Anatomy of a Deal
The Amazon.com facility under construction in Meadowville Technology Park already sprawls across hundreds of thousands of feet, and when it’s up and running it will employ up to several thousand workers. It’s one of the biggest development projects that Virginia has ever landed – and Chesterfield’s economic development crew worked for six months and traveled cross-country to get it.
Garrett Hart, assistant director of economic development (from left), Jay Stegmaier, county administrator, and Will Davis, director of economic development, who were key players in the Amazon. com deal, toured the construction site at Meadowville Technology Park over the summer.
On a recent visit to the Meadowville Technology Park, Garrett Hart marvels at the speed with which the gigantic building is rising.
Seven months earlier, this site was woodland, so recently that dragonflies still flit across the parking lot. But now hundreds of hard-hatted construction workers swarm the site. Concrete floors have been poured at a rate of 50,000 square feet a day. Walls, also concrete, have been poured on site and raised to create the outlines of what already is the biggest building in Chesterfield County.
The scale is staggering. High overhead, an enormous roof stretches over a floor vast enough to contain two aircraft carriers. Forests of shelving units and swooping conveyer belts are being installed. Sparks fly as welders do their work. A platoon of huge air conditioners awaits installation in a parking lot bigger than most malls’.
This is Project Tango.
Hart, assistant director of economic development for Chesterfield County, first heard about Tango in mid-2011 when it was still called Project Christina. He didn’t know it would result in a $110 million project that would employ thousands.
He just knew a handful of people had come from out of town to kick the tires.
That’s something Hart, 54, knows a lot about. He’s been in economic development since 1986, the last six years with Chesterfield. He knew exactly where the out-of-towners should look.
Meadowville Technology Park, near interstates 85, 95 and 295 and a short hop from state Route 10, had been planned to attract high-tech research operations and data centers – Capital One is building a data center there; Northrop Grumman has a $250 million operation running the Virginia Information Technologies Agency.
But these people visiting in June 2011 were looking at 371 sites nationwide for what they called Project Christina. The company’s identity wasn’t disclosed, which isn’t unusual. “A lot of times, companies will come in under the radar, if you will,” for competitive reasons, says Will Davis, Chesterfield’s director of economic development.
These visitors would say only that they weren’t planning to build a data center or a manufacturing operation. This project would be something different: a fulfillment center. A big one. A million square feet.
Seven months after the Amazon.com deal was announced, construction of the 1.1 million-square-foot facility was nearing
Hart raised his eyebrows. He wondered what company would build such a thing, of course, but in the secretive world of economic development he didn’t ask.
A month later came another contact through the Virginia Economic Development Partnership, a group created by the General Assembly to help facilitate business in the commonwealth.
Jones Lang LaSalle, an Illinois-based commercial real-estate firm with offices in Richmond, put out a request for information – an RFI, in development shorthand.
It seemed the search had narrowed to 70 sites, including Meadowville and two others in Virginia.
The company had renamed the plan Project Tango. The firm was looking to build two large sites in the region. One would be a large warehouse to store and ship big items.
But the other, more intriguing aspect of the project would be a single building covering 1.1 million square feet — almost 18 football fields. It would employ about 1,000 people year-round and in the busy holiday season more than 3,000. The building would cost $45 million; the equipment inside another $55 million. That would be worth almost $2 million in tax revenue the first year.
The company involved? Amazon, the gigantic Internet retailer of everything from paper clips to refrigerators, which the previous year had posted revenue of $34.2 billion. (The company bettered that in 2011, with $48.1 billion.)
A national strategy
Project Tango, it later turned out, is Amazon’s ambitious plan to create a network of packing and shipping centers around the country.
This is a sharp change. For years, Amazon refused to collect sales taxes, under a pre-Internet Supreme Court ruling that businesses needed to collect the tax only in states where it had a physical presence. So Amazon built warehouses in as few states as possible. The strategy effectively cut its prices by 4 percent or more, much to the dismay of traditional retailers; it also meant that Amazon had relatively few warehouses – 34 as of last year.
But in recent months, more states have written laws forcing such online businesses to collect sales tax. Virginia’s goes into effect next year.
In 2011, Amazon abruptly stopped fighting those laws, agreed to pay back taxes in some cases, and started shopping for warehouse space all across the country. This, it later revealed, was Project Tango. The company planned to build up to 17 giant warehouses and get them operating in time for the 2012 Christmas season.
The strategy, according to a recent series by The Financial Times, is for Amazon to revolutionize commerce … again.
By spending almost $3 billion to build and equip these fulfillment centers, Amazon will be close enough to its customers that it can consistently offer quick delivery – next-day or even same-day – to millions of people. The company, it seems, is gambling that customers won’t mind a bit of sales tax in exchange for having merchandise arrive on their doorsteps a few hours after clicking “buy.”
It also has taken steps to make its new business model more palatable to customers after a series of news reports this year detailing tough conditions in its warehouses such as temperatures over 100 degrees. A few months ago it promised to add air conditioners to all its fulfillment centers.
By summer, workers were completing installation of conveyer belts that will used in the fulfillment center.
Amazon’s wider strategy wasn’t Hart’s biggest concern. Winning the fulfillment center was. He knew it was the bigger prize of the two proposed projects, employing more people and more automation.
It wouldn’t be the largest project for Chesterfield, or even for the Meadowville park; the Capital One project is worth $150 million, for example. But to be able to say that such a well-known national retailer had scoured the country and picked Chesterfield would be invaluable.
Chesterfield’s economic-development department, a crew of 10, knew that successfully landing Project Tango depended on a lot of variables.
Many of the things Amazon sought had been set in place already – easy access to lots of highways; a management-friendly state with few regulations, relatively low taxes and little unionization; a strong location in the mid-Atlantic near good schools and a sophisticated city nearby in Richmond.
The company wanted to know if there would be enough potential employees. For that, Chesterfield Economic Development turned to the Greater Richmond Partnership, a consortium that supports regional development.
“We got a request – help us sell Chesterfield County,” recalls Greg Wingfield, president of the partnership.
The partnership pulled together data about employment. The average commute in the United States is 25 minutes, Hart says; the map from the Greater Richmond Partnership showed that within a half-hour drive of the site live 513,244 people of working age.
Of that number, 37,111 were looking for work, which reflects an unemployment rate of 7.2 percent (the rate has dropped since). That means there would be a large pool of applicants from which the company could choose.
On July 30, 2011, exactly one month after Amazon’s representatives had toured Chesterfield, he sent off the information.
The word came back soon after: Amazon wanted to hear a presentation in person on Aug. 24 in Seattle. Chesterfield had made it to another round.
On Aug. 23, Hart, accompanied by Warren Hammer of the Virginia Economic Development Partnership and a development person from Dinwiddie, also in the running for a center, flew into Seattle and settled into a Marriott within walking distance of the Amazon corporate headquarters.
The next day proved uncharacteristically sunny and clear for Seattle, so Hart and his little team strolled over to the Amazon offices. He noticed once they got to the company’s real-estate division that teams from other municipalities carefully were kept away from each other. “They didn’t want us to see who the competition was,” he observed later.
He found himself in a nondescript conference room facing about a dozen Amazon employees. He clicked through his slide show, which took about five minutes. He answered questions for another 10 minutes. Then he was ushered out.
Usually, Hart says, these negotiations take many months. A presentation would be followed by more meetings, more discussions, more visits. Not this time. A few weeks later, Amazon informed Hart’s office that a group of construction people would visit the Chesterfield site. They did, on Sept. 20.
A few weeks later Hart got a call at work. Amazon wanted to buy the land. Chesterfield had won the project. The other warehouse would be built in Dinwiddie.
The next few months were a flurry of negotiations and discussions. In the end, Amazon agreed to acquire the property and build the center in exchange for some roadway improvements and a $5 million incentive from the county, offset by $3.5 million from the state.
The deal closed Dec. 22. It was announced Dec. 23. On Dec. 26 – Boxing Day – the bulldozers started clearing away trees.
State and regional cooperation
Everyone involved with landing the Amazon project emphasizes that it took a lot of people from the state, private enterprise and the county. Without the promise of the already-under-construction highway interchange leading to the Meadowville site, for example, Amazon wouldn’t have come. Without state incentives, the deal might have fallen apart. And so on.
But they also praise Hart for his efforts in managing the Amazon deal. “He lived and breathed this project,” says Davis, his boss.
Now, just seven months after the bulldozers moved in, Hart can watch with satisfaction as the Amazon fulfillment center nears completion.
Hiring for jobs here began months ago. This site will be up and running by the holiday season, as will 11 others nationwide, including the Dinwiddie warehouse. Another five are delayed, it seems.
“We’re trying to prove to them that you can build in Chesterfield County faster than you can build anywhere else,” Hart says over the rumble of large equipment at the Meadowville site on a sunny day in July. “So when they’re ready to do something else, they’ll know we can do it.”
After all, Hart notes with a grin, the Meadowville park has room for another million-square-foot warehouse. And he knows just where it would go.