September 16, 2016

The Importance of Creating a Shared Vision: A Q&A with Richard Barnhart, Chairman & CEO of Pennrose

Saint Luke's Manor

By Brian Wolak

We were fortunate to be able to sit down and talk recently with Richard Barnhart, chairman and CEO of Pennrose, about a variety of topics, including his firm’s transformative work on Saint Luke’s Manor in Cleveland, pictured above.

Mr. Barnhart, picture below, has led the real estate development firm since 2004, helping to grow Pennrose into one of the country’s largest creators of affordable housing with over 11,000 rental homes in their current portfolio.

Enterprise has partnered with Pennrose on five developments, including the transformation of Saint Luke’s (featured in our annual report) from a neighborhood blight into a thriving, multigenerational living and learning campus.

Saint Luke’s posed a unique set of challenges. You’ve mentioned putting your “heart and soul” into its transformation. Would you elaborate? What stands out for you most about your work on Saint Luke’s?

Richard Barnhart PennroseEach and every development we're involved in leaves a lasting impression with me, but there are two aspects of Saint Luke's that stick out.

The first was the massive size of the undertaking. The building itself is a quarter million square feet. That’s what you see today. When we first visited the property, there was approximately triple the amount of square footage.

The original structure – the beautiful building that's there today – had been added onto over the years, as many hospitals are. One of my initial thoughts was that all of those architecturally uninteresting additions – mostly medical office space – were unusable.

My suggestion was, “Okay, we're willing to take this project on, but we've got to demolish 600,000 square feet.”

At first, people were aghast at the suggestion. But no one had stepped back and considered getting rid of a major portion of unusable space to return Saint Luke’s to its original beautiful structure.

The second attribute that sticks out goes to the historic rehabilitation side. I've been involved in, personally, almost 40 historic rehabilitations. The ability to reuse a building and create a vibrant asset for the community from what was a vacant eyesore is incredibly motivating to me. Anytime you have a school or a hospital or an institutional icon that goes vacant – that goes dark – it takes a piece of the soul of the community away. People feel that they’re in a community that’s moving in the wrong direction. The ability to restore those types of buildings like we did with Saint Luke’s and convert them back into valuable and contributing resources is exciting to me, and empowering to the neighborhood.

If you had to pinpoint one or two of the larger challenges you overcame during the development, what are they?

Given the scope of the project, the sheer volume of square footage, the dollars involved in a rehabilitation of a development of this size, you've got an amazing amount of resources that need to be brought to the table. You've got to be able to come up with funding that requires imagination in terms of cobbling together various resources: multiple submissions of tax credit allocations over two rounds, historic rehabilitation credits, state preservation credits, etc. All of that took a lot of effort but also was a function of coalition building.

We had a tremendous partner in Cleveland Neighborhood Progress. They really bought into the program. They worked side-by-side with us. They attended every meeting and talked it up in the community. Together, the team of their local expertise, and their local reputation together with our national reputation for being able to accomplish large-scale developments like this convinced people to take a shot and to be supportive of us.

Financing was one piece of it. Was there another component that stood out, particularly from the development side?

There’s no project of this scale that doesn’t involve environmental clean up. This building was no exception. You name it – from asbestos to lead paint – all of the myriad environmental cleanup aspects that come with an older building were present in this development. To some people, that’s incredibly daunting. To us, we've done so many adaptive reuses that it doesn't make me want to run. It just means you have to dig in a little harder and a little deeper.

You’ve touched on this, but one of the factors that contributed to Saint Luke’s success is the strength of its partnerships. Pennrose has an impeccable reputation when it comes to collaboration. Would you talk about your approach to partnerships?

I think it starts with communication. Valuing the opinions of your partners and developing a mutual respect for each other is critical to a long-term and successful relationship. I think you've got to spend the time one-on-one in brainstorming sessions and create a shared vision and a shared concept for what you're trying to accomplish. Then, together, share ideas from a financial and structuring perspective as to what's going to get us to that shared vision and goals. That's the basis for a good relationship with anybody. Communication ... with your wife, your kids, your nonprofit community partner, your community-based partner, your for-profit partner or whoever – communication and mutual respect.

More broadly, as you think about collaborating with other organizations – CDCs, housing agencies, etc. –  or about the important role affordable housing plays for low–income households, what excites you about where the affordable housing industry is heading?

We continue to have, as a big part of our business collaborations, partnerships with housing agencies and CDCs. The related projects continue to be part of our pipeline and represent a huge part of our business. It's something that is at the core of who we are, and it's something we believe in.

In terms of the industry itself, I think it's a very exciting time for the affordable housing business. The industry has matured to a point that the product that’s being developed is top-notch. It's being developed in an incredibly efficient manner. The types of financial structures that are being put in place are efficient and produce great product. Rather than an "us and them" mentality, there’s a national understanding that affordable housing is a key component to every community and is needed everywhere.

I'm personally excited about the popularity of mixed-income developments. I think it’s a great new trend we're seeing. The blending of people of various socio-economic means. That's what neighborhoods are really all about. They shouldn't be monochromatic from an economic perspective, from a racial perspective, from any perspective.