AMZN Amazon.com Inc

Investors say focusing on finalist cities is good way to bet on places with young tech talent

By Shayndi Raice and Keiko Morris 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 23, 2018).

Plenty of real-estate investors are poised to buy property in whichever city Amazon.com Inc. picks for its second headquarters. Some aren't waiting.

Speculators are raising funds to invest in real estate near the winning site -- wherever that may be -- or are gathering cash commitments so they can pounce immediately after the winner is announced. Others are buying up shares of a real-estate firm that owns much of the property in a north Virginia city that many consider a leading contender.

These investors say that focusing on potential Amazon sites is a way to bet broadly on fast-growth areas, especially those with a growing pool of tech talent.

"HQ2 is guaranteed to meet three criteria: tech job growth, tech job growth and tech job growth," said Bryan Copley, co-founder of the Seattle-based real-estate startup CityBldr, using a shorthand for Amazon's second headquarters.

Mr. Copley is raising $100 million for a fund that will buy residential property in Seattle, Los Angeles and the city that wins Amazon's second headquarters.

The Seattle-based online giant said last year it was looking to invest $5 billion in a second headquarters that could employ up to 50,000 people over two decades. After 238 cities and towns applied, Amazon narrowed a list to 20 finalists in January.

The list of 20 finalists includes cities like New York and Los Angeles as well as smaller cities attracting tech talent, including Denver, Pittsburgh and Nashville, Tenn.

The rush to invest in the winning city is a result of Amazon's unorthodox approach to its search for a second home. Amazon chose a highly public process, which is leaving room for speculators to place their bets. Usually, companies keep the search quiet for as long as they can, economic-development analysts say.

Since metro areas are pitching specific sites and even suggesting certain properties for Amazon's new headquarters, it is as if they have been drawing up maps for real-estate buyers to target. Some investors are investing in sites they think Amazon might desire; others are betting on ripple effects such as increased demand in neighborhoods around a new headquarters.

Mr. Copley says that with proprietary software, he can pick the most underutilized properties in any city. It will take him five minutes to narrow down the best 500 multifamily investments once Amazon announces a winning city, he added. Then he plans to make offers on many of them and hope he can get at least a few to bite.

Others are placing their wagers now. Ryan Dobratz, co-lead portfolio manager of Third Avenue Real Estate Value Fund, thinks the greater Washington, D.C., area has the best shot of winning, in particular the Crystal City neighborhood of Arlington, Va.

His firm has been buying shares of JBG Smith Properties, a real-estate investment trust that owns much of the commercial real estate on the Crystal City site that northern Virginia officials proposed to Amazon. JBG declined to comment.

JBG's concentration in Crystal City likely has powered its stock higher despite a soft office market for the area overall, according to a report from research firm Green Street Advisors. JBG's Crystal City holdings make it "the most 'direct' way to play the Amazon lottery among office REITs," the report said.

Sales-price growth on residential properties in 10 of the counties on Amazon's shortlist increased 7% year-to-year in July, accelerating from a 4% rise in July 2017, according to Realtor.com. (The website is operated by News Corp, owner of The Wall Street Journal, under license from the National Association of Realtors.)

Pittsburgh's selection as a finalist helped boost a market that already had interest from investors, said David Cunningham, a retired firefighter and owner of rental properties in the Hazelwood neighborhood, which is near a former steel-production site considered a possible Amazon location.

Mr. Cunningham said he has received many more calls from interested buyers since Amazon announced the finalists, and the offers have never been higher. Amazon "blew the dust off Hazelwood," he said, adding there are other factors, like proximity to universities and downtown.

Other high-profile tech headquarters searches have triggered a real-estate shopping spree. Uber Inc. bought the old Sears building in Oakland, Calif., in 2015 and turned it into a 356,000-square-foot office space, Uptown Station, that was planned as a new headquarters for the ride-sharing firm. It was a big win for Oakland, which was starting to attract large technology employers from San Francisco and Silicon Valley. Investors followed.

Uber never moved in and sold the building for about $180 million in 2017, a scandal-plagued year for the company. Still, many other investments in Oakland have paid off as the area has continued to grow.

Erick Quay, who runs a hedge fund in New York called Quay Capital, plans to invest within the first six months of an Amazon announcement. He is betting prices won't move much right away, and said he would pass on investing in the winner if he doesn't find the right opportunity.

Craig Kinzer thinks gaming Amazon's headquarters is too risky. The founder of real-estate firm Kinzer Partners said he heard a pitch from CityBldr's Mr. Copley and found it compelling. But he ultimately declined to invest.

"Real estate is local," he said. "You can be a national company, but ultimately it is about really understanding what's on the ground locally."

Write to Shayndi Raice at shayndi.raice@wsj.com and Keiko Morris at Keiko.Morris@wsj.com

Corrections & Amplifications A photo in an earlier version of this article showed 1851 Crystal Drive, not 241 18th St. S. as stated. The article has been updated with a photo showing another building, owned by JBG Smith Properties, nearby. (Oct. 22, 2018)

(END) Dow Jones Newswires

October 23, 2018 02:47 ET (06:47 GMT)

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