February 14, 2019
Joe Fairless

Real Estate Investing Lesson From Amazon’s New York HQ2 Cancellation

In a statement released today, Amazon announced that they will not move forward with their original plan to build their HQ2 in Long Island City, Queens in New York.

For more information on the logic behind their decision, click here to read Amazon’s full statement.

This decision is going to cost the region up to 25,000 new high-paying jobs, is a major revenue loss for the city and the state, and is a missed opportunity for New York to further transform itself into the tech capital of the world.

As real estate investors, we closely followed the Amazon HQ2 competition between cities and states. We knew that the city chosen for the HQ2 would benefit in many ways. More high-paying jobs in an area means lower unemployment, higher median income, more migration, increased likelihood of other business moving to and investing in the area, etc. All of these benefits also result in a greater demand for real estate – both rentals and owner-occupied homes.

Once Amazon announced the location (it actually ended up being multiple locations – New York, Northern Virginia, and Nashville), I am certain that many real estate investors began to look in those markets for deals. And some proportion of those investors actually invested in deals based on the expected future benefits to the real estate market once the HQ2 project was completed.

With Amazon’s announcement today that they are backing out of the New York location, the major lesson for real estate investors is don’t invest based on a business announcing its intentions to move to an area.

The first law of my Three Immutable Laws of Real Estate Investing is “don’t buy for appreciation.” Buying for appreciation is like gambling. Sometimes you win, most of the time you lose. A variation of this rule is “don’t buy for new headquarter announcements,” not until they physically move to the market.

Those who “gambled” on New York and underwrote their deals based on the Amazon HQ2 project will ultimately lose money on those deals, while those who “gambled” on Northern Virginia and Nashville may still ultimately end up winning. However, Amazon could have just as easily (and they still might) pulled out of both of those locations. We won’t know until the red ribbon is cut on opening day.

Don’t leave the preservation and growth of your or your investors’ hard earned money up to chance. Follow the Three Immutable Laws of Real Estate. Don’t get sucked into a new market for the sole reason that a major company announced plans to move their headquarters to that location. Wait to see if they actually move and then enter the market. Sure, you will pay more for the same piece of real estate than you would have before or directly after the announcement. But, you are completely eliminating the chances of losing most, if not all, of your money because you speculated on a deal and then the company ultimately reneges on their decision.

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Disclaimer : The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.

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