News of Amazon’s decision to not build an office campus in Long Island City shocked and frustrated the city’s real estate industry, where some of the biggest developers, including Tishman Speyer and the Durst Organization, have already made big bets on the Queens neighborhood.
“This is devastating,” said Eric Benaim, CEO of Modern Spaces, the leading brokerage in Long Island City. “We just sent a message that New York City is closed for business.”
Although some experts said it was still too early to tell, for Benaim, at least, the so-called “Amazon effect” had been real. In December his company had sold 300 units, all in new Long Island City developments, he said. In a typical month, he racks up about 40 condo sales.
Benaim, who both works and lives in Long Island City, had recently started an online petition to show the community’s support in the face of protests from local Democrats and progressive activists. The latter argued that the $3 billion in government subsidies and tax incentives that in part lured Amazon to New York City amounted to corporate welfare. They also objected to the company's refusal to commit to hiring union workers.
“It’s a sad day for New York when some people put socialist ideas and policies in front of a neighborhood that we're worked for 10 years trying to build,” he said.
Nancy Wu, a StreetEasy economic data analyst, predicted that Long Island City’s housing market was in for "a bit of whiplash."
Since Amazon made its announcement in November, she said sellers in the area had increased their asking prices, and interest from buyers and investors had "spiked to new highs." The latest turn of events means that prices and interest should now fall back to pre-announcement levels.
For investors, the drop in property values should serve as a warning. She said, "The Amazon reversal highlights the risk inherent in speculative investment in real estate in the city. While the city has enjoyed swift economic growth, turning a quick profit remains difficult, particularly in areas dense with new development.”
But even long before the tech giant said it had selected the Queens neighborhood for a new campus that would bring 25,000 new jobs, development in Long Island City was already churning at a rapid clip. Thousands of apartments and condos were set to come online.
“It’s already overbuilt,” said Jonathan Miller, a real estate appraiser.
Miller said the arrival of Amazon would have been a much-needed “bailout” for rental developers.
In a report released this week, Miller found that rental concessions, which is an indicator of demand, in northwestern Queens had gone up while those in Brooklyn and Manhattan have gone down. Specifically, 58 percent of apartments rented in Long Island City involved some kind of “give back” for renters, an increase from 50.8 percent last year.
In other words, despite the flurry of activity in the home buying market, Amazon had not yet dramatically changed the rental market, Miller said. Amazon’s change of heart will likely push rents down further, representing a win for renters in search of deals. In January, the median monthly rental price with concession was $2,694, according to Miller’s report.
“In the short run it is more favorable for renters,” Miller said. “In the long term, it hurts everybody.”
Frank Wu, the president of Court Square Civic Association, a group in Long Island City that tries to encourage smart development, agreed. "The real estate market is not as healthy as it is portrayed," Wu said. "The condo market is very shallow compared to Brooklyn."
"There's going to be a lot of inventory," Wu added. "Winter is coming. Budget cuts are coming. Long Island City is not in a good place."
On Thursday, the Real Estate Board of New York, the industry's biggest lobbying group, issued the following statement:
New York’s renaissance over the past forty years has been due in part to our ability to work through difficult issues that have led to record population and job growth and the emergence of our city as a true global capital. It’s unfortunate that we have lost out on an opportunity to create tens of thousands of jobs for city residents and generate billions of dollars in tax revenue to fund vital services including infrastructure improvements for transportation, schools, and open space. Nevertheless, New York City is still open for business and will retain its status as a world class center for tech and innovation.
Among property owners, Plaxall, a third-generation plastic company which had over the years diversified into real estate, might have been one of the biggest real estate losers from Amazon’s reversal. Prior to Amazon's pending arrival, the company had plans to build a massive mixed-use development on a 15-acre waterfront site known as Anable Basin. The project would have included 5,000 units of housing, manufacturing space and a school. That changed, however, when Amazon eyed Plaxall's development site for its office campus.
On Thursday, Plaxall issued the following statement: "We're extremely disappointed by this decision. Since our grandfather opened Plaxall's doors on the waterfront seven decades ago, our family has believed in the overwhelming promise of Anable Basin and Long Island City as centers of productivity and innovation. We continue to believe that today."
While apartment renters may be the first segment of the real estate market that comes to mind given the area's busy skyline of residential buildings, Long Island City's still existent though waning group of manufacturers will also likely see some relief from rising rents.
Ernie Smith, the owner of Penn & Fletcher, a custom embroidery company that has been in Long Island City for 19 years, had been resigned to eventually having to say goodbye to his 8,000 square-foot workshop space. He said that while landlords, in search of higher rent-paying tenants, have in recent years been pressuring manufacturing to leave, the Amazon news injected a "shot of adrenaline" into the process.
While he has four years left on his lease, he said he saw the writing on the wall. Other tenants in the building had already told him of rent hikes.
“I’m stunned,” he said upon learning the news from a Gothamist reporter. “I thought these were the powers that be. That it was an immutable decision." As he informed one of his employees, a shout of "Hurray!" could be heard.
He then added: “The city will be no worse for it. Had they come, the city would have been worse for it. It’s a sad thing for some people. But not for the rest of us.”