A financial success story: The Glebe rebounds from 2010 bankruptcy

08/05/16

By Ann Lovell

glebe_aerial_retouch_ADALEVILLE, Virginia—Chapter 11 bankruptcy is typically the death knell for an organization, particularly a faith-based nonprofit like The Glebe, a continuing care retirement community — or CCRC — outside Roanoke. That’s why The Glebe’s recovery from its Chapter 11 filing in 2010 and its strong financial health today are worth celebrating, says Joe Kelley, chief financial officer of LifeSpire of Virginia, formerly Virginia Baptist Homes (VBH), The Glebe’s parent company.

“The Glebe is the first CCRC we know of to go through bankruptcy and come out with the same ownership and the same management,” Kelley says. “It could have changed hands, changed managers or they could have closed it up and turned it into an apartment building.”

Instead, Kelley says, The Glebe came out of the bankruptcy not only financially healthy but also stronger relationally. “We retained all the residents. In fact, the adversity of the Chapter 11 process brought the residents together,” he says.

Ben Burks, executive director of The Glebe since 2013 agrees. Burks also credits the support of then-VBH and the commitment of The Glebe’s staff as key factors in The Glebe’s survival.

“The staff remained through the bankruptcy,” Burks said. “Many did a phenomenal job and worked well with the residents. The leadership of VBH also served the residents well.”

The Glebe’s cohesiveness among residents, staff and corporate leadership is borne from a high level of trust and the commitment to work together, says Joy McNabb, a resident of The Glebe since 2006. During the bankruptcy, the U.S. bankruptcy court appointed McNabb as chair of the unsecured creditors’ group, which was largely comprised of The Glebe’s residents.

“There was a strong trust factor among residents that VBH would take care of us, and they did,” McNabb says. Even in the worst of days, “we didn’t feel like we would lose our homes.”

A HISTORY OF SERVICE

The Glebe is one of four LifeSpire of Virginia continuing care retirement communities. LifeSpire, formerly known as Virginia Baptist Homes, is a faith-based nonprofit organization serving Virginia’s senior adults for more than 70 years. In 1945, Dr. J.T. Edwards, pastor of Culpeper Baptist Church, recognized the need to assist Virginia’s seniors in their retirement years. Edwards collaborated with the Baptist General Association of Virginia to build the first VBH retirement community in Culpeper, which opened in 1948. Over the years the organization expanded, opening The Chesapeake in Newport News in 1969, and Lakewood in Richmond in 1978.

CAUGHT IN THE PERFECT STORM

Recognizing the potential need among seniors in the Roanoke Valley, VBH began making plans to build a similar retirement community in Daleville in the 1990s. The Glebe incorporated in October 1998. Unfortunately, Kelley explains, the project was fraught with problems nearly from the beginning.

“The Daleville you see when you go out there today isn’t the Daleville it was 10 years ago,” Kelley says. A then-remote location, a 100-year flood and construction delays contributed to a slower occupancy rate than financial projections originally assumed.

“Construction delays added a significant burden,” explains Peter Robinson, LifeSpire’s vice president of marketing and public relations. “The Glebe was supposed to open in 2003. The flood and the construction delays added 18 months to the opening. In this market, potential residents can’t wait 18 months. They have to move in somewhere, so we lost residents.”

The Glebe began admitting residents in 2005, and by 2008, the community was 70 percent full, Kelley says. Then in 2008, the U.S. capital and housing markets crashed. To complicate matters further, Botetourt County officials sued VBH for property taxes associated with The Glebe.

“They questioned if The Glebe was truly a nonprofit,” Robinson recalls. “They viewed us a country club that didn’t pay taxes.”

The case went to Virginia’s Supreme Court who in 2008 ruled 5-2 in favor of The Glebe, but the time and expense involved in adjudicating the case was extensive, Robinson says.

Later, in a 2009 interview with “The Roanoke Times,” Botetourt County district supervisor Terry Austin identified suing The Glebe as “the worst decision Botetourt county made” during his term.

“Our worst decision was to challenge The Glebe on their tax status,” Austin said. “The Glebe is truly a great asset to Botetourt County. I regret we created a bump in the road for both them and us along the way, and I wish them all of the success they deserve.”

At the time, however, this combination of factors proved disastrous.

INEVITABLE BANKRUPTCY

Like other Life Care CCRCs, The Glebe relies on a one-time entrance fee along with a monthly service fee from residents to meet its financial obligations. Monthly service fees cover operating expenses. Entrance fees are largely allocated to fund future liabilities associated with resident support, and a major portion of these fees are held in escrow, McNabb explains. In exchange, residents receive housing, use and privileges within the community for life, including Assisted Living and health care services. Often, prospective residents pay the entrance fee from proceeds received from the sale of their homes.

When the housing market crashed, homes didn’t sell, residents could not pay their fees and The Glebe did not have the funds available to service its debt, Kelley explains. As a result, in January 2008, the U.S. Bank National Association declared an “event of default” — an action or circumstance that causes a lender to demand full repayment of an outstanding balance sooner than it was originally due.

On paper, The Glebe’s financial picture was bleak. At times, historical financial reports show, The Glebe had as little as seven days cash on hand.

“Fortunately, the occupancy rate was high enough that The Glebe could meet its operating expenses, including payroll,” Kelley explains, “and we were able to sustain that occupancy rate through the bankruptcy.”

The Glebe’s financial difficulties also had no bearing on the day-to-day lives of residents, McNabb says. “As a resident, we didn’t feel any impact from (the shortage of cash).”

However, because the bond trustee could require repayment, the entire outstanding liability — $55,540,000 — was classified as a current liability within The Glebe’s balance sheet. By May 2008, the situation grew even more dire when, based on The Glebe’s financial difficulties, the Virginia Bureau of Insurance ordered that The Glebe could not accept entrance fees until its finances met state standards.

“Essentially, this action assured bankruptcy,” Kelley says.

Although bankruptcy was unavoidable — The Glebe filed for Chapter 11 Bankruptcy June 28, 2010 — management, staff and residents did not give up hope. Instead, they rallied together to find a workable solution. Management undertook programs to improve operational efficiencies, reduce operating expenses and increase occupancy. Residents provided funds to fight the state commission’s stay on entrance fees and went to court to try to reverse the decision.

THE PATH FORWARD

Salt Water Pool at the Aquatic Center DeardorffThe bankruptcy took two years to complete, but by the end of 2012, The Glebe was in a much healthier financial position, the state commission lifted the stay on collecting entrance fees, and residents who moved in during the bankruptcy paid their back entrance fees.

“By the end of 2012, the cash crisis was alleviated in part because everybody stayed,” Kelley explains. ”We had assumed that as many as 25 percent of residents might abrogate their contracts. We may have lost one person.

It was an extremely successful outcome,” Kelley continues. “Even the unsecured creditors, who usually get nothing, got 50 cents on the dollar. … In my mind that’s a win.”

McNabb agrees, “The integrity and honesty of VBH held this ship together.”

A BRIGHT FUTURE

Today, The Glebe’s future is “as bright as it’s ever been,” McNabb says. “We are comfortable we’ll be taken care of, and the residents here have something very, very special.”

Kelley and Burks agree.

“Today, The Glebe has 305 days cash on hand. We’ve had a clean audit every year since 2012. We are in better shape than ever,” Kelley says.

“Our occupancy is at 94 percent and growing,” Burks says. “We’ve put in place a number of management practices designed to help us listen, watch and improve. We have established and aligned all our goals within departments and among individuals, so every employee is held accountable to goals that align. … We are hard-wiring excellence into our systems with great effect.”

“We know the quality of life of our residents hinges on the culture of our work,” Burks continues. “To us, that is very significant.”


Ann Lovell is corporate director of communications for LifeSpire of Virginia. Contact her at alovell@lifespireliving.org or (804) 521-9192.