Amazon Makes it Official, Picks NYC and Arlington, VA for HQ2

John Jordan | November 2018

Long Island City. Photo Credit: Long Island City Partnership

SEATTLE—Amazon confirmed press reports that it decided to split its massive second headquarters requirement (HQ2) and has chosen Long Island City, Queens and Arlington, VA to house those operations that will house 25,000 workers each.

Amazon announced on Nov. 13 it will invest $5 billion and create more than 50,000 jobs across the two new headquarters locations, with more than 25,000 employees each in New York City and Arlington, VA. Amazon expects to receive more than $1.5 billion in incentives from New York State and New York City and $573 million in direct incentives in connection with its Virginia location.

The e-commerce giant did keep one initiative under its hat, a plan to build a new Center of Excellence in Nashville, which will create 5,000 new jobs there.

As part of Amazon’s new headquarters, New York and Long Island City will benefit from more than 25,000 full-time high-paying jobs; approximately $2.5 billion in Amazon investment; 4 million square feet of energy-efficient office space with an opportunity to expand to 8 million square feet; and an estimated incremental tax revenue of more than $10 billion over the next 20 years as a result of Amazon’s investment and job creation.

“We are excited to build new headquarters in New York City and Northern Virginia,” said Jeff Bezos, founder and CEO of Amazon. “These two locations will allow us to attract world-class talent that will help us to continue inventing for customers for years to come. The team did a great job selecting these sites, and we look forward to becoming an even bigger part of these communities.” Among Bezos’ holdings include the Washington Post.

Amazon reports it will receive performance-based direct incentives of $1.525 billion based on the company creating 25,000 jobs in Long Island City. This includes a refundable tax credit through New York State’s Excelsior Program of up to $1.2 billion calculated as a percentage of the salaries Amazon expects to pay employees over the next 10 years, which equates to $48,000 per job for 25,000 jobs with an average wage of over $150,000 and a cash grant from Empire State Development of $325 million based on the square footage of buildings occupied in the next 10 years.

Amazon will receive these incentives over the next decade based on the incremental jobs it creates each year and as it reaches building occupancy targets. The company will separately apply for as-of-right incentives including New York City’s Industrial & Commercial Abatement Program (ICAP) and New York City’s Relocation and Employment Assistance Program (REAP).

Amazon will provide funding to New York City through a Payment In Lieu Of Tax (PILOT) program based on Amazon’s property taxes on a portion of the development site to fund community infrastructure improvements developed through input from residents during the planning process. Amazon has agreed to donate space on its campus for a tech startup incubator and for use by artists and industrial businesses, and Amazon will donate a site for a new primary or intermediary public school. The company will also invest in infrastructure improvements and new green spaces.

“When I took office, I said we would build a new New York State—one that is fiscally responsible and fosters a business climate that is attractive to growing companies and the industries of tomorrow. We’ve delivered on those promises and more, and today, with Amazon committing to expand its headquarters in Long Island City, New York can proudly say that we have attracted one of the largest, most competitive economic development investments in U.S. history,” said New York Gov. Andrew M. Cuomo. “With an average salary of $150,000 per year for the tens of thousands of new jobs Amazon is creating in Queens, economic opportunity and investment will flourish for the entire region.”

“This is a giant step on our path to building an economy in New York City that leaves no one behind. We are thrilled that Amazon has selected New York City for its new headquarters,” said New York Coty Mayor Bill de Blasio. “New Yorkers will get tens of thousands of new, good-paying jobs, and Amazon will get the best talent anywhere in the world. We’re going to use this opportunity to open up good careers in tech to thousands of people looking for their foothold in the new economy, including those in City colleges and public housing. The City and State are working closely together to make sure Amazon’s expansion is planned smartly, and to ensure this fast-growing neighborhood has the transportation, schools, and infrastructure it needs.”

Amazon did not divulge specific locations where it would house its Long Island City campus. The Seattle-based firm did note that hiring at both the new headquarters will begin in 2019. The Operations Center of Excellence will be located in downtown Nashville as part of a new development site just north of the Gulch, and hiring will also begin in 2019.

“By choosing two cities, Amazon won’t drive up the cost of labor as much as they might have by focusing their demand in only one metro,” says Heidi Learner, chief economist at commercial brokerage firm Savills Studley. “However, Amazon already has a significant presence in both the New York and DC area —and these are already cities with tech-heavy employment—so I question to what extent they’ll be able to draw employees without poaching and paying up for talent.”

Learner adds that Amazon will no doubt have to build new space in Long Island City, noting that there are just six existing buildings with at least 100,000 square feet of available space currently in Long Island City, with only a few of the vacant city-owned parcels of size there up for grabs.

Infrastructure, mass transportation, and housing are challenges for Amazon at both locations. Both New York City and Crystal City can see potential pressure in accommodating population growth—whether via public resources, such as schools and mass transit—and potentially higher housing prices in two areas where housing prices are already well above the national median, she said.

Its Arlington, VA (Crystal City) site, which it calls “National Landing,” is located less than three miles from Downtown Washington, D.C.

Amazon will receive performance-based direct incentives of $573 million based on the company creating 25,000 jobs with an average wage of over $150,000 in Arlington. This includes a workforce cash grant from the Commonwealth of Virginia of up to $550 million based on $22,000 for each job created over the next 12 years. Amazon will only receive this incentive if it creates the forecasted high-paying jobs. The company will also receive a cash grant from Arlington of $23 million over 15 years based on the incremental growth of the existing local Transient Occupancy Tax, a tax on hotel rooms.

The Commonwealth of Virginia is investing $195 million in infrastructure in the neighborhood, including improvements to the Crystal City and the Potomac Yards Metro stations; a pedestrian bridge connecting National Landing and Reagan National Airport; and work to improve safety, accessibility, and the pedestrian experience crossing Route 1 over the next 10 years. Arlington will also dedicate an estimated $28 million based on 12% of future property tax revenues earned from an existing Tax Increment Financing (TIF) district for on-site infrastructure and open space in National Landing.

John Jordan
Editor, Real Estate In-Depth