Out with the old

Page 3 of 6

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.

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Tony Ortega
Contact: Tony Ortega