Amazon’s Departure Leaves Developers and Brokers Picking Up the Pieces
Like shell-shocked natives of a war zone after the white flags have gone up, New York City real estate players are emerging in the wake of Amazon’s abrupt headquarters withdrawal to survey the damage.
As far as anyone knew, on Feb. 13, the Seattle-based e-commerce titan was locked into plans it first announced in November 2018 to build a massive new corporate presence on the banks of the East River in Long Island City, Queens. Its proposal there called for a 4-million-square-foot campus near Anable Basin, as well as a 1-million-square-foot tenancy in One Court Square, the iconic Queens tower known as the Citigroup Building. (It also, according to Amazon’s website, expected to generate more than $27 billion in state and local tax revenue.)
On Valentine’s Day, 24 hours later, the deal was in tatters; the ultimate ascendancy of New York City’s fastest-growing neighborhood reduced to a dream deferred.
“‘Somber’ is probably the word to use over here,” said Eric Benaim, the CEO of Modern Spaces, a primarily residential Long Island City brokerage with offices blocks from Anable Basin. “The business owners and the citizens of Long Island City—the majority of us—really wanted this.”
He described the deal as locally popular but said its machinations ground to a halt only in the face of a political insurgency that he claims had little to do with the sentiment of people in the immediate vicinity of the proposed campus. One of the deal’s most prominent critics, according to Benaim, was freshman U.S. Representative Alexandria Ocasio-Cortez, who represents a nearby district but not the territory that would have hosted Amazon.
“I feel bad for the City of New York,” Benaim said. Even before Amazon canceled its plans, Mayor Bill de Blasio announced earlier this month that the Big Apple can expect nearly a billion dollars less in income tax receipts in 2019—days after Gov. Andrew Cuomo revealed that New York State is eyeing down a $2.3 billion shortfall in 2019. Amazon’s advent could have bolstered flagging tax rolls, the Long Island City broker explained.
“This deal probably could have saved us from congestion pricing,” he said.
Some of the deal’s loudest opposition came from critics who bemoaned Amazon’s labor practices. Jimmy Van Bramer, the New York City councilman whose domain includes Long Island City, raked Amazon representatives over the coals for the company’s opposition to its workers forming unions.
“It’s a union-busting deal from the beginning,” Van Bramer said at a televised hearing in late January, as members of the Retail, Wholesale, and Department Store Union cheered on his attacks.
But labor was hardly united against the proposition. Hector Figueroa, the president of 32BJ Service Employees International Union, which represents property-service employees, bemoaned the long tally of jobs that he said could have opened for building workers if Amazon had come to town.
“The news that Amazon has decided to cancel its plans to build its second headquarters in New York City is a disappointing development for working people in our city,” Figeuroa said in an email to Commercial Observer. “The loss of 25,000 direct jobs and many more indirect ones—as wells as the billions in revenue that the project was expected to bring into our city—is unfortunate.”
To be fair, Amazon certainly hasn’t been friendly to labor organizers. But Figueroa said a New York City headquarters could have been a chance for union advocates to make inroads with the company’s employees, forcing Amazon’s hand.
“This is…a missed opportunity to engage one of the largest companies in the world and to create a pathway to union representation for one of the largest groups of predominantly non-union workers in our country,” he said.
Perhaps an even larger sticking point than labor relations for community activists was their outrage that, in exchange for creating a promised 25,000 new jobs, Amazon would have been excused from paying around $3 billion in state and local taxes. The day it was announced that the deal had fallen though, Van Bramer rejoiced on Twitter.
“Defeating an unprecedented act of corporate welfare is a triumph that should change the way we do economic development deals in our city & state forever,” he wrote.
But supporters of the headquarters plan have lambasted their opponents for suggesting that nixing of the arrangement means the city and state could now use that $3 billion for other purposes. (Amazon representatives did not respond to a request for comment.)
“The challenge for New York City was that there was some misunderstanding in the public discourse around the nature of the tax incentives,” Sam Chandan, the associate dean of New York University’s Schack Institute of Real Estate, observed. “It’s not the case that local and state governments were writing checks to Amazon.”
The incentives stacked up like this. If Amazon met its pledge to create 25,000 new jobs, paid an average salary of $150,000, and occupied 4 million square feet within 10 years, it would have been eligible for $1.53 billion in state incentives. That figure would have grown to $1.7 billion if Amazon beat its target and hired at least 40,000 New Yorkers. Most of the money would have come in the form of tax breaks, but the company also would have been eligible for up to $505 million in cash grants.
New York City’s contribution would have been credits for business-income tax totaling $897 million, as well as property-tax breaks worth $386 million, to be earned over 25 years.
But lapses in how well politicians explained the details to the public, Chandan said, resulted in an unconscionable loss of future tax revenue.
“While the tax burden on the company would have been reduced [by the incentives], the long-term benefit to the city was very real,” Chandan said. “The missed opportunity was in articulating what those benefits are or might have been.”
Individual developers at work on projects in Long Island City were, if possible, even more glum. Lodging owner Sam Chang of McSam Hotel Group, at work constructing three separate hotels in the Queens neighborhood, said that he’s just beginning to tabulate the damages.
“Right now, a Long Island City hotel is worth about $300,000 a key,” Chang explained. “With Amazon coming, it probably would have given hotels 10 percent more value—[closer to] $330,000 a key.”
Over the breadth of his planned portfolio in the area, that gap quickly sums to real money.
“There are 700-some rooms I’m building, so I will lose over $20 million, in my opinion,” Chang lamented. (Actually, by his reckoning, more like $21 million.)
Some were even dourer (and hyperbolic). Lightstone Group’s CEO and Chairman David Lichtenstein told The Real Deal Amazon’s move was the worst thing to happen to New York City since the terrorist attacks of Sept. 11, 2001. (Lichtenstein later walked back the comment, saying he meant only the economic impact.)
Compounding the issue for would-be builders in neighborhood’s crowded lodging sector is a zoning measure the City Council passed in December 2018 that requires an extensive permitting process before developers can break ground on new hotels in formerly industrial areas like much of Long Island City.
“Between [Amazon’s cancellation] and the rezoning, it’s a double whammy,” said Gene Kaufman, an architect who’s collaborated on a series of the neighborhood’s newest hotels, including the three that Chang is at work on. Kaufman had been in touch with developers who were scouting blocks near the proposed campus as sites for new lodging assets. “But anyone considering that now will be extra concerned,” he said.
Ancillary businesses can also expect to lose out on what would have been a tremendous boon to their midday trade, Benaim warned. Local residents and hotel guests serve as a dependable customer base in the evenings, but he said the neighborhood could have used Amazon’s promised 25,000 workers to support the neighborhood’s lunch and daytime shopping economy. Speaking to CO by phone from restaurant Manducatis Rustica at 46-35 Vernon Boulevard in Long Island City around noon one day last week, Benaim asked a reporter to note the conspicuous lack of a background mealtime din.
“They don’t have a lunch business here,” Benaim said. Had Amazon’s campus proceeded, “you would have had 10,000 construction workers to help them with their lunch business.”
Even some of the neighborhood’s most vulnerable residents could have come out on top in the deal, its supporters argue—contrary to the pattern that often plays out in gentrifying areas.
“When gentrification happens, there are losers normally. But in this case, the people in Queensbridge are protected,” Kaufman said, referring to a massive New York City Housing Authority development near the Amazon site—the largest public-housing cluster in the country. “Their rents are protected, so they don’t have a downside where they’re going to be pushed out.”
In its deal with the state and local government, the company had pledged to replace an outdated public school with a new 600-seat facility, and to keep Queensbridge residents informed about job opportunities.
“Even though [Queensbridge residents] might not have been taking the $100,000-a-year jobs, any economic activity would have brought some benefit to them,” Kaufman said.
All told, lost opportunities to expand the city’s workforce will mark the most permanent economic loss, said Adam Hakim, a debt broker at Meridian Capital Group who’s worked with Chang on a handful of hotel projects in New York City.
“The story is jobs,” Hakim railed, speaking furiously about Amazon’s decision to back out. “These are jobs that you dream about for your people. Dream about!”
In his view, a successful move would have ranked among the most consequential corporate location decisions in American history.
“This was a way, for the next 25 years and beyond, to set up the number one company in the world in that neighborhood,” he said. “It would have been like Coca-Cola in Atlanta,” referring to the company’s headquarters there.
Moving forward, political leaders will have to find more effective ways to convince their constituencies that corporate denizens can make good neighbors, Chandan said.
Indeed, the brouhaha over Amazon’s campus backed the city’s mayor into an awkward corner: exploring a presidential run as an outspoken progressive, the Amazon debate placed him on the losing side of an ideological clash with Ocasio-Cortez, who’s quickly risen to become one of the left’s most prominent figures.
“I think the degree of concern raised about the Amazon deal is consistent with where we see ourselves in the national discourse,” Chandan said. “But there was an opportunity to take an approach that would have emphasized the importance of partnership [with corporations]”
Among those interviewed for this story, glimmers of optimism were hard to come by. But after reeling off a litany of statistics detailing the lost jobs and tax revenue, Benaim mentioned one figure that he said is keeping him hopeful.
“Long Island City is still four minutes from Manhattan. Nothing has changed about that,” he noted. “We still have the best views ever, still have the best waterfront parks ever, we’re still transportation right, and we’re still the fastest-growing neighborhood in the country.”
Faced with the setback, the neighborhood’s developers have their work cut out for them to keep the momentum rolling.
With additional reporting provided by Lauren Elkies Schram.