Blame it on the Squirrel Hill Tunnels.
They're the reason UPMC wanted a major outpost in Monroeville.
"This whole thing started because patients were constantly complaining of going through the tunnels to town and the leadership decided we should build a small hospital," said Koti Kondaveet, a UPMC internist and president of the medical staff of UPMC East, the hospital UPMC opened in Monroeville earlier this year.
For more than a decade UPMC had toyed with the idea of building a hospital in the large Eastern suburb. But because the state required health systems to have a "certificate of need" -- a mechanism to rein in health costs and coordinate the planning of new construction -- it was difficult to obtain due to the location of Forbes Regional Hospital, also in Monroeville. When the Legislature failed to reauthorize the requirement in 1996, UPMC was free to move forward.
In mid-2007, it gave the go-ahead for UPMC East in Monroeville -- even though it already owned a hospital east of the tunnels in the struggling city of Braddock, a hospital UPMC decided to close in 2009 because it was losing money, to a chorus of criticism.
How UPMC acquired the land for the first newly created hospital built in the region since, ironically, Forbes Regional Medical Center in 1978, sheds light on how UPMC doesn't always plan as wisely as it might (announcing a big land purchase before it was done buying the land it needed), or spend as prudently (spending two, three, even four times the market value for property), as some believe a charitable hospital system should.
One prominent piece -- perhaps the most prominent underdeveloped commercial real estate in the state -- caught UPMC's eye, said Dr. Kondaveet, who was on the committee that discussed such issues.
Sitting just off the corner of state routes 22 and 48, in view of thousands of motorists along Interstate 376, was a pizza slice-shaped, 12-acre parcel of land that had almost as much history as it did suitors.
"Every developer from New York to Chicago knew about that parcel," said Todd M. Smith, who owned the Demarco-Durzo Building next to the spot.
Formerly home to Al Monzo's Palace Inn for 31 years, the property had been on and off the market for four years and traffic counts had found that more cars passed through that intersection than almost any other intersection in the state -- second to the one by the mammoth King of Prussia Mall in suburban Philadelphia.
By targeting this property, UPMC would be turning away from centuries of charitable hospital tradition that placed cost and service to needy populations above the prominence of a location -- a tradition that followed the theory that more well-to-do patients will find a good hospital no matter where they're located.
"Most academic medical centers [like UPMC] were established in inner-city environments and were established as hospitals for the poor," said Gerard Anderson, director of Johns Hopkins University's Center for Hospital Finance and Management. "Hospitals have often been on a hill and noticeable. But trying to put them in a convenient location is a new concept."
UPMC knew this site would be expensive. It also knew that if it had made its mind up just a year earlier, that it would have been much cheaper.
On September 6, 2006, the Monzo family sold the property for $7.5 million to Craig Cozza, a Pittsburgh developer whose plan was to renovate the building and win one of the state's last hotel casino licenses. But because there was a debate with state officials over whether the Monroeville site would be too close to the Rivers Casino on Pittsburgh's North Shore, the project wasn't moving forward, though Mr. Cozza believed he could have won.
UPMC took note of how long it was taking Mr. Cozza to develop the property.
"He couldn't get anything going and he wasn't going to be able to make his payments," Dr. Kondaveet said.
The property was not on the market, but Mr. Cozza said he first got a call from Art DiDonato, a senior vice president of retail brokerage at Oxford Real Estate Services, in fall 2007 asking: "Would you sell that?"
"I don't know Art. We're kind of going through this thing" with the casino application, Mr. Cozza recalled telling him.
But Mr. DiDonato made it clear that if they were going to work out a deal "it had to happen quick," Mr. Cozza said. "Then they set a price where we could scrap our plans."
The goal for UPMC, Mr. DiDonato told the Post-Gazette, was to figure out "what would it take to make him walk away from that."
UPMC believed it had something working in its favor: "We felt he was worried he might not even get his casino license," Mr. DiDonato said.
The $18.75 million they agreed on March 5, 2008 was more that twice what Mr. Cozza had paid for the property just 18 months earlier.
Why did UPMC pay so much?
"It was based on visibility and signage," said Joe Baldalich, senior project manager at UPMC who oversaw the construction of UPMC East.
Mr. Anderson found that to be a strange rationale for choosing a location for a charitable hospital. "You generally don't get walk-in traffic at a hospital, because the walk-in traffic you get you don't want since it's emergency room visits and those visits tend to have a high percentage of uninsured," he said. "You want people to come there for scheduled procedures. The reason people go to Johns Hopkins or Mayo or UPMC is not because they're close to a mall or an interstate, it's because you're perceived as a quality institution and people will find you."
In essence, he said, the Monroeville location serves UPMC as a very expensive billboard. "This is basically marketing. They're basically behaving like a for-profit hospital."
UPMC knew before it reached a final deal with Mr. Cozza that it would need more than just his property to build a new hospital.
So, while they were negotiating with Mr. Cozza, they were also talking with Ron Chung Lin, an independent urologist in Monroeville affiliated with UPMC, and his wife, Shiow Bih Lin.
The couple owned three vacant parcels totaling almost two acres along Fox Plan Road adjacent to the southern side of the Cozza property.
The Lins bought the three parcels for a total of $173,500 between 1986 and 1990 to build medical offices. "But the plan never came through," Mrs. Lin said.
On the day that Mr. Cozza signed his deal, March 5, 2008, UPMC agreed to pay the Lins $875,000 for their land on Fox Plan.
Mrs. Lin said until they signed that day, she and her husband did not know that it was UPMC who was the buyer, even though Dr. Lin has long been affiliated with UPMC.
They had been accumulating land for awhile. When the Monzos were about to sell their property in 2005, the Lins, sensing a development on the horizon, began reaching out to nearby landowners to buy more properties than the three parcels they already owned. First they scooped up one half-acre property behind their Fox Plan Road parcels along Whitehead Lane for $70,000.
Then in 2007 they contacted Elizabeth and Albert Wenzel, who had lived in their home along Whitehead Lane for 52 years, raising three children.
On May 24, 2007 -- just 10 months before UPMC bought the Monzo property from Mr. Cozza -- the Lins bought the Wenzels' home for $70,000.
Mrs. Wenzel, 90, said it seemed like a fair deal. It was enough to help her and husband to move into UPMC Beatty Point, a senior community in Monroeville.
But ever since she learned UPMC bought the Monzo property -- and what it paid for it and the other property -- she has been bitter.
Dr. Lin "knew a lot more than we did," she said. "I'd like to get him by the neck. He knew everything that was going on. And we were stupid."
Mrs. Wenzel said the Lins' representative "told us, 'This is the best deal you'll get,' and we were dumb enough to take it. I've been mad ever since."
Though they didn't want to sell, she said their children told them they should because they might not get a better offer.
Mrs. Lin denies that she or her husband knew anything about UPMC's plans in 2007 and had even started renovating the home.
The day that UPMC bought the 12-acre property from Mr. Cozza, it announced plans to build a healthcare facility there, even though it still needed at least five more properties to make the project work.
With that news and the prospect that the price of nearby properties would soar, the Lins quickly tried to buy up the rest of Whitehead Lane.
Another of the small homes on Whitehead was owned by Jim James, a Texas developer originally from East Liberty.
After he and his wife, Loretta, moved to Texas in 1979, they sold most of the property they owned in Western Pennsylvania. But Mr. James wouldn't let go of the little house on Whitehead.
When Forbes Regional opened in Monroeville, Mr. James thought eventually some doctors might want to open offices nearby and the one acre lot on Whitehead might be a good location.
His wife disagreed and wouldn't put in any money to help buy the site. So Mr. James sold his new 4-wheel drive Chevy Blazer with leather interior, which he bought to drive to a hunting cabin in Central Pennsylvania, to come up with the money.
"It was hard, but I sold that new 4-wheel drive truck to a friend," he said. "Something told me [the land] was going to be worth money."
He paid $43,000 for the house in 1979 and rented it out for the next 30 years, patiently waiting. Mr. James finally put it on the market in 2007 for $75,000.
A broker representing the Lins said they'd give him $50,000 for the site. When Mr. James balked, they offered $75,000.
He almost sold to them, but, at the last minute the Lins "wanted to change a few things in the contract and I decided not to sell," Mr. James said.
He grew suspicious.
Shortly after UPMC announced its plan, a brother-in-law called Mr. James in Texas.
"He said, 'You still got your land down there in Monroeville behind Monzo's? You know what's going on? UPMC is buying up all that land there. They're going to put a hospital in there,' " Mr. James recalled. "I said, 'You're kidding me.' "
Shortly after that, Mr. DiDonato called him representing an anonymous buyer.
"He was pretty arrogant," Mr. James said of Mr. DiDonato. "He said, 'Ah, you're not doing anything with that property, why don't you sell it for $300,000?' "
"Then the Lins' agent called my agent and told her I should get $500,000 -- after [the Lins] had tried to buy it for $75,000. They were telling what I should sell it for because they needed me to sell, too, since their land was behind mine," he said.
"The thing that bothers me the most is it was like a conspiracy. I've got the doctor's agent telling me how much I should get, and the hospital telling me how much I should get," Mr. James recalled. "So I called the borough and they told me what was going on. One of the officials said, 'You've got a nice piece of property there. Don't sell for cheap.' He was very helpful."
At one point, he said, Mr. DiDonato threatened to use eminent domain to get him to sell for the price he wanted -- something Mr. James verified by looking at his handwritten notes of the phone conversation with Mr. DiDonato.
"I just said, 'Yeah. Sure,' " he recalled with a laugh.
That's a serious accusation to make against a real estate agent because private companies do not have the power of eminent domain, which is held only by governments.
But another owner of one of the small homes along Whitehead made the same accusation against Mr. DiDonato.
"He said a couple times they could use eminent domain because it was better for the community to have a hospital on our street than our house," said Melissa Eichelberger, a nurse at UPMC St. Margaret who owned one of the Whitehead homes along with her husband, Lukas. "But we asked our lawyer and he said they couldn't have done it."
Mr. DiDonato vehemently denies ever threatening to use eminent domain. "I never, ever used that word. We never refer to eminent domain. It's a blatant lie," he said. "I've been doing this a long time." He said it doesn't even make sense for him to use a threat like eminent domain since UPMC ended up paying what the sellers wanted.
On July 30, 2008, Mr. James agreed to sell his property to UPMC for $500,000 -- 10 times what the Lins had offered just a few months earlier. A day later, the Lins agreed to sell UPMC their two other properties -- which together were about the same size as Mr. James' lot -- for the same price Mr. James got, $500,000, more than four times what they paid for the two parcels over the previous three years.
The Eichelbergers, who still didn't know they were dealing with UPMC or that their neighbors were selling at such incredible amounts, were still holding out.
"I mean, we didn't want to move," Ms. Eichelberger said. "I was in nursing school. I've graduated since and I work at St. Margaret's. My husband had just gotten out of the Army and had become a mailman. We ended up having to live with his parents while we fixed up our new home."
Though they were the last ones on the street to sell, and two other landowners -- Jim James and the Lins -- got about $100,000 more than the Eichelbergers did for the same-sized portion of land, she said "we never knew they sold."
The Eichelbergers had bought their home on Whitehead for $73,000 on May 24, 2007 and sold it to UPMC for $158,000 Oct. 13, 2008, which was enough to help them buy a bigger home in Murrysville.
Mr. Baldalich said he was proud that UPMC paid what it did to the Eichelbergers.
"We bought [the Eichelbergers'] house at a margin. But it was nice to get a young couple a start," he said.
Mr. DiDonato said everyone got a premium.
"Did we have to overpay for some of them to bring them into the [bigger] piece? Maybe," he said. "These were above market prices. They all got more for those parcels than they ever could have expected."
Together, the Monzo piece, the parcels on Whitehead Lane, and two more alongside Mosside Boulevard, cost UPMC $24.4 million for 17.8 acres.
Jeff Weiner, owner of Weiner Real Estate in Monroeville, a business started by his father in the 1960s, said the staggering prices changed the market overnight.
"But any property is worth what a buyer is willing to pay for it and in this case it was UPMC and they have very deep pockets."
Sean D. Hamill: firstname.lastname@example.org or 412-263-2579 First Published September 24, 2012 4:00 AM