Dean Barber

Archive for September, 2017|Monthly archive page

Even a Blind Hog: Handicapping Amazon HQ2

In Corporate Site Selection and Economic Development on September 12, 2017 at 10:59 pm

First, there was Foxconn. Then there was Toyota-Mazda. And now there is Amazon.

The very thought of three billion-dollar-plus, corporate-site-search projects happening within a few months of each other is pretty much unheard of for both economic developers and site selection consultants.

For the uninitiated, economic developers represent locales, whether they be states, cities, counties or regions. Site selection consultants represent companies in the quest to find the best place for future operations.

(I was once an economic developer, but have gone over to the dark side. I am a consultant.)

Politics of the Day

Wisconsin won the Foxconn project, of which various reports place the value between $7 billion and $10 billion. I get the impression that the project was more “site confirmation” than true site selection, with politics a leading factor.

Foxconn may be a forerunner of things to come, with politics playing an increasing role on where some mega-projects ultimately locate. I believe the Trump administration’s hardline position on NAFTA being renegotiated is why both Ford and Toyota have reversed courses on projects in Mexico, although neither company will admit to that.

Based on the politics of the day and history, I have ventured what can only be viewed as an educated guess on where a $1.6 billion joint venture project between Toyota and Mazda will land. Apparently, my conjecture/analysis in two blogs got enough traction that my friend Andy Levine interviewed me this past week for his latest podcast, Episode 27 of The DCI Blog.

Widespread Speculation

Having worked my share of automotive projects, I had at least some foundational knowledge to fall back on. So it came as quite a shock when an economic developer in Oklahoma City suggested that I write a blog, handicapping the $5 billion Amazon project.

I protested, “You know, I really don’t know anything about it, just what I read.”

“Neither does anyone else, and that hasn’t stopped them,” he said. Good point. There has been widespread speculation in the press on what city Amazon will choose as its second, equal-footing headquarters, which it calls HQ2.

And then I remembered my grandfather saying, “Even a blind hog will find an acorn on occasion.”

The worst that can happen is that I am wrong. And I probably am wrong, so let’s just do it, and have a little fun in the process. Are you with me?

Something Entirely New

Maybe we should first acknowledge that we don’t fully understand Amazon, what it is about or how it operates. It might be one reason why your local shopping mall is being torn down.

“Amazon wins games by changing the way the games are played then being the only ones who understand the new rules,” wrote former Amazon employee Ryan Boudinot in an article for GeekWire and who called HQ2 “something entirely new in the history of global capitalism.”

Boudinot says Amazon constantly pits one idea against another in a process called A/B testing. The concept can be seen on its website itself but also through what Boudinot calls a “cutthroat” corporate culture.

“When the announcement came that Amazon would open not a satellite office, but a doppleganger HQ, my first thought was, “They’re going to A/B test the entire company.”

HQ2 will be “be a full equal to our Seattle headquarters,” Amazon CEO Jeff Bezos said in a prepared statement. Somehow, Hunger Games comes to mind.

Think Big

Amazon tells us in its Amazon HQ2 RFP that this will be one big project, again $5 billion big, creating up to 50,000 jobs. The executives, managers, software engineers, legal staff, accountants and administrative workers employed at HQ2 will be making an average annual wage of $100,000 or more a year.

Amazon currently employs about 40,000 people in Seattle, where since 2010 it has paid nearly $26 billion in wages and spent $3.7 billion on buildings and infrastructure. The company estimates it has had an indirect economic impact of $38 billion on Seattle.

Big requires big. Only big cities need apply. The company states it is looking for metropolitan areas with more than 1 million people, “has a stable and business-friendly climate,” and can “attract and retain strong technical talent.”

The New York Times is picking Denver. My friend and frequent business partner on projects, Tim Feemster, thinks Dallas has a real shot at it. Denver or Dallas, both exhibiting good levels of tech talent, could very well be the choice.

Think East and Extending Hours

But I think it will be “NFL” city, a major market east of the Mississippi River, probably in an eastern time zone to give the company greater band width in terms of time of day business hours and extending its company’s capability to manage its business in Europe and other parts of the world.

That leaves Boston, New York, Philadelphia, Baltimore, Washington, D.C., Charlotte, and Atlanta, all eastern time zone cities.

Cleveland, Indianapolis, Cincinnati, Pittsburgh, and Detroit, all good cities, are not making my first cut, only because I think Amazon will be looking at more high-growth metro areas outside the Midwest. It should be noted that Indianapolis and Detroit have good levels tech talent.

So I’m breaking it down to an NFL city, eastern time zone, and tech talent, I am going to refer to CBRE’s fifth annual Scoring Tech Talent Report.

Think Talent But Also Costs

So now I am looking at New York, Washington, D.C., Atlanta, or Boston. Why not Toronto? Big city, with 183,00 tech jobs. Maybe, but I think of the politics of the day and the Wrath of Khan. Excuse me, I meant the Wrath of Trump. The president would have a field day if HQ2 located in Canada.

I am throwing out Boston and Washington, D.C., for two reasons – the high cost of real estate (although Amazon is no stranger to that in Seattle) and an arguable brain drain when it comes to talent.

The website Recode attributes Real Capital Analytics that the average office price per square foot in Boston is $550, and Zillow in stating the average home price is $560,300, while in Washington, D.C., the office price is $595 per square foot and $382,900 for the average home.

Brain Drain

And while both cities produce a significant number of tech graduates, they have a hard time employing them locally. According to CBRE, from there were 56,623 tech degrees awarded in Washington, D.C., from 2011 to 2015, but 40,270 tech jobs added during the same period.

That is a deficit of 16,353, meaning those graduates probably left the area. Of course, you could rightly argue that those people would stay should Amazon come to town with high-paying jobs.

In Boston, there were 31,400 tech degrees awarded from 2011 to 2015, with 11,790 tech jobs added, a deficit of 19,610. Again the dynamics would certainly change with Amazon’s HQ2. More tech graduates would remain in the city to fill the needed jobs.

I am throwing out New York, which may be a big mistake on my part. The primary reason is because I don’t think “the City” will offer the financial incentives expected or needed by Amazon, and the fact that New York remains a high cost place to do business in terms of taxes, real estate and, well, just about everything.

71 Streets

So that leaves me with Atlanta, with a metro area population nearing 5.8 million and where 71 streets have a variant of “Peachtree” in their names.

In terms of CBRE’s tech talent measure, Atlanta ranks No. 5, behind New York and Washington, D.C. to be sure, but still very good. Atlanta added 22,634 tech degrees from 2011 to 2015, but added 43,180 tech jobs, proving that the talent will flock to the city.

Atlanta has The Georgia Institute of Technology, commonly referred to as Georgia Tech, one of the top research universities in the country. The school provides a technologically focused education to more than 25,000 undergraduate and graduate students in fields ranging from engineering, computing, and sciences, to business, design, and liberal arts.

As large cities go, Atlanta reasonably priced place to do business. Office price per square foot averages $239, while the median home value stands at $212,200, according to Zillow.

In Good Company

Atlanta has Hartsfield–Jackson International Airport, seven miles south of the city’s central business district. The airport serves 150 U.S. destinations and more than 75 international destinations in 50 countries, averaging 275,000 passengers a day. Atlanta is within a two-hour flight of 80 percent of the United States population.

The Atlanta metro area is no stranger to corporate headquarters. Twenty-six companies there are among the 2017 FORTUNE 1000, of which 15 companies are also ranked in the 2017 FORTUNE 500. In fiscal year 2016, these 26 companies generated revenues of $373.9 billion.

Finally, Georgia has historically proved to be a business-friendly state that is willing to go big after the big projects. By and large, its elected officials understand that financial incentives are a necessary reality in today’s world. For that very reason, I am not counting Georgia out in hunt to win the $1.6 billion Toyota-Mazda project.

So there you have it, my choice for the Amazon HQ2 project. Chances are that I am wrong, but I then again I might be right. Are you listening, Amazon? Hey, I can help you with site selection. Honest.

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. BBA helps companies and communities. (Send us your RFPs.) Mr. Barber is available as a keynotes speaker and can be reached at dbarber@barberadvisors.com or at 972-890-3733.

Advertisements