Squirrel Hill PA Realty - Chapter 11 Case Summary

Business Description

Squirrel Hill PA Realty, LLC and SH Operator, LLC (together, the "Debtors") operate a skilled nursing facility known as "Squirrel Hill Wellness & Rehabilitation Center" (f/k/a "Squirrel Hill Center for Rehabilitation"), located at 2025 Wightman Street in the city of Pittsburgh, County of Allegheny, Commonwealth of Pennsylvania (the "Facility").

• The Facility is a 178-bed skilled nursing facility treating patients who need short-term rehabilitation services, wound care, and long-term care. The Debtors strive to ensure that individuals recuperating from surgery or illness regain their independence and functionality and to assure the best possible medical outcomes.
• The Facility also offers long-term care services providing frail and elderly patients with care in a home-like environment, with 24-hour skilled nursing support.
• The Debtors participate in Medicare and Medicaid.

Financial Overview

The Debtors' revenues are primarily derived from fees paid by patients and residents and from medical services provided to patients, including wound care and rehabilitative services.

• Operating costs primarily consist of staff and nursing costs, resident dietary services, housekeeping and laundry, property maintenance, maintenance and security, and other general and administrative expenses. The Debtors also incur expenses for leisure time activities, social services, management fees, professional fees, marketing, and overhead.
• Through the first three quarters of 2025, the Debtors achieved net revenue of approximately $6.7 million, suffered operating losses of approximately $1.7 million, and generated negative EBITDARM of $1.1 million.
  • The Debtors also took advances from the Secured Lender of approximately $2.1 million to cover necessary operational and safety expenses.

The Debtors' employees include full-time, part-time, and contract labor.

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Corporate History

Debtor Squirrel Hill PA Realty, LLC (EIN 82-3976516) is a limited liability company organized and existing under the laws of the Commonwealth of Pennsylvania, with a Commercial Registered Office Provider at 600 N. 2nd St. #400, Harrisburg, PA 17101. Debtor SH Operator, LLC (EIN 85-3845493) is a Delaware limited liability company registered to do business in the Commonwealth of Pennsylvania, which may be served through its Commercial Registered Office Provider at the same Harrisburg address.

Organizational Structure

• PSF PA Holdings, LLC, a Pennsylvania corporation, is the parent of Debtor Squirrel Hill PA Realty, LLC.
  • PSF PA Holdings, LLC is owned 75% by SH Investor, LLC, a Delaware corporation, 12.5% by Pollak Holdings, LLC, a Delaware corporation, and 12.5% by PKK, LLC, a Delaware corporation.
  • Benjamin Landa is the 100% owner of SH Investor, LLC; Elie Pollak is the 100% owner of Pollak Holdings, LLC; and Theodore Pollak is the 100% owner of PKK, LLC.
• Debtor SH Operator, LLC is owned 50% by Elie Pollak and 50% by Theodore Pollak.
• Corporate structure charts for both Debtors are attached to the First Day Declaration as Exhibit A.

Receivership and Management Transition

• SH Operator, LLC acted as manager of the Facility prior to the appointment of the Debtors' Chief Restructuring Officer.
• On December 10, 2024, pursuant to an Order of the Court of Common Pleas of Allegheny County in Case No. GD-24-014518, Michael F. Flanagan of Flanagan & Associates, L.L.C. (the "Receiver") was appointed as Receiver for the Debtors.
• Prior to the CRO appointment, the Receiver negotiated a Management Agreement with 5151 Financial, Inc. ("5151") to manage the day-to-day operations of the Facility. 5151 has managed the Facility since May 2026, and the CRO's present intention is for 5151 to continue in that role.
• The Debtors and the Receiver jointly determined that it was in the best interest of the Debtors to file for Chapter 11 relief. On August 17, 2026, the Debtors, with the consent of the Receiver, voted to appoint William R. Frederick, a Managing Director at Meridian Management Partners, as Chief Restructuring Officer.

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Operations Overview

As part of the Facility's patient care, the Debtors offer dining facilities, coffee and snacks throughout the day, bedside visits, daily housekeeping, laundry services, and an on-site beauty salon. The Facility additionally offers regular outings to nearby stores and attractions, as well as a wide range of activities including gentle exercise classes, music, crafts, discussion groups, religious services, pet therapy, and holiday celebrations.

Operational Control

As part of their duties covering the day-to-day operations of the Facility, 5151 and the Receiver have had complete operational control over the Debtors, including:

• Rent collection and revenue accounting, including marketing the Facility for rent, rehabilitation and nursing services; receiving applications for new residents; negotiating and executing new leases and renewals; and invoicing and collecting all rent and revenue from the Facility.
• Operational oversight and staffing, including control of all staffing, nursing relationships, staffing decisions, security personnel, on-site maintenance, food service, events, and controls, as well as communication with third-party vendors and contractors to maintain patient and resident care standards.
• Maintenance and repairs, including routine and preventative maintenance; addressing deferred repairs affecting habitability or life-safety systems; developing a prioritized capital improvement plan; and soliciting competitive bids and supervising work in conformity with budgetary constraints and applicable health and building codes.
• Tenant relations and community management, including communication with tenants, family, and healthcare service providers; prompt response to complaints and service requests; management of patient standard of care and experience; and handling of holidays, social events, and marketing events.

Receivership Administration

• The Receivership Order authorized the Receiver to, among other duties, possess the receivership estate, including demanding, receiving, and collecting rents and accounts; exercise rights as owner; enter into contracts, including operation services agreements; use and obtain Medicaid Provider numbers belonging to the Debtors; maintain and preserve the Facility; pay all necessary repairs; establish new bank accounts; obtain insurance; and take actions necessary to comply with applicable laws.
• Throughout the Receivership Case, the Receiver controlled the Debtors' bank accounts, maintained all required insurance policies, and made payroll in the normal course of business with no disruptions to employees or residents, as evidenced by the reports filed by the Receiver, the last of which was filed on July 27, 2026.
• Following the Receiver's appointment, and together with 5151, vendor relationships were re-established.
• The parties ceased litigation activities following the appointment of the Receiver while the Receiver focused on stabilizing the Facility. There are no current litigation deadlines or trial schedules set in the Receivership Court, and the Receiver filed monthly reports therein until the filing of these Chapter 11 Cases.

Cash Management

• As of the Petition Date, the Debtors maintain an integrated, centralized cash management system comprising a series of disbursement and deposit accounts, and certain miscellaneous accounts used for discrete purposes.
  • The system is designed to facilitate the efficient operation of the Debtors' businesses by, among other things, allowing them to collect, transfer, and disburse funds generated by their operations.
  • All of these accounts are subject to deposit account control agreements pursuant to the Pre-Petition Credit Agreement.

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Prepetition Obligations

As of the Petition Date, the aggregate principal amount of outstanding prepetition obligations under the Pre-Petition Secured Facility was approximately $32,315,053.80, plus any and all applicable interest, fees, costs, expenses, charges, and other claims, debts, or obligations of the Pre-Petition Borrowers and the Pre-Petition Guarantors to the Pre-Petition Secured Parties.

Secured Lender Loan Agreement

• On August 31, 2018, Greystone Servicing Corporation, Inc. (the "Original Lender") loaned $19,000,000 (the "Secured Debt") to Debtor Squirrel Hill PA Realty, LLC ("PA Realty") and affiliate Squirrel Hill PA Management, LLC (the "Prior Operator") pursuant to a Loan Agreement, an Open-End Mortgage and Security Agreement, and related Loan Documents.
  • The Original Lender assigned all right, title, and interest in and to the Loan Documents to 2025 Wightman St, LLC (the "Prior Secured Lender").
• The Loan matured on September 1, 2020 under the terms of the Loan Agreement. Although the Loan Agreement contains two 6-month extension options, PA Realty and the Prior Operator did not qualify to extend the Loan.
  • As a result, the Secured Lender approved a manager change effective October 26, 2020, allowing Debtor SH Operator, LLC to take over management of the Property. In connection therewith, PA Realty and SH Operator entered into an Open-End Mortgage Assumption and Modification Agreement and a Promissory Note.
• An investor group acquired the Property and assumed the Loan in January 2021 pursuant to, among other documents, an Amended and Restated Promissory Note dated January 19, 2021, and the Open-End Mortgage Assumption and Modification Agreement. The amended Loan carried a maturity date of February 1, 2023, with two 6-month extension options.
  • The Loan was subsequently modified to extend maturity to August 1, 2023 via the Second Omnibus Amendment to Loan Documents, by and between PA Realty, the Secured Lender, and Benjamin Landa, Elie Pollak, Theodore Pollak and PSF PA Holdings, LLC.
  • On August 1, 2023, the Loan was further modified via the Third Omnibus Amendment to Loan Documents, among the same parties, to extend maturity to February 1, 2024.
• On March 31, 2026, Squirrel Hill PA Property LLC (the "Secured Lender") purchased the Loan Documents from the Prior Secured Lender. The Note, the Mortgage, the Guaranty, and all other documents executed by the borrower and guarantor to secure the Note are referred to collectively as the "Loan Documents." (The First Day Declaration also uses the defined term "Secured Lender" in describing the October 2020 manager change and the 2023 loan modifications, each of which predates this purchase; as to those events the term appears to refer to the then-current holder of the Loan.)
• The Secured Debt is secured by a first priority mortgage on the Facility and a pledge of and lien on substantially all of the Debtors' property, including gross revenues, and the Secured Lender is the senior secured lender of the Debtors.

Pennsylvania Department of Human Services Obligations

• On June 7, 2024, the Pennsylvania Department of Human Services, Office of Long Term Living ("DHS") notified the Facility's administrator that, as of May 16, 2024, the Facility allegedly owed unpaid nursing facility assessments of $4,628,225.82 (the "Assessments"), which at the time were more than 60 days past due.
• At present, the Debtors estimate that DHS calculations reflect approximately $6,976,524.32 in Assessments.

Regulatory and Unsecured Obligations

• At the time of the Receiver's appointment, the Facility was significantly in arrears with regard to the payment of unsecured creditors who provided goods and services to the Facility, and was also in arrears on other regulatory obligations, including:
  • A fine assessed by the Centers for Medicare and Medicaid Services ("CMS"), resulting in possible recoupment or offset to cover the unpaid balance plus interest; and
  • A civil penalty imposed by the Pennsylvania Department of Health ("DOH") for certain deficiencies identified during a survey conducted in February 2024 for failure to enforce certain rules, resulting in possible penalties, interest, recoupment, or other regulatory issues.

Secured Lender Advances

• During the pendency of the Receivership Case, the Secured Lender made multiple advances to fund working capital required by the Facility. As of the filing of these Chapter 11 Cases, the Secured Lender had advanced more than $2.1 million to cover the Facility's operations and emergent financial needs.
  • The Receiver directed the use of those funds to pay certain obligations to CMS and DOH and to address high-priority financial obligations related to patient and resident care.

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Events Leading to Bankruptcy

Liquidity Deterioration and Occupancy Shortfalls

Prior to the commencement of these Chapter 11 Cases, the Debtors experienced liquidity challenges due to increased operating costs following the COVID-19 pandemic, below-average occupancy, and generally stagnant payments from the Commonwealth of Pennsylvania. The fixed costs associated with operating the Facility outpaced the Debtors' ability to increase their revenue streams.

• Since the onset of COVID-19 in March 2020, the Facility struggled to attract and retain sufficient residents to meet operating cash flows. The Facility subsequently obtained a new operator in SH Operator, LLC, which was likewise unable to generate sufficient cash flow to cover debts as they became due.
• The Facility requires significant capital improvements as part of a plan to increase revenues, and the Debtors have not been able to fund capital improvements at the desired level, or at the level that would be required to increase occupancy.

Foreclosure Litigation and Receivership

• On December 9, 2024, in order to exercise its rights under the Loan Documents, the Prior Secured Lender, 2025 Wightman St, LLC, filed a complaint for mortgage foreclosure and petition to appoint a receiver in the Court of Common Pleas of Allegheny County, Pennsylvania, initiating Case ID GD-24-014518 (the "Receivership Case").
  • The lender alleged that the Debtors committed at least ten acts constituting "Events of Default," including failures with respect to payment of the Loan on its maturity date, maintenance of debt service coverage ratios, maintenance of minimum occupancy, payment of the Assessments, and delivery of certain books and records to the lender.
• The Receivership Court, with the consent of the Debtors' management, entered an agreed Receivership Order on December 9, 2024, appointing the Receiver over all property in or upon which the Secured Lender has a mortgage, lien, security interest, or assignment, including the Facility "and all of the rents, incomes, revenues, and profits" therefrom. On December 10, 2024, the Court of Common Pleas of Allegheny County entered an order appointing the Receiver.
• During the approximately 19 months the Facility was in receivership, the Secured Lender advanced approximately $2.1 million to cover necessary expenses and stabilize operations.

Chapter 11 Filing and Go-Forward Strategy

The Debtors, in consultation with their advisors, ultimately determined that the best path forward was the commencement of these Chapter 11 Cases to implement a court-approved sale process of substantially all of the Debtors' assets pursuant to section 363 of the Bankruptcy Code, which the Debtors believe will provide maximum value to all stakeholders. On August 21, 2026 (the "Petition Date"), each of the Debtors filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code in the U.S. Bankruptcy Court for the Western District of Pennsylvania, and the Debtors have requested joint administration of the Chapter 11 Cases under lead Case No. 26-22337-GLT.

• The Debtors commenced these Chapter 11 Cases to avail themselves of the protections of the Bankruptcy Code and to give structure to an organized sale process for the Facility, and intend to propose and confirm a chapter 11 plan of reorganization providing for the sale of the Facility as a going concern.
  • The Debtors note that potential purchasers of the Facility are buying it as a going concern, and that if the Facility ceases to operate, those purchasers would either not close on their purchase or would attempt to greatly reduce the purchase price.
• The Debtors are currently funding operations with narrow margins. To enable the Debtors to fund these Chapter 11 Cases and support their sale efforts, the Secured Lender has agreed to allow the Debtors to use its cash collateral subject to the Budget.
  • The Secured Lender may, in its sole discretion, advance additional funds, and in exchange will be entitled to assert a superpriority claim under section 507(b) of the Bankruptcy Code in the amount of any post-petition advances.
  • By the Cash Collateral Motion, the Debtors seek interim and final orders authorizing use of cash collateral and granting adequate protection, for a period of not less than 90 days beginning on the date of filing.
  • The use of cash collateral is essential to the Debtors' ability to continue providing residents with services on which they depend to maintain a normal daily life, including meals, laundry, housekeeping, and medical services; without it, the Debtors would have to curtail or discontinue those services, which the CRO states would endanger these elderly individuals.
  • Without access to or use of the Secured Lender's cash collateral, the Debtors would face immediate and irreparable harm to their estates and potential harm to the residents and patients at the Facility, and would have no method of funding these Chapter 11 Cases, making required payments to vendors, or making the statutorily mandated payments to the United States Trustee.

First Day Relief

The Debtors state that the First Day Motions request authority to, among other things, enter into the DIP Credit Facility and continue to use the Debtors' cash collateral, honor workforce-related compensation and benefits obligations, pay claims of certain critical vendors, suppliers, and taxing authorities, continue to honor customer programs, and continue the Debtors' cash management system and other operations in the ordinary course of business. The First Day Motions enumerated in the First Day Declaration do not, however, include a debtor-in-possession financing motion, a critical vendors motion, or a customer programs motion; the Debtors' proposed source of funding is the Secured Lender's cash collateral. The Debtors further state that they have narrowly tailored their requests for immediate relief to those circumstances where the failure to receive such relief would cause immediate and irreparable harm to the Debtors and their estates.

• The Debtors also filed administrative motions seeking joint administration of the Chapter 11 Cases; authority to file a consolidated creditor matrix and a consolidated list of the Debtors' 20 largest creditors, and to establish patient notice procedures; and an order scheduling an expedited hearing on the First Day Motions.
• By the Wages Motion, the Debtors seek authority, but not direction, to pay and honor certain prepetition wages, benefits, and other compensation obligations, including obligations to third-party staffing agencies, as well as employee wages, accrued PTO, payroll taxes and withholding obligations, health and wellness benefits, and all miscellaneous benefits.
• By the Cash Management Motion, the Debtors seek authority to continue using their prepetition cash management system, bank accounts, and payment methods, to extend their time to comply with section 345(b) of the Bankruptcy Code, and to continue using existing business forms and records.
• By the Utilities Motion, the Debtors seek to prohibit Utility Providers from altering, refusing, or discontinuing services, or discriminating against the Debtors, solely on the basis of the commencement of these cases or the Debtors' failure to pay a prepetition debt when due, and a determination that the Debtors have provided adequate assurance of payment within the meaning of section 366 of the Bankruptcy Code through a segregated account of $6,500.00, equal to the Debtors' estimate of approximately two weeks of postpetition Utility Services based on the monthly average of all Utility Services, together with Additional Assurance Procedures for determining any further adequate assurance.
• By the Resident Information Motion, the Debtors seek authority to implement procedures to protect the confidential information of current and former residents and patients as may be required by the Health Insurance Portability and Accountability Act of 1996, and to redact certain personal identification information.

The Debtors' ultimate goal in these Chapter 11 Cases is to preserve the intrinsic value of the Facility as a going concern and to maximize value for all stakeholders, including patients, residents, and employees, through an early sale process. To minimize any loss of value, the Debtors' immediate objective is to maintain a business-as-usual atmosphere during the course of these Chapter 11 Cases, with as little interruption or disruption to their operations as possible.