A Blog by Jonathan Low

 

Oct 20, 2018

As Amazon's HQ2 Choice Nears, DC's Virginia Suburbs Check Most Boxes, But...

Rumor has it that Amazon is going to announce the winning metro area for its HQ2 right after the elections November 6.

Handicapping began long ago, but several urban areas - Austin, Chicago, New York and Washington - have continued to attract the most chatter. Washington's northern Virginia suburbs, which can be reached from the city by subway, bike and foot - and which also has three major airports in close proximity as well as the most educated population in the nation - seems a natural.

But that is why many think it won't win; Bezos likes to confound predictable expectations. Las Vegas is taking bets...JL


Karen Wiese reports in the New York Times:

Northern Virginia is business-friendly, with low regulation and taxes. The company needs a strong talent pipeline and urban attributes, like public transportation and culture, that attract employees to move. The region is home to one of the most educated work forces in the country. Amazon already has 2,500 employees in technical roles. Washington National Airport has domestic connections, while Dulles International links up globally. The Metro rail network is one of the busiest in the country. “It is a dense, up-and-coming, mixed-used area that has a lot of opportunity for more development,”

Amazon won’t say a word about where it plans to put its much-hyped second headquarters. Officials in the 20 cities and regions named as finalists say that they don’t know anything — and that even if they did, they wouldn’t share it publicly.
But that hasn’t stopped investors, economic officials and developers from trying to reverse engineer the HQ2 search, to understand what a company seen as embodying the future wants and needs, and what local governments should do to be part of that future.
The growing consensus is that the place that checks the most boxes is Northern Virginia. In online betting forums, it has the best odds of landing the project. Analysts at Citi recently said most investors they spoke with also expected HQ2 to end up in the Washington area, noting that Northern Virginia is home to Amazon’s cloud computing division’s “largest and fastest-growing office outside of Seattle.”
Many have gone a step further, suggesting that Crystal City, an older office area being revitalized just across the Potomac River from Washington, offers the best site. Its upsides: good transit, diverse residents, a friendly business climate and a single developer with a big chunk of land.



“There are a lot of merits to a lot of these places, but at the end of the day, all of the signs are pointing to Crystal City,” said Amy Liu, director of the Metropolitan Policy Program at the Brookings Institution. “I’m just going to say it.”
With few details from Amazon and the 20 finalist areas, experts have been left to study the economic and social fundamentals of a region and search for hints wherever they can find them. The potential prize is huge, with $5 billion in investment and up to 50,000 high-paying jobs, according to the company.
Amazon says it will announce its decision by the end of the year. Other areas that are regularly named as strong contenders include Chicago, Atlanta and Austin, Tex. Washington and the Maryland suburbs are also finalists.
Jeff Bezos, Amazon’s founder and chief executive, already owns the biggest newspaper and the largest mansion in Washington, and his ties to the city have long been a reason that the region tops most lists predicting HQ2’s result. It doesn’t hurt, either, that choosing the area would put Amazon in the backyard of lawmakers just as talk about the company’s labor practices and potential antitrust regulation is picking up.
The interest in the area rose a few weeks ago when Mr. Bezos headlined an event at the Economic Club of Washington, D.C. More than 1,000 executives, ambassadors and politicians gathered in a ballroom and flocked around him, pressing in to take selfies and shake hands.
When the formal program began, Mr. Bezos was soon asked the obvious: Where would he be opening HQ2? The crowd cheered and whistled at the question, posed with more than a hint that the headquarters should be right there in the region, then playfully booed as Mr. Bezos demurred.
“Be nice,” Mr. Bezos, the world’s richest person, pleaded with a laugh.
Northern Virginia is widely considered to have a leg up on its neighbors for some practical reasons. Virginia is seen as more business-friendly, with low regulation and taxes, according to an annual ranking from Chief Executive magazine that’s popular with site selectors. Maryland offered Amazon more than $5 billion in taxpayer incentives, but Virginia has not disclosed its package. Washington also has a 13-story limit on most buildings.
And while Washington and Maryland are reliably Democratic, Virginia is more of a swing state, giving Amazon potential champions from both parties.
“If you had your headquarters in a city and were responsible for tens of thousands of jobs, you could be seen as a good corporate citizen,” said Richard Florida, a professor at the University of Toronto who has followed Amazon’s urban development for more than two decades.
The headquarters search centers on Amazon’s seemingly insatiable appetite to hire enough of the talent it needs. To do so, the company says, it needs to be somewhere with a strong talent pipeline and the urban attributes, like public transportation and culture, that attract other employees to move.



“People want to be where there is vibrancy at the street level,” said Jodie McLean, chief executive of Edens, a developer who has worked around the region and is involved with Washington’s bid.
The region is home to one of the most educated work forces in the country. Amazon already has a growing presence, with more than 2,500 employees in corporate and technical roles, like lobbyists in Washington and engineers at data centers in the Virginia suburbs serving government contracts.
Nearby Ronald Reagan Washington National Airport has strong domestic connections, while Dulles International Airport links up globally. And the Metro rail network is one of the busiest in the country. After Amazon announced the headquarters search, lawmakers in the region approved $500 million in annual maintenance spending for the interstate Washington Metropolitan Area Transit Authority, which oversees the subways.
Crystal City is about as close to Washington as possible while still being in Virginia. It’s one Metro stop away from National Airport, and just a few stops across the Potomac River from Washington.
“It is a dense, up-and-coming, mixed-used area that has a lot of opportunity for more development,” Ms. Liu said.
Other locations in Northern Virginia fit many of Amazon’s requirements. But they’re more suburban, and being in the middle of Seattle has become a central part of Amazon’s identity.


One question that looms over Crystal City, and Northern Virginia more broadly, is whether it is hip enough for the employees Amazon wants to attract. Crystal City is a jumble of mostly outdated, low-slung offices built decades ago for defense contractors, and a smattering of retail outlets. That has left it with a high vacancy rate, around 20 percent, according to JLL, a commercial real estate brokerage.




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Crystal City is one Metro stop away from National Airport, and just a few stops across the Potomac River from Washington.CreditJared Soares for The New York Times

Much of the South Lake Union neighborhood in Seattle was also a civic no-man’s-land, filled with auto body repair shops and parking lots, before Amazon moved there. Some leases in Amazon’s buildings require restaurants to stay open on weekends and through dinner hours — what Amazon called an “18-hour district” — but nearby cafes are often quiet after the happy hour rush subsides.
Crystal City offers another parallel to Amazon’s Seattle headquarters: Much of the land is owned by a single developer, which makes it easier to plan and build in a quick and cohesive way. Until recently, Amazon relied heavily on the investment firm of the Microsoft co-founder Paul Allen, who died Monday, to build its Seattle campus.
JBG Smith, a publicly traded investment trust, owns large swaths of Crystal City, and its chief executive, Matt Kelly, spoke before Mr. Bezos at the Economic Club, fueling yet another round of speculation among HQ2 watchers.
“Everybody is talking about Crystal City,” said Stephen S. Fuller, a leading regional economist at George Mason University. “The fit is good.”
JBG Smith isn’t commenting on Amazon, though in recent months it has hired a public relations agency to respond to HQ2 queries. In its latest investor filing, it said, “Our focus is to put our best foot forward, expect nothing and hope for the best.”
JBG Smith has big plans for Crystal City and has already signed Alamo Drafthouse, the movie theater chain, to anchor a new retail district. It’s working with the local government to convert a highway that bisects the area into a more pleasant, tree-lined boulevard.


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“Some of the dreaming that is going on is just waiting for an accelerant, and that’s what I think Amazon would be,” Dr. Fuller said.
Among some in the region’s real estate crowd, it has become almost a joke that Mr. Bezos should buy JBG Smith outright.
“If you are an opportunist, it looks like this would be of interest,” Dr. Fuller said. “And clearly Amazon has been opportunistic in their whole history.”




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“Everybody is talking about Crystal City,” said Stephen S. Fuller, a leading regional economist at George Mason University. “The fit is good.”CreditJared Soares for The New York Times

Amazon may not have the patience and trust that Northern Virginia can be transformed, especially when Washington already is so rich, right across the Potomac.
“The District has magnificent neighborhoods and magnificent urbanity,” Professor Florida said.
Like everyone who guesses where HQ2 may land, he added a big caveat. “I’m not in Jeff Bezos’ mind,” he said.

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