Amazon’s primed to ignite a real estate market …

You’ve probably heard Amazon has been shopping for a second home.

In typical corporate fashion, Amazon put out an RFP (Request for Proposal) and many North American cities have been falling all over themselves hoping to win the big prize.

And who can blame them?

After all, Amazon is projecting FIFTY-THOUSAND jobs … with an average annual salary of $100,000 … which is $5 BILLION per YEAR … PLUS another $5 BILLION in capital investment.

That’s a LOT of new economic activity to cram into one metro.

Think about it.  Fifty-thousand jobs is enough for every single man, woman, and child in the cities of Cerritos, CA; Harrisburg, PA; or Galveston TX.

Of course, none of those cities are in the running because they’re too tiny.  But the potential impact on whatever metro wins is substantial.

Amazon says they aren’t going to announce until 2018, so we’ll have to wait and see where they end up … and what kind of incentives they get out of the deal.

A quick perusal of the RFP outlines what Amazon is looking for.

Here are some highlights about what Amazon wants in a market …

  • A metro with more than 1 million people
  • A stable and business-friendly environment
  • Urban or suburban locations attractive to technical talent
  • An international airport within 45 minutes with direct flights to key cities
  • Close to freeways
  • High capacity connectivity (fiber optic and cellular)
  • Access to large, educated labor force
  • Attractive community and quality of life for employees

Here’s what Amazon wants in a deal …

  • Access to mass transit to the site
  • “Scale and creativity” in real estate options (it’ll be interesting to see what this looks like)

There’s more, but these are the biggies.

Of course, a business doesn’t have to be Amazon to want these things.  They just have enough clout to make a public spectacle of it.

Meanwhile, there are some things to think about as you watch this unfold.

Primary jobs create secondary and tertiary jobs.

Amazon boasts it’s “been a catalyst for development in downtown Seattle with an abundance of restaurants, services, coffee shops …”.

So it’s not just 50,000 Amazon jobs at stake … it’s billions in local commerce as Amazon’s employees spend big chunks of their salaries in the local community and create lots of non-Amazon jobs.

Amazon claims every dollar they invested in Seattle generates an additional $1.40 for the city’s overall economy.

So on a $5 billion investment, that’s ANOTHER $2 billion in economic juice for the winning geography.

And while local landlords may not rent directly to many of Amazon’s $100,000-per-year workers … Amazon employees’ spending will create lots of lower paying jobs for potential tenants.

It’s a safe bet Amazon’s presence will be good for landlords.

Other employers may follow the leader.

Most companies aren’t big enough to do the kind of research Amazon is doing.

We’re guessing more than a few employers looking to expand or relocate may just decide, “If it’s good enough for Amazon, it’s good enough for us.”

Some businesses may move to the area specifically to be near Amazon.  That’s even more primary, secondary and tertiary jobs.

Again, all very good for landlords.

Don’t end up paying for the farm the city gives away.

Sometimes in their zeal to notch political points or a marquee win, government officials can blow their budgets landing a big fish.

But the big fish … in this case Amazon … doesn’t pay the price.  They’re usually exempted through “incentives.”  Instead, the bill ends up with the locals.

We’re not saying that’s happening here.  We don’t know the terms of any deal.  But it’s something we’ll look at closely when the final deal’s announced.

It’s been reported San Antonio dropped out of the running because of concerns they “would not be highly competitive from a ‘real estate and incentives perspective.’”

San Antonio’s mayor is quoted as saying, “Blindly giving away the farm isn’t our style.”  It probably shouldn’t be yours either.

So pay attention to what the winner pledges … and whether it’s likely to affect property owners or small businesses.

If you’re not careful, you may end up moving in just in time to pick up your share of the tab for the incentives.

The real estate opportunity will develop slowly.

Even though all this is in the news, there’s no easy way for Wall Street hot money to front-run investors into Main Street real estate.  It’s too cumbersome.

So even though you’re watching the opportunity develop on the front page of mainstream financial news, you have a good chance to get in while the getting’s good.

As plans are announced, the impact on local housing, land, retail, and commercial space will become more apparent.

Once the market is announced, the FIRST thing to do is get boots-on-the-ground and build a team.  They’ll help you find the pockets of opportunity.

Our bet is Amazon will pick the best LONG-TERM deal.  They’ve been playing the long game for their entire existence, and Wall Street seems fine with it.

We’d be shocked if the final criteria for Amazon’s decision are primarily financial incentives, which are most important early.

We think the front runners are probably those cities with great infrastructure in terms of airport, freeways, mass transit, education, population, and connectivity.

Cities who don’t already have all this in place probably can’t make investments big enough fast enough to win … no matter how much tax savings and real estate they give away.

Another reason to think the winner will be a bigger metro is the burden of any incentives must be borne by the people and businesses already there.

Many hands make a light load.  If each voter’s slice of the burden is too big, the politicians and Amazon might have a big PR problem.

Amazon’s smart.  If they want big perks without upsetting the locals, they know they’ll need a bigger population to share the load.

But since you’ve read this far, we’ll go out on a limb and say if we had to place a bet (and we don’t), our money would be on Atlanta.

It’s huge, has great everything, and gives the new HQ proximity to both Latin America and Europe.

Of course, we could be dead wrong (and often are), but it’s fun to speculate.

Is Amazon a prime opportunity for real estate investors?

Time will tell, but it’s certainly a story worth watching.  The odds are good.

Any time this much economic activity is pointed at a single market, there’s certainly going to be a lot of opportunity.

The big question is when and where.  Stay tuned!

Until next time … good investing!


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