Development Magazine Summer 2012

Development - Ownership

Majestic Bethlehem Center: Revitalizing a Former Steel Town

In 1999, Bethlehem Steel began planning for the divesture of significant assets, including its main structural steel production complex in Bethlehem, Penn. The following year, Majestic Realty Company entered into a contract with Bethlehem Steel for the purchase of 441 acres of the former Bethlehem facility. Majestic, a privately held industrial developer and owner, has grown its portfolio to 70 million square feet by taking its build-and-hold business model to new markets, including Atlanta, Dallas, Denver and Las Vegas. For years it sought to expand into the northeast but had not found the “right” real estate…until it found the Bethlehem Steel property.

Location, Location….and Much More

Sands Casino Bethlehem

Before: Many historical structures, including the old blast furnaces, have been preserved along the Lehigh River to create “SteelStacks” — a cultural, historical, educational and entertainment district.  After: Bethlehem was granted a gaming franchise from the State, leading to the creation of what is now the Sands Casino Bethlehem.

Majestic knew from its master planned business park experience that there are four key elements for success: proximity to big cities; robust transportation infrastructure; ample on-site utilities; and a good labor pool for tenants to draw employees. As for location, Bethlehem is a 1.5 hour drive from both New York City and Philadelphia, and a within a day’s drive of approximately one-third of the U.S. population, including cities such as Boston, Buffalo, Cleveland, Pittsburgh, Washington, Baltimore and Norfolk, Va. Bethlehem has excellent access to transportation infrastructure, being located on Interstate 78, about 80 miles due west of the Port of New York/New Jersey (the second largest port complex in the United States behind LA/Long Beach). The property also has extensive rail facilities and immediate proximity to the Norfolk Southern mainline that runs from the Port of NY/NJ to Chicago. A newly formed short-line railroad, Lehigh Valley Rail Management (LVRM), acquired the old Bethlehem Steel rail assets and now operates the new Norfolk Southern intermodal facility on site. Today LVRM’s BethIntermodal does 100,000 intermodal and Triple Crown lifts per year, with a capacity of four times that number. All Class 1 railroads can interconnect into Bethlehem via Norfolk Southern or Canadian Pacific. Every weekday a train from the Port of NY/NJ stops in Bethlehem to drop railcars, making Bethlehem a possible multi-modal inland port location as well.

The Bethlehem property has a massive water supply that was required for steel production, making it ideal for new water-hungry users such as beverage bottlers. There are also fiber optic lines in the nearby rail corridor, as well as large and redundant power sources. A new $500 million gas/diesel Calpine power plant makes the site attractive to high-power users such as large-scale data centers. The population of the Lehigh Valley is nearly 300,000, and at one point Bethlehem Steel employed over 31,000. Accordingly, the region has a sizeable workforce with a strong work ethic.

Bethlehem Artsquest before and after

Before: Several historical structures on the former Bethlehem Steel site have been preserved, a reminder of the company that provided steel for some of the most iconic structures in the United States. After: The non-profit ArtsQuest performing arts center campus is a focal point for Bethlehem’s annual Musikfest concert series.

Navigating the Seller’s Bankruptcy

Litigation delayed escrow closing until 2008. Despite closing in the middle of the great recession, Majestic had faith in the fundamentals of the site and knew that predevelopment work could be done while waiting for demand to rebound.

Around the time of Bethlehem Steel’s bankruptcy, the Commonwealth of Pennsylvania enacted “Act 2,” an innovative land recycling law designed to eliminate obstacles to brownfield redevelopment through: uniform cleanup standards; liability relief for all future buyers, tenants and lenders; standardized reviews and time limits; and financial assistance. With the decline in heavy industry in the northeast, many facilities were simply padlocked and abandoned because existing laws did not provide clear standards for remediation or offer release of liability for buyers who might otherwise consider redevelopment. In contrast, under Pennsylvania’s Act 2, Majestic could purchase vacant land (and future tenants could occupy Majestic’s buildings) without inheriting any potential environmental liability.

As a family-owned company with its own money on the line, Majestic went even further to mitigate liability, even though the 441 acres it was acquiring had never been used for steel production (where contamination is typically found). Majestic hired experienced environmental consultants and performed a rigorous characterization of the property, including an extensive drilling and sampling program. Majestic’s due diligence in their investigations and clearances included sign-offs from Pennsylvania’s Department of Environment Protection and the U.S. Environmental Protection Agency. In 2011 the state adopted the Keystone Special Development Zone which assists shovel-ready brownfields by providing a state tax credit for each new job created at the site.

Stakeholder Participation Drives Transformation

The City of Bethlehem, Northampton County, the Commonwealth of Pennsylvania and many other stakeholders all worked in concert to make Bethlehem Steel a national model for brownfield revitalization. The Local Economic Redevelopment Tax Assistance (LERTA) program abates property taxes on new construction to encourage investment and job creation. The Majestic Bethlehem Center has a 10-year LERTA, whereby the property tax abatement is 100 percent in the first year, 90 percent in the second, 80 percent in the third and so on for 10 years -- equating a 50 percent abatement per year for 10 years. The site also has Foreign Trade Zone status and its adjacency to the Norfolk Southern intermodal facility will dramatically reduce drayage costs and allow for the movement of overweight containers over its private roads.

Tunnel in Bethlehem

Majestic Realty benefited from Act 2, a land recycling state law designed to eliminate obstacles to brownfield redevelopment through uniform cleanup standards. A rail bridge replaces an old, single-lane tunnel on the new Commerce Center Boulevard. Majestic has recently completed $10 million of improvements, including a one-mile extension of the road onto its property.

Northampton County and the City of Bethlehem invested $12 million to rebuild access to a number of former Bethlehem Steel properties, including BethIntermodal and the Majestic property. This new four-lane road, dubbed Commerce Center Boulevard, incorporates a new rail bridge replacing an old, single-lane tunnel. Majestic itself has recently completed $10 million of improvements, including a one-mile extension of Commerce Center Boulevard onto its property. In 2013, PennDOT will complete improvements to Highway 412 and the 412/I-78 interchange. Majestic has also removed old foundations, performed preliminary earthwork and constructed a new monument sign and entry landscaping. Because Majestic is recycling former industrial land and reusing much of the demolished foundations for base material, the project is considered one of the most sustainable in the country.

Bethlehem on the Rise…..Again

With a determination not surprising from a former steel town, the City of Bethlehem is experiencing a resurgence. Activity is abuzz on the 1,800-acre former Bethlehem Steel site. Many historical structures, including the old blast furnaces, have been preserved along the Lehigh River to create “SteelStacks” — a cultural, historical, educational and entertainment district. A partnership with the Smithsonian Institution has developed the National Museum of Industrial History, and Northampton Community College has opened a satellite campus, which includes a nursing and dental clinic. The local public broadcasting station, PBS 39, has built and moved into new studios and, a Levitt Pavilion has been donated hosting outdoor concerts, and the recently-opened non-profit ArtsQuest performing arts center campus is a vibrant destination and the focal point for Bethlehem’s annual Musikfest concert series. Other community amenities include a new indoor ice rink and an outdoor skate park. Bethlehem was also granted a gaming franchise from the State, leading to the creation of what is now the Sands Casino Bethlehem, which includes an upscale shopping mall, events center, performance venue, a 12-story hotel tower and a number of restaurants, including two by famed chef Emeril Lagasse.

PBS 39 building in Bethlehem

In addition to local Public Broadcasting Station 39, the City of Bethlehem, in partnership with the Smithsonian Institution, has developed the National Museum of Industrial History.

Another large portion of the old Bethlehem Steel property is being developed by Lehigh Valley Industrial Parks (LVIP), a local non-profit entity. LVIP’s mission is to maximize jobs by developing lots for small and medium-sized companies that have higher employment needs. LVIP has successfully focused on attracting small manufacturing and labor-intensive industries, and has also shifted a portion of its property to big box warehouse development, including the recently completed 1.2 million-square-foot speculative warehouse developed by Liberty Property Trust.

Commencement of the Majestic Bethlehem Center: the Crowning Step

The inaugural tenant at the Majestic Bethlehem Center will be Crayola, an industry leader and one of the most recognized and well regarded brands in the U.S. Crayola who will occupy an 800,000-square-foot state-of-the-art build-to-suit that Majestic will deliver in December 2012 of this year. At full build-out the 441-acre Majestic Bethlehem Center is projected to add $500 million of investment to the community, comprising eight million square feet of state-of-the-art light industrial, manufacturing, data center and high cube distribution facilities. Over 2,500 permanent jobs are expected to be directly created, making it the fourth largest employer in the Lehigh Valley.

From the Archives: Development / Ownership Articles from the Previous Issue

owners and brokers headshots

Owners and Brokers: Can We Talk? 

Are property owners from Venus and commercial real estate brokers from Mars? Do they understand enough about each other’s business to move transactions along in a challenging environment? Development magazine set out to learn what owners wished brokers knew about their business and negotiations and vice versa.

exterior of the Midland Building

Small Town America Is Building. And Building Green! 

At a time when few construction cranes were in operation, the small town of Effingham, Ill., had not one but two working, and on adjacent private projects. These two projects, an 80,000-square-foot mid-rise office and a 100,000-square-foot technology center, were designed with LEED certification in mind and were completed near the end of 2011.