Roll out the tax break bidding war for Amazon HQ#2

Amazon want to build a second headquarters with some 50,000 workers. Expect the tax break war to begin:

Amazon is seeking proposals from local, state and provincial government leaders, and says it is focusing on metropolitan areas with more than 1 million people. It is also looking for areas that can attract and retain technical workers and “a stable and business-friendly environment.”

News of the search has unleashed a wave of speculation about where the world’s largest online retailer could set up shop. But experts say the company’s decision is likely to be as much about politics as it is about logistics and incentives. Bezos has been a vocal opponent of President Trump’s immigration bans, and earlier this week was among hundreds of tech leaders who urged him to reconsider his stance on the “dreamers” immigration program…

Among the criteria it will consider, Amazon says, are tax exemptions and other incentives, including relocation grants and fee reductions. “The initial cost and ongoing cost of doing business are critical decision drivers,” the company said in its request for proposals.

It added that the location does not need to be in an urban or downtown location, or a development-prepped site. The site should, however, be within two miles of a major highway and have access to mass transit. Amazon said it will give priority to existing buildings that are at least 500,000 square feet and undeveloped sites that measure about 100 acres.

Here is the actual language from page 6 of the RFP:

AmazonRFPp6

This may seem like a perfect scenario for locations (cities and states) to offer tax breaks: the company is growing, it is a major player, and it comes with a large number of jobs. Headquarters are a status symbol for areas but this one includes real jobs and a high-status company.

However, I would still argue a tax break war is a bad idea. Here are a few reasons why:

  1. There will be one winner and a lot of losers. Those who do not win may just offer even deeper breaks to the next possible company. When does this stop?
  2. A massive tax break will offset at least some of the benefits of the headquarters. While it is hard to pass up 50,000 jobs, significant tax breaks mean local governments and residents get less than they might otherwise.
  3. A bidding war puts Amazon in the driver’s seat and may have local governments begging for this. A victory would wipe out groveling but going all in on an offer and losing may reduce the status of a location. (Think of unsuccessful Olympics bids in the past.)

The locations involved could be many but this will not turn out well for many or maybe even all.

The nuisance of Apple’s new HQ vs. it can help double your property values

This article details the complaints of neighbors of the new Apple headquarters facility in Sunnyvale yet ends with this tidbit about property values:

Some worry that the neighborhood of mostly single-story homes built in the 1950s and ’60s is living on borrowed time as long-time residents sell their homes to newcomers.

Housing values in the neighborhood have doubled since 2011, according to Art Maryon of Intero Real Estate Services. And in the first six months of 2017, 24 houses in Birdland sold on average at $1,690,350, according to Maryon.

The increase in property values mirrors what has happened in the rest of Sunnyvale, and across the Bay Area, but Birdland’s proximity to Apple Park makes it even more desirable.

“Many say we should just be happy that Apple is raising our property values,” said Birdland resident Debby MacDonald. “This doesn’t do me much good unless I plan to sell. And I am not sure what we have had to put up with and will continue to put up with is worth the money.”

This presents suburban residents with quite the dilemma: will NIMBYism or raised property values win out? Both are goals for the average suburbanite. They resist significant changes to the character of their community as this can disturb their quality of life through altered scenery, increased traffic, and a change in neighborhood activities. Ultimately, the changes may lower property values. Yet, this massive headquarters may change their neighborhood and significantly raise property values since it houses many employees and is home to one of the most desirable brands in the world.

Someone needs to make sure to follow up on this in a few years or ten years and find out how many residents are left. And even if they cash out – some because they want to and others because they have to (increased housing values can also lead to other increased costs) – those who leave might feel a real sense of loss.

Suburbs to respond to companies returning to cities

Another new issue facing suburbs – in addition to homelessness – is how to respond when companies move their headquarters back to cities:

In Chicago, McDonald’s will join a slew of other companies — among them food giant Kraft Heinz, farming supplier ADM and telecommunications firm Motorola Solutions — all looking to appeal to and be near young professionals versed in the world of e-commerce, software analytics, digital engineering, marketing and finance…

Aetna recently announced that it will relocate from Hartford, Conn., to Manhattan; General Electric is leaving Connecticut to build a global headquarters in Boston; and Marriott International is moving from an emptying Maryland office park into the center of Bethesda, Md…

The migration to urban centers threatens the prosperity outlying suburbs have long enjoyed, bringing a dose of pain felt by rural communities and exacerbating stark gaps in earnings and wealth that Donald Trump capitalized on in winning the presidency…

Long term, the corporate moves threaten an orbit of smaller enterprises that fed on their proximity to the big companies, from restaurants and janitorial operations to subcontractors who located nearby.

It is difficult for any community – whether big city or suburb – to adjust to the move of a large firm out of the community. A number of things are lost: prestige, jobs, philanthropic contributions, and tax revenue. Arguably, suburbs lose more compared to big cities that have broader and more diverse economies: the headquarters in the suburb might be a sizable community anchor.

This may be similar to when suburbs with once-thriving shopping malls try to figure out what to do with that space. It can be difficult to fill the property all at once so suburbs might have to take their time and move one small step at a time.

I’ve argued before that this whole city-suburb competition for headquarters could harm both in the long run as it takes the focus away from a metropolitan effort to encourage business growth. On the whole, it matters less if a company moves from the Chicago suburbs to downtown than if the company decides to leave the entire region for another location. If more businesses move back to major cities, could suburbs find some way to work together to prevent moves? Or, or is the sometimes cutthroat competition between suburbs impossible to stop?

Google and other tech companies continue HQ architecture race

Google just unveiled its plans for a new HQ design:

Apple is building a massive spaceship-like ring around a private eden dotted with apricot trees. Facebook is working on a forest-topped hanger, reportedly with a single room big enough to house 3,400 workers. Now, we have our first glimpse of what Google’s envisioning for its own futuristic headquarters: A series of see-through, tent-like structures, draped in glass, whose interior workspaces can be reconfigured on a massive scale according to the company’s needs.

In a new video released this morning, Google showed off an ambitious proposal for a future North Bayshore campus in Mountain View. The concept was produced by the firms of Thomas Heatherwick and Bjarke Ingels, two of architecture’s fastest rising stars. Heatherwick Studio, based in the UK, was responsible for the torch at the London Olympics. The Bjarke Ingels Group, based in Denmark, is working on a trash-to-power plant in Copenhagen that will double as a ski slope.

The plan they came up with for Google is every bit as radical as one would expect. As Bjarke Ingels puts it, the structures proposed for the new campus would do away with rigid walls and roofs and instead “dissolve the building into a simple, super-transparent, ultra-light membrane.” Inside, giant layers could be stacked, Lincoln Log-style, into different work environments, using a fleet of small cranes and robots. Plant life is suffused throughout the campus, indoors and out.

It’s not an original idea but I was just struck by the juxtaposition of the tech companies more ethereal presence (online, information, brand status) versus their actual physical presence. The Internet may be revolutionary but how exactly do its architects and drivers translate it into physical form? Perhaps not surprisingly, into an open structure with lots of glass, light, life, and flexibility. Somewhere, however, there have to be tech companies operating in concrete Brutalist structures…

It will still be interesting to see how these buildings function. I’ve seen several articles lately about companies going to open floor formats (the anti-cubicle) even as workers don’t always like this lack of privacy. How much building flexibility is too much? Given Google’s plans, how will the architecture fit with the surrounding community of Mountain View? How many years is this expected to be used?

Why the UN is in New York CIty, not suburban Connecticut, San Francisco, Philadelphia, or the Black Hills

I recently read Capital of the World: The Race to Host the United Nations by Charlene Mires. The story of how the United Nations ended up on the East River in New York City in the late 1940s is a pretty interesting tale and I will summarize who was in the running.

1. The Black Hills. From the beginning of the UN process involving multiple conferences and committees, the Black Hills tried to attract the United Nations. This was primarily through the efforts of one persistent booster. The argument was that the location represented a new frontier near the geographic center of the United States with plenty of room for a headquarters.

2. San Francisco. The city successfully hosted the 1945 UN San Francisco Conference and represented a world shift toward the Pacific. In the end, the city was eliminated from the running rather early on because delegates from Europe refused to travel that far.

3. Suburban Connecticut. After focusing on the American East Coast, suburban New York, particularly in Westchester County or near Greenwich, Connecticut was the primary option. UN members did not want to be located in New York City, partly because of a lack of connection with nature and partly because of an interest in building a whole new United Nations city. At one point, the UN had plans developed for several plots of land that would involve tens of square miles for this new city. However, NIMBY concerns from suburban residents put these plans to rest: suburbanites were worried the international organization would disturb their idyllic communities.

4. With the New York suburbs essentially taking themselves out of the running, Philadelphia emerged as a viable option. The city made their pitch as the birthplace of modern liberty. The UN was concerned about corruption in the city. As they wondered if Philadelphia would be possible…

5. New York emerged as the winner after the Rockefeller family put together a deal for land to be offered to the UN on the East River (the current site). While New York wouldn’t allow a large city within a city development, there was enough land for a large building and delegates could take advantage of Manhattan’s amenities. As the UN was deciding on its permanent home, they had been temporarily located on Long Island but the facilities were located near eyesores and the commute was too much for many participants.

To me, the most interesting part of the story was the competition and fervor of boosters from around the United States. Dozens of communities lobbied the United Nations – though some had many more resources than others and only few had realistic chances from the beginning. They envisioned the United Nations providing status as well as economic opportunities.

If New York City suburbanites hadn’t lobbied against the headquarters, we might today know a UN city located 20-50 miles outside of Manhattan. But, of course, it seems natural today that the UN is located in the #1 global city.

Schaumburg’s rise due to relocation of Pure Oil headquarters in 1958

Schaumburg may be well-known for Woodfield Mall but the Chicago suburb was helped on the path to becoming an edge city (see Joel Garreau’s 1991 book) when Pure Oil relocated from downtown Chicago to fields near Schaumburg in the late 1950s:

Frandsen knows it all started nearly 15 years earlier with the construction of the Pure Oil building on the opposite side of Golf Road — the same building that’s now Roosevelt University’s Schaumburg campus…

Though a corporation’s move from the city to the suburbs is a scenario that’s been repeated many times since, one difficulty at the time was establishing a fair and true price for land that had previously been purely agricultural, Frandsen said.

Along with the company’s move came its employees’ relocation to the suburbs as well. Frandsen and his growing family moved to Arlington Heights, one of the nearest residential areas to the office site which was then in unincorporated Palatine Township.

Unlike today, when the one-story building crouches behind a taller strip mall to the south and IKEA to the north, Pure Oil’s headquarters sat like an island among the fields that continued to be leased to farmers.

It is critical to remember that the post-World War II suburbanization boom in the United States wasn’t just about people moving to the suburbs: many businesses relocated as well. Businesses moved for a variety of reasons including being closer to employees, finding cheaper land and lower taxes, wanting to have more “campus-like” developments, and being closer to the homes of executives.

If Pure Oil really did help kickstart the corporate boom in Schaumburg, this story doesn’t sound too different than that of Naperville where the opening of a Bell Labs facility in the mid 1960s along the relatively new East-West Tollway led to a number of other firms also locating nearby. Both Pure Oil and Bell Labs were originally outside of municipal boundaries and were eventually brought into city limits through annexation. Both Schaumburg and Naperville were already communities prior to the coming of these firms and the arrival of new kinds of businesses pushed community leaders to pursue new opportunities. This shift toward office space and white-collar jobs transformed both suburbs.