Amazon's Top Office Picks Offer Blank Slates for Urban Revivals

(Bloomberg) -- Emerging from the Crystal City Metro station in Arlington, Virginia, the state of the local property market is etched in bold colors on tarps draped over vacant office towers.

The vivid shapes, a contrast to the neighborhood’s bureaucratic ’60s architecture, are a signal flare to future tenants sent up by the buildings’ owner. Locals assume the colorful banners are aimed at catching the attention of Amazon.com Inc., on a yearlong, nationwide quest for a second headquarters. And they may have worked.

Amazon's Top Office Picks Offer Blank Slates for Urban Revivals

Seattle-based Amazon is close to agreements that would split a planned second headquarters for the e-commerce giant between Crystal City and Long Island City, in the New York borough of Queens, people familiar with the search said.

“Crystal City and Long Island City are really good parallel neighborhoods,” said Jenny Schuetz, a fellow at the Brookings Institution’s Metropolitan Policy Program. “They don’t have a lot of charm or identity, but it will be relatively easy for Amazon to put its stamp on them.”

Amazon's Top Office Picks Offer Blank Slates for Urban Revivals

Like Crystal City, Long Island City is a neighborhood looking to change its destiny. While Crystal City is intent on replacing lost government tenants, Long Island City is struggling with a different problem. Its breakneck residential growth has outpaced its school, transportation and sewer systems.

Queens is New York City’s most-diverse borough and its second-biggest by population, with about 2.4 million people, making it larger than 15 U.S. states. Long Island City has an abundance of high-end housing and it has the country’s largest public housing project.

Reinventing Itself

The western edge of Queens has been reinventing itself for years, attracting biotech investments, film studios and shorefront developments.

“We can see Cornell Tech, life sciences, Amazon converging upon Long Island City as a creative center in which all of these people intermingle in a new space for this century,” said Alan Suna, chief executive officer of Silvercup Studios, which counts Amazon’s TV programming as a client. “There’s a lot of space for new buildings that can accommodate this new technology.”

The east bank of the East River, now lined with residential towers with panoramic views of Manhattan, was once dominated by warehouses and factories. Its transformation began in the early 2000s with the first of a series of rezonings.

“The Department of City Planning thought this was going to be artists and singles and it turned into every family in Manhattan who just had their first kid,” said Brent O’Leary, president of the Hunters Point Civic Association. “We welcome Amazon, we need the jobs. But we really need help with the infrastructure.”

New York Mayor Bill de Blasio last week announced the neighborhood will get a $180 million infusion of capital to build and improve schools, streets and parks. Investments will include $95 million for sewer and drainage improvements; $60 million for a new school; $10 million for street reconstruction and $15 million for improvements to parks.

“New York is Amazon’s most important market, and this is some place where they want to build their presence,” said Kathryn Wylde, CEO of the nonprofit Partnership for New York City. “But they also want to maximize their influence on the federal government as the federal legal and regulatory environment becomes more intrusive in their business, so it makes a lot of sense for them to be in Washington.”

Arlington, with a population of about 235,000, is a prosperous commuter suburb. Its Crystal City neighborhood is just across the Potomac River from Capitol Hill in Washington by car or metro, and a quick jaunt from Ronald Reagan Washington National Airport and the Pentagon.

Junkyards, Motels

Once a home to junkyards and motels, the area was developed during the 1960s amid an increase in demand for office space. During its heyday, Crystal City attracted big-name government tenants, but it never fully recovered after some agencies moved out.

The U.S. Patent and Trademark Office completed its exit in 2005, and many U.S. Department of Defense workers left as part of the federal Base Realignment and Closure process that began that same year.

The exodus left the neighborhood with relatively cheap, aging office buildings that could be used by Amazon while the e-commerce giant renovates existing properties or builds anew. The office vacancy rate in Arlington County, where Crystal City is located, was about 18 percent as of the third quarter of 2017.

“Everyone’s excited because if Amazon’s coming in, that means there’s going to be more jobs, pay is probably going to go up,” said Andrew Chang, CEO of Eastern Foundry, a coworking space for government contractors in Crystal City. “One thing that is worrying people from a business-owner standpoint, especially in the government sector and the tech sector, is how are you going to compete against Amazon for talent?”

Much of the city’s office space is owned by JBG Smith Properties, which was formed in July 2017 when Vornado Realty Trust combined its Washington unit with local landlord JBG Cos.

“These initiatives provide tangible evidence to current and future tenants that change is coming,” JBG Smith, which owns the brightly decorated vacant buildings, wrote in its March letter to shareholders, explaining the bedazzled towers. “We remain bullish on Crystal City.”

©2018 Bloomberg L.P.