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With Amazon out, New York City real estate moves on

News of Amazon pulling its HQ2 project from New York City was swift, shocking and stung like a serrated whip.

AmazonProtestAfter all, it was just this past November that the Seattle-based e-commerce giant announced its plan to split its sought-after second headquarters between Long Island City, a neighborhood on the western tip of Queens, and Crystal City, Virginia, just outside Washington, D.C.

Discontent between Amazon and New York city and state officials was no secret. Anti-Amazon protests persisted, citing concerns of rising costs and gentrification. But even to people who were tuned in to the drama, Amazon’s decision to reverse course was a jolt.

“I was in my office when I got the push notification from the New York Times,” said Eric Benaim, CEO, president and founder of Long Island City residential real estate brokerage Modern Spaces. “I saw it and I just yelled. Then everybody started seeing the alerts. My phone pretty much started blowing up.”

Benaim’s real estate firm was one of many that reaped the immediate benefits of the November 2018 announcement. The “Amazon effect” was sudden and pronounced. Patrick W. Smith, an agent with New York City brokerage Stribling & Associates, said in January that “Long Island City shifted from a buyer’s market to a seller’s market in the blink of an eye.” Benaim noted that Modern Spaces sold 150 apartments in the area in a week — 15 times more than average.

“For the first four weeks [after the announcement], we were selling an average of 100 a week,” he said. “Normally, we do maybe 10 a week.”  

“A number of people came in and started buying apartments,” echoed James Wacht, president of Manhattan brokerage Lee & Associates NYC. “There’s a lot of new construction in Long Island City, a lot of new residential buildings going up, both condos and rentals. People got a little bit ahead of themselves and they started signing contracts to buy condos anticipating that Amazon bump.

“Brokers raised the asking price on a lot of buildings between 10 to 20 percent. Obviously, that’s not going to be sustainable at this point. There’s going to be a lot of pullback in the market.”

Just as stark is the equal and opposite reaction — vocal pushback from HQ2 proponents to the elected officials who played hardball with Amazon.

“People in the real estate business are discouraged, definitely,” Wacht said. “A small minority of our elected [officials] who made a lot of noise were able to kill the deal. They’re not representative of the real estate community as a whole here and they’re not representative of the general population.”

“The narrative pushed out [by some elected officials] was completely false,” Benaim added. “It was by a small group of people and a lot of them didn’t even live in the neighborhood.”

A week after Amazon pulled the plug, time hasn’t dissolved the ire of many HQ2 proponents, who are acting not only as real estate professionals but also as concerned New Yorkers.

“There are still a lot of big feelings,” Benaim said. “Listen, 25,000 jobs [that HQ2 was projected to produce] over 10 years, 40,000 jobs over 15 years. That’s hard to get over.

“And that was just Amazon. I had one of my clients who, because of Amazon, decided to change the plans of his project. What he wanted to do, instead of doing all residential, was to make a portion of it [as a] hotel. He was negotiating with a hotel operator and after the news, they pulled out. This hotel was going to generate 400 permanent union jobs. That’s big, and that was just because one person’s plan fell through. We were taking a lot of meetings with people who had big dreams of doing big things.”

On the commercial real estate side, Amazon’s abrupt departure leaves a tenancy void for Long Island City’s iconic One Court Square, where the company was to occupy 1 million square feet. The plan was for Amazon to occupy the void left by longtime tenant Citigroup, whose logo still adorns the top of the 50-story tower. Now, with Citi still planning to exit at some point in 2019 or 2020, the building’s landlords are left holding the million-square-foot bag.

“Now that Amazon’s not taking that space, you have a building that’s basically empty with a big mortgage,” Wacht said. “There’s talk that the owner of that building is going to have some serious issues here. Losing that [tenant] is going to be a serious problem. They’re not going to be able to fill it that quickly.”

The leasing company, Savanna Real Estate, is planning to try and is hoping to make use of New York City's Relocation and Employment Assistance Program (REAP) to give prospective tenants who relocated from other areas up to $20 per square foot in tax credits. Amazon, after all, would have saved a mint from the REAP benefit had it moved into One Court Square. That program, however, ends in June 2020, so Savanna is on the clock to fill the space.

Meanwhile, Amazon’s about-face is already triggering some eager residential buyers to attempt the same thing. CNBC reported that some who signed deals after Amazon’s initial announcement are already trying to back out of them. The whole fiasco “highlights the risk inherent in speculative investment,” said Nancy Wu, an economic-data analyst at New York City real estate site StreetEasy.

Still, a funny thing has happened in the days since Amazon’s reversal.

“Surprisingly, we had 19 more inquiries this week than we did a week before,” Benaim said. “People are realizing that now, those spaces are going to be open. Maybe before, they were put off by the competition. There’s more opportunity now.

“And also, it has been on the news,” Benaim said. “It has been on every single station. It has been in every single publication and every single website for the last week. We’ve gotten free advertising.”

With publicity as a silver lining, Benaim projects that Long Island City will see the surge in demand persist for the next month, maybe more.

Benaim conceded that, yes, there will be regression to pre-Amazon prices. But the positive light shed on Long Island City by Amazon may be a significant benefit.

“We won that big search for a reason, right?” he quipped.

“We’ll be back to business as usual. This was the fastest-growing neighborhood a year ago. We were a hot market three months ago. We’ll continue to be a hot market.”

Wacht, on the other hand, continues to have concerns, including for New York City as a whole.

“The bigger issue here, and certainly it has real estate repercussions, is the message I think that our politicians have now sent to the business community at large that we’re not friendly to business,” Wacht said. “Amazon, what they basically said is that we don’t want to open in an environment where the politicians are going to be hostile to us. That sends a very bad message to businesses. It’s bad for commercial real estate and it’s bigger than that — it’s bad for New York."

Benaim, however, remains bullish on his hometown and his neighborhood.

“It stinks, but somebody can take this as an opportunity,” he said. “Unfortunately, it didn’t work out with Amazon, but Amazon, they’re the biggest guys, so obviously, they’re going to have the biggest target. But now there’s an opportunity for another company to come here and take advantage.”

“We’re New Yorkers,” Benaim said with a laugh. “We’ll be fine. We’re probably the toughest people around. We’re very tough people.”


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