For an example of what Amazon has done with the Housing Equity Fund it launched nearly four years ago, look no further than the tech giant’s backing of an affordable housing project next to its former headquarters in Seattle.
Amazon provided a $3 million grant to a community group to start the 160-unit income-restricted development beside the Pacific Tower, an art deco landmark built on top of Beacon Hill in 1932. The tower served as the company’s headquarters from 1999 until 2010, when Amazon moved to South Lake Union.
The grant is just a sliver of the $2.2 billion Amazon has committed to projects across the country, and it makes up a small fraction of the $120 million cost to build the first phase of Beacon Pacific Village. However, it illustrates Amazon's strategy in choosing partners and projects in cities where the company has big corporate operations.
The housing complex, developed by the Seattle Chinatown International District Preservation and Development Authority, officially opened last month.
"We’re really trying to be a source to help a project that is stuck to get unstuck," Senthil Sankaran, managing principal of Amazon Housing Equity Fund, told CoStar News in an interview. "That might mean taking a market-rate or mostly market-rate project and buying down the [rents] so that we can create long-term affordability. That's our ultimate goal."
Amazon, one of the world’s largest users of commercial real estate, doesn’t develop, own or operate any of the housing projects it helps finance. And yet, since it launched the housing equity fund in January 2021, the company says it has helped create or preserve more than 21,000 housing units that are within reach of people who earn between 30% and 80% of a neighborhood's median income.
CEO Andy Jassy said last summer that Amazon would add $1.4 billion to support below-market loans and grants to build or preserve another 14,000 housing units. That brings the fund’s total to $3.6 billion with a goal of adding or preserving 35,000 units in greater Seattle, where its main headquarters is located, and in Arlington, Virginia, and Nashville, where it has sizeable corporate operations.
Amazon effect
Amazon established the housing equity fund as the company and other tech giants such as Facebook and Microsoft faced rising criticism that their operations were bringing an influx of well-paid tech workers into communities, bidding up the price of housing and putting the cost of homes and apartments out of reach for many.
At the time, the company had just wrapped up a high-profile search for a so-called second headquarters in late 2017. Amazon ended a more than year-long site selection process by deciding to split the expansion between New York City, Arlington, across the river from Washington, D.C., and Nashville.
The company ultimately scrapped the plans for New York in 2019 after local politicians criticized the city's promise of tax incentives and said they wanted no repeat of the so-called "Amazon Effect" that saw property values spike in Seattle and the other cities where the company operates.
Indeed, average asking rents in Seattle, where Amazon is the city's largest employer, have increased 40% to $2,036 per month this year from $1,458 in 2014, CoStar data shows. Rents in Arlington’s National Landing, home of the firm's so-called HQ2, have jumped 20.5% to $2,777 from just over $2,300 per month in 2018, when Amazon announced its second headquarters would be built there.
Sankaran said Amazon has clearly heard local concerns that rising rents and other costs are major issues in cities where Amazon operates.
"It’s very important to listen to the needs of the individual communities," Sankaran said. "And in all of these areas, it was pretty loud and clear that housing costs are a concern, and a rising concern."
Sankaran said in Arlington, the company has helped boost the stock of dedicated affordable housing by 23% since launching its financing efforts there. "In Bellevue [Washington], that same figure was closer to 30%," Sankaran said.
Stretching funds
Sankaran attributes part of the fund's success to Amazon's ability to forge partnerships with local nonprofit organizations and affordable housing developers such as the Seattle Chinatown authority, to help groups "stretch their public dollars."
“The fund provides what we call the ‘but for’ capital — money that’s needed in order to get a project over the finish line that would not happen on its own,” Sankaran said. "They’re able to go into more projects and build more units because we’re coming in and taking a piece of that capital stack."
The funds allocated so far include more than $1.1 billion in Arlington, where projects supported by Amazon include the Barcroft and Crystal House apartments in Arlington, part of the company's pledge to build and preserve more than 9,400 affordable units.
Amazon has committed just under $800 million to build or preserve more than 8,600 units across its main corporate region of greater Seattle, and about $300 million invested to support affordable projects in Nashville.
Sankaran noted that the housing fund is part of Amazon’s broader corporate impact program that includes support for education, food security and disaster relief in its home communities.
“Even before [Amazon entered] into HQ2 or Nashville or Seattle and the Puget Sound region, these were all very high-cost markets,” said Sankaran, a longtime real estate and affordable housing professional in the D.C. region. He joined the Amazon Housing Equity Fund in 2022 and last year replaced Catherine Buell, the fund's leader since its 2021 launch.
Amazon's $3 million grant for Seattle's Beacon Pacific Village "played a meaningful role in bringing this project to life," Jamie Lee, co-executive director of the Seattle Chinatown International District Preservation and Development Authority, told CoStar.
"This funding helped us create affordable homes for families in our community," Lee said. "And it reflects a shared commitment to addressing critical housing needs in our region."
Mixed message
Amazon's altruism extends only so far, though. As recently as this year, the company has opposed past efforts by Seattle government and housing advocates to impose payroll taxes on high-earning employees at the e-commerce company and other big businesses to raise revenue to buy, build and preserve affordable housing.
The first big move to impose a so-called "Amazon tax" was in 2018, during the company's nationwide search for a second headquarters site. The Seattle City Council passed an annual head tax of $275 per employee on large companies to fund services for the homeless — and repealed the measure a month later under pressure from Amazon and other businesses.
Two years later, the council passed Jumpstart Seattle, a less sweeping levy aimed at high-wage workers at Amazon and other big companies.
While applauding Amazon's philanthropic efforts with the housing fund and other community support, Harvard Business School Professor Debora Spar sees a mixed message in the approaches of the firm and other big businesses to create more affordable housing.
“One of the complicated ironies here is that on one hand, Amazon and some other companies are stepping up to the plate to give a lot of charitable monies to address [the housing and homelessness crisis] — but they’re fighting against the taxes which would enable the government to address homelessness," Spar said during a recent Harvard Business Review podcast about the role of Amazon and other businesses in the lack of housing affordability. "Building housing and social services is expensive. There are no magic wands here.”
Underwriting challenges
Affordable housing developers and operators, like others in the real estate industry, say the need for private capital has only grown in recent years as inflation and financing expenses push up constructions costs.
"The need for our low-cost capital is even greater now than when we launched because the cost of traditional financing has gone up," Sankaran said. "These challenges are creating a greater demand for partnerships because there's more and more recognition that the public [financing] sector and the private sector can’t do it alone."
The underwriting challenges have created steady demand for Amazon's help.
Amazon anticipated that the initial $2 billion allocation of the fund in January 2021 would take five years to invest. Amazon surpassed that, committing $2.2 billion in just over three years, prompting the company to reload the fund with $1.4 billion in June.
Amazon expects to keep investing in affordable housing projects in Bellevue, where apartment rents have risen steeply as Amazon and others have increased their office presence.
The company is moving as many as 25,000 employees into two towers in downtown Bellevue from the company's main headquarters in downtown Seattle.
The qualities that attracted Amazon to Bellevue — access to good schools, jobs and transit, especially with the pending expansion of light rail — have also driven up rents in the region, Sankaran said.
"These high-opportunity neighborhoods in Bellevue and the Eastside tend to also have the highest rents, which makes it that much more important for us to find opportunities to create affordable housing," he added.