Will new Amazon HQs be a boon for local banks?
United Bank in Fairfax, Va., is already gearing up for Amazon’s massive expansion in the Washington suburbs.
Ahead of its planned move to the Crystal City neighborhood of Arlington, Va., next year, Amazon will need to retrofit several older office buildings, and the $19.2 billion-asset United intends compete aggressively for the construction financing.
“Absolutely we will be in the mix for those construction loans,” said Kevin Reynolds, director of sales at United, a banking unit of United Bankshares in Charleston, W.Va., which has 69 branches in the Washington metropolitan area.
After a yearlong search, Amazon announced Tuesday that it is building two new headquarters in Arlington and Long Island City, N.Y., and bankers in those markets couldn’t be happier.
With the moves expected to create as many as 50,000 jobs over the next decade, bankers say there will be ample opportunity to finance the construction and renovation of office and apartment buildings, as well as offer permanent mortgages on finished products.
Those opportunities could be especially important to community and regional banks that rely heavily on commercial real estate lending and have seen business slump lately amid a surge of early paydowns and rising delinquencies on retail properties.
The influx of highly paid tech workers could also be a deposit boon for smaller banks, which have been losing market share to big banks that are more visible and are seen as having more sophisticated technology.
“A lot of banks expect to get more deposit relationships out of economic development tied to Amazon,” said Bruce Whitehurst, CEO of the Virginia Bankers Association.
To be certain, Amazon’s selection of New York and Virginia poses challenges. Banks in those markets may now find themselves in a bidding war to hire technology talent, said Frank Sorrentino, chairman and CEO of the $5.4 billion-asset ConnectOne Bancorp in Englewood Cliffs, N.J.
On the bright side, Amazon’s presence will make Arlington and Long Island City magnets for tech talent.
“Certainly, there will be competition for talent, but I think that’s a good thing,” Sorrentino said.
Some observers are not so sure Amazon’s planned expansion in the Washington and New York City areas will be the economic boon bankers say it will be.
“At the margin, it’s helpful to the economy, it’s helpful to the community banks,” said Mark Fitzgibbon, an analyst at Sandler O’Neill. “It’s another positive trend, but you’re not going to see any dramatic shift in loan growth.”
Then there are the cities that lost out in the Amazon sweepstakes, such as Atlanta, Dallas and Newark, N.J., all of which thought they were strong finalists. Newark in particular could have used the boost, Fitzgibbon said.
“What now?” Fitzgibbon said. “How do these markets continue to thrive if they don’t have that shot in the arm?”
Still, bankers in northern Virginia could barely conceal their enthusiasm this week after Amazon’s move to Crystal City, which had been rumored for months, became official.
Amazon is expected to bring 25,000 new jobs to the region, which alone will create soaring demand for new apartments and condos, and new retail, said United Bank’s Reynolds.
“It’s going to stimulate job growth and real estate and it’s going to diversify us away from a reliance on government contracting,” Reynolds said.
Reynolds said that he also anticipates United making plenty of mortgage loans over the next several years.
“This will be impactful as an attractive place to come live and build a career,” he said.
Amazon’s presence should also help spur business lending opportunities, which could be created by everything from new restaurants to electricians who are working on construction jobs, said Ronald Paul, chairman and CEO of the $8.1 billion-asset Eagle Bancorp in Bethesda, Md., which has nine branches in northern Virginia.
“It’s going to have a trickle-down effect to so many areas, not just commercial real estate,” he said.
At this point, though, commercial real estate lending, especially for office building renovations, is probably the best opportunity for banks in New York and northern Virginia, said Paul Leonard, a managing consultant at real estate data provider CoStar Group. The office vacancy rate last month was 17.7% in Crystal City and 16.4% in northwestern Queens (which includes Long Island City); the national average was 9.9%.
Crystal City, which is being renamed National Landing, has a surplus of outdated office buildings that were built in the 1960s and 1970s. The area was hit hard by the U.S. military’s Base Realignment and Closure process, which led to an exodus of defense contractors. The office vacancy rate peaked at 33% in 2014, though it has since dropped.
Amazon reached an agreement with JBG Smith, a real estate investment trust, to lease 500,000 square feet in some of its older buildings in Crystal City, according to CoStar Group. JBG Smith plans to renovate those for Amazon and sell additional parcels in the area for new construction.
In Long Island City, Amazon is eyeing several properties that it could use or renovate for office space, including The Factory, a former 1.1 million-square-foot Macy’s furniture warehouse that is about 33% vacant, Leonard said.
In the near term, Amazon has found a home in a prominent office tower that now houses 1,100 Citigroup employees. Citi is shifting the workers to new space to make room for Amazon.
“Given what it would mean to New York and Long Island City to have Amazon establish a significant presence here, we want to do our part to make this possible,” CEO Michael Corbat said in a Tuesday press release.
The Long Island City housing market is also set for big changes, as its current occupancy rate is about 98.2%, according to the real estate data provider Yardi Matrix. New units will need to be developed to handle the 25,000 new employees that Amazon will bring, according to a Yardi Matrix report.