What You Need To Know About Amazon’s Stunning Rejection Of New York City
First, there was shock. Then there was disappointment, then anger. Quickly, it all turned to blame.
“I’m pissed off,” Modern Spaces CEO Eric Benaim said shortly after the news broke that the tech giant was no longer bringing its highly anticipated HQ2 to the Long Island City waterfront. "Twenty-five thousand people just lost a weekly paycheck ... New York City just sent a message that the political climate is too crazy and businesses aren’t welcome. That’s the message we just sent.”
In the days since rumors began circulating that the deal was on the rocks, supporters had been scrambling to shift the public narrative. But with HQ2 for New York City now officially dead in the water, developers, brokers and community members mourned what could have been — and pointed fingers at elected officials who they say blew the deal.
“We’ve elected morons,” Meridian Capital Executive Managing Director David Schechtman said, adding that instead of "demonizing" the Jeff Bezos-owned company, the city should have given it a bullet-point list of local demands. “There are offers [in Long Island City] which will be rescinded at the residential and commercial levels … I think you will now see buildings and homes that would have sold, sitting on the market.”
Mayor Bill de Blasio issued a statement saying the city had offered the company the chance to “do business in the greatest city in the world” and that if “Amazon can’t recognize what that’s worth, its competitors will.” The New York Building Congress, which represents construction companies, said “political posturing got in the way of good government policy.”
"A small group of politicians put their own narrow political interests above their community," Gov. Andrew Cuomo said in a statement.
The Long Island City partnership issued a statement Thursday saying the departure was a “tremendous disappointment” to the community, but the fact the area was Amazon’s first choice “highlights just how far we’ve come, with even more opportunities on the horizon.” President Elizabeth Lusskin earlier this week said the deal was the kind locals had been waiting on for four decades, and that people on the ground were “full steam ahead” to make it happen.
On the other side, a coalition of community advocates from New York, Northern Virginia and Nashville put out a statement describing the news as a “major victory” that demonstrates what happens when “we stand up for our shared values and fight for the future” of a neighborhood.
“There was debate on both sides, but it’s very unfortunate that it led to them pulling out rather than reaching a compromise,” said Slate Property Group co-founder David Schwartz, whose firm has developments in the Queens neighborhoods of Dutch Kills and Forest Hills. “The idea that the city doesn’t need this sort of company to locate here is a dangerous thought."
Amazon — notoriously private in its dealings — had in recent weeks tried to sway public opinion in Long Island City in its favor. At a City Council meeting last month, Amazon officials promised to pay for computer science classes at 130 high schools in the city, hire 30 public housing residents for jobs and create a certificate program at LaGuardia Community College.
But many decried the efforts as too little, too late.
“Our local elected [officials] who did not support it have done the city a disservice ... [but] Amazon should have been tougher. We are thick-skinned in New York. They should have been thick-skinned too,” Queens Economic Development Corp. Executive Director Seth Bornstein said. “We’ll always have the labor force they need ... It’s not going to happen with Amazon, but I want to hope other companies will see us as a place for their future.”
The immediate impacts will cut deep.
Brokers said there is no doubting there will be an impact on the local market. Since the day Amazon announced HQ2, commercial real estate data firm Reonomy reported a 36% jump in searches for properties in LIC compared to the previous period.
Compass Vice Chair Adelaide Polsinelli said she is marketing two properties in Long Island City and raised the prices by 20% on both of them when Amazon first announced its New York City intentions. Now, she said, she’s bringing the prices back down and the sellers are “sitting shiva.”
“The euphoria led people to think it was going to be worth more. Now the euphoria is toned down,” she said, noting that Amazon was never in a firm contract to come to the city. “It’s almost smart how they let the news out and they tested the market, saw what the response was.”
Other brokers told Bisnow the excitement had definitely taken hold, and sellers and landlords will be handed a sobering reality check in the post-Amazon world.
Shares in several publicly traded real estate companies with large New York City holdings dipped slightly in the wake of the announcement. SL Green, one of the city’s biggest landlords, which only has properties in the Tri-State Area, saw its stock value dip 1.4%, Empire State Realty Trust saw its shares drop 0.7% and the city’s largest landlord, Brookfield Property Partners, saw its shares drop half a percent.
The firm with perhaps the most at risk is Savanna. Amazon had signed a letter of intent, but not a lease, to occupy the privately held real estate firm's 1.4M SF One Court Square building while the new campus was built. Citigroup had agreed to move 1,100 employees out of the building early to accommodate the tech giant.
“In order to accommodate Amazon’s plans to build a headquarters in Long Island City, we had planned to move about 1,500 people at One Court Square to other floors there or to Two Court Square,” a Citi spokesperson told The Real Deal in a statement. “While these transitional plans may change, our long-term plans to relocate most of our current employees in Long Island City to other New York metropolitan area locations have not changed.”
Some pointed to the neighborhood’s rapidly growing population, its proximity to Manhattan and to the Cornell Tech research campus as reasons Amazon was interested in Long Island City in the first place and why it will remain a strong market.
“Every politician that came out against Amazon will hopefully have a massive backlash,” Marcus & Millichap broker Eric Anton said. “You will see a lot of deals collapse that were being negotiated. You will see land value dip a bit ... but it won’t be a depression.”
Amazon said it will not reopen its beauty contest, but it is not clear what city would get the other half of HQ2, or if Amazon will just hire fewer workers in the future. What is certain is that New York City’s reaction to the incentive package will reshape how deals like this work in the future.
“I think it shows the political process is a big part of this,” said TRC Global Mobility Vice President Jerry Funaro, a national site selection expert. “Amazon had some political and PR miscalculations in not understanding NYC, and I think this is a lesson.
“Obviously, their first focus is on talent and that has a lot to do with site selection," he added. "But you do have to consider things like tax incentives, political climate and housing costs. If one of the other factors go wrong, it can all fall apart.”
Tech consulting firm Everest Group managing partner Eric Simonson agreed it will be a wake-up call for bigger companies.
“Pro-business regions with large labor forces — often associated with the South, such as Atlanta, Dallas, Houston and Phoenix — are likely to use this to their advantage,” he said.
Some say New York wasn’t getting the best deal from Amazon, and lessons learned may be on both ends. The $1.5B in performance-based incentives hinged on 25,000 jobs coming to New York, or $48K per job. That’s well above the national average and what was offered from Northern Virginia, according to Urban Institute Tax Policy Center Research Analyst Megan Randall.
“New York negotiated what I think a lot of experts in economic development policy would call a bad deal, and it was certainly more generous than it needed to be,” she said. “New York put up a lot of public money for a development that would certainly bring a lot of benefits but also bring a lot of cost to the community.”
She also noted the high-profile nature of the HQ2 search process highlighted how secretive in comparison the incentive negotiation process was.
“Had New York clued the public in earlier and had more robust debate on what is fair, maybe the incentive would have been less generous but generated less backlash from a community who felt left out of the process,” she said.
New York’s incentive package used to bring Amazon HQ2 to Long Island City may have been hefty, but Georgetown University McDonough School of Business professor Thomas Cooke (and many others interviewed for this story) pointed out it wasn’t a blank check.
The tax incentives hinged on how many jobs were created, and it is unlikely something with the promised scale of HQ2 will take its place in Queens.
“I can’t imagine any company of that size and magnitude moving in to fill that void,” Cooke said. “It’s going to leave an empty void and missed opportunity.”
As for whether New York’s loss is another city’s gain, he isn’t so sure. He expects Amazon to have a cooling off period and said the company would be wise to question if it needs the second location and, if so, how to reopen the selection process.
“There’s any number of cities this afternoon who are saying, ‘Come on down,’” Cooke said.