Handelsblatt: Amazon’s second headquarters

January 4, 2018

Handelsblatt | Thomas Jahn (Translated)

The rain colors black streaks in the white-gray plaster. The windows look like viewing slits – a building as rectangular as it is barren. From the roof hangs a plastic banner: “Up to a city block available”, including a phone number.

In the middle of downtown Tampa there is plenty of space, the real estate prices are relatively affordable. Most who work in this third largest city in the state of Florida prefer to live outside, commuting from the home with pool to the office. Tampa itself has only about 350,000 inhabitants. Almost three million people live in the Greater Tampa Bay Area.

Businessman Jeff Vinik looks down from his office on the 26th floor at the patchwork of concrete and asphalt. Everyone knows Vinik here. Year after year, in Tampa’s city center, he has bought parking space and land after land to make room for a city in the city. “We want to reverse the sprawl,” says the businessman. The project is called “Water Street Tampa”. Together with Cascade – the investment company of Bill Gates – the American puts three billion dollars into the project “to create a living room for the people”. Thousands of homes, two museums and hotels, a University of South Florida Medical Institute, fountains, playgrounds and dog parks are being built over an area of ​​more than 800,000 square meters.

In the middle of the planning for Water Street Tampa the message of Amazon burst: The founded by Jeff Bezos onliner giant with headquarters in Seattle plans a second headquarters for 50,000 coworkers. As Amazon announced on its website, should be invested in the second headquarters five billion dollars. The Internet giant started a special application process and just a few months ago announced a competition for the project called “HQ2” (Headquarter 2). This invited cities and regions to compete, whoever wanted was allowed to roll out the red carpet for the internet giant. “We expect HQ2 to be fully equivalent to our seat in Seattle,” promised Amazon CEO Bezos.

Throughout North America, including Alaska, and even in Canada and Mexico, mayors and governors embarked on a bizarre casting. Almost all of the big US metropolises – including Chicago, Los Angeles, Dallas and Las Vegas – and Tampa, Florida. 238 potential candidates compete for the second seat of Amazon. There is much to be learned from this competition about the shifting power relations between the state and the economy. Municipalities have always attracted investors with concessions. But never before has a corporation brought a whole nation to the site limbo: Who bends the most?

New York lit up the Empire State Building and other city buildings in “Amazon Orange”. In Birmingham, Alabama, giant Amazon parcel boxes now adorn downtown. Tucson in Arizona shipped a gigantic six-meter giant cactus to catch Bezo’s attention.

But such clever marketing should hardly be enough. Ultimately, it’s about the money, as in similar location application procedures of large corporations. Who trumps whom with high tax gifts? The Amazon Tender Prospectus states simply and factually, “Please list all the subsidies offered.” New Jersey came to gratefully, offering Amazon seven billion dollars in tax incentives and subsidies. Atlanta has been announced to lure $ 1 billion.

Tampa’s mayor Bob Buckhorn would rather not call numbers. “Our offer is competitive,” he says. His city fulfilled many of the conditions required by Amazon, including an airport with direct flights to Seattle. Well Buckhorn remembers the day of the HQ2 announcement in September. That was “like a nuclear bomb” hit. Amazon could catapult the region into the 21st century at a stroke, allowing the city to participate in the seemingly unstoppable growth of the group.

Competition according to the rules of the Internet giant
Amazon’s promise of tens of thousands of jobs and billions of dollars in investment sounds auspicious. What many municipalities are willing to engage in is a competition based on the rules of the Internet giant. This is exemplified by the case of Licking County, a county in the middle of Ohio, near the city of Columbus.

As always, the weeks before Christmas are especially labor intensive. Often times a day, the paramedics have to move from the West Licking Fire Station 3 to the nearby Amazon shipping center. Shortness of breath, chest pain, minor injuries. What happens when temporary workers try to handle the flood of parcels. While in 2003 there were still 3,200 deployments by fire brigades or emergency physicians every year, the number was 5,600 last year.

Steve Little, Licking County Fire Chief, is upset. The new warehouse has an area of ​​90,000 square meters, which his people would now have to take care of. “But we do not get more money,” he complains. In the USAthe municipal level bears the cost of emergency services. This is financed by real estate taxes and fees. But Amazon received generous tax gifts from local politicians. They freed the group from real estate taxes for 15 years. “We have nothing to say on such deals,” complains Little, “and get no money.” “Amazon concludes a good deal in Ohio – perhaps too good,” concluded the US business magazine “Bloomberg Businessweek” a conclusion of the deal. For the money, the group would create too few jobs, the award is intransparent, at the expense of the citizens.

What fuels the sometimes ruinous competition between cities and regions in attracting large corporations to the respective locations is the great independence of states, cities and municipalities in the USA – not comparable to German cities. A city like Tampa, for example, is self-financing. The nearly $ 1 billion annual budget is made up of $ 160 million in property taxes and fees for services such as water and waste.
Laboratory of Democracy
Bidding for company locations is not an invention of Amazon. The great freedom at the federal level in the US is a kind of laboratory of democracy from which large companies can profit. For example, the state of Wisconsin’s $ 3 billion in aid to the Taiwanese company Foxconn caused a sensation. The plan is to build a $ 10 billion flat screen factory in the state, employing up to 13,000 people.

“This is a big day for American workers,” President Donald Trump said about the deal. Timothy Bartik, economist at the non-partisan foundation WE Upjohn Institute for Employment Research, sees things differently. “I’m skeptical,” he says. Critics point to the high cost – at least $ 230,000 per job. It was not until 2032 that Wisconsin would collect taxes from Foxconn. It will take 25 years for the expenses to refinance. “I’m not sure if I’m going to live then,” says Anthony Copeland, North Carolina’s economics minister, criticizing fellowship grants in Wisconsin.

Amazon counters such negative examples with a completely different bill: the city of Seattle, the headquarters of the online giant, has invested $ 38 billion between 2010 and 2016. The steady growth of the group is clearly visible there. It continues to spread over the city center and now occupies around 45 buildings, most of them in the district south of Lake Union. Because there is no central canteen for the employees, the food trucks pile up in the streets at lunchtime. The parking spaces in the underground garages are scarce. One of the few extras Amazon offers to its employees is a dog litter area – Amazon boss Jeff Bezos is a dog lover. His employees are allowed to bring their dogs to the office. And so populate around 40.

But the city is now also suffering from a kind of “oversubscription” of the group. According to the “Seattle Times” 19 percent of all office space occupied by Amazon, the rents have rocketed like no other place in the sky. For example, compared with the previous year, prices for a single-family home rose by 18.2 percent in August. Chris DeVore, a Seattle-based investor and start-up promoter, ruled the Tagesspiegel on Amazon’s planned second headquarters: “Losing business is always a blow to business. But we also have to see that the city stays colorful. “There could be no talk of that right now.

In faraway Florida, more precisely in Tampa, businessman Vinik does not want to be dissuaded from such instructions to the caution of his plans. He wants to bring Amazon into town, and so far his good sense has rarely let him down. So he made his name at Fidelity Magellan, once the largest equity fund in the world: In the nineties, he achieved excellent returns, which he later repeated with his own hedge fund. His fortune is estimated at about half a billion dollars.

The 58-year-old has lived in New York and Boston, and he knows that both cities offer what Tampa does not have. Towns with restaurants and cafes within walking distance. In contrast, Tampa still offers a huge advantage: enough space for new ideas.

Moody’s looks ahead of Atlanta, Boston and Pittsburgh
So Vinik is convinced of the future of the city. The warm climate, the location by the sea with its harbor and the proximity to South America, the good schools. Tampa is growing steadily, but with Amazon, the development of the city would be accelerated enormously.

When Amazon published the tender last September, hurricane “Irma” was raging through Florida. Nevertheless, a few days later, a team set to work sending a delegation to Seattle to see Amazon’s buildings and talk to local politicians and business people. Then it even came to a historical alliance with the hitherto unpopular neighboring city of St. Petersburg. The two cities, separated only by three bridges, could not be more different. St. Petersburg is a city of artists, with historic buildings, beautiful architecture and museums such as the Museum of Fine Arts or the Dali Museum. Tampa, on the other hand, is considered soulless in St. Petersburg, completely geared towards commerce. Conversely, St. Petersburg is considered a sleepy town by the citizens of Tampa.

Now, however, the two cities are bidding together for the second headquarters of Amazon. Together, the mayors sit in a promotional video, summoning the benefits of the region. “We’re throwing our combined weight behind Amazon,” says Rick Kriseman, mayor of St. Petersburg.

The group wants to announce the top 30 of the potential candidates for the Amazon second seat in just a few days. These may then travel to Seattle and personally try to persuade company boss Jeff Bezos. Already from 2019 to be built. Given the lead time, such as building permits, the final selection must be made in a few months.

According to a forecast by rating agency Moody’s, cities like Atlanta, Boston or Pittsburgh are the favorites.”To come along among the first 30 cities would be a complete success,” says Mayor Buckhorn. Jeff Vinik would then have to do his “Water Street Tampa” in other ways.