St. Elizabeth's Medical Center landlord says they will fight state takeover plan

The firms that control the real estate of St. Elizabeth's Medical Center in Brighton rejected what they say is the state's  low-ball offer for the property and told Gov. Maura Healey that they will "vigorously challenge" her plan to take the land beneath bankrupt Steward Health Care's hospital by eminent domain.

The governor announced Friday that the state plans to seize the land to facilitate a transfer of the hospital to Boston Medical Center, which she said was lined up to buy St. Elizabeth's as part of a suite of deals struck -- but not yet finalized -- to keep five Steward hospitals here from closing. A hearing related to those deals previously postponed to Thursday was pushed off again late Wednesday afternoon, this time until Tuesday, Aug. 27.

The state offered the companies that control Steward's hospital real estate $4.5 million on Friday "to purchase the fee and any other necessary property interests in St. Elizabeth's Medical Center" as the first step towards an eminent domain taking of the land.

The companies -- owner Medical Properties Trust along with lenders Apollo Global Management and ACREFI CS U, which took the lead -- rejected that offer in a letter late Tuesday, saying the state's proposal "significantly undervalues the real property underlying St. Elizabeth’s" and represents an amount less than the property's annual tax bill.

"Accordingly, should the Commonwealth move forward with its proposed plan to exercise eminent domain and compensate ACREFI only $4.5 million for the property, ACREFI will have no choice but to exercise its constitutional and statutory rights and take any and all actions necessary to protect the interests of the investors to which it has fiduciary obligations," the letter from the lender says. "ACREFI believes there are numerous procedural and constitutional issues raised by the Commonwealth’s proposed plan and conduct to date that it will vigorously challenge."

Healey's office said that it is completing the legal work necessary to move ahead with an official order of taking, which is required for the state to exercise its eminent domain powers.

"Steward and Apollo need to stop playing games with people’s health care. We are moving forward with plans to take St. Elizabeth’s by eminent domain," a Healey spokesperson said Wednesday afternoon in response to the offer rejection.

The $4.5 million that Healey's administration offered Apollo for the St. Elizabeth's land was the "appropriate and fair market value of that property," the governor told reporters Friday. But the state's offer letter said that the amount was "based on the current third-party offer for St. Elizabeth's Medical Center."

The Boston assessor's office lists the assessed value of the land at 736 Cambridge St., where St. Elizabeth's is located, at just under $51 million, with the building value listed at more than $140 million.

The Fifth Amendment to the Constitution gives governments the power to take private property "by eminent domain" - regardless of the owner's wishes - so long as the government proves the property is needed for a public use and the owner is paid fair market value for the property.

"Multiple appraisers agree with ACREFI that there is no realistic scenario in which the 'fair market value' of the property is $4.5 million," the firm wrote in its letter.

The governor said last week that the state must pursue an eminent domain taking for St. Elizabeth's after negotiations with Apollo proved unsuccessful and the company "refused to move." Apollo declined to comment on the governor's announcement and again declined to comment Wednesday on the rejection. But the offer rejection letter from ACREFI suggests the property owners and lenders disagree with the governor's take on the situation.

"Over the past several weeks, ACREFI has attempted to work with the Commonwealth to explore a number of different structures that would both (a) respond to the Commonwealth’s concerns, including about the long-term viability of St. Elizabeth’s as a hospital and (b) provide ACREFI with a fair result. Specifically, ACREFI has proposed structures featuring short-term leases, long-term leases, purchase options and other upside protections – in many cases, in direct response to the Commonwealth’s request for ACREFI to consider those options," the firm said.

ACREFI said it has made at least five proposals to the state regarding St. Elizabeth's in recent weeks and "remains open to discussing terms for a consensual transfer of the St. Elizabeth’s property," something it says it communicated to the state as recently as Saturday.

"The Commonwealth has, however, rejected all such proposals and indicated this past weekend that it is no longer interested in negotiating any consensual solution in respect of St. Elizabeth’s, at least in the near term," ACREFI wrote.

The lenders also call the state's plan to arrange for St. Elizabeth's to be handed over to BMC "effectively little more than a transfer of the significant value in the real estate that rightfully belongs to its owner (and ACREFI as mortgage lender) to BMC." They also suggest that an eminent domain taking was part of the state's plan even before negotiations reached loggerheads.

"It appears that BMC fully appreciated that the Commonwealth would ensure the hospital ended up in its hands one way or another, as BMC informed ACREFI during the bidding process that it had no reason to improve its bid because the Commonwealth would simply exercise eminent domain to deliver the hospital property to BMC in the event a consensual agreement was not reached," the letter says.

Healey said Friday that deals were in place to sell St. Elizabeth's to BMC as well as to transfer four other Steward hospitals on five campuses to new owners: Lawrence General Hospital will buy the Holy Family Hospital facilities in Methuen and Haverhill, Lifespan will take over Morton Hospital in Taunton and Saint Anne's Hospital in Fall River, and BMC will also buy Good Samaritan Medical Center in Brockton, as long as the deals are finalized and approved.

A Steward lawyer said Friday the company hoped to be signing asset purchase agreements for those hospitals by Monday and would present them to a U.S. Bankruptcy Court judge for approval at a hearing Thursday. That hearing was moved to Tuesday, Aug,. 27 as there was still no sign late Wednesday of movement around the deals that Healey announced last week.

The governor's office did not respond to a question Wednesday about the status of the deals Healey announced Friday before taking off for the Democratic National Convention in Chicago for the week.