The phone call from then-PNC Bank CEO Jim Rohr brought grim news: U.S. Steel was thinking about moving out of Downtown and perhaps out of the region altogether.
“He said, we can’t let that happen,” Pittsburgh Penguins CEO David Morehouse recalled. “It’s not like any other company just leaving. U.S. Steel leaving Downtown Pittsburgh would be a significant blow to the region. That’s what he said.”
That was more than two years ago. Mr. Rohr wanted to know whether the Penguins, who had development rights to the former Civic Arena site, had talked to the company.
So began the team’s lengthy pursuit of the venerable steelmaker, one that culminated Monday in the announcement that U.S. Steel would move its headquarters from U.S. Steel Tower to the 28-acre lower Hill District site in 2017.
The company reached an agreement with the Penguins to build the five-story, 268,000-square-foot office building on a 2.25-acre tract bordering Centre Avenue near Consol Energy Center.
About 250,000 square feet will be devoted to offices and the rest to retail and a museum honoring the region’s steel heritage.
Construction is expected to start in August or September. U.S. Steel plans to move into the new building by October 2017, the same year its lease expires at U.S. Steel Tower, Pittsburgh’s tallest building and its home for more than 40 years.
“Right now you might see a parking lot out there. But I see a vibrant, thriving development that will serve as the cornerstone in the revitalization of this community and our company,” U.S. Steel CEO Mario Longhi said during a news conference Monday.
The decision represents a major coup for the Penguins in their quest to redevelop the site. Landing such a high-profile company to anchor the development, one that’s already slated to include 1,200 units of housing, could help jump-start retail and commercial activity.
“Putting a world headquarters, especially an iconic brand like U.S. Steel, really creates a lot of great momentum for this project. For us, it’s really catalytic,” said Travis Williams, the team’s chief operating officer.
For U.S. Steel, the announcement ends some 30 months of speculation as to its future home. There had been talk that it would flee to Findlay Township, head to the Strip District, stay at U.S. Steel Tower or leave the state altogether, perhaps for Illinois. Oxford Development also courted U.S. Steel to anchor a new office tower on Smithfield Street.
Mayor Bill Peduto said he told Mr. Longhi that he would not be the mayor who lost U.S. Steel. “As a Pittsburgh boy, this feels really good,” he said of the announcement.
As part of the deal, the company will receive New Markets tax credits and Local Economic Revitalization Tax Assistance (LERTA) tax abatements. The project potentially could qualify for a maximum of $7.5 million in property tax abatements over 10 years, depending on what is approved by the city, Allegheny County and Pittsburgh schools.
But U.S. Steel has agreed to take only half of the abatements, with the rest of the money — estimated at roughly $3 million — going to fund development in other parts of the Hill.
That represents the first fruits of a September agreement reached between the Penguins and Hill District and local political leaders, including the mayor, that directs a portion of the tax revenue generated by the $440 million development for improvements in the Hill.
No other public money is going into the U.S. Steel project. The state is contributing $15 million to help build infrastructure throughout the site. In addition, any tax revenue generated above the abatement amount would go into city, county and school district budgets.
The total cost of the project was not released. The new building will be owned by an affiliate of the Penguins and St. Louis-based Clayco, the team’s developer. U.S. Steel will lease it for 18 years. The parties also have reached an agreement with local labor unions to keep the project on time and on budget.
U.S. Steel will move 800 employees into its new headquarters from U.S. Steel Tower and Penn Liberty Plaza in the Strip District. It will vacate 450,000 square feet of space in the towerU.S. Steel.
Although building new is expensive for companies and developers alike Downtown, Mr. Longhi said U.S. Steel will actually save money making the move because of space efficiencies and innovations.
He characterized the move as “another step in the company’s Carnegie Way transformation journey,” a cost-cutting and efficiency campaign that has generated savings of $495 million this year.
The initiative was launched in April 2013 when Mr. Longhi was chief operating officer and U.S. Steel was on its way to reporting its fifth consecutive losing year.
Analysts and investors believe the Carnegie Way has helped the steel producer turn the corner by eliminating jobs, shedding unprofitable businesses and improving operating efficiency. Their confidence in Mr. Longhi is reflected in the price of U.S. Steel shares, which have nearly doubled since he took over as CEO on Sept. 1 of last year.
At the same time, the decision could have ramifications for the very tight office market Downtown. Randy McCombs, executive vice president of Grant Street Associates, said it will take time to absorb the 450,000 square feet of space and may affect lease rates. “This is going to shake up the office market Downtown,” he said.
But Gerard McLaughlin, executive managing director of the Newmark Grubb Frank Knight real estate firm, sees the additional space coming available as a positive.
“It gives companies Downtown an opportunity to expand or if a new company wants to move Downtown, it gives them an opportunity to do that. I don’t see it as a negative,” he said.
One candidate to absorb at least some space could be UPMC, which has its headquarters in U.S. Steel Tower and its name at the top of it.
After the call from Mr. Rohr, Mr. Morehouse talked to U.S. Steel on and off for more than a year about the development. It got serious after he discussed it with Mr. Longhi during a Labor Day barbecue at Penguis co-owner Mario Lemieux’s house in 2013.
Mr. Morehouse remembers telling him then that U.S. Steel was more to Pittsburgh than just a company; it was the foundation on which the city was built. “And I looked in his eyes and I could see that he understood that from that very moment. And I knew we were going to get to this point,” he said.
By November, the two sides were talking earnestly about a possible deal and enlisting the support of local and state political leaders, paving the way for Monday’s announcement.
Mr. Rohr said he made the initial call simply because he didn’t want to see Downtown lose a corporation so entwined with the city itself.
“To have U.S. Steel Downtown is another key spoke of the wheel. I also think it would have been a bad signal to outside of the region if a corporation like U.S. Steel moved out of Downtown. It’s great that they’re staying,” he said.
First Published: November 24, 2014, 12:16 p.m.
Updated: November 25, 2014, 5:00 a.m.
