Maybe this time the media and others will hold accountable officials so we don’t end up with another KFC Yum! Center.

Welcome to the March 10 Monday Business Briefing.

This is your private business intelligence briefing with Insider Louisville staff and contributors vetting tips collected during the past few days, hours and minutes before we post.

Insiders Meetup debuts today at Z’s Oyster Bar and Steakhouse with Craig Greenberg, founding partner of 21c Museum Hotels. Craig will tell us about 21c plans across the United States, as well as how the Louisville-based chain of boutique hotels and museums came to rule Condé Nast Traveler’s reader favorites lists year after year.

Welcome to the “craziest biz news year in Louisville history … and it’s only March” edition of Monday Business Briefing.

• We went from crying in our beer in last Monday’s MBB, kvetching about the new CVS being the only retail news in a downtown that’s still not hitting even on one retail cylinder, to being stunned by what could be coming.

Last Thursday, Mayor Greg Fischer dropped the bomb: The Omni Hotel we told you about back in December is a go … a deal that includes 200 apartments and a 30,000-square-foot supermarket. Fischer spent December talking in detail about the project with anyone who’d listen. Baltimore-based Cordish Cos., who gave us Fourth Street Live, is the developer, with the deal growing out of Cordish’s post-Fourth Street Live obligation to follow through with the Center City plan to redevelop Third Street.

Theoretically, the 600-room hotel and high-end restaurants, apartments and retail could solve a multitude of problems downtown, from our paucity of residents to our lack of retail.

The project is scheduled to start construction in the first quarter of 2015, then open in 2017.

But all deals – especially one of this magnitude, with the city issuing $120 million in bonds – come with considerable risk, and MBB isn’t alone in our quest for more details. Complications start with the financial problems at KFC Yum! Center, where the $340 million in debt has been downgraded during three years of operation.

KFC Yum! Center’s financial problems are baked into the cake in the form of a one-sided lease with the University of Louisville compounded by wildly inaccurate revenue projection, revenue necessary to service the debt. For example, this year, revenue from the tax increment financing district, or TIF district,  will produce roughly half the amount originally projected in the 2008 bond prospectus.

The only way the Louisville Arena Authority has kept from defaulting is the city paying its full $9.8 million obligation, or roughly half of the total amount due each year to service the debt. (Fun fact: KFC Yum! Center is the most expensive arena in the United States that doesn’t have a professional sports team as a tenant. For example, Staples Center in L.A. cost $375 million in 1999. L.A. is the second-largest MSA in America with 13 million people. Louisville is 1/10 as large, with 1.3 million.) Unfortunately, the TIF shows no signs of improvement as the debt-servicing amount increases through 2024.

This was not lost on IL readers commenting on our Omni stories last Thursday:

masparx • 2 days ago

As somebody who is about to move downtown just a few blocks from this site I love it. But as somebody who sees the mess at Yum! Center that keeps being swept under the rug I really wish there would be some attempt to fix that first.

The additional $120 million in new city-guaranteed municipal debt for the Omni deal would mean the city would be on the hook for an estimated $6 million annually. What’s not clear is how that deal would be structured, and how much of that would be paid by Cordish, Omni and from the TIF.

All that will ultimately be public record. But we intend to go into this with eyes wide open. Here are the questions we’ll be asking over the next days and weeks to city and state officials:

  • Because there will be municipal debt issued, does that mean there will be a special entity a la the Louisville Arena Authority that will own the Omni complex? If there is a new entity, who are the state and city officials likely to be appointed to the board of directors?
  • Will the bond underwriter be chosen by a bid process? Or will there be a private, negotiated sale through, say, Hilliard-Lyons? Both approaches have merit. Goldman Sachs placed $340 million of the $348 million issued to build KFC Yum! Center. But in 2006, as the debt was being placed, global financial markets collapsed, including the auction rate bond market. Hilliard-Lyons placed the “tail,” the final $8 million in unrated, high-risk callable bonds.
  • Will the Louisville Metro Council OK the debt issue after the problems with Yum! Center?
  • What exactly are the revenue projections from Cordish and Omni? What financial guarantees and concessions, if any, did the city extract from them? Because previous administrations gave Cordish Fourth Street Live, never receiving a cent from the “public-private partnership” during the 10 years the entertainment complex has been open.
  • Where will the debt markets be one year from now?

When mayors, governors and executives stand on a stage and make big public announcements, we assume they’ve done their due diligence, with sufficient data indicating the deal can move forward. But the most important person in this initial process is Metro Louisville CFO Steve Rowland, who knows just how leveraged the city is, and what the projected revenue must be to amortize $120 million in debt over 30 years.

• Speaking of Louisville hotels, as impressive as it is, the Omni deal is only one of  five hotel deals either planned, or under construction – which in itself is remarkable. Reporters quizzed Fischer et al last Thursday as to whether the Omni will be a bridge too far, saturating the market. Competitors we reached don’t seem as concerned.

Bill Weyland, whose City Property is a partner in the $22 million Hilton Garden Inn under construction at Fourth and Chestnut streets, pointed out the Omni hotel isn’t scheduled to come on line until 2017, by which time the 162 rooms at his project will be absorbed into the marketplace. “From that standpoint, I think the timing is pretty good,” Weyland said last Thursday.

“Hopefully this will leverage our ability as a community to get the state to approve expansion of our convention center so we can be more competitive with Nashville and Indianapolis. I almost see this as a lever to get that done.”

Ron Turnier, CEO of Creation Gardens, said he’s “full speed ahead” on his plans for a hotel in NuLu. Turnier said he was aware of the Omni plan. But his market study shows segmentation sufficient to support adding more rooms. He and partners are planning to build the United States’ first AC Hotel, a boutique brand of the Bethesda, Md.-based hotel giant Marriott International.

The $30 million, 150-room hotel is planned for the northwest corner of Market and Shelby streets on what is now a 1.4-acre parking lot east of Creation Gardens’ headquarters.

• At the end of last month, KentuckyOne Health cut nurses and support staff in an effort to cut $218 million by 2015. Friday, there was  a big management shakeup, with the exit of the COO. The cuts and realignments began late last year, according to an internal memo. And will continue ….

Bev Weber, KentuckyOne Health COO, is out effective May 31, returning to consulting. A search is under way to identify the organization’s next COO, according to the memo.

CEO Ruth Brinkley’s comments are pointed, indicating she’s clearing the decks: “While these changes provide cost reduction opportunities, they have the added advantage of creating professional advancement opportunities for our strong leaders within KentuckyOne.”

Joe Gilene, currently president of Saint Joseph Hospital in Lexington, apparently is a strong leader. Gilene will step in as president of Jewish Hospital and leader of the downtown Louisville medical campus effective April 1.

Gilene replaces Dr. Chuck Peck, who was the interim after replacing Valinda Rutledge, who resigned one year ago.

From the memo:

Gilene joined KentuckyOne last fall. Earlier, he held senior executive positions at Robert Wood Johnson University Hospital in New Brunswick, N.J., Carolinas Medical Center in Charlotte, N.C., Sacred Heart Medical Center in Spokane, Washington, and Cincinnati Children’s Hospital in Cincinnati, Ohio.

Peck will leave KentuckyOne March 31 to return to Navigant Health, a Chicago-based consulting firm.

Ken Marshall stays as president of University of Louisville Hospital and James Graham Brown Cancer Center.

There’s lots more including tidbits about Jewish Hospital Shelbyville, which we’re being told is on the block. Here’s the entire memo.

• Just as the Omni deal hits the headlines, here’s some new talk that the NBA-to-Louisville dream may be getting some pub. Forbes magazine writer Darren Heitner was in town to speak at the University of Louisville’s Sports Administration summit Friday, Feb. 28. Heitner then joined his friend Jonathan Blue for a U of L game. We hear Forbes is working on another story about Louisville’s NBA chances. Last Sunday, Michael McCann of McCann Sports Law tweeted Louisville is a strong expansion candidate.

Our souces says businessmen Junior Bridgeman and Jonathan Blue could become substantial minority owners in a group that acquires the Bucks and commits to keep them in Milwaukee as long as some type of private-public arena accord can be reached. They will keep Louisville in their back pocket as leverage in negotiations. Other cities will be strong contenders, notably Las Vegas and Virginia Beach.


• Businessman John Anson’s (former) house at 7910 Wolf Pen Branch road will be auctioned Thursday in a foreclosure action by the Master Commissioner. The Jefferson County Property Valuation Administrator values the house at $2.2 million. This appears to be the end of a long and dismal tale. Anson’s legal troubles date back to 1996, according to Jefferson Circuit Court records.

Those lawsuits document millions of dollars the banks lost to his companies, including Anson Stamping. Those suits also allege Anson failed to paid suppliers, using the money to fuel an elaborate lifestyle that included this 11,000- square-foot mansion in Louisville’s most exclusive neighborhood.

Blackstone Media has  hired Jeremy Jadczak, a “top Washington D.C. sales pro” who formerly sold websites to some of the nation’s most recognizable political figures, according to a company announcement this week. A Philadelphia, Penn., native, Jadczak has worked as a congressional staffer and as a lobbyist. With the addition of Jadczak, Blackstone Media has grown from a six-person web design agency to a 17­-person full-service digital agency, doubling its square footage and quadrupling its revenue, according to a news release.

• Seven independent pediatric practices in the Louisville area have formed ONE Pediatrics. The seven groups, All Star Pediatrics, East Louisville Pediatrics, Kaplan Barron Pediatric Group, Pediatrics of Bullitt County, Prospect Pediatrics, South Louisville Pediatrics and Springs Pediatrics, created a “group practice without walls,” according to a news release.

The ONE Pediatrics concept is that independent primary care practices, in collaboration with patients, are best equipped to make appropriate health care decisions, according to the release. By combining resources, ONE Pediatrics will be able to acquire the latest technology at the lowest cost, pooling time and talents.

“These are seven of the premier pediatric practices in our area including the most well respected pediatricians,” stated Dr. Lawrence Jones of East Louisville Pediatrics. “We are all fiercely independent and did not want to be owned by larger corporations. We think the model we developed is distinctively innovative and will provide the children in our practices with the finest care possible.”

This is interesting in that the group hasn’t gone with a large hospital group. More coming on this ….

Monday Business Briefs:

Bloomberg and other national news outlets are reporting health insurers including Humana might get $5.5 billion next year to cover losses from Obamacare if the president has his way.

The money, outlined in President Barack Obama’s proposed budget for the fiscal year that begins in October, would help insurers who find the cost of the Affordable Care Act higher than expected, based on the percentage of older, sicker people who sign up compared with younger enrollees, according to Bloomberg. The money would come from companies that made a profit, some of which would go into a pool to subsidize the insurers that lost.

• On Thursday, the Omni Hotel announcement included a peek at the changing American landscape, with people leaving the suburbs for urban centers. Related, but unrelated, is the increasing evidence that the suburban mall will likely suffer. A CBS Money Watch post quotes retail expert Howard Davidowitz predicting half of U.S. malls will fail within 20 years.

From the CBS post:

One of the biggest reasons for the closures and slowed traffic is the disappearance of anchor department stores such as Sears and J.C. Penney. Those stores have been in tumult since the recession, and haven’t returned to health the way some upscale retailers have. Historically, they drove traffic to the malls. Some malls are now looking at large gyms and fitness centers to replace department stores as mall anchors, The Washington Post reports.

• Louisville-based insurance broker AgentLink has acquired 100 percent ownership of Consolidated Brokerage Services, based in Indianapolis. Founded in August of 2005 and originally owned by John Carroll, CEO of Cornerstone Broker Insurance Services Agency, and Randy McDevitt, CEO of MedLink Inc., CBS provides insurance products and services to independent insurance agents throughout Indiana, according to a news release.

Products include group and individual health insurance, life insurance, disability insurance, long-term care, and annuities. CBS works with several major insurance carriers, including Anthem, Humana, United Healthcare, Transamerica, Genworth and Mutual of Omaha.

• Clay Hunt has joined CB Richard Ellis’ Louisville offices in the Retail Services Group. Hunt brings more than seven years of real estate experience to the commercial real estate giant.

• Once again, Nashville wins.

Last fall, Google chose Nashville – not Louisville – for a technology hub. Last week, the city started reaping the benefits, according to the Tennessean newspaper, which – like the Courier-Journal – is part of McLean, Va.-based Gannett.

Google for Entrepreneurs selected Nashville health-care startup InvisionHeart to pitch its product to Silicon Valley investors at an April demo day at Google headquarters in Mountain View, Calif., according to the Tennessean.

From the Tennessean post:

Nationally, Google for Entrepreneurs has invited 10 companies from its seven hub centers to pitch at its April 2 demo day, which could yield investment dollars and national exposure for InvisionHeart. The company has raised more than $300,000 so far and is seeking a total Series A round of $1.25 million.

How do we compete with that? That’s what we’ll be asking tech leaders.