Out of 238 contenders, New York has made the shortlist of 20 candidates Amazon is still considering for its second headquarters, a project known as HQ2. The encouraging news is that New York ranks first in an analysis by Anderson Economic Group of locations best suited to the e-commerce giant’s requirements. But the sobering fact is that New York has decided not to entice Amazon with any new subsidies or tax breaks, apart from those available to any company. So how can New York hope to compete with cities like Chicago, which Anderson ranks second, and is offering more than $2 billion of inducements?
I believe that New York is uniquely positioned to offer Amazon a package of incentives worth billions of dollars, but to do so without costing the taxpayers a dime. Just the opposite, in fact: This plan would actually generate substantial revenue for the City’s coffers from Day One, and that funding stream would grow exponentially for up to a century — after which, it would deliver to a future generation of New Yorkers an asset worth tens (perhaps hundreds) of billions of dollars. What’s more, all of these benefits would be separate from — and in addition to — the enormous economic upside that would accompany a decision by Amazon to locate in New York (estimated to include a $5 billion of investment by the firm, and more than 50,000 new, high-paying jobs).
Providing space for the 8.5 million square feet of offices that Amazon envisions needing would be difficult and expensive, particularly in desirable areas like Lower Manhattan. With office buildings Downtown currently selling for more than $500 per square foot, the cost, if the City resolved to acquire and offer Amazon this space, would run to more than $4 billion.
But creating new space, where none currently exists, can be accomplished for pennies on the dollar. I know, because I’ve done it. The state agency that I founded in 1968, the Battery Park City Authority, created 92 acres of new property in the Hudson River, using landfill. This site has gone on to become the most successful development of a planned community in the history of American real estate, with a net annual cash flow of more than $180 million.
Using fill to extend Battery Park City beyond its current northern border (roughly at Chambers Street) by half a mile (to a point just below Canal Street) would create more than 60 acres of additional new land in Tribeca, one of the most desirable residential and business districts in the United States. This would be more than room enough to build twice the square footage of offices that Amazon envisions, and still have space left over for apartment towers to house its employees (and even those of its subcontractors), while also constructing a beautiful series of parks and open spaces. This plan would create a sylvan, campus-like blank slate — all overlooking the Hudson River — on which Amazon could design its own ideal headquarters. While such a plan would envelop two recreation piers currently operated by the Hudson River Park Trust, the new acreage would increase by a factor of five the amount of park space available to local residents between Chambers and Canal Streets, while also extending Battery Park City’s magnificent Esplanade for an additional half a mile.
The cash flow from this new land would also generate (in the form of payments known as “ground rents”) enough income to guarantee the future of the financially strapped Hudson River Park Trust in perpetuity. This income stream would allow that agency, for example, to shore up the dangerously dilapidated Pier 40, creating a new, world-class recreational facility and community center (another lure for Amazon) without resorting to the planned commercial development of the dock that many community leaders find troubling.
From an engineering perspective, this would be an easy task. According to Mueser Rutledge Consulting Engineers, the firm we used when building Battery Party City in the 1970s, the depth of the bedrock beneath the bottom of the Hudson in this area is uniformly shallower than 100 feet, which minimizes both the cost and the complexity of creating landfill.
And that’s where the unique financial upside comes in. The community that I built, Battery Park City, is subject to a 99-year land lease. This means that developers who put up commercial and residential towers in Battery Park City pay annual ground rent to the Authority, in exchange for the privilege of having their buildings occupy land in the community. At the end of this lease, ownership of both the land and the buildings that sit on it will revert to the public. In the meantime, the ground rent income covers by more than a multiple of ten the expenses of maintaining the property, running the Authority, and servicing the debt that we issued to fund the creation of the landfill. In fact, the return is so lopsidedly favorable that the Authority now generates close to $200 million every year in “excess revenue” (meaning monies left over after debt service and operating expenses), which it turns over to City Hall. And in the year 2069 (when the land lease ends), the taxpayers will receive a gift, in the form of outright ownership of an asset that is today valued (by conservative estimates) at between $5 and $10 billion, and will likely be worth many times this amount five decades from now.
The same financial alchemy could be made to work for Amazon, while similarly enriching the public. A parcel of 60 new acres of prime, waterfront land has the potential to house tens of millions of square feet of new office and residential property, surrounded by acres of civic amenities such as parks, schools, libraries, community centers, and cultural facilities. All of these would be available for Amazon to develop as they wished, at whatever pace they saw fit. The company would pay a nominal annual ground rent for this land, which would amount to a tiny fraction of the cost they would face if they had to purchase such space (or if the City tried to purchase it on their behalf, using eminent domain). This stream of ground rent (which would be more than enough to service the debt issued to create the new land) would increase gradually over time, but would always be lower than the Amazon’s cost to acquire land or buildings. That translates into a huge subsidy and powerful incentive for the firm to consider locating its HQ2 in Lower Manhattan. But this subsidy would not be coming out of the taxpayers’ pocket. Instead, the income from ground rent would be putting money into the public coffers, starting with the first annual payment.
What’s more, this project would naturally be built to the highest standards of resiliency, incorporating countermeasures to rising sea levels and climate change. And some of the excess cash flow could also be used to fund resiliency measures elsewhere Lower Manhattan, where the danger from extreme-weather events is acute, but there is currently no budget and no plan for new infrastructure to safeguard against it.
Finally, it would not be necessary to create a new government agency to accomplish any of this, because one perfectly suited to the mission already exists. The Battery Park City Authority, which I founded in 1967, can offer not only untapped bonding capacity (with a Triple A credit rating), but also a staff of engineers and architects who are expert in creating and maintaining landfill. Structured as a public benefit corporation, the Battery Park City Authority also has a decades-long track record of designing world-class projects and master plans. More recently, the agency has emerged as a leader in resiliency planning in Lower Manhattan. All of these core competencies, plus the Authority’s deep reservoir of institutional memory, will position it perfectly to take on the expanded mission of remaking Tribeca’s waterfront to welcome Amazon’s HQ2. Another bonus is that Amazon would get, in the Authority, a government patron and partner with mandate to be uniquely attuned and responsive to the company’s needs, instead of having to bargain with New York’s labyrinthine bureaucracy.
And when the lease for this new property ended, sometime in the 22nd century, it would trigger a windfall for citizens not yet born, who would reap the benefit of owning outright (and thus being able to monetize, either by selling or leasing again) dozens of acres of prime, developed shorefront land — which will, by then, be worth untold billions of dollars.
Only government has the authority and resources implement a plan like this one. Only New York can offer Amazon the benefits that such a scheme would make possible. And only in Lower Manhattan do all of these possibilities come together in a single place. A creative partnership between the public and private sectors to bring Amazon to the Hudson River waterfront will benefit both, but the best reason for doing it is that it will (in more ways than one) enrich the City and its people.
(Editor’s Note: The author was the founding chairman and chief executive officer of the Battery Park City Authority, serving from 1968 through 1979. He returned to the BPCA in 1995, serving as its vice chairman, through 2011.)