The General Motors Stamping Plant was the economic engine that powered tiny Ontario, Ohio, for half a century, until GM declared bankruptcy and abruptly shut down the factory 10 years ago. About 1,250 people lost their jobs.
In 2012, two developers, one from Chicago and another from Florida, bought the Ontario property from a GM trust whose mission is to help local communities recover from the automaker’s closures.
It didn’t turn out so well for the north central Ohio city of 6,000 residents.
"The wheels fell off the whole thing,” said Mark Weidemyre, a former city councilman and chair of the city’s economic development committee. The developers walked away from the project in 2018, after demolishing and selling off most of the buildings.
The Chicago company that initiated the Ontario deal, Hilco Global, has a long history of buying and salvaging distressed businesses and real estate. It is much sought after by corporate clients, including Exelon Generation and PSEG Power in New Jersey, to unload surplus industrial property.
But its record as a developer is mixed.
Hilco’s latest acquisition is the 1,300-acre Philadelphia Energy Solutions property in South Philadelphia, the largest oil refinery on the East Coast before it shut down last June after a devastating fire. A subsidiary, Hilco Redevelopment, is buying PES out of bankruptcy for $252 million. The sale is set to close around the end of the month.
Hilco officials have not publicly articulated a plan for the PES property — a Hilco spokesperson declined to respond to written questions for this article, saying the company is under a legal commitment to refrain from comments until the sale closes.
Hilco officials have told city officials and neighborhood activists they want to redevelop the land as a mixed-used industrial park, possibly warehouses. It’s also likely Hilco will retain many of the site’s fuel storage tanks, which have grown in value with the recent plunge in oil prices.
Philadelphia officials, who met Hilco executives before the bankruptcy court auction, seemed relieved that Hilco did not plan to restart the refinery, which had employed 1,100 people, but also was the city’s largest source of air pollution and had become the target of climate activists. Brian Abernathy, the city’s managing director, in January said his initial research suggested Hilco “has a great track record.”
‘Epic turnaround tale’
Hilco Redevelopment’s portfolio of projects includes dismantling or repurposing power plants in Boston, Chicago, and New Jersey, and demolishing a Sony Factory, a Cooper Tire plant, and numerous auto plants. In recent years it has begun to acquire existing office buildings, particularly in suburban Boston, acting more like a commercial landlord.
Its signature project, the overhaul of the bankrupt Sparrows Point steel mill property near Baltimore as a modern warehouse distribution hub, is featured prominently on the company’s website. A Bloomberg Businessweek article last year called the former Bethlehem Steel mill’s transformation an “epic turnaround tale," and focused on Hilco Redevelopment’s chief executive, Roberto Perez.
The project, now renamed Tradepoint Atlantic, is impressive indeed. In the last three years, gigantic warehouses and distribution centers for Amazon, FedEx, Home Depot, Volkswagen, and Under Armour have sprung up on cleared parts of the 3,100-acre property, along with new roads and infrastructure. Remediation and redevelopment is continuing.
But Hilco has had only a secondary role in the redevelopment.
Since 2014, the steel mill project was taken over by Redwood Capital Investments LLC. The investment firm is owned by Baltimore billionaire James C. Davis, the low-profile founder of the staffing firm Allegis Group who grew up near Philadelphia. He may be best known here for his $50 million donation to the Villanova School of Business in 2013, the largest gift in the university’s history.
“Redwood Capital acquired a majority interest in Tradepoint Atlantic in September 2014," said Doug Mayer, a Tradepoint Atlantic spokesperson. "Since that point, the redevelopment, environmental remediation, construction, business recruitment, and general management of the site has been conducted by Tradepoint Atlantic employees.”
Tradepoint Atlantic officials declined to discuss the steel mill redevelopment, saying it has no relationship to Hilco’s acquisition of the Philadelphia refinery. Environmental advocates and community leaders in nearby Dundalk say they don’t really know Hilco.
"All our interactions are with Tradepoint, it’s not really with Hilco,” said Amy Menzer, executive director of Dundalk Renaissance, a community development nonprofit.
Hilco owns about 15% of Tradepoint Atlantic, according to filings in a federal lawsuit between Tradepoint Atlantic and an industrial neighbor over environmental liabilities. Hilco’s “primary potential interest in the property” pertains to certain above-grade assets from the former steel mill, Judge J. Frederick Motz wrote in a 2017 memorandum in the case.
Hilco, however, does gets credit for initially conceptualizing the steel mill redevelopment. Hilco and another partner bought the property out of bankruptcy in 2012 for $72 million — Hilco owned only the buildings and equipment above ground, and the other company, Commercial Development Co. Inc., owned the land itself.
But the demolition of the steel mill site under Hilco’s watch was problematic, resulting in a $5 million settlement in 2015 with Maryland environmental regulators over alleged violation of water pollution, erosion and sediment control, solid waste, hazardous waste, oil control, and asbestos laws.
But by the time the settlement was announced, the project had been taken over by Redwood Capital, which had committed $48 million to remediate Sparrows Point. "We are encouraged that the new local ownership group has reached an agreement with the Maryland Department of the Environment and the EPA that clears the first hurdle to redevelopment of this important industrial property,” then-Baltimore County executive Kevin Kamenetz said in 2014.
In Ohio, Hilco and its partner, the Adler Group of Florida, took over the shuttered GM plant amid great optimism. The developers said they had lined up prospective tenants who promised to hire more than a thousand workers to move into the former factory. Ecstatic local and state officials gathered with the buyers to celebrate the momentous rebirth of the plant, renamed the Ontario Business Park.
But the new jobs never materialized. Against the advice of the sellers, the developers demolished most of the plant’s buildings – nearly 2.5-million square feet of space – and sold the material for scrap. Unable to attract new tenants, the developers later transferred the property to the city to settle litigation over the failure to meet job-generation targets.
“I think they netted between $4 million and $6 million from the scrap after including the costs of the teardown,” said Weidemyre, the former chair of Ontario’s economic development committee.
In 2018, the city of Ontario took title to a now vacant 266-acre property, which formerly represented 40% of its tax base. It got zero new jobs.
“We wanted jobs,” said Weidemyre. “That’s what the city was all about."
Developer or liquidator?
Hilco is frequently called in to liquidate some of the nation’s best-known business failures. With an expected wave of store closures from the coronavirus crisis, it has already issued a call for new clients among distressed retailers looking to liquidate.
Hilco’s founder and chief executive, Jeffrey B. Hecktman, a colorful executive who enlisted Sting to perform at his daughter’s wedding, was introduced to the world of liquidation after his family’s Chicago industrial supply business went bankrupt in 1986. He went on to liquidate Montgomery Ward & Co. and part of the Sears catalog operation.
“The intellectual horsepower that’s sitting in this company is unparalleled,” Hecktman told Crain’s Chicago business in 2007. “We can get to a deal quicker because of our 'Delta Force’ mentality.”
In 2007, Hilco went into partnership with the now disgraced movie mogul Harvey Weinstein to buy the distressed fashion house Halston. Weinstein exited the business four years later, and Hilco eventually sold off the iconic Halston brand names.
Hilco’s bread-and-butter business is typically more mundane.
Its record as a liquidator is efficient. Using contractors, it rapidly dismantles old sites and finds buyers for anything it can sell – equipment, building materials, intellectual property and trademarks, even the soil, if there’s a buyer. It uses a wide range of channels to sell the stuff – private sales, auctions, and large on-site public sales.
But its methods have irked some neighbors. Its implosion of a towering smokestack at a former coal power plant in Chicago last month, which sent a cloud of dust over a low-income neighborhood already under COVID-19 lockdown, irked activists, who called for a criminal investigation of the toxins released by the demolition. Hilco apologized.
The subsidiary that is acquiring the PES refinery, Hilco Redevelopment, is one of about 20 operating units under Hilco Global. It says it acquires and redevelops “complex real estate assets,” and has $2.5 billion in property assets under management.
The refinery site is an immensely complex property that presents an opportunity to replace a business that has run its course, creating a new development on the city’s southern gateway. Its closure sparked a round of wishful speculation that a dirty fossil-fuel industry might be replaced with clean-energy producers, or even parks.
But the property is contaminated after more than 150 years of processing fuel and requires environmental remediation. It is subject to deed restrictions that limit development to non-residential use with limited public access.
The PES cleanup is further complicated because responsibility for remediation of any damage that occurred before 2012 belongs to the previous owner, Sunoco Inc., which transferred the property that year to Philadelphia Energy Solutions. Evergreen Resources Group is managing Sunoco’s remediation efforts.
Hilco has hired teams of environmental lawyers and is negotiating with Evergreen over remediation, but no agreement has been announced..
“It is our understanding that Hilco is in discussions with both PES and Evergreen/Sunoco on who is responsible for what, and how to coordinate the redevelopment with the cleanup that will be done,” Mike Dunn, a city spokesperson, said in an email. The U.S. Environmental Protection Agency and the Pennsylvania Department of Environmental Protection are responsible for reviewing and approving a final plan.
Hilco’s involvement with the PES site remediation differs from its approach in the Sparrows Point project, where it brought in Commercial Development Co. as its initial partner specifically to take on cleanup responsibilities.
“Hilco wanted to buy the whole site, but they wouldn’t buy it with environmental contamination,” Michael Roberts, the chief executive of CDC, testified in a federal lawsuit brought by a former employee who claimed he was owed a sales commission on the 2014 sale to Redwood Capital. "They just absolutely refused to even go there.”
Roberts’ testimony sheds some light on Hilco’s business methods. CDC put up about $25 million of the initial $72 million purchase price -- Hilco covered the rest. Roberts said his company aimed to clean up the site and sell out to a developer. Hilco’s aim was to salvage anything of value, “all the equipment, anything salable,” Roberts said.
The steel mill’s previous owners, RG Steel Sparrows Point, left behind a gold mine for a liquidator like Hilco, including rolls of finished steel and a blast furnace that was later dismantled and sold overseas.
“When RG Steel went bankrupt, they literally locked the doors and walked away,” said Roberts. "They kept on security, but there was iron, caterpillar tractors, 'dozers, cranes. There was a hundred years of equipment there. It was just unbelievable, the equipment there. There was 30 train engines, 400 train cars. It was a massive project.”
After the 2012 sale closed, Roberts said the Hilco team flew from Chicago in a private jet for a celebration dinner at a St. Louis restaurant. At the dinner, Hilco executives suggested that Hilco would be interested in eventually acquiring the entire property.
“They said as long as you guys take care of all the environmental, we’re definitely interested in buying the property,” Roberts said.
Roberts said the two partners discussed a sales price of about $200 million. But as a year of joint ownership stretched out, CDC, which was responsible for the carrying costs of the property, began to feel the pain from $10 million in annual ongoing utility payments that were based on an operating steel mill -- not a demolition site.
"We didn’t know what we were getting into early on, so we were, we were sweating it,” Roberts testified.
“I think, looking back on it, that Hilco knew that it was slowly choking us out,” Roberts testified. "So then they started playing the negotiating waiting game. And they were trying to bleed us out.”
Commercial Development Co. eventually sold the property to the entity headed by Redwood Capital for $110 million. Roberts said his company made between $60 million and $65 million on the deal.
“We made money on the sale, but it wasn’t easy,” he testified. “If we had done our proper due diligence, we probably would have never bought the property.”
Roberts’ story about getting squeezed by Hilco apparently found little sympathy with the federal jury in Baltimore that heard the lawsuit by the former executive, John H. Macsherry, who claimed he was owed a commission on the sale to Redwood Capital.
The jury awarded Macsherry $6.6 million in damages in 2018, the largest ever for a single plaintiff under Maryland’s wage payment laws. The case is under appeal.
Tradepoint Atlantic, meanwhile, continues to forge ahead, announcing last month that Amazon would expand its existing distribution facility on the site, adding 500 jobs to the workforce. At full build-out, Tradepoint Atlantic estimates the project will generate 11,000 permanent jobs.
But thousands of $15-per-hour warehouse workers doesn’t quite fill the gap in the public imagination left behind by Sparrows Point, which employed generations of steelworkers -- nearly 31,000 people at its peak in 1959 — and produced the steel for the Golden Gate Bridge.
“Obviously we’d all love $55-an-hour jobs with full benefits and retirement, but most jobs in the world don’t look like that anymore,” said Menzer, with Dundalk Renaissance.
The economic impact of the new Tradepoint Atlantic development is difficult to measure in Dundalk, which has never recovered from the last recession and the Sparrows Point closure. The immense Steelworkers Union hall in Dundalk, where thousands of well-paid Bethlehem Steel workers formerly congregated, is now a gloomy hulk, festooned with graffiti.
Any improvements to the community are incremental.
“You’ll see new chain restaurants come in like a Chili’s or a Texas Roadhouse,” Menzer said. “And you might think, well, that’s not really community revitalization per se. But on the other hand, it was just very exciting for people to see chains come in that before they had to drive 20 minutes to go to that kind of restaurant.”