U.S. Steel scraps plans for headquarters near Consol Energy Center

6 November 2015

A year ago, U.S. Steel CEO Mario Longhi envisioned the former Civic Arena site as a “vibrant, thriving development” that would serve as the cornerstone of the Hill District’s revival.

But if it happens, it will be done without the steelmaker.

Faced with mounting financial troubles, U.S. Steel announced Thursday that it was pulling out of a deal with the Penguins to build a new 285,000-square-foot headquarters on the 28-acre site in the lower Hill.

The decision came two days after the company reported a bigger-than-expected third-quarter loss and drastically lowered its outlook. The financial woes had contributed to weeks of speculation about whether the corporation would move forward with the headquarters plans.

By this time, construction was scheduled to have started on the five-story building that was to be erected across from Consol Energy Center and was to include a museum honoring the region’s steel heritage. U.S. Steel pulled the plug without ever signing a lease.

“Obviously, it’s an unfortunate turn of events. It’s not surprising, as you can imagine,” said Travis Williams, the Penguins’ chief operating officer.

The U.S. Steel headquarters would have been the anchor for the $500 million arena redevelopment, which is to include offices, residences and commercial space. The Penguins hold the development rights to the real estate.

It was also expected to pump an estimated $3 million, or half of the real estate tax abatements the company was to receive to build on the land, into a fund set up to make improvements in other parts of the Hill.

While the loss of the steelmaker is no doubt a major setback to those efforts, Mr. Williams and others insisted Thursday that it is not a fatal one.

“Obviously, this is a bump in the road for us. It is a pause. We are still bullish for this potential redevelopment,” said Kevin Acklin, chief of staff to Mayor Bill Peduto.

Mr. Williams said the Penguins still intend to work with St. Louis-based developer Clayco to market the building or one similar to it to other possible tenants.

“It’s an unfortunate decision but U.S. Steel at the end of the day is not going to stop us from making a push forward,” he vowed. “U.S. Steel was never the linchpin of this development.”

In fact, as concern increased late this summer and into the fall about U.S. Steel’s commitment to the project, the Penguins began to discuss the development “very quietly with people,” Mr. Williams said.

One potential candidate could be Kennametal, the Latrobe-based industrial toolmaker that is seeking to build a new global headquarters in Pittsburgh, Cleveland or Charlotte, N.C.

Mr. Williams would not discuss specific prospects. William Newlin, Kennametal’s retiring chairman, said the company has been looking at the Almono site in Hazelwood and some others in Pittsburgh. “Whether we would consider another site would require further study,” he said.

The Penguins and Clayco have made a “significant investment” in securing city approvals, doing design work for the building, and arranging incentives like tax abatements for the project, Mr. Williams said.

It also paid $75,000 for a six-month extension in buying the first parcels for development because of delays in starting the U.S. Steel project as lease negotiations dragged on.

With the steelmaker out of the picture, Mr. Williams said the Penguins now would focus on getting a 1,100-unit residential development started on the upper portion of the arena site adjacent to Crawford Square.

That was the team’s original plan before it won the pledge from U.S. Steel to build on the site last November. The Penguins already have hired McCormack Baron Salazar as the lead developer for that project and have engaged the world-renowned architectural firm Bjarke Ingels Group to do the design. It hopes to get started on the residential next fall.

U.S. Steel, meanwhile, said in a statement Thursday that it plans to remain in U.S. Steel Tower, its longtime Grant Street home, until the end of its lease, which was to expire in 2017.

Mr. Acklin said he was told Thursday that the company had extended the lease by 1 1/?2 years, but a U.S. Steel spokeswoman did not respond to a request seeking to confirm that.

Allegheny County Executive Rich Fitzgerald said the company “made the commitment that it wanted to be in Pittsburgh.” It had toyed with the idea of leaving the city or region altogether before the arena deal was announced.

U.S. Steel, like other steelmakers, has suffered setbacks of late. After the company reported the bigger than expected third-quarter loss, Mr. Longhi told analysts during a conference call Wednesday that tough market conditions, including high levels of imports, the strong U.S. dollar and the weak energy market, offset millions in savings the corporation expected to achieve this year from its efficiency initiative.

Mr. Acklin said it was “no secret that U.S. Steel was going through very difficult financial conditions” but added that it was “unclear” how much of a role that played in pulling out of the headquarters deal.

According to Mr. Acklin, Mr. Longhi cited “uncertainty related to the development” as one of the factors in doing so. Penguins co-owners Mario Lemieux and Ron Burkle have put the team up for sale, and there has been speculation as to what would happen with development rights.

But Mr. Peduto said in September that the city had negotiated assurances with U.S. Steel and McCormack Baron that the commitments they received to build on the arena site would be honored even if the team was sold. At the time, he said he was confident U.S. Steel would build.

Regardless of the reasons, Mr. Fitzgerald did not see the collapse of the deal as a devastating blow to the redevelopment of the site on the edge of Downtown.

“I think it’s going to be fine,” he said. “There won’t be a major delay because the market we have is a very desirable and hot market. It’s really a good time for us to develop a site like this. The site is very desirable just because of where it’s located.”