Amazon ditches NY for HQ2, Colorado will be a big winner

NY provides 3 billion in incentives to land Amazon.  Colorado offered 100 million.  Amazon selected NY only to break up with them this week and ditch their expansion plans.  Colorado will be a big winner of this recent breakup.  Sounds like the recent Bezos love triangle!  How does Colorado win?  Why did Amazon ditch NY for cities like Denver?   How will Colorado real estate be impacted?

 

Why did Amazon break up with NY?

Originally Amazon was going to put 25,000 to 50,000 high paying jobs in NY.  This all changed last week as Amazon abruptly pulled the plug on NY City for their HQ2 expansion.  Here is what Amazon said of their decision: “For Amazon, the commitment to build a new headquarters requires positive, collaborative relationships with state and local elected officials who will be supportive over the long-term.”

Several local politicians made it clear that they did not support Amazon coming to the city for various reasons.  Media outlets reported that Amazon wasn’t willing to face the political backlash.  Unfortunately, this is a very oversimplified answer to what occurred.

What is the real reason that Amazon dumped NY?

1. Costs: I suspect Amazon wasn’t happy about the costs of the relocation to NY. NY has high property taxes, local and state taxes.  Furthermore, the new tax law increased the costs further by capping deductions.  Along with the tax issues, building costs continue to balloon due to various labor requirements in NY that required Union labor   For example a journeyman carpenter in New York makes $50 an hour — with an additional $50 an hour in benefits — and many journeymen are used for jobs that don’t require anywhere near their level of skill.  The incentive package in NY was basically an offset to the increased building costs.
2. Saw writing on the wall: Through this process Amazon saw the writing on the wall that NY wasn’t going to be a good fit.  Local politicians were blaming Amazon for various social woes and the whole process in a nutshell was a “pain in the ass” for Amazon.   Why would Amazon subject itself to the “drama” in NY.

Amazon, abruptly eliminated the NY headquarter relocation for the two reasons above.  Everything else was just noise.  Amazon’s elimination of NY will be a positive for Colorado.

 

Colorado was a top contender in the HQ2 search

Depending on what media outlet you prefer, Denver ranked somewhere in the top 5 cities throughout the country (The NY times had Denver at 4) and on top of that Colorado wasn’t going to be a pain in the ass like NY!   Amazon basically used the initial selection process to see what benefits they could gain from each city and encouraged competition among cities for the sweetest package.

With Amazon’s growth it was an exercise to not only gain benefits from cities but also have cities do the hard work of sending proposals to Amazon as opposed to Amazon having to do all the work themselves.  This information will be critical in future site selections as Amazon continues to grow.

Amazon is already in Colorado

Amazon is already in Colorado with a corporate office, distribution center and a web services division.  They have between 3-5k employees already in the area.  They have quietly added employees over the last several years and continue to have numerous job openings in the area.  Denver is one of 16 regional offices throughout the country.

Amazon will follow the google model

All the drama in NY taught Amazon a valuable lesson.  When Google decided to build a facility in Boulder, there wasn’t a countrywide pageant.  They chose the location and started adding employees.  Boulder now employs over 3k people in Boulder, Colorado.

Amazon will likely follow the Google model going forward and continue expanding in existing locations like they are doing now in Denver.  Many of the employees that were bound for NY will end up in places like Denver where Amazon already has a presence.

Why will Colorado benefit from the NY debacle?

Denver is a young city with one of the most highly educated workforces in the country which is why Denver was in the top list for the HQ2.  The education levels of the front range are why Google and others have chosen the area to expand.  This well-educated workforce will continue to attract the likes of Google, Amazon, Facebook, Intel (in Fort Collins), etc…

Amazon Spokesman Adam Sedo confirmed in an email to the Business Journals that the 25,000 jobs planned for New York will be spread among these cities or metropolitan areas: Atlanta, Austin, Boston, California’s Bay Area, Chicago, Dallas, Denver, Detroit, Los Angeles, Minneapolis, New York, Phoenix, Pittsburgh, Portland, San Diego, Toronto and Vancouver.

If I take 25k divided by the 16 sites (assuming no further expansion in NY after the HQ2 drama), Denver and the front range would get 1500-2000 new high paying jobs, with as many as 4k as Amazon continues to grow.

The average salary of these new positions is over 100k.  All of these employees will need housing and demand various commercial amenities (restaurants, grocery, etc… ).  These high paying employees will help drive the front range’s real estate market.

The multiplier effect: One of the best ways for a city or state to generate jobs for less-skilled workers is to develop and attract high-tech companies that hire highly skilled ones.  High-tech knowledge jobs have the highest multiplier effect.  For each tech job five additional jobs are created (Brookings), two of these jobs are professional (doctors, lawyers, bankers, etc…) and 3 are trade (store clerks, plumbers, etc…).  As Amazon ramps up in Denver, 2k direct jobs and 10k indirect jobs including 4k of additional professional jobs.  If amazon increased employment in Colorado to 4k, the total impact would be 24k jobs of which 12k would be highly paid professional positions.

Colorado’s future

Colorado has carved out a niche as an “inland” silicone valley with considerable tech and other entrepreneurial talent relocating to the area.  This trend will not only continue but accelerate as Denver and Colorado’s young well-educated work force continues to grow and attract high tech companies.  Amazon’s decision to scrap NY for HQ2 will increase the draw to Colorado and other locations with less “drama” than the coastal cities.

 

Additional Reading/Resources

 

 

1. https://www.bizjournals.com/austin/news/2019/02/14/amazon-cancels-plans-to-put-part-of-hq2-in-new.html
2. https://www.usatoday.com/story/money/business/2019/02/14/amazon-hq-nyc-dropped-amid-local-political-opposition/2870130002/
3. https://www.bloomberg.com/opinion/articles/2018-11-15/amazon-s-hq2-costs-more-in-new-york-because-of-unions
4. https://www.democratandchronicle.com/story/news/politics/albany/2018/11/13/new-york-amazon-incentives-billion/1986979002/

 

5. http://www.documentcloud.org/documents/4249229-AmazonHQ2-DenverPost.html
6. https://www.denverpost.com/2017/11/16/colorado-releases-amazon-hq2-proposal-pitching-denver-area/

 

 

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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

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