By Francisco Alvarado, FloridaBulldog.org
When nonprofit Miami-Dade nursing home operator Plaza Health Network sold a prime slice of Miami Beach real estate for $13.6 million last spring, its board chairman, Russell Galbut, collected more than $3 million for himself and his real estate company, Crescent Heights, according to company documents reviewed by FloridaBulldog.org.
Plaza’s sale of its shuttered 104-bed facility at 320 Collins Ave and two neighboring parcels comes amid a federal investigation into a whistleblower’s allegations that Plaza Health submitted $130 million in false claims to Medicaid and Medicare via an illegal kickback scheme that billed the government for services that were not performed.
Plaza Health is also suspected of fraudulently obtaining low interest rate mortgages from the U.S. Department of Housing and Urban Development.
The Miami Beach property sale occurred about a year after FBI agents raided Plaza Health’s North Miami Beach corporate office and two of its facilities.
Critics of Plaza Health, the business name of Hebrew Homes Health Network Inc., point to the property sale to illustrate how its board of directors has put big money into the pockets of Galbut, his relatives and business partners.
“It seems Plaza’s mission is being abandoned for the economic interests of the folks who control the board,” said Dale Ewart, vice-president of the Service Employees International Union local chapter 1199, which represents 600 healthcare workers employed by Plaza. “If all they are doing is turning nursing homes into real estate development deals, then they are doing the wrong thing.”
PLAZA HEALTH’S FORMER CFO BLEW WHISTLE
Galbut’s family co-founded the nursing home network in 1954. His role is central to whistleblower Steven Beaujon’s lawsuit, which spawned the federal investigation. Beaujon was the former chief financial officer for the non-profit nursing home chain.
FloridaBulldog.org learned about the deal’s specifics and Galbut’s involvement by reading internal emails, sales contracts, and board meeting minutes provided by administrative employees of Plaza Health who spoke on the condition of anonymity.
The complaint was initially filed under seal in February 2012.
The lawsuit claims Plaza Health board members and executives took their marching orders from Galbut, a major player in Miami Beach who has contributed large sums to Republican campaigns in Florida. Election records show Galbut and his companies have donated $113,750 to various Republican congressional candidates since 2008. Last year, he hosted a Coral Gables fundraiser for Gov. Rick Scott that included his $3,000 personal contribution plus $5,000 in bundled money from five of his corporations.
Galbut relinquished his post as Plaza Health’s chairman in November after serving 20 years on the board. Taking over as chair was Ron Lowy, a criminal defense and corporate lawyer who represented some of Galbut’s companies and entities.
Lowy has acknowledged the federal probe and said he is trying to negotiate a non-criminal settlement with the Department of Justice. He denied that Galbut controls Plaza Health’s board and said Galbut has done nothing improper. He declined to discuss specifics of the negotiations.
“Russell and his family deserve accolades and recognition for starting and maintaining this nursing home group,” Lowy said. “They are the largest contributors to the Plaza Health Network.”
Galbut declined comment, referring questions to Lowy.
Still, the deal for the sale of the Collins Avenue property that was the location of Plaza Health’s original facility, the Hebrew Home of South Beach, ultimately worked out in Galbut’s favor.
Six months after shutting down that nursing home location and laying off 159 employees, Plaza Health received dozens of sealed bids on the main property and two contiguous parcels, 302 and 336 Collins Ave., located in Miami Beach’s hottest real estate sector.
PROPERTY BIDS
A year ago, February 24, 2014, Plaza Health’s board met by conference call to evaluate the two top bids. A three-person subcommittee of non-board members that included former State Rep. Elaine Bloom recommended the property be sold to Brooklyn-based JMH Development, which offered $12.5 million, according to meeting minutes reviewed by FloridaBulldog.org.
The second bid, for $500,000 less, was from a partnership whose members included Bal Harbour resident Robert Finvarb and Jared Galbut and Keith Menin, who are both cousins and partners of Russell Galbut in two Miami Beach hotels, The Bentley and The Shelbourne.
JMH ultimately bought the property, but for a higher price and after threatening legal action for alleged “self-dealing” by Plaza Health’s board.
Each of the Plaza Health board members who participated in the conference call had close ties to Russell Galbut. In addition to Lowy, Joan Brent is his cousin, Plaza Health president William Zubkoff was hired by Galbut and Ben Rozansky is a former vice-president of Galbut’s real estate firm, Crescent Heights.
“Lowy started his presentation by stating that Russell Galbut has disclosed that he is a potential party in interest in one of the potential buyer’s groups,” the minutes of that meeting say. Lowy then said that because of that Galbut would abstain from the vote, but could still participate in the discussion.
The board agreed to let Lowy negotiate final terms with JMH Development. However, Russell Galbut suggested the board also authorize Lowy to negotiate with Finvarb’s group should the JMH deal fell apart.
During another board conference call later that afternoon, Lowy relayed that Finvarb had increased his offer to $12,510,000, or slightly higher than JMH’s bid. He said Finvarb would pay $7 million in cash at closing and the remaining $5.51 million over two years at a six percent interest rate, according to the meeting minutes.
The board, with Russell Galbut abstaining, then changed its mind and voted unanimously to approve Lowy’s motion to award the contract to Finvarb and Galbut’s cousins. A sales contract between Finvarb and Plaza was signed the following day, according to emails seen by FloridaBulldog.org.
But JMH protested, and its lawyer William Fried emailed Lowy and Russell Galbut on February 26, 2014 claiming that Plaza Health’s board had misled his client.
“Based on information we have now we believe their actions involve self-dealing and a breach of their fiduciary obligations,” said the letter, which added that JMH was prepared to sue Plaza Health.
BOARD REVERSES COURSE
Plaza Health’s board soon reversed course again, and on March 20 sold the Collins Avenue properties to JMH for $13.6 million – $1.1 million more than JMH’s original offer.
Plaza Health used the proceeds to pay off a $6 million loan on the property from TD Bank. After also paying lawyer fees and broker commissioners, the non-profit netted roughly $4 million.
Most of that money went to Galbut and Crescent Heights. That included paying off a $2.5 million loan that Russell Galbut made to Plaza Heights three years ago in the form of an unsecured mortgage for another nursing home at 335 SW 12th Ave. Another $1 million went to pay the security deposit on another nursing home facility at 42 Collins Ave. that Plaza Health rents from Crescent.
“All liabilities of the related nursing homes are ultimately the responsibility of the parent company, Plaza Health Network,” Lowy said. He added that the board’s actions were proper. “There’s no conflict of interest as proper disclosure was made to the board regarding Galbut’s family involvement,” he said.
The Galbuts and Plaza Health’s board have a symbiotic business relationship that goes back decades. For example, Russell Galbut’s brother Abraham purchased three shuttered nursing homes in 1998 for a combined $8.1 million. He subsequently leased the properties to the non-profit network before selling those nursing homes to Plaza for a combined $47.6 million between 2007 and 2010.
Lowy said Abraham Galbut invested millions of dollars renovating the properties and suffered a financial loss on two of the nursing homes sold to the non-profit.
“The network was in a stronger financial position to acquire properties in 2007 and 2010 versus 1998,” Lowy added. “Purchasing the properties reduced the overall costs of the facilities and was a prudent business decision.”
Service Employees union official Ewart said Plaza Health’s board continues to push for real estate deals that could benefit Russell Galbut at the expense of Plaza Health and its employees. He pointed to a Nov. 26 conference call in which the board, in its first action since Galbut stepped down, authorized Lowy to explore terminating Plaza’s lease with Crescent Heights for the nursing home facility at 42 Collins Ave.
Crescent Heights had plans to develop a hotel at 42 Collins Ave. and had offered to pay non-profit Plaza Health the value of unused years from the long-term lease to move out. The proceeds could then be used to a pay any fines that arise from the proposed settlement with the Department of Justice, according to meeting minutes.
Crescent Heights has a pending application with Miami Beach’s planning department for a partial demolition and full renovation of the existing three story building. The new hotel would have 103 rooms on the top two floors and a lobby, restaurant and meeting space on the ground floor. It will also feature a large pool deck and bar on the roof.
Lowy said Plaza Health is no longer pursuing a lease termination and that he reassured employees at an all-staff meeting on January 30 that the South Beach nursing home is not closing.
Ewart doesn’t buy it. “We have already seen them close one facility with minimum notice to residents and workers,” Ewart said. “Just look at the location and it is not hard to figure out there is an ulterior motive at play.”
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