Pittsburgh’s East End – A Legacy of Innovation

Pittsburgh’s East End – A Legacy of Innovation

By Mark Vernalis

Dear ACE Hotel:

I am looking forward to my first ACE hotel visit tonight and dining at Whitfield.

Not long ago I read in The Architect’s Newspaper (archpaper.com) that you would be coming to Pittsburgh. The archpaper.com writer expected to see Edison bulbs in the Pittsburgh ACE, which got me thinking about the neighborhood you will be joining and motivated me to pass along some history.

The Pittsburgh ACE is squarely in Pittsburgh’s East End which is comprised of the Point Breeze, Highland Park, Shadyside and East Liberty neighborhoods. The East End’s heyday was around 1900 when it was the world’s richest neighborhood whose inhabitants controlled 40% of the nation’s assets.

In 1900 more millionaires lived in Pittsburgh’s East End than anywhere on earth.

It would not be uncommon at that time to take a walk along Penn Avenue and see a Carnegie or Frick (steel), H.J. Heinz (pickles), George Westinghouse (airbrakes, natural gas & electricity), Richard or Andrew Mellon (banking), Alfred Hunt (founder of ALCOA aluminum), Robert Pitcairn (founder of PPG glass), Charles Lockhart (co-founder of Rockefeller’s Standard oil), Thomas Armstrong (cork), James McCrea (president of the Pennsylvania Railroad), James Guffey (founder of Gulf Oil), Charles Schwab (first president of J.P. Morgan’s United States Steel Corporation), Henry Laughlin (Jones & Laughlin Steel), Lillian Russell (national theatre star) or a congressman, an ambassador or cabinet secretary and many others of wealth and influence.

Before the Civil War East Liberty was a village with rural charm. It had several popular taverns with sleighing and equestrian parties being common. Things began to change with the opening of the East Liberty Passenger Railway in 1860 when the neighborhood would become a commuter suburb of Pittsburgh. Much of East Liberty was owned by the Negley family who operated a steam gristmill and were farmers. One of the Negley girls married neighbor Thomas Mellon, a rising lawyer and banker, whose sons would amass one of the world’s great fortunes.

Many East Enders were of Scotch-Irish or German descent who believed in thrift, hard work, and giving back to the community. They tended to be Presbyterians, Freemasons, Republicans, abolitionists, staunch supporters of Abraham Lincoln and became the world’s models for philanthropy.

East Enders had a distaste and distrust for New York City society; East Enders stood out like boring sore thumbs in the glitz of the eastern elites. New Yorkers looked down on Pittsburghers because they ‘made things’ while Pittsburghers had a similar disdain for New Yorkers because they inherited everything or manipulated stocks. Pittsburgh’s East Enders were largely a dour and sober group.

The Pittsburgh ACE’s most important neighbor is the East Liberty Presbyterian Church known as one of the neighborhood’s “cathedrals of capitalism.” The Mellon sons presented it as their Mother’s Day gift in 1933 and was the largest construction project in the city during the Depression. The Mellon’s often had a formal lunch after Sunday church service where reportedly silence was only broken when the conversation turned to business. The church was designed by Ralph Cram who, with his earlier partner, Bertram Goodhue, were the pre-eminent Gothicists of their age, perhaps best known for the iconic architecture at the US Military Academy at West Point. 

A similarly important building stands nearby, the Highland Building (1910), a Frick project, designed by the visionary architect and planner D.H. Burnham of Chicago. Burnham reshaped the face of American cities whose commissions spanned the country. He headed the architectural design for the 1893 Chicago World’s Fair and famous commissions include New York’s Flatiron Building and Pittsburgh’s Pennsylvania Railroad Station. The East Liberty Highland Building was a later Burnham design and showed the evolution of the skyscraper’s base-shaft-capital format. The entire building is much more homogenous from street level to top, compared to predecessor skyscrapers, which would become standard. Sadly, the facades have been ‘modernized’ over the years losing important Burnham refinements such as a topside molding that presented a wonderful scalloped skyline.

The first car purported to be in Pittsburgh was a Panhard Tonneau purchased in Paris in the summer of 1900 by Howard C. Heinz, son of Henry J. Heinz of Pittsburgh’s pickle dynasty. It reached a top speed of 40 miles an hour and was known in the neighborhood as the “Red Devil.” This car is now on display at the Frick automobile museum on Penn Avenue. 

In 1906 there were 12 automobile dealerships in the East End, two of which sold electric cars. The city’s first traffic light was at the intersection of Penn and Highland Avenues, a few steps from the ACE. Gulf Oil built the world’s first drive-in gas station on Baum Boulevard. It is believed that the nation’s first traffic accident occurred in Pittsburgh’s East End. 

The East End industrialists had conveniences too: the U. S. Post Office delivered the mail seven (7) times a day to East End residences, the first alternating current electrical power plant illuminated East End homes, the first private telephone lines were installed in East End homes so their residents could care for their business affairs downtown without going through a switchboard and, they were the first to use aluminum in their homes and natural gas for heating and cooking. The first electric light installed by Westinghouse was at the home of James Mellon at 401 Negley Avenue. The Pennsylvania Railroad had a private station in the East End where the Pittsburgher made direct trips to Wall Street. Westinghouse, Frick and others had private railroad cars.

While princes, artists, politicians and scientists often visited the East End a hundred years ago perhaps its most famous gathering was a July 4th luncheon held for President Teddy Roosevelt in 1902. Roosevelt had come to pay tribute to the East End industrialists who, while staunch Republicans, were not pleased with Teddy’s progressive ‘trust busting’ ways. The lunch occurred at Clayton, the East End home of Henry Clay Frick and was catered by New York’s Waldorf-Astoria hotel. Frick never warmed up to Roosevelt but gave generously to his campaigns. Frick (like Carnegie) had written $250,000 checks to McKinley’s campaigns, whom he admired, but only $50,000 to Roosevelt. Frick would nonetheless call in his marker asking Roosevelt for the formation of U. S. Steel to be done without trust review. Politics had always played a huge role in the East End. It has been said that four US Presidents were nominated in the parlors of the East End industrialists.

Pittsburgh’s East Enders were fine art collectors. It is believed that in the late 1800’s no museum in the world could match the paintings and Egyptian antiquities contained within an eight-block residential section of the East End. Ultimately the vast art collections of Carnegie and Frick departed for New York while Mellon’s established the National Gallery in Washington, D.C. It was believed that artwork would succumb to Pittsburgh’s harsh industrial air.

East Liberty’s future as a transportation hub was foretold when the first through trains from Philadelphia began to stop on December 10, 1852. On the platform that day in East Liberty was a 17-year old Pennsylvania Rail Road telegraph operator named Andrew Carnegie who was on hand to meet the incoming Philadelphia train. Traffic expanded over the years and in 1905 a greatly enlarged new station was built of handsome red brick and terra cotta. In 1913 more trains ran through the East Liberty station than Broad Street in Philadelphia. The station had wide sweeping driveways, landscaped lawns and manicured flowerbeds that spelled out “East Liberty.” The East Liberty station, which had been one of the most elegant on the Pennsylvania line, was demolished in 1963. 

East Liberty along with most of the East End neighborhoods was annexed into the City of Pittsburgh in 1867.

East Enders were prominent members of the South Fork Hunting and Fishing Club near Johnstown, PA. It was a retreat for the exceptionally successful. But while sparing the opulence of Newport, Road Island, for example, South Fork was without peer for wealth and influence. It’s members, limited to 100, were mostly East Enders such as Frick, Carnegie, Mellon a future Ambassador to Great Britain and Secretary of the Treasury, Philander Knox, a future US Attorney General and Secretary of State, Samuel Rea, future president of the Pennsylvania Railroad, steel magnate Thaw, (whose son Harry would murder one of America’s greatest architect’s, Sanford White, over a woman and go on to successfully plead the first ever temporary insanity defense), Scaife, and others. The central feature of South Fork was the world’s largest man-made lake, created by a vast earthen dam. Members used the lake for boating and fishing. Fish were brought in on rail tankers to provide excellent fishing at an extraordinary cost of $1.00 each. When it rained the fish often overflowed into the spillways which caused the members to install grates to keep the fish contained during periods of rain. While never proven, it was believed that when the rains fell and the dam broke on May 31, 1889 that the fish grates became clogged with debris and were a key factor in the dam’s demise. Over two thousand people died in ten minutes when the flood waters reached Johnstown. The East Enders who were so prominent in the South Fork membership were never absolved of blame for the calamity.

Bakery Square is housed in the 1917 National Biscuit Company plant, founded by innovative entrepreneur Sylvester Marvin who pioneered efficient production methods. For many decades the sweet aroma of baking Lorna Doone’s often filled the air for blocks.

Beginning in the 1880s bicycles became the rage. Many cyclist clubs were formed in the East End and the heretofore pastoral equestrian trails became frenetic byways for bikers. Many residents grumbled about the cyclists. Not much has changed.

Heinz, who taught Sunday school regularly in Pittsburgh and even internationally, and Westinghouse were national supporters of the YMCA. Doubtless they along with many other East Enders materially supported the former YMCA building where ACE now calls home.

The only industry truly birthed in Pittsburgh was aluminum by East Ender Alfred Hunt. Hunt, an MIT trained metallurgist, early believed that aluminum would revolutionize the metals industry.

He lived at 272 Shady Avenue in East Liberty. He founded the Pittsburgh Reduction Company that would become ALCOA. Hunt provided aluminum parts for the Wright Brother’s first airplane.

Pittsburgh’s first industry was glass. East Ender Benjamin Bakewell (1767-1844) revolutionized American glass making by mass producing clear glass with Pittsburgh glass being extensively shipped throughout the world. Bakewell’s daughter married bird artist James Audubon. Audubon painted his famous Passenger Pidgeon portrait in the East End and ran a gristmill there for a while, but it failed. The first President to visit Pittsburgh was James Monroe, who visited with Bakewell in the East End. Edward Dithridge would make a fortune by creating oil chimney lamps made of glass. John Pitcairin, whose brother would become president of the Pennsylvania Rail Road, made a killing in the emerging oil industry and subsequently invested it in glass forming Pittsburgh Plate Glass in 1883.

Iron, and later steel, was to become Pittsburgh’s signature trade. When Charles Dickens visited Pittsburgh in 1842 he called it “hell with the lid off” owing to Pittsburgh’s furnaces that boasted the world’s largest production of iron at that time. During the Civil War Pittsburgh was the Union’s forge and principal provider of most heavy military equipment and munitions.

Evidence exists that Confederate General JEB Stuart planned raids on the Pittsburgh iron facilities including the homes of the East End so-called “Pig Iron Aristocrats.” A number of panics occurred in East End neighborhoods during the Civil War that resulted in valuables being buried in the woods for fear of raids by JEB Stuart’s cavalry.

Other metal magnates were created too such as East Ender Curtis Hussey who started in copper but moved into crucible steel making in 1858. In dollar terms he was Pittsburgh’s first millionaire. Hussey was a medical doctor and gave George Westinghouse a loan to help start his business.

Few realize that even before Edwin Drake drilled the first oil well in Titusville, PA that the world’s first oil market and refineries were in Pittsburgh with East Enders being prominently involved. In 1867 Pittsburgh had 58 oil refineries and set the world’s oil prices. Everyone connects Rockefeller and Standard Oil with Cleveland, but Standard Oil was founded in Charles Lockhart’s East Liberty home on 608 North Highland Avenue, not far from the ACE. In 1906 the Mellon’s took over Gulf Oil which solidified Pittsburgh’s place as an oil town.

The New York Times reported in 1906 that Lockhart’s estate was worth an eye-popping $200 million ranking him among America’s 10 richest capitalists, a list that included Andrew Carnegie at $300 million, John Rockefeller at $250 million, Henry Clay Frick at $70 million and J. P. Morgan at $60 million. Even accounting for inflation these may seem like paltry sums but as a percentage of the nation’s wealth they were staggering. When Carnegie sold his steel business to JP Morgan he had more cash than any person, business or government on earth (the gold standard was still in effect so printing money did not occur as it does today.) Carnegie had over 1% of the wealth of the entire nation at one time. So, using this measure there were a handful of East End industrialists who comparatively make Bill Gates look like a pauper.

Oswald Werner, who lived at 830 North Highland Avenue, was one of many East End inventors, making a fortune by developing dry cleaning.

The East End’s greatest inventor was George Westinghouse who lived on Thomas Boulevard. He really had three amazing technical careers: first he revolutionized the railroad industry by inventing the airbrake; second, and not well known, he did the design and engineering for the natural gas industry (he actually drilled natural gas wells on his estate property in the east End the more easily perfect his inventions) and: third was electricity. A prolific inventor in his own right, Westinghouse paid Nicola Tesla $60,000 (over $1.4 million dollars today) for his patents in the 1880s, and proved that electrical alternating current was superior to Thomas Edison’s direct current methods, which was fiercely backed by JP Morgan.

Around 1900 the East Enders led the world in the manufacture of steel, iron, coal, oil, gas, aluminum, electrical equipment and pickles, to name a few.

The zenith of the East End’s business and political power came during the administration of President William McKinley who was elected in 1896 and again in 1900. McKinley owed much to the East End for financing his campaigns allowing him to by-pass New York interests. The East Enders were rewarded with tariffs that set off an export and growth boom that was unprecedented. McKinley’s assassination in 1901 came as a severe blow to the East Enders. Many would attend his funeral travelling in special Pennsylvania Railroad cars. Shortly after McKinley’s death a memorial was planned for his birthplace in Niles, OH. The McKinley memorial is perhaps the single most important yet unknown recognition of Pittsburgh’s East Enders. It includes busts of 42 individuals for which Pittsburgh’s East End is the most represented. Prominently displayed is the bust of Henry Clay Frick surrounded by Andrew Mellon, Andrew Carnegie, Philander Knox, Benjamin Jones and George Westinghouse.

Perhaps the East Enders most lasting legacy has been philanthropy. It’s hard to get beyond the enormous gifts and renown of Carnegie, but giving back to the community had been a core value since the early 1800s, well before the East End’s heyday. New York millionaires tended to think of giving their money away as “feeding the birds.” Or even in the case of Vanderbilt as actually being destructive to society. While New York families were building dynasties, the East Enders believed there was no honor in money alone. They gave generously to the poor. The East Enders tended to give anonymously, unlike Carnegie, aiming to help rather than direct. In an age where social welfare organizations lacked government support, the East Enders routinely gave donations, large and small, for everything from hospitals to musical instruments. They were particularly generous to schools, libraries, and cultural organizations because they believed that free access to education was critical for capitalism to succeed. They distained inherited wealth and rejected the European class system so admired by their New York counterparts. Their Presbyterianism taught them to care for the less fortunate and Freemasonry promoted sharing and helping. For example, Carnegie gave away approximately $350 million. Frick gave 5/6th of his $143 million to charity. The East Enders, in their day, were simply the nation’s best philanthropists.

So ACE hotel, you are in the midst of a very unique neighborhood. The East End is again on the rise and you are part of it. Who knows, maybe some of your patrons will be creating new unheard-of industries that will join the legacy of their East End forbearers. But please, in deference to former neighbor George Westinghouse, no Edison light bulbs ever at the ACE!

I am looking forward to tonight!



Mezzazine and Unitranche Debt Explained

Mezzazine and Unitranche Debt Explained

by Mark Vernallis

Not too many years ago mezzanine debt was only available to large corporations, often in $20 million minimums. Today, companies with EBITDA in the $2+ million range can take advantage of this type of funding. Both mezzanine and unitranche debt facilities are most often funded by non-bank financial institutions.

Mezzanine Debt

Mezzanine debt is subordinated debt. Typically, a company’s capital stack is comprised of the following:

• Trade payables
• Senior bank debt and mortgages
• Equity (and retained earnings)

Mezzanine debt ranks below senior bank debt in liquidation priority but above equity. In the right situations, often in an acquisition scenario, mezzanine debt can add great value. Below are some aspects of mezzanine financing that can often make the difference between doing a deal or not.

Mezzanine Debt as Temporary Equity

Equity is the most expensive part of your capital stack. Not only is it expensive but when you sell equity you have given that portion of the businesses’ upside away forever. A double whammy. But having mezzanine debt in your capital structure allows the company time to improve its leverage situation and refinance the mezzanine debt later with less expansive bank
debt, without having to give away equity ownership. For private equity forms and those active in the acquisition markets mezzanine debt if often the bridge to an exit.

Mezanine Debt Cost and Structure

Interest rates on mezzanine debt are often in the low-to-mid double digits. The higher coupon is normally offset by a very favorable amortization schedule. Mezzanine lenders like to keep their outstanding’s high, the opposite of banks, to maximize their interest yields. Terms are usually 5-years with a very large balloon at the very end. Also, mezzanine debt often carries a relatively small ‘equity kicker’ for the lender in the form of warrants.


While there is a lot to like about mezzanine financing there are drawbacks. It is a completely separate capital raise, so a lot more work. Also, there are inter-creditor issues and making sure all the parties are comfortable is critical. But in the right situations mezzanine funding can be a great benefit.

Unitranche Financing

Unitranche financing is becoming more popular. It is basically a marriage of senior bank debt with mezzanine debt. The big benefit is one-stop shopping for the borrower. So rather than having both senior and subordinated (mezzanine) debt lenders there is one funder that accepts the entire credit risk. The interest rates are a blending what might have been expected with senior and mezzanine facilities. And an equity kicker would be typical. There is also a perceived benefit of only have a single lender when trouble mounts since the borrower does not have to manage two lenders with often very different objectives.

The amortization schedule is somewhere between a sole senior facility and mezzanine loan, but still with a significant balloon at the end.


Product and Service Pricing – Invest in Your Business’ Pricing Capability

Product and Service Pricing – Invest in Your Business’ Pricing Capability

First in a Series about Pricing

Most businesses can improve prices by 2% within a year with a focused emphasis on pricing. But putting a price on products and services can be one of the most difficult tasks for a business owner. It takes a deliberate process and commitment to become the premier pricing competitor in your market.

Remember that price is almost 100% profit. There are few things that a business can do to more impact profits than being great at pricing.

Typical Approaches That Diminish Pricing Profitability

1. When costs go down we should lower prices to pick up market share.
2. Prices are set by adding up costs and factoring a fixed margin.
3. The timing of pricing changes should follow annual budget cycles.
4. The market sets the price so we have little influence.
5. Salespeople set the price because they know the customers and market best.

Some or all of these characteristics are often present in companies selling products and services. The more your company behaves in the manner described above the chances are you are leaving valuable money on the table by being reactive or even passive to pricing.

Here are some common capabilities used by companies that are really good at pricing:

Appoint a Pricing Czar

There can be one person or person overseeing a product line that has overall responsibility for pricing. Typically, pricing is shared across levels of management which results in ‘pricing bands’ with little thought of how to achieve the highest price in all instances. Pricing on lost order reports is death. One person should be the thought leader for the company’s pricing.


Rarely are costs lower than expected. Especially when considering the indirect costs of handling a needy customer. Keeping a close and keen eye on actual costs of delivery is key to smart pricing.
Train salespeople in pricing: selling is an art. Selling for maximum profitability is a rare skill.

Volume Customers:

Studies show that the higher volume customers often DO NOT pay the lowest price. It’s the needy, demanding customers that do. So stop giving an initial low price to someone just because they give you a big order.

Understand if You are a Price Leader or Follower

Both can be successful. But knowing who you are will enable you to maximize that strategy.

Tactical Pricing

When you build pricing capability in your organization you increase your tactical pricing effectiveness. It is often the small daily pricing skirmishes that decide the winners in a market.


Six Things to Know Before Seeking an SBA Loan

Six Things to Know Before Seeking an SBA Loan

by Mark Vernallis

There is an enormous amount of information available on the internet about SBA loan and acceptance criteria. However here is some practical knowledge that will be helpful in finding the right SBA lender.

Find the Right Bank

While SBA loans can cover as much as $5 million in financing and from the government’s perspective is a one-size fits all program that’s not the case when you bump into a particular bank for an SBA loan. Why? Some banks tend to gravitate to doing large numbers of smaller, under $50,000, SBA loans. It’s their style and they want to display a high level of activity particularly in underserved credit markets. Other banks look at SBA loans as another product in their business banking toolkit. Finding out the SBA lending preferences for banks in your area will save a lot of time.

Time to Close

Whatever the banker says will be the time to close an SBA loan, double it. Even if it’s a very active SBA lender that has in-house credit approval ability. If that time does not work for your situation, move on or run the down the SBA path in parallel with other funding options.

Personal Guarantees

Business owners are often put off with required SBA personal guarantees and even pledging a residence as collateral. First, unlike almost any other banking product, SBA loans have no covenants, so a default is virtually impossible so long as payments are made. Second, in practical terms the SBA and the sponsoring bank are loath to initiate default actions. Even if the borrower runs into difficulty making payments it is rare that the bank and the SBA don’t cooperate and restructure. Even in a bankruptcy, so long as the borrower is cooperative, it is unlikely that the relationship will turn nasty.


The SBA will finance an ‘air-ball’, that being a less that fully collateralized loan. This is very useful when acquiring, say a service business that has few tangible assets. The SBA will ask for all the personal collateral it can get its hand on, but that would happen with or without an SBA facility.

Personal Guarantee Threshhold

Owners with less than a 20% equity interest do not have to provide personal guarantees. If the business has multiple owners, the ownership structure can often be re-organized to minimize the personal guarantee requirements.

Consider Leveraging Your Residence

The SBA will not put a lien on your residence if the outstanding debt is 75% or more of fair market value. This little-known fact is often overlooked. Therefore, taking out a home equity loan to leverage a personal residence can insulate the borrower from having a lien on their home. This typically applies to investment real estate as well.