Are Tax Breaks Worth The Price?

David Goldsmith

All Powerful Moderator
Staff member
As Amazon Gobbles Up Warehouse Space, NYC’s Suburbs Keep Giving It Tax Breaks
Multiple tax incentive deals for suburban e-commerce facilities in New York in recent months are raising questions as to how much taxes local counties should forgo in order to lure the warehouses to their jurisdictions.
Local officials argue the tax breaks are a small price to pay to lure well-capitalized employers that will make use of dead space. But critics claim companies like Amazon, run by the world's wealthiest man, don't need tax breaks to develop warehouses they would likely build anyway.

In Syosset, a hamlet in Nassau County on Long Island, Amazon plans to build a 200K SF fulfillment center at a 39-acre brownfield site that used to be home to a Cerrowire manufacturing plant. Amazon approached the Nassau County Industrial Development Agency a year ago, its chairman, Richard Kessel, told Bisnow, and the two sides ultimately agreed to a deal in which Amazon would pay a flat fee and be exempt from property taxes.
"The bottom line is that Amazon clearly indicated to us that they would not go on the site if they didn't get some help,” Kessel said.
Amazon plans to spend $72M constructing the building, which will create more than 200 full-time employment opportunities and 125 construction-phase jobs, according to the IDA. The payment-in-lieu-of-taxes deal equates to $1.9M annually for 15 years, compared to the $1M in annual taxes due on the vacant property.
“This is a win for everyone,” Kessel said. "Right now, it's an eyesore ... Ultimately, we've solved the riddle of a brownfield, created hundreds of jobs and made something of a vacant blemish on the Long Island Expressway here in the county.”
It is not the only suburban development authority providing incentives to spur e-commerce development. Late last month, the Mount Pleasant IDA in Westchester County announced it had approved about $3.8M in sales tax exemptions for a developer to build a 153K SF e-commerce distribution center in Hawthorne.
The development would generate 100 full- and part-time jobs as well as 1,000 construction positions and represents $99M in private investment, the IDA announced. A representative said the IDA doesn't know to whom the facility is being leased.
Earlier this month, Amazon leased a 422K facility on Rockaway Boulevard near the John F. Kennedy International Airport. Developer Wildflower Ltd. had scored $16M in economic development incentives from the Town of Hempstead IDA, and Wildflower will hand over a one-time payment of $250K to the Lawrence Union Free School District, after the district sued to lower the length of the tax incentives given to the developer, Newsday reported.
Representatives from the IDA called the deal “incredibly exciting.” Amazon is coming, but the IDA said it was not aware of its involvement when it was negotiating the tax breaks with the developer of the site.
In an email, an Amazon representative noted that receiving financial assistance from an IDA is standard, and that the tech company has created 34,000 jobs in New York since 2010.

But KC Conway, the chief economist for the CCIM Institute who specializes in industrial real estate, adaptive reuse and property tax, is urging local officials to tread carefully, and not undersell their assets.
“Amazon has huge datasets where they know where the packages are going. They know the density, they know the proximity to key infrastructure elements,” he said. “They're coming there regardless of the incentive.”
He added that often Amazon and other manufacturing or logistics companies don’t deliver on what they say they will do, and noted some of Amazon's fulfillment centers are moving away from manual labor — which will cost jobs.
“I would encourage more of these local governments to be thinking carefully about what Amazon's doing and how much more automated and robotic it's getting,” he said, noting the company's recent opening of a robotics-powered center in Stone Mountain, Georgia.
There is no doubt Amazon was already doubling down on Long Island. It leased a 110K SF logistic center in Shirley last August, and it has indicated interest in building a last-mile site in Melville, according to Newsday. Its plans for the Cerrowire site, however, bring decades of community and political infighting about how the site should be used to a head.
But Martin Cantor, a former Suffolk County economic development commissioner, said scoring Amazon is the worst possible outcome for the land.
“They should never have given incentives for a warehouse,” he said. “They should never give an incentive to Amazon. Amazon doesn't need incentives, and we shouldn't be giving incentives creating minimum wage jobs.”
He claims the deal was done because officials wanted the “big hit name” of Amazon for the community, and that any other form of development would have addressed the contamination issues on the site as well.
“The county executive is in a re-election year," Cantor said. "The agency wants to show it's doing something.”
Certainly, the words “Amazon” and “incentives” garner headlines. The company's plans to build its second headquarters in Long Island City were scuttled in 2019, after widespread backlash over the $3B in tax incentives the city and state had agreed to give. When the company took 335K SF in office space some seven months later at Hudson Yards, without tax breaks, HQ2 critics said they were vindicated.

“Unlike the folks in Long Island City, we see the benefit of jobs, economic development, both construction jobs, ongoing jobs and a productive piece of property,” said Frederick Parola, the CEO of the Hempstead Industrial Development Agency.
Last year, the IDA reached a deal to offer Wildflower a 15-year PILOT agreement and exemptions from mortgage recording and sales taxes to build a logistics center on an airport parking lot at 253-51 Rockaway Blvd. in Woodmere. In total, Wildflower’s breaks come to around $16M, with $14M off property taxes over 15 years.
This month, the IDA announced Amazon would take the building. Wildflower didn't respond to a request to be interviewed.
“The jobs ripple through the system, so if you have someone working locally, they're gonna buy food, they're going to perhaps on their break go out and buy clothing or other items they need, because it's convenient. So all of this is of assistance to the local economy,” Parola said, adding he only found out about Amazon around a month ago. “We’re not giving away the ranch, but [the developer] does get a benefit.”
There is no doubt there is significant industrial space as a whole in the outer boroughs. Rents for warehouse and distribution space in the boroughs outside Manhattan hit $19.70 per SF in the first quarter of 2021, per Cushman & Wakefield, and they are among the priciest in the nation after rising by nearly 5% over the past two years.
Alison Brennan, the CEO of First Development Corp., a property developer and manager based in Hauppauge, said Amazon’s interest in Long Island is, on the whole, a positive thing.
“There are definitely pluses and minuses … [but] it’s created a lot of jobs,” she said. “It helps with our infrastructure, but it does impact the industrial market and change sale prices and rent prices.”
Julian Bene, a former board member of Invest Atlanta — the equivalent of an IDA for the Georgia capital — has become one of the opponents of the city's incentive policies. He said an injection of Amazon warehouse jobs is not always a boon for the community.
“Jobs in an Amazon fulfillment center are not highly paid. And in fact, the work is by many accounts grueling, and people don't stay in it long because it's so unpleasant and arduous,” he said. “So, you know, what favors are we doing here?”
Ultimately, Conway said it is important that local counties make sure they put policies in place to hold companies like Amazon to account if they don’t meet their obligations.
“The biggest message coming out of 2018 and Covid is that local communities are going to have to do the math better to hold the entity like Amazon accountable for its economic impact,” he said.
 

David Goldsmith

All Powerful Moderator
Staff member
Another update on why giving Amazon $6 billion in tax breaks would have been a mistake. They clearly don't need tax breaks to buy Real Estate.

Insatiable: Amazon has more than doubled its space during pandemic

TRD analysis shows astounding growth of warehouse and data center footprint​

Amazon knew what it had to do.
E-commerce was booming. People were ordering more items online than ever before — everything from groceries to medication to sweatpants. Warehouses were going to run out of space.

Amazon had to make that someone else’s problem. So it went on a buying and leasing spree.
“We are on track to double our fulfillment network over the two-year period since the pandemic’s early days,” Amazon CFO Brian Olsavsky said last month on an earnings call, adding that the firm expects its 2021 portfolio additions to exceed last year’s.

And it has.
The Seattle-based behemoth has expanded its portfolio of warehouse, distribution, data center and last-mile properties across North America to more than 410 million square feet, according to an analysis by The Real Deal of data from supply chain firm MWPVL International.
That’s about double the amount of office space in Midtown Manhattan, or almost 60 percent of all the warehouse and distribution space in the entire Chicago market.

At the end of 2019 — before the pandemic — the firm had around 192 million square feet of warehouse, data center and distribution space across the U.S. and Canada. Amazon added about 101 million square feet in 2020 and this year has added at least 119 million through September, according to the data and financial reports.

Amazon’s own disclosures and recent purchases also point to a shift in its commercial real estate strategy.
Since 2019, the firm has increased its real estate buys, signaling a pivot toward owning more of its own warehouses and distribution hubs. Last year the firm increased its owned square footage of warehouse, fulfillment and data center space across North America by around 50 percent — adding 2.9 million square feet to bring its total to 8.5 million.

Although leased facilities still made up over 97 percent of Amazon’s real estate at the end of last year, the mix is changing.
In the past few months, Amazon has spent heavily to acquire office campuses, development sites and other vacant land across the U.S. for potential redevelopment into warehouses and distribution centers.

The firm did not respond to questions and a request for comment.
Amazon’s frenzied push to add warehouse and distribution capabilities has been spurred by the pandemic’s effect on e-commerce.
“While we’ve been chasing demand for the last two years, we’re running at about 100 percent all of last year,” Olsavsky said on the earnings call. “We are just now getting caught up on space for inventory.”

Shifting strategy​

Owning real estate is a change for the e-commerce giant. In 2019, insiders, competitors and analysts told TRD that Amazon was purely focused on leasing — “it allows them to be in more spaces, more quickly,” one analyst said.
But, after the pandemic hit and industrial rents started to soar, Amazon may have looked to switch its strategy. Sources familiar with Amazon’s balance sheet and operations say it might be more comfortable owning real estate now.

When companies become more confident about what their long-term asset portfolio will be, they are more inclined to purchase property, one of those observers said.
When Amazon began a growth spurt six or seven years ago, the firm wasn’t really sure what its portfolio was going to look like. A source said there’s more certainty now.

In August, Amazon paid $85 million to buy a 133-acre site in Sunrise, Florida, where it plans to build a fulfillment center. A month later, Amazon said it would build a distribution center on almost 60 acres of undeveloped land it bought in Pleasanton, California.
In October, Amazon bought an office and research complex totaling 395,000 square feet for $123 million. This month, it bought a 30-acre Orange County, California, campus, with around 640,000 square feet of offices, for $165 million. No redevelopment plans have been filed for any of these deals.

Exactly how much distribution hub and warehouse space Amazon has added this year is unclear. Amazon breaks down real estate in terms of leased and owned square footage in its annual reports, released in February, but not in quarterly releases.

Spending through the roof​

The expansion has come at a cost: Amazon spent almost $60 billion on capital expenditures last year to purchase and lease property and equipment, as well as sell and buy securities. In 2019, the firm spent around $24 billion on those categories.

The acquisitions were fueled by a major uptick in operations, the firm said. Amazon reeled in $66.1 billion in cash flow from operations last year, most of which came from consumers, sellers and other businesses — a massive jump from $38.5 billion the year prior. On the earnings call, executives called the increasing demand to shop online unprecedented.

Expanding its footprint so rapidly has also forced Amazon to hire hundreds of thousands more workers. In the past 18 months, the firm said, it has added 628,000 employees across the world — including more than 150,000 in the U.S. to support seasonal demand from October through December.

Expansion points​

Amazon isn’t slowing down. The firm has announced plans to build 86 facilities next year and five are already scheduled to open in 2023, according to MWPVL International data.

But it’s not just planning for a year out. For its warehouse development in Pleasanton, the firm is hoping to finish by 2024 or 2025, adding it would continue to ramp up operations in the Bay Area.
“We seek to expand our fulfillment network to accommodate a greater selection and in-stock inventory levels and to meet anticipated shipment volumes,” the firm said in an earnings report for the third quarter.

Amazon’s 119 million new square feet this year consists of 432 facilities across 42 states and Washington, D.C., according to the MWPVL International data. The company added no space in South Carolina, Hawaii, Maine, Montana, Rhode Island, Vermont, West Virginia and Wyoming.
It focused on a handful of states for its planned distribution centers. California will get the most this year, 51, while Texas will get 45, Florida 38 and New York 27.

The average size of a new Amazon facility was around 316,000 square feet, with the most popular type of center being a delivery station — a last-mile center that holds and distributes small packages. Usually, these are built out around bigger cities.
A “significant” part of Amazon’s capital investments since the pandemic “has been to support those efforts in middle and last-mile capacity,” Amazon’s director of investor relations, Dave Fildes, said on an earnings call in July. “That work is not done yet.”
 

David Goldsmith

All Powerful Moderator
Staff member
Another update on why subsidizing Amazon is an unnecessary waste of tax dollars.

Amazon doubled its real estate holdings in 2021​

E-commerce giant now owns 16.6M sf of fulfillment and data centers​

Amazon literally doubled down on owning real estate last year.
The e-commerce giant finished 2021 with twice as much of its own warehouse, distribution and data center space as it began the year.

The buying spree brought its owned real estate portfolio to 16.7 million square feet across North America, according to an annual financial report, up from 8.5 million at the end of 2020. The year prior, the company reported 5.6 million square feet of owned fulfillment space.

Still, Amazon’s own properties are a small fraction of its North American footprint — around 4 percent.
Amazon was leasing around 370.4 million square feet at the end of 2021, a 30 percent increase for the year. That’s about as much as the U.S. General Service Administration owns and leases for federal employees, and almost double the amount of office space in Midtown Manhattan.

Since the start of the pandemic, Amazon has doubled its space as it raced to meet demand for online shopping and ever-faster delivery.
Its net sales increased to $469.8 billion last year, a 22 percent increase from 2020. The e-commerce behemoth just announced it will raise the price of its monthly and annual Prime memberships in the U.S. to $14.99 and $139, respectively.

Amazon’s real estate purchases come as industrial players struggle to find adequate warehouse and distribution space. In some markets, vacancy rates are approaching zero percent. Development has been slowed by supply chain issues and labor shortages.
Over the past six months, Amazon has bought a number of development sites. In August, it paid $85 million for a 133-acre site in Sunrise, Florida, where it plans a fulfillment center. A month later, Amazon said it would build a distribution center on almost 60 acres of undeveloped land it bought in Pleasanton, California.

The company is bolstering its white-collar operating as well. In November, it bought a 30-acre campus in Orange County, California, with around 640,000 square feet of offices, for $165 million.
No redevelopment plans have been filed for any of these deals.
 

David Goldsmith

All Powerful Moderator
Staff member
Amazon binge ends in hangover, halt on warehouse deals amid $4B loss

Reversal follows doubling of industrial space across U.S. during the pandemic​

Amazon officially has too much industrial space –– a hangover from spending billions from 2020 and 2022 to double its fulfillment and distribution space across the country.
The company is “no longer chasing physical or staffing capacity,” CEO Andy Jassy said in an earnings release Thursday.

Excess capacity cost the company about $2 billion in “incremental costs” during the first quarter, CFO Brian Olsavsky said on an earnings call.
Amazon reported a $3.8 billion net loss on Thursday — its first quarterly loss since 2015 and compares with a profit of $8.1 billion in the first quarter of 2021. Another key factor in the loss was attributed to the company’s investment in electric truck maker Rivian, as well as inflationary pressures and high gas prices as a result from the war in Ukraine.
Amazon’s stock price is down more than 11 percent since yesterday’s earnings call.

The remarks on real estate mark the first time Amazon has decided to slow down on leasing and buying up industrial space since the start of the pandemic. At the end of 2019, Amazon leased and owned about 192 million square feet of warehouse, distribution and data center space, according to previous financial reports. Two years later, the firm reported 387.1 million square feet — just more than double.
Since the start of the pandemic, the company has also pivoted to owning its own real estate.
At the end of 2021, the company increased its owned real estate portfolio to 16.7 million square feet across North America, according to an annual financial report, up from 5.6 million square feet at the end of 2019.

Amazon’s decision to halt leasing and purchases may soothe the hot industrial market nationally — if Amazon is no longer in the market, other warehousing firms won’t have to compete with its appetite and highly desired credit profile.
The decision to halt opening new warehouses may also explain why the firm recently exited some of its planned properties. In March, Amazon exited a deal in West Covina, California, for a 177,500-square-foot property, where it had already signed a 12-year lease. In California’s East Bay, the company recently subleased a 300,000-square-foot facility.
Amazon isn’t just slowing down across the industrial market. Earlier this year, the firm also decided to shut down its 68 brick-and-mortar stores, including bookstores, exiting the physical retail business.
 
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