Pittsburgh Business Times
Building Owners Find Time Right to Renovate, Add Value to Property
August 11, 2003

Ray Ahrens has nearly completed renovations at a former Highland Park mansion. For Mr. Ahrens, who lives in Boston, the project comes 10 years after his last such job here -- the 150-unit Highland Park Club apartments.
"The increase in rents and the lower interest rates in purchasing it have made it economically viable," said Mr. Ahrens. "We see people fixing up houses in the neighborhood. We know what we can get because we have the property there."

Having maintained a 95 percent occupancy rate at his Highland Park property for years, he bought the mansion at 1038 Negley Avenue in the spring. He has worked most of the summer restoring and improving it. And now, having transformed the building from one with 10 low-rate apartments to one with eight more expensive ones, he's prepared to open it next month to full occupancy.

In a city in which the word "apartment" has often carried negative images of 30-year-old wallpaper and outdated appliances to match the low rents, Mr. Ahrens may find himself part of a trend of building owners who are restoring and upgrading their properties. At the same time, renters are seeing an increase in both the quality and selection of apartments in the region -- as well as an increase in rents.

To Sandy Rutkowski, a real estate agent for RE/MAX residential real estate based in Forest Hills who works mostly in the East End, the trend is a basic matter of bringing the rental market up to market rates.

She gives a basic rule of thumb: a property that can command $1,000 a month is generally worth 100 times that to sell.

Yet in Pittsburgh, for the longest time, property owners held onto their buildings for long periods.

"People feel that the American dream of owning something is more in tune with their way of thinking than making a profit," she said of the attitudes she's often found in property ownership here. "People would hold their properties long past the time when it would be financially to their advantage."

In recent years, entrepreneurs have looked to change that. Apartment and loft developers such as Eve Picker, Downtown, and Lee Gross in Lawrenceville have made names for themselves by taking old city buildings, renovating them for current lifestyles and selling or leasing them at market rates above what anyone might've otherwise expected.

Starting the Trend

Yet somebody had to take the first risks in the market in which rents as low as $300 to $500 a month were the norm. For that, Ms. Rutkowski credits Walnut Capital Partners, the Shadyside-based real estate firm.

Today, Walnut Capital owns and manages more than 1,500 apartment units throughout the region. But a few years ago, Walnut Capital's early forays into buying apartment properties, such as Forbes Terrace in Squirrel Hill, and upgrading rents to reflect the newly improved facilities were viewed by many with great skepticism, recalled Ms. Rutkowski.

She credits Walnut Capital with creating its own market for well-appointed apartments and tapping a then unmet demand for quality apartments rented by 25 to 50 year-olds -- those who are most often apartment renters.

"What happened with Walnut Capital was these boys said, 'we're going to change the rental market.' And they did," she said. "Other landlords said they're never going to get it. What happened was exactly the opposite. They didn't have enough supply for the demand of updated units that that age group demanded."

Todd Reidbord, a principal with Walnut Capital, which has been developing units that go for between $1,500 and $2,500 a month, said the market for high-end quality apartments was always there, but that location was key.

"That's always been my quest," he said.

To Mr. Ahrens, such trends bear similarities to the position his hometown of Boston found itself in decades ago. There, he built a business buying large houses that were formerly single-family dwellings of the well-to-do and fixing them up as quality apartments.

Today, much of such available housing stock has been redone, leaving plenty of well-groomed Boston neighborhoods that were once as run-down as many of Pittsburgh's neighborhoods seem today.

Post Industrial Recovery

Mr. Ahrens sees a common historical pattern: in 1940s and 1950s, Boston's major industries in textile production were undergoing the kind of last gasp that would leave its city neighborhoods crippled. It's the same thing that Pittsburgh would experience a few decades later with the steel industry. But over 20 years, Boston saw young professionals seek to return to city homes, often buying large houses, living in the first floor and renting out its other units.

It's a practice he'd been expecting to see in Pittsburgh as well. And since he saw it happening in the East End neighborhoods with which he's most familiar, he again decided to take on such projects.

With his first renovation done, he and his team are seeking out other houses to fix up and rent at market rates. Mr. Ahrens expects to take on three such projects each year, not just updating them, but restoring their architectural quality.

He's quick to emphasize that it's a "small-R" restoration rather than a fully historically sympathetic undertaking. But in buying his properties, he not only installs new electricity, plumbing and appliances, but also refinishes the hardwood floors, replaces the windows and polishes up any other distinctive architectural features.

He believes Pittsburgh remains relatively untapped, particularly for larger houses that are generally smaller than a typical developer wants to take on.

"It think right now it's unlimited," he said of the Pittsburgh market for quality apartments. "It's exactly where Boston was in 1970."

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