INJURED WORKERS’ MONEY

Ohio to invest $50M in Wis. real estate fund

BWC deal seeks to diversify portfolio, recalls Noe case

4/19/2014

Hammes

COLUMBUS — Ohio’s government-run insurance fund for injured workers has agreed to put $50 million, the maximum its policy allows, into a Wisconsin-based real estate investment fund run by a major campaign “bundler” to Republican presidential candidates.

Ohio’s share would represent 11 percent of the $450 million Hammes Partners II fund that will be focused on health-care real estate and headed by former health-care consultant Jon D. Hammes. It’s a limited partnership spin-off of Hammes Company Health Care, founded by Mr. Hammes in 1991, that has seen success in managing, operating, and investing in health-care facilities.

Although the Ohio Bureau of Workers’ Compensation board approved the investment in November, no money has been disbursed, according to bureau spokesman Melissa Vince. The bureau decided to invest in real estate for the first time in 2011, with a goal of ultimately having 6 percent of its total investment portfolio in real estate. It’s currently at a little more than 5 percent.

According to a memo from New Jersey’s State Investment Council, which agreed to invest $100 million in the venture, this marks the Hammes Company’s first pooling of government institutional money for investment.

The New Mexico Educational Retirement Board has agreed to invest $25 million and the Employees Retirement System of Texas has committed $50 million on top of what New Jersey and Ohio have pledged, according to the Milwaukee Business Journal. All four states have Republican governors, and each governor is considered either a possible presidential or vice presidential candidate in 2016.

Mr. Hammes was a major contributor to the campaigns of President George W. Bush in 2004, and presidential candidates John McCain in 2008 and Mitt Romney in 2012. He was considered a “bundler” for Mr. Bush and Mr. McCain, presenting contributions from family, friends, and associates as one bundle to the campaigns.

The Ohio secretary of state’s campaign-finance database revealed no political contribution in Ohio from Mr. Hammes. But the investment with a well-connected GOP donor, and specifically the dollar amount of the investment, harkens back to the BWC investment in rare coins and collectibles run by former Toledo-area coin dealer and former Lucas County Republican chairman Tom Noe.

That deal — two $25 million investments totaling $50 million — led to the so-called Coingate scandal, sent Noe to prison for stealing $13 million from the investments, and resulted in the first criminal conviction of a sitting Ohio governor. Then-Gov. Bob Taft, a Republican, pleaded no contest in 2005 to misdemeanor ethics charges for failing to report golf outings and other gifts, including some involving Noe.

Noe also served time in federal prison for laundering campaign contributions to the 2004 re-election campaign of then-President George W. Bush. Like Mr. Hammes, Noe was a bundler for President Bush, joining the club of Bush Pioneers for raising more than $100,000.

“Coingate was all of 10 years ago,” said Catherine Turcer of the government watchdog group Common Cause. “It was the biggest political scandal in decades. We still don’t have a [final] report from the [Ohio] inspector general ...”

“There is a difference,” she said. “Hammes does not appear to be a donor at the state level, so this is different from Noe, who was very active at the state level and whose wife was active. We’re not talking about that direct political contribution.”

“But we are in a different climate after [the U.S. Supreme Court decision on] Citizens United made it tougher to connect the dots,” Ms. Turcer said. “Here we have Hammes listed among the top 100 Rangers by giving at least $200,000 to Bush’s re-election campaign. He was a bundler for McCain, and he also gave to Romney.”

Mr. Hammes could not be reached for comment on Friday.

Ms. Vince said the political generosity of Mr. Hammes on a national level had nothing to do with the bureau’s decision.

“The BWC reviewed the business facts and made its selection after the careful review of the board of directors,” she said.

“[Mr. Hammes] was involved, and he was here,” Ms. Vince said. “Our [chief investment officer] and director of investment did also visit them in Wisconsin, as well as one of the properties, which they typically do.”

A presentation made in November to the BWC board by the bureau’s investment consulting firm, RVKuhns & Associates Inc., cited the experience of the Hammes Company’s senior team at the helm of Hammes Partners II and their strong past record as pluses for the real estate development venture.

But that heavy reliance on Hammes Company was also listed among the risks, along with the “largely unrealized track record” of Hammes Partners II itself and the still unknown effects from the federal health-care law.

Despite its investments, the BWC does not currently own real estate as part of its portfolio and would not hold title to property this fund would invest in, Ms. Vince said.

“It was an effort to diversify the portfolio ...,” she said of the bureau’s decision in 2011 to invest in real estate. “We’re feeling positive about it, but we generally want three to five years of experience before making an evaluation.”

New Jersey’s investment memo indicated that Hammes Company experienced a 27.6 percent gross rate of return between 2001 and mid-2013. This occurred despite a two-year time-out taken after President Obama’s election.

“HCHC made no investments during 2008 and 2009 due to challenging real estate market and the change in political administration which prioritized health care reform,” the memo reads. “As the real estate market improved and the uncertainty surrounding health care legislation abated, HCHC returned to the market in earnest in 2010.”

The life of the fund is expected to be 12 years with Hammes having an option for an additional two. At that point, the BWC would cash out.

The BWC’s recent investment performance has been so good that the bureau rebated $1 billion to employers last year, the first time it has done something like that since the Coingate scandal.

Although headquartered in Brookfield, Wis., Hammes Company has 15 regional offices, including one in Columbus.

Contact Jim Provance at: jprovance@theblade.com or 614-221-0496.