What was once a hotel for the wealthy and occasional dignitary guest has transformed into unique office space, housing administration and operations for Cincinnati Children’s Hospital Medical Center, moving 670 employees into the converted space in 2011. The office space is bright, modern and located close to other Cincinnati Children’s facilities that surround its main pediatric hospital and research center in Cincinnati’s Uptown district. The site also features a 440-car garage, newly built for employee and public parking.
The process of converting the former Vernon Manor hotel into more than 150,000 square feet of office space presented several challenges:
- The complexity of buying a vacant, historic landmark;
- Assembling a site from various owners for the purpose of creating parking;
- Gaining support from community and political leaders;
- Structuring a complex arrangement to help close a significant financing gap; and
- Creating a process by which local African-American business leaders would be encouraged to take an ownership position.
Cincinnati Children’s Hospital Medical Center, who signed a 17-year lease for the entire property, sought to decrease the time employees spent on shuttles, consolidate operations and expand capacity for patient care and research.
Working through a design and construction program sympathetic to an outdated structure with historic significance required a large, multi-disciplinary team and a variety of experienced consultants. Still, no how-to instructions existed for the kind of coordinated undertaking that defined the redevelopment of Cincinnati’s Vernon Manor. A development, design and construction team led by Al. Neyer, Inc. of Cincinnati had to create a unique approach for this very challenging redevelopment/adaptive reuse project.
“The project looked impossible at times,” said James T. Neyer, executive vice president, Al. Neyer, Inc. “Our development team stared down many obstacles — from a weakened economy to the physical challenges presented by the building itself. Fortunately, we were able to put together a team of people who are the best at what they do, and relied on many more who have championed this redevelopment in important ways.”
End of an Era
Vernon Manor was designed to sit prominently on the crest of a hilly neighborhood on a tree-lined street. When completed in the Jazz Age of the 1920s, the 10-story hotel offered an escape for city dwellers. Later, as the growing city infringed on its northern neighborhoods, the Vernon Manor became a legacy destination in Cincinnati’s historic Uptown area, in the heart of the University of Cincinnati campus and the hospital district.
The dismantling of hotel rooms and interior walls were just a few of the project’s major demolition components. Al. Neyer contracted with several non-profit organizations to salvage, resell or recycle a total of 13 tons of material.
Lights went out for good at the Vernon Manor in 2009. The shuttering of the landmark hotel was the end of a long good-bye, punctuated by several attempts to restore its former elegance and status. For as much as it is remembered for business meetings, weddings and other special occasions, it’s the celebrity guests that have added to its history. The Beatles, Bob Dylan and President John F. Kennedy all stayed at the 177-room landmark hotel, and actors Tom Cruise and Dustin Hoffman filmed several scenes from the 1988 film “Rain Man” at Vernon Manor.
When the hotel closed, public concern over its future roiled among remaining residents, city and community leaders and preservationists. It was speculated that the property would be purchased by a large operator of low-income housing. The Avondale neighborhood and City of Cincinnati hoped for a different outcome — one that would contribute to the area’s job and resident base and also revive the neighborhood.
The building had become functionally obsolete and was beyond financial feasibility to restore as a hotel. Since nearby, more modern hotels brought hundreds of new rooms to Uptown, the property was put up for sale. The development team at Al. Neyer recognized Vernon Manor’s potential and quickly negotiated an option to purchase it, hiring Cassidy Turley Commercial Real Estate Services as the brokerage company to review prospective tenants.
The Offices at Vernon Manor is 51 percent owned by Real Estate Enterprises for African American Leaders, LLC (REEAAL). The minority investment piece had to be secured before project financing was committed or a lease signed.
Less than a mile away, Cincinnati Children’s Hospital Medical Center (CCHMC) was considering options for managing its growth. The international pediatric healthcare leader moves more than 2,800 employees a day among a variety of locations via a shuttle system in Uptown. It sought to decrease time employees spend on shuttles, consolidate various administrative operations to increase efficiencies, and ultimately expand capacity for patient care and research. When CCHMC signed a 17-year lease for the entire hotel property in December 2009, it set the project in motion and allowed a variety of pending agreements and actions to formalize.
Pulling the Pieces Together
Among the most significant project challenges was obtaining financing in a constrained capital markets environment. Al. Neyer development leaders sent debt solicitations to eight qualifying lenders. Six declined to participate in the deal due to overall complexities of the New Markets Tax Credit, as well as unwillingness to issue a long-term (seven-year) loan to match the required hold period for New Markets Tax Credits. Working through a number of uncertainties, yet committed to the vision of the project, the development team acquired a 90-day purchase extension on the property for $1.8 million, with an applicable, but non-refundable deposit.
Working through a design and construction program sympathetic to an outdated structure required a large, multi-disciplinary team.
Of the two interested lenders, the Al. Neyer development team chose to work with PNC Bank, which provided senior debt and a New Markets Tax Credit allocation. Cincinnati Development Fund is a non-profit, community development financial institution that provides capital and consulting services for catalytic projects. Its involvement in the reorganization of the Vernon Manor financial structure included a $14 million allocation of New Markets Tax Credits and a $3 million deposit from its Build Cincinnati Development Fund. The project also realized $1.32 million in net benefit from federal historic tax credits. In addition, the Greater Cincinnati & Northern Kentucky Local Initiatives Support Corporation (LISC) provided a $445,000 bridge loan for historic tax credits to the project.
In all, nine partnering organizations worked quickly and cooperatively on the $38 million adaptive reuse project, that would eventually include more than five acres through Al. Neyer’s acquisition of several nearby parcels.
Inclusion: a Project Cornerstone
The Offices at Vernon Manor are 51 percent owned by Real Estate Enterprises for African American Leaders LLC (REEAAL). The Vernon Manor deal represented the group’s first foray into real estate investment. Creating an opportunity for significant minority investment in an investment-grade property was Al. Neyer’s intention from the project’s beginning. It provides a level of economic inclusion that aligns with the core values of CCHMC, the community and each team member. With no precedent, the development team set about creating the process by which to identify and engage African American investors into the ownership group. It was a leap of faith for REEAAL because the minority investment piece had to be secured before the financing was committed or the lease signed.
Tax increment financing revenues from the Corryville District were needed to complete the parking garage.
The development team set a project goal of 15 percent participation by Minority Business Enterprises, exceeding it six months before the project was completed. The project subcontractors aligned to hire minority workers on the jobsite. At the end of 2011, the project logged 11,546 man days. Of those, 32 percent were from African American men, Hispanic men or women.
Engaging Community and Design Support
Throughout the process, the Al. Neyer team reached out to project and community stakeholders to gain support and input as it refined project goals. The support of the Avondale and Corryville communities was essential. The Vernon Manor site is located in Avondale, but is included in the Corryville Tax Increment Financing district. The project needed support from both, along with a pledge of TIF revenues from the Corryville district to close the parking garage financing gap. The development team took advantage of the opportunity to partly finance the project through federal historic tax credits, which required that the building’s significant exterior features be preserved.
GBBN Architects in Cincinnati teamed with minority-owned firm WA Architects Inc. to win the design contract for the redevelopment, working with Neyer Architects Inc. GBBN has a 20-year history of working with Cincinnati Children’s and is very familiar with its typical space requirements, finishes and standards; many of which it helped establish.
Initial building construction included major demolition — hotel rooms were dismantled and interior walls taken down. Al. Neyer contracted with several non-profit organizations to salvage, and resell or recycle, a total of 13 tons of material, generating more than $10,000 in revenue for the organization, owned by Easter Seals Work Resource Center. Additionally, plaster and terra cotta walls were recycled as fill material for a road project.
The Vernon Manor project opened in June 2011, and despite many obstacles, many were rooting for its revival. Retired Cincinnati Economic Development Director Patrick Ewing noted, “The project presented more risks than the City would usually consider, but saving it has been rewarding. Bob Dylan slept in this building – I’m not going to let this thing go down.”