'The Single Most Important Development Site In The City' — Inside The Proposed Redevelopment Of The PES Refinery

Out of a terrifying disaster, one of the largest industrial developments in Philadelphia’s history will emerge.

Hilco Redevelopment Partners, a subsidiary of Hilco Global, has already begun site work at the former Philadelphia Energy Solutions refinery, which was the largest oil refinery on the East Coast, to convert it into a modern industrial hub likely filled with distribution centers. City officials and local stakeholders see the redevelopment of a 150-year-old industrial polluter as a once-in-a-generation opportunity to achieve some semblance of restorative justice.

HRP closed on the $225M purchase of the 1,300-acre Southwest Philadelphia site in late June, almost exactly a year after a fire and a series of explosions precipitated PES’ bankruptcy and the refinery’s closure.

Hilco is a Chicago-based international firm specializing in the acquisition, liquidation and/or rehabilitation of distressed assets. HRP has relevant experience to transform the former refinery as it redeveloped the 3,100-acre Bethlehem Steel factory outside of Baltimore into Tradepoint Atlantic, now home to a slew of large distribution centers and some retail.

Over seven phases estimated to take 10 years, HRP plans to spend “multiple billions of dollars” building somewhere between 13M SF and 15M SF of industrial buildings of any sort that the market demands, HRP Executive Vice President Jeremy Grey told Bisnow.

The site could accommodate distribution centers of a range of sizes, from smaller last-mile warehouses common to urban infill sites to massive fulfillment centers more commonly found in the Lehigh Valley. There could be some demand for research or scientific manufacturing since the site is situated between University City and the Philadelphia Navy Yard.

“We’re predicting more of a demand for the e-commerce building, because we’re building a state-of-the-art product with modern machinery and some automation,” Grey said. 

HRP will also bring in supportive retail uses like gas stations, restaurants and convenience stores once the site starts filling with workers. The company estimates that the construction of the project will create 9,580 jobs, all of them from labor unions, and 3,750 jobs indirectly created for support businesses like healthcare, retail and vendors. HRP projects full operational capacity will support 13,770 permanent jobs directly on-site and 5,600 indirect jobs. 

“The former PES refinery on the Lower Schuylkill represents the single most important development site in the city,” Lindy Institute for Urban Innovation at Drexel University Executive Director Harris Steinberg said in a paper the institute released with the Clean Air Council about the site's potential.

The site is under intense scrutiny not just for the business potential, but also for the refinery’s place in the city’s industrial history, for better and worse. The explosions in 2019 brought into focus the potential implications of the refining of fossil fuels in the middle of a major city and the responsibility of businesses to communities around them.

THE SITE

The former refinery’s location and site specifics are virtually impossible to replicate in the Philadelphia area. It is 5.5 miles away from the Port of Philadelphia and 4 miles from Philadelphia International Airport, less than a mile from Interstate 76 and a couple of exits away from I-95. The refinery had its own docks on the Schuylkill River and its own rail line purpose-built for it within the past 15 years, both of which HRP plans to rent the use of to other companies until its new buildings start being occupied.

At 1,300 acres, the site is larger than the Philadelphia Navy Yard and Center City. It contains two refineries, one considered to be within the Point Breeze neighborhood and a larger refinery at Girard Point, consolidated in 1995 and split geographically by the Philadelphia Gas Works plant but for a strip of riverfront land.

Hilco plans to carry out seven phases of demolition, remediation and redevelopment from north to south and in staggered fashion. By the time buildings in the first phase start going up, the environmental remediation for the second phase is likely to be underway.

The amount of remediation needed will be substantial all over the site, as oil and other chemicals began soaking into the ground in the 1870s. Some of the contaminated soil will need to be removed and shipped for disposal somewhere else, some will be cleaned and some will be capped with materials like asphalt, cement or clay before developments are built on top, which Grey called “a modern approach to remediation on sites like this.”

“We worked very closely before closing with [the Pennsylvania Department of Environmental Protection and the U.S. Environmental Protection Agency] — we’re going to go beyond the minimum requirement for elevation above the [100-year] flood plain, for example,” Grey said. “We’re keeping resiliency in mind when it comes to sea level rise.”

Every structure on-site will be demolished, save for the central office building at the Point Breeze facility, which HRP is using as its Philadelphia base of operations but plans to redevelop at some point. That amounts to 105 buildings, 3,000 tanks and vessels, 23 processing units, two boiler houses, two wastewater treatment plans and 950 miles of pipe, plus 850,000 barrels of oil and associated products that are being flushed for sale and/or disposal, according to HRP materials.

HRP said it believes it can recycle or reuse on-site 98% of what is being demolished. The remediation of the entire site is estimated to take at least four years, but HRP won’t be finished until the soil hits standards set by the EPA and PADEP.

More than remediating past damage, HRP aims for its buildings to be “extremely sustainable,” Grey said. That applies to the materials and systems used in construction, some green power sourcing and the design of both the built environment and external space. The existing stormwater management system will be modernized and expanded, and Grey anticipates planting “thousands and thousands of trees” across the site. 

“I think there are two trees on the 1,300 acres right now,” Grey said.

THE DAMAGE

At 4 a.m. ET on June 21, 2019, a severely corroded elbow joint in a fuel line pipe caught fire, setting off a chain reaction that caused three explosions that rocked the surrounding neighborhoods and sent an inferno into the clouds visible from miles away.

One of the blasts was a butane tank that sent pieces of shrapnel as large as a truck hurtling across the pre-dawn sky. The largest piece landed on unoccupied land belonging to the refinery on the opposite bank of the Schuylkill River, and several landed in improbably safe spots across the plant, averting an even larger catastrophe had other pipes or tanks been contacted.

Five workers had minor injuries that required first aid, and no one was killed, which likely would not have been the case if the incident had happened during shift change one hour earlier, HRP Director of Utilities Pat Kelly told Bisnow.

The U.S. Chemical Safety and Hazard Investigation Board found in its report that over 5,000 pounds of deadly hydrofluoric acid were released into the air. The acid can cause major damage or death when it comes into contact with humans, but CSB could not find any evidence of anyone being affected, though it had “no way of measuring” without self-reporting, the Philadelphia Inquirer reports.

Five days later, PES shut down the refinery for good, and the company filed for bankruptcy in July. About 1,100 workers lost their jobs, though Grey said demolition company Northstar has hired nearly all of them back as either contractors or subcontractors for the breakdown of the site. HRP hired about 20, including Kelly, to retain some institutional knowledge from PES.

The explosion was a dramatic end to years of underreported health effects on the residential neighborhoods just on the other side of I-76 from the refinery, Tasker-Morris Neighbors Association’s Alexandre Imbot told Bisnow. Imbot is TMNA’s summer program director and, along with TMNA President Charles Reeves, the registered community organization’s liaison with HRP.

“I think the first thing that concerned us was the understanding that just because no one died in the explosion doesn’t mean that people haven’t been dying the entire time the refinery has been operating,” Imbot said. “There wasn’t adequate air quality monitoring, groundwater monitoring, etc., that were communicated to neighbors. So after the explosion, the concern was, how dangerous is it? And we didn’t trust the city to tell the truth, given its history.”

A study from the Environmental Integrity Project found that the levels of benzene detected at the refinery’s fence line between January 2018 and September 2019 was nearly five times higher than what the EPA considers its “action level” limit, and the highest of any of the 114 U.S. refineries it studied. Benzene is a carcinogenic compound frequently emitted at refineries and linked to respiratory diseases and developmental disabilities in children, and the EIP study found it was elevated even more in the two weeks after the explosions.

Advocacy groups have seized upon the scrutiny brought by the disaster, the heightened attention given to social justice in the wake of the police brutality protests this summer and HRP’s need for some land policy changes to demand some form of redress for years of “slow violence,” as Imbot phrased it.

“We would like to see more of an acknowledgement of the past, as Hilco brings the future — to remember that what is not forgotten is the harm and violence done to the community,” Imbot said. “This place made people really sick for a long time, and that won’t just go away, but the energy supply is what made us modern, and we can’t lose sight of what made our society and our city get to where we are today.”

THE NEGOTIATIONS

Though Hilco already owns the site and all parties consider the development a fait accompli, it needs Philadelphia City Council to pass a handful of bills in order to carry out the project as envisioned. With the plan to keep the site as industrial, the bills themselves are minor, having to do with the street grid and certain zoning tweaks. But in order for them to be passed, the district’s representative in council, the 2nd District’s Kenyatta Johnson, has to introduce them and shepherd them to Mayor Jim Kenney’s desk.

Johnson introduced the required bills to committee at the council session prior to Election Day, but in order for them to make it through the full council by its final meeting of the year on Dec. 10, they need to be approved at each committee’s next meeting. Johnson said he won’t advance the bills until HRP has signed a community benefits agreement with local stakeholders, most likely after they hold a meeting on Nov. 17.

Hilco representatives have met with community stakeholders, including TMNA and Philly Thrive, which was formed in 2015 to fight for the closure of the refinery, over 100 times since the company won the bankruptcy auction, Grey said.

Both Johnson and Imbot agreed that HRP has been responsive and available to the community, and seems earnest in its desire to be a positive partner with local residents. Johnson, Imbot and Grey expressed optimism that the CBA will get done in time, and said if it doesn’t, that simply means it will be approved sometime next year.

HRP has already agreed to meet diversity and inclusion standards, as well as thresholds for local labor for hiring its own employees, and will require its contractors and subcontractors to have similar clauses of their own. 

“So far, we’re exceeding our goals [of diverse hiring], and we want to do everything we can to keep that moving forward,” Grey said.

To assist in hitting those goals in a way that makes an impact on local residents, Hilco has agreed to partner with the Philadelphia School District on a program to install curricula focused on building skills and knowledge suited to the work being done by employers at the site. HRP will also assist in setting up pre-apprenticeships, internships and postsecondary education that would put participants on more equal footing with other applicants for the jobs at the site.

To monitor that program and other promises to the community, an Equal Opportunity Program committee with monthly meetings has been formed with representatives from HRP, Johnson’s office, the school district, TMNA and other nearby RCOs.

“I’m pretty confident [HRP] will produce the jobs, which will make this the biggest job creation engine the city of Philadelphia has seen in quite a long time,” Johnson told Bisnow. “And our job with the EOP [committee] is to make sure those jobs reflect what the demographics of the city look like.”

The partnership program was instrumental in getting the school district to sign off on an extension of the Keystone Opportunity Zone designation for part of the site, which exempts the property owner from most state property taxes. Another extraction the stakeholders won was an annual $1.36B payment in lieu of taxes for the next 10 years, more than the $1.25M PILOT deal made with PES.

Each promise made by HRP, and its overall attitude, has been a win for community advocates wary of such big business so close to home. But with the lack of in-person meetings due to the pandemic, most of the company’s direct communication with those advocates has been in smaller, “informal” discussions, with HRP playing messenger for various local interests, Imbot said.

“It has been separated group by group,” Imbot said. “It’s not so much, ‘We are Philly and you are Hilco,’ which definitely plays to their advantage.”

The Nov. 17 meeting of the mayor-appointed Philadelphia Planning Commission looms large as the first time all the interested parties, including the local charter schools that will introduce the new curricula, will be in the same (virtual) room, with the chance to glean some more details about HRP’s plan for the physical site after most discussion has been focused on community impact, Imbot said.

“There’s a lot of different stakeholders involved in that agreement and there will be a lot of work to be done this weekend to get that signed,” Imbot said. “It’s a pretty rushed timeline given the scale of the project, and considering that it could just be one signature that binds us to what ultimately will be a 10-year project. If Hilco is going to be our neighbor for so long — and we’re excited to have them — they need to reflect that long-term vision in the text.”

No matter how much they manage to get in writing, locals will ultimately still be forced to trust that HRP will keep its promises and share the wealth its development brings with the historically disadvantaged communities it nears.

“Half is good faith and half is working to make sure there’s transparency and accountability to reach our goals,” Johnson said.

The negotiations are being closely watched, and not just by neighbors; Johnson said fellow council members have expressed an unusually high level of interest. Normally, issues of development are the exclusive province of the council member whose district encompasses a project’s land, due to the tradition of councilmanic prerogative in Philadelphia, but colleagues like Council members Maria Quiñones-Sánchez and Katherine Gilmore-Richardson have given input on issues that affect the committees they chair (Education and Environment, respectively).

“That explosion really put the spotlight on this particular project, because it could have been a catastrophe and a loss of lives, which goes beyond just the 2nd District,” Johnson said.

If all goes according to plan, HRP’s development will bring business and revenue to the city that will have an impact far beyond the 2nd District as well.

THE PAYOFF

HRP estimates that between job creation and the spending of workers, the construction phase alone will have a $2.3B economic impact. When the site is fully occupied, the combined business that all those distribution centers (or light manufacturing facilities or research labs) will bring could amount to $41B per year in tax revenue for the city alone, according to an economic impact study HRP commissioned from local firm Econsult Solutions.

The first building to go up on the site would be a 1M SF speculative building designed to accommodate a variety of uses and projected to be ready by the midpoint of 2022, Grey said. HRP’s master plan, which Grey stressed is subject to change based on demand, lays out 10 distribution centers of at least 800K SF, most of which would exceed 1M SF. 

“It really depends on market demand, but we’re targeting a minimum of a building per year,” Grey said.

As the coronavirus pandemic has sent millions of shoppers online for the first time, e-commerce retailers’ demand for logistics space has kept the industrial market in Philadelphia proper growing through this year, said Avison Young principal Brian Hilger, an industrial specialist who isn’t involved in the Hilco redevelopment.

“Rents are increasing; COVID-19 hit and the rents are still going up,” Hilger said. “There’s just a massive amount of capital coming into the urban infill areas, looking at all sorts of redevelopment sites.”

The refinery site’s combination of almost immediate proximity to Center City and multimodal transportation access doesn’t have an easily comparable project to help gauge demand within its market. Its closest analogue, Tradepoint Atlantic in Baltimore County, has filled an impressive amount of its 3,100 acres, mostly with distribution centers larger than 800K SF.

Even though the PES site has port and rail access, a large part of its output will likely be in the form of truck traffic. Though its position between I-76 and the river means that tractor-trailers rumbling through residential neighborhoods is not as much of a concern, I-76 could be. The Schuylkill Expressway, as it’s called by locals, is two lanes wide across long stretches in and immediately around the city, and notoriously dense with traffic already.

HRP is working with the Pennsylvania Department of Transportation on infrastructure improvements external to the site, though specifics have not been worked out. 

At any rate, the precious geography of the site will likely draw a “big time” premium in rent, perhaps more due to the rare port access than anything else, Hilger said. He singled out cars and cocoa beans as two import-heavy industries that prize quick port access. One of the newest tenants at Tradepoint Atlantic is a Volkswagen import facility.

Though Grey said HRP’s project will be privately financed, that could be affected by policy from the federal government, which will have different priorities than it has in the past four years.

As a company that is taking a site with a history of pollution and neighborhood trauma and promising to turn it into an environmentally sustainable jobs engine, HRP could be an appealing target for a potential Biden administration eager to bring together opposing sides. Any policy in the liberal tradition of market-based solutions to social problems would likely mean tax breaks for the project.

“We’ve all seen Hilco’s conceptual master plan of how many rectangles you can fit on this property,” Imbot said. “But it can evolve, especially with a Biden presidency that can present new opportunities with federal dollars that can involve the community in what happens to the design of the land. There is space to make this more than just warehouses and roads for trucks to drive on. There should be a given that if they don’t seek federal money to help them develop this land, it’s a massive missed opportunity for them.”

Even with just the agreements already in place, every occupier HRP draws will be another step toward fulfilling its promise of job creation. Time will tell if those steps are as large as it predicts, if the jobs are a high enough quality to affect Philly’s poverty numbers and if they’re equitably distributed enough to satisfy stakeholders. But once buildings go up, jobs will be coming.

“One of the big drivers for these tenants is not only the customers they’re delivering to, but finding labor,” Hilger said. “And just like all the infill sites, this will check the box in terms of labor. Traditionally, when you needed new space [to serve the Philadelphia market], you went to South Jersey because of the available land. But the labor difference will change that dynamic.”

CORRECTION, NOV. 12, 2:10 P.M. ET: A previous version of this article misstated the name and membership of the Equal Opportunity Program committee, and was unclear about the nature of the Nov. 17 meeting of the Philadelphia Planning Commission. This article has been updated.