A major factor in Amazon.com Inc.’s choosing Queens as one of two sites for its second headquarters was the generous subsidies offered by New York’s city and state officials.
Last week, when rumors swirled that the borough’s Long Island City (LIC) neighborhood was a top pick, Gov. Andrew Cuomo said: “I am doing everything I can. We have a great incentive package. I’ll change my name to Amazon Cuomo if that’s what it takes. Because it would be a great economic boost.”
Would it? And how big is that package?
The shroud of mystery was lifted Tuesday, when Amazon (NASDAQ: AMZN) confirmed that LIC was indeed the spot. According to Amazon:
- Amazon plans to build about 8 million square feet of space.
- It will receive performance-based direct incentives of $1.525 billion based on the company creating 25,000 jobs in Long Island City.
- This includes a refundable tax credit through the state’s Excelsior Program of up to $1.2 billion calculated as a percentage of the salaries Amazon expects to pay employees over 10 years.
- That equates to $48,000 per job for 25,000 jobs with an average wage of more than $150,000.
- Amazon also received a cash grant from Empire State Development of $325 million based on the square footage of buildings occupied in the next 10 years.
- Amazon will also apply for as-of-right incentives including N.Y.C.’s Industrial & Commercial Abatement Program (ICAP) and the Relocation and Employment Assistance Program (REAP).
The company will receive these incentives over the next decade based on the incremental jobs it creates each year and as it reaches building occupancy targets.
In the months leading up to the announcement, Amazon — and its billionaire CEO, Jeff Bezos — were notoriously tight lipped on the topic of incentives. The Seattle-based e-commerce giant always maintains secrecy when negotiating with local officials and reportedly asks to be notified whenever public information requests are made concerning its projects.
While Cuomo was expected to grant Amazon a bevy of concessions to open an office hub in N.Y.C., no matter which neighborhood Bezos and company chose, LIC has one perk that may have swayed Amazon’s decision.
This year, the neighborhood was deemed an “opportunity zone.” That classification comes with a suite of generous tax benefits for real estate developers.
“The opportunity zone designation may have influenced the company’s decision,” Jessica Millett, co-chair of the tax department at Duval & Stachenfeld LLP, told me. “Essentially it’s meant to encourage investment in these specified areas.”
Opportunity zones were chosen by governors out of a pool of census data that tracks low income areas based on median family income. Some of the opportunity zones may not be strictly low income, but the areas adjacent to them might be.
The way the tax benefits work, Millett explained, is that Amazon takes its capital gains and invests them into an entity called an opportunity fund, which would then go and buy property in these “opportunity zones.” It can defer tax payments — for years. To qualify, all it has to do is improve the area with, say, a public school. And that’s exactly what Amazon intends to do.
Per the prepared statement:
The community will benefit from New York City providing funding through a Payment In Lieu Of Tax (PILOT) program based on Amazon’s property taxes on a portion of the development site to fund community infrastructure improvements developed through input from residents during the planning process. Amazon has agreed to donate space on its campus for a tech startup incubator and for use by artists and industrial businesses, and Amazon will donate a site for a new primary or intermediary public school. The company will also invest in infrastructure improvements and new green spaces.
Here’s a further breakdown of the incentives an investor, in this case Amazon, can enjoy:
- If an investor holds a qualified opportunity fund (QOF) investment for at least five years, 10 percent of its deferred gain is permanently forgiven
- If the QOF investment is held for 7 years, 15 percent of the deferred gain is permanently forgiven
- If the investor holds its QOF investment for at least 10 years, there is no tax at all on the gain realized by the investor at exit
Now there are various other tax benefits for a company to claim, including whatever perks Cuomo and city officials negotiated, Millett added.
“They will pay taxes eventually, but there’s enough in the opportunity fund and legislation to certainly be of value to Amazon if they decided to structure their headquarters in an opportunity zone,” Millett said.
LIC was already experiencing rapid development and rising real estate prices. Had Amazon chosen just LIC, and not Crystal City, it was expected to replicate the amount of space it has in Seattle — equal to that of five Empire State Buildings.
A big issue drawing scrutiny is whether Amazon, currently touting an $802 billion market capitalization, would raise the risk of displacing existing residents.
Critics say the uptick in those highly-skilled, highly-paid workers will drive up both the demand for and cost of housing. As a result, local residents — and neighborhood renters in particular — may feel pressured to move to more affordable locations.
Mayor Bill De Blasio has — on numerous occasions — differentiated between state and city subsidies (the city does not provide any to corporations).
He has also said that preparations are being made so N.Y.C. doesn’t end up a cautionary tale, like San Francisco.
“San Francisco made the decision a long time ago not to expand public housing and not to build up affordable housing,” De Blasio recently said Friday (h/t WNYC). “It’s beautiful city [but] …it’s a city for the wealthy.”
The mayor’s office aims to achieve 300,000 “affordable apartments” by 2026 – 100,000 more than initially planned.
San Francisco “did not have those protections in place,” De Blasio said, adding that New York City has “a vast supply of affordable housing” in the works and that an Amazon arrival would consolidate the city’s role as an “international technology hub.”
In addition to housing prices, there are other issues at stake. For example, Amazon will add pressure to N.Y.C.’s feeble transportation system and worsen traffic (h/t INRIX report).
With Amazon in town, small businesses and other tech startups may struggle to find and retain workers with the salaries they offer, according to Compound Asset Management CEO Janine Yorio With Amazon attracting much of the local talent, she noted, “this will only make it harder for smaller companies to recruit and hire tech talent in the NYC area.”
Originally Published on November 13, 2018 at 06:13PM
Article published originally via opportunity zones – Google News https://www.bizjournals.com/newyork/news/2018/11/13/heres-what-amazon-stands-to-gain-in-nyc-incentives.html