Inspired Healthcare Capital - Chapter 11 Case Summary

Business Description

Headquartered in Scottsdale, AZ, Inspired Healthcare Capital, LLC (the "Debtor Sponsor"), along with its affiliated and interrelated entities (collectively, "Inspired" or the "Company"), acquires, develops, and oversees upscale senior living communities throughout the United States. The Communities offer residents independent-living, assisted-living, and memory-care services, providing care that includes prescription management, meals, laundry services, social and physical activities, and transportation to medical appointments.

• Several of the Company's Communities have received industry recognition, including "Best Senior Living" (Candle Light Cove), "Best Assisted Living & Best Memory Care" (The Landing of North Haven and Arbor Terrace Naperville) from U.S. News and World Report in 2025, and "Best of Assisted Living" awards (Orchard at Brookhaven in 2020 and Orchard at Athens in 2021).

As of the Petition Date, the Company owns 33 operating senior-living facilities across 14 states: Florida (7), Georgia (5), Texas (4), Nevada (3), Illinois (2), Wisconsin (2), Michigan (2), Oregon (2), Alabama (1), Connecticut (1), Massachusetts (1), Minnesota (1), New Jersey (1), and Maryland (1). Each facility is held by an individual Delaware statutory trust ("DST") or LLC.

• The Company also owns two partially completed Communities in Oregon and three parcels of undeveloped land designated for future senior-living facilities in Arizona (2) and Georgia (1).
• In total, the operating Communities comprise 444 independent-living units, 1,897 assisted-living units, and 776 memory-care units.
• One Florida facility (Salterra at St. Petersburg) was damaged by a hurricane and does not currently house any residents.

As of the Petition Date, the Communities are home to approximately 2,620 residents and employ approximately 1,950 workers, of which roughly 615 are Debtor employees. While the Company owns the Communities, contracts with residents, and holds the operating licenses, day-to-day operations at each Community are handled by third-party management companies.

In total, 161 entities, including the Debtor Sponsor and Inspired Healthcare Capital Holdings, LLC ("Holdings"), are Debtors in these Chapter 11 Cases.

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Corporate History

In 2016, Luke Lee and others formed a firm in Scottsdale, Arizona specializing in investments in the senior-housing sector, which ultimately became the Company. Mr. Lee served as Chief Executive Officer of the Debtor Sponsor, having previously served as vice president and acquisitions manager for real estate investment trusts.

• The Company initially raised funds to acquire nine investment properties through a limited-partnership structure before ultimately exiting those investments.

Adoption of the DST Investment Model

In 2020, the Company began focusing on the DST model for raising funds from investors and investing in senior-housing communities. The Company's first DST-sponsored property was Salterra at Ashbrook, a 96-unit senior-housing community located in Villa Rica, Georgia, acquired around November 2020.

Rapid Expansion

Following the Ashbrook acquisition, the Company expanded rapidly using the DST model:

• 2021: Acquired 9 Communities
• 2022: Acquired 13 Communities
• 2023: Acquired 7 Communities
• 2024: Acquired 2 Communities
• 2025: Acquired 1 Community

The Company also acquired five real estate properties for development, two of which remain under construction and three of which remain undeveloped land.

Capital Raising

The Company raised capital through two primary channels:

• Investment Funds: The Company formed and managed ten Investment Funds that collectively raised over $390 million through private-placement offerings of equity or debt from more than 3,300 Fund Investors. Proceeds were generally loaned to the Debtor Sponsor for use in financing senior-housing projects, providing short-term bridge financing, and investing in real estate assets.
• DST Offerings: Commencing in 2020, the Company raised funds by selling beneficial interests in DSTs through private-placement offerings to investors seeking tax benefits through Section 1031 Exchanges.

Since inception, the Company has raised more than $1.2 billion in cash from 3,300 Fund Investors, 2,300 DST Investors, and 200 Development Investors.

Expansion into Ancillary Businesses

As the portfolio of Communities grew, the Company expanded into new business lines to capture additional revenue sources. Among other things, the Company established:

• Volante Senior Living ("VSL"): A management company formed to wholly manage the Communities.
• Lucas Construction Holdings, LLC: Formed in October 2021 to provide construction management services; wound down in Q3 2024.
• Innov8tion Holdings/Marketing: Formed in May 2023 as an in-house marketing company; wound down in Q3 2024.
• Cre8tive Holdings, LLC and Cre9tive Architects, LLC: Formed in January 2022 for in-house architecture and interior design; wound down in Q3 2024.
• Nsite Development: Formed in January 2020 as an in-house development arm; wound down in Q3 2024.

The Company was unable to operate these verticals successfully and ultimately discontinued operations at each. As of the Petition Date, none of these entities are operating, and the services they provided were either discontinued or transferred to third parties.

Management Transition

In October 2025, Mr. Lee appointed Inverness Advisors, LLC to serve as an independent third-party manager of each Signatory Trustee. On January 30, 2026, Trinity River succeeded Inverness as the independent third-party manager.

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Operations Overview

The Company's business model is structured around DSTs to attract investors from the multi-billion-dollar Section 1031 Exchange market. The Debtor Sponsor, with the help of broker-dealers, sells beneficial interests in DSTs to investors, with offerings designed primarily for prospective investors seeking tax-advantaged exchanges.

Corporate Structure

At least three entities are associated with each Community:

• DST: Holds legal title to the Community real estate. Structured to attract investors seeking Section 1031 Exchanges. To maintain tax status, the Company created a landlord-tenant relationship between the DST and Master Tenant.
• Signatory Trustee: A wholly owned subsidiary of Holdings that manages the DST pursuant to the governing trust agreement.
• Master Tenant: Leases the real estate from the DST, contracts with residents, and holds the licenses required to operate each Community. Master Tenants subcontract management responsibilities to third-party managers.

The DSTs' landlord-tenant structure is necessary because the Tax Code prohibits DSTs from directly operating the Communities in order to maintain their tax attributes.

Community Management

The Company previously managed day-to-day operations at 23 Communities through affiliated entities under VSL. Beginning on or around July 1, 2025, the Company transitioned all day-to-day operations to third-party managers pursuant to management agreements.

• Current Third-Party Managers include: Orchard at Athens II LLC, Orchard at Brookhaven II LLC, Blake Management Group LLC, RSC Eatonton Management LLC, Capri Communities LLC, Blue Ridge Senior Housing LLC, LCB Senior Living LLC, IntegraCare Easton LLC, Thrive Senior Living LLC, Leisure Care LLC, and White Glove Consulting LLC.

Cash Flow Structure

Cash flows through the organization as follows:

• Community Level: Managers pay monthly operating expenses from operating revenue. Net operating income ("NOI"), if any, is transferred to the Master Tenant.
• Master Tenant Level: The Master Tenant transfers funds to the DST as Master Stated Rent. Excess cash after rent payments is distributed to Holdings.
• DST Level: Uses payments from the Master Tenant to pay operating costs, Reallocation Fees to the Debtor Sponsor, Signatory Trustee Fees, debt service, and distributions to DST Investors.
• Holdings/Debtor Sponsor Level: Receives excess cash flow from Master Tenants and uses funds to administer the Company and distribute to Master Tenants to cover shortfalls.

Liquidity Support

Historically, many Communities never generated sufficient net operating income to pay all obligations under the Master Lease. Of the 31 DST Communities, only 8 operated without direct cash subsidy from the Debtor Sponsor, and all Communities received services from the Debtor Sponsor for which they did not pay.

• As of the Petition Date, Holdings' transfers to Master Tenants to support Community shortfalls totaled approximately $86 million.
• Accrued and unpaid Reallocation Fees across all DSTs total approximately $59 million.

Investment Funds

The Debtor Sponsor currently manages ten Investment Funds, which raised capital through promissory notes or equity securities. Key funds include:

• Inspired Healthcare Capital Fund LP (2017): Raised $16 million of a $20-30 million offering for minority ownership interests in senior housing developments.
• Income Fund 5 LLC (2023): Raised $134.8 million of a $25-100 million offering for short-term bridge financing and real estate investments.
• Liquidity Fund LLC (2024): Raised $92 million of a $25-100 million offering for loans to finance senior housing projects.

As of the Petition Date, there are approximately 1,967 investors or noteholders in the Investment Funds, of which 269 are invested in multiple funds.

Development Projects

The Company oversees construction of new senior-living facilities through Development Projects, currently including:

• Under Development: Inspired Senior Living of Winery Lane Development, LLC and Inspired Senior Living of Creswell Development, LLC (both in Oregon).
• Undeveloped Land: San Tan and Payson (Arizona) and Augusta PropCo (Georgia).

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Prepetition Obligations

As of the Petition Date, the Debtors report approximately $260 million in aggregate funded debt outstanding across 15 separate loan agreements with ten different lenders. The Company's prepetition capital structure is summarized below:

Third-Party Lender Secured Debt

• The Encumbered Debtors have approximately $258.8 million in funded debt obligations incurred in connection with the acquisition of various Communities. Each Third-Party Loan is secured by a putative first-priority lien on substantially all assets of the respective Encumbered Debtor.
  • Provident Bank: ~$106.7 million across four facilities (Hamilton DST: $55.9 million; North Haven DST: $20.3 million; Candle Light Cove DST: $15.3 million; Dunedin DST: $15.2 million)
  • Synovus: ~$53.1 million across three facilities (Reno DST: $20.8 million; Brookhaven DST: $17.9 million; Melbourne DST: $14.3 million)
  • Comerica Bank: ~$24.7 million (Delray Beach DST)
  • Integrity Life Insurance Company: ~$16.9 million (Augusta DST)
  • HPI Fairmount Lender, LP: ~$14.3 million (Eugene DST)
  • Webster Bank: ~$13.7 million (St. Petersburg DST)
  • Texas Security Bank: ~$13.2 million (Grapevine DST)
  • Stride Bank: ~$11.0 million (Fort Myers DST)
  • Union Bank: ~$6.6 million (Hanover Propco)
  • Western Alliance Bank: ~$340,000 (Hunan 1 LLC)
• Other than the 15 Encumbered Debtors identified above, no other DST Debtors have outstanding funded-debt obligations owed to non-debtor third parties.

Secured Intercompany Liens

• Elena's Manor Bridge Financing: Approximately $5.07 million is outstanding under promissory notes issued by Inspired Healthcare Capital Income Fund 5 Notes LLC, secured by a first-lien deed of trust on the Hillsboro, Oregon property known as Elena's Manor. The deed of trust was granted in October 2023 and secures notes of up to $6 million raised for bridge financing purposes.
• Investment Fund Loans: In September 2025, two Investment Funds extended approximately $8 million to the Company, secured by deeds of trust against properties held by Creswell, Payson, and San Tan.
  • IHC Development Fund IV, LLC: ~$6.5 million
  • IHC Security Income Fund, LLC: ~$1.5 million
• Augusta Loans: In January 2026, three affiliated funds provided approximately $1.2 million in aggregate financing to Augusta PropCo, each evidenced by a promissory note and secured by a deed of trust on Augusta PropCo's assets.
  • IHC Development Fund III, LLC: ~$537,000
  • Inspired Healthcare Capital Liquidity Fund, LLC: ~$358,000
  • Inspired Healthcare Capital Income Fund 5, LLC: ~$279,000

Miscellaneous Secured Liens

• Certain Communities and Development Projects are subject to mechanics' liens and other similar encumbrances:
  • Winery Lane: ~$2.7 million in mechanics' liens
  • Creswell: ~$2.6 million in mechanics' liens
  • Augusta PropCo: ~$234,000 architect's lien

Unsecured Debt Obligations

• In addition to the secured obligations described above, the Debtors carry various unsecured liabilities, including:
  • Accounts payable and accrued expenses owed to vendors
  • Litigation claims, including pending litigation and incurred-but-not-yet-reported exposure
  • Unsecured notes issued by Investment Funds to Fund Investors
  • Accrued employee compensation for employees not employed by Third-Party Managers

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Events Leading to Bankruptcy

Business Structure and Operational Underperformance

• The Company structured its integrated business by having Delaware Statutory Trusts (DSTs) lease senior living Communities to Master Tenants, which made payments pursuant to a formula-based Master Lease. Trust agreements governing each DST required payment of debt service, allocated corporate overhead expenses, and—if sufficient funds remained—dividends to beneficial owners.
  • Critically, many Communities never generated sufficient net operating income to satisfy all Master Lease obligations. Of the 31 DST Communities, only 8 operated without direct cash subsidy from the Debtor Sponsor, and all Communities received unpaid services from the Debtor Sponsor.

Failed Expansion into New Verticals

• As the portfolio of Communities grew, the Company expanded into new business lines to capture additional revenue sources, including:
  • Volante Senior Living (VSL), established as a captive management company to self-manage the Communities.
  • Marketing, construction, development, and architectural-design companies intended to support the Company and offer services to third parties.
• The Company was unable to operate these Verticals successfully, none ever provided services to third parties, and ultimately discontinued operations at each, further draining liquidity and available resources.

Prioritization of Investor Distributions Over Business Sustainability

• The largest contributing factors to the Company's entry into bankruptcy were underperformance at certain Communities and the decision to prioritize investor distributions over operational needs.
  • Despite Communities generating insufficient NOI to pay the Master Stated Rent, Master Tenants continued making payments. The Debtor Sponsor covered shortfalls by redirecting funds from Investment Funds and other sources.
  • Holdings contributed approximately $86 million to 23 Master Tenants to cover shortfalls and continue debt service and investor distributions.
  • At least $59 million in accrued Reallocation Fees remained unpaid on the Petition Date, with the Company having used Investment Fund proceeds to satisfy administrative costs and expenses.

Broker Dealer Relationships and Capital Raises

• The Company was heavily reliant on capital raises by various broker dealers, who profited significantly from their role—receiving more than $100 million in commissions and fees.
  • Emerson Equity, LLC served as the managing broker dealer on 29 of the DSTs and all of the Investment Funds.

Alleged Mismanagement and Misappropriation of Funds

• The Company raised more than $1.2 billion in cash from Fund Investors and DST Investors. However, preliminary analysis suggests that not all funds were used for their intended purposes or benefited the Company.
  • Company funds were allegedly used by former management to acquire luxury cars, a Las Vegas condominium, and to pay for significant non-business expenses, including the purchase of real estate titled in a non-debtor company's name owned by Mr. Lee and his wife, along with personal expenses.
  • These expenditures were recorded on the Company's books and records.

Regulatory Investigations and Litigation

• In April 2025, the Securities and Exchange Commission (SEC) issued an investigative subpoena to the Company. In November 2025, the securities division of the Arizona Corporation Commission issued an additional subpoena as part of its own investigation.
• In response to the SEC investigation, the Company halted all distributions to DST Investors and Fund Investors in June 2025. In October 2025, the Company also suspended debt-service payments to preserve liquidity.
• These actions triggered a wave of litigation, including:
  • Four receivership actions filed in Georgia, Florida, and Nevada.
  • An investor suit in Arizona.
  • A foreclosure auction in Grapevine, Texas, scheduled for February 3, 2026.
  • Mechanics' lien actions on properties in Oregon and additional foreclosure threats.
  • Threatened litigation from DST Investors and Fund Investors.

Corporate Governance Overhaul

• In response to mounting challenges, the Company retained independent restructuring advisors and made sweeping changes to its corporate governance:
  • In October 2025, Mr. Calandra (through CRS Capstone Partners LLC) was appointed as independent manager for Holdings and the Debtor Sponsor, with exclusive authority over all restructuring matters.
  • Mark Andrews (through Trinity River Advisors, LLC) was appointed as sole manager of the Signatory Trustees, which serve as sole managers of the DSTs.
  • The Independent Managers hold complete power and authority to bind the Company on restructuring matters, former management, including Luke Lee, may no longer take any action or bind the Company.
• The Company also retained McDermott Will & Schulte as restructuring counsel and appointed a Chief Restructuring Officer with assistance from Ankura.

Preservation of Records and Cash Management Safeguards

• The Independent Managers immediately secured all Company books, records, and emails, eliminating former management's access to bank accounts and Company credit cards, to ensure a thorough investigation can be undertaken and all claims and causes of action are preserved for stakeholders.
• The Company instituted cash management safeguards, including review and approval procedures, contractual requirements for Third-Party Managers to provide monthly Community-level account reports, and daily/weekly visibility into Third-Party manager bank accounts.

Prepetition Liquidity Initiatives and Marketing Process

• In the months preceding the Petition Date, the Company engaged in a series of transactions to improve liquidity, including downsizing operations, winding down affiliated entities, transferring management functions to third parties, and monetizing non-essential assets.
• Raymond James & Associates, Inc. was engaged as investment banker to evaluate potential transactions to maximize value for all stakeholders.
  • Raymond James prepared a confidential information memorandum and marketing materials, established a virtual data room, and initiated a marketing process to solicit interest in all strategic alternatives—including a potential UPREIT transaction or plan sponsor.
  • The Company intends to file a motion seeking approval of bid procedures to govern the postpetition marketing and sale process.

DIP Financing

• When it became clear that a Chapter 11 filing was necessary, the Company focused on securing debtor-in-possession financing to fund the bankruptcy process. Based on cash-flow forecasts, the Company determined it would require approximately $35 million in postpetition DIP funding to:
  • Fund payroll for employees.
  • Pay vendors and restructuring costs.
  • Make other payments essential for continued operations.
• After Raymond James marketed the financing and identified potential lenders, the Company selected Lapis Municipal Opportunities Fund V. LP to provide a $35 million DIP Facility. The facility grants the DIP Lender a superpriority administrative expense claim and encumbers only a limited subset of Debtors' assets with first priority liens.

Goals of the Chapter 11 Filing

• The Company initiated these bankruptcy proceedings to pursue three primary objectives:
  • Ensure continued quality care and services for residents at the Communities.
  • Access funding to pursue transactions that will maximize value for all stakeholders.
  • Preserve claims and causes of action and establish a centralized process for adjudication for the benefit of all stakeholders.