Pittsburgh Post Gazette
Walnut Capital Partners makes presence known throughout the city
Sunday, August 12, 2001
By Dan Fitzpatrick, Post-Gazette Staff Writer

Developers Tony Dolan and Todd Reidbord are sitting in a Shadyside deli, nibbling on a late lunch.

Within minutes, the bartender recognizes them and says hello. So does Tony Ross, an Oakland developer who owns several buildings on nearby Walnut Street. Ross, approaching their table, jokes about Reidbord and Dolan being "no good." After Ross walks away, Reidbord said, "That's Shadyside." There was a time when Reidbord and Dolan were not so well known, even in Shadyside.

But now, it is hard not to notice them.

Dolan, Reidbord and a third partner, Gregg Perelman, oversee one of the region's most aggressive and high-profile real estate firms -- Walnut Capital Partners. In only four years, the three partners have accumulated a portfolio worth $120 million, including more than 1,000 apartments and more than 20 Eckerd pharmacies.

Several of their developments are now in familiar spots throughout the city. In Squirrel Hill, they own a series of condos and apartments near Forbes and Murray avenues, with some of the renovated units renting for as much as
$2,500 per month. In the Strip District, a new Walnut Capital building houses Lidia's, a popular new Italian restaurant on Smallman Street. On the North Side, a splashy, colorful billboard marks Walnut Capital's attempt to build a new office and retail complex across the street from PNC Park. But Walnut Capital's work is perhaps most recognizable in Shadyside. Due to a string of recent acquisitions, Walnut Capital Partners is now one of the biggest landlords on Walnut Street, arguably the region's most upscale shopping district. The firm now owns seven buildings there, and its tenants include Banana Republic, Pottery Barn, National Record Mart, Weisshouse, EB Pepper, Feathers and Marjie Allon.

What's more, the company is turning heads with the prices it is willing to pay for properties. The biggest surprise was a Walnut Street gas station it bought for $1.3 million. "If I want to play in this game," said Perelman, provider of the company's early capital, "I have to be willing to go out and spend a little more because the guys who are established don't care. They don't want the aggravation. We say, 'We want the aggravation and we want the hassles with the city and historic groups.' I guess we thrive on that. We thrive on things that people don't want."

Plenty of real estate companies are larger than Walnut Capital Partners. But Perelman, calling his partners "the new kids on the block," considers that to be an advantage. "We sort of snuck up on some people," he said. First, though, the three partners had to learn how to work together and accommodate different, often conflicting, personalities. Reidbord, a 42-year-old lawyer who handles the firm's finances and legal matters, is the conservative member of the bunch, always willing to find weaknesses in arguments and development proposals. Perelman, 45, is the hyperactive visionary who loves to spend money on signs and marketing, and is considered more instinctual than analytical. Dolan, the firm's 33-year-old acquisition and leasing specialist, often straddles the middle of his partners' personalities.

"We never knew if we would kill each other or be partners," Reidbord said. Perelman and Reidbord have known each other since college, when both were camp counselors in West Virginia. Later, Reidbord became a lawyer, and Perelman took over a Penn Hills drugstore his dad bought in 1956. Called Stadtlander's, the store had an old fashioned soda fountain and sold bottles of cough syrup. Perelman, inheriting it after his father's death in the late 1980s, grew the business into a specialized, mail-order pharmacy that delivered an array of drugs to patients with chronic diseases all over the country.

He quickly built it into a firm of $250 million in sales, 800 employees and 150,000 square feet of local offices. Then, he and his family sold Stadtlanders Drug Distribution Co. to a Toronto firm that purchased a 65 percent stake in 1996 and a 35 percent stake in 1997. Perelman declined to disclose a price, but news reports at the time placed the 35 percent stake at $35 million.

Suddenly, Perelman had a lot of money.

But, "I did not know what I wanted to do," he said. "I wanted to do something. I needed to be active."

Explaining his decision to become a real estate developer, Perelman said, "I like to build things."

Through mutual contacts, Perelman and Reidbord met Dolan, a consultant who needed help finding real estate for Texas-based Eckerd Corp., a pharmacy chain that wanted to expand its presence in the region. Many of Walnut Capital Partners' first deals became Eckerd stores. The three partners located sites, acquired the land and built the stores. Many times, they had to acquire homes and businesses to make room for Eckerd. The most complicated was a store in Overbrook, near the intersection of Route 51 and Route 88. Walnut Capital had to accumulate 17 properties, and the project cost the company $1.7 million.

The Walnut partners' first big residential purchase came in 1998, when they paid $15 million for apartment complexes in Irwin, North Huntingdon and Bethel Park.

Then, they discovered Walnut Street.

From the beginning, the firm had an office on the street. But it was not until 1999 when they purchased their first property, a gas station at Walnut and Ivy streets. They could see the gas station from their window. Perelman and Reidbord sent Dolan to do the negotiating.

"Talk about pressure," Dolan said. "I had my partners watching every move I was making."

The final price, $1.3 million, struck some observers as high. But the Walnut Capital partners insist otherwise.

"That has been a profitable deal for us," Reidbord said. On the site today is a three-story Banana Republic, one of the largest buildings on the street. They followed that with a $9 million purchase of six other Walnut Street properties, known collectively as the Blattner portfolio. It was considered the largest sale ever made on the street. The Walnut Capital partners defend that decision, too.

"We are not in the business to lose money," Dolan said. "We may have a lower threshold on the rate of return, but that has to do with the age of the principals in the company." The company is "aggressive but not stupid," said Dolan, who called the firm's acquisition strategy "educated aggressiveness." Time may have proved them right.

In the two years since Walnut Capital purchased its properties on Walnut, rents have skyrocketed, according to tenants and real estate brokers. A first-floor space now rents for as much as $55 per square foot, compared with a high of $40 per square foot a few years ago.

"It's interesting," said Herky Pollock, an executive vice president with real estate firm CB Richard Ellis/Pittsburgh. "Oftentimes, they are perceived as overpaying for real estate. But once they are done redeveloping, the market is well above what they paid for it."

"They are setting the trend."

But Walnut Capital has its critics, too.

In Shadyside, some have said the firm's acquisitions are driving up costs and making it more difficult for local retailers to stay on Walnut Street. And in Squirrel Hill, the company's redevelopment of several old apartment complexes has forced up rents and displaced some people who could not afford the new prices.

"There are some people who feel that they don't like the quality of the work, and they feel like the apartments are now so expensive that they are pushing out a segment of the population," said Shara Lipson, director of the Squirrel Hill Urban Coalition.

But, "there is a whole other view -- that they are doing amazing work and while the apartments are expensive, there is clearly a need for the them in this community."

Reidbord takes the latter view. "We were the good guys," he said. Perelman, who lives in Squirrel Hill, is proud of his work there. In fact, one of the things he likes to do is drive past his newly renovated apartments at Forbes and Murray and say, "Look at what we have done."

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