When Richard Barnhart joined Pennrose Properties as co-owner and president in 1985, the fledgling company didn’t have a dedicated office.
He and his business partner, John Rosenthal, who had started the firm and developed six affordable apartment buildings, worked out of Rosenthal’s living room. After about a year, they moved into an office that was a grand 300 square feet.
“We did one deal,” recalls Barnhart. “The next year we did another deal and got ourselves a part-time secretary.”
The firm’s emergence came at the same time as the 1986 creation and growth of the low-income housing tax credit (LIHTC) program, the main financing tool for affordable housing.
When Rosenthal retired in 2004, the two had developed more than 100 properties together. Today, the firm has completed 180 transactions and employs about 500 people.
The Philadelphia-based company has become one of the nation’s top developers of affordable housing, starting 14 projects with 1,070 affordable apartments in 2012. It completed 13 projects with 900 units.
It rises to the top on this year’s AHF 50 developers list and No. 20 on the owners list.
Even as the company has diversified its portfolio in recent years, there is no question that its focus remains on housing for the workforce.
“We still perceive ourselves as an affordable housing developer that prides itself on quality development,” says Barnhart, who is now chairman and CEO.
Powerful projects
Pennrose is notable not just for the sheer number of housing units it creates for low-income families but for the enormous impact of its developments.
In 2012, it opened Saint Luke’s Manor, transforming the old Saint Luke’s Hospital in Cleveland into 137 units of housing for low-income seniors. The hospital used to have a large maternity ward, and it has been estimated that one-third of Clevelanders were born there.
After sitting vacant for 12 years amid several stalled proposals, Pennrose and Neighborhood Progress successfully redeveloped the local treasure, making it the anchor for a 20-acre neighborhood revitalization effort and a national model for reusing historic buildings.
The $38.7 million development won the 2012 National Trust/Department of Housing and Urban Development Secretary’s Award for Excellence in Historic Preservation.
It also earned Affordable Housing Finance’s Readers’ Choice Award for best historic rehab.
The firm has done about 25 historic renovations in its history, making it a good part of its business. The rest has been largely new construction projects and some gut rehabs. The smallest part of its work has been the acquisition of occupied developments.
This year, Pennrose is working on another notable project. It recently started construction on a community that will house lesbian, gay, bisexual, and transgender seniors in Philadelphia. The 56-unit John C. Anderson Apartments will be one of the first developments of its kind in the nation. Pennrose is working with the Dr. Magnus Hirschfeld Fund, a nonprofit serving the LGBT community, on the $19.5 million project.
“The reason we were attracted to that development is because of the unique aspect of the target clientele,” Barnhart says.
The firm’s broad experience gives it a more open mind and a greater ability to tell a story, attract resources, and successfully develop and operate a facility that addresses the needs of a particular population, he says.
Pennrose also has completed more than 60 developments in partnership with nonprofits and community-based organizations.
Branching out
While affordable housing remains the company’s core business, Pennrose has expanded to build market-rate apartments and some student housing.
Given its years of developing complicated LIHTC projects, the firm felt comfortable branching out, especially into deals that involve environmental remediation, condemnation, or multiple layers of financing, particularly transit-oriented and urban developments, says Barnhart.
So far, it has completed four conventional multifamily housing communities and has several more in the works. Its deals include The Vue, a 192-unit project located next to Rutgers University in New Brunswick, N.J.
It is part of the $150 million development that includes a Barnes & Noble that doubles as the university bookstore, 50,000 square feet of retail space, 50,000 square feet of office space, and a 650-space parking garage. Adjacent to the train station, the 23-story building is the city’s tallest.
“It is probably the most significant transit-oriented development in New Jersey,” says Christopher Paladino, president of the New Brunswick Development Corp., the private nonprofit developer behind the project.
He says the development is all about connectivity. The building connects to the train platform, and the development connects Rutgers to downtown.
Pennrose brought its development and financing expertise, including the utilization of New Markets Tax Credits, to the deal.
The Vue includes penthouse condominiums and market-rate apartments. Although there was no requirement to do so, Pennrose made 20 percent of the apartments affordable.
“We thought socially it was the right thing to do,” says Mark Dambly, who joined the firm in 1992 and has been president since 2004.
He and Barnhart became friends while students at Pennsylvania State University. Barnhart had long been co-owner of the firm, and then when Rosenthal retired Barnhart and Dambly bought out the remaining share.
Pennrose also has its own property management company. Last year, it began its “We Bring It All Together” brand initiative to emphasize the ties between the development and management sides of its business.
Keys to success
Dambly says a key for the firm has been to conservatively underwrite its transactions and avoid overleveraging deals.
“We focus in on our expenses,” he says. “We have a thorough process for underwriting our expenses as it relates to our own experiences in the marketplace. On the revenue side, we do a deep dive into the competition—not just from a rent perspective but also from a comparability of product and amenities.”
The formula works. Pennrose has not had a single default, foreclosure, or workout.
Dambly cites the firm’s efforts to hire and retain the best staff as another key.
In 2012, Pennrose earned the Advancing Women Award from the Philadelphia Business Journal and The Forum for Executive Women.
Five out of 11 members of Pennrose’s executive team on the property management side and three out of 10 members of the executive team on the development side are women.
The company also has a number of work-life balance policies that take strong consideration of women. In addition to 12 weeks of maternity leave, the firm is open to new moms taking additional time off using a sabbatical policy and has a work from home program, according to the Business Journal.
The company is on pace to have another strong year in 2013.
It expects to start construction on 11 affordable projects with 844 units and complete 16 projects with 858 units.
The affordable housing work will include projects in Brooklyn, N.Y.; Long Branch, N.J.; and Memphis, Tenn., where it is involved in a large HOPE VI public housing revitalization effort.
“We will continue in the same framework we headed down last year, which is to complete developments that are notable for their uniqueness and quality and set the bar,” Barnhart says.
