A Chicago company has finalized its purchase of the bankrupt Philly refinery
A year after a disastrous fire shut down the Philadelphia Energy Solutions refinery, the bankrupt complex was sold to a Chicago developer that promises to generate thousands of jobs and rebuild the site as an “environmentally responsible” commercial hub.
A year after a disastrous fire shut down the Philadelphia Energy Solutions refinery, the 1,300-acre complex was sold out of bankruptcy Friday to a Chicago developer that promises to raze the plant and rebuild the site as an “environmentally responsible” commercial hub.
Hilco Redevelopment Partners (HRP) closed Friday on the $225.5 million sale, triggered by the bankruptcy of a business that was a South Philadelphia fixture for more than 150 years and employed more than 1,000 people when it closed. PES was the East Coast’s largest refinery until a corroded fuel line ignited early on June 21, 2019, setting off an alarming series of blasts that damaged the plant and tipped public sentiment against the refinery’s continued operation.
HRP, the real estate redevelopment unit of liquidation firm Hilco Global, says it will take several years to demolish and begin rebuilding the site, parts of which are seriously polluted from more than a century of fuel processing. It says it plans “a fresh vision” for the property that takes advantage of the pipelines, roadways, railways, and waterways connected to the site.
“It’s one of the best strategically located pieces of real estate east of the Mississippi from a trimodal perspective,” Roberto Perez, the chief executive of Hilco Redevelopment Partners, said in an interview.
“We have all of the skill sets to be doing this,” said Jeffrey Hecktman, the founder, chairman, and chief executive of the parent company, Hilco Global.
HRP, one of about 20 operating units in Hilco Global, agreed in February to pay $252 million for the property, but negotiated a $26.5 million price cut under a settlement announced Thursday.
Hilco said the project to demolish and rebuild the site will create 8,000 union construction jobs and 10,000 permanent jobs. The site can accommodate up to 15 million square feet of e-commerce logistics centers, taking advantage of the rail and maritime infrastructure and the proximity to Philadelphia International Airport. Hilco executives anticipate it eventually will be occupied by different companies that are less susceptible to the boom-and-bust cycle of a single oil refinery.
“I want to thank Hilco Redevelopment Partners for their commitment to Philadelphia by assuming ownership of one of the most important commercial sites in the city,” Philadelphia Mayor Jim Kenney said in a statement. “The action creates jobs, ensures the future commercial viability of the site, and decreases the former refinery’s environmental impact.”
Hilco executives said they’ve spent more than six months establishing local contacts and lining up approvals for the project, including reaching agreements with environmental regulators and Sunoco Inc., a former refinery owner that is responsible for legacy environmental cleanup. Details of the agreements have not been disclosed, but Perez described the relationship with Sunoco as “very amicable.”
The Philadelphia City Council on Thursday approved an extension of the refinery’s Keystone Opportunity Zone status, which was granted in 2014 and was set to expire in 2023. Businesses in Keystone Opportunity Zones pay little to no state and local business taxes through an assortment of tax credits, tax waivers, and tax abatements. Hilco has promised to pay a $1.25 million annual payment to the Philadelphia School District in lieu of school taxes.
“This is an exciting project that will serve as an economic hub in the region with the potential to create thousands of new jobs,” Councilmember Kenyatta Johnson, whose district includes PES, said in a statement.
Johnson said he expects Hilco will pursue an environmentally sustainable approach. “Hilco officials have assured me they will have a serious commitment to diversity and inclusion for the facility plus will make sure that as many local residents as possible get these new jobs,” he said. “I look forward to working with community stakeholders for a bright new future for the property.”
Hilco’s skills include salvaging and marketing anything of value, if there are potential buyers for equipment in the refinery. Much of the material will be dismantled and sold off to recyclers, including 160,000 tons of scrap metal, much of which will be removed by barge; 125,000 tons of concrete, which Hilco plans to recycle on site; and 200,000 barrels of oil sludge.
“We’re very cognizant of wanting to make sure that we can again put materials back in the best use possible,” Hecktman said.
Hilco has chosen NorthStar Contracting Group Inc., a major demolition contractor with offices in Philadelphia, to conduct the demolition. NorthStar’s projects include several nuclear plant decommissionings. Dismantling a refinery is likely to present technical challenges.
Hilco has a long history of buying and salvaging distressed businesses and real estate, and is much sought after by corporate clients — including Exelon Generation and PSEG Power in New Jersey — to unload surplus industrial property.
Its signature project involves the demolition and rebuilding of the huge Sparrows Point steel mill property in Maryland as a modern warehouse distribution hub, a project that is still underway eight years after the former mill was bought out of bankruptcy. The project, now called Tradepoint Atlantic, is operated in partnership with a Baltimore investment firm, Redwood Capital Partners.
Unlike the Baltimore plant and others in which it partnered with real estate developers, Hilco says it plans to manage the Philadelphia project on its own. “We’ve grown up as a company a lot,” Perez said.
Hilco Global, which is privately held, last year sold about 27% of the company to La Caisse de dépôt et placement du Québec (CDPQ), which manages public Canadian pension and insurance funds. CDPQ also committed to target up to $150 million in annual investments in redevelopment projects, and is expected to supply some of the funding that Hilco needs to acquire and develop the site.
Along with funding from Hilco Global, Perez said a third partner, a private family investment fund, would have a passive stake in the project.
“The most important part of this deal is that coming into the transaction you’re coming in strong,” Perez said. “So from a capital perspective, having strong and deep-pocket partnerships, it’s everything.”
Unlike the Baltimore project, where Hilco is on course to take a diminishing role in the years ahead, Hilco views the PES project as a very long-term investment.
“This is going to be an asset that we control in perpetuity,” Perez said. “The most important thing that I can describe it as a generational investment. So we’re not looking to make decisions Day One to get a return on Day Two. We’re making decisions Day One that make a difference in Year 10.”
At the Baltimore site, which was also complicated by legacy environmental issues, more than three years passed before the first tenant was announced for the project, a FedEx distribution center. Hilco officials say the Philadelphia development plans may follow a similar pattern, dictated by the pace of demolition and cleanup, and also market interest from prospective tenants.
One project under consideration is the Point Breeze Renewable Energy Project, which had reached an agreement in 2017 with the refinery to build a $120 million plant that produces methane from food waste on a 23-acre parcel at the northern edge of the refinery site. Hilco wants to use that site for an interchange on the Schuylkill Expressway, but has agreed to continue talks with the biogas producer about building in another location.
The refinery site also contains more than eight million barrels of storage tanks for crude oil and refined products, which are connected to markets by pipelines, wharves, rail yards, and the Sunoco Logistics Belmont Terminal near Passyunk Avenue and 26th Street. Some of those assets may be of interest to fuel companies.