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The shock cancellation of Amazon's planned Long Island headquarters left investment agencies examining what went wrong and what lessons they could take from this volte-face. Erika Morphy reports. 

Peter Curry well remembers the moment he heard that Amazon was cancelling its headquarters project in New York City. Mr Curry, a partner at law firm Farrell Fritz, also serves on the New York State Economic Development Council (EDC) and he was in a meeting with the EDC about a wage issue. 

Someone in the group saw the announcement on Twitter, and shock and dismay swept the room like a tidal wave. The rumours had been in the news for the past few days, says Mr Curry, but no one believed it would happen. “We had deluded ourselves, obviously.”

Months later, the state is still conducting a post-mortem on the affair and while final conclusions are not in (or at least, have not been made public), initial thoughts have settled around the theory that the state and the city should have been more aggressive with their outreach to the local residents. “We did not do a good enough job of getting the message out about the benefits of the deal,” says Mr Curry.

A proactive approach

A key lesson from this example appears to be: be proactive about a major investment when it is announced. Some critics claim that Long Island could have avoided this predicament had it better employed social media and other marketing to reach out to local residents who were unsure about the project. Developing a protocol in advance so that everyone was working off of the same script and talking about the same potential benefits would also have been advisable.

Amazon had conducted a lengthy and very public beauty contest to find just the right site for its headquarters. Ultimately it chose Long Island City in the borough of Queens, New York, and Northern Virginia. But while officials from the latter location welcomed the investment with open arms in Queens, there were murmurings and then complaints from some local politicians and residents that Amazon had gotten too good a deal and it would not give back enough to the community, while using the city’s infrastructure and services. With seemingly little ado, Amazon decided it was easier to pull the plug.

That said, there are other considerations for economic development agencies and councils as they pick through the rubble of the Amazon deal for future insights.

Change of plan

One is that it is not unknown for a company to change its mind – or scale back – on an investment after it has been announced. Earlier in 2019, for instance, General Electric cancelled its planned 12-storey headquarters office in Boston’s Seaport District. It decided instead to sell the property intended for the project and use the proceeds to reimburse the state for its $87m investment. 

In another example involving Amazon this year, the e-commerce giant cancelled a 67,000-square-metre lease it had signed for a 58-storey tower under construction in Seattle, Washington. Perhaps most famously, Foxconn changed its mind several times about its plans for its state-of-the-art factory in the state of Wisconsin. The Taiwanese electronics contract manufacturer has scaled back other investment plans: in 2011, for example, it pledged to invest $12bn in Brazil and create 100,000 local jobs but the commitment never completely materialised.

It is unlikely that these companies simply changed their minds after a deal was announced. “They have expended a lot of energy to get to that deal,” says Mr Curry. “Also most of these transactions are tied to a lease or financing where speed is essential. It is usually a very short period of time between when an outline of a definitive agreement is reached and then execution on the documents begin.” Often the reason for a pullback is that conditions on the ground have changed, or are not as originally expected.

The truth will out

A second key lesson is to be careful of the promises made to potential investors. Outright deception from either of the parties – investors or economic developers – is rare. Rather, promises get made that, as the process unfolds, the parties realise may be harder to keep than expected. For a company, it may have found that it does not need the number of jobs originally projected. This recently happened to a client of Mr Curry’s that underwent an unexpected acquisition. “It caused the company to lose some jobs and relocate others,” he says. “Naturally, the state clawed back the appropriate percentage of benefits and terminated future benefits.”

Economic development agencies (EDAs) can also be guilty of overpromising, according to Sam Moses, a partner at law firm Parker Poe. They are sometimes so eager to land a project that they minimise certain problems. “This can happen in the initial discussions between a company and local officials because the site-selection process is so competitive, and because many communities only see a certain number of projects each year,” says Mr Moses.

So what happens is that the city wants to show its most attractive attributes – and there is nothing wrong with that, he adds, saying: “But if the company reveals that the project needs certain requirements, such as a new sewer or water, which might impact the geology or a certain workforce skillset, the EDA might gloss over that.” This never does the EDA any good because eventually the limitations will come to light and the relationship will turn acrimonious, adds Mr Moses, who says that this typically happens with infrastructure issues, such as the timing of delivery.

Local perspective

A third key lesson is that for some local residents, values will be more important than the new investment. When Amazon pulled out of its New York headquarters, it correctly noted that 70% of the local population was in favour of its investment. The vocal minority that was not in favour not only cited infrastructure and quality of life issues but also (in the case of one local politician that has a national following) Amazon’s employment policies, which had nothing to do with the headquarters decision. For some of these people, nothing the company could have offered would have cancelled out that consideration. But many experts believe that transparency about a project and a well coordinated public relations campaign could convince a lot of people who were wavering on the issue.

Nicholas Paydos, a member of the conservation commission in Hardwick, Massachusetts, has ushered in his share of controversial investments, including a solar field and a large cannabis plant project. One thing residents wanted to know about the latter was whether crime would increase. “The company’s willingness and ability to be transparent created an atmosphere of trust. It made many concessions to the townspeople to keep them happy,” says Mr Paydos. Similarly, he says, while some people may appreciate green energy, they do not want to see a solar farm in the beautiful hayfield across the street. “There is a lot of hand-holding involved in these projects,” he adds.

Ultimately where many go wrong, according to Mr Paydos, is that they fail to see the smaller picture: regardless of a community’s size, it is still a group of people wondering how they will live next to the new scary neighbour that just moved in.

This article is sourced from fDi Magazine
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