How the deal for Delaware’s largest building got done

About 20% of the multistory Amazon fulfillment center at Boxwood has been completed, with its scheduled opening set for next summer, according to officials. | DBT PHOTO BY JACOB OWENS

NEWPORT – It may look like a looming behemoth of steel beams from nearby Route 141, but the future Amazon plant at the former General Motors Boxwood site will house a thousand workers by this time next year.

It’s comparatively constrained 820,000-square-foot footprint for an Amazon distribution center also belies the fact that at more than 3.8 million square feet across five levels it will be the largest building ever constructed in Delaware when it opens next year, according to state officials. For comparison, it’s like stacking five Concord Malls on top of one another.

The facility, known in Amazon parlance as an AR Sort FC, or Amazon Robotics sortable fulfillment center, is part of a growing high-tech expansion for the e-commerce giant. It is one of a half dozen or so nearly identical multistory facilities being built by Amazon across the country right now, and the company’s decision to locate one in Delaware will surely help draw attention for further economic development projects by other companies.

At least a thousand associates will work alongside robots like these in the future Boxwood Amazon facility. | COURTESY OF AMAZON

The story behind how the deal got done, however, and what the project means for the future of Newport, is full of stops, starts, ideas and pivots.

Harvey Hanna sees opportunity

General Motors closed its plant in July 2009 after 62 years, representing an end of an economic engine for the Newport area which at its peak employed more than 5,000 people. Hopes were raised just three months later when startup Fisker Automotive announced plans to build its all-electric cars at the plant that was previously home to Chevrolets. The federal and state governments approved loans and grants to the company to produce its second-generation cars at Boxwood.

Harvey, Hanna & Associates razed the former GM Boxwood plant amid its initial plans for the site, before selling it to Nevada-based developer Dermody Properties.| PHOTO COURTESY OF HARVEY HANNA & ASSOCIATES

Those dreams were dashed, however, when the company filed for bankruptcy just four years later after its battery maker also went under and the automaker failed to fulfill terms of its loans. It infamously never produced a single car in Delaware and the failed gamble by elected officials tarnished the site’s history.

Chinese company Wanxiang purchased all of Fisker’s assets for $149 million at a December 2013 bankruptcy auction, acquiring the Boxwood site in turn. After sitting vacant for several years, Wanxiang began marketing the 142-acre property once again, which caught the attention of Harvey, Hanna & Associates, the Newport-based real estate developer.

“My father worked at the plant. My grandfather worked as a contractor at the plant. My uncle and business partner also spent many years working in and around the plant, so we had several personal connections to the property,” said Harvey Hanna President Thomas J. Hanna, who also noted that they liked its heavy industrial zoning and close access to the interstate highway system.

After investigating its potential, the local firm bought the site from Wanxiang for about $10.4 million in October 2017, according to county land records.

The site had issues though.

Its 3 million square feet of floorspace was “obsolete” by today’s standards, and much of the site was contaminated with heavy metals and volatile organic compounds that stretched back to its days as an assembly plant, Hanna explained. Those issues didn’t raise concerns for Harvey Hanna, however, as it has made developing brownfield-designated sites a major part of its business. Although he didn’t have a firm estimate for the cost to Harvey Hanna in remediating the environmental issues and razing the old plant, Hanna said that it was “certainly in the millions.”

From the start, Hanna said that his firm saw the future for the site as e-commerce logistics and distribution due to its zoning and proximity to major transportation routes.

“As more and more consumer spending goes online and away from brick-and-mortar retail, we felt that that was a trend we could capture here,” he said.

Fishing for Amazon

With a focus on e-commerce and an initial design for four distribution centers to encompass largely the entire 142-acre site, Harvey Hanna was fishing for the industry’s whale from the get-go, Hanna said.

“We designed [a 1 million square-foot] building and then the other buildings in a way that we felt would be appealing to Amazon,” he recalled of the 2018 planning sessions.

With an attractive proposal in hand, Hanna said his firm entertained several co-investment and co-development opportunities with other firms. The partner it settled on was Nevada-based distribution and industrial developer Dermody Properties.

The two had known each other for years after Dermody acquired a large parcel from Harvey Hanna in Logan Township, N.J. It later developed that land into the LogistiCenter at Logan, which is also home to an Amazon facility.

The future Amazon site will be a boon to other economic development opportunities looking at the First State. | COURTESY OF AMAZON

Gene Preston, partner for Dermody’s East Region, said that Hanna reached out to him about the prospect and that he was quickly intrigued. With proximity to Interstates 95, 495 and 295 and essentially equidistant between New York City and Washington, D.C., it’s an ideal site for distribution. The parties worked up a contract for Dermody to acquire roughly two-thirds of the land and a plan to build three distribution centers totaling more than 2 million square feet.

In November 2019, Dermody acquired 88 acres of site in a $21.6 million deal, according to county land records. Less than three months later, it acquired the remaining 54 acres, which lie largely on the eastern edge of the site, in a $9.6 million deal.

Like Harvey Hanna, the new owner was also focused on Amazon.

Jeff Zygler, a Dermody partner who heads its ecommerce and build-to-suit projects, explained that when it comes to site acquisition, Amazon has an internal team looking at potential locations, but also receives pitches from developers.

“Once we have control of a property, we’re sending the opportunity to our corporate clients to gauge their interest because that makes their lives easier,” he said. “It’s not just Amazon, but a core group of names you would know that have long-term relationships with Dermody Properties.”

After a few discussions, Zygler was able to get Amazon interested in the site. Over months of planning, he said the conversation drifted toward building one of Amazon’s new multistory facilities. Under that model, the site footprint could be drastically reduced while increasing total floor area, creating a win-win for the tenant and surrounding neighbors.

Zygler credited Preston with securing the large amount of floor area under the previous development plan, which allowed Dermody to pivot to the single-building plan with fewer permitting headaches. He also said that state and county officials worked expeditiously to ensure that necessary building permits and approvals were acquired without delay.

“Everyone worked with us and allowed us to give comfort to Amazon that we’ll be able to deliver this project when they need it,” he said. “It takes roughly 18 months to construct this type of building, and they’re planning that into their network, their utilization and their capacity that this building is going to be operational.”

Zygler said that Delaware’s friendly stance toward development is not the status quo everywhere, noting that Dermody is still working through approvals on a 140,000-square-foot building in the Northwest five months after discussions started. That project would be completed only two months before Boxwood, despite the latter being more than 25 times larger, he estimated.

An Amazon future

In May, Amazon signed a 20-year lease with Dermody for the Boxwood facility, which is due to open in July 2021 at the earliest. Zygler reported that good weather and continued construction amid the pandemic has allowed Dermody to stay on schedule, with about 20% of the project done.

The lease contains five additional renewal terms of five years each, meaning that if fully executed, Amazon could remain at the facility under the current lease until 2066. Each of the renewal periods are set at 95% of fair market value and Amazon holds a right of first offer to buy the site should Dermody ever want to exit the property.

Delaware won’t be alone in Amazon’s multistory model, as Zygler confirmed that the Seattle-based e-commerce giant has developed a prototype for the facility that it is replicating in places like Austin, Texas; Bakersfield, Calif.; Virginia Beach, Va.; Syracuse, N.Y.; and Little Rock, Ark.

The future Newport fulfillment center will be filled with these “drive units,” which a small robots capable of moving heavy racks of items. | COURTESY OF AMAZON

It’s a wave of the future for Amazon, which operates 26 facilities where robots aid workers who pick, pack and ship customer orders. The use of robots allows Amazon to store 40% more inventory, which supports its Amazon Prime subscription growth that requires two-day shipping on a wide variety of items.

As part of the Boxwood project, which includes at least $200 million in construction of the facility and $50 million in its fit-out, Delaware officials approved a $3 million incentive to support the hiring of 1,000 workers. Gov. John Carney has told Delaware Business Times that he expects that number to grow as the fulfillment center becomes operational.

That belief is supported by news from other sites, some of which employ several thousand workers, and even Amazon itself.

“The fulfillment centers that have robots often have higher employment numbers because inventory is moved at a faster pace, which requires extra associates,” the company reports on its website.

Amazon told DBT that it didn’t have an update on when to expect hiring efforts to begin, but other reports from similar sites suggest the hiring push will begin a few months before the Boxwood facility is scheduled to open next summer.

When asked what benefit the multi-story model has for its operations and how it determined to move in that direction, an Amazon spokeswoman replied succinctly, “Amazon is constantly innovating to better utilize our footprint so we can get closer to customers.”

What’s next?

While Harvey Hanna has exited the Boxwood project, the firm will continue to be a part of the bigger Newport story, as it sits on a master redevelopment plan for much of the downtown.

That project, with 400,000 square feet of mixed-use development, depends in part upon a variety of rail officials agreeing to reopen a former Southeastern Pennsylvania Transportation Authority (SEPTA) rail station in Newport. According to a 2013 ridership study by the Wilmington Area Planning Council, upward of 500 people would use a SEPTA stop in Newport.

Harvey, Hanna & Associates has ambitious plans to redevelop downtown Newport, which have received a shot in the arm with the arrival of Amazon. | COURTESY OF HARVEY HANNA ASSOCIATES

Despite the positive findings from that report, progress has been slow to materialize on Newport’s revitalization, due in part to the stagnation at the former auto plant that has now be rectified by Amazon.

“The job creation that will exist at the former General Motors property will certainly be a catalyst for our plan in downtown Newport,” Hanna said.

While Amazon’s proximity to Newport makes an obvious case for potential residents of new development downtown, Hanna noted that there’s about $2 billion worth of private investment happening across northern New Castle County right now. That includes other major redevelopments like Delle Donne & Associates’ Avenue North, Community Development Company’s First State Crossing, and Pettinaro’s Barley Mill.

With a groundswell of new industry coming back to New Castle County after a challenging decade, Hanna said that Delaware has to continue to promote itself and position for further success. The arrival of a state-of-the-art Amazon facility will surely help to lead that effort.

“This is a very special moment for Delaware, and we’re proud to have been an integral part,” Hanna said.

For the Dermody team, the positive experience at Boxwood, where it found its first Delaware project and its single largest project ever, has convinced them that it should not be the last in the First State. Preston said that Dermody is “spending a lot of time looking at opportunities” in Delaware right now, due to its location, favorable business climate and labor supply.

“I don’t think this will be our last investment here,” he said.

By Jacob Owens

jowens@delawarebusinesstimes.com