Development Magazine Summer 2014

Development - Ownership

Pennsylvania's Pittsburgh Region: Keystone of Industrial Renaissance

Pennsylvania Governor Tom Corbett has made economic development a top priority with his Jobs First Pennsylvania initiative, which was designed to encourage private sector investment by removing barriers to job creation, reducing taxes, reigning in government spending and ensuring that government operates in an open, transparent and accountable way. These incentives are just a few of the benefits helping businesses grow in Pennsylvania.

Pennsylvania also is home to the second-largest energy field in the world, including the Marcellus Shale, which has helped propel the state to its position as the second-largest energy producer in the U.S. Since the onset of shale gas production, Pennsylvania businesses have benefited from a 50 percent decline in natural gas prices. The commonwealth’s diverse electric generation portfolio also has aided consumers; electricity prices are down 40 percent. This translates into billions of dollars in annual savings for residents and businesses, which raise the state’s competitiveness while bringing stability to long-term energy costs.

Pennsylvania is known as the “Keystone State” for a reason — its key location is within a day’s drive of six of the 10 largest U.S. markets and 60 percent of Canada’s population. The commonwealth will invest an additional $7.4 billion into Pennsylvania’s roads, bridges and multimodal transportation systems during the next five years, creating at least 50,000 new jobs by the fifth year.

Pennsylvania’s keystone access to the nation’s population and world-class network of highways also make the commonwealth a prime location for distribution centers and direct-to-consumer operations. This is one reason why Wal-Mart, with the announcement of a new e-commerce center in Bethlehem (near Allentown), will soon have six distribution centers in Pennsylvania, the most of any state in the Northeast. It’s also why world-class brands like Nordstrom, Urban Outfitters, Gordon Food Service and American Eagle Outfitters all announced new distribution or direct-to-consumer centers in Pennsylvania in 2013.

two people holding breakers

Boron Specialties manufactures products used in the pharmaceutical, energy storage and electronics industries from its 6,600-square-foot facility in Ambridge, Pennsylvania. Photo courtesy of Boron Specialties

Pennsylvania regions that have site-ready business parks with direct access to the interstate highway system have seen the most growth in distribution and fulfillment centers. One example is the new Berks Park 78, a three-building, 323-acre industrial park in Bethel (Berks County), between Harrisburg and Allentown on the I-78 corridor in eastern Pennsylvania, which will include an 870,000-square-foot PetSmart distribution center that will serve 260 retail locations in 11 states as well as eastern Canada. The park also will contain a 900,000-square-foot Dollar General distribution center. Each of these two facilities will create 500 new jobs. Another region seeing growth in warehouse construction is south-central Pennsylvania, surrounding Harrisburg, which is home to major FedEx and UPS hubs and offers direct access to the entire Northeast Corridor.

Pennsylvania also has invested significantly in industrial and business site development to increase the inventory of pad-ready sites with infrastructure, power, electric and water/wastewater service. In 2012 and 2013, it made a $93 million investment in low-interest loans through the Pennsylvania Industrial Development Authority (PIDA) to prepare sites for development. This state investment has leveraged more than $240 million in private investment and supported the creation or retention of more than 13,500 Pennsylvania jobs.

Pittsburgh: Advanced Manufacturing Hub

Many of these jobs are in the 10 counties of southwestern Pennsylvania that constitute the Pittsburgh region, which is experiencing an “extreme makeover” for manufacturing. Gone are the behemoth factories associated with heavy industrial manufacturing of the past. Today, manufacturing in the Pittsburgh region — one of history’s most recognized places for making many things, chiefly steel — is clean, streamlined, comprehensively efficient and driven by technological and innovative processes.

control room of a health facility

Synergy Healthcare built a 24,000-square-foot sterilization facility at Victory Road Business Park in Saxonburg, Pennsylvania, in 2010. Photo courtesy of Synergy Healthcare

A hub of advanced manufacturing, the region is home to 3,000 advanced manufacturing firms, most of which are focused on metals and machinery, legacy commodities of the region. A number of regional manufacturers support other key sectors, including energy, financial and business services, health care and life sciences, and information and communication technology. These complement a century-long tradition of research and development (R&D) that is carried out at 120 corporate and federal R&D centers in the region, supporting manufacturing and other key industry sectors.

Advanced manufacturers calling the Pittsburgh region home are meeting the demands of their customers — many of them global — from workplaces ranging from newly constructed, state-of-the-art buildings to existing facilities that have been creatively adapted for reuse. These range in size from large to surprisingly modest, and are spread across the region and within the urban core. Many are located in suburban and more rural markets, particularly those strategically close to transportation arteries.

Manufacturing’s workforce in the region today is ample, skilled and composed of both degreed professionals such as engineers (regional colleges and universities produce more than 1,600 engineering graduates annually) and skilled tradespeople. Considerably smaller than in manufacturing’s former days, the human capital today is far more technically savvy and skilled. Pittsburgh region manufacturers are supporting cutting-edge industries of today and the future, including robotics, medical devices and 3D printing. The following are examples of some of the region’s diverse and innovative manufacturers.

Boron Specialties. Founded in 2010 by UCLA-educated chemist and entrepreneur Beth Bosley, Boron Specialties is a chemical manufacturing company focused on developing materials and applications that take advantage of the inherent properties of the chemical element boron. The company’s products are used in the pharmaceutical, energy storage and electronics industries. Boron Specialties, which is based in a 6,600-square-foot facility in Ambridge (Beaver County), ships products all over the globe. The company, which currently has seven employees, is financed solely by its founders, and its operating cash flow has tripled in the recent past.

people walking through a warehouse lined with shelves

Pennsylvania Governor Tom Corbett (center) tours the Porsche Northeast Retail Support Center, a 30,000-square-foot training and distribution facility that houses the Porsche Academy Training Center as well as a parts distribution center and offices. Photo courtesy of Commonwealth Media Services

“We located our business in the region for a number of reasons,” said Bosley. “Availability of qualified technical staff since Pittsburgh is strong in the chemical industry, ability to leverage Carnegie Mellon University (CMU) and the University of Pittsburgh and availability of affordable industrial space are some of the main ones. The convenient location close to the airport is beneficial so that we can easily manage customer visits.”

Astrobotic Technology. When the region’s steel manufacturing-centric economy was crashing 30 years ago, the thought of a Pittsburgh-based company delivering affordable robotics technology for interplanetary missions must have seemed like a flight of fancy. But with the lift-off of a burgeoning commercial space industry, that concept has become reality. Astrobotic Technology — a company based in Pittsburgh’s Strip District, once a hub of mills and factories on the edge of downtown — is solidifying the city’s reputation as a destination for innovative, future-focused operations. Spun out of CMU’s Robotics Institute in 2008, Astrobotic took up operations in a new 3,600-square-foot facility in 2013. The space includes a specially installed crane capable of simulating the moon’s gravity, as well as an integration facility for building equipment designed to land on asteroids and explore planetary caverns and tunnels. Just a year after Astrobotic landed in the Strip District, it is planning to expand into a 5,200-square-foot space next to its current facility, bringing the total to 8,800 square feet for its current 13 employees.

“We chose to build the company in Pittsburgh because of the immense talent that is developed in the city,” said John Thorton, CEO of Astrobotic Technology. “CMU is a great example, as it features world-leading software and robotics programs, producing capable and talented employees.”

Synergy Healthcare. Formerly known as BeamOne, Synergy Healthcare chose Victory Road Business Park in Saxonburg (Butler County) — one of Pennsylvania’s most successful Keystone Opportunity Zones (see “Key Incentives” below) — to set up its sterilization facility for medical device manufacturing. From a 24,000-square-foot facility that the company built and moved into in 2010, Synergy Healthcare’s 17 employees utilize its electron beam (E-Beam) processing service, a technology that sterilizes medical devices and pharmaceuticals in a matter of minutes rather than the hours or even days that traditional sterilization methods can take. The firm is one of a group of global companies forging a new frontier for medical devices from the Pittsburgh region. Synergy Healthcare originally located in Saxonburg as part of a strategic business partnership with a medical device manufacturer. It, and other companies like it, are capitalizing on the Pittsburgh region’s convergence of historic manufacturing expertise and forward-thinking innovation.

Hörmann Flexon LLC. Last year, Germany-based and family-owned Hörmann Flexon broke ground at Starpointe Business Park in Burgettstown (Washington County) on a state-of-the-art facility that will produce high-performance industrial doors for customers all over the U.S. Hörmann is one of the world’s leading high-speed roll-up door manufacturers and a global leader in the building components industry; it has been located in the Pittsburgh area since it first opened in 1989. The firm, which currently employs 45 people, has incorporated German building techniques and values into its new high-performance facility. The company worked with local designers and architects to incorporate intelligent building design elements — maximizing energy efficiency as well as productivity — into its space. Intelligent design is a movement that the Pittsburgh region has pioneered; it also is a regional area of expertise from the stance of innovation and the supply chain. The Hörmann facility incorporates energy conservation features, recycled materials, high-performance skylights that maximize natural light and a “drive-through” capacity and crane system for fully climate-controlled interior offloading, which allows for complete through-building production. The 68,000-square-foot manufacturing facility is pursuing LEED Silver certification.

Looking Ahead

Pittsburgh-region manufacturers typically prefer build-to-suit facilities, if adaptive reuse and/or expansion of existing facilities are not feasible. This makes the availability of pad-ready sites critical. To meet that need, the Allegheny Conference on Community Development is leading the effort to create a site development fund to help support business investment across a four-state (Pennsylvania, Maryland, Ohio and West Virginia), 32-county region that has a shared vision for prosperity. This private, patient loan fund is being designed to support the development of speculative, shovel-ready sites, with an emphasis on brownfield sites, to help attract and retain businesses. The fund, which will invest up to 50 percent of the project cost to prepare land, with loans ranging from $1 million to $10 million, plans to close in June 2014.

interior view of a warehouse with shelves

Hörmann Flexon produces high-speed roll-up doors at a new high-performance facility at Starpointe Business Park in Burgettstown, Pennsylvania. Photo courtesy of Hörmann Flexon

In addition to the activity in the Pittsburgh region, south-central Pennsylvania is seeing growth in warehouse construction, mainly in the e-commerce fulfillment sector. Areas experiencing growth in this sector include Harrisburg, Lancaster, Carlisle and the I-81/I-78 corridor. One reason for that growth is Harrisburg, a major distribution hub with the largest one-day parcel delivery footprint in the country, according to UPS. This is due in large part to its location near six limited-access highways, an airway hub and multiple railway hubs. FedEx recently built a second distribution center in Middletown, southeast of Harrisburg.

Carlisle is poised for growth with 2.5 million square feet of proposed warehouse space. Companies including Nordstrom and Urban Outfitters are locating in Lancaster, while I-81/I-78 has become a growth corridor for logistics/warehouse/distribution uses. Amazon.com and Diapers.com are taking advantage of Pennsylvania’s key location by utilizing and building distribution centers there, which in turn attract other e-commerce fulfillment centers that want to be near these prominent companies.

Building on a strong foundation, Pennsylvania and the Pittsburgh region are determined to continuously reinvent the next era of business innovation and growth. Encouraging companies to expand, create more jobs and develop the products and processes of the future is key to this effort.  

Key Incentives

Pennsylvania offers a wide range of incentives to businesses that locate facilities in the commonwealth, including the following.

A manufacturing tax exemption. A manufacturer with a facility located in Pennsylvania is exempt from taxation on property that is incorporated into the manufactured product. Property and equipment that are used predominantly and directly to produce the product also are exempt.

A single sales factor for corporate net income tax. Pennsylvania adopted a 100 percent single sales factor for corporate net income tax apportionment purposes, eliminating consideration of property and payroll factors for tax years beginning on or after January 1, 2013. Under this formula, the share of a corporation’s total profit in the commonwealth is based solely on the percentage of the corporation’s total sales occurring in Pennsylvania.

Market-based sourcing. Sourcing sales of services to the state where the customer receives the benefit provides corporate income tax advantages.

A higher net operating loss deduction cap. Pennsylvania increased the net operating loss deduction cap to $4 million or 25 percent of Pennsylvania taxable income for tax year 2014, and $5 million or 30 percent for tax year 2015 and beyond. In addition, the corporate loans tax was repealed, effective for tax years beginning after December 31, 2013.

Keystone Opportunity Zones. The KOZ program is an economic development program designed to revive economically distressed urban and rural communities. KOZs are geographic areas designated by local communities and approved by the state as economic development zones that can provide specific state and local tax benefits. Businesses that qualify for the program are authorized for certain tax credits, exemptions and tax abatements for a period of time based on location.

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