What To Expect If Indy Lands Amazon’s HQ2
“We started a search for the best places to put a new location in,” the CEO said shortly after making the formal announcement. “We started, believe it or not, with 900 cities. We ended up in Plano, Texas.”
You didn’t miss a big announcement. This wasn’t Jeff Bezos, it wasn’t Amazon, and it clearly wasn’t about Indianapolis. It was Liberty Mutual Insurance Group CEO David Long talking to reporters after cutting the ribbon at a new facility in Plano, Texas, in 2017.
The press event happened a mere two years after the insurance giant announced Plano was the winner of the bid, a project promising to add up to 5,000 new jobs in and around Plano over the next several years. It’s worth comparing Liberty Mutual not because we’re going to learn much from how it selected Plano, but because these things—these tantalizing projects that force cities to try to reel in the biggest of fish without upsetting their boats—happen all over the place, all the time.
But be clear: Amazon’s imminent second headquarters, dubbed HQ2, is different. While congruent, the projects are of vastly different scale. Like Liberty Mutual, Amazon is not replacing its home office. Instead, it’s expanding to a second major headquarter location. But unlike Liberty Mutual’s long-term goal of 5,000 new jobs, Amazon’s is 50,000. Liberty Mutual’s new footprint is about one million square feet of office space; Amazon wants about eight million.
It’s hard to visualize exactly how HQ2 would affect a Midwestern metro area like Indianapolis over one, 10, or 20 years. It’s difficult to predict how its sudden arrival would mirror the more measured growth HQ1 has had in Seattle, a tech hub that currently spreads personnel across over 30 different buildings in the downtown. Even when you “win” a project like HQ2, it’s hard to identify the penumbral border between success and failure when your equation contains incentives, taxes, jobs, and infrastructure challenges, significant staff hours, and a potentially tectonic boon to peripheral industries.
“Be careful what you wish for” is a phrase often served with a bit of pessimism, drizzled with the juice of souring grapes. It’s what you hear a lot from cities that didn’t make Amazon’s top 20 list, as well as a fair amount of people in Seattle itself.
But based on conversations with several experts, a more objective phrase might be, “Prepare for what you wish for.” Valuable lessons exist if we’re willing to listen to them, offering us ways to answer questions such as, “How important is winning HQ2?” “What should we be doing to win it?” “What will happen if we do win?”—and its unstable isomer, “What happens if we don’t?”
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Jon Owens is Managing Director for Cushman & Wakefield, a global commercial real estate services firm with offices downtown. His focus is commercial deals in Marion and its contiguous (“doughnut”) counties. Like most people with a working knowledge of local properties, his assumption is that if Indianapolis gets HQ2, it would likely go on the footprint of the old General Motors Stamping Plant.
Sitting just west of Downtown, across Washington Street from the Indianapolis Zoo, the plant is an ideal location based on Amazon’s stated goals for an HQ2 site. Bounded by Harding Street on the west and White River Parkway on the east, it’s currently a dusty wasteland behind a jagged brushline but large enough to hold about 75 football fields.
“It’s a hundred acres,” Owens begins, comparing the stamping plant with Amazon’s ideal HQ2 location. “They want to be in or near an urban location. They want to be in a city with a modern airport, and we have the number one airport in North America. If you read the criteria Amazon put out there, it checks just about every box.”
Local developer Ambrose Property Group purchased the land in April, and it plans to make use of it whether Amazon comes here or not. But were Amazon to land here, it seems likely the company would want to use this location, which is eerily congruous to its stated goal to “prioritize certified or shovel-ready greenfield sites and infill opportunities with appropriate infrastructure and ability to meet the Project’s timeline and development demands.”
“They want to be in or near an urban location. They want to be in a city with a modern airport, and we have the number one airport in North America. If you read the criteria Amazon put out there, it checks just about every box.”
If Indianapolis wins but Amazon wants a different specific location, things start to get complicated. “Going out north, along US 31,” he says, for example, “is a totally different dynamic.” At that point, Owens points out, we’d be in very much the same boat as Seattle, which houses its workers across more nearly three dozen buildings. The total amount of commercial office space inventory in the nine Indianapolis counties is currently between 35–40 million square feet, and of that, only about six million is open for lease. So we’d end up building most of their space anyway, but it would likely be in separate—but ideally nearby—environments.
Regardless of whether Amazon would choose the stamping plant or something further from Downtown, Owens says, the build-out is where we’re going to start seeing stress in the local system. “Right now we’ve got general contractors who either can’t hire subs because they’re busy, or the subs give them pricing that’s so high that it’s the only way they’ll work.” During the recession about 10 years ago, he recalls, a lot of contractors left the local construction market and went south, stayed there to work after several vicious hurricanes, “and a lot of them never came back. The stable of labor just keeps diminishing.”
If market-based uncertainty isn’t stressful enough, add in politics. It doesn’t help when you “get your lease signed, and you’re putting together your plan or specifications for construction and suddenly there’s a tariff on steel. That turns things into a state of disarray and can do real damage to any kind of pro forma or ROI models that a developer has. So when you’re talking about the magnitude of a project like [Amazon], the implications of pricing and labor can be huge.”
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Too much work to do, and not enough people to do it. This is just one of the characteristics of the “winner’s curse,” according to Dr. Rachel Weber, a professor and Director of Graduate Studies in the College of Planning and Public Affairs at the University of Illinois at Chicago. She specializes in the three-way intersection of public policy, urban planning, and economic development.
Put perhaps more cynically, the winner’s curse embodies what HL Mencken said about democracy: “The common people know what they want, and deserve to get it good and hard.”
By all means proceed with the bid, Weber says, but do so cautiously. For a city like Indianapolis, “the number of jobs they’ve promised is going to create a shock to the system, because the scale that they’re talking about is way beyond a typical relocation. Depending on how many people they are going to bring from elsewhere, it’s going to have a huge effect on the existing labor market and existing firms could lose some of their best workers who decide to work for Amazon instead of stay where they are.”
In addition to the labor market, impact on metro-area home-buying is a common concern. “Can people move to the Indianapolis region,” Weber asks, “and find homes that are at a price that they can afford?” Local builders and Realtors are more than willing to help answer that question, but the true impact can be trying for a community. For years, Seattle has suffered from what CNN Money calls “rapid escalation in housing prices and a resulting surge in homelessness, due in no small part to the influx of highly paid workers employed by Amazon and other area tech companies.”
Indianapolis, of course, is different from Seattle. Where Seattle’s residential districts butt up against Lake Washington and national forests, ours merge gracefully into yet another undeveloped plot of land, in bedroom communities where “mixed use property” means beans one year and corn the next. Some studies estimate that Indianapolis rents would be largely unaffected by HQ2. But to create, in Amazon’s words, “as many as fifty thousand (50,000) new full-time jobs with an average annual compensation exceeding one hundred thousand dollars ($100,000) per employee” will shake Central Indiana’s housing market like zigging down pockmarked Pennsylvania Street rattles an aging sedan.
GB Landrigan has spent the last 30 years analyzing that exact market. He’s the third generation of realtors and real-estate brokers who’ve focused on high-end local properties, which is the segment of the local market most likely to be affected by Amazon settling here. While it’s true that our city doesn’t border an ocean or mountain range, that doesn’t mean there wouldn’t be a squeeze. If we’re talking about the GM stamping plant as the HQ2 location, he says, we should “expect that Downtown and the 15-minutes-away neighborhoods such as Meridian-Kessler, Butler-Tarkington, and Irvington would experience a sharp increase in demand.” Even though “those markets are already tight, prices would be expected to increase to a much greater extent” than they currently have been. One likely ripple effect would be that “demand [would increase] in less-expensive, nearby areas from buyers priced out of the market.”
And don’t rule out the outer-ring suburbs, Landrigan says, even if the facility would land downtown. “Many moving here from other cities may currently drive 60 minutes or more to the office. Buying a home only 30-45 minutes away would be a pleasant change for them.”
Landrigan cites current MIBOR data to suggest that looking at existing inventory is only a small part of the story. The nine-county area showed about 3,500 residential closings in June (this includes single-family and condo sales), with another 3000 pending sales. Current inventory as of early July was only about 1900 dwellings. Clearly, HQ2 would ravage the local residential market without significant new construction to fall back on. And the commercial construction labor bottleneck that Jon Owens discussed? It applies to residential construction too.
But these are all good problems to have, right? How to find enough homes, doctors, dry cleaners, restaurateurs, landscapers, Uber drivers, microdistilleries, and teachers to accommodate the needs of tens of thousands of skilled, highly-paid professionals?
For one, it could help stem Indiana’s worrisome brain drain. 2016 BioCrossroads data suggests Indiana loses two-thirds of its in-state bio majors, 60 percent of engineering students, half the computer and IS students, and 40 percent of healthcare students after graduation. Those numbers will change if we win HQ2, whether young grads decide to work for Amazon, work at places who’ve lost workers to Amazon, or to take care of both groups in a tangential service industry. Estimating the overall net benefits or shortfalls—an extraordinarily difficult math problem—can help guide the level of incentives to offer.
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When a city or region makes a bid for a project like this, the equation can get very abstract very quickly, due in part to both parties keeping their cards so close to their vest. Amazon, for example, has required its bidders to keep their incentive offers confidential during the process. If nothing else, this will help delay the inevitable debate about whether the city and state offered too much in its efforts to lure the company. The trick, Weber says, is for the governing body to avoid offering a penny more than it would take to win the deal.
She points to the Foxconn manufacturing plant in Wisconsin, a victory for those in charge of luring business, but one in which public incentives have slunk up to at least $4 billion.
Even after construction crews have broken ground, the Foxconn deal is emblematic of the intractable tension of opposing economic and political ideologies. Opinions — the most vocal ones, anyway — remain entrenched in one of two camps: Either Wisconsin sold out for a deal that, even under the best of circumstances, will take many decades to break even, or that the state would have been foolish to take a pass on a project that will create thousands of jobs, regardless of the cost.
“Everybody needs to be monitoring how this is affecting things like housing prices and demand for education to the fiscal cost, in terms of infrastructure and public dollars.”
Weber waxes pragmatic, spelling out the simple equation to determine if Wisconsin overspent: “Does Foxconn need all $4 billion, or would they have done it for $2 billion? If they would have done it for $2 billion, then the [other] $2 billion is a giveaway—a loss.”
But it’s not as if you can get Foxconn drunk and it will lean over and whisper, “You know, I would have done it for $2 billion.” And Weber knows this. That’s why she emphasizes that a city’s due diligence requires it to synthesize those calculations on its own end and determine the logical “walk-away” point, just as if you’re buying a house.
And once a city like Indianapolis wins a deal like Amazon, the other hard work begins.
“If the cities, region, and state have already decided to put up a lot of money, they need to monitor this deal carefully and design an incentive condition so that the company only benefits after it meets certain milestones,” Weber urges. “Everybody needs to be monitoring how this is affecting things like housing prices and demand for education to the fiscal cost, in terms of infrastructure and public dollars.”
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Risks of massive, catastrophic failure are rare, Weber says, but they exist. She points to Harvard, Illinois, as an example. Harvard, a town of just under 10,000, is just south of the Wisconsin border and roughly equidistant to Milwaukee and Chicago. Beyond billing itself as the “milk capital of the world,” Harvard is best known to students of urban planning, technology, and economic development as a cautionary tale.
In the mid 1990s, Motorola announced the construction of a 1.5 million square-foot facility in which the telecom giant would assemble mobile phones. The plant employed 5000 workers by 2001, but by 2003, it was closed. $30 million in state incentives and another $5 million in tax credits weren’t enough for Motorola to survive consumer transition from analog to digital devices and avoid the lure of overseas production.
Professor Weber pauses, wanting to balance what might be perceived as pessimism. “I’m not always just such a downer, but I think it’s necessary to inject a critical view into [these projects] because there’s so much boosterism. There’s so much excitement and I think municipalities are so seduced by these kinds of deals, but I often end up playing the ‘Have you thought about this? Have you thought about that?’ role.”
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Like every other city in the HQ2 Top 20, Indianapolis has its share of liabilities that the other cities hope (and write) will preclude our making the next cut. Examples, some of which are more corrigible than others, include a welcoming culture (via protection and discrimination laws), metro-wide public transit, and a deep pool of local talent. Each has been documented thoroughly.
But we have other, longer-term issues to consider as well, many of which are not necessarily considered to be wed to our chances, but that would nevertheless affect us sooner than we think. One example is our looming educator crisis: Indiana has a teacher shortage. And we don’t have just any teacher shortage. If our teacher shortage went up against the other states’ teacher shortages, ours would blow through regionals with little effort.
It’s not simply that we have teaching slots to fill. In a country where fewer and fewer people want to start (and continue) teaching in the first place, they are especially eager to not teach in Indiana. Current data is difficult to find, but as of 2013, compared to national averages, Indiana teachers were over 20 percent more likely to have left the profession already, and for existing teachers, 20 percent more likely to be planning an early departure. But possibly most striking is that Indiana teachers are more than twice as likely to experience “testing-related job insecurity,” which is concern about the security of their jobs due to the performance of either their schools or their specific students on required tests.
Meanwhile, the Indiana legislature and the Department of Education keep trying to address the situation in various ways, but they seldom agree on the most productive methods.
The 2017 legislature killed a controversial bill that would have made it easier to hire uncertified teachers, while many in the profession would suggest that paying existing, certified teachers more is a better route. On a somewhat brighter side, the National Council of Teachers of English reports that in 2017, the number of college grads earning an initial practitioner license in Indiana grew by about 35 percent over the 2016 numbers.
Meanwhile, the IDOE is working hard to get its message out, building and putting advertising dollars behind sites that both show the benefits of teaching in Indiana and make it easy to find teaching jobs here.
It’s hard enough to know whether these measures will sate the existing teacher demand in Indiana. Add 50,000 new workers and their families to Central Indiana over the next 10-15 years, and unfortunately, it becomes a little easier to answer.
We also need to address air travel. For the last five years, Airports Council International has awarded the Indianapolis International Airport (IND) the title of best airport in North America serving 2 million passengers or more. That is a great place to start. But to serve the needs of the Amazon workforce and its peripheral journeys, you’re gonna need a bigger boat.
It’s symbolic that Alaska Airlines—and now Delta—offer nonstop service to SEA-TAC from Indianapolis. But to get anywhere near comparable traveler numbers would create quite a strain. Consider these 2016 numbers:
- SEA-TAC moved 46 million people—No. 9 nationally and No. 28 in the world.
- IND moved 8.5 million people—No. 49 nationally and No. 217 in the world.
SEA-TAC represents far more than simply traffic to and from Amazon and Microsoft, of course. It’s a major gateway to Asia, Alaska, and the Pacific. So we don’t need to be 1:1 with SEA-TAC in terms of full capabilities and throughput. But we’ll need to grow.
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The worst-case scenarios like Motorola are rare, and right now, the airport is more than adequate. Those two things make Bryan Robbins happy. Currently the Executive Director of the Economic Development Corporation Greensburg/Decatur County, Robbins was on the steering committee that helped author Greensburg’s comprehensive city development plan more than 10 years ago. This task included helping assemble and implement the plan that ultimately attracted Honda Manufacturing to Greensburg—resulting in a plant that now employs more than 2,400 workers from 31 different counties in Indiana, Ohio, and Kentucky.
With 10 years in the rearview mirror since the first Honda Civic came to a celebrated pause at the end of the Greensburg line, Robbins has earned his merit badge of perspicacity about what makes a successful relationship between a corporation and the community it calls home.
It turns out it’s a lot of work, it’s best to be honest with each other from the very beginning, and aging happily together takes patience and communication.
“It’s a marriage,” he says very plainly, “and the sooner the partners realize that the other isn’t perfect, nor will they ever be, the quicker and more effective the cooperation will be.”
Construction of the Honda plant required—and continues to require—expert planning in logistics, utilities, and transportation. Problems are rare, but the important thing is to anticipate and plan for them, not to hope they don’t surface. Transportation is one example. “It takes a while to get the traffic infrastructure right,” Robbins says, adding, “And that’s not a knock on our engineers. You don’t specifically know how the travel patterns will be until they get going.” He says there will always be backups, trains, and challenging intersections, but having a plan to figure them out is part of the relationship he’s helped build between the public and private sector.
“Amazon might be the new, attractive partner in the room, but those other partners have been with you through thick and thin and shouldn’t be neglected. They helped you get where you are.”
In some ways, Robbins says, the infrastructure problems are the best kind of problems, because “you have specific experts in that realm with knowledge of what both business and community bring to the table and what they need.”
Robbins points out one thing that made Honda’s expansion slightly different from Amazon’s: Comparative data from past projects within the same region and industry. Greensburg and Decatur County did “quite of bit of research on the impact of large investments, particularly in the automotive field, on a smaller community.” They studied places like Princeton, Indiana, and Georgetown, Kentucky (both of which house Toyota manufacturing plants), as well as Marysville, Ohio, (another Honda facility), and how they were affected. “I’d like to think we were aware of most of the benefits Honda could bring, which is obviously why we made the investments we did to help them locate and expand here.”
True to the relationship metaphor, he says, the beginning of the process is surprisingly similar to a middle school dance, and he delivers simple, pro dad-style advice to anyone who thinks it’s easy to outwit or overthink the situation: “Don’t try and be something you aren’t—or don’t want to be. If you get selected for who you are and what you can offer, the relationship will be a good one, and your end of the bargain will be easy.”
Sit back down; he’s not done yet, and you still have more to learn. For example, don’t ditch your current corporate relationships when someone new and flashy arrives. “Amazon might be the new, attractive partner in the room, but those other partners have been with you through thick and thin and shouldn’t be neglected. They helped you get where you are,” he says, and in so doing, they’re partly responsible for making you attractive to someone like Amazon. “Don’t forget that.”
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All things being equal, each of the 20 Amazon HQ2 finalist cities has a 5 percent chance of winning the bid. A 5 percent chance of winning, of course, is glued to a 95 percent chance of losing. So the objective, long-form piece on HQ2 would really focus on “What happens when we lose,” not “What happens if we win,” right?
What does happen if we lose?
The world of sports offers no end of consoling bromides. “You miss every shot you don’t take.” “Swing for the fences.” “The biggest sluggers strike out the most.” And so on.
But is there any measurable benefit to hauling out the big guns just to reholster them shortly after?
Purdue University thinks so. In June, Purdue and its contractor partner Bechtel found out they lost the bid to take over operations of Los Alamos National Laboratory. But in the process, Purdue discovered benefits “just for trying”—among them, an energized alumni donor base whose pledges are up 21 percent year over year. In the estimation of Amy Noah, Purdue’s VP for development, this is at least partly due to Purdue’s appearance “on the national stage” during the Los Alamos bidding process, a project that ultimately was awarded to University of California, Texas A&M, and Battelle Memorial Institute.
Similarly, Indiana Sports Corp recently learned that Indianapolis won’t be hosting any World Cup matches in 2024, despite making it through an earlier round of cuts. And there’s a reason that half of the Amazon HQ2 finalists are cities that are also World Cup city finalists: dedicated people thinking hard about how to make their city attractive to multiple audiences, thinking about the long term.
Greensburg’s Robbins believes no part of the bidding process is a waste if it’s done correctly, even if you lose. “Take advantage of the infrastructural, educational, and quality-of-life changes you’d planned [during the bid]. What can still be done? Utilize all the people who came to the table to submit the bid to implement the projects. There could be another opportunity down the road, and you’ll need those people again. Any time you can bring good people and organizations together, no matter the cause, it’s a great opportunity.”
In other words, if a feature was good enough to add to a bid, it could be a good addition to the community, even without the big company you were pitching. It becomes part of the landscape that attracts the next big dance partner, and until then, it benefits the people who already call this place home.