Boardroom shifts: Here’s what predated Centene’s decision to cancel Charlotte HQ
The news last week that managed health care giant Centene Corp. was backing out of its East Coast headquarters in Charlotte came as a surprise to many local leaders.
The Fortune 25 health insurance company, based in St. Louis, had planned a $1 billion investment to build an 800,000-square foot East Coast headquarters. It would have brought at least 3,237 jobs to Charlotte over the next decade.
But over the past year, Centene has undergone major leadership changes and taken a new direction on real estate, changes that help shed more light on what could have influenced the decision.
At least one market analyst who has been watching the company closely points back to last June when company leaders told investors it would improve its profit margins after years of growth.
A reduction in real estate is one way to meet those goals of becoming more efficient, especially as companies adapt to a new work environment of shifts to remote work in the wake of the pandemic, the analyst said.
In the days after the news about Centene not expanding to Charlotte, Wall Street reacted relatively positively. The company’s stock closed at $96.90 the day after the news broke, up 1.6% from the day before.
‘A Centene-being-more-efficient decision’
Centene grew significantly under longtime CEO Michael Neidorff, starting from a single health plan valued at $40 million in 1996 into what is today a $126 billion enterprise. After taking a medical leave of absence, Neidorff died in April at age 79.
Late last year, an activist investor that took a major stake in the company wanted a refreshed board and the company to boost its stock, according to the Wall Street Journal. Then, during an earnings report last month, the company said it planned to reduce its real estate footprint in the U.S. by 70%.
All these moves made last week’s Charlotte decision less surprising, said Julie Utterback, a senior equity analyst with Morningstar Research Services. Utterback has been following Centene for the past couple of years.
“I don’t think this is a Charlotte decision,” Utterback said. “This is a Centene-being-more-efficient decision and taking their promises to shareholders more seriously.”
Last week, company president and chief operating officer Brent Layton cited the reduction in real estate as well as shifts to remote or hybrid work as reasons why Centene backed out of its East Coast headquarters in Charlotte.
Similar real estate moves are playing out in St. Louis. The company is no longer completing a $770 million headquarters expansion in Clayton, a smaller city just outside St. Louis, the St. Louis Post-Dispatch newspaper reported. The company confirmed in an email it is getting out of several lease locations in the metro area.
Investor pressure, board changes
Last November, Politan Capital Management took a roughly $900 million stake in Centene, according to the Wall Street Journal. The activist investor and hedge fund was pushing for the company to refresh its board and improve its stock.
A month later, Centene said Neidorff would be retiring by 2022 and that it would add five new members to its board, the Journal reported.
While the company has grown significantly, it hadn’t been performing as well as some of its peers, according to the Journal. Around this time, the company told investors it planned to improve its profit margins.
In February, Neidorff went on a medical leave of absence.
By the next month, the board had found his replacement. Sarah London was named Centene’s CEO after having served as vice chair of the Centene board of directors.
But by April, there were signs that some other company leaders weren’t pleased with company leadership.
Board member Leslie V. Norwalk cited the “governance process” around a “recent important decision,” saying it “fell egregiously short” of what she and others felt was appropriate to make an informed decision, according to a copy of her resignation letter. Norwalk did not spell out what decision she was referring to in the letter.
Norwalk hoped the board would realize Centene “needs to refresh its approach to leadership,” she wrote in the letter, and that the board is best served by members that appreciate the need for debate prior to decisions being made.
London remains the CEO today.
By July, Centene said during its earnings report that it was planning to reduce its real estate holdings. It said it had reviewed its portfolio and adopted a “more modern, flexible work environment.”
Almost 90% of Centene’s workforce works fully remote or in a hybrid role, according to Layton.
Marketing a ‘blank slate’
Even with the reduction in real estate, questions still remain about what will happen to the mostly-built campus in University City.
Centene still owns about 130 acres around where the new building sits at 2405 Governor Hunt Road at University Research Park, according to Mecklenburg County property records. Centene spent $19 million a couple years ago on the land purchases, records show.
In the coming weeks, commercial real estate firm Cushman & Wakefield will bring the building and land to the market, likely for sale, according to Brett Gray, the firm’s managing principal in Charlotte and other parts of the Carolinas. Cushman & Wakefield handles Centene’s real estate portfolio nationwide.
Gray said his firm and Centene are exploring the option to lease it. They are also exploring the option to lease it out to multiple tenants, Gray said, though the best use would likely be for a single user since that’s what it was built for, he said.
At around 800,000 square feet, the nearly complete building offers a unique opportunity for companies or a new owner to move in quickly and do what they want with the property, Gray said. There are large chunks of undeveloped land that could be redeveloped, Gray said, meaning you can expand or sell off that land for another project.
Centene will keep a presence in Charlotte. According to Gray, the company employs around 1,700 people in North Carolina, 700 of whom are in Charlotte.
Two years ago, Centene signed a lease for about 37,000 square feet of office space at Camp North End, a spokesperson for the adaptive reuse site told the Observer. The office building is located at 1701 N. Graham St.
Centene will keep that office space as a “central talent hub” for some employees in the area, a Centene spokesperson told the Observer in an email.
Building 10-minute neighborhoods
But what does last week’s news mean for the wider office market?
Centene’s decision to pull out of its large office could be the beginning of a larger trend, said Terry Shook, founding partner and principal of local design firm Shook Kelley.
“The era of the big suburban office campus has seen its heyday,” Shook told the Observer.
He doesn’t believe it will go away completely but said Centene’s decision speaks to an important point: Place matters.
Shook pointed to one of the core goals of Charlotte’s 2040 Comprehensive Plan and the newly-adopted Unified Development Ordinance to build 10-minute neighborhoods. That would mean homes are located within a 10-minute walk, bike or transit trip to essential amenities like a park, grocery store or other daily needs.
That would also mean those people are within a short trip to work, taking cars off the road and eliminating the need to drive into an office.
Shook believes Centene’s decision can serve as a wake-up call for land owners and others across Charlotte to reimagine their property.
The question for the Centene property is whether someone will rethink what it could become, Shook said.
“This is really a watershed moment,” Shook said of the Centene move. “There will be others across the country as corporations start to question 20th-century practices about work. COVID and technology have put us in a place where those questions are front and center.”
This story was originally published August 25, 2022 at 6:00 AM.
