By Shayndi Raice and Keiko Morris
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. "Every other city from the
economic-development standpoint is using wooden baseball bats, and
HQ2 is using a metal bat."
Mr. Copley is raising $100 million for a fund that will buy
residential property in Seattle, Los Angeles and whichever city
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 budding metro areas that are attracting tech
talent, like 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.
Mr. Copley says 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's going 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 near the Crystal City site that northern Virginia officials
proposed for Amazon's second headquarters. 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 short list increased 7% year over year in July
compared with 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 drawn investor interest, 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 receives 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 sold the building for about $180 million in 2017, without
ever moving in, during a scandal-plagued year. Still, many other
investments in Oakland have paid off, since 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's 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 the 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
(END) Dow Jones Newswires
October 22, 2018 05:44 ET (09:44 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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