Newly revealed restrictions challenge redevelopment of bankrupt Philly refinery’s land

Advocates for restoring the Philadelphia Energy Solutions complex in South Philadelphia as an oil refinery say the 1,300-acre property comes with legal restrictions that inhibit its reuse as anything unrelated to energy or chemical production, complicating the property’s potential bankruptcy sale to an industrial redeveloper.

A deed restriction on the properties, included as part of a previous sale, provides that the land can be used only for commercial or industrial activity. The language specifically excludes schools, nursing homes, residential-style facilities, and “publicly accessible recreation areas,” which some community activists had hoped would replace refining operations.

Another deed restriction appears to even more narrowly circumscribe potential uses of the property by limiting disturbances of its soil, which is seriously contaminated after 150 years of oil processing.

The deed language provides that “disturbance of the subsurface strata and soils of the premises shall be avoided,” except as may be necessary when constructing and developing improvements to the refinery, or “installing new operations, business or processes at the refinery that are related to the refinery business, the energy industry generally and the chemical industry.”

The deed restrictions apply to most land parcels occupied by the fuel refining complex. The restrictions, which are filed in the public record, are powerful legal tools that bind subsequent property purchasers and are difficult to modify without a separate court proceeding, according to legal experts who spoke anonymously because their firms have relationships with one of the parties in the bankruptcy.

Advocates for resuming refining operations, who conducted a rally at Philadelphia City Hall on Thursday, say the legal restrictions support their campaign to get PES to reject a $240 million bid from Hilco Redevelopment Partners of Chicago for the property. In a Jan. 17 bankruptcy auction, the refinery chose Hilco, which city officials say does not intend to resume refining operations.

Hilco beat out a rival developer, Industrial Realty Group (IRG), of Santa Monica, Calif., whose supporters say bid $25 million more than Hilco, but was listed as the runner-up. IRG has since teamed up with Philadelphia Energy Industries, headed by former refinery chief executive Philip Rinaldi, who said he wants to restore refining operations.

Hilco and IRG could not be reached Thursday.

The refinery shut down and declared bankruptcy — for a second time in two years — after a devastating June 21 fire.

U.S. Bankruptcy Court Judge Kevin Gross has scheduled a Feb. 6 confirmation hearing in Wilmington to consider the refinery’s reorganization plan. Objections to the plan are due Feb. 3. The refinery can change the plan before the confirmation hearing.

About 500 labor union members rallied outside City Hall on Thursday afternoon to support saving the refinery, which they say is a major economic engine for the region. The unions — including steelworkers, pipefitters, steamfitters, insulators, and electricians — represent workers who were among the refinery’s 1,100 employees, as well as hundreds of other contracted workers. The rally was organized by the Philadelphia Building and Construction Trades Council.

Organizers said they intended the rally to serve as a counterpoint to activists and public officials who have welcomed the closure of the refinery as an improvement to public safety and public health. Before its closure, the refinery was the region’s largest stationary source of air pollution.

“The things these people have been saying — it’s getting to the point where we’ve had enough,” said Jim Snell, business manager of Steamfitters Local 420, who encouraged the crowd to serenade City Hall with boos.

Potential complications with the deed restrictions have emerged publicly only in recent days as supporters of restoring the refinery have mounted an effort to resume operations at the site, which was the East Coast’s largest refinery before it closed.

The restrictions are spelled out in a 22-page “special warranty deed” filed in 2012 with the Philadelphia commissioner of records when the property was sold by Sunoco Inc. to Philadelphia Energy Solutions. Sunoco, which is now owned by Energy Transfer LP, retains legal responsibility for remediating contamination that occurred before 2012. The deed restrictions apparently were a means to protect its ongoing interests to remediate the property under an agreement with the Pennsylvania Department of Environmental Protection.

The deed restrictions were not mentioned in a report issued in November by Mayor Jim Kenney’s Refinery Advisory Group, which encourages a reuse of the site that is “cleaner, safer, and better for Philadelphians.” The restrictions were also not cited in a 2018 report by Penn’s Kleinman Center for Energy Policy, which closely examined legacy issues with the financially troubled refinery.

Peter Navarro, the assistant to the president for trade and manufacturing policy, mentioned the deed restrictions in an interview with The Inquirer on Tuesday, in which he expressed the Trump administration’s support for efforts to keep the 335,000-barrel-a-day refinery operating. Navarro said that a thousand jobs and national security interests would be affected by the closure, and would make the Northeast too dependent upon fuel imports.

Rinaldi, the retired refinery executive who has teamed up with IRG to restart the plant, also mentioned the deed restrictions in an interview Tuesday, saying the provisions were “certainly not inconsistent with what we’re trying to do.”

Rinaldi’s plans, which he outlined in August, include restarting the refining and working in partnership with a company that announced plans in 2018 to build a $120 million digester that can convert food waste into renewable methane gas. Rinaldi also suggested that some solar panels might also be installed on the site.

City officials, in the advisory group’s report, suggested the property most likely would be reused in an industrial or commercial capacity, including some continued use as either a refinery or as a fuel depot. A city contingent was present at the closed-door auction and afterward welcomed Hilco’s bid.

A spokesman for Mayor Jim Kenney on Thursday broadly interpreted the deed restrictions.

“There is a deed restriction for the property underlying the refinery, but it most certainly does not limit the property’s use to refining, or to only industrial uses,” Mike Dunn, a city spokesman, said in an email. “The current deed, in fact, permits use for most commercial and industrial uses. Use of the property for housing, recreational areas open to the public generally, nursing homes, and other similar sensitive uses are prohibited.”

Some language in the deed restrictions seems to be open to interpretation — the requirement that soil disturbances “shall be avoided” may not be as strong a commandment as “must be avoided.”

Any disputes over the deed restrictions, and whether they might be modified, could complicate the final resolution of the property with additional litigation.