The Icarus


Analysis: Was Industry City "Amazon Headquarters 2.0"?

 · 8 min read

Background

The defeat of two big real-estate projects within a 20-month span leaves New Yorkers wondering how to create jobs without gentrifying the Big Apple. In September, a plan to rezone Brooklyn's industrial waterfront into retail, academic and commercial space fell through. Progressives put up a fight, alleging that the rezoning and development would displace the working class immigrant populations of nearby Sunset Park. These were similar to the concerns progressive local leaders had voiced when Amazon wanted to build a headquarters in Long Island City, Queens – just a year and a half ago.

Both of these mega-projects had the potential to bring thousands of jobs into the city's economy. So why did they fail? What does this mean for the future of the city?

Amazon Deal

In November 2018, 238 towns and cities across America held their breath to find out if they had been chosen to become a major tech hub. After a year long, hypercompetitive search, Amazon settled on New York City and Northern Virginia to house HQ2 – the company's major expansion out of its home in Seattle, Washington. These locations would receive a $2.5 billion investment to eventually host over 25,000 workers with an average annual salary of $150,000. The Virginia headquarters would be located close to downtown Washington D.C., in a neighborhood that Amazon is branding "National Landing." The New York headquarters would be located in Long Island City, a fast-growing neighborhood in Queens on the East River.

The governor and the mayor were ready to welcome Amazon to the Big Apple. But after the 2018 midterm elections, they received criticism from newly-elected politicians about the nearly $3 billion in subsidies that Amazon would be getting. So not only was the state overriding the city's rezoning process (more on this below), but they were also effectively paying Amazon $48,000 per job. These new politicians pointed out that Amazon, in the top 10 of the Fortune 500, doesn't need the help; the money would better serve other agencies desperate for funding.

Amazon would also be getting federal tax breaks because the governor designated Long Island City an "opportunity zone" under the Trump Administration's 2017 tax overhaul. Curbed Magazine explains:

Opportunity zones, the brainchild of Silicon Valley financier Sean Parker, allow people to invest capital gains—the profit made from the sale of an asset like a house, stock, or even a painting—in “distressed” areas and defer taxes on those gains until 2026.

Opportunity zones were meant to bring investors, like Amazon, into areas that hadn't benefited from the economic recovery of the past eight years. But the law incentivizes investing in real estate projects (like a new headquarters), which usually raise housing costs and displace poorer residents, rather than providing economic opportunity for the people the law is meant to help.

Amazon plowed ahead, and the governor expedited the review process for HQ2 (the same "express" process that was used to build the Javits Center). In February, Amazon executives spoke with the newly elected Democratic leader of New York's State Senate, Andrea Stewart-Cousins, about the status of their project, but she made no promises that it would be approved.

This was not the response Amazon wanted.

Amazon had spent the past two decades expanding at breakneck speed. It went from an internet bookstore in the 90s to one of the richest corporations in America. This status caused them to expect nothing less than deference from municipalities. When Amazon announced their plans to build a second headquarters, HQ2, cities across America competed to woo Amazon with billions in subsidies, tax incentives, and other handouts.

Amazon grew in Seattle, Washington, without much civic engagement. None of their executives bothered to attend a groundbreaking ceremony for their headquarters that the governor threw. Even as housing costs soared in the booming city, Amazon did not take public stances on the affordability crunch. "It largely saw its role as creating high-paying jobs, and the city's job to accommodate them," wrote the New York Times.

That was until 2018, when Seattle tried to pass a tax on large employers to pay for homeless services and low-income housing. Amazon threatened to halt its growth in the city. The mayor of one of the most progressive cities in the country (home of the $15 minimum wage) bowed to Amazon and killed the tax.

That threat was heard on the East Coast, too, but New York politicians were not so quick to bend over. At a very contentious City Council meeting, Amazon endured hours of heckling and questions about their business practices. An Amazon official was forced to go on the record about their anti-union practices.

That moment resonated for residents of Queensbridge Houses, a public housing development near the proposed HQ2 site, as well as unions and freshman Congresswoman Alexandria Ocasio-Cortez, who were vocal opponents of Amazon's expansion. That moment resonated for Amazon executives too: they were not used to being forced to speak publicly about their policies.

Amazon unexpectedly pulled the plug on HQ2, citing the rough political climate.

Industry City

Industry City looks out on the New York Harbor from the west coast of Brooklyn. It runs along the waterfront from the Brooklyn Army Terminal to Red Hook. In the nineteenth century, it was the site of heavy manufacturing. Today, only the warehouses remain; the area is largely undeveloped. Its eastern border is the Gowanus Expressway (I-278). Past the highway is the neighborhood of Sunset Park, home to many immigrants of Hispanic, Jewish and Asian descent.

In 2015, the partnership that owns the site (Jamestown Properties, Belvedere Capital, and Angelo, Gordon & Co.) unveiled a 12-year, $1 billion plan to rezone the area and add 5.2 million square feet of retail, academic, hotel and commercial space. The city's zoning laws govern what kind of uses (residential, commercial, industrial) are acceptable in any area. Since the area was industrial, it needed to be rezoned for commercialization. Carlos Menchaca, the city councilman for Sunset Park, celebrated the opportunity to connect the neighborhood with a new job center because they had been excluded from city workforce development programs.

In November 2018, the partnership presented its plan to a community board meeting. Community Boards are the most local body politic in the city, usually involved in decisions about local schools, speed bumps, business improvement, etc. But at this tense meeting, battle lines were drawn. Elizabeth Yeampierre, executive director of nonprofit UPROSE, told the Brooklyn Reporter that the rezoning was “completely in opposition to a vision that supports the working class and good-paying jobs for those people. The high tech industries and the businesses they’re interested in, they are not jobs for our community."

Andrew Kimball, the CEO of Industry City, sparred with Yeampierre over middle class needs. Kimball claimed that turning the vacant lot into a job creation engine and investing in workforce housing would be best for the middle class. Yeampierre contended that Industry City wants to expand beyond its borders to recreate Chelsea or Williamsburg, killing the small businesses essential to Sunset Park's residents. Jamestown, one of the owners of Industry City, also created Chelsea Market on Manhattan's West Side.

Cesar Zuniga, chairman of the community board, responded with a middle-of-the-road analysis. "There is a relationship between the rezoning and displacement and how it affects gentrification, but I don’t think the solution ... is voting the rezoning up or down. The real solution to the affordable housing crisis is public policy."

Undeterred by the growing power of progressive opposition, Andrew Kimball submitted the rezoning application just days after the Amazon deal fell through. This time, Menchaca, the city councilman in Sunset Park, voiced hesitation.

After review processes came to a close in spring of 2020, the councilman announced he would vote against the project. There was an unspoken rule on the city council that a councilman could kill any project in their district unilaterally. But the economic crisis wrought by the COVID-19 pandemic and bitter factionalism amongst Democrats broke this unspoken rule, and the project stayed alive.

It was only after more local officials and four members of Congress wrote to Kimball expressing concern that his project would accelerate gentrification in Brooklyn, that the standoff ended. On September 22, 2020, the Industry City partners pulled out of the rezoning process, effectively killing the project.

The Dust Settles

“Amazon 2.0 in a time of Depression-level unemployment strikes me as deeply irresponsible,” Bronx city councilman Ritchie Torres said, in an interview with the New York Times. Torres is a Democrat who joined his Republican colleagues in denouncing the decision. "We are sending such a terrible message to the rest of the country that we’re not open for business," Queens city councilman Eric Ulrich said. The debate over Industry City was particularly urgent given the massive job losses the city faced at the height of the COVID-19 pandemic (one million unemployed at the time of writing).

The fact that many are framing this real-estate deal as a repeat of the Amazon HQ2 showdown speaks to the turbulent nature of city politics. In 2017, New York was offering billions in incentives to welcome Amazon into the city. But after progressives won big in the 2018 elections, the city's tune began to change. In a matter of months, Amazon's cheerleaders became its loudest opponents. Two years later, in the middle of an unemployment crisis, New Yorkers still have a bad taste for private development of this scale. Both Industry City and Amazon chose to save their reputations rather than pursue development. So what happened?

New Yorkers began asking different questions. Rather than how many jobs, the question became "what will these jobs do for my community?" “We’re not anti-development at all — we’re anti-gentrification,” said Menchaca, the city councilman from Sunset Park. “We have so many ideas for developing the waterfront in a vein of equity and economic justice.”

Where This Road Goes

It is very possible that after the coronavirus crisis is abated with a vaccine, the city will still face a double-whammy fiscal and unemployment crisis unlike any since the 1970s. Will New York City open the door to powerful outside business interests, or will it rely on (uncertain) federal and state aid to help its residents rebuild their lives?

Pandemic aside, it is important to evaluate how the city is growing. Mayor Bill de Blasio ran on calls to "end the tale of two cities," which includes expanding job centers into the outer boroughs. “In the public sector, we don’t measure success in corporate profits,” he said. “We measure success in how many everyday people benefit.” It was no coincidence that Amazon was located near new ferry docks along the East River, the new LaGuardia Airport (in Queens), and the proposed Brooklyn-Queens Streetcar. CitiBike has been expanding from Manhattan into the outer boroughs too.

But, are these the kinds of jobs that will go to city residents? Or are they mini-Manhattans that attract transplants into newly-branded, rapidly-gentrifying neighborhoods? After all, this wouldn't be the first time a tech company had radically altered a New York neighborhood. There was a time when Google was completely based in California and Boston. Then they bought a warehouse on Manhattan's West Side that wasn't being used by the Port Authority for much. This campus became a super-block development that attracted upscale businesses catering to high-earning Googlers. Now Google owns Chelsea Market, a mall of sorts across the street. Chelsea is an unrecognizable neighborhood today.

It is important to note that Progressives didn't really "scare" big capital away. Industry City is still around, albeit constrained to its smaller, original site. Amazon came to New York anyway, this time with smaller offices throughout Manhattan and warehouse fulfillment centers in the outer boroughs. So job creators are still in the city despite these high-profile falling outs, and they're not receiving subsidies either.

These rezoning proposals exposed complex tensions among Democrats over the issues of gentrification, the real estate industry's power, and who will lead the city out of its worst crisis in many decades. Given the uncertainty of federal aid, and just how "normal" things will become, there are no clear answers on how to solve the unemployment crisis. Progressive coalitions have made it clear that gentrification will not fly.

Tagged: