Out with the old

he 80-somethings at retirement home Desert Crest face eviction. But that's just business, says the home's owner--which happens to be an agency of the Roman Catholic church.

A robust, superannuated woman with the stern countenance of the righteous guides her electric tricycle to within hailing distance of two relaxed-looking men who have filled patio chairs for a leisurely smoke.

The three exchange brief pleasantries.
"Did you go to church today?" the sober matron asks the men.
"Was there a Mass today?" responds the younger and heavier of the men.

"I don't think so," replies his companion, an impish octogenarian with large, droopy ears.

The three debate the present day of the week and, after some difficulty, arrive at a consensus, agreeing that organized worship is yet a day away.

"Of course," says Droopy Ears, "you could always pray on your own, at home."
"That's right," the woman wholeheartedly, if solemnly, agrees. She adds that she encourages everyone to pray regularly. "They tell me what church they belong to, and I say, 'That's all right, as long as you believe in Jesus,'" she says, repeating it twice and putting added emphasis on the prophet's name so that it comes out JEEEE-zuss.

Behind the trio, a slow stream of other aged residents emerges from a dining room as another lunch at the Desert Crest retirement home comes to a close.

A cluster of utilitarian but not unattractive buildings and cottages on Maryland Avenue just east of 20th Street, the xeriscaped complex is home to 100 seniors. Average age is 82. Average stay is five years. Desert Crest is for many of its residents the final stop in their long and productive lives. The setting is pacific. Unhurried. Congenial.

There's no outward sign that the peaceful community in the shadow of Squaw Peak faces upheaval and doom.

Instead, life continues for these remarkably able-bodied and endearing people who have witnessed most of the waning century.

"Do you read books?" asks the heavier man after taking a drag on his cigarette.

"I read the Bible, mostly," the woman answers.
"I got some books you might like to read," he says, and he gives her a brief description of them. He promises to bring them to her, and she thanks him, giving him a stately nod as she guns her trike. When she's out of earshot, Heavy leans over and says with a wink:

"I call that one there Miss Hotsy-Totsy."
"Yeah?"
"Yeah. Miss Hotsy-Totsy."

If the owners of Desert Crest have their way, the colorful residents of the retirement home will soon make way for bulldozers and a dense outbreak of luxury apartments.

After nearly a decade of mortgage problems brought on by circumstances it claims were beyond its control, the Foundation for Senior Adult Living placed Desert Crest into bankruptcy last August and has found a buyer to take the property--and its debt--off its hands. That buyer, JPI Apartment Development, plans to demolish the retirement center and put up 396 apartments.

For the foundation, the decision makes good business sense. Its president, Guy Mikkelsen, says that if the foundation didn't sell to JPI, the center's mortgage holder would foreclose and bring in its own developer to put in apartments.

Either way, Desert Crest's demolition is a done deal, Mikkelsen asserts.
That's a familiar refrain in the Biltmore area, where other smart business decisions have been derided as heartless by local residents who tried in vain to save the Cine Capri from profit-minded property owners, and others who continue to fight plans to grade the Adobe golf course.

Those causes generated wide media attention. But so far, Desert Crest's octogenarians haven't captured the same interest as the giant movie screen or Adobe's manicured lawns.

The residents and their neighbors want to change that.
Meanwhile, they are fighting the foundation's proposals in bankruptcy court, hoping to save their homes.

They say they didn't expect the Foundation for Senior Adult Living to act like other profit-hungry businesses.

That's because the foundation is not in business to make profits.
It's a charity, and it has for years billed itself as an agency of the Valley's Roman Catholic diocese.

In recent months, however, the foundation has made efforts to distance itself from the church, while the diocese has remained conspicuously mute on the subject of Desert Crest.

The residents of Desert Crest--some Catholic, drawn to the center by its affiliation with the church--say that silence mystifies them.

So they wait, both hopeful and afraid of what they might hear from Bishop Thomas O'Brien and U.S. Bankruptcy Court Judge Redfield Baum.

As early as March, they should know if their houses will be history.

Desert Crest's own history began 40 years ago, when its location at 20th Street and Maryland was on the outskirts of town.

None of the current residents lived there then, of course. Mac McCullough, for example, was still a construction safety engineer and far from retirement.

Today, the 79-year-old can't help raising his voice as he talks about the trouble facing the retirement home. That attracts a few of his concerned neighbors to his lunch table to hear McCullough's assessment of where they stand.

The others speak as well, but all tend to defer to McCullough, who, as treasurer of the residents' club, appears to enjoy his leadership role. He resembles the late actor John Houseman in appearance but not manner; McCullough is scrappy but not erudite.

He says he's ready for a nasty fight over Desert Crest. But it's clear that he, like his neighbors, finds the bankruptcy issues difficult to fathom.

It was only when outside homeowners associations, concerned about plans for so many apartments, contacted Desert Crest residents that many of them learned the foundation had filed bankruptcy months before.

McCullough complains that when he asked a foundation official about it, he was told, "There's nothing to tell except that bankruptcy has been filed and it's business as usual."

With only limited information coming from the foundation for several months, rumors ran rampant and the residents assumed the worst.

McCullough shakes his head in disgust. Resident Shirley Cowlin takes advantage of the temporary silence to interject: "It's been hard to separate fact from fiction around here for quite a while."

"It's like it was in the Depression," adds 88-year-old Carl Roselius. "You can hear everything but meat a-frying."

With greater cooperation from the foundation in recent weeks, the residents have begun to piece together what has led them to the brink of disaster. McCullough pulls out several folders to show the research he's done that reaches far into the past to chronicle the saga of Desert Crest.

A document in the retirement home's library indicates that planning began on the facility in 1951, and that it was finished in 1957 by Arizona Sunset Homes. In 1959, the complex was taken over by Pacific Homes, an affiliate of the Methodist Church. In a 1969 photograph, the sign at the entrance reads: "Desert Crest--Methodist Sponsored."

Pacific Homes offered its seniors contracts for lifetime care. For up to $100,000, residents bought themselves a permanent place at Desert Crest and other Pacific Home facilities.

Then, in 1977, Pacific Homes went belly up, leaving thousands of seniors with useless contracts. Unable to get their money out of Pacific Homes, the seniors sued the Methodist Church. Claiming that it was exempt from lawsuits, the church tried to distance itself from Pacific Homes. Said a church attorney about the relationship between the two entities: "It is connectional, not hierarchical."

The seniors disagreed. And eventually, after four years of litigation, the Methodist Church paid $21 million to settle their claims.

Since 1979, Desert Crest has been owned by the Foundation for Senior Adult Living (FSAL), which is controlled by another corporation, the Foundation for Senior Living (FSL). That, in turn, is controlled by the Roman Catholic Diocese of Phoenix.

The church appoints FSL's board of directors. FSL appoints the board of directors for FSAL. Guy Mikkelsen is a member of both boards as well as executive director of FSL and president of FSAL. He says that the arrangement assures the independence of the two foundations from the diocese.

That's echoed by the diocese directory, which lists the Foundation for Senior Living as a diocesan office but with the disclaimer that FSL is "a separate corporation."

But connections between the two are strong. Residents of Desert Crest gather for meetings in the Bishop Rausch Fellowship Hall. Old promotional materials refer to the foundation as "a non-profit agency of the Roman Catholic Diocese of Phoenix." And until recently, the foundation used letterhead which described FSL as "a program of the . . . Diocese."

In 1979, United California Bank loaned FSAL $4.4 million to purchase Desert Crest. The loan was insured by the federal Housing and Urban Development department, which put several restrictions on the deed and required that Desert Crest reserve a certain number (about half) of its apartments as Section 8 units for low-income seniors receiving federal assistance. Those contracts governing Section 8 housing have been renewed numerous times and are still in effect, at least for two more years.

In court papers, FSAL claims that under its ownership, Desert Crest thrived. It received high scores in annual inspections of its health facilities, and the retirement home was never late on its monthly $29,000 mortgage payment.

Then, in 1989, the troubles began. The U.S. Army Corps of Engineers decided to beef up a nearby irrigation canal, triggering a string of financial setbacks for the retirement community.

In court papers, the Foundation for Senior Adult Living details a complex tale of woe.

Foundation officials say they were betrayed by the government agencies and other public entities which exist to serve people such as the elderly residents of Desert Crest.

Government officials have a different story, one that portrays the residents as victims of mismanagement by the foundation.

In 1989, for example, the Army Corps of Engineers and Maricopa County Flood District decided to dig a diversion channel that would parallel the Arizona Canal and, consequently, plow through about four acres of Desert Crest. Eleven cottages--which generated higher rents than other units--were bulldozed to make way for the channel.

When it came time for the Flood District to pony up for its condemnation of Desert Crest's land, it offered $764,000, a sum Guy Mikkelsen calls "ridiculously low" and "grossly inadequate." The amount wouldn't begin to cover the damage to Desert Crest caused by closing down such a significant part of it, the foundation argued as part of a condemnation lawsuit. Yet the foundation settled for only $1 million in the case, which condemnation specialists say suggests the foundation wasn't very savvy in the way it handled the government project. (Mikkelsen did not return later phone calls from New Times seeking follow-up information about the deal.)

FSAL warned HUD and its mortgage holder that the disruption and loss of income from the channel project meant the foundation couldn't pay its bills. Neither entity responded, bankruptcy court filings show, and in 1990 FSAL simply quit making its mortgage payments. It's not made a payment since. (Despite not making those payments, Desert Crest claims that it presently just meets operating expenses because of the income it lost when the 11 cottages were bulldozed.)

As the loan's insurer, HUD assumed the note in June. A year later, the foundation turned over to HUD the $1 million it had won in the condemnation lawsuit and, in 1993, agreed to a HUD request to cut costs by closing its 64-bed nursing center, Crestview, which remains empty today.

The foundation then attempted to find a buyer who would take over the retirement home and continue to run it.

Mikkelsen says HUD and the foundation offered to sell Desert Crest to the City of Phoenix in 1992 or 1993 at a discount price.

One dollar.
But the city turned down the offer. Mikkelsen says small amounts of asbestos in floor and ceiling tiles at Desert Crest were enough to turn off city officials.

David Hicks of the city's housing department says he doesn't remember discussing a price. "I don't remember that it was a dollar. That sounds pretty good," he says.

"I think the general thinking was that there was a lot more than a small amount of asbestos. I think it was fear that there was quite a bit. From there I think it just fell through and nobody pursued it from either side," says Hicks.

So the foundation looked elsewhere for a white knight. FSAL contends HUD again bungled things. In 1995, the foundation was on the verge of selling the center to the Campus Health Care Group, which planned to keep Desert Crest running, reopen Crestview as an Alzheimer's unit and pay HUD $3.9 million. But delays by HUD, says the foundation, nixed the deal.

HUD dismisses the foundation's allegations of government screw-ups. Instead, HUD employee Sally Thomas says that Desert Crest suffered from years of mismanagement as the foundation stubbornly held onto services that lost money.

"They had several buyers that were interested in Desert Crest, but [the foundation] would use stall tactics. They would never go through with anything," says Thomas. "We wanted them out of it, very frankly, because they weren't operating it well.

"It's been in trouble for a long, long time. They would never listen to us as far as making some of these services self-supporting."

Thomas' assessment is diametrically opposed to the story told in the foundation's bankruptcy papers. But she says that doesn't surprise her.

"Guy's very sharp," says Thomas. "One thing I don't want to do is get into a pissing match with the diocese. Neither does HUD."

In 1996 and 1997, the foundation tried to arrange another sale, this time to Evans Withycombe Residential (now Equity Residential), which planned to tear down Desert Crest and put up apartments.

By this time, HUD had sold Desert Crest's mortgage along with 157 others to MMT, a Delaware business trust. The foundation says that MMT did not respond when Evans Withycombe offered $3.05 million for Desert Crest. Instead, MMT notified the foundation that it intended to foreclose on the long-dormant mortgage.

A few days later, in August, Desert Crest filed for Chapter 11 bankruptcy protection. Soon, it had lined up another buyer, JPI, which also sees apartments as the best use of the Maryland Avenue property.

Ken Tims remembers the initial shock of learning that nearly 400 apartments would be going in not far from his house.

A resident of the Tonka Vista development southwest of Desert Crest, Tims thought he and his neighbors had already been through enough.

Their bucolic collection of large ranch houses lost much of its access to neighboring parts of Phoenix when the Squaw Peak Parkway was constructed in 1990. Traffic into the area south of Glendale Avenue and east of the freeway now is restricted to two small streets.

That's made getting in and out more of a hassle, but it's also reduced cut-through traffic, which benefits property values. But with such narrow access to the neighborhood, residents jealously protect their homes from the prospect of increasing population and cars. Several past projects have been scuttled by resident activism.

JPI's plans to put 400 apartments in the middle of the neighborhood, where 100 seniors--most of whom don't drive--presently live, have Tims dreading the impact on his peaceful street. He and other members of four local homeowners associations have mounted an offensive against the foundation's proposed sale to JPI. At a January 6 bankruptcy hearing, Judge Redfield Baum told the packed courtroom that he'd never received so many letters about a case. Neighbors united against the development have also sent letters to Bishop O'Brien and have lobbied Phoenix village-planning committees as well as city and state politicians. The City of Phoenix may be able to do nothing about the matter, however. Desert Crest sits atop land zoned for high-density multifamily dwellings. JPI won't have to seek rezoning for its plans.

It wasn't long before Tims and his neighbors realized that Desert Crest's seniors were also facing a dismal future.

"We have residents at Desert Crest who have lived there many years and planned to spend the rest of their lives there. We thought, what's going to happen to them?" says Tims. "There's already a significant shortage in that kind of housing and a huge waiting list at most places. A few of the neighbors have parents or close friends in Desert Crest."

Lyle Six is one of those. The retired AlliedSignal engineer lives in the neighborhood; his 97-year-old mother, Daviejean, lives at Desert Crest. Six says he began bringing Desert Crest residents such as Mac McCullough to homeowners-association meetings. He says McCullough educated homeowners who had wrongly assumed that if Desert Crest was bankrupt, it must be a run-down eyesore.

Now, Six is angry that the possibility of saving Desert Crest is not being offered in the bankruptcy proceedings.

"There's nothing before the judge that could possibly be satisfactory to the residents or neighbors," he says. "Guy [Mikkelsen] disappoints me. You always had the impression that he and the church considered Desert Crest to be one of their most important projects. . . . Instead he gets a commercial developer as a partner. Well, what earthly interest does the church have in making that a commercial property?

Six wonders if there isn't another possibility. He suggests a "cram-down"--a court-ordered reduction of the retirement home's debt to equal its current value. "I think the judge would buy it. And that's the only way to save Desert Crest."

Asked to explain why the Foundation for Senior Adult Living wants to sell Desert Crest to apartment-building giant JPI, Guy Mikkelsen told The Business Journal, "If the note holder recovers the property, we believe they'll turn around and sell it to someone who will do the same, exact thing."

In other words, it makes no difference who does the demolishing. Either way, Desert Crest gets the wrecking ball.

But a detailed look at FSAL's bankruptcy pleadings shows that Mikkelsen and the church-affiliated foundations do have incentives for pursuing their deal with JPI--recouping cash for the diocese foundations.

Under the most likely scenario presented in the proposed bankruptcy sale, JPI would settle the foundation's debt with MMT, the note holder. And it would also pay off Desert Crest's unsecured creditors.

Compared to the crushing $5 million debt claimed by MMT, those unsecured amounts are relatively minor. The Home Depot, for example, is owed $1,165, and SRP is owed $7,000. Many creditors are owed less than $1,000.

But one unsecured creditor tops the list. It's the Foundation for Senior Living (FSL), which, of course, controls FSAL. And it's owed $152,000.

Under the conditions of JPI's proposed purchase, the Foundation for Senior Living would get its money. But if MMT is allowed to foreclose on the mortgage, unsecured creditors--including FSL--would probably not see their cash.

Michael King, FSAL's attorney, contends his clients are motivated by another, less selfish reason. JPI, he says, has promised to take care of the needs of Desert Crest's residents, at least for the next year or two.

King and JPI say that the corporation plans to honor the HUD contracts requiring half of Desert Crest's apartments to be low-income housing. JPI envisions building the apartment complex in phases. The first units would go to the 50 subsidized residents, who would no longer find themselves in a retirement center but in a blend of apartment dwellers. Still, JPI's obligation to supply Section 8 housing would run out in 2000.

As for the other 50 nonsubsidized residents of Desert Crest, King says JPI would be as "sensitive" as possible to help them with the transition. King says that MMT, if it were to foreclose on the property, would not have to honor the HUD agreements or treat residents sensitively.

MMT attorney Lance Jurich refused to comment on the case.
Mac McCullough and other Desert Crest residents scoff at the notion that JPI's plans can be characterized as taking care of their needs. Half of them will be kicked out, McCullough says, and the other half will be put into a living situation they can't accept at their age.

"To put them in these apartments, you're going to kill them," he says.
Residents and neighbors want to know why FSAL and its parent FSL appear to have ignored other solutions, including Lyle Six's suggestion that the foundation find a way to save Desert Crest. But residents will have to convince FSAL to put their proposal for saving Desert Crest before the bankruptcy court for the judge to consider.

Bankruptcy attorneys say Six's idea makes sense.
Desert Crest's major problem is that its mortgage is worth more than the property that secures it. FSAL estimates that today Desert Crest is worth about $3.2 million. But it faces $5 million in debt. Under a Chapter 11 restructuring, Judge Baum could accept a plan to reduce Desert Crest's mortgage to its present worth, $3.2 million.

With an infusion of cash, FSAL could also pay off the relatively minor debts to The Home Depot, SRP and dozens of others.

And if FSL, FSAL's parent company and an agency of the Roman Catholic diocese, would forgive its $152,000 claim, FSAL could be in a position to continue running Desert Crest. (Or at least save it for another buyer that would promise to keep it intact.)

FSAL attorney Mike King pauses for a long minute when asked about such a scenario. Then he says that the Foundation for Senior Living, FSL, "has never approached us about that."

King didn't explain how he expected Guy Mikkelsen, executive director of FSL, to "approach" Guy Mikkelsen, president of FSAL, to discuss such an option.

Mikkelsen himself, after granting an initial telephone interview, did not respond to repeated calls.

Marcia Busching, attorney for Desert Crest residents, thinks she knows what Mikkelsen would say to such a plan.

"I agree that the best thing would be to do a cram-down of some sort where Desert Crest would retain the property. My sense is that [Mikkelsen and FSAL] feel they've explored that to the nth degree and have no other choices. I think they saw JPI as their best alternative," she says.

Busching doesn't understand FSAL's reasoning in the purchase agreement with JPI. "They certainly come across as though they're trying to do the best for the residents, especially with this huge debt load. But it looks like there have been other options which have not been pursued."

She says with increased media and public scrutiny, however, FSAL might feel pressure either to find another buyer who will run Desert Crest or keep it itself.

Some people believe much of that pressure should be applied to the diocese and Bishop Thomas O'Brien, who has remained silent about the matter.

The bishop did not respond to an interview request.
State Senator Chris Cummiskey, who lives near Desert Crest and has joined his neighbors in opposition to its razing, has also been unable to get Bishop O'Brien on the phone.

"The diocese is doing its best to pretend that this is not a problem for them. . . . But I think the developers are feeling the heat," Cummiskey says.

FSAL seems to believe, however, that Desert Crest is worth more dead than alive. And until a guardian angel (or public outcry) convinces this corporate George Bailey that it has a moral obligation to survive despite substantial challenges, the foundation will apparently wish Desert Crest had never been born.

Charlotte Knaus spent the Depression selling lipstick and wishing she were onstage.

She worked at Wanamaker's department store in Manhattan in the theater district, which kept her close to her passion. On weekends, after turning in all but $2 of the $15 she made each week to her father, Knaus would perform in radio plays and hone her acting skills.

She fell in love with another Wanamaker's clerk who also lived for the theater and had trained as an actor. They married in 1937 and had two children.

Today, Knaus is 88, and she lives alone in Desert Crest. "I have two retired children. I can't understand where the time went," she says, and it's not hard to agree with her--Knaus is arguably the youngest 88-year-old in Phoenix.

Today, she's taking part in a board meeting of the Desert Crest residents' club held in the Bishop Rausch Fellowship Hall.

The residents have a grim task: They need to decide what will be done with various club properties and bank accounts if Knaus and McCullough and the rest are kicked out of Desert Crest.

They've managed to amass a sizable sum through the years. About $21,000 is spread among several bank accounts. But with the fight of their life on their hands, the venerable men and women think not of themselves but others. They discuss giving the money to charity.

Then, from 97-year-old Daviejean Six, Lyle's mother, there's another suggestion. Margaret Bowman asks the softspoken nonagenarian to repeat her proposal.

"Daviejean suggests we have a big party!"
"With $21,000?"
"Whoa!"

"Well," Bowman says, laughing, "Daviejean wants to be part of something, and she's 97. She can't wait much longer."

Contact Tony Ortega at his online address: tortega@newtimes.com

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