Amazon Reportedly Eyeing a Return to New York City. It Makes Sense.
05 Jun 2019
After publicly dumping New York City and its plan to build part of its second headquarters on Valentine’s Day, Amazon just might be thinking it wants the city back.
The Jeff Bezos-led online retailer has reportedly been in talks to lease space at Brookfield Property Partners’ One and Two Manhattan West developments along with the commercial portion of Vornado Realty Trust’s redevelopment of the James A. Farley Post Office building near Penn Station, according to The New York Post.
While Amazon’s plans in Long Island City, Queens, called for a nearly 4-million-square-foot campus, the company’s potential new Manhattan outposts would only have about 100,000 square feet to start, the Post reported.
A spokesman for Brookfield called the Post report “false.” A spokeswoman for Amazon said, “We don’t comment on rumors or speculation.”
However, experts said that many of the reasons Amazon was drawn to Long Island City in the first place—the talent pool and the city’s status as a hub for other industries—remains true in Manhattan and means the tech giant can’t ignore New York City even after the backlash it received.
“New York is still a gateway global market that a lot of companies seek to have a presence in,” said Matthew Schreck, a quantitative strategist for the online commercial real estate marketplace Ten-X Commercial. “Amazon already has a presence here and there are evident reasons why they might seek to expand that.”
With Amazon looking to expand its business outside of e-commerce, it would need to grow to something bigger than its current 4,000-person workforce to gain a foothold.
“If you have a major company, I think you have to be in New York,” said Eric Benaim, the CEO of Long Island City-based residential brokerage Modern Spaces. “[Amazon’s] looking to expand and get into advertisement and media, and if you want to be in those sectors you do have to be in New York.”
But unlike Amazon’s previous plans to build its own campus in Long Island City—which was expected to bring 25,000 workers to the neighborhood—the Manhattan office likely won’t attract the same amount of attention. It won’t have the same impact on the Far West Side that HQ2 would have had on Queens and people likely won’t be buying condominiums in the area through text messages.
“It’s still important because it’s a company of Amazon’s magnitude, but less important in a transformative sense than the whole prospect of them building their own space,” said Schreck.
The state and city’s deal with Amazon called for them to pay for the construction of a middle school in Long Island City, but Amazon wouldn’t have to do anything similar if it just leases space, Benaim said.
“They’re just going to be tenants in Manhattan,” Benaim said. “They’ll be able to expand and not have to build a school and really be involved with the community.”
But even as simply just a tenant, Schreck said an Amazon outpost would be a boon to Brookfield and the submarket. Brookfield has been building the 58-story Two Manhattan West, scheduled to come online in 2022, without an anchor tenant and Schreck’s research shows there could be a “glut of unleased space” in the neighborhood when all in development office space comes online in the next few years.
And if it’s an anchor tenancy they’re after, Amazon has a number of attractive New York options that wouldn’t necessitate all the accompanying scrutiny of taking over a neighborhood. Silverstein Properties’ Two World Trade Center in Lower Manhattan is still in search for an anchor tenant.
“Nothing would make Larry Silverstein happier than having a solid anchor tenant in that building,” Jessica Lappin, the president of the Alliance for Downtown New York, said. “[Amazon] would be a key component.”
A source said Silverstein had not been in talks with Amazon.
Even so, Lower Manhattan would be a great option for Amazon because of its myriad transportation options, including several subway lines and ferries to New Jersey, Lappin said.
“The creative workforce is increasingly in places like Brooklyn and New Jersey,” she said. “Lower Manhattan gives them a competitive edge in terms of access to that talent.”
Probably the biggest explanation for the about-face, however, is that it’s also becoming impossible for Amazon to ignore the city’s pool of talent in the wake of other tech companies like Facebook and Google expanding their footprint, Benaim said. Google has been buying property around Manhattan recently for offices and this month picked up the Milk Building at 450 West 15th Street for $600 million from Jamestown Properties.
“Google’s obviously expanding like crazy in New York and other major tech firms are expanding,” said Benaim. “If you want to have access to the best tech employees, you have to be in New York.”
For years, Silicon Valley has been seen as the hub for tech companies and workers. But in recent years Gotham has been giving California a run for its money.
A CBRE report from July 2018 found the city added a total of 70,500 tech jobs—which includes developers, programmers and information systems managers—from 2011 to 2017. It became the second largest market in the country for the sector right behind San Francisco.
“New York is just a great magnet for producing talent and we have a lot of employers willing to hire,” Nicole LaRusso, the director of research and analysis for CBRE, previously told Commercial Observer. “We’re a good engine for producing the talent, attracting more talent and hiring the talent.”
The report also found that the growth of tech jobs contributed to about 10.6 million square feet of office space being leased in the five boroughs, or about 150 square feet per person. Tech also expanded at a much faster rate than other sectors in the city, growing at an annual rate of 5.7 percent compared to the 1.9 percent for other fields.
Part of the reason tech workers keep flocking to New York City—and what made Amazon chose it for part of its new headquarters along with Arlington, Va.—is because it’s already a such a desirable place for people to live and work.
“The energy, creativity and dynamic aspect of the city has been drawing people for centuries,” said Lappin. “If you want to have the best people working for you, you have to have a presence in New York.”
Perhaps the biggest question remains is this: Can Amazon withstand the political and popular scrutiny of a city that has decidedly mixed feelings about its presence?
In November 2018, when Amazon officially selected the western Queens neighborhood to host part of the company’s headquarters outside of Seattle, the real estate community’s reaction was unvarnished joy, but it produced a backlash from a group of residents, elected officials and community groups thanks to the nearly $2.5 billion in tax breaks the city and state offered to Amazon.
Amazon withstood public rallies and contentious City Council meetings for months. Reportedly, one of the final straws came when State Sen. Michael Gianaris, who represents Long Island City and was one of the most vocal Amazon critics, was nominated to the Public Authorities Control Board that needed to approve the tax subsidies given to the company. (A spokesman for Gianaris did not respond to a request for comment.)
On Feb. 14 this year, Amazon officially pulled out of its plan and blamed “a number of state and local politicians [that] have made it clear that they oppose our presence and will not work with us to build the type of relationships that are required to go forward with the project” in a statement.
Sources told the Post that Amazon’s return to New York City was a way to stick it to politicians like Gianaris and Rep. Alexandria Ocasio-Cortez who opposed the tax breaks it would receive.
However, writer Jordan Weissmann argued in Slate that the Manhattan office would “prove the basic point many of the deal’s critics made, which is that major cities with large pools of business and engineering talent do not need to stoop to corporate welfare in order to attract major tech companies.”
Of the $2.5 billion in subsidies originally offered to Amazon, the city gave roughly $1.3 billion in tax breaks through the Relocation and Employment Assistance Program (REAP) and Industrial Commercial Abatement Program (ICAP), according to a memorandum of understanding (MOU) released in November.
The REAP benefit is only available if companies relocate jobs to certain areas in the outer boroughs and above 96th Street in Manhattan, according to the city.
ICAP is only offered to companies that build or heavily renovate buildings in the outer boroughs and certain neighborhoods of Manhattan and won’t be something Amazon could take advantage of if they simply lease space in a property, according to Benjamin Williams, a property tax lawyer at Rosenberg & Estis.
“They’d be treated just like another tenant,” Williams said. “They’re not going to get any special property tax breaks for renting 100,000 square feet in Manhattan.”
The biggest chunk of promised subsidies in Amazon’s Long Island City deal came from the state’s Excelsior Jobs Program. Under the squashed plan, the state would’ve given $1.2 billion in tax exemptions if Amazon met its 25,000-employee job creation target within 10 years. The Excelsior program can be offered to companies who simply lease space in the state if they create enough jobs and make capital investments.
In April, Netflix announced $100 million expansion plans in New York City and inked deals for 100,000 square feet at 888 Broadway and 161,000 square feet in Bushwick, Brooklyn. Under the deal, Netflix is eligible for up to $4 million in tax credits through the Excelsior program if it creates 127 new jobs by 2024 and retains them along with Netflix’s current 32-person workforce for another five years, according to Gov. Andrew Cuomo’s office.
Regardless of Amazon’s motives, the company likely won’t receive the same attention for leasing space in Manhattan as it did when it tried to move into Long Island City, Benaim said. Their first HQ2 attempt came with a nationwide contest with municipalities promising the company the moon. Plans included housing, schools and all sorts of goodies, but not this time.
“Manhattan is the capital of the world,” he said. “It’s used to being landlords to major tenants. You’re not really going to see anything like [you did with] Long Island City.”
BY NICHOLAS RIZZI
Source: Commercial Observer