CLAYTON — For the past four years, the largest provider of health insurance to low-income Americans has owned one of the fanciest hotels in the St. Louis area.
In 2018, managed healthcare company Centene Corp. quietly bought the Ritz-Carlton here for $98 million. Since then, he has kept his property out of title deeds and hidden from public view.
But recently released documents related to a property tax appeal now confirm Centene’s ownership of the luxury hotel, located about a quarter mile east of the company’s headquarters. And a chart of the company’s subsidiaries, disclosed as part of an independent purchase, reveals the limited liability company Centene used to buy the Ritz.
Centene is under pressure here and across the country. An activist investor has pushed the $47 billion company to improve its earnings, prompting Centene to replace five board members and announce the early retirement of the company’s longtime chief. The new CEO promises a more integrated and streamlined business, with a smaller real estate footprint. And investors and the public are increasingly aware of corporate behavior, critical of practices that were once accepted norms.
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Whether the Ritz is helping Centene’s results is unclear: It’s been a tumultuous time for the US hospitality industry, which saw its worst performance in 2020. Data shows Clayton’s Ritz fared much worse out than others in its class, reporting a loss of $2 million in 2020 after a profit of $8.5 million in 2019.
“It’s more like those old-school corporate empires, those CEOs who want to do these grandiose complexes,” said John Barrios, a professor at the University of Washington’s Olin School of Business. “This is a great example of a CEO pet project.”
Indeed, a hotel was once part of a Centene pitch to spend $770 million on expanding the Clayton campus, for which it secured more than $100 million in government grants.
But the company bought the Ritz before it even finished a new office building, then halted expansion work.
Centene executives confirmed ownership of the hotel but did not accept an interview for this story.
Clayton officials say they understand why Centene, which employs thousands across the country, would buy a hotel near its headquarters. They said they believed the company had always intended to complete its expansion.
“It’s a company with integrity,” said Mayor Michelle Harris. “I think they had a plan for an incredible corporate campus.”
Healthcare giants don’t usually own hotels
In 2016, Centene launched a $770 million expansion of its headquarters: nearly one million square feet of office space, hundreds of apartments or condos, retail stores, a 1,000-seat civic auditorium and a 200-room hotel near South Hanley Road and Forsyth Boulevard. .
The expansion was intended to accommodate Centene’s booming growth after its recent $6.8 billion deal to buy Health Net, a California-based competitor whose acquisition made Centene the largest program provider. government health care providers, such as Medicaid and Medicare.
The hotel was important, officials said at the time, because Centene was the biggest buyer of hotel rooms in Clayton and needed more space to house employees being airlifted for training. The renderings depicted the hotel on vacant land just east of the Ritz.
Clayton and state officials signed a major incentive package: $75 million in property and personal tax abatement over 20 years in Clayton and tens of millions more in state incentives, most of which would depend on how many jobs Centene would add. the region.
Centene told Clayton he plans to open the hotel in late 2019 or early 2020 and have it completed by 2022.
But Centene never started building a hotel.
The company told Clayton in June 2020 that the land was not slated for development. In July, he announced an East Coast campus in Charlotte, North Carolina, and that he would suspend all new construction in Clayton, citing the pandemic but also saying crime in the area was hurting recruitment efforts.
What he didn’t say: He already owned the Ritz.
The Ritz, which opened at 100 Carondelet Plaza in 1990, is renowned for its high-level personalized service and high room rates: between $300 and over $3,000 a night. Large glass chandeliers hang from the ceilings in common areas. The counters are marble. Woodwork and moldings adorn the walls. A signature scent, created especially for the Ritz, hangs in the air.
The Ritz Hotel Co., a subsidiary of Marriott International, operates many of its hotels, although it shares profits and losses with the owners.
The Ritz did not respond to a request for comment for this story.
Hospitality analyst Gary Andreas said real estate investment trusts, typically those that also own other hotels, are typical Ritzes owners.
“A property like a Ritz is highly specialized due to the nature of the hotel, the price point and the type of clientele,” said Andreas, principal of Chesterfield-based H&H Consulting.
Clayton’s Ritz has attracted a handful of owners over the years, including California real estate developer Lewis Wolff’s Maritz, Wolff & Co., and later Los Angeles-based Oaktree Capital Management.
In August 2018, while the Centene office building was under construction, Oaktree sold the hotel to BLR Properties, a limited liability company.
Public records list little about BLR except for one detail: The name guard was Mark Burkhart, a longtime St. Louis-area commercial real estate executive who served as co-chairman of a 2017 United Way fundraising campaign with then-Michael Neidoff, CEO of Centene.
Burkhart did not respond to requests for comment.
The Ritz responded to an “immediate need”
But in July 2021, BLR filed a property tax appeal with the St. Louis County Assessor’s Office, saying the Ritz should be valued at $20.7 million, less than half. from its current $46.5 million.
He provided documents showing how the pandemic blew up profits:
- The occupancy rate fell from 71.3% in 2019 to 23% in 2020.
- Revenue per available room increased from $181.51 to $59.82.
That performance was significantly worse than other Ritz hotels companywide, where occupancy was 30.3% and revenue per available room was $126.72, according to a report on Marriott’s results.
BLR hired a third-party real estate and tax expert to handle its appeal with St. Louis County, which in documents filed with the county listed its client as Centene. And included in his filings was a property owner release form, signed by Katie Casso, Centene’s senior vice president, corporate controller and chief accountant. The appeal is pending before the State of Missouri.
Additionally, Centene disclosed BLR Properties in an organizational chart of subsidiaries included in disclosure documents related to its $17 billion acquisition of competitor, Tampa-based WellCare Health Plans Inc..
Those documents, filed with the state of Wisconsin in late 2019, show Centene organized BLR Properties under its subsidiary Health Net, the California company it bought in 2016.
The chart describes a hierarchy: Centene is at the top of the family tree. Subsidiaries of companies like Health Net are below. And under them are still lower divisions. At the bottom are two limited liability companies: First, one called MEB Ventures II – an LLC related to Burkhart.
And below: BLR properties.
The chart shows that MEB owned 80% of BLR, meaning there was at least one other investor.
A source familiar with the matter said Bruce Karsh, a St. Louis native and Los Angeles billionaire behind Oaktree Capital Management, has a personal interest in the Ritz, although a spokesperson for Karsh declined an interview.
The organizational chart also clearly indicates that the MEB is only an intermediary. Profits and losses go up the tree to Centene, said St. Louis University law professor Henry Ordower, who reviewed Centene’s chart for this story.
“If you’re talking about operating a property like that, I would isolate it from the rest of my operations as well,” Ordower said. “You might have a liability there that you want to keep off the chain.”
Barrios of the University of Washington said the hotel’s $98 million price tag was too small for the company to be required to disclose in SEC filings. And the profits Centene might make from the hotel would also be too small for the company to distribute as a line item, “compared to the billions they receive through health care,” Barrios said.
Centene posted revenue of $126 billion in fiscal 2021, up 13% from 2019. Profits rose from $1.8 billion to $1.3 billion.
A spokesperson for Centene said in a statement that its acquisition of the Ritz “met an immediate need” for hotel accommodations.
“The investment represents a small portion of the company’s normal course, its capital investment strategy,” the statement said.
Centene is even now revaluing the investment, the company said, along with other “non-core assets”.