Health Care and Insurance and Real Estate & Retail

Opportunity ... .. or Albatross?: Winona bankruptcy creditors move toward sheriff's sale

September 19, 2005

A sheriff's sale to the highest bidder may be the fate of the once-bustling Winona Memorial Hospital.

Bankruptcy creditors, frustrated that they haven't found a buyer for the vacant near-northside property, plan to seek a foreclosure that clears the way for public auctions of the hospital and an adjacent nursing home.

A sale and renovation of the properties could boost the neighborhood surrounding Winona, a part of town that has struggled but is riding a wave of good news the past couple of years. However, finding someone willing to spend money on the 49-year-old hospital will prove tricky for a number of reasons.

Walther Cancer Institute and Healthcare Business Credit Corp. received permission in recent months from U.S. Bankruptcy Court Judge James Coachys to start foreclosure proceedings on the properties.

Walther, which neighbors the hospital, holds a mortgage on Winona's nursing home. New Jersey-based HBCC holds one on the hospital. Lawyers representing both creditors say they plan to work g o toward sheriff's sales to recoup some of the money owed by the hospital.

That amounts to a little more than $2 million for Walther and $5.3 million for HBCC.

"Walther has been very supportive and patient during the bankruptcy process in the hope that something might develop and a sale to an operator or user might occur," said Ice Miller attorney Henry Efroymson, who represents Walther. "But it became clear ... that no buyer was materializing and no offer was forthcoming.

"Walther felt like it was time to do something."

The two creditors also will continue to explore a sale of the buildings outside a sheriff's sale, Walther Executive Vice President Fred Haslam said.

They've also had "high-level discussions" about using the hospital and nursing home as temporary housing for refugees from Hurricane Katrina, HBCC Vice President Mike Gervais said. He called the talks exploratory.

Winona closed Sept. 2, 2004, shortly after creditors filed an involuntary petition for Chapter 7 bankruptcy against the hospital, at 3232 N. Meridian St.

The hospital, which once housed 450 patient beds, had about 25 patients the day its leaders announced the closing. It had struggled for years because of a lack of capital investment and a customer base of poorer patients.

The closing sparked concern because other large commercial buildings in the area already were on the market, said Amy Kotzbauer, president of the Near North Development Corp.

Several large employers along North Meridian Street in that part of town have downsized or left in recent years because they were acquired or needed more space. Indianapolis Life Insurance Co., for instance, was bought by Iowa-based AmerUs Group in 2001 and moved from 2960 N. Meridian St. to Keystone at the Crossing several years later.

In addition, the surrounding residential neighborhoods have higher unemployment and poverty rates than the averages for the Indianapolis area. The 2000 U.S. Census reported the poverty rate for Winona's ZIP code area, which stretches from Fall Creek north to more affluent areas around Kessler Boulevard, at 21 percent.

However, the near-north side has seen its share of good news, too. Just to the south of the hospital, The Children's Museum of Indianapolis last year completed its $25 million Dinosphere exhibit.

And some of the real estate Kotzbauer worried about found new ownership. A local partnership recently announced the purchase of the Grain Dealers Mutual Insurance Co. building at 18th and Meridian streets, and International Medical Group Inc. bought the Indianapolis Life Insurance Co. campus.

A buyer for Winona would give the neighborhood a boost because empty buildings affect the marketability of surrounding properties, Kotzbauer noted.

Still, she said, "We're not really looking at it as a dire situation."

That's good, because finding a buyer may prove difficult. Obstacles include the hospital's location-in an area with a high percentage of Medicaid and Medicare patients-and the condition of its buildings.

"It's really amazing how much a building can deteriorate with nobody in it," said Duane Sobecki, a senior partner with Sobecki & Associates, an Indianapolis health care consulting firm.

The hospital-with its long, confusing corridors-represents what patients try to avoid these days. They favor buildings that focus on specific areas of medicine and are designed to get them in and out efficiently, said Steve Dobias, a principal in the health care group at locally based Somerset.

"What that facility was built for and what that facility produced historically ... is out of line with what the consumer wants today in health care," he said.

On the flip side, the hospital is centrally located, and it comes with adequate parking, Efroymson said. He also noted that having a hospital and a nursing home, along with an office building, on the same site might be appealing to health care developers.

Neighbors have told city officials they would like to see medical clinics, another hospital or a retail development there, said Betty Smith-Beecher, Mayor Bart Peterson's neighborhood liaison for Center Township.

One person even suggested at a community meeting that Winona become a sort of temporary home for prisoners.

"It's another vacant building that they would like to have something done with," she said.

Potential investors checked out the hospital after it closed, but no one went beyond the tire-kicking stage.

"It's troubling that nobody made an offer during the entire bankruptcy process," Efroymson said. "Plenty of time was provided for analysis and investigation."

He said a sheriff's sale might flush out an investor or two looking for an extreme bargain.

Someone might bid for both buildings or just one, said Dave Hamer, a Baker & Daniels attorney representing HBCC. But he added a sheriff's sale offers no guarantee of a deal.

If no one makes an offer, HBCC might get the hospital deed and then try to sell the property on the private market, using the company's own marketing muscle.

"I just can't predict what will happen," he said. "At this point in time, I think everybody in the case is just trying to nudge this thing forward."
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