SPECIAL REPORT — UPMC: FORGING A GIANT FOOTPRINT

UPMC leaves huge impression on Oakland

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Of all of the communities where UPMC has a presence, none has felt the impact of the region's largest employer and dominant health care provider like Pittsburgh's Oakland neighborhood.

Not only was Oakland the birthplace of UPMC, it was the health care system's focus for most of the last 30 years, where its headquarters and most of its employees were based and where it came to control eight hospitals and clinics.

No neighborhood has benefited as much from UPMC's growth, with the thousands of jobs and vitality it brought. Yet none has suffered as much from traffic congestion, parking shortages and rising property tax assessments.

Still, its impact "has been more positive than negative," said Nathan Hart, an architect, Oakland resident and president of Oakland Planning and Development Corp., a neighborhood advocacy group that counts UPMC as an official partner and major funder. "We're certainly happy to have them as a neighbor. We benefit from them in terms of them being a job creator."

PG graphic: UPMC properties in Oakland
(Click image for larger version)

But UPMC has not been a player in the Oakland real estate market since 2002 -- the same year it decided to move Children's Hospital and its 2,700 employees to Lawrenceville. In 2007, it began moving its central administration Downtown atop Pittsburgh's tallest building, U.S. Steel Tower, where it leases space for 2,000 employees. More recently, it has told neighborhood groups it no longer plans to expand in Oakland -- a move welcomed by community leaders.

"I believe UPMC is a very valuable and needed asset for this community, in terms of the jobs and economic impact it has," said City Councilman R. Daniel Lavelle, who represents Oakland. "But at the same time, they create a burden by taking property off the books. So their continued growth and expansion needs to be monitored and checked."

From 1982 to 2002, however, the hospital system was engaged in a buying frenzy. It bought or merged with every hospital or clinic in Oakland, but also spent $42 million to buy 19 other non-hospital properties, most of them along the Fifth and Forbes corridor.

UPMC's demand for space was growing so fast, said Vincent Nese Sr., a local developer, that in 1989 as he and his partners were finishing an office building on McKee Place that UPMC had leased some space in, "they started moving people in before we were even finished."

A few months later, UPMC called and asked him if it would be willing to sell not only the office building, but an adjacent hotel Mr. Nese and his business partners owned.

The hotel, at McKee Place and Forbes Avenue, currently the Wyndham Hotel, was the University Inn in 1989. UPMC wanted it for office and clinic space, even though it wasn't on the market, Mr. Nese recalled.

The sides quickly reached a deal, and on July 3, 1989, UPMC bought both buildings, paying almost $13.3 million for the office building and $9.6 million for the hotel. Within a year, both properties became tax-exempt.


Taking control
  • Over 20 years -- from 1982 to 2002 -- UPMC bought or merged with every hospital or clinic in Oakland, spending $42 million to buy 19 other non-hospital properties, most of them along the Fifth and Forbes corridor.
    After starting in Western Psychiatric Institute & Clinic in 1982, the other Oakland medical facilities it bought or took control of were: Eye & Ear Hospital (1985), Presbyterian Hospital (1986), the University of Pittsburgh Cancer Institute (1986), University Health Center (1986), Falk Clinic (1986), Montefiore Hospital (1990), Magee-Women's Hospital (1998), and Children's Hospital (2001).

While UPMC still owns the office building, in 1998 it sold the former hotel to Crown American for $6.4 million. Crown American at the time was owned by the late Frank Pasquerilla, a major donor to the University of Pittsburgh.

UPMC said in 1998 that what appeared to be a $3.2 million loss in the sale really wasn't because Mr. Nese and his partners, David Barkan and David Alpern, had donated half of the building's value in 1989 to UPMC.

The deed of sale shows that UPMC paid them the full value in cash for the hotel and for the office building in 1989. Mr. Nese says that he and his partners donated $4 million to UPMC after the sale of both buildings to the University of Pittsburgh because his partner, Mr. Barkan, was a Pitt alumnus, not because it was intended to devalue the sale price of the hotel building. UPMC would not answer questions about specific transactions for this story.

Even so, Mr. Nese said the $9.6 million value was a true value of the building and he was surprised when told by a reporter that UPMC was able to get just $6.4 million for it eight years later.

"I find that hard to believe," he said of the $6.4 million sales price in 1998.

Since UPMC bought the hotel in 1989, 19 other parcels along the main commercial stretch of Forbes Avenue -- from Craft Avenue to South Bouquet Street -- have been sold. Of those 19 parcels, only five other parcels sold at a loss.

After UPMC purchased Montefiore Hospital in 1990, it considered relocating Children's Hospital there from its spot on Fifth Avenue. So UPMC targeted properties around Montefiore in 2001-02 for its last land buys in Oakland.

Paying a total of $1.22 million, UPMC snapped up the last five homes (out of 16 total) that it didn't already own on Buffalo Street, a short, dead-end street that ran into the back of Montefiore. The prices astonished neighbors and sellers alike.

"When I told my brothers what I sold it for, they were stunned: 'You sold it for what?' " recalled Susan Hanson, whose family received $320,000 on Jan. 3, 2002, for the four-bedroom home at 8 Buffalo St. that their mother, Margaret Yankech, had refused to sell for so long before she died in 2001.

The most expensive sale on Buffalo Street before 2001 was a home next to Mrs. Yankech's that UPMC bought in 1993 for $63,000. And the $320,000 that UPMC paid the Yankech family was nearly $100,000 more than the combined total Montefiore paid for the first 10 homes on the street between 1959 and 1986.

In addition to Mrs. Yankech, the last holdouts on the street included four longtime residents and one landlord, University of Pittsburgh math professor Gregory Constantine, none of whom wanted to sell.

"I wasn't interested in selling it," said Mr. Constantine, who paid $40,000 for the home he owned at 14 Buffalo St. just five years earlier. "I was interested in buying and renting it."

But he did sell when UPMC gave him the same amount as Mrs. Yankech.

Mrs. Yankech had "said she'd die in the house before she'd sell it, and she did," said William Halferty, who was part-owner with some friends of another home, 6 Buffalo St., next door to the Yankechs.

Others felt the same way, including the late Dolores Lalle, who had lived at 13 Buffalo St. almost her entire life. But she ended up being the first one to give in.

UPMC representatives had been asking her to sell for several years and in 2001, with the Children's Hospital plans coming together, they pushed harder.

"They came back that summer and said, 'We're planning on putting in a burn unit for kids and you and the other people are standing in the way of it,' " recalled Mrs. Lalle's son, Rick. "She said it's still not for sale. But they said, 'How much would it take? Ballpark?' She said 'Two.' They said 'Two what?' They came back with $180,000.

"She called me crying, saying, 'Rick, what should I do?' And I said, 'I think you should sell it. Where else are you going to get that much for a house in Oakland?' So she sold and bought a house in Ross Township near me," he said. "Still, she cried the day she moved."

"It gave my mother enough money for the rest of her life," he said. His mother died in 2005.

By the time UPMC was done buying up all the homes on Buffalo Street in October 2002, it had changed its plans about where it would build a new Children's Hospital. It razed the homes anyway and used the plots to create a sprawling green lawn with benches as part of a grand new entrance to Montefiore.

When Ms. Hanson returned to look at where she grew up, she remembers thinking: "That's the most expensive grass I ever saw in my life."



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