Amazon’s Reversal: CRE Insiders and Political Leaders Respond

NEW YORK CITY—It’s hard to listen to people with whom you disagree. And especially difficult when you really disagree. Add to the mix how New Yorkers are known for their strong opinions and the wealthiest man on Earth.

Amazon withdrew its plans to bring its second headquarters to Long Island City, Queens, citing opposition from some political leaders. Several members of the CRE community expressed disappointment, calling the news an “awful” or “sad” missed opportunity. They cited the loss of jobs, tax revenue and economic stimulus. Other politicians and civic leaders opined that Amazon had not shown itself to be a strong corporate partner. The HQ2 became a divisive issue, and one lesson learned was the importance of bringing different people to the table—especially those with whom you may not normally break bread.

Below are highlights of different perspectives on Amazon’s decision:

Voices from the CRE Industry

Andrew Barrocas is the CEO of MNS Real Estate. His firm has more than 3,000 residential units with approximately 30 projects in the Queens market. He was in talks regarding a more than one million square-foot residential building, leasing possibly an entire tower to Amazon. Now that deal is no longer happening. “People made commitments based on the news. People were negotiating contracts, planning buildings, in contract. When the news broke, they jumped on it quickly to solidify deals,” Barrocas told GlobeSt.com.

But it’s not just about his deals. Barrocas commented it’s also not just about the 25,000 jobs Amazon had promised to bring to Long Island City. “It’s really a shame for the 10,000 construction workers that would have been building this for the next 15 to 20 years. It’s the man or woman working in the new restaurant that would have opened that is not there.”

He stated no new Amazon employees had yet moved to New York so there was not a spike in rentals, although that would have happened. He pointed to a direct correlation between employment rates and the rental market. But he said LIC condominium purchases increased as people felt the news bode well for a long-term investment.

If Amazon had proceeded with the HQ2, it would have been like a shot in the arm, accelerating the pace of LIC’s growth, said Barrocas. He added now it may take a little longer but he’s confident the neighborhood will get there.

Robert Whalen, Halstead’s director of sales in Long Island City, called the news “an unfortunate occurrence.” Yet he pointed out that the e-commerce giant’s reasons for selecting LIC remain inherent to its location. With ample parks, the waterfront, short subway rides into Manhattan, a Long Island Rail Road station, and LaGuardia Airport 10 minutes away, the neighborhood offers convenience, connectivity and a high quality of life. “That really doesn’t change,” he said. “Amazon’s November announcement shined a very bright light on Long Island City. Probably more people know about Long Island City than ever before. That’s a good thing.”

Jason Pennington, managing partner at RIPCO Real Estates, told GlobeSt.com that Amazon’s decision would not have a massive impact on LIC’s retail environment compared to its current state. He pointed out that Tishman Speyer’s JACX building is fully leased with Macy’s and NewYork-Presbyterian. “Initially asking rents will stutter but the impact to retail of the Amazon campus beyond the Citigroup Building would have been years out,” said Pennington.

Eric Anton, an associate broker at Marcus & Millichap, who has sold many properties in LIC said, “Clearly this is a major setback for the Long Island City waterfront, principally for high-end office and residential properties.” He pointed out the one million square-foot office space of One Court Square which the owner Savanna intended to lease to Amazon. Citigroup’s lease ends in 2020. He predicted the Amazon news will depress the residential multifamily and condominium market in the neighborhood. “I would expect to see a dip in pricing and an increase in concessions by landlords and owners,” he said.

Political Leaders Respond

Similar to how the real estate industry has interests and people whom they represent, politicians also have constituents whose voices they try to make heard. Some political leaders expressed concerns about the $3 billion in state and city tax incentives.

Governor Andrew Cuomo, who was a strong proponent in the city’s bid for the HQ2 continued to tout New York as the capital of the world and best place to do business. He stated Amazon would have brought 25,000 to 40,000 good paying jobs to the state and nearly $30 billion dollars in new revenue to fund transit, housing, schools and other quality of life measures.

He sharply criticized the opponents of the HQ2, “[A] small group of politicians put their own narrow political interests above their community… the state’s economic future and best interests of the people of this state. The New York State Senate has done tremendous damage. They should be held accountable for this lost opportunity.”

Mayor Bill de Blasio’s statement focused on Amazon.

“You have to be tough to make it in New York City. We gave Amazon the opportunity to be a good neighbor and do business in the greatest city in the world. Instead of working with the community, Amazon threw away that opportunity. We have the best talent in the world and every day we are growing a stronger and fairer economy for everyone. If Amazon can’t recognize what that’s worth, its competitors will.”

New York State Senator Michael Gianaris represents District 12, which includes Queens and Long Island City. He provided the following statement:

“Today’s behavior by Amazon shows why they would have been a bad partner for New York in any event. Rather than seriously engage with the community they proposed to profoundly change, Amazon continued its effort to shakedown governments to get its way. It is time for a national dialogue about the perils of these types of corporate subsidies.”

Corey Johnson, the New York City Council speaker and acting public advocate, provided this statement:

“I look forward to working with companies that understand that if you’re willing to engage with New Yorkers and work through challenging issues New York City is the world’s best place to do business. I hope this is the start of a conversation about vulture capitalism and where our tax dollars are best spent. I know I’d choose mass transit over helipads any day.”

Lessons Learned

Barrocas noted Amazon is more skittish about negative press than other companies. Media accounts including a May 2018 CNN Business article “For Amazon HQ2 Hopefuls, Seattle Serves as a Cautionary Tale” reported on the disputes which arose over Seattle’s increase in homelessness due to an escalation of housing prices relating to the higher salaries for employees at Amazon and other tech companies. It also reported Amazon balked at efforts to raise taxes to address homelessness. On February 14, the Bloomberg BusinessWeek article “Escape from New York” reported on Amazon’s disagreements with local politicians in Seattle regarding housing prices, homelessness and the company’s resistance to higher taxes.

While encouraging large corporations to come to places like Long Island City, Barrocas acknowledged people’s concerns for affordable housing, diversity and schools. “We have to give more buy-in to the people who object and we have to really speak to them. You need to get them on board and say, ‘Hey, you obviously feel strongly about this area. What do you think we should be asking for as a priority?’”

Whalen noted the non-disclosure agreements that the city and state entered into with Amazon started people off on a sour note.

“I understand a lot of the concerns that were raised by people in the community. I understand what they were afraid of. People could have had a better explanation,” said Whalen. “In the future, that should be a takeaway.”

Amazon has stated it will not seek another HQ2 to replace the one in Long Island City. Paul Leonard, managing consultant at CoStar Portfolio strategy, said he expects to see Amazon increase their focus on the Northern Virginia site. What happens in that city will certainly be of heightened interest.