The Real Deal New York

Paydirt: Amazon’s path from murderer to messiah, Premier Agent gets pricier and other top industry news you need to start your week

Alibaba just made a multibillion-dollar bet on physical stores. Could Bezos follow suit in the US?
By Hiten Samtani | November 20, 2017 10:10AM

From top left: Jeff Bezos, The Plaza Hotel and Hamad Bin Jassim (Credit: Getty Images and The Plaza)

From murderer to messiah?: On the way to becoming one of the most valuable companies ever built, Amazon has slaughtered thousands of U.S. retailers. The bodies are everywhere: Barnes & Noble, Macy’s, Foot Locker, several mall REITs. “Death by Jeff,” is a common refrain. But now that Amazon has established itself as one of the most important forces in the U.S. retail market and started betting on brick-and-mortar, where could it go next? A look at what its only true rival is doing may provide a hint.

Alibaba just struck a deal to invest $2.9 billion in Sun Art, one of China’s biggest operators of retail superstores, The Information reported Sunday. The deal gives Jack Ma’s e-commerce giant a 36 percent stake in a company that has 446 stores in 224 cities across China. That’s a lot of real estate in which to leverage its mobile payments system and collect consumer data that can be fed back to the online beast. The move also gives Alibaba a large physical presence without putting retail operations on its balance sheet, according to the tech news website.

Might Amazon do the same? Jeff Bezos made several micro-bets on brick-and-mortar before his $13.7 billion acquisition of Whole Foods, and if Amazon is to become the world’s first trillion-dollar company as NYU professor Scott Galloway predicts, it’ll have to do a lot more than just online. If it follows the Alibaba playbook, we might see it take stakes in U.S. retailers with prime physical space, in many cases extending their lifespans and giving retail landlords the cushion they’ve been craving.

By steamrolling dozens of companies out of business, Amazon has likely killed hundreds of office jobs in New York, and so its overall impact on the office market here has probably been negative. But its emergence as a major tenant has also benefited office-space operators here. It’s leasing 360,000 square feet at Brookfield’s Manhattan West for its advertising division, and, as TRD’s Konrad Putzier and Mark Maurer reported last week, it’s also taking the entirety of WeWork’s 122,000-square-foot space at 2 Herald Square. A future alliance with large retailers and a continuing expansion of its own stores may mean that Amazon one day becomes somewhat like the holy trinity of Hinduism: the creator, the preserver, and the destroyer.

Middle Eastern intrigue plays out at the Plaza: The GM Building is generally seen as the New York property with the most intriguing cast of characters entangled in it. But it may soon be pipped in the notoriety index by the Plaza Hotel. While one of the Plaza’s key investors, Prince AlWaleed bin Talal, is detained in the gilded prison of the Ritz as part of a power play by the Saudi crown prince Mohammed bin Salman, another Middle Eastern billionaire, the Qatari Sheikh Hamad bin Jassim bin Jaber Al Thani, has been revealed as the senior lender on the Plaza. Al Thani, also known as HBJ, is now eyeing a bigger interest in the property by potentially making a play for the stake owned by embattled Subrata Roy, Bloomberg reported. All this is playing out while Saudi Arabia is in the thick of a diplomatic row with Qatar.

HBJ has been a significant player in London’s property market for ages. But he’s recently emerged as a force in New York, too, backing Harry Macklowe on several projects.

Price of the brick is up: In May, I wrote that StreetEasy’s auction-based pricing model for Premier Agent would almost guarantee that the price of the lead-generation service would leap as more brokers got on board. My colleague E.B. Solomont decided to check in, and here’s what she found: On the Upper West Side, the cost of a lead is now $196.88, up 183 percent from $72.07 in May. On the Upper East Side, it’s up 56 percent, to $166.84. Zillow’s revenue from the program is up 24 percent year-over-year, partly on the strength of New York activity. And the crop of new players using it and the related Premier Broker service includes an opportunistic Keller Williams team from Texas and Halstead Property.

I can’t see an endgame for brokerages if Premier Agent becomes the default way of doing business. Prices for individual leads will keep rising, and firms with shallower pockets will bow out. Agents will need to keep more of their commissions to pay for leads, so they’ll leave their firms behind. The elite brokers with multimillionaires on speed dial will be somewhat insulated, but the brokerage – the main conduit through which to sell real estate in New York for over a century – will not survive. That’s not necessarily a bad thing, but are the bosses even aware?

(Paydirt is a weekly column that riffs on the biggest NYC real estate news of the moment, providing analysis and historical context on the deals and players that make this town tick. Read more from Paydirt here.)

The opening paragraph of this story was updated to more accurately reflect Amazon’s position in the U.S. retail market.