Timing of the Cracker Plant and its role in commercial real estate

Timing of the Cracker Plant and its role in commercial real estate

Royal Dutch Shell is in the process of constructing a $6 billion petrochemical plant in Beaver county on the banks of the Ohio River. The facility, also known as a “cracker plant”, will take in oil and gas and break it into smaller molecules, which are used in manufacturing plastic products from food wrapping to auto parts. The western Pennsylvania area was chosen due to the supply of shale gas, which is used in the production of the making ethylene for the production of plastics. The state also provided a 15 year tax amnesty window and a tax credit for every gallon of gas purchased from Pennsylvania based gas drillers.

It is estimated that 6,000 workers will be needed for construction of the facility, and around 600 full time employees will be needed to run the plant. In addition to the plant itself, there will be various other opportunities for companies involved in the supply chain of plastics to position themselves close to the facility. With more people and businesses moving in to the area, there will be an opportunity for new housing, offices, retail, etc. to emerge. The question is, will there be sites available for these users to set up shop?

Facilities and land readily available for move in or development in the hills of southwestern Pennsylvania are hard to come by. Developers must be willing to take a risk to make pieces of land pad ready for the potential of attracting tenants. This is a risk that could pay off handsomely for developers in the long run. A pad ready site consists of the soil being moved and graded, utilities and roads installed, and the contaminants being removed from the ground. This makes the parcel more attractive to a business because they are able to set up their facilities and operations quickly. In addition to making previously unused land pad ready, the ability to redevelop defunct industrial complexes along the Ohio River is a viable option. This will come at a higher cost due to the removal of the existing infrastructure and the possible extra steps needed to clean up contamination, but this has worked in Pittsburgh before. For example, The Waterfront (formerly Homestead Steel Works) and South Side Works (Ling Temco-Vought), are converted brownfields. Businesses, housing, retailers, restaurants, and hotels can create a self-contained eco-system on these big tracts of land.

This is a call for developers to prepare and be in front of the opportunities created by the cracker plant. With the possibility of another plant or two popping up in the tri state region, companies involved in the plastic industry will be tempted to locate offices and operations nearby. Southpointe saw the influx of the major gas corporations opening offices and the plastics industry may just do the same. Will other companies/industries that see potential be able to find readily available land to enter the Pittsburgh market? With the cracker plant set to deliver early next decade, it will be interesting to watch the commercial real estate scene play out.

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