The offices of "Kind Hearted Care" at Bowman Field.
Has a regional prostitution ring landed at Bowman Field?

Welcome to the July 8 Monday Business Briefing.

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

It’s the “is downtown up or down this week?” edition of MBB.

We’ve advocated for downtown now for almost three years, and it’s been a roller coaster ride of exciting developments (urban-bourbon showcases) and total bummers (rising downtown office vacancy rate.)

But this week, things are looking up again with multiple signs of increasing activities and big possibilities.

• We found out more this week about the economic-development effort to get e-tailers with Louisville fulfillment operations to open up temporary stores on Fourth Street. This effort centers on the vacant Walgreens space at Fourth and Chestnut streets.  The address technically is 321 W. Chestnut, and has been vacant since December 2005, when Walgreens abandoned the space for a new stand-alone store with parking at 200 E. Broadway. But as we looked into this, several interesting facts emerged. Jewish Hospital, which has call-center operations next door, owns the building, part of a real estate acquisition spree in the 1980s and 1990s … a strategy that led to the financial ruin of the hospital system, which now belongs to Catholic Health Initiatives, based in Denver. The second interesting piece to this is that Baltimore-based Cordish Cos., which owns Fourth Street Live, made a big deal back in 2005 of announcing they were buying the entire 66,000-square-foot building, which housed a J.C. Penney store long, long ago when Fourth Street was the center of retail in Louisville. But when we searched Property Valuation Administrator records, Jewish Hospital  – now part of KentuckyOne, CHI’s Kentucky subsidiary – remains the owner. This is the deadest block of the area between Fourth Street Live on the North, and Broadway on the south that Louisville Downtown Development Corp. and Fischer Administration is trying to redevelop. Is there deal potential there with the hospital system for a wasted space?

The Starks Buildingwebsite-for web
The Hertz Starks Building

• Speaking of the center of downtown, multiple sources say at least three buildings are in play along Muhammad Ali Boulevard. Apparently the University of Louisville is a player in one deal. In the biggest, Hertz Starks Building is in the final stages of a negotiation with a mystery buyer. Don’t look for the landmark, which has a prime first-floor tenant in Eddie Merlot’s, to fetch anywhere near its 2006 purchase price when Santa Monica-based Hertz Investment Group purchased it for $12 million. That said, if a developer wanted to slice and dice the vintage 1913 building into a mixed-used complex with retail, restaurants, offices and high-floor luxury apartments, they could have a hit on their hands. Just east of the Starks, Andrew Owen is buying the office building at 300 W. Muhammad Ali building, which appears to be owned by Florida real estate investor/attorney Peter Weitz. Owen and his family, which includes his father, Louisville Metro Councilman Tom Owen, recently sold seven acres bordering the University of Louisville’s Belknap campus for $5.6 million to a company that plans to develop student housing. Is this all spurred in part by the redevelopment by Mary Moseley of the Stewart’s Dry Goods building/Hilliard Lyons Center into an Embassy Suites Hotel? Well, we’re guessing it wasn’t a disincentive.

• This is more a crime story than a business story. But some commercial landlords are getting snookered by an organized prostitution ring that takes advantage of the growing amount of Class C office space, then ultimately skips out on the rent. Or ends up busted. Our sources are telling us this is a multi-state group. In each city, front people claim to be leasing space for a “deep muscle massage” or a “light-touch massage” business that’s a front for prostitution. Apparently, the group has set up shop on the east side of Bowman Field in a nondescript frame house near some hangars. The same group apparently was recently busted in Jeffersonville. More as we know more this week.

• This is really the most important story of the morning. But we aren’t naive enough to think Kentucky’s accelerating Medicaid Meltdown can compete against roving gangs of hookers. Kentucky is about to give a whole new group of Medicaid managed care organizations an opportunity to lose millions. St. Louis-based Centene Corp. left the building Elvis-like effective Friday after a federal court ruled last week the state couldn’t stop them from ending their two-year Kentucky Medicaid-managed care contract early. Centene executives stated in SEC filings the company could lose more than $200 million in Kentucky. About 125,000 people who were Kentucky Spirit – as Centene was branded – members here have been reassigned either to Bethesda, Md.-based Coventry Health or Tampa-based WellCare Health Plans. Instead of bringing in the other two MCOs, Humana and Passport Health Plan, the state will now issue yet another request for proposal, the third since the switch to managed care from fee for services in 2011. The RFP will be for the coming expansion of Medicaid in Kentucky under ObamaCare and the 300,000 new enrollees it is projected to add. But our sources say implicit in the request is that the winner/winners will get some of the 125,000 members  left behind by  Kentucky Spirit. Since the introduction of the MCO structure, we’ve lost track of the number of suits filed against the MCOs by hospital chains and providers, as well as against the state. Centene’s exit will cost Kentucky about $220 million, because Kentucky will have to give WellCare and Coventry a higher reimbursement rate than they were giving low-bidder Centene. This thing just keeps going on and on …..

• Despite months of absolute certainty among Louisville Arena Authority members that rating agencies would see the financial rainbow around KFC Yum! Center, Standard & Poore’s maintained their “negative” outlook for KFC Yum! Center bonds, as well as the BBB- rate. That’s one step above a junk rating, differentiating investments between investment grade and speculative. Ah, but there’s more … the bond trustee sent out a letter to bondholders, and it reveals that servicing the $349 million debt was a struggle. So, will that change when the arena authority has to come up with an installment in November?  More on that this week …

• Burger Boy owner Dan Borsh is transforming the old Tavern Bar & Grill at 1532 Gaulbert (Fourth and Gaulbert) close to the University of Louisville’s Belknap campus into an upscale restaurant. The fates of good restaurants in Old Louisville have been dicey lately. While 610 Magnolia and Buck’s just keep rolling, The Third Avenue Cafe and Carly Rae’s have closed. But the untold story is how busy a lot of the restaurants are next to U of L. So we’re thinking closer to campus is better, which the Tavern is. Borsch, an attorney by trade, purchased the Burger Boy Café on the corner of South Brook Street and West Burnett Avenue five years ago and revived it.

• In the course of doing a post on the Gutherie-Coke Building, Bill Weyland’s nearly ready for prime time development at Fourth and Chestnut. City econ-dev sources told us Weyland has briefed them in meetings that he’ll start construction of that hotel on the southeast corner. When we queried him about this earlier this year, Weyland was coy. “Well, (city development officials) want me to build stuff, but I’m the one who has to make it  work.” We didn’t hear no, but this is an idea that dates back to 2010 … and one that didn’t get Metro Council support for a $10 million bond issue.

• Speaking of the new retail corridor along Fourth, we’ve seen for ourselves it’s doing quite well. Some shop owners have told IL they’re shocked at how busy they’ve been mostly due to 2013’s record convention traffic. We have to say publicly to Louisville Downtown Development Corp. Executive Director Alan DeLisle, “You were right, and we were wrong.” Ouch, that hurt.

• This is a big official announcement for a deal that was cut last year between Walmart and Kentucky Proud, which we haven’t heard much about lately. State officials are scheduled to announce today at 10 a.m. a “groundbreaking dairy deal” between Kentucky Proud dairy producers and Walmart. Gathering at Walmart’s Hamburg location in Lexington will be Agriculture Commissioner James Comer, Kentucky dairy farmers, executives from Prairie Farms, a farmers’ cooperative based in Carlinville, Ill., and Kentucky Proud officials, Governor’s Office of Agricultural Policy Executive Director Roger Thomas and Walmart executives. Not clear what this is all about, but the presence of Prairie Farms is significant since the company has a line of products including ice cream from a Louisville dairy operation. The Bentonville, Ark.-based retail giant is rolling out neighborhood groceries in some of the largest U.S. markets including New York City, though most are on Long Island, and outside the D.C. metroplex in Maryland.

• We hear Caffe Classico in Clifton is considering opening a second location.

A new cafe is opening on Main Street at 605 E. Main. St.

• Look for Kentucky Chia founders to announce big changes this week. Zack Pennington, Joanna Cruz, Scott Serdoz, and Keith Starling are focused on the chia plant as an untapped source of feed and products for the equine industry. They came out of U of L’s eMBA program back in 2011.