WASHINGTON, DC–Last week Amazon announced its list of 20 cities or areas that made its first cut in its site selection process for a second headquarters.
For officials from the cities on the list the big reveal was a moment to celebrate and then get ready for some bruising work ahead as they continue to compete for the prize. The list, however, was also of great interest to another group: commercial real estate investors that are becoming increasingly interested in and willing to invest in secondary cities.
“If you kick out the gateway cities you have an interesting list of second tier markets,” Scott Crowe, chief investment strategist of CenterSquare, tells GlobeSt.com. “I think it's interesting because Amazon showed its hand in terms of what tenants look for and that's always what we are trying to find out — where the tenants want to be,” he says.
Crowe says that the list is “very consistent with out view of the world…we have a lot of investment in these cities and in other places we have considered making an investment.”
Is he looking at any new cities on the list? Let's put it this way, Crowe responded: “We are looking at this list to see if we missed anything.”
Experts in the space might argue that lists of secondary markets attractive to CRE investors already exist but Crowe points out that out of 50 interesting submarkets in the US it is not possible to invest in all of them. What Amazon has done is cull those 50 sites to a manageable list of twenty. Also, some investors are still shaking off the effects of the last cycle during which many got burned by investing everywhere. “There are a lot of good secondary cities that have been overlooked by capital for these reasons,” Crowe says.
Some Criteria to Cull The List
To be sure, investors to say nothing of economic development officials, will be watching closely to see what criteria Amazon uses to pare the list down and ultimately select the winning location. It is anybody's guess, of course — and Amazon has done a remarkably good job of keeping its deliberations from being leaked. But observers are free to make guesses and most have.
Jeff Holzmann, the managing director at iintoo, suggests that Amazon will not want to enter a market that has what is called a Class Bravo airspace. “Class Bravo is an aviation term that the Federal Aviation Administration has coined, which designates that top 13 or 14 airports in the country,” he tells GlobeSt.com. “Places like New York, places like Denver, Houston, Los Angeles, Chicago and Washington DC.”
The reason for this is obvious if you have ever flown into one of these airports, Holzmann continues: a good portion of the time flights are late, the airports are congested even when they are not and traffic can be a nightmare getting in and out. “Amazon, in my opinion, will not want to move into an area where their employees, their customers and suppliers have a hard time navigating.”
On the other end of the spectrum, Holzmann said, Amazon is not going to locate in a tier three township, where you are an hour's drive from the closest regional airport.
Amazon is planning for the twenty-year plus time frame, Holzmann says. That means places like Austin, Texas and Columbia, Ohio, in his view. “They have regional airport and are easy to move in and out of, and they have a lot of talent.”
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
