Another asset manager takes over shuttered Nix Behavioral Health facility

Investment firm Cedar Health Group has acquired the former Nix Behavioral Health Hospital in San Antonio, which has sat vacant for three years after being shut down by its parent company Prospect Medical Holdings.[1]

Prospect is a safety net hospital system that was until recently owned by private equity firm Leonard Green & Partners.[2] Under Leonard Green’s tenure, Prospect permanently shuttered its San Antonio health system Nix Health, laying off nearly 1,000 workers[3]—and sold its primary hospital building to a hotel developer.[4]

See our November 2022 report: “How Private Equity Raided Safety Net Hospitals and Left Communities Holding the Bag: A Case Study on Leonard Green & Partners’ Ownership of Prospect Medical Holdings”

Now the shuttered building is being acquired by another investment firm. According to San Antonio Express-News, Cedar Health has purchased the behavioral health facility from American Momentum Bank. The price for the transaction was not disclosed but the entity it used to buy it, Alpine Specialty Hospital LLC, took out a $7.8 million loan from Frost Bank to make the purchase.[5]

Cedar Health calls itself a “privately held opportunist investment and asset management company servicing the healthcare industry” founded in 2019 by Mark Tress, Stephen Werdiger and Chaim Rottenberg. The company owns nine LTAC hospitals and behavioral health facilities in Louisiana, Florida, and Illinois.[6]

Cedar Health’s founders appear to have had limited experience in behavioral health prior to founding Cedar. However, they do have real estate experience – Mark Tress has since 2015 periodically appeared on New York City’s “Worst Landlord Watchlist,” a list maintained by the city’s Public Advocate that tracks landlords with high rates of violations and evictions.[7]  As of January 2023 he was the city’s 22^nd worst landlord, according to New York City’s Office of the Public Advocate, with an average number of 783 Housing Preservation and Development violations.[8]

In April 2022, Cedar Health made headlines when its Louisiana subsidiary Intensive Specialty Hospital made a controversial $10,000 donation to a Cook County, IL judicial candidate ShawnTe Raines-Welch, wife of Illinois House of Representatives Speaker Chris Welch. Raines-Welch was ordered to return the donation, which violated a state law banning out-of-state financing for judicial candidates in Illinois.[9]

The year before, Cedar Health received approval from the state to acquire the shuttered Woodlake Hospital in Melrose Park, IL and reopen it. Woodlake Hospital was previously owned by PE-backed Pipeline Health.[10]

Cedar Health is also entering the assisted living space – in November 2022 Cedar Health acquired a portfolio of assisted living facilities in South Florida. It paid $39 million for one facility, using a $38.1 million bank loan to finance the deal – 97% of the total deal value.[11]

As a new investment firm without an established track record in quality healthcare investing, Cedar Health’s acquisition of the Nix behavioral health facility raises concern. The legacy of Prospect Medical Holdings, which shuttered the Nix Health System a year after its private equity owner paid itself a $457 million debt-funded dividend, illustrates the critical importance of scrutinizing private equity firms and other asset managers like Cedar Health that operate in the shadows.[12]

[1] Webner, Richard. “New Jersey Hospital Chain Buys Vacant Medical Facility.” San Antonio Express-News, January 11, 2023. https://www.expressnews.com/business/article/New-Jersey-hospital-chain-buys-vacant-medical-17709304.php.

[2] Laura Cooper, “Rhode Island Regulator Approves Hospital Sale,” Wall Street Journal, June 1, 2021, https://www.wsj.com/articles/rhode-island-regulator-approves-hospital-sale-11622591539.

[3] Ayla Ellison, “Texas Health System Closes Hospital, Lays off 972,” Becker’s Hospital Review, November 26, 2019,  https://www.beckershospitalreview.com/finance/texas-health-system-closes-hospital-lays-off-972.html.

[4] Sanford Nowlin, “Hotel Company Purchases Downtown San Antonio’s Historic Nix Hospital Building,” San Antonio Current, January 3, 2020,  https://www.sacurrent.com/news/hotel-company-purchases-downtown-san-antonios-historic-nix-hospital-building-22709799.

[5] Webner, Richard. “New Jersey Hospital Chain Buys Vacant Medical Facility.” San Antonio Express-News, January 11, 2023. https://www.expressnews.com/business/article/New-Jersey-hospital-chain-buys-vacant-medical-17709304.php.

[6] Cedar Health Group website, accessed January 17, 2023. https://cedarhealthgroup.com/

[7] “Long-Empty 57th St. Building Included on Tish James’ ‘Worst Landlord’ List,” DNAinfo New York, November 27, 2015, https://www.dnainfo.com/new-york/20151127/hells-kitchen-clinton/long-vacant-building-included-on-letita-james-worst-landlord-list. ; “NYC’s 100 Worst Landlords: The Full 2016 List,” New York City, NY Patch, October 13, 2016, https://patch.com/new-york/new-york-city/nycs-100-worst-landlords-list-released-2016; Sarah Vasile, “New York City Itself Tops Worst Landlords List Once Again; See Who Else to Watch out For,” PIX11, December 16, 2021, https://pix11.com/news/local-news/new-york-city-itself-tops-worst-landlords-list-once-again-see-who-else-to-watch-out-for/.

[8] New York City Public Advocate Jumaane D. Williams, Top 100 Worst Landlords Watchlist Overview,” https://www.landlordwatchlist.com/landlords. Accessed January 27, 2023.

[9] Robert Herguth, “Speaker’s Wife Returns out-of-State Contribution to Her Judicial Campaign,” Chicago Sun-Times, April 22, 2022, sec. The Watchdogs, https://chicago.suntimes.com/2022/4/22/23036273/shawnte-raines-welch-chris-judge-westlake-hospital-melrose-park-woodlake-cedar-health.

[10] “New Jersey Investor Files to Reopen Illinois Hospital Shuttered by Pipeline,” Becker’s Hospital Review, June 22, 2021, https://www.beckershospitalreview.com/finance/new-jersey-investor-files-to-reopen-illinois-hospital-shuttered-by-pipeline.html.

[11] Shea Monahan, “Cedar Health Buys Fort Lauderdale Assisted Living Facility,” The Real Deal South Florida, November 22, 2022, https://therealdeal.com/miami/2022/11/22/cedar-health-scoops-up-fort-lauderdale-assisted-living-facility-for-39m/.

[12] Eileen O’Grady, “How Private Equity Raided Safety Net Hospitals and Left Communities Holding the Bag: A Case Study on Leonard Green & Partners’ Ownership of Prospect Medical Holdings,” Private Equity Stakeholder Project, November 2022. https://pestakeholder.org/wp-content/uploads/2022/11/Prospect_Primer_Nov-2022.pdf.