Boston Sees Amazon HQ2 Loss As More Salvation Than Snub

Boston’s Amazon ambition has come up short.

Amazon announced Tuesday that New York City and Northern Virginia were the joint victors in the race for HQ2. Rather than the originally touted 50,000 job-creating second headquarters, HQ2 will be split between the two regions in a deal the Seattle-based company expects to grow into a 4M SF, $2.5B presence in each. Amazon also announced a 5,000-job “Center of Excellence” for operations in Nashville.

In Boston, a developer attached to one of that region’s HQ2 concepts isn’t sweating over the loss. 

“We happened to be shovel-ready, and we happened to be at a great point in time to be part of that bid,” Federal Realty Investment Trust Vice President Patrick McMahon said. “But we always put their search into perspective, always knew there were 19 other cities in consideration and didn’t pin all our hopes on Amazon.”

Federal Realty’s Assembly Row in Somerville was part of a greater “Amazon on the Orange Line” pitch from Somerville Mayor Joseph Curtatone. The mixed-use development and its direct link on the MBTA Orange Line was part of Curtatone’s regional approach to Amazon that would have spread HQ2 from North Station in Boston to the Assembly MBTA station that was built as part of a $100M infrastructure investment from Federal Realty and government bodies. 

“It was a nice moment in time in terms of where we were in this development to be part of that Amazon on the Orange Line pitch,” McMahon said. “It was logical that we were included, but it was never anything we were relying on to continue to evolve here.”

HYM Investment Group, the owner of Boston’s preferred HQ2 site at Suffolk Downs in East Boston, did not comment in time for publication.

Boston Mayor Martin Walsh recognized Amazon for its existing Greater Boston presence Tuesday while also showing gratitude his city wouldn’t be defined by one company.

“Amazon is an important part of Boston’s economy, a large employer and a valuable partner who is actively hiring and expanding in Boston and the area,” Walsh said in a prepared statement. “While I am proud Boston was named to Amazon’s shortlist for its second North American headquarters, our future will not be defined by a single company as we continue to plan for equitable, sustainable growth.”

Amazon Robotics is headquartered in North Reading, and Amazon has several facilities across Massachusetts. Boston was also picked as the headquarters for an Amazon, Berkshire Hathaway and JPMorgan healthcare venture while the search for HQ2 continued this summer, giving the state plenty to brag about even if it won’t get the grand office prize.

“Massachusetts is the proud home of nearly 4,000 Amazon jobs located in numerous facilities across the Commonwealth,” Massachusetts Secretary of Housing and Economic Development Jay Ash said in a prepared statement. “We are pleased to have attracted global companies that contribute to our innovation economy, supported by the Commonwealth’s world class colleges, universities and top research facilities and will continue to focus on attracting good-paying jobs and new employers to every region of the Commonwealth.”

Boston’s bid for HQ2 relied on its ability to provide a deep pipeline of talent due to its numerous top-tier universities, like Harvard and the Massachusetts Institute of Technology. An early Bloomberg report that said Amazon executives favored Boston, which gave the city early front-runner status. The company also announced it was putting at least 2,000 jobs in the city’s Seaport neighborhood, on top of the 2,000 jobs it already has in Boston in Cambridge. 

Amazon later shot down the Bloomberg report as false and also said the Seaport expansion was unrelated to HQ2. But many in Boston’s real estate community point to the Seaport expansion and the company’s presence elsewhere in the state as signs the company is still committed to New England. 

“I just don’t think we fell short,” Hunneman Director of Research Liz Berthelette said. “It was just a case of, ‘We already have a large presence in Boston, and that’s not changing.’ Maybe Amazon wanted to diversify major operations, and it made more sense to go to New York. If they want to start getting into government contracting, it makes sense to be in Northern Virginia.”

As the yearlong race for the second headquarters continued, some of Boston’s weaknesses as a competitor rose to the top. 

Finding space to put the originally planned 8M SF headquarters was an early headwind and why the city promoted HYM and Suffolk Downs. The former horse track in East Boston was a rarity in the city as a 161-acre blank canvas under the same owner. Other options were more complex and included cobbling together space owned by multiple developers from South Station to the eastern edge of the Seaport.

It was reported that developer JBG Smith owning so much of the available land in Crystal City, now being referred to as National Landing, was a factor in Amazon's decision to locate there.   

Finding large blocks of available office in Boston is difficult. The city’s 9.5% office vacancy rate is below the 12.2% national average, and the finding room for even the 500K SF first phase of the project wasn’t going to come easy. John Hancock vacating its Seaport headquarters and consolidating in the Back Bay would have freed up room for Amazon, but that property is already garnering interest from other companies looking to enter or expand in the Boston market. 

Money also talks, and Boston may not have been willing to engage in such a conversation.

Boston gave General Electric $25M in property tax incentives on top of a $120M Massachusetts tax incentive used to woo the company out of Connecticut. Critics chided both governments for the incentives, especially after the company has struggled financially since moving to Boston.  

Both Walsh and Massachusetts Gov. Charlie Baker indicated they were not going to give Amazon huge subsidies to move to Boston. Instead, they would have tied any incentives to improving the state infrastructure, which already struggles to accommodate the current regional population.   

Virginia offered Amazon $573M in tax breaks and $193M in infrastructure improvements, according to Amazon. New York is providing $1.53B in direct incentives, and millions more in improvements. 

As the HQ2 search matured, Boston seemed to accept it wasn’t going to win and focused on its existing office activity, which includes about 200 active tenants with a combined 6.5M SF of demand.

“We’re as busy as we ever have been,” CBRE Vice Chairman Steve Purpura told Bisnow earlier this month in an interview pertaining to the city’s office climate. “The Boston market isn’t built for one large player. It geographically isn’t set up that way, and the infrastructure isn’t set up that way.”

Even when GE moved its headquarters from Connecticut to Boston in 2016, the company — then still seen as a blue-chip stock — only expected to bring 800 jobs with it to a planned Fort Point headquarters. Liberty Mutual’s website says it employs 4,000 in Massachusetts across 33 offices, including its Boston corporate headquarters. Its Plano, Texas, campus is expected to employ 5,000 just at one site.  

While Boston may not see the kind of growth that would have come from Amazon’s second (or third) headquarters, Berthelette still sees a strong market with more room to grow. Back at Federal Realty’s office at Assembly, McMahon continues to develop the project that began nearly a decade ago.  

“It’s business as usual, and we’re going to keep on the trajectory that we’ve laid out,” he said.