Hahnemann bankruptcy agreement sidelines former owner Joel Freedman and clears way for property sale

Lawyers for the bankrupt and shuttered Hahnemann University Hospital have reached an agreement with former owner Joel Freedman, his lenders, and other creditors on how proceeds from the eventual sale of the North Broad Street properties will be split.

In a rare bankruptcy occurrence, Hahnemann real estate that was kept out of the 2019 Chapter 11 filing will be consolidated into the bankruptcy estate, making at least some of the proceeds available to repay Freedman’s creditors, who are owed roughly $300 million, according to an estimate in a court filing last year.

The agreement ensures that Freedman — a California businessman who in 2018 borrowed almost all of the money to buy Hahnemann and St. Christopher’s Hospital for Children from Tenet Healthcare Corp. for $170 million — won’t get rich from turning the safety-net hospital into condos, as irate politicians and others thought would happen.

Freedman, through a spokesperson, had no comment.

The extraordinarily complicated agreement describes millions in crisscrossing payments, including a final pension payment of as much as $23.5 million from Tenet for union workers represented by District 1199C, before the sale even happens. The agreement was filed Monday in U.S. Bankruptcy Court for the District of Delaware and awaits a judge’s approval.

Hahnemann’s bankruptcy attorney, Jeffery C. Hampton, in the Philadelphia office of Saul Ewing Arnstein & Lehr, did not respond to an emailed request for additional information about a $5 million payment from Tenet to a Freedman company, Paladin Healthcare.

If the U.S. Bankruptcy Judge Mary F. Walrath approves the 469-page memorandum of understanding, it will end a dozen pieces of litigation in Pennsylvania and Delaware courts that have prevented progress on the sale of five properties that were not in the the bankruptcy because Freedman put the real estate into separate companies from the business of the hospital.

Key players in the agreement are Tenet, which alleged that Freedman owed it tens of millions for information technology and bill collection services after the sale; Harrison Street Real Estate, a Chicago investment firm that lent Freedman $51 million and bought some of the real estate itself; and the remaining Hahneman shell.

Another key lender was Capital One, which provided a $110 million mortgage.

Representatives from Harrison Street, Tenet, and Hahnemann or the committee representing unsecured creditors in the bankruptcy will form a three-member committee to oversee the sale. Al Mezzaroba, a lawyer and a former Pennsylvania Convention Center CEO, will manage the sale.

Proceeds will first be used to pay expenses related to the sale, repay a $5.6 million loan from Hahnemann in March to maintain the properties, and satisfy close to $1.8 million in liens for taxes and water bills on the properties.

The next $20 million will be split evenly between Harrison Street, Tenet, and the bankruptcy estate. Fifty-five percent of anything more than that will go to Harrison Street, with Hahnemann collecting 25% and Tenet collecting 20%.

No one knows how much money the properties will bring.

Likely the most attractive parcels to developers would be the parking lot at the corner of Race and North Broad Streets and Martinelli Park on the northwest corner of Vine and North Broad Streets. Redeveloping the north and south hospital towers would be far more challenging for a buyer because of their condition and other factors.