory care units are charged monthly fees of $7,033 to $10,486.
“It appears to be that when you ask hard questions, which people should ask, you don’t get answers,” Weinstein said.
