Real Estate

Amazon narrows the list of metro areas for its new headquarters to 20 - Toronto included

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  • Nov 20th, 2018 2:07 pm
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Feb 22, 2011
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Toronto

Amazon narrows the list of metro areas for its new headquarters to 20 - Toronto included

While other cities offer tax breaks Toronto offers a few things as well. A hedge against a mental president who holds a grudge against the company. Lower salaries for 50,000 employees.

With Google moving their Canadian HQ to Toronto, if Amazon came as well what would this mean for RE prices in DT if anything?

https://www.cnbc.com/2018/01/18/amazon- ... to-20.html
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Feb 22, 2011
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Before you scoff, this only one aspect. There are other reports that Toronto is the fastest growing tech market in North America. What has happened to other cities with burgeoning tech sectors?

Toronto the fastest-growing tech market in North America
https://www.bnn.ca/technology/video/tor ... ed~1173683
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Cities in US with burgeoning tech sectors get a huge RE boom. But keep in mind that most US cities start at quite low RE levels, and tech jobs in US pay much better than tech jobs in Toronto. And taxes are much lower, resulting more disposable income spent locally, boosting local economy. Overall, I think it's a plus, but I don't think it would support a RE boom in and off itself. RE in Toronto is quite expensive, as in as bubbly as Vancouver when compared to long term trends.

Tech scene in Toronto is definitely not at SF or Seattle levels. Other tech hubs in US have RE much cheaper than Toronto. Austin, for example. Or Denver.
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rjg4235 wrote: While other cities offer tax breaks Toronto offers a few things as well. A hedge against a mental president who holds a grudge against the company. Lower salaries for 50,000 employees.

With Google moving their Canadian HQ to Toronto, if Amazon came as well what would this mean for RE prices in DT if anything?

https://www.cnbc.com/2018/01/18/amazon- ... to-20.html
Less supply, higher demand = higher RE prices closest to the headquarters, higher RE prices further from headquarters due to displacement.

Pre-Development condos in the area of where the Amazon HQ would be that went up for sale to VIP this year already priced this news in as they're all significantly negative cashflow for several years upon occupancy anyways.
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BlueSolstice wrote: Cities in US with burgeoning tech sectors get a huge RE boom. But keep in mind that most US cities start at quite low RE levels, and tech jobs in US pay much better than tech jobs in Toronto. And taxes are much lower, resulting more disposable income spent locally, boosting local economy. Overall, I think it's a plus, but I don't think it would support a RE boom in and off itself. RE in Toronto is quite expensive, as in as bubbly as Vancouver when compared to long term trends.

Tech scene in Toronto is definitely not at SF or Seattle levels. Other tech hubs in US have RE much cheaper than Toronto. Austin, for example. Or Denver.
Definitely wouldn't cause a boom by itself in such a big city but it is one of many upward pressures. People like to focus on the negative but there are plenty of things pushing up prices as well.
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Amazon will NOT go to Canada. The reason is that every US company comes forward and claims that they will create xxxxx amount of jobs (e.g. Apple).

Although all of the annoucments are BS (e.g. Apple will create only a copule of thousand of jobs, they announce 20k as they count the potential jobs created for their suppliers).

Anyway, Amazon can't afford bad publicity by not building the HQ in USA. Especially now when they are in war with Google over getting into people's houses.
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djredhat wrote: Amazon will NOT go to Canada. The reason is that every US company comes forward and claims that they will create xxxxx amount of jobs (e.g. Apple).

Although all of the annoucments are BS (e.g. Apple will create only a copule of thousand of jobs, they announce 20k as they count the potential jobs created for their suppliers).

Anyway, Amazon can't afford bad publicity by not building the HQ in USA. Especially now when they are in war with Google over getting into people's houses.
I also think Amazon won't come to Canada, but not because it wants to look good as creating jobs in US. Taxes are simply much higher in Canada, especially with the recent tax cut in the US.
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BlueSolstice wrote: I also think Amazon won't come to Canada, but not because it wants to look good as creating jobs in US. Taxes are simply much higher in Canada, especially with the recent tax cut in the US.
Put me in the same category of not happening in Canada for various reasons but mainly because taxes are the main deciding factor which Toronto cannot compete on.
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Jeenyus1 wrote: Put me in the same category of not happening in Canada for various reasons but mainly because taxes are the main deciding factor which Toronto cannot compete on.
I don't think this is a factor. The vast majority of taxes they pay depend on where they are conducting business not on the location of their HQ.
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BlueSolstice wrote: I also think Amazon won't come to Canada, but not because it wants to look good as creating jobs in US. Taxes are simply much higher in Canada, especially with the recent tax cut in the US.
Jeenyus1 wrote: Put me in the same category of not happening in Canada for various reasons but mainly because taxes are the main deciding factor which Toronto cannot compete on.
With 19 US options, I don't think it's coming to Toronto either, but taxes likely isn't the reason.

1. This is a 2nd HQ... a place for head office activities. It doesn't change the tax arrangement for the retail arm of the business (Amazon.ca profit would generate a corporate tax liability in Canada, Amazon.com in the US) nor their "global headquarters" in tax-friendly Luxembourg
http://www.newsweek.com/2016/07/22/amaz ... 79814.html

2. The US corp tax cuts are effectively lowering the US to a level playing field with Canada. Canada's corp taxes aren't necessarily higher, even if they weren't getting creatively funneled to Luxembourg anyway

3. Since the actual shell game of which countries profit gets funneled to (and thus where tax is owed) is in place regardless, the question becomes one of payroll costs for ~50,000 potential employees. Canada's payroll tax costs are actually fairly competitive:

In Canada, the employer pays 4.95% of wages (will be phasing up to 5.95%) in CPP, and 2.32% in EI. Ontario EHT (since it's Toronto being considered) for a large corp is 1.95%. WSIB varies by company safety history, and there are similar WCB costs in the US, so we can ignore those for simplicity. Adding up CPP, EI, and EHT, the employer pays 'tax' of ~9.22% on payroll. BUT, key here are the relatively low caps for CPP (~$56K) and EI (~$52K)

Contrast with the US, where the employer pays 6.2% in Social Security tax (higher than CPP) and it doesn't cap until $128,000. The employer portion of Medicare Tax is 1.45% up to $200,000 of wages, and 2.35% beyond that. Like EHT, it doesn't cap at all. US unemployment coverage is handled at the state level, so it varies, but it's higher than Canada's EI in the states I looked at.

So while Canada's rates aren't necessarily lower, the much lower CPP cap versus SS represents higher payroll costs in the US, especially when considering the number of HQ workers likely to be in high wage positions.

4. While it hasn't been that long since the last time the two dollars were at parity, right now Canadian payroll is at a discount compared to the US. A $100,000 US position isn't necessarily making $125,000 CAD in Toronto (or $50,000 vs. $62,500, etc.).
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Feb 22, 2011
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Mike15 wrote: With 19 US options, I don't think it's coming to Toronto either, but taxes likely isn't the reason.

1. This is a 2nd HQ... a place for head office activities. It doesn't change the tax arrangement for the retail arm of the business (Amazon.ca profit would generate a corporate tax liability in Canada, Amazon.com in the US) nor their "global headquarters" in tax-friendly Luxembourg
http://www.newsweek.com/2016/07/22/amaz ... 79814.html

2. The US corp tax cuts are effectively lowering the US to a level playing field with Canada. Canada's corp taxes aren't necessarily higher, even if they weren't getting creatively funneled to Luxembourg anyway

3. Since the actual shell game of which countries profit gets funneled to (and thus where tax is owed) is in place regardless, the question becomes one of payroll costs for ~50,000 potential employees. Canada's payroll tax costs are actually fairly competitive:

In Canada, the employer pays 4.95% of wages (will be phasing up to 5.95%) in CPP, and 2.32% in EI. Ontario EHT (since it's Toronto being considered) for a large corp is 1.95%. WSIB varies by company safety history, and there are similar WCB costs in the US, so we can ignore those for simplicity. Adding up CPP, EI, and EHT, the employer pays 'tax' of ~9.22% on payroll. BUT, key here are the relatively low caps for CPP (~$56K) and EI (~$52K)

Contrast with the US, where the employer pays 6.2% in Social Security tax (higher than CPP) and it doesn't cap until $128,000. The employer portion of Medicare Tax is 1.45% up to $200,000 of wages, and 2.35% beyond that. Like EHT, it doesn't cap at all. US unemployment coverage is handled at the state level, so it varies, but it's higher than Canada's EI in the states I looked at.

So while Canada's rates aren't necessarily lower, the much lower CPP cap versus SS represents higher payroll costs in the US, especially when considering the number of HQ workers likely to be in high wage positions.

4. While it hasn't been that long since the last time the two dollars were at parity, right now Canadian payroll is at a discount compared to the US. A $100,000 US position isn't necessarily making $125,000 CAD in Toronto (or $50,000 vs. $62,500, etc.).
Great post, very informative. I'd just add that point 4 is multiplicative with a lower rate of salary. So that $100k salary in Canada is actually $75k and it's at a lower exchange so more like $60k. Multiple that by 50,000 office workers and it's not a small amount of money.
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Feb 23, 2009
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Good thing minimum wage is going up.
Those Amazon box stuffers will need it to pay for their $1mil houses.
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With 2 Texas cities in top list, lower taxes (corp and personal), lower COL, I'd rather bet on Austin/Dallas (especially they have HF hq in Austin)
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rjg4235 wrote: I don't think this is a factor. The vast majority of taxes they pay depend on where they are conducting business not on the location of their HQ.
Actually it is the reason.
Any major corporation cuts a deal with the local government on taxes, grants, fees, etc.
They get tons of incentives for years to make the deal.
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pkrash wrote: Good thing minimum wage is going up.
Those Amazon box stuffers will need it to pay for their $1mil houses.
Robots stuff boxes at the fulfillment centres...

Automation Nation: Amazon's Brampton facility putting robotics to the ultimate test
http://www.torontosun.com/2017/07/23/au ... imate-test

CTV's Pat Foran goes behind-the-scenes of Amazon's fulfilment centre in Brampton.

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rjg4235 wrote: Great post, very informative. I'd just add that point 4 is multiplicative with a lower rate of salary. So that $100k salary in Canada is actually $75k and it's at a lower exchange so more like $60k. Multiple that by 50,000 office workers and it's not a small amount of money.
It would be amazing if Amazon does select Toronto but If I were a betting man (I am), I would bet that Newark, New Jersey will be the HQ2 location based on $7B tax credits they've offered in writing.

The "Toronto Region Response to Amazon HQ2" quantified the savings to $USD $600 million per year by simply choosing to locate in Canada vs USA.

https://s3.ca-central-1.amazonaws.com/t ... RFP_PD.pdf
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Jeenyus1 wrote: It would be amazing if Amazon does select Toronto but If I were a betting man (I am), I would bet that Newark, New Jersey will be the HQ2 location based on $7B tax credits they've offered in writing.

The "Toronto Region Response to Amazon HQ2" quantified the savings to $USD $600 million per year by simply choosing to locate in Canada vs USA.

https://s3.ca-central-1.amazonaws.com/t ... RFP_PD.pdf
Yea they seem like a very likely candidate. I actually don't think it will be Toronto either but I'd say it's a possibility. I just think the current political climate in the US is a factor too. If I were on the board I'd want to hedge my bets against the GOP going postal.
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One word: Delusional. This is analogous to the fat kid that lacks self-awareness getting strung along by the hot girl who is way out of his league. Anybody who doesn't get this doesn't have any idea about how the tech world functions and the level of talent in this country. The best school in this country is only comparable to a good state school in the US. There is no equivalent of a Stanford or MIT here. Toronto can get on its knees and promise zero taxes and other special exemptions, and it still would not be good enough. The sheer cluelessness of these people is baffling. No one who is good enough to work for Amazon is going to work for the low salaries and high taxes in Toronto when there are greener pastures across the border.

The truth is, the best grads from our top schools will still continue to go to Silicon Valley because that's where real innovation is occurring. The small outfits a few companies have in some of these Canadian cities are designed to function as siphons for the most promising developers to their US locations.
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Even if they don’t open up the 2nd headquarters here, I still think they open a full Canadian office somwhere near the new sidewalk labs when it opens ... I think of Toronto is smart they’ll make that tech alley and try to bring all the tech companies in that area.

No doubt over time demand will be up.
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attire wrote: One word: Delusional. This is analogous to the fat kid that lacks self-awareness getting strung along by the hot girl who is way out of his league. Anybody who doesn't get this doesn't have any idea about how the tech world functions and the level of talent in this country. The best school in this country is only comparable to a good state school in the US. There is no equivalent of a Stanford or MIT here. Toronto can get on its knees and promise zero taxes and other special exemptions, and it still would not be good enough. The sheer cluelessness of these people is baffling. No one who is good enough to work for Amazon is going to work for the low salaries and high taxes in Toronto when there are greener pastures across the border.

The truth is, the best grads from our top schools will still continue to go to Silicon Valley because that's where real innovation is occurring. The small outfits a few companies have in some of these Canadian cities are designed to function as siphons for the most promising developers to their US locations.
One mitigating factor to this is skilled immigration in Canada. Companies recruiting top talent globally may have an easier time getting them a work permit to Canada than an H1B to the US, depending on the outcome of the current political climate. During the 'travel ban' shenanigans last year, Canada was clearly established as a back-up plan for companies with top talent who have the wrong passports.

(It's a case for satellite offices though, not the location of the 2nd HQ)

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