Bidder for Long Island College Hospital Has Checkered Record in Role of Rescuer

Seven years before its emergence as a possible savior for Long Island College Hospital, which has been on the verge of closing for almost a year, a Brooklyn development group was expected to play a similar role for a hospital in New Jersey.

The developer, Fortis Property Group, met several times in 2007 with the mayor of Bayonne to discuss taking over Bayonne Medical Center. The hospital was in bankruptcy and threatened with closing. But Fortis decided not to go through with the purchase.

After hopes of a sale to Fortis were dashed, the hospital’s creditors painted Fortis’s interest as part of a development play, a quid pro quo in which the true prize was the right to redevelop a defunct military terminal on the Bayonne waterfront. (Bayonne is on a peninsula jutting into the Hudson River.)

Fortis said that it had never signed a formal document to buy Bayonne Medical Center, and that an intermediary, Robert Miller, had signed a $22.5 million purchase agreement without Fortis’s authorization.

“Mr. Miller overstepped his bounds and inappropriately misstated the facts surrounding Fortis’s consideration of the Bayonne Medical Center,” Lee Silberstein, a spokesman for Fortis, said. “At every turn, Fortis directly and explicitly rejected the opportunity to acquire B.M.C.”

But Mr. Miller said that he had negotiated the purchase agreement in good faith, based on meetings and phone calls with Fortis executives and Bayonne city officials.

“I didn’t put a gun to their head,” Mr. Miller said in a recent interview. “I never even had a meeting with the city without somebody from Fortis there.”

Fortis has now stepped forward as a bidder for Long Island College Hospital, which has become a symbol of an epidemic of closings of small, money-losing hospitals. Community groups, hospital workers’ unions and elected officials, including Mayor Bill de Blasio, tried for months to block the closing, fearing that the property, overlooking the Statue of Liberty from the gentrified neighborhood of Cobble Hill, Brooklyn, would be sold to a developer and turned into luxury apartments.

In December, a screening committee for the State University of New York, which owns LICH, chose Fortis as the most viable of about a half-dozen potential buyers. But the SUNY trustees tabled the plan after community groups and unions protested that rival bids had been kept secret, and Mr. de Blasio chimed in that the Fortis plan put too much emphasis on luxury housing.

After a court settlement, the bidding was extended until Wednesday and the terms were changed to favor bidders who would keep a full-service hospital on the site. Fortis remains in the running, with an offer of $185 million to $230 million, depending on the mix of affordable and market-rate housing, and a free-standing emergency room to be run by NYU Langone Medical Center. Fortis officials declined to say whether they would change their bid to include a full-service hospital.

SUNY officials said they were not aware of Fortis’s experience in Bayonne, but that they would expect it to come out and be considered later in the process. “In accordance with standard New York State procurement rules and regulations, once an award is made but before a contract is signed and approved, there is a due diligence process known as ‘vendor responsibility,’ which of course SUNY would adhere to,” said David Doyle, a spokesman for SUNY.

Founded in 2005, Fortis has acquired or developed more than $3 billion of commercial real estate across the United States, including rental and condominium buildings in Brooklyn and Manhattan.

The company’s chairman, Louis Kestenbaum, has a health care background. His father, Zvi Kestenbaum, a rabbi, founded a federally subsidized health care center, ODA, in 1974, that is well known for serving the Satmar Hasidic community of South Williamsburg.

Louis Kestenbaum is the unpaid chairman of ODA, which had about $21 million in revenue, including $16.7 million from Medicaid, in 2012, according to tax filings. Its highest compensated employee, Dr. Afshin Shahkoohi, a family physician, earned $732,525 that year, which ODA said was because of his popularity; he has 15,000 to 16,000 patient visits a year.

The abortive purchase of Bayonne Medical Center revolved around a falling-out between Louis Kestenbaum and Mr. Miller, who described himself as a finder who used his charm and connections to scout out opportunities and shepherd deals. “I had the ideas, Fortis had the money,” he said.

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By the summer of 2007, Mr. Miller had gone to Mr. Kestenbaum with a new project: The city of Bayonne wanted to attract developers to its pier.

Mr. Miller also learned that the city was eager to save Bayonne Medical Center, a major employer, thought to be critical to future development because it was the only hospital on the geographically isolated peninsula.

“Heaven help you if you have a heart attack during rush hour to get to one of the hospitals in Jersey City,” said Terrence Malloy, who was Bayonne’s interim mayor and is now the city’s chief financial officer.

Mr. Malloy recalled, in an interview, meeting with Mr. Miller and two Fortis executives, Akiva Kobre and Terrence Storey, about the hospital. “From Fortis’s end, they absolutely felt that they could play a role in keeping the hospital open,” Mr. Malloy said.

On Nov. 1, 2007, Mr. Miller told the bankruptcy court he was there representing a joint venture with Fortis, and that day he signed an agreement for Urban Suburban, a holding company he ran, to buy the hospital for $22.5 million. Judge Morris Stern approved it, with some trepidation. “Let’s not kid ourselves,” Judge Stern, who died last month, chided the lawyers at the time. The proof of Fortis’s commitment, Judge Stern said, would come when it put down the 10 percent deposit, or $2.25 million.

The down payment never materialized. Five days later, Anthony Coles, a lawyer for Fortis, sent a statement to local news media and a letter to Mayor Malloy, saying that Fortis had never entered into an agreement to buy the Bayonne hospital and that reports that it had were wrong.

Mr. Miller said he never understood what had happened. “They all just disappeared, leaving me hanging,” he said. Mr. Kestenbaum did call him some time later. “He said, ‘You’re dead to me.’ I was like, ‘You’re deader to me.’ ”

Hospital creditors later sued Fortis, Mr. Kestenbaum, Urban Suburban and Mr. Miller for breach of contract and damages. In court papers, the creditors asserted that Fortis’s interest in Bayonne Medical Center was to “develop good will in Bayonne which could then assist them in gaining approval for their plan to develop the Peninsula.”

Judge Stern dismissed the case against Fortis and Mr. Kestenbaum, saying that since they had not signed the deal, they were not bound by it. The creditors dropped the claims against Mr. Miller, who never appeared in court.

The hospital was sold to the runner-up bidder, IJKG, which had offered much less cash; CarePoint Health, IJKG’s for-profit parent, operates it today. As to the waterfront, the city ended up favoring another bidder, Mr. Malloy said.

Mr. Silberstein, the Fortis spokesman, denied any quid pro quo between Fortis’s interest in the waterfront and the hospital. Fortis evaluated them separately and found that neither was “safe and profitable,” he said. “Therefore, Fortis decided not to pursue either opportunity.”

But LICH was different, he said. “At LICH, Fortis has, from the beginning, and repeatedly, demonstrated its commitment to creating a world-class community-based health care facility in a restructured LICH campus. Toward that end, it is once again preparing to submit a proposal for the property’s reuse and has fully expressed a desire to purchase the property.”