“After much thought and deliberation, we’ve decided not to move forward with our plans to build a headquarters for Amazon in Long Island City, Queens… while polls showed that 70% of New Yorkers supported our plans and investment, because a number of state and local politicians have made it clear that they oppose our presence and will not work with us to build the type of relationships that are required to go forward with the project we and others envisioned in Long Island City”
Official Amazon Press Release
“Amazon took their ball and went home”
NYC Mayor, Bill DeBlasio
The biggest news of the past week was the Valentine’s Day headline which hit the new wires verifying recent rumours that tech/retail giant Amazon (AMZN) had decided not to proceed with a second headquarters in New York City. The NYC borough of Queens, New York was announced as the winner just last November after a 14-month public bidding war and “beauty contest” by major cities all over North America, including Toronto.
The announcement was a huge win for NYC as the “win” meant 25,000 new jobs were coming. And those were not “ordinary jobs”. The average salary was $150,000. And the subsequent real estate, construction, spin off boom had already started. AMZN had committed to $5 Billion in capital investments as well.
The competition for the tender was fierce. The city of Stonecrest, Georgia even offered to rename its city “Amazon” if it were chosen.
I’m sure AMZN did its homework over that 14-months and did not make a decision lightly. What changed between November and now?
The US midterm election, that’s what.
Once the US midterm elections were over, the decision was met with widespread criticism. Many accused AMZN of using a “contest” to secure better terms. In the case of NYC about $3 billion in tax incentives. There were also worries about inflated NYC housing costs getting even more inflated.
The fact that many had a problem handing AMZN CEO Jeff Bezos, the world’s richest man, a tax “handout” didn’t sit well with many either.
The debate for or against corporate welfare can be made, and this piece could go on for pages, and I understand the logic on both sides of the debate. But I am a practical guy, and I think in the modern era, this is what it takes.
If individuals can move in droves from high tax states like California, Illinois, or New York to low tax states like Florida or Texas, why wouldn’t corporations use the same logic?
Sport teams have moved from city to city just over new stadiums.
But this day and age, 25,000 jobs and $5 billion in capital investments do not come around every day. I think NYC will rue Valentine’s Day 2019 down the road.
The best description I’ve read which conveys my thoughts came from Peter Boockvar, who is the CIO of Bleakley Advisory Group, and a frequent guest on CNBC. Peter wrote:
What NY has done has resulted in some of the following: Lost jobs. Lost job experience. Lost internships. Lost high paying jobs. Lost life experiences. Lost taxes. Lost construction workers. Lost work for architects. Lost steel, cement production. Lost plumbing supplies. Lost electrical work. Lost carpet and hardwood floor sales. Lost infrastructure improvements in the area. Lost sales at restaurants. Lost food delivery. Lost taxi, Uber, Lyft, bus and subway rides. Lost tickets sales for LIRR NJ Transit and Metro North. Lost car sales. Lost Broadway show ticket sales. Lost Yankees, Mets, Knicks, Nets, Jets, Giants, Ranger, Islander and Devils ticket sales. Lost dry cleaning services. Lost clothing sales. Lost housing transactions and commissions. Lost furniture shopping. Lost household formation. Lost ‘my first apartment.’ Lost airline flights. Lost retail sales on any other thing spent with the money from those high paying jobs.
#EVERYONE LOST #CAPITALISM WORKS
So like that kid in the park when we were kids who spoiled the game by taking his ball home, Amazon kind of pulled that on NYC. Except this isn’t a kids game, this is the real world, and that is their prerogative when they choose to invest shareholders’ capital.
Stay tuned,
Vito Finucci, B.COMM, CIM, FCSI
Vice President and Director, Portfolio Manager
This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers is to be under any responsibility or liability whatsoever in respect thereof. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. ®Registered trademarks of Royal Bank of Canada. Used under license. © 2016 RBC Dominion Securities Inc. All rights reserved.