Amazon splits second headquarters prize between Virginia, New York - source

Amazon will reportedly split its new headquarters between Virginia and New York. Photo / AP

Amazon will open major new outposts in northern Virginia's Crystal City and in New York City, splitting its much-sought investment of up to 50,000 jobs between the two East Coast sites, according to people close to the decision-making process.

An announcement could come early as tomorrow, according to the people, who spoke on the condition of anonymity because they had signed nondisclosure agreements with the company.

An Amazon spokesman declined to comment. The company has said it would make a decision on the high-profile project, which it calls HQ2, this year.

The choice of Crystal City in Arlington County as one of the winners could cement northern Virginia's reputation as a magnet for business and potentially reshape the Washington, D.C., region into an East Coast outpost of Silicon Valley over the next decade.

The decision also would hand Virginia Gov. Ralph Northam, D, and local leaders the largest economic development prize in a generation - one promising billions of dollars in capital investments alone - but could also put pressure on the region's already steep housing prices, congested roads and yawning divide between wealthy and low-income residents.

It also represents a victory for New York Mayor Bill de Blasio, D, and Gov. Andrew Cuomo, D, who had joked that he would change his name to "Amazon Cuomo" if necessary to land the prize.

Northam's spokeswoman, Ofirah Yheskel, did not respond to multiple texts, phone calls and emails Tuesday night (US time). Neither did the office of Sen. Mark Warner, D-Va.

The offices of Sen. Tim Kaine, D-Va., and Rep. Don Beyer, D-Va., whose district includes Crystal City, declined to comment, as did Alexandria Mayor Allison Silberberg.

Arlington Director of Economic Development Victor Hoskins also did not respond to inquiries.

Other final suitors included the District of Columbia, Montgomery County, Maryland, and 16 other jurisdictions Amazon has considered since narrowing its list in January. News of the decision was first reported by the Wall Street Journal.

Amazon's decision to split the project rather than open a second headquarters on par with its Seattle campus has angered some who said the company had ginned up competition among cities only to change the rules midstream. Some said it was unfair that the company seemed to be considering only sites in more affluent communities.

Amazon launched the project in the fall of 2017, dubbing it HQ2 and issuing search criteria for "a second corporate headquarters" with as many as 50,000 jobs and an investment of US$5 billion ($7.4b).

Amazon CEO Jeff Bezos personally described the scope of the project, saying in a news release: "We expect HQ2 to be a full equal to our Seattle headquarters." (Bezos owns The Washington Post.)

Others said a split makes sense for Amazon because of the difficulty of finding 50,000 qualified workers - many of them computer engineers - in a single region. Dividing the project also could ease concerns about the pressure that Amazon's growth could put on housing, transportation networks and schools.

In picking Crystal City, Amazon opted for a close-in suburban site, just across the Potomac River from Washington, D.C., and a half-mile from Reagan National Airport. Outdated buildings and underused properties now fill the site, including yawning vacancies in some of the office buildings.

In New York, the company had been eyeing a neighborhood in Queens called Long Island City. Long Island City is across the East River from midtown Manhattan.

Arlington County offered Crystal City as part of a joint bid with an adjoining property at Potomac Yard, in the City of Alexandria. The state played a leading role in sponsoring the bid, including offering incentives that have not been disclosed publicly.

The selection represents a triumph for the growth strategy of Arlington and Alexandria to promote development along mass transit routes. The site is close to the Crystal City Metro station on the Blue and Yellow lines, and the planned Potomac Yard station scheduled to open in 2021.

But residents in the nearby Del Ray neighborhood in Alexandria expressed worry earlier this year that Amazon's arrival would worsen daily rush-hour backups that already slow traffic to a crawl, and erode the quality of life in their neighborhood of mostly single-family homes.

The decision marks a dramatic upturn in fortune for Crystal City, which lost thousands of jobs when military agencies and defense contractors departed in the Pentagon's Defense Base Closure and Realignment Commission (BRAC) process, beginning in 2005.

The initial building that Amazon would occupy is at 1851 South Bell Street or 1770 Crystal Drive in Arlington, Virginia, according to individuals familiar with the decision.

One advantage is the properties are all overseen by a single, well-capitalised company, JBG Smith. The US$4.4b company is the region's biggest real estate owner, most active developer, and owns a majority of the property in the bid - enough to accommodate the entire project on its own.

Amazon's choice also burnishes northern Virginia's standing as an attractive site for corporate headquarters. In the last 15 years, it has lured Volkswagen Group of America to Herndon, Northrop Grumman to Falls Church, Hilton Worldwide to Tysons and Nestle's US headquarters to Arlington.

Northam said in March that the state's pitch centered on workforce development, inclusivity and transportation, along with quality of life.

Although 238 locations initially submitted proposals to Amazon, the Washington, D.C., region was considered a favorite from the outset by many experts due to Bezos' personal connections in the region, particularly the US$23 million mansion he purchased in the city's Kalorama neighborhood last year and his ownership of The Washington Post.

Others suggested that Amazon executives want to be near Washington to cozy up to the federal government, either because of increased concerns that regulators may pursue antitrust actions against the company or because the federal government has become a critical Amazon customer.

Virginia also offers the political advantage of being a purple state, making it easier for the company to seek support from both political parties.

Amazon previously announced that it would headquarters its cloud computing unit, Amazon Web Services, in Herndon, near some of its data centers.

The Washington area also naturally fit many of the criteria Amazon called for in its search, among them a deep workforce of talented workers, a robust public transit system and easy airport access.

In discussions with local officials earlier this year, Amazon executives were especially focused on the quality of the workforce and availability of affordable housing, according to Arlington Economic Development Director Victor Hoskins.

When Amazon narrowed the list of contenders to 20 in January, it included three in the Washington area - the District, northern Virginia and Montgomery County - more than any other part of the country.

Unlike other contenders such as Chicago or Dallas, northern Virginia largely lacked a single site able to accommodate the entire project.

Amazon launched its search in September of 2017, vowing to make a decision by the end of 2018 and occupy an initial building of 500,000 square feet in 2019.

The company claims that its Seattle headquarters injected US$38b beyond what the company spent on its buildings into the area economy, generating an additional $1.40 for every dollar the company spent.

Seattle officials have not disputed the figures, but have also been racing to keep up with the company's staggering growth and the requirements it places on public transit, schools, road networks, parks and utilities. The company now has more 45,000 employees, occupying than 40 buildings and 10 million square feet of office space.

Compared with other large corporations, Amazon employees are less likely to commute by car, as about 55 per cent either walk, bike or take public transit, according to a survey the company did of its Seattle workforce. The company purchases transit cards for employees and is building a dedicated cycle track to separate bikes from cars near its Seattle buildings.

Amazon's growth is also likely to put new strains on housing. Since Amazon's arrival, Seattle has become one of the most expensive places in the United States to live, forcing lower-income residents to move to far-off suburbs. The city and surrounding King County declared a state of emergency in 2015 over homelessness.

Even without Amazon, the Metropolitan Washington Council of Governments estimated that the region needs to add 235,000 housing units by 2025 to keep pace with expected job growth. Amazon's arrival could push the goal above 275,000, according to a recent analysis by the Urban Institute. Right now it is only on pace to add about 170,000 new units by 2026.

Since beginning the headquarters search, Bezos and the company made several announcements that could soften the company's image in the public eye as it moves to open its second hub.

Bezos announced in September that he would donate US$2b of his own funds to support groups battling homelessness in America and create a network of preschools in underserved communities. In October - after bearing months of criticism from Sen. Bernie Sanders, I-Vt., over its treatment of workers - Amazon announced that it would raise its minimum wage for all employees to US$15 per hour.

The minimum wage decision isn't likely to have much effect on the company's hiring in northern Virginia, where Amazon says its facility will employ mainly white collar positions with an average salary of more than $100,000 a year.

Before Amazon announced its search, Washington-area jurisdictions - forced in part by federal budget cuts - had already been diversifying their workforce away from a reliance on federal spending. The region gained more than 55,000 jobs annually from 2015 to 2017 despite budget cuts and stagnation in Congress. But its job growth has been slower than average among major metropolitan areas.