Who Wins if Amazon’s HQ2 Moves to D.C.?

And how you can take advantage of the opportunity

On January 18, 2018 Amazon announced a shortlist of 20 locations for a second corporate headquarters. The company promised municipalities $5 billion in investment and 50,000 high paying jobs should they be selected. This triggered every city, town and village with an ounce of ambition to submit a proposal, 238 ended up doing so. These proposals included special tax breaks, promises of additional highways, new housing units and even improved local education. Whether or not mega-corporations should be able to wield their clout for special municipal/state deals is a debate for another day, but regardless Amazon has done so successfully.

Trying to predict which of the 20 finalists will eventually prevail has launched a tidal wave of articles staking out various positions. In only one geographic area were three locations announced, the D.C. metropolitan area known as the DMV (D.C/Maryland/Virginia). The DMV is the most compelling for the following reasons:

The DMV is the largest internet and data movement hub in the country

  • One of three central AWS data storage centers is located in Northern Virginia
  • One of three large Equinix hubs is located in D.C., Equinix offers a “direct connect” service to it’s clients which is faster than current internet data transfer. It’s especially useful for time sensitive transfers like advertisement bidding
  • One of three “MAE’s” is located in D.C. MAE’s are large central hubs for connecting internet traffic to internet service providers

Jeff Bezos has personal investments in the area

  • Jeff Bezos recently purchased an $23 million dollar home in Kalorama, D.C.
  • In 2013, Bezos purchased the Washington Post for $250 million

Washington D.C. poses unique strategic advantages

  • Amazon’s AWS long-term success is contingent on it’s lucrative government agency clients. In 2015 the company won a $600 million contract to build a private cloud for the CIA. Amazon has hosted the “AWS Public Sector Summit” each year, for the past decade, in D.C.
  • The Economist, New York Times, Wall Street Journal and other new-sources have speculated that Amazon is at risk to anti-trust lawsuits. Geographic proximity to decision makers has proven useful for industry influence. Defense contractors like Boeing and Lockheed Martin are known as “beltway bandits” for their successful influence peddling enabled by their locations within the D.C. metro beltway

There is one company that is uniquely poised to benefit from the DMV area being named HQ2: JBG Smith Properties (stock ticker: JBGS). JBGS is a publicly traded real estate investment trust that exclusively develops and operates commercial and residential assets in the DMV. They are the Donald Trump of the DMV.

JBGS Property Holdings & Amazon HQ2 DMV Region

The blue area in the above picture is the sub-region of the DMV that Amazon has announced interest in, the red stars are JBGS commercial buildings (office buildings) and the white/blue stars are residential (apartment buildings). As you can see, JBGS’s holdings are in downtown D.C., Arlington VA, Alexandria VA, Crystal City VA, and various locations in Montgomery County MD. There are two organizations who’s fates are so intimately tied to that of the DMV, the U.S. Government and JBGS.

JBGS (blue) VS S&P 500 Index (pink) VS Real Estate Industry Index (yellow)

In terms of risk, the above graph illustrates the relative correlation of JBGS and the at-large U.S. real estate industry. A bet on JBGS without any outside information is generally betting on U.S. real estate values. Now add in the fact that Amazon could soon announce a $5 billion investment and 50,000 employees needing apartments in the area, and you have a market opportunity.

Amazon will move its HQ2 to the DMV, and JBGS will see the most benefit from the move. I have personally invested accordingly, and will post my portfolio results after the final announcement.