Chicago-based Aviv REIT recently acquired a post-acute and long-term care skilled nursing facility in Wisconsin for $7.6 million even as the company’s CEO is being sued by the family of the man who founded the nursing home investment trust.
The newly-acquired property will be operated by NuCare Services Corporation under a triple-net lease with a 10-year term, an initial cash yield of 10.0% and an annual compounded escalator based on CPI.
The transaction closed on Oct. 31, 2012 and was funded with cash on hand.
“NuCare has over 30 years of experience operating SNFs and we are pleased to add another new relationship with a large and experienced, multi-state operator to the Aviv portfolio,” said Craig M. Bernfield, Chairman and CEO of Aviv, in a statement. “With this transaction, we have closed on over $150 million of acquisitions year-to-date.”
The family of the late founder of Aviv REIT, Zev Karkomi, is suing Bernfield, accusing him of “unbridled greed,” according to Crain’s Chicago Business.
Craig Bernfield, CEO of Aviv REIT Inc., improperly slashed cash distributions to many of Mr. Karkomi’s relatives and other early investors by nearly 40 percent, a move that allowed him to collect $2 million in extra profits, according to a lawsuit filed in Cook County Circuit Court. The suit accuses Mr. Bernfield of self-dealing and breaching his fiduciary duty to Aviv investors.
The page-long list of plaintiffs includes Mr. Karkomi’s widow, Shifra Karkomi, daughter Susan Karkomi, the trust of late daughter Vicki Karkomi, several other relatives and family trusts, and other individual investors including Albert Milstein. Mr. Karkomi, who immigrated to the United States from Israel in 1958, died in 2009 at age 85.
The company had planned to sell as much as $362 million in stock in an initial public offering in 2009, but scrapped the offering less than two months after Mr. Karkomi’s death.
“With the IPO unavailable, Bernfield sought another path to access a payout beyond his salary and the annual income generated by his partnership interests,” the complaint said.
Class A shareholders in May 2011 were told their preferred return was being reduced to 6.1 percent a year, retroactive to September 2010, cutting nearly $7 million in Class A distributions, according to the complaint. Mr. Bernfield said the reduced returns were permitted because of debt refinancing in 2010 and 2011 that reduced cash available to pay distributions, the complaint said.
Mr. Milstein challenged Mr. Bernfield, saying the refinancing did not create a material reduction in available cash and that it did not allow Aviv to permanently reduce returns, but Mr. Bernfield refused to reinstate the previous distributions, according to the complaint.
Read more at Chicago Real Estate Daily.
Written by Alyssa Gerace