Santa Clarita’s Amazon Bid

With millions of square feet of developable land, a list of business incentives and a fast-growing economy, Santa Clarita Valley could be Los Angeles County’s best hope for catching Amazon.com Inc.’s eye for its second headquarters. The e-commerce giant announced publicly last month it was inviting major metropolitan areas to bid on potential sites where the company could create a second home largely resembling its massive Seattle headquarters campus. It will be occupied by a huge workforce to handle the tremendous growth Amazon anticipates over the next 10 to 15 years. The city of Santa Clarita, last year’s pick for a second time by the Los Angeles County Economic Development Corp. as the county’s most business-friendly city, together with the overall Valley, aim to be among the areas the county presents to Amazon as a potential headquarters site. Formal proposals are due Oct. 19. “We certainly are participating in this process, and believe that the Santa Clarita Valley is a leading location in the L.A. region, given the availability of land, workforce and business friendliness,” said Holly Schroeder, chief executive of the Santa Clarita Valley Economic Development Corp. Second headquarters Amazon envisions taking up to 8 million square feet of commercial buildings that are sustainable, fiber-connected, close enough to walk between and situated on 100 developable acres. It also wants to be surrounded by a high-tech labor force from which it can hire 50,000 new employees, particularly software development engineers. The area needs to have the housing and infrastructure to support that workforce, plus public transportation of all forms, but particularly rail lines at the new site to transport employees. Amazon would like to be within 30 miles of a population center with at least 1 million people, within 45 minutes of an international airport and a couple of miles at most from major highways. Finally, the surrounding communities should offer a high-quality of life and plenty of culture, education and recreation, and state and local government should provide generous incentives – “critical decision drivers” – the company said. In exchange, Amazon points to what its current 33-building campus has given Seattle: $3.7 billion in buildings and infrastructure, 40,000-plus jobs, $43 million for the city’s public transportation system and 233,000 hotel rooms occupied last year from visitors and guests. Indirectly, the company says its presence has brought $38 billion of investment into the local economy, 53,000 jobs and numerous Fortune 500 companies or division headquarters. Santa Clarita Valley can offer land – about 8 million square feet spread over several new and existing business parks. They include the Center at Needham Ranch with 4 million square feet, a 132-acre entitled site where CBRE Group Inc.’s Trammell Crow Co. and Clarion Partners in New York just bought a 54-acre chunk to develop; Southern California Innovation Park, with about 1 million square feet; and Valencia Commerce Center with another 3 million square feet. And Newhall Ranch, proposed by Five Point Holdings in Aliso Viejo, would bring an additional 11.5 million square feet of commercial and industrial space. However, Newhall Ranch’s space is not necessarily contiguous, Schroeder said. While not a definitive requirement by Amazon, the company said the buildings should be close enough to “foster a sense of place and be pedestrian-friendly.” Existing buildings and infill sites could also work, Amazon said. “They (Amazon) know this is a lot (to ask for),” Schroeder said, “so they’re trying to say, ‘We’re open to a lot of solutions to our needs.’ I think they’re trying to encourage creativity, and that they’re open to a variety of solutions.” Other local sites have found their way into the news – the nearly 500-acre Fairplex in Pomona and the 46-acre site of the former Aerojet Rocketdyne plant in Canoga Park, an idea put forth by L.A. City Councilman Bob Blumenfield. When urban planning expert Chris Tilly, a professor at UCLA Luskin School of Public Affairs, looks at Amazon’s proposal, he thinks company management wants a dense area with an existing and efficient public transportation system that gets employees to and from their campus so it doesn’t have to help with that. That would mean the Santa Clarita Valley and Los Angeles would have to increase the public transportation infrastructure for such a large workforce, he explained. “I think the transportation element is a serious problem,” Tilly said. “You either need density, or you need the transportation, so the company can picture having a large collection of people easily accessible to headquarters’ facilities. Once you say dense, you’re not talking about these areas.” Carrie Rogers, who is leading L.A. County’s proposal effort as vice president of business assistance and development at Los Angeles County Economic Development Corp., said the county as a whole meets all of Amazon’s criteria, including public transit. “We’re at a point where it (the system) can handle what Amazon wants, but the good news is it (the new headquarters) is not going to happen overnight,” Rogers said. Santa Clarita does offer public transportation into downtown Los Angeles, but it’s not an extensive network such as in urban, denser areas. However, while those urban areas have transit, they may not have enough land for what Amazon envisions. Companies searching for a location often want things that conflict with each other – such as an area where they can reduce costs but also where they can hire top talent, explained Andy Shapiro, partner in the site selection firm Biggins Lacy Shapiro & Co., based in Princeton, N.J. “The decision-making process is inherently contradictory and involves balances and tradeoffs,” Shapiro said. “The key to making location decisions is understanding where the balance is. No one is going to find one place which has straight A’s.” Amazon’s decision to put its proposal out to bid from the start has spawned mass speculation among cities, counties, states, real estate brokers and site selection firms. Companies don’t typically go public with location searches until they have narrowed down the potential sites to just a few, Shapiro explained. Amazon’s decision for a public process reminds him of an auction, and it’s creating a circus-like atmosphere. “And that could be what Amazon is after,” Shapiro said. “Amazon has gotten bruised a bit in the workplace for some practices, and this may allow them to gain an upper hand. They’re putting themselves out there as a huge economic generator.” Amazon also doesn’t spell out its overall objective for the second headquarters, while most companies have clear purposes and goals when searching for a new headquarters, such as wanting to get access to a different geographic region, or be in a different political climate, he said. “Factors for headquarters are very subjective,” Shapiro said, making it hard to speculate the driving factors. Amazon has also stressed in its proposal request its preference for a technically skilled workforce, specifically one strong in software development engineers, and near to a major university system. That’s another strength of L.A. County, said Rogers. The LAEDC is the region’s lead entity that attracts companies to Los Angeles. There are 120 universities and colleges in L.A. County that graduate more engineers each year than any other county in the U.S., Rogers said. However, the group still needs to highlight which ones excel in software engineers. Santa Clarita Valley also has a plus in that aspect, with 54 percent of its residents possessing at least a four-year college degree, according to its economic development agency. Rogers said the county as a whole meets all of Amazon’s requirements but only certain areas will make it into the final submitted proposal. “We have to be realistic, and make sure sites that have been identified meet every single site criteria and then some,” she said. Incentives Amazon has made it clear that incentives are a big part of the selection process. But that is not a top strength for California compared to the generous incentives other states use to attract companies. For example, in Wisconsin Gov. Scott Walker just signed a bill into law to give a $3 billion incentive package – mostly in cash – to Foxconn Technology Group, a subsidiary of Taiwan’s Hon Hai Precision Industry Co. Ltd., to build a flat-screen plant that will eventually employ 13,000 people. Amazon, in its proposal, quotes it could potentially spend $5 billion on the second headquarters over 15 to 17 years. It has spent $3.7 billion on its Seattle campus. “The initial cost, and ongoing cost, of doing business are critical decision drivers,” the company wrote. Sid Voorakkara, deputy director of external affairs for Gov. Jerry Brown’s Office of Business and Economic Development, or GO-Biz, said Brown is very responsible with what the state does with public money, and does not provide companies with dollars upfront as subsidies based on promises. Examples of what the state does offer include the California Competes Tax Credit, the New Employment Credit and others. “When you make an investment in new hires, or capital, that’s where California provides these economic incentives,” Voorakkara said. He said the state uses its other strengths and assets, such as its major seaports that provide access to Asia and Latin American markets, a highly skilled workforce and other industries and businesses that are here already to attract similar companies. GO-Biz will provide help as needed to the individual areas submitting proposals, he added, or compile a proposal for the entire state, if that’s preferred. “The governor sees this as a valuable opportunity for California,” Voorakkara added. In Santa Clarita Valley, business incentives exist in the form of a lighter tax burden. It has no gross receipts tax, no business license fee, no utility user tax, no payroll tax and the city offers a use tax rebate program. Despite that, Schroeder knows that the LAEDC group will have to address California’s stereotype of not being business friendly, and reverse it, if possible. “California has been labelled as not being business friendly,” Schroeder said. “So, we need to overcome that perception, and that perception is often an expense-driven analysis. I think a company like Amazon looks at (other factors) more than that. We need to emphasize the entirety of the package – the cultural element that would contribute to their success if they were in the L.A. region.”