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.
The bad news: Summer is over.
The good news: Summer is over. There’s so much going on as the summer vacation lull ends, our sources were sending us great tips right up to post time for this abbreviated Labor Day version of the Monday Business Briefing.
Call this the “gift that keeps on giving” edition of the Monday Business Briefing, with University of Louisville executives amping up the rhetoric in the feud over Kosair Children’s Hospital just when we thought tempers were cooling. If you recall, about a week ago, Norton Healthcare announced a joint management agreement combining Norton’s downtown Kosair Children’s Hospital and the University of Kentucky Children’s Hospital in Lexington. Which started a war between Norton and U of L leadership.
• Late in the day on Friday, Dr. David Dunn, U of L’s executive vice president of Health Affairs, fired off another one of his measured missives, this time to U of L deans and vice presidents. This communique revealed a shocker … the department of pediatrics is broke! Which explains why the proposed Kosair/Kentucky Children’s Hospital affiliation is such a flash point.
From Dunn’s internal email:
The department of pediatrics, which at one point arguably was the strongest financially of any clinical department, is facing insolvency. The department made investments in faculty and programs based on what we thought were good faith oral agreements by Norton. We continually were told by Norton they would true up the finances once we had an affiliation agreement in place. However, it is clear now they have had no intention of ever signing a robust affiliation agreement.
The financial condition of the department has led to the unprecedented event of having to close programs. Recently the department shuttered its highly successful Healthy for Life program for the treatment of obesity in children. Again, Norton’s actions are NOT to the benefit of UofL.
The email also refined the vilification of Norton executives in the feud over Kosair. From the opening:
Because the UofL was not consulted, and because such an agreement (between Kosair and UK) would create a Norton Healthcare led virtual monopoly in high-end very lucrative NICU care, we believe this secretly crafted plan is motivated solely by money, not better care for kids.
Apparently, U of L had been lobbying Norton executives heavily to sign that financially crucial affiliation agreement, almost obsessively, but got the kind of cold shoulder Seth Rogan would get if he asked out Angelina Jolie.
Despite many calls for face-to-face discussions, the most recently scheduled meeting at the beginning of August was cancelled by Norton on short notice with no alternative dates provided. In fact, we were told it would be at least 10 days before Norton could even look at a possible date. Not surprisingly, this coincided with their surprise announcement.
Dunn shows little cooling of his ardor for fighting this war in public, specifically on the editorial pages of the Courier-Journal and on WFPL’s website. All that said, we’re hearing University of Kentucky officials may be be working behind the scenes to negotiate a truce.
• There is so much to report on this, we’re having to break it out into sections. Some of the most interesting information this weekend came from doctors working for rival institutions who have to tough it out every day among growing tension. More than one U of L-affiliated doc told us U of L officials have imposed a total lock down on any university employees talking to the media except designated official spokespeople in controlled circumstances. Apparently, Norton executives are encouraging their employees to talk. One irritant with Norton docs is that Kosair has long sought to reach the ranks of Top 10 U.S. pediatric hospitals along with children’s hospitals in Cincinnati, Boston, Houston and Philadelphia … which may have been a catalyst for UK outreach, along with the CHI/University of Louisville hospital JOA. “Does a public controversy like this enhance our reputation?” one source asked. “I can’t imagine it does.”
• Speaking of U of L, we got the initial Moody’s Investors Services rating for the Nucleus bond issue from an ever-vigilant insider/bond vigilante. What? You say you didn’t know the University of Louisville Foundation is using the full faith and credit of the Commonwealth of Kentucky to finance its $39 million Nucleus Innovation Center spec building at Floyd and Market streets? Neither did we, though we should have guessed they are rather than investing funds directly from the foundation. Why take the risk, right? You know … like public-sector commercial real estate developers? To paraphrase the late Lenora Helmsley, Those Little People in the public sector have to pay taxes and borrow money from banks, or raise money from institutional investors. Which would really slow down the process of building hundreds of thousands of square feet of spec buildings across Louisville.
According to the Moody’s summary, the taxable fixed-rate bonds score an Aa2, a very high investment grade rating, to no one’s surprise. With not a lot of debt, and nearly $1 billion in the coffers, the foundation would be a large business if it were a business. The fun part of these summaries, of course is the “strengths and weaknesses” section.
Excerpts from the summary:
* Solid management team providing sound fiscal stewardship and dedication to short and long-range planning and endowment oversight practices, as demonstrated by successes with the ULF $1 billion capital campaign ($832 million received as of 7/31/13) and an office building real estate joint venture at UL’s ShelbyHurst campus, that is currently fully occupied and providing alternative revenue streams.
* Good balance sheet, with total financial resources of $737 million at fiscal year (FY) end 2012. Expendable resources of $343 million cushion pro forma debt an ample 2.9 times. The foundation recorded strong liquidity of 585 monthly days cash on hand as of June 30, 2012.
* Strong philanthropic support garnered average annual gift revenue of $43 million over the past three years (FY 2010-2012). The foundation is the midst of a $1 billion capital campaign, with $832 million raised as of 7/31/13 and end date of December 31, 2014.
* Heavy dependence on gift revenue and investment income, representing 60% and 30% of total operating revenue respectively in FY 2012, exposes the foundation to volatility in investment markets and ongoing donor support.
* The new building is located within a competitive office space market, though the ULF’s draw of innovative research companies through university affiliation and available grant start up funding packages offers unique leasing incentives; Nucleus buildings in other Louisville metropolitan area locations are fully leased.
* Multiple real estate projects managed and operated by the foundation, including office parks, research facilities and student housing residences, require ongoing oversight and are subject to economic volatility in times of fiscal stress.
• Look for big changes in the news department at WHAS TV. That’s all we’re cleared to say at this point. But Insiders say they’ll give us the details on the record when they can. Also, the Courier-Journal is losing another “name” reporter. And trust us, this one will hurt. More Tuesday. There is so much changing in media so quickly that Rick Redding is having a hard time staying in front of the wave.
• Business First has the big scoop this week that Baltimore-based The Cordish Cos. gets a Mulligan on Center City, the six-year-old planned, but never built, extension of Fourth Street Live. Cordish now has until Sept. 30, 2014 to finalize a plan for a $245 million mixed-use project for a hotel and retail on the former Louisville Water Company headquarters block on Third Street. Not including the Cordish plan, there are three new hotels planned in downtown Louisville including one at Ninth and Market, and one at the former Marine Electric building on Main Street directly across from Whiskey Row.
As soon as BizFirst posted their story, we got emails saying, “Center City will never happen. Cordish is spending all their money in Kansas City.” In 2007, Cordish started building the Kansas City Power & Light District, consisting of entertainment venues and retail. Picture Fourth Street Live, but on a far grander scale. The eight-block project is considered a success, according to media reports, yet failed to meet financial projections, requiring the Kansas City taxpayers to chip in $14.3 million this year
alone to cover financing. Sound familiar? That went so well that Cordish now is planning an $80 million, 25-story apartment tower in the Power & Light District. Louisville, we’re guessing, is not a priority.
• When we went to WorldFest Saturday, we ran into the ubiquitous entrepreneur and engineer Jason D’Mello, who told us about RISE, the just-launched collaboration between Louisville Metro Government, nonprofits, and private companies to create a platform for immigrants and refugees to start their own businesses. RISE stands for Refugees & Immigrants Succeeding in Entrepreneurship. Which we think comes to Louisville with so many of the successful entrepreneurs from Cuba, Mexico, India, China and all points on the glove who’ve brought their energy and skills here. More as we sit down with Jason and Ted Smith. The effort launched Friday, with KIVA, the San Francisco-based micro-lender, possibly becoming a contributor to the effort.
• Good news … one of the most underutilized strategic properties is on the verge of getting a new user, or users. As we’ve told you (since, what? 2010?), the former Mercy Academy complex on Barret in the Original Highlands is weeks or at most months away from getting repurposed. One possibility is a doctor-assisted alcohol and drug treatment center, which makes sense next to a hospital, in this case Kindred Hospital Louisville. That would be just one building. Other buildings could see other uses. And we’ve talked to the broker for the building, Rhonda Karageorge, who said several residential developers are still interested. Karageorge herself predicted a sale to someone will be complete by the end of the year.
• More good news: We hear a manufacturer is bringing 200 new jobs to Louisville. The complication is, these are $10 per hour jobs. Which puts more stress on the minimum wage sectors such as fast food. Ready for the $9.99 Big Mac? Because that’s where we’re ultimately headed. The only fast-food chain that seems to be able to get and keep good workers remains White Castle, which has its stores well staffed while McDonald’s and even some fast casual chains are down to skeletal staffing.
• We hear from sources that NuLu developers Gill Holland and the Shine Contracting boys are close to closing on their Lytle Street properties at 15th Street in Portland. This will be their much ballyhooed “East Portland Warehouse District.” The group is aiming to raise $10 million to buy and rehab properties on the east side of Portland around 15th Street where Grasshoppers Distribution and other farm-to-table operations are now. More as we get closer to the closing.
• The owners of Osaka sushi bars apparently are in a deal to buy the empty former Maido property at 1758 Frankfort Ave. in Clifton, just across from the Silver Dollar saloon. Though we hear they don’t intend to use it for another sushi bar. A very nice, very strategic property in the right hands, we’re guessing.