William Saya, CPA
1.16.2019 | Berdon Industry Insights
The recent announcement by Amazon that the retail behemoth would split the location of its HQ2 between several contiguous locations in northern Virginia, the now rechristened National Landing, and Long Island City (LIC) is expected to have far-reaching ramifications for the residential and commercial real estate markets in both areas. New York City Mayor Bill de Blasio described1 the move as “… the single biggest economic development deal in the history of New York City.” The figures released2 by the Empire State Development Corporation (ESD) seem to bear the Mayor’s assessment out, where in Amazon is expected to invest over $3.6 billion over the next 15 years and create $27.5 billion in tax revenue over the next 25 years.
Location, Location, Location
Some observers have noted that Amazon’s decision to create at least 25,000 jobs averaging $150,000 a year in salary in each of the two locations makes a good deal of sense from the perspective of the e-commerce giant. After all, both locations are home to highly educated workforces and are within easy reach of major city centers: Washington, DC, home of the federal government and New York City, center of finance, publishing and culture.
“The biggest factor driving our selection process,” says3 Amazon spokesperson Jay Carney, “was access to available talent and ability to attract talent.”
The choice of LIC was also, no doubt, made more attractive by the subsidies laid out by New York State and City governments which, combined, are reported to have run as much as $3 billion.
In addition, since 2006, over4 16,000 new residential units have come on line in LIC, which has grown to approximately 80,0005 full-time residents. LIC is also home to a vibrant commercial real estate market: JetBlue, Ralph Lauren and Silvercup Studios lease or own commercial space there.
Perhaps better still is LIC’s abundant access to mass transit. LIC is accessible via multiple subway lines, including the 7 line, which serves as the area’s main artery to and from midtown Manhattan. LIC is also accessible via the LIRR, as well as from two commuter ferry stops. Queens County is also home to two major airports, JFK and LaGuardia, both of which offer multiple daily flights to Amazon’s Seattle home base.
Amazon’s Expected Impact and Market Reaction to Date
Amazon’s move to LIC is already having an impact on the commercial real estate market. In November, Savannah Real Estate Fund announced6 that Amazon will occupy 1 million square feet7 of office space at its building One Court Square, the tallest building in Queens. This comes at a propitious time for Savannah, which had been faced with the prospect of an office space consolidation by Citibank, the building’s anchor tenant. In July, it was reported that Citibank planned to shrink its footprint in One Court Square to 400,000 square feet8. Amazon’s plans will make up for the shortfall.
Over the next decade, Amazon is expect to construct four million square feet of commercial space on LIC’s waterfront, with the possibility of expanding up to eight million9 square feet over the next 15 years.
The privately-held, LIC-based plastics company Plaxall also stands to benefit from the move. The company, which owns 12 acres between 46th Road and 46th Avenue, recently developed a plan to rezone the area around the Anable Basin10 where Amazon is expected to construct part of its new Queens campus.
All told, investment in the area is expected to run as high as $3.6 billion. In addition to 25,000 white collar jobs, 1,300 new jobs11 in the construction sector are expected to be created annually through 2033. According12 to ESD, the project is expected to create more than 107,000 jobs, and create over $14 billion in new tax revenue for New York State and $13.5 billion for New York City over the next 25 years.
The positive knock-on effects of such massive amounts of planned investment are already being felt in the NYC metropolitan real estate market and are being hailed as a game changer in the LIC market and surrounding areas.
Given the number of well-paid workers who will be amassing into the area in the coming years, it is no surprise that LIC has already become the locus of what is being called13 “a condo gold rush.” Area residential real estate brokers have reported a surge in interest in LIC, following Amazon’s official announcement. Investors are betting that Amazon’s move to LIC will have the same effect on market prices that Apple, Facebook, and Google have had on the commercial and residential real estate markets in San Jose and San Francisco over the past two decades.
One NYC metro-area real estate agent told14 the Wall Street Journal, “This is like a gift from the gods for the Long Island City condo market.”
Online brokers, such as StreetEasy, Redfin, Realtor.com and Zillow, have seen massive upticks in searches for buying opportunities in LIC since Amazon’s move was announced. StreetEasy’s senior economist Grant Long says15 he expects that “the developers who have been building in the area over the course of the past 15 years are likely to reap the biggest windfalls from the Amazon announcement.”
Since the announcement, concerns have been raised over Amazon’s planned move. Certain community leaders, politicians, and others have expressed dismay about the extent of tax incentives and other subsidies given by the State and City to lure Amazon and are also concerned about the future for current LIC (and surrounding) residents who may be displaced as rents rise. In addition, many are worried about whether the infrastructure (including transit and water and sewer systems) will be sufficient to support the demands placed on them by the development boom associated with Amazon’s move.
NYC: The Next Silicon Valley?
Amazon is not alone in eyeing the NYC metropolitan area; in fact, its decision to select LIC comes in the wake of recent moves by rival tech giant Google, which purchased the Manhattan Chelsea Market building for $2.4 billion. Google has also recently announced a New York expansion, with plans to increase its NYC-based staff by 7,000 over the next decade.
In addition last month, Google announced16 plans to invest $1 billion in the new Hudson Yards development, with further plans to lease 1.7 million square feet at 315 and 345 Hudson Street (a letter of intent was signed for another location at 550 Washington Street). “Google Hudson Square will be the primary location for our New York-based Global Business Organization,” says17 Ruth Porat, Senior Vice President and CFO of Google and Alphabet.
Not to be outdone, Facebook is reportedly planning a NYC expansion of its own. Currently, the social media giant leases nearly 1 million square feet in two Manhattan locations, at 770 Broadway and 225 Park Avenue. However, late last month it was reported18 that Facebook is in talks to lease One Madison Ave, the SL Green owned commercial tower which, for decades, had served as NYC headquarters for Credit Suisse.
To keep up with the latest developments in this fast-moving story, be sure to continue to check in with the real estate tax and advisory experts at Berdon LLP.