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Looking Back at Amazon’s Very Big Year in Commercial Real Estate

It is impossible to track the commercial real estate industry and not see the name Amazon on a near daily basis. In markets across the country, tales of Amazon’s dominance have proliferated.

The e-commerce behemoth is omnipresent, and not just in the ways you would expect. It’s vast network of warehouses and distribution centers is, of course, at the heart of its real estate presence and a major driver for logistics and industrial real estate in the U.S. as a whole. But, in addition, the company is an active player in physical retail with Whole Foods, Amazon Fresh, Amazon Grab and Go locations and other new concepts. As a producer of films and streaming series, it’s also driving demand for studio production space.

There’s more. With its own massive online needs as well as the legion of third-party users that host their sites through Amazon Web Services, the company is a huge driver of demand for data centers. It has been aggressively snapping up office space in markets across the country. And as part of burnishing its ESG credentials, the firm has invested in affordable housing, as well as helping real estate developers of color in the industry.

“We own about 9 million square feet over a $1 billion of industrial properties,” Allan Swaringen, president and CEO of JLL Income Property Trust, told GlobeSt.com. “Amazon’s a tenant in one of our warehouses in East Bay, San Francisco. Even in running a diversified real estate portfolio, we see them in the office, the retail, and the warehouse.”

Here is a breakdown of just some of the recent highlights from the company’s real estate strategies.

Industrial juggernaut

Amazon seemed to dominate the industrial sector even before the pandemic. Yet in the past two years the company more than doubled its space, according to an analysis by The Real Deal.

According to the publication, “At the end of 2019 — before the pandemic — the firm had around 192 million square feet of warehouse, data center and distribution space across the U.S. and Canada. Amazon added about 101 million square feet in 2020 and this year has added at least 119 million through September, according to the data and financial reports.”

In part this has been driven by Amazon’s desire to further improve its logistics capabilities and facilitate faster delivery times in addition to having more direct control over its last-mile delivery infrastructure.

It is routine to see big prices paid for buildings with Amazon as a tenant. For example, in a deal in October, a family office bought a 290,000-sq.-ft., 44-acre Amazon distribution center in Simi Valley for $128 million. According to The Real Deal, the price was eight times the $16 million Greenlaw paid Los Angeles-based Rising Realty Partners for the property a year earlier. Greenlaw spent $17 million on renovations before signing Amazon to a 15-year lease.

However, in a noteworthy pivot, Amazon has become a more aggressive buyer of space. Owned space is still just a fraction of its portfolio, but the share grew. According to The Real Deal, “Last year the firm increased its owned square footage of warehouse, fulfillment and data center space across North America by around 50 percent — adding 2.9 million square feet to bring its total to 8.5 million.”

According to The Wall Street Journal, Amazon holds $57.3 billion worth of land and buildings—more than any other U.S. public company except Walmart. “The online retailer doesn’t care whether it buys or leases as long as the building is right, according to the company’s vice president of real estate and global facilities, John Schoettler,” the newspaper reported.

Bisnow also reported on Amazon’s shift from renting to owning warehouses in October. “Sources expect Amazon will continue to ramp up this buying activity, as the investments allow it to capture the value premium that it creates for an industrial property and for years has passed along to its landlords,” the site reported.

“We’ve seen multiple deals throughout the country where Amazon industrial properties are setting a new high-water mark in local markets from a price-per-square-foot standpoint, and setting a new record low on cap rates,” Colliers National Director of Capital Markets Research Aaron Jodka told Bisnow. “Amazon is certainly seeing this, and by owning real estate, they’re able to participate in the value creation of their occupancy.” 

In one deal in November, for example, Amazon purchased a 30-acre office campus from Irvine-based developer Greenlaw Partners and New York-based Cerberus Capital Management for $165 million, according to the Orange County Business Journal. One possibility was that Amazon could convert the current 650,000-sq.-ft. office property into industrial space.

In another recent deal, in October Amazon bought a 29-acre site with several office and research buildings in Milpitas, Calif., for $123 million, according to The Mercury News. The site includes nearly 400,000 sq. ft. of existing space with room for additional development.

A reason it’s been successful is that the company has been willing to pay above market rate for the facilities it is acquiring.

“They typically pay 50 percent to 60 percent above market for industrial space,” Juan Arias, CoStar Group senior consultant for industrial/logistics, told GlobeSt.com. “Even prior to the pandemic, we saw a drive up for last-mile locations,” particularly in downtown areas, close to high-income households. “Those are some of the most attractive for e-commerce players and packaged e-commerce sellers.”

But the aggressiveness has now also led to developers becoming “leery” of entering lease negotiations with Amazon.

As Bisnow summed it up, “Amazon has five main types of distribution and warehouse facilities in its network, according to a source that has developed several properties for the tech giant: massive sorting facilities that tend to be more than 3M SF and multiple floors; non-sorting fulfillment centers that exceed 1M SF; inbound and outbound cross-dock facilities between 300K and 600K SF each; and last-mile facilities that can be upward of 250K SF but are close-in to major population centers.” 

For example, in November, DH Property Holdings has sold a 99-year ground lease on an Amazon distribution center at 55 Bay Street in Red Hook, Brooklyn, to Brookfield Properties for $45 million, according to Commercial Observer. The facility is a warehouse Amazon Fresh uses for its grocery delivery service in New York. In another deal in Lakeland, Fla., in April, Intercontinental Real Estate Corp. paid $108.74 million for a 710,962-sq.-ft., Amazon-occupied facility. There are countless more examples of deals.

Amazon’s massive impact is also evident on the development side of things. According to GlobeSt.com citing data from CommercialEdge, “Of the 10 largest industrial projects underway in the U.S. this year, Amazon accounts for eight of them, with a total footprint of 28.3 million square feet—an area about the size of New York City’s Central Park.”

Retail innovator

Amazon has built a sizable bricks-and-mortar retail presence. “Between leased and owned, 21.8 million square feet worth in North America, although what Amazon will continue to do with retail space isn’t certain,” Kevin Cody, a CoStar Group senior consultant in retail, told GlobeSt.com.

The company broke into physical retail when it opened a bookstore in 2015. It now operates roughly 20 bookstores. It accelerated its physical retail presence when it acquired Whole Foods for $13.4 billion in 2017.

Other concepts include Amazon Fresh supermarkets, Amazon Grab and Go convenience stores, and about two dozen Amazon 4-star stores, which sell gadgets such as electronics and kitchen products.

It has more in the works. The company is reportedly working on a department store concept. The Wall Street  Journal reported in August that the firm was planning on opening 30,000-sq.-ft. test stores in California. In September, further details crept out about high tech dressing rooms. Last week it was revealed that one of these pilot apparel concept stores, named Amazon Style, would open in Southern California in Glendale.

“It will offer more than double the number of styles as traditional stores do because it will show one of each style on display while keeping the rest in the back room. The selection is chosen by Amazon curators who also use feedback provided by millions of customers shopping on Amazon.com,” according to The Associated Press.

Amazon is also experimenting with larger Go stores for suburban settings, beginning with a test store in Washington. “The Mill Creek Go store will cover 6,150 square feet, with the front area of the store spanning 3,240 square feet,” according to MarketWatch.

And in yet another pilot, Amazon and Starbucks in November teamed up to develop a store concept in New York City as a combination of a Starbucks Pickup and Amazon Go. “The new store offers the full Starbucks menu and a curated assortment of food and beverages in the Amazon Go market, including fresh-prepared salads, sandwiches, bakery items, and snack options.”

In addition to being a retail tenant, Amazon has also snapped up some retail space to convert into mini-fulfillment centers. Some examples cited by CNBC include turning a mall in Baton Rouge, La. into a 3.4 million-sq.-ft. distribution building, a mall in Knoxville, Tenn. into a 220,000-sq.-ft. distribution center and the Greendale Mall in Worcester, Mass. into a 121,000-sq.-ft. distribution center.

It’s an idea that other firms explored throughout the pandemic as well.

A future in offices

In one of its most high-profile potential office moves, Amazon paid $978 million for a former Lord & Taylor department store in Manhattan, buying the property from WeWork. WeWork had been planning to renovate the 11-story, 660,000-sq.-ft. space into a massive co-working space. Instead, Amazon will use it as office space instead, complementing a series of other office deals it signed in New York, including 335,000 sq. ft. at SL Green’s 460 West 34th Street, the 360,000 sq. ft. it occupies at 5 Manhattan West and 470,000 sq. ft. at 7 West 34th Street. (Those deals have been part of a broader trend of tech giants Facebook, Google and Amazon snapping up New York real estate.)

In December, the company signed a lease for 67,000 sq. ft. at 222 W. Adams St. in Chicago with plans to add 450 jobs across a range of departments, including its Amazon Web Services, advertising and retail divisions, according to Crain’s Chicago Business. That is on top of the 140,000 sq. ft. it already leased in the adjacent 227 W. Monroe St.

It also recently nabbed office space in Jersey City, N.J. in a deal for roughly 400,000 sq. ft.

“These 450 new roles will join the more than 1,000 corporate and technology employees already working here in Chicago,” Brian Huseman, Amazon vice president of public policy, said in a statement. “Chicago’s many amenities and proximity to outstanding academic institutions continue to attract and develop an incredible talent pipeline. We look forward to continue investing in Chicago and creating exciting career opportunities as we build on our strong relationships with the local community and its leaders.”

There is also, of course, its ongoing HQ2 development in Arlington, Va. The firm is “looking to hire more than 2,500 additional corporate employees for a variety of technical and non-technical jobs” at the multibillion dollar campus.

As with industrial space, office buildings with Amazon as a tenant have become hot commodities for investors.

Under scrutiny

Amazon, of course, has also drawn a great deal of criticism on various fronts.

The New York Times wrote a lengthy expose highlighting the harshest examples of the company’s alleged abuses. The firm has also fought hard to prevent its massive workforce from unionizing.

In a particularly egregious example, workers detailed how they were pressured to continue doing their jobs in the midst of a tornado that ended up hitting a warehouse and killing six Amazon employees. One driver published a series of texts in which they were pressured to “just keep delivering” during the tornado. The parents of one of the workers killed recently filed a wrongful death suit against the company.

In addition, other critics have pointed out that people of color and low-income residents often bear the brunt of the negative impacts of Amazon’s rapid expansion. According to The Guardian, “Residents near the new warehouses say they face increased air pollution from trucks and vans, more dangerous streets for kids walking or biking and other quality-of-life issues such as clogged traffic and near-constant noise.”

It is perhaps because of some of these examples that Amazon has made efforts to give back. In September, it offered to help pay college tuition for its U.S. workforce.

Then, in December, the firm committed $160 million to help preserve 1,334 units of affordable housing within the Barcroft Apartment community in Arlington, Va., according to Multi-Housing News.  The financing comes from the Amazon Housing Equity Fund, a $2 billion initiative the company announced a year ago.

In another initiative, in December Amazon announced it was “committing $21 million to pilot a two-year accelerator program to help real estate developers of color progress in an industry known for high barriers to entry, namely capital investment, and practical experience.”

The money for that also came from its Housing Equity Fund.

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