Southern California developers are increasingly striking deals on land once used for oil extraction.
Oil drilling sites across Los Angeles are being reclaimed for commercial real estate development as the City and County of Los Angeles move to phase out drilling, Commercial Observer reported. As it stands, there are 68 named oil fields and thousands of wells across the city.
Those parcels are becoming redevelopment targets as buildable land is scarce and prices are climbing, making former oil and refinery sites attractive in both scale and price. It’s not necessarily easier, however, given the environmental, financial and bureaucratic headaches that can drag projects for years.
“They all come with different constraints of different types and different challenges. We like to say, ‘There’s some hair on this deal.’ Sometimes the hair is of a cleanup nature. There’s something that needs to be cleaned up before it can be properly reused,” Preston Brooks, a real estate attorney dealing with contaminated properties for real estate law firm Cox, Castle & Nicholson, told Commercial Observer. “Sometimes it’s going to be these wells. But there’s such a strong appetite for acquiring properties that are otherwise good real estate.”
Investors from nonprofits to national REITs are lining up.
The Los Angeles Neighborhood Land Trust, for example, is converting a 2-acre site in South L.A. site with 36 decommissioned wells into a park, community center and affordable housing. It purchased the property from Sentinel Peak Resources in 2023 for about $10 million.
“This project actually came to us from the community,” executive director Tori Kjer said. “There was just this coexistence of two land uses that don’t work well together.”
In Huntington Beach, Shopoff Realty is pushing a 29-acre redevelopment of a site formerly known as Magnolia Tank Farm into about 200 single-family homes, a 50-unit affordable multifamily complex, a 215-room hotel and about 19,000 square feet of retail space. Shopoff had purchased the coastal site in 2016; by that time, most of the tank infrastructure on site had been demolished. The firm has already gotten entitlements and approvals from the California Coastal Commission and the Huntington Beach City Council.
The biggest swing may be Phillips 66’s plan to turn its 440-acre Wilmington refinery into Five Points Union, a mixed-use district with 270,000 square feet of retail, 67,500 square feet of restaurant space, a 60,000-square-foot indoor sports facility, two outdoor soccer fields, green space, parking for nearly 2,500 vehicles and eight industrial facilities totaling about 6.1 million square feet. Cleanup alone could top $231 million and take years, with oversight from at least five state and local agencies.
Even when sites are remediated, developers can’t always count on smooth sailing. Old wells can leak or sit undocumented, creating costly surprises mid-construction, such as like Aragon Properties’ 2018 spill in Echo Park or an oil geyser that delayed a Marina del Rey hotel project by a Hardage Hospitality affiliate.
Still, with housing needs surging and undeveloped land in the region hard to come by, developers are betting that California’s dirtiest dirt could prove to be its most valuable. The City of Los Angeles alone must plan for 456,643 new units of housing by 2029 as part of its housing element.