AMAZON HQ2

Amazon is hunting for a new headquarters site and offering a huge boost to their eventual host. Wherever they go, Amazon would immediately become one of the top local employers, adding a gusher of new money to the local economy. All those salaries mean more commerce, higher property values, a diversified economy, and a bigger tax base. What mayor could resist?

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Over the last 20 years, no company has won more broadly or more consistently than Amazon. In that short time, they’ve gone from a humble book retailer to one of the most culturally dominant and valuable businesses in the world. Their “search” process for HQ2 shows why. Using the promise of 50,000 high quality jobs, Amazon has cities groveling for their favor in a spectacle that reminds me of a reality TV show. It’s a masterstroke of corporate strategy.

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Despite all the economic benefits, attracting Amazon might be a mixed blessing. Potential host cities are in a race-to-the-bottom to offer the best possible incentives to seal the deal. This competition means that Amazon shareholders will extract much of the value created in the local economy. It’s even possible that the value of these incentives could exceed the value of the local economic boost.

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We’ve seen this before. Professional sports leagues and franchise owners have long extracted major concessions from their host cities. From tax incentives to direct public spending on privately-owned stadiums and arenas, cities respond to carrots and sticks that big sports franchises offer. Make it worth our while, or we’ll go elsewhere. But public dollars spent on inducing team owners directly subtract from cities’ ability to pay for infrastructure and services for their residents. Local citizens can never be sure if they’re really getting a good deal.

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Regardless of the true long-term value, bringing Amazon to town would be a major PR coup for local government. The politicians will gain, and Amazon’s shareholders will be the biggest winners of all. More people and more money will also increase rents, with mixed results for local businesses and citizens.

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As a commercial real estate investor with assets in several possible destination cities, Alliance stands to gain. But higher real estate values do not benefit everybody. The hard-charging approach and undeniable business skills that have helped Amazon dominate one market after another have limits. Public sentiment can change, and too much winning now might create unanticipated problems later. Without long-term popular support, any company risks a public backlash. Amazon would be wise to remember this as they continue negotiations.

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