Last week, Dave Clark, Amazon’s senior vice president in charge of operations, stood on a ladder in a warehouse near Los Angeles and announced to employees that Amazon was raising pay for its vast blue-collar work force.
As soon as he said “new Amazon minimum wage of $15 an hour,” Mr. Clark was drowned out by more than 10 seconds of cheers and high-fives.
Mr. Clark posted a video of the meeting on Twitter, where it has since been viewed more than 400,000 times. Senator Bernie Sanders, who had repeatedly criticized Amazon for how it treated its workers, praised the raise and shared the clip, adding another half-a-million views.
But in Amazon warehouses across the country, many longtime workers are fuming that — based on the information they have received so far — they may end up making thousands of dollars less a year.
Yes, Amazon is increasing wages, which will benefit most employees. But it will no longer give out new stock grants and monthly bonuses. Some workers believe that means their total compensation will shrink.
Whether Amazon finds a way to close that gap will be closely watched in Washington. On Thursday, Mr. Sanders, an independent from Vermont, sent a letter to Jay Carney, who runs Amazon’s public policy, “asking Amazon to confirm how the total compensation of employees who would have received stock options — those with the company for two or more years — will be affected as a result of the recent changes,” according to a copy provided to The New York Times.
Mr. Sanders, who was alerted to the issue by workers, has not yet received a response from Amazon, a spokesman for the senator said.
The New York Times spoke to about a half-dozen workers around the country, from Texas to Kentucky, and viewed numerous employee discussions on Facebook. All of the workers shared their pay stubs, but few would allow their names to be used.
Near Minneapolis, Katy Iber, who handles returned products at an Amazon warehouse, works the night shift. Her region has a tight local labor market, so she already makes more than $15 an hour.
In an “all hands” meeting at the start of her shift on Thursday — her first day at work after the pay raise was announced — she learned Amazon was raising her base pay by $1 an hour.
But it was also ending monthly attendance and productivity bonuses, known as the Variable Compensation Plan, or V.C.P. And she would no longer be granted valuable Amazon shares. The trade-off meant she’d be losing money, she said.
It was as though the company were saying: “‘Thanks, we appreciate you going into the holidays. Here’s less money,’” Ms. Iber said. The Times reached Ms. Iber through the Awood Center, a nonprofit that is organizing East African workers in the region.
Amazon maintained in a statement that the higher hourly wage “more than compensates for the phaseout” of the stock and incentive bonuses. A traditional pay raise, the company said, is “more immediate and predictable.”
Amazon said more than 250,000 employees and an additional 100,000 seasonal workers would benefit from the pay changes, and announced similar changes for workers in Britain. Deutsche Bank estimated that Amazon’s pay increase “represents less than 1 percent of its projected 2019 revenue.”
For many workers, including those who work part time and were never eligible for stock and bonuses, the raises in base pay will certainly put more cash in their pockets.
Amazon officials said that over the next week they would adjust the pay of some employees to make sure workers did not end up losing money with the changes.
The difference between what some employees believe is their total compensation and what the company believes they are being paid also may come down to accounting rules. Amazon said that if employees in 2018 get stock that was granted to them two years ago, that legally counts as compensation this year. But some employees believe that was compensation for work done two years ago.
The difference — whether because of miscommunication or incomplete information given to employees — has resonated in Amazon warehouses around the country, particularly with employees with a longer tenure at the company.
The dispute is over two compensation programs that will end on Nov. 1. The first, the Variable Compensation Plan, is paid out each month. It offered up to a 4 percent bonus for attendance, and an additional 4 percent if a worker’s building met certain production goals.
Ms. Iber said someone in her warehouse wrote “BRING BACK VCP!!!!” on a whiteboard where employees are encouraged to communicate with management.
In the three months around the holiday season, known as “double down,” the bonus doubles, meaning employees could earn as much as 16 percent on top of their regular wages.
The second program gave employees shares in Amazon stock each year. They get to keep the shares if they’re still working at the company after two years. Recently, employees have been getting two shares, worth about a combined $3,725 at the current market value. With the changes, workers get to keep the stock granted in previous years but will not earn new shares.
Documentation that Ms. Iber provided showed that her bonus amounted to $1.28 an hour in August. In the three months around the holidays, that could be more than $2.50 an hour, far more than the $1-an-hour increase in base pay she’s getting.
She is down even more when stock grants are taken into account. She will keep old shares but will not be granted new ones.
In a Facebook group popular with employees, workers fumed over the changes, according to screenshots from the page that were viewed by The Times.
There were so many negative pending posts on the day Amazon announced the $15 wage that a moderator wrote that she had deleted them and pleaded with workers to write to the corporate offices in Seattle rather than vent online.
Another poster wrote that her co-workers were contemplating a walkout on Black Friday, the big shopping day after Thanksgiving, and others said they were saddened to lose the sense of ownership that the stock compensation provided.
Workers said the timing of the change, just as bonuses double for the holiday season, stings. Ms. Iber said a co-worker had told her that he regretted paying down some credit card debt in anticipation of the extra holiday bonus. He worried that without the extra holiday pay, he won’t be able to cover his regular monthly bills.
She could sympathize. Last year, Ms. Iber used the holiday season bonuses to pay for insulation in her attic. She was going to get a new water heater this year, but now she’s holding off. She said that she would wait for the heater to break, and that when it did, she’d put the repairs on a credit card.
Amazon Plans to Split HQ2 Between Long Island City, N.Y., and Arlington, Va.
After conducting a yearlong search for a second home, Amazon has switched gears and is now finalizing plans to have a total of 50,000 employees in two locations, according to people familiar with the decision-making process.
The company is nearing a deal to move to the Long Island City neighborhood of Queens, according to two of the people briefed on the discussions. Amazon is also close to a deal to move to the Crystal City area of Arlington, Va., a Washington suburb, one of the people said. Amazon already has more employees in those two areas than anywhere else outside of Seattle, its home base, and the Bay Area.
Amazon executives met two weeks ago with Gov. Andrew M. Cuomo in the governor’s Manhattan office, said one of the people briefed on the process, adding that the state had offered potentially hundreds of millions of dollars in subsidies. Executives met separately with Mayor Bill de Blasio, a person briefed on that discussion said. Long Island City is a short subway ride across the East River from Midtown Manhattan.
“I am doing everything I can,” Governor Cuomo told reporters when asked Monday about the state’s efforts to lure the company. “We have a great incentive package,” he said.
“I’ll change my name to Amazon Cuomo if that’s what it takes,” Governor Cuomo said. “Because it would be a great economic boost.”
The need to hire tens of thousands of high-tech workers has been the driving force behind the search, leading many to expect it to land in a major East Coast metropolitan area. Many experts have pointed to Crystal City as a front-runner, because of its strong public transit, educated work force and proximity to Washington.
[Crystal City’s upsides: good transit, diverse residents, a friendly business climate and a single developer with a big chunk of land.]
JBG Smith, a developer who owns much of the land in Crystal City, declined to comment, as did Arlington County officials.
Amazon declined to comment on whether it had made any final decisions. The Wall Street Journal earlier reported Amazon’s decision to pick two new locations instead of one.
About 1,800 people in advertising, fashion and publishing already work for Amazon in New York, and roughly 2,500 corporate and technical employees work in Northern Virginia and Washington.
Amazon narrowed the list to 20 cities in January, and in recent weeks, smaller locations appeared to fall out of the running. For example, although Denver made the initial cut, Gov. John Hickenlooper of Colorado said last month, “Wouldn’t they rather have their second big hub on the East Coast?”
Amazon announced plans for a second headquarters in September 2017, saying that the company was growing faster than it could hire in its hometown Seattle. The company said it would invest more than $5 billion over almost two decades in a second headquarters, hiring as many as 50,000 full-time employees that would earn more than $100,000 a year on average.
HQ2 would be “full equal to our current campus in Seattle,” the company said. If Amazon goes ahead with two new sites, it is unclear whether the company would refer to both of the locations as headquarters or if they would amount to large satellite offices.
Picking multiple sites would allow it to tap into two pools of talented labor and perhaps avoid being blamed for all of the housing and traffic woes of dominating a single area. It could also give the company greater leverage in negotiating tax incentives, experts said.
“Even if the most obvious reasons appear to be about attracting more tech workers, the P.R. and government incentives benefits could help, too,” said Jed Kolko, chief economist at Indeed, the online jobs site. With big presences in two cities, the local governments “might feel pressure to increase the incentives they are offering Amazon, and the surprise is yet another news cycle for the Amazon headquarters process,” he said.
The HQ2 search sent states and cities into a frenzied bidding war. Some hired McKinsey & Company and other outside consultants to help them with their bids, investing heavily in courting Amazon and its promise of 50,000 jobs. Even half of that would amount to one of the largest corporate location deals, according to Greg LeRoy, executive director of Good Jobs First, which tracks corporate subsidies. “These are very big numbers,” he said.
As Amazon’s search dragged on, residents in many of 20 finalist cities worried about the impact such a massive project could have on housing and traffic, as well as what potential tax incentives could cost the community. The decision to split into two sites could alleviate some of that resistance.
Seattle has been one of the fastest growing cities in the country, in part because of Amazon’s growth. The company has about 45,000 employees in the city, and the company said it needed to hire more employees than the city could attract or absorb.
“Not everybody wants to live in the Northwest,” Jeff Wilke, the head of Amazon’s retail division, said at a conference last year. “It’s been terrific for me and my family, but I think we may find another location allows us to recruit a different collection of employees.”
Amazon gave cities six weeks to pitch themselves in a public courtship. Almost 240 municipalities responded, trying to lure the tech giant with marketing gimmicks, promises of new transit lines and, as proposals trickled out, billions in tax incentives.
The details of most bids are not public, to the frustration of even some lawmakers. A few elected officials from the short list of 20 cities signed what amounted to a mutual nonaggression pact, trying to avoid a bidding war that would give up too much from taxpayers.
But mostly, cities continued their hard sell, showing Amazon executives around their proposed sites and trying to assure the company that the region had sufficient housing and transportation. Since wrapping up visits with cities in the spring, Amazon has been almost silent on the search. That led journalists, residents and politicians to look for clues in new job postings and the flight path of the corporate jet used by Jeff Bezos, Amazon’s chief executive.
To meet its own deadlines, Amazon will need to move fast. It had said it wanted 500,000 square feet of office space — enough for thousands of employees — available for use next year.
Jay Brodsky, who lives in Arlington, Va., said about a week ago that his wife took part in a 45-minute phone survey about her opinion if Amazon moved to the area. “It was everything from, ‘What do you think about the local government,’ to ‘Are you concerned about traffic?’” he said. She received an Amazon gift card for participating.
“People are sort of on pins and needles,” Mr. Brodsky said. “It’s almost like people want it to happen, and are afraid of what would happen if it does.”
Tesla Reports a Rare Quarterly Profit, Its Biggest Ever
Tesla on Wednesday reported its first quarterly profit in two years and its biggest ever. But for the electric-car maker and its unpredictable chief, the question is whether it can keep making money.
The company’s third-quarter earnings were helped by cost-cutting, spending less on future models, delaying payments to suppliers and, most important, rushing to sell as many cars as possible. It may not be able to do all those things quarter after quarter.
The company declared it a “historic quarter” and its chief executive, Elon Musk, promised that future would be brighter still, telling analysts on a conference call he expected Tesla to be profitable in the fourth quarter and in “all quarters going forward.” He was saying in effect that his company was no longer in start-up mode.
Tesla reported a $312 million profit for the three months that ended Sept. 30, thanks to a surge in production and sales of its Model 3 sedan. The company has long promised that the model would help make electric vehicles and Tesla itself a mass-market phenomenon.
The report is a milestone for Mr. Musk, whose leadership was cast in doubt in recent months as he faced a lawsuit by regulators over his musings on Twitter about taking the company private. He had also hurled insults against short-sellers and admonished analysts on a call for asking “boring, bonehead questions.” He agreed last month to step down as chairman of the company to settle a lawsuit in which the Securities and Exchange Commission accused him of misleading investors about his plans to take the company private.
On Wednesday, he was even-tempered on a conference call with analysts. He declined to answer a question about the makeup of the company’s board, saying he would discuss only operational issues. (In the agreement with the S.E.C., Tesla agreed to appoint two new independent directors to its board.)
In the 15 years since Mr. Musk and his partners founded Tesla, the company has never reported an annual profit. In previous quarters, the company’s costs increased as it made more cars. To finance its operations, Tesla, which also makes solar panels and batteries, has had to sell stock, take out loans and ask customers to make $1,000 refundable deposits for cars and energy products that they might not get for many months.
The profit the company reported in the third quarter will help stabilize Tesla’s finances and end a streak of quarters in which the automaker used close to $1 billion in cash. In the second quarter, the company reported a $718 million loss.
Tesla ended September with $3 billion in cash compared with $2.2 billion at the end of the previous quarter. The company generated $881 million in free cash flow — cash produced through operations less capital expenditures. “The cash-flow number is impressive,” said David Whiston, an auto analyst at Morningstar. “That’s a lot of cash for a company their size.”
But the company could face difficulties ahead. The increase in sales of the Model 3 could cause demand to soften in the fourth quarter.
The company, which until recently only sold tens of thousands of luxury cars a year, will need to find many more buyers for the Model 3, which sells for $46,000 to $64,000 before federal and state tax incentives. Mr. Musk said that the company expected sales to remain strong as it starts shipping the car to Europe in the first three months of next year and Asia after that.
Tesla produced more than 53,000 Model 3 cars from July to September, nearly twice as many as in the previous three months. Deliveries of the Model 3 totaled more than 56,000, about three times as many as in the previous quarter.
“As long as they keep producing more cars than the previous quarter, there’s a good chance they can keep profits going,” Mr. Whiston said.
In a sign that buyers are still interested in the car after months of waiting for it, Tesla said that of the 455,000 Model 3 reservations it reported having in August 2017, fewer than 20 percent had been canceled.
Tesla next year is supposed to start making a more affordable version of the Model 3 priced at $35,000, and Mr. Musk has said that Tesla would lose money on that model if the company produced it now. The cheaper Model 3 is important because the $7,500 federal tax credit available to buyers of Tesla cars will be cut by half on Jan. 1 and phased out entirely over the course of 2019, making the company’s cars more expensive.
Tesla recently began offering a Model 3 priced at $46,000 as an interim step before it can produce the $35,000 version. “We don’t really have the ability to get to $35,000 right away,” Mr. Musk said, but he said Tesla was “probably less than six months from that.”
Even though Tesla is finally hitting its stride in production, “the company isn’t out of the woods yet,” said Jeremy Acevedo, manager of industry analysis at Edmunds, a market researcher. “The $35,000 Model 3 remains a fantasy, and with the full tax credit for that car now off the table, it will be interesting to see how many buyers are willing to keep waiting for it to be a reality.”
The company is still struggling to deliver cars to customers, which Mr. Musk has described as “delivery logistics hell.” The quality of the Model 3 has also come under question as many customers have complained about receiving cars with scratched paint, cracked windows and other defects.
Consumer Reports on Wednesday lowered Tesla’s reliability ranking by six places, to 27th out of 29 automakers. The magazine said its members complained about the suspension in the company’s full-size Model S sedan.
If sales falter, the company could quickly find itself in a financial squeeze. It has to make bond payments of $230 million in November and $920 million in March. It can use stock for the second payment but only if its share price is above $360. At the same time, Tesla hopes to build a factory in China, which will require hundreds of millions of dollars in capital expenses.
As of Sept. 30, Tesla owed its suppliers $3.6 billion, up from $3 billion at the end of the second quarter. The company’s debt totaled more than $10 billion.
Tesla shares closed at $288.50 on Wednesday before its earnings were released, down more than 20 percent from early August. The stock was up 10 percent in aftermarket trading.
City developers turn lenders chasing profits in construction boom
New York developer Silverstein Properties Inc. built a $4 billion pipeline of real estate deals just weeks after starting. None of the money was for buildings it will own.
The developer of prominent New York city skyscrapers such as 3 World Trade Center has jumped into property lending as demand for financing grows and yields are more attractive. Silverstein set up its first lending venture earlier this month and already has a slew of potential deals going to projects in New York City. Others, including Oxford Properties Group, also have big plans to finance other builders.
“Supply and demand characteristics in New York and throughout the country are good—we think that there’s years to run in this cycle,” Michael May, president of Silverstein’s new lending venture, said in a telephone interview. “In New York, the dollars are big enough and Silverstein’s footprint here is big enough that I think we could run the entire business just doing New York if we wanted to.”
As big banks have pulled back, a flood of more lightly regulated non-banks has rushed in to fill the void across industries. In real estate, that includes debt funds, mortgage REITs and developers, often backed by private equity or other institutional capital. Property research firm Green Street Advisors LLC estimates that U.S. originations by these lenders surged more than 40 percent in 2017 compared with the year before to almost $60 billion, and should rival that of life insurance companies and commercial mortgage-backed securities this year.
The opportunity is partly due to what Silverstein sees as a “gap in financing” that has its origins in the 2008 financial crisis. Since then, large banking institutions have faced heightened regulation and become more stringent in underwriting projects. That has taken a toll on their ability to lend to the construction industry, where there tend to be more risks and higher costs.
“You end up with accounting treatment reserves and with regulatory capital treatment on a lot of these asset classes, which has become extremely challenging for banks,” said May, who had previously worked at Credit Suisse Group AG and Cantor Commercial Real Estate Lending LP, overseeing the origination and distribution of real estate products. “We can be more nimble, move more quickly and we’re not impeded by an overlay of rules and regulations that challenge our assessment of risk.”
Silverstein hasn’t closed on any lending deals yet. The company is also looking at financing projects in other U.S. markets including Los Angeles, Seattle and Boston.
Blackstone Mortgage Trust Inc., managed by a subsidiary of Blackstone Group LP, the biggest private-equity real estate investor, originated a $1.8 billion construction loan earlier this year for an office tower in Manhattan’s Hudson Yards.
Silverstein’s lending platform is backed by a sovereign wealth fund and a pension fund with “deep pockets” and has no maximum loan amount.
Then there’s Oxford, the property unit of Canadian pension fund OMERS, which has invested more than $3 billion in loans and plans to more than double that amount in three years.
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A key opportunity for Silverstein is lending to projects that are too pricey from an equity perspective. The returns they get are still attractive, but less risky, May said.
“There’s a lot of demand for capital and there’s a lot of good quality assets being built, but maybe at pricing that we think is higher than we would want to operate,” May said. “Those projects need capital, in a spot where we’re very comfortable lending.”
Foreign investors have also been betting on higher-risk loans to developers as increases in Libor, a major benchmark for global interest rates, make yields on U.S. developments more attractive, and help add liquidity to the debt market — more than “at any point in this cycle,” said Aaron Appel, Jones Lang LaSalle Inc.’s vice chairman and head of New York City capital markets debt & equity.
“Despite the political environment, the U.S. is still the most stable place to invest globally of any country.” He added that national property rights laws and federal efforts to elongate current economic growth have also favored foreign investment.
“If there’s a decline in asset values, the lender is more protected than the equity investor,” Dave Bragg, managing director at Green Street, said by phone. “The incentive for many players is the perception that returns on debt are higher than what one could underwrite on the acquisitions of real estate today.”
The growing number of lenders has resulted in a market where capacity outweighs demand, especially for assets that already are generating income, Bragg said. Yields for riskier construction loans are higher and there are fewer lenders competing to provide them. Banks are still the primary source of that financing but are limited by regulation because of the longer time line and and larger amounts of capital required.
“Construction is one of the few spots where you can get to double-digit yields in this market as a lender,” Silverstein’s May said, adding that the company has a competitive advantage because of its experience as a developer and better understanding of the underwriting risk. Oxford’s head of New York and global credit Kevin Egan also sees a gap in construction loans and high-yield loans and plans to make more.
Lenders in real estate have for the most part been prudent, but as more lenders rush in to capitalize on this opportunity, there are concerns that could lead to a decline in lending standards and a construction glut. The non-bank lenders are more lightly regulated, which means there is less transparency, said Peter Muoio, chief economist at Ten-X Research.
“Most real estate cycles ultimately reach a period of excessive construction,” Bragg said. “If that happens in the cycle, the debt funds and mortgage REITs would be contributing to that and would ultimately lead to weaker fundamentals and perhaps lower asset values several years down the road.”
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