Monday, September 29, 2008

Sunwest Retirement Homes Robbed Peter to Pay Paul

From the Register Guard:

Two Southern Oregon boys proved they were national-caliber real estate dealmakers over the past eight years, in an era of free flowing credit and nonstop construction.
And, now that times have turned, Sunwest Management owners Jon Harder and Darryl Fisher may be on the brink of a Wall Street-scale, billion-dollar business failure, according to court documents and testimony by company officials.
About 100 of 300 companies they created — mainly to provide assisted living for the elderly in 37 states — can no longer pay their bills, Sunwest’s chief financial officer said in a recent Lane County court proceeding. The Sunwest entities hold more than $1.8 billion in debt. A half-dozen lawsuits have been filed against them in the past two months.
Banks that loaned more than $600 million to those companies are nervously eyeing the Sunwest-related debt. Several have called in loans after just one or two late payments from the Salem-based company; two lenders recently went to court to foreclose and install receivers at Sunwest facilities, including at Alpine Springs in Eugene and Briarwood Retirement and Assisted Living in Springfield.
Bank foreclosures, should they come to pass, would mean that investors in the property stand to lose. These Sunwest deals involve 1,200 private investors who have $400 million at stake, according to recent courtroom testimony.

In 2000, the two had 20 assisted living facilities. Today they preside over 287 homes in 37 states, including nine in Lane County.
Along the way, some observers wondered aloud whether Sunwest was growing too fast.
When Sunwest announced plans to build a $7 million, 38-unit assisted living center and Alzheimer’s ward in Cottage Grove in 2003, for example, Carmen Dake, who already had an assisted living center there wondered why. “I don’t have a big waiting list,” she said at the time.
Now, while Sunwest affiliates face foreclosure or Chapter 11 reorganization, the critics say Sunwest’s owners should have seen the problems coming. “They acquired too many properties and too much debt in a short period of time. They’re overburdened with a huge amount of debt service and some properties are not performing well,” said Grenley, who represents investors.
Bill Reeve, who operates a half-dozen retirement centers in the Northwest, including Willamette Oaks in Eugene, said, “These people were in a development mode, and their focus was lost. When you get into an expansion mode, you — now — out of necessity are focusing on building permits, construction, pre-opening marketing. Then, what happens is you’ve got too many of these things going. They’re good. They understand the product, but they lost track of what got them where they are.”

Jon Harder has been in hot water with the courts for moving around money — sometimes without permission or documentation — from better-performing senior homes to under performing ones under Sunwest management.
“The court is most troubled by defendants’ transferring homes’ money without so much as informing the owners,” Judge Mosman wrote in the 2004 case. “Plaintiffs’ expert documented over $2 million in unauthorized transfers among homes. In essence the evidence showed that Sunwest treated the money in the transfer account as its own despite its officers knowing the money belonged to the retirement homes. Indeed, the evidence showed that Sunwest’s officers deliberately sought to conceal the transfers whenever it believed an investor ... might object.”
The company even raided its employee health account to make a payment to the IRS, Mosman found. “It’s in all likelihood both a dangerous and stupid business practice,” he said.
Sunwest settled that lawsuit under confidential terms.
Within four years, Sunwest was again caught moving money from facility to facility.
In an August court case, Sunwest Chief Financial Officer Curtis Brody told Judge Carp that the reason Briarwood couldn’t meet its monthly mortgage payment by the due dates in June and July was that Sunwest took profits totaling $92,000 a month to use elsewhere.
“My expression would be (Sunwest was) robbing Peter to pay Paul, and Peter didn’t care for it,” Carp said. “It’s just that simple.”


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