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Healthcare

Forest Park Avoids Foreclosure By Filing Chapter 11; Lender Discusses Its Plans

The real estate entities that own Forest Park Medical Center's Dallas and Fort Worth hospitals avoided forced foreclosure sales of both properties by filing for Chapter 11 bankruptcy protection a day before they were set to go to auction.
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The real estate entities that own Forest Park Medical Center’s Dallas and Fort Worth hospitals avoided forced foreclosure sales of both properties by filing for Chapter 11 bankruptcy protection a day before they were set to go to auction.

The primary lender, Sabra Texas Holdings, had scheduled the two properties to hit the courthouse steps in Dallas and Tarrant counties on Tuesday after Forest Park’s holding companies defaulted on interest payments for loans that Sabra provided. Filing for bankruptcy halts the auctions. One of the Chapter 11 filings says that Forest Park’s Dallas owners owe between $100 million and $500 million and have assets of between $10 million and $50 million. FPMC Fort Worth Realty Partners says it owes between $50 million and $100 million and has between $100 million and $500 million in assets.

“We anticipated that there may be a judicial action to stop the foreclosure,” said Rick Matros, the CEO of Sabra Health Care REIT, the parent company of the lender. “Oftentimes, it’s just a delaying tactic in terms of delaying the foreclosure. And if that’s the case, it becomes pretty apparent to the bankruptcy judge. But we believe that the borrower has real buyers … that they’re bringing to the table in both Fort Worth and Dallas.”

Jim Davis, the Fort Worth hospital’s CEO, said the real estate bankruptcy will not affect the hospital’s operations. He said he’s been in constant contact with Sabra since it issued the notice of foreclosure last month.

“These actions do not change what we do operationally or impede that at all,” Davis said. “Obviously, we have to make sure that everybody understands that, so there’s been additional communication the last few days but nothing else is different.”

Sabra, which owns the upscale hospital chain’s Frisco location, had provided Dallas with a $110 million mortgage loan and Fort Worth with a $66.8 million construction loan. Both included terms that would allow the Irvine, California-based real estate investment trust to purchase the facilities at a later date should it so choose. And as such, it will have final say over the buyer of these facilities. If it is unhappy with who comes forward, Matros said Sabra has the ability to “credit-bid” above the highest bidder and sell the hospitals on its own terms, away from the courts and away from the auctions and away from the managers. They could choose to bring in a new tenant or sell the real estate to another company that would retain the current operators.

Sabra appears confident that the buyers that have shown interest will bring offers to the table that will cover all of its back debts and penalties. In all, Sabra has invested more than $280 million in the three facilities.

“We’ve got a clear path to resolution,” Matros said. “Despite all the issues we’ve gone through with them, we actually feel good about this process.”

The Frisco hospital filed for Chapter 11 bankruptcy in September, after accumulating nearly $15 million in debts amid a struggle to secure financing to pay down its expenses. Sabra provided the hospital with $18.5 million debtor-in-possession financing to cover operational and equipment costs, and Matros said Tuesday that the hospital had ramped up operations enough to actually pay a full month’s rent. The REIT began deferring Forest Park Frisco’s monthly payments in January. Mike Miller, the chief restructuring officer, said the hospital performed 63 procedures on Tuesday—the most in a single day since the hospital opened in 2013.

Matros also praised Fort Worth’s recent performance, saying November was one of the 54-bed hospital’s best months in terms of revenue since opening in October 2014. Sabra’s purchasing option includes the attached 80,000-square foot medical office building and parking garage. The company says a recent appraisal valued the entire facility at $122 million.

“We expected them to do something in Fort Worth because Fort Worth has so much equity and the only way they could realize that equity is to stop the foreclosure sale,” said Harold Andrews, Sabra’s chief financial officer. “That’s the only way they’d be able to do that.”

Todd Furniss, the chairman for The Management Company at Forest Park Medical Center, has blamed the collapse on a business model that was built on high “out-of-network” procedure charges. Insurance companies last year began cracking down on these and pushed the hospitals “in-network,” offering substandard rates to the Forest Park facilities or outright blocking their participation, Furniss argued. This, combined with the fact that federal law bars physician-owned hospitals from treating Medicare or Medicaid patients, prevented the facilities from generating revenue to find extra financing to keep the doors open.

Davis, Fort Worth’s CEO, says that the Tarrant County hospital actually never bet on out of network charges. The facility has been in-network with all the market’s major payers since March 15, he says, and has since seen month-over-month volume growth. Prior to that, internal emails obtained by D CEO showed that the hospital missed rent. He declined to say whether the hospital was up to date on its rent payments, but said negotiations are ongoing with the limited partner that serves as landlord, the Neal Richards Group, as well as with Sabra.

“As with any startup entity, whether that’s in healthcare or otherwise, it obviously takes some time to get our financial legs under us, but what we have seen is not only our volumes go up monthly but that gap narrow and our deficit narrow,” Davis said. “So financially we are definitely heading in the right direction.”

He also said the board has been in talks with partners who were interested in both helping operate and invest in the hospital, although he declined to specify whom or give further detail about the nature of these discussions. He said he is not worried about Sabra bringing in another tenant and impacting the current staff or the physicians who have privileges there.

“To come in and eliminate or swap out a new tenant probably doesn’t make a lot of sense because of the very strong physician owners and partners in this facility,” Davis said. “These are very well known, talented physicians in the Fort Worth market. (Sabra) wants to see success here, and they see potential despite many of the external factors that we’ve had to overcome and have had to deal with in our very short year of operations.”

Forest Park San Antonio’s real estate entity also filed for Chapter 11 bankruptcy in September. The Dallas hospital closed its doors last month and laid off close to 200 employees, although Matros said Tuesday that it has retained its operational licenses in case a buyer comes forward. A Missouri bank has sued the Southlake facility for defaulting on a $9.4 million equipment loan. And the long-delayed Austin hospital will open completely independent of the Forest Park brand.

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