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Amazon HQ2 winner(s) close: Here’s what you need to know

Jeff Bezos & Co. plan to pick by year's end a winner (or two) for a new major campus.

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The Spheres, an Amazon workspace that's also a bio-dome filled with 40,000 plants.

James Martin/CNET

Amazon is embarking on its biggest and most-hyped development project yet.

After growing in Seattle over the past two decades, the world's largest online retailer announced last September plans to create a second headquarters, dubbed HQ2, in North America. It set off a buzzy, reality-show-like contest among cities to snag the development. Amazon plans to announce by the end of this year where it will locate HQ2.

The size of the proposed project is massive: Over the next 15 to 17 years, Amazon plans to spend $5 billion to develop an 8 million-square-foot site and hire 50,000 employees. By comparison, Amazon's Seattle headquarters, which spans 33 buildings, cost $3.7 billion to build and employs 45,000 people.

Now there's a new twist. While Amazon first presented HQ2 as "a full equal to Amazon's headquarters in Seattle," news reports this week say Amazon is headed in another direction. The company is now reportedly planning to announce two finalist locations, with both expected to house 25,000 employees each. The most widely reported choices are Long Island City, in Queens, New York, and Crystal City, in Northern Virginia. A final decision is expected this month.

Amazon declined to respond to the latest revelations. No locations have been announced and it's always possible Amazon could change direction at the last minute.

HQ2 serves as another sign of Amazon CEO Jeff Bezos' huge ambitions, with his company spreading from retail into entertainment, health care, cloud computing, robotics and artificial intelligence. The project is also expected to change the face of another one or two major North American cities, after Amazon already remade a big chunk of Seattle.

Still, it's not all puppies and rainbows for whatever city, or cities, lands HQ2. Traffic and rents are expected to surge. Homelessness has become a persistent problem in Seattle after housing costs shot up. Some of those problems may be mitigated by splitting the project between two cities, but they're unlikely to go away entirely. Also, there's always a chance Amazon's big promises will fizzle, or its plans may change, resulting in far less investment and jobs than promised.

Let's run through some of the most pressing questions about HQ2 -- and the newly dubbed HQ3 -- and what they could mean for Amazon and its future homes:

Why does Amazon want to build HQ2?

Earlier this year, a company spokesman said Amazon is looking to tap into a new talent pool, particularly in software development and related areas, "to continue hiring and innovating on behalf of our customers."

With plans to hire 50,000 more people in high-demand fields, Amazon likely needed to look beyond Seattle. Competition for top talent with Microsoft and Boeing, as well as skyrocketing real estate prices, would make such a large expansion in Seattle difficult and expensive.

Amazon's rocky relationship with its hometown is probably another factor. The city government this year imposed -- then quickly repealed -- a new tax on major employers. As the tax was being considered, Amazon paused some of its local expansion plans, which some saw as a hardball tactic to pressure Seattle's government. Many locals are critical of Amazon's fast growth, which has resulted in more jobs and a stronger economy, but also higher housing costs and more traffic. Amazon said it wanted to find a "stable and business-friendly environment" for its next home, which some might read as, "friendlier to Amazon than Seattle."

Now playing: Watch this: Toronto makes its pitch for Amazon HQ2 and tech greatness
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Also, Amazon is now the second most-valuable company in the US after Apple, and is expanding in Europe, the Middle East, India and China. It may now have to create another main office on the other side of the country to oversee to its global workforce of 613,300 employees and its increasingly international customer base and partners.

Where is HQ2 expected to go?

According to several reports this week, Amazon is closing in on a handful of locations, including New York City, Dallas and Northern Virginia. Several publications said Amazon is expected to split HQ2 to two locations, with Bloomberg and The New York Times both reporting that Amazon is expected to go to New York's Long Island City and Virginia's Crystal City, near Washington, DC. 

With an announcement expected to come soon, New York Governor Andrew Cuomo this week said he's "doing everything I can" to land the project.

"I'll change my name to Amazon Cuomo if that's what it takes," he said. "Because it would be a great economic boost."

At least one Amazon executive isn't pleased about all the recent reports. Mike Grella, an Amazon director of economic development, wrote on Twitter last week: "Memo to the genius leaking info about Crystal City, VA as #HQ2 selection. You're not doing Crystal City, VA any favors. And stop treating the NDA you signed like a used napkin."

JBG Smith, a real-estate company that owns much of the office space in Crystal City, already saw its stock jump in anticipation of the announcement.

Even before this week's reports, the DC area has long been seen as the front-runner for HQ2, since Amazon picked three separate locations in the vicinity among its 20 finalists. There are a bunch of other pluses for the region: Bezos owns The Washington Post, Amazon's interest in federal government cloud-computing contracts is growing, and Bezos purchased the largest home in DC. More broadly, Amazon has been seen as strongly favoring the Northeast, with eight of the finalists there.

Moody's Analytics did its own review of the finalists and placed Boston in the top slot, followed by New York and Philadelphia -- all three among those eight Northeast picks.

Amazon picked most of the eight Northeast spots in different states (or, in DC's case, a district), making it easier for the company to pit those states against each other and get the best possible incentives package. That means the DC area may be at the top of the list, but one of those other five cities could win out if it offers a better deal. A decision to split the project could help Amazon reap two incentive packages, instead of just one.

Are two HQ2 locations better than one?

That depends whom you ask. A new 50,000-person campus, even in a major city, would be a daunting project and likely to strain local infrastructure. Two 25,000-person offices are likely to be more manageable, easier to site and still huge -- providing a big economic benefit for both locations. The move will also mitigate some concerns about traffic, rents and Amazon's reported worries it won't be able to hire enough tech talent in any one city.

However, some people are complaining that picking two spots undercuts the entire point of announcing HQ2, since the locations likely won't be equals to Seattle and therefore not HQs. All the excitement and attention and news stories hyping the project wouldn't have reached such a fevered pitch had Amazon instead announced plans to build two new satellite offices.

Two of Amazon's biggest satellite locations are already in New York City, with about 1,800 workers across the state, and Northern Virginia and Washington, with about 2,500 workers. Amazon last year announced plans to double its staff in New York City. That means picking two of the likeliest contenders -- after more than a year of anticipation -- would be pretty anticlimactic.

These facts are giving at least a few industry watchers reason to call the HQ2 search a farce and a PR stunt that's allowed Amazon to gain months of positive news coverage and extract more incentives from local governments. 

The benefits for Amazon don't stop there. The company gained mountains of valuable data from dozens of states and cities that it's now expected to use for its future development plans and to outfox its rivals. Having two winners could also allow Amazon to pit both cities -- as well as Seattle -- against each other for future expansion plans, helping it maintain a strong negotiating position.

Added to that, it's still unclear if the offered incentive packages would be halved as well, since they were first offered under the expectation that the winning city would be getting a headquarters.

After Amazon revealed its plans for HQ2, how did cities respond?

The HQ2 announcement essentially kicked off a "beauty contest" among municipalities. Because the company said it was looking for "communities that think big and creatively," many cities decided to make sweeping and goofy gestures to get Amazon's attention in hopes of snagging the huge development project.

Tucson, Arizona, sent a 21-foot saguaro cactus to the tech giant. New York City lit several landmark buildings in "Amazon orange." And the city of Stonecrest, Georgia, offered to rename a part of itself Amazon, Georgia.

But since Amazon chose its finalists, the selection process has gone mostly quiet, with Amazon and the finalist cities declining to say much about the goings-on. Critics have derided this lack of transparency, saying taxpayers have a right to know what incentives they'll be expected to pay for.

Who are the finalists?

In all, 238 bids from the US, Canada and Mexico came in for HQ2. In January, Amazon narrowed that list down to 20 locations:

  • Atlanta
  • Austin, Texas
  • Boston
  • Chicago
  • Columbus, Ohio
  • Dallas
  • Denver
  • Indianapolis
  • Los Angeles
  • Miami
  • Montgomery County, Maryland
  • Nashville, Tennessee
  • Newark, New Jersey
  • New York City
  • Northern Virginia
  • Philadelphia
  • Pittsburgh
  • Raleigh, North Carolina
  • Toronto
  • Washington, DC
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A map showing Amazon's 20 finalist cities.

Amazon

What are cities offering to entice Amazon?

Money will be a big factor in Amazon's decision, much more than cities' circus-like stunts to get noticed. The company isn't being shy about asking for incentives.

In that regard, Montgomery County, Maryland, is offering the biggest publicly known incentives package, at $8.5 billion. Yes, that's much more than the $5 billion Amazon plans to spend on HQ2, so Maryland seems to be hoping Amazon's halo effect will bring in indirect jobs and business, making that huge investment worth it.

Newark, New Jersey, is offering the second biggest known package, at $7 billion.

On the other end of the spectrum is Toronto, the only city outside the US to make the shortlist. It's offering no direct incentives package for HQ2, but Amazon could benefit from Canada's universal health care and a number of government tax credits and grants.

Beyond getting money to move, Amazon also wants to find a large chunk of land it can expand into quickly and a solid pool of tech talent it can start to hire from.

Will HQ2 benefit the winning city or cities?

For the local economy and jobs, Amazon is promising a big boon, with a lot of indirect investment coming thanks to all the activity from Amazon. Seattle has seen huge growth and a building boom largely due to Amazon, so these promises are backed by some evidence. All that new investing and business is why so many city leaders are falling over themselves to win the HQ2 bid.

However, Seattle offers plenty of reasons why HQ2 isn't a plain and simple victory for the winning bidder. Traffic will worsen, rents will go up and local tech businesses may lose their best people to Amazon. Becoming such a large local employer could also allow the company to exert pressure on officials to get what it wants, as it did in the case of Seattle's repealed tax on employers.

Also, HQ2 is such a big project that it has the potential to change the character of the winning city. For Newark, which could benefit from redevelopment, that could be a good thing. But for Boston, which is already expensive and has many neighborhoods with their own unique vibes, that could cause problems.

For its part, Amazon said it plans to partner with the winning city to ensure its project is a positive force and traffic and other issues are mitigated.

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At the entrance of Amazon's Day 1 building is the company's Amazon Go store, a convenience store that does away with cashiers by using sensors and cameras.

James Martin/CNET

How does HQ2 affect Seattle?

Amazon will continue to operate its original headquarters in Seattle and keep expanding there. However, city leaders worry that the company won't invest as much in the local economy after it creates another main campus. Time will tell if that happens.

If HQ2 is split, Seattle would likely remain Amazon's sole headquarters, offering some comfort for city officials.

Is Amazon the only major tech company shopping around for a new campus?

No. Amazon generated a ton of publicity for its HQ2 search, but Apple is taking a decidedly quieter approach in its search for a new US site. In a sign of just how lucrative and powerful US tech companies have become, Apple is also looking to spend billions on a new campus, as part of its stepped-up spending on buildings and more workers in the country.

What about the other finalist cities?

Going outside the US could be politically tricky for Amazon, especially under President Donald Trump's "America First" administration, making Toronto an unlikely pick. Plus, the city isn't offering direct incentives.

Georgia legislators this year attempted to kill a tax break for Delta Airlines after the company stopped a discount program for the National Rifle Association. Following that unfriendly move against a longtime local business, it's likely Atlanta's HQ2 chances are now greatly diminished, if not completely dead.

Denver isn't likely to win either. Colorado Gov. John Hickenlooper said last month, "I think there's a possibility we're not in the running ... Wouldn't they rather have their second big hub on the East Coast?"

Amid the months of deliberations, there's always a chance another city lands HQ2. Austin, Texas, after all, is where Amazon-owned Whole Foods is located. So, we'll have to wait -- but perhaps not much longer -- to find out where HQ2 ends up.

First published Aug. 9, 5 a.m. PT.
Update, Nov. 7 at 5 a.m.: Adds information on Amazon's reported plans to split HQ2.

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