Talen Energy to vacate PPL Plaza, move to Tower 6

ALLENTOWN — Talen Energy will vacate The Plaza at PPL Center in downtown Allentown early next year and move its employees into cheaper office space just blocks away on Hamilton Street, saving the company millions but leaving its landmark headquarters building mired in foreclosure and facing an uncertain future.

Talen spokesman Todd Martin, responding to a request by The Morning Call, said Tuesday that the energy company has made a “five-year commitment” to rent two floors of the soon-to-be-opened Tower 6 at Sixth and Hamilton streets.

The move will take effect in the second quarter of 2018, coinciding with the end of Talen’s lease at PPL Plaza at 835 W. Hamilton St.

“We’re pleased to be able to maintain our historic roots in downtown Allentown,” Martin said. “We see this decision as beneficial to our business, our employees and the Greater Lehigh Valley, especially to others in the business community in downtown Allentown.”

Tower 6, owned by City Center Investment Corp., is in the Neighborhood Improvement Zone, which offers tax incentives for developers who can, in turn, offer cheaper rents. PPL Plaza also is in the NIZ, but cannot draw upon its benefits because the incentives cover new construction and renovations.

Mayor Ed Pawlowski said he was pleased that Talen remains committed to downtown Allentown.

“The city has a lot to offer, and the benefits of locating in the NIZ are attractive,” Pawlowski said. “I was always confident that proposals from developers in Allentown would be given very careful consideration.”

What’s not yet known is how many employees Talen plans to move into Tower 6. Martin did not respond to follow-up questions Wednesday. Jarrett Laubach, vice president of leasing of City Center Investment Corp., confirmed Wednesday that both parties have signed a lease, but said he was not permitted to comment further, citing a confidentiality agreement.

At one time, more than 500 people worked for Talen in PPL Plaza, and the company occupied nearly 90 percent of the building. It now occupies three floors, but that will be whittled down to one floor and fewer than 200 employees by Jan. 1, according to a Talen employee who asked to remain anonymous because he is not permitted to speak on behalf of the company.

According to an email sent to employees from Talen CEO Ralph Alexander on Tuesday and reviewed by The Morning Call, Talen’s Allentown office will be one of two “center locations.” The other is in a Houston suburb called The Woodlands. Both centers will be smaller than historic “Talen 1.0,” wrote Alexander, who is based in Houston.

Pawlowski and other local leaders say that while the city might be losing jobs, it’s also retaining a marquee corporate presence.

“It’s certainly not the same number of employees at the time it was spun off from PPL,” said Don Cunningham, president and CEO of the Lehigh Valley Economic Development Corp. “But the energy production market is changing so rapidly.”

Talen was spun off from a PPL Corp. subsidiary in 2015 as a publicly held company, and then became private in late 2016 following its acquisition by private equity firm Riverstone Holdings. The company operates power plants and sells the energy they generate to utilities and other mostly commercial customers. It has been a tough industry in recent years, beset by stagnant demand, low energy prices and tight profit margins.

Talen owns power plants in seven states, including five in Pennsylvania, and had as many as 3,500 employees nationwide as of June 2015.

Local leaders said retaining businesses is as important as recruiting companies — even if it means fewer employees committed to the downtown and a company capitalizing on cheaper rent at the expense of another modern office building.

The ownership group of PPL Plaza has been heading for foreclosure on the 835 W. Hamilton St. building. The Plaza at 835 W. Hamilton St., which bought the property for $83.5 million in 2007, missed a $67.4 million balloon payment Dec. 1, sending the loan into default. Talen’s lease, locked in at an above-market rate when the building opened, ends in April.

“PPL Plaza is a good property,” Pawlowski said. “Once the legal issues are sorted out, I believe it will prosper again.”

Alexander, in the email to employees, noted the move to Tower 6 will save Talen $7 million a year in building costs.

“Obviously, the costs savings help secure the entire company, and remaining in Pennsylvania is crucial given the scale of our operations in the Commonwealth," Alexander wrote.

The NIZ allows property owners to tap virtually all the state taxes created by their projects to fund their building debt for up to 30 years. Critics have said the NIZ has unfairly used big tax subsidies to lure tenants from other parts of the Lehigh Valley, and many of City Center’s buildings are filled with tenants that moved to Allentown from elsewhere in the region.

In the case of Talen, its state tax payments are a critical component of revenues collected in the NIZ and help pay construction loans on the PPL Center arena at Seventh and Hamilton streets. Documents reviewed by The Morning Call show that Talen contributes $13.7 million a year in NIZ taxes, almost single-handedly providing enough money to pay a $15.3 million annual debt for the PPL Center arena, even before the zone's other 600 businesses chip in.

If Talen would have chosen to leave the NIZ, the public bonds sold by the arena authority would become less stable and more difficult to sell.

Sy Traub, chairman of the Allentown Neighborhood Improvement Zone District Authority, said officials won’t know yet how Talen’s move could affect its NIZ contribution. But he also said much of the NIZ revenue from Talen has come from state gross receipts tax on Talen’s electric generating.

Tower 6, which is scheduled to be completed in May, will have one floor vacant following the Talen deal, according to City Center and Morning Call information. City Center was not alone in its attempts to lure Talen away from PPL Plaza. Other developers, most notably the developers of The Waterfront along the Lehigh River in Allentown, were linked to Talen.

Martin said Talen’s decision to remain in Allentown came despite “other low-cost opportunities” that he declined to name.

On Wednesday, Zachary Jaindl, one of the principals of The Waterfront, congratulated City Center on keeping the company downtown.

“I actually applaud City Center … and everything going on in the downtown,” Jaindl said. “The long-term goal is to make sure we create an open and welcoming environment for Talen.”

Morning Call reporter Jon Harris contributed to this story.

TOWER 6 TENANTS SO FAR

Besides Talen Energy Corp., which is set to take two floors of the 12-story Tower 6 office building in downtown Allentown next year, other tenants planning to move in, with the number of floors they will occupy, are:

• Bank of America’s Merrill Lynch wealth management, 3
• CrossAmerica Partners, 2
• CAPTRUST Financial Advisors, 1
• I&I Software, 1
• Serfass Development Partners, 1

Tower 6 is also slated to host an unspecified number of retail businesses on the first floor.

Source: The Morning Call archives

asalamone@mcall.com

610-820-6694

Get the inside scoop on the Lehigh Valley's business scene on The Business Cycle, themorningcall.com/business. Like us on Facebook: facebook.com/LVBizCycle. Follow us on Twitter: @LVBizCycle.