The Great Unicorn Hunt: Top 5 Cities For Amazon HQ2 and the Winning City


In case you missed it between Hurricane Harvey and Irma, Amazon announced they are looking to expand beyond Seattle and invest into a second HQ dubbed “HQ2”. Amazon will invest $5B and plans to employ up to 50,000 employees at this new HQ2. To put that in perspective Amazon’s current Seattle HQ currently, employs around 25,000 employees and resides in a little over 8.1M square feet of space. Cities across North America are scrambling to get their pitch teams together and present by the due date of October 19. The details of the Request for Proposal (RFP) define some of the ideal parameters they are seeking in this new HQ2. An MSA population of 1M+, access to quality talent (ie universities, like kind industries), direct flights to major cities (Miami, San Francisco, Washington DC, NYC, Seattle), cost-effective living for employees and a business-friendly environment (aka not California) to help incentive the new campus.

For the sake of time I have taken the liberty to define the top 5 frontrunners and who I believe will win the HQ2 in the end.

Top 5 (Alphabetically Listed)

1)      Austin, Texas

2)      Dallas, Texas

3)      Denver, Colorado

4)      Detroit, Michigan

5)      Nashville, Tennessee

1 - Austin, Texas:

The most natural fit given the recent acquisition of Whole foods (Whole Foods HQ is in Austin) and Jeff Bezos grew up in Texas and is currently one of the largest landholders in Texas.

Pros: Business-friendly, Talent Pool (Google, Apple, Dell, Whole Foods, and many Universities), Cool city (a warm San Francisco vibe), Potential gateway to Mexico and Latin America.

Cons: Lack of Supply for new campus in Downtown area, Limited Direct Flights

2 - Dallas, Texas:

One of the major business and growth hubs in the entire US. Recently HQ relocations of likes Toyota, State Farm and others are a testament to the overwhelming business-friendly nature of Texas and Dallas.

Pros: Business-friendly, Big talent pool, direct flights, massive incentive capabilities, Potential gateway to Mexico and Latin America.

Cons: Urban/Suburban Sprawl (DFW metroplex is unbelievable HUGE 2X the size of Los Angeles Metroplex and LA is huge (see article)

3 - Denver, Colorado:

Essentially smack dab in the center of the country, with a growing urban core and good access to transportation routes.

Pros: Herb friendly (I didn’t even consider this until meeting with a tech talent recruiter that said that is often a challenge in more strict states like Texas for recruiting talent), blossoming transportation network with direct flights to everywhere and more importantly home to the Denver Broncos.

Cons: Talent pool will need to grow, incentives package would need a lot of State help.

4 - Detroit, Michigan:

Motown aka Dan Gilbert’s real-life monopoly board is one of those great American cities that is experiencing a renaissance that is hard to be paralleled anywhere in the world. I have written about Detroit before and why I believe right now it is probably the best urban investment of anywhere in the US.

Pros: Tons of available buildings and land for cheap, Swagger and Detroit pride, close to East Coast and Canada. Talent pool could tap into massive Midwest university systems on a very cost-effective basis (Michigan, Mich St, Ohio St, etc)

Cons: City and State Incentives would be limited given the recent economic struggles, current talent pool would have to pull from a greater region. Very limited direct flights.

5 - Nashville, Tennessee:

The Sunbelt/East coast version of Austin, Texas. A cool young hip city that has good access to universities and relatively insulated from weather issues like coastal cities.

Pros: vibrant young city vibe, east coast location, and business friendly

Cons: Smallest in comparison to the other top metros, good colleges but talent access would be a challenge, lack of direct flights and transportation.

Of course, no city is perfectly aligned with all the things Amazon is looking for in their RFP but these bests represent the top 5.

And the winner is…


It comes down to a battle between Dallas and Denver. Dallas will put its economic muscle behind their proposal that will represent the best incentive package of any city. But, Denver and the State of Colorado will step up and get close to matching the huge incentives offered by Dallas. Ultimately, they secure the prime victory on the merits of the city. With 300 days of sun, an outdoor adventure mecca that surrounds the city and the tremendous transportation hub that Denver represents will be the deciding factors.  

To help define the decision in an image look at the evolution of CEO Jeff Bezos:

1998: Golly gee, I hope I run into Mr. Bill Gates at Starbucks  2017: I free climb the Rockies before breakfast

1998: Golly gee, I hope I run into Mr. Bill Gates at Starbucks

2017: I free climb the Rockies before breakfast

Of course, Amazon represents such a huge economic win many crazy things could happen behind the scenes that could swing the decision in many other directions. We will do whatever we can to aid the San Antonio city officials in a pitch to try and land Amazon HQ2 in San Antonio. We believe the Hemisfair location of Downtown would represent a huge potential for Amazon HQ2.

Let me know what you think, (IG @harris.bay)

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What Inning Are We in? – Real Estate Fundamentals

If you’re not a baseball fan, that may be an odd question, but we’re really not talking about baseball here. Where is the real estate market in terms of innings? Is the real estate market on the warm up field? Is it in the 4th inning or in the 9th inning? This is probably one of the most persistent questions that I hear at real estate conferences.  We can make an educated prediction on the future of real estate if we look closely at the numbers and the trends. 

What inning are we in also depends on what game you are referring too. I believe we are in the late innings of the stock market. The election of President Trump may have extended the game into extra innings; however, real estate and the stock market do not tend to correlate. I suspect we are in the middle innings of the real estate cycle - maybe 5th inning - if I have to be specific. Let me explain why we are still solidly in a growth cycle for real estate. 

Massive undersupply of inventory: This goes to the basic supply and demand principle we all learn in Econ 101. If there is a lack of supply, there will be a steady growth to pricing equilibrium. The US has traditionally needed 1M to 1.2M new homes annually. This is to accommodate new birth rates and a net increase in immigration. But, for the last decade, we have failed to get anywhere close to those levels. Obviously, in 2007 through 2010 we had to absorb the oversupply from the previous housing bubble. However, as of last year we are still seeing US homebuilders being much more cautious with only 600,000 new homes sold in 2016. 

As you can see from the chart above the amount of new home sales has been below the 1M line for a long time, but home prices continue to push up. The increase in price mostly has to do with inflation but also higher cost to build and increased regulations and quality of builds. As a result of the new homes failing to relieve demand for housing, we also see historic rent price increases. 

Combining these factors into a tight credit market driven by the regulations of Dodd-Frank, you can understand why homebuilders are not interested in overextending themselves with too much inventory given the fact that it will be slow to sell with new higher price points and a limited number of qualified buyers.

The next factor attributing to a healthy growth cycle in housing is the fact that traditionally most homeowners need to sell their existing house to afford a new or larger home. But, with the historic rent price increases, a high number of these owners can rent out their current house for a positive cash flow which helps them afford a new/larger home. Of course, this benefits the individuals but it also prevents that home from entering the resell market. Owners holding onto homes for rentals are another significant factor in pushing down the housing supply to meet the demand needs. 

The final reason why I see us in a growth cycle is the upcoming deregulation of Dodd-Frank. Currently, it has passed the House and is gaining support in the Senate (I believe the banks will be able to buy this support). Deregulating Dodd-Frank will allow more homebuyers to qualify for loans and start to push up new home building purchases and positively increase the prices of the resell market. In short, I believe the deregulation of Dodd-Frank is a necessary evil to try and allow more builders to build houses, apartments, office and supply in general. But, like everything this also has some negative and most likely will be the lighting of the fuse to the next housing collapse as too many people get overextended and the market corrects in the opposite manner. 

In conclusion, I do not have a crystal ball to predict the future, but we are at historic lows of supply, and currently a very tight credit market. As a result, I don’t see the economic factors that would cause the real estate market to move downward. A potential risk to continued growth would be a sudden oversupply or systemic job loss. Love or hate President Trump, his policies appear to stimulate increased employment. This could only add to the support for the growth of real estate. 

Enjoy the Memorial Day weekend and be safe out there.


Prediction of Best Investment City in 2017

One City Drives to the Top

I haven’t been to every city in the country, but there is one city I have been watching closely over the last couple of years. That I have now moved this City into an extremely bullish category. Disclaimer: I am not suggesting all investments in this City will be successful but if positioned correctly this will be the top city on the country to invest in. 

(Spoiler Alert: The Motor City)

Those of you that know me know that I am a data junkie. I don’t make an investment without having a lot of market research. I believe investing without data is attuned to gambling and I don’t like to gamble.

Years ago, I was speaking on declining populations and how population clines (movement) was one of the strongest drivers of the real estate market. “White flight” (not racist) as it is often referred to, is when those capable of moving for better jobs do so, and thus leave a higher percentage of low paying jobs behind. White flight leads to reduced tax basis and struggling finances for municipalities. As I was talking to that, I was bad mouthing Detroit as a city that has been on the decline for five decades and was, more or less, left for dead.

Then about 2-3 years ago I noticed something fascinating. And it has nothing to do with the current racist baiting items the media is currently spinning to sell stories. But I observed the white population begin to increase. The year over year increase of white population happening in Detroit is one of the first times in Detroit in nearly 40-50 years.

Maybe I could call it gentrification or the hipsters’ coolness factor or just healthy growth. Regardless, the Hispanic, White and other Immigrant populations in Detroit have been increasing over the last five years. A larger percentage of those new Detroiters have college degrees, higher income earning jobs and more discretionary income.

In 2010, the city had a white population of 55,298. That population began to climb year after year. There is an estimated 2015 population of 75,758 and close to 80,000-82,000 as of 2016, although the exact number is unknown at this time. This increase is creating a dynamic demographic shift in the city. However, there are two things to consider- the overall population of Detroit has been declining over that same period, and that particular increase and changing demographic has been located primarily in the Downtown area (Downtown, Midtown, Corktown, New Center, and Eastern market).

My speculation is that much of this has to do with Dan Gilbert and that he is locating more businesses downtown. Additionally, Detroit has all four major professional sports franchises (3 of which are downtown), and they have a culture of music and grit. That grit and vibe have been a formula for success in several submarkets across the country. Look at Williamsburg NYC, Wynwood Miami, East Austin, Pearl Portland, RiNo Denver; these are all great examples. Detroit also has that vibe in spades and pride associated with the city that is resurging with renewed vigor. You can start to feel it blossoming amongst the vandalized and falling ruins of the capitalism Mecca from a century ago.

I am not suggesting that Detroit will reemerge as the powerhouse city that it once was, but there is evidence of the start of progress in that direction. As shocking as it might be, there is a lack of quality housing right now which is sending rent prices up, and home prices upward as well. I believe this is something that will sustain because you see award winning chefs and restaurants popping up, you read about cool stories like Shinola manufacturing and Carhartt locating their facilities downtown.  Although there is still a tremendous amount of office vacancy, it is mostly owned by Billionaire (Quicken Loans) Dan Gilbert and he has the vision and capacity to slowly reintroduce available space into the market in order to keep a steady growth. They recently released plans for the Hudson department site that would include a new 52 story high-rise which would be the tallest building in the city. (See image above and below)

We are specifically targeting value-add opportunities because I believe that the fringes of the 7.2 sq mile downtown region of Detroit will see the best increase in value and assets can still be purchased below replacement cost. All in all, we feel strongly that Detroit is a rising phoenix and will shine as one of the best markets for investment in 2017.

 If you have any questions on Detroit or our other market analysis, please feel free to reach out.


Smart Parking: The real first step in self-driving vehicles

Everyone is talking about self-driving cars and how we should be concerned about Skynet (Artificial Intelligence) as the biggest threat to our future. While I am no Luddite, I think that AI is in nowhere near something I am concerned about in the near term. Let me run you through a scenario that is much more concerning.

You are the quintessential American dream, living in a lovely suburban home with a spouse and 2.5 kids and a pet raccoon/dog/cat. You’re hard working career type person that compromised a short 20+-minute commute to send your kids through an above average school system. As you drive your reasonable well-equipped family vehicle into the city, you hit some light traffic and will barely make your meeting on time. As you get close to arriving at your meeting location, you start scanning the streets for a parking spot. As you eventually drive pass your intended destination, you can feel your blood pressure building as you still don’t see any spots. You think you’ll just take a quick turn around the block and just walk up the street. But, as you round the block, you are again stymied by the lack of parking. Now, you are downright pissed off as you are more than a few minutes late to your meeting. You are cursing in your car questioning why you pay taxes to a city that can’t supply ample amount of parking. After waiting for ten other cars all circling the same few blocks, you find a spot to park, and you storm off to your meeting over 10-15 minutes late. Your tardiness and now general frustration is carried over into the meeting and is perceived as a negative, and you fail to close the sale/deal/account. As you repeat this same scenario over and over year after year, the results begin to compound, and your job and salary are being affected. With your job security and income waning the level of stress in your life increases, and you soon find that you are fighting with your spouse over mundane issues and becoming more distant from your kids. As you sit there depressed and questioning if you can afford the suburban home and wonder why you ever agreed to have a pet raccoon/dog/cat in the first place… 

Although this is a hypothetical scenario, I feel this is something most everyone can relate to and presents a real world problem (Sorry Skynet) that we face today. As 53% of people in America live in a suburban area but often have needs to commute into the city for work. Additionally, 30% of all traffic in the city is related to people trying to find parking spots.

Of course, as this article title might suggest I have a solution for this problem and will allow you to have a better marriage, close more sales, be a better parent and pet owner.

Given the same scenario above instead of stressing about a parking spot as you get close to your intended location you simply pull up to the curb and get out of your car right on time. As you leave your vehicle, you press the SELF PARK button and walk away. The autonomous driving system in your vehicle connects to the city parking system and knows exactly where the nearest parking garage spot is located. Like magic, your vehicle drives directly to that spot and parks. As your successful meeting finishes up all you have to do is open your (Knight Rider) app and just like Uber or Lyft drop a pin to where you want your vehicle to pick you up. Your life has just gotten immensely easier, and you have saved time and made more money because the city you live near has an innovative smart parking grid. 

Let me talk through a few ways this could be beneficial:

1)    More parking spots in existing parking structures (autonomous parking vehicles have no need to open their doors). So traditional parking spot sizes can be reduced from a regular 8-9ft width down to a 6.5-foot width. Although not all spots would be converted maybe the top couple of floors are converted which would allow lower level parking for ordinary parking vehicles.

2)    Less traffic in a downtown area, as previously stated 30% of traffic is related to trying to find a parking spot now that number could be reduced as more vehicles have self-parking features.

3)    More revenue as most people would prefer street parking given the convenience but the tables would now be turned and increase parking garage usage plus the new spots in existing garages would allow for more revenue producing spots.

4)    General awesomeness personally grew up watching Knight Rider and the thought of a car (KITT) driving itself to me or parking itself just would be another level of awesomeness that would be enough of a benefit for me.

Of course, this would be an easy sale who doesn’t want to save time, make more money, have more parking spots, less traffic and have a city of awesomeness??

This can be accomplished by doing two things;

A) allowing autonomous driving vehicles on public streets in the downtown areas

B) building a smart transportation grid.

The self-driving technology is more or less here and readily available. If there was a grid for it to connect to I am confident the software programmers of Tesla, Google, Ford, GM and the sorts could figure it out. Heck, most cars can already parallel park themselves why couldn’t they park into a parking garage at 4 miles an hour.

Let me know what you think, am I off my rocker? Would you use a self-parking feature on your car? 

Happy Holidays


Top 5 Real Estate Investments for 2017

5) Multifamily

A good deal of properties in this asset class have been chased and hunted down to near extinction. However, given the growth in the millennial working cohort and their propensity to rent over buy, plus the additional amount of baby boomers moving into MF to simplify living expenses, this asset class will see low cost of leveraged capital and relatively good rent growth that will significantly outperform inflationary indexes throughout 2017 and into the foreseeable future.

4) Self Storage

With the self-driving(driverless) car on the horizon, we can see this asset class experiencing some downside risk as more people will free up garage space used for their vehicles, to now store their junk. But, that is a fairly far off reality and suburbia won’t wildly adopt the driverless non-owned vehicle for many years into the future. We also predict that a bounce in consumer confidence will spur some additional spending based on pent up demand. If the public homebuilders are performing well, we expect to see self-storage equaling that matrix.

3) Logistical Industrial

Logistical industrial is a hard to quantify space because it takes a more technical approach to investing. Amazon has opened the door by introducing same-day and next day delivery. Amazon’s change in delivery methods will require more and more retailers to adapt their business model. As retailers continue to struggle, they will look to mimic the free and fast shipping methods that drive so many customers to Amazon. Logistical industrial sites near growing Metropolitan Statistical Areas(MSAs) will see the best upside and increase in value, particularly in markets that can target several top MSAs within a hub (Think New Braunfels/San Marcus Texas area).

2) Urban Infill (Adaptive Reuse)

Urban infill in post-industrial sites and cities will have significant opportunities for walkable and unique developments. These trends have been exploding across the US. Some examples are Wynwood in Miami, RiNo in Denver, Pearl in Portland, Brewerytown in Philadelphia and East Austin. If you google gentrifying or hipster locations, that will give you a good idea of the areas we are highlighting. This type of investment can be hugely rewarding but is also wrought with challenges. The challenges can range from requiring environmental clean-up, being in high crime rate areas, lack of sources for capital and most significant in my opinion is needing a creative approach to design. As there are no two sites or buildings the same, it is the proverbial can of worms. As most Real Estate Investment Trusts (REITs) tend to work on a proforma spreadsheet model to invest, urban infill projects can be challenging for them to quantify or get approved. The hard to quantify will allow nimble private investors and creative fund managers to find opportunities in this space at a much greater percentage in 2017.

1)    Single Family Rental Portfolios

It is our opinion that SFR portfolios will see the most significant investment opportunities in 2017. The reason is that the same drivers that have compressed MF (multifamily) CAP rates into low single digits will also cause investors to chase yield in SFR. It is not uncommon to achieve a high single digit going in rate and levered rate up into the low to mid-teens, all with relatively straightforward debt capital sources since it’s easy to underwrite. We are not saying that it’s easy to acquire well performing SFR portfolios, but that those well-performing portfolios will see unsolicited offers and big institutional players trying to continue to aggregate and build their economies of scale. There is some debate that this space and asset class are dead, and that it only made sense to buy when there was the post-housing bubble collapse (2009-2014). Although we all wish we had held onto more properties from that 2009-2014 window, that doesn’t mean the space is dead. We found a range of numbers, but overall there are estimated 16-20M single family rentals across the country. In the last 6-7 years, we have seen the institutional players begin to enter the SFR space (Invitation Homes (Blackstone), Colony, American Homes 4 Rent, Main Street Renewal, Tricon, and many more). The conversations we have heard are that these giants of the private equity world and REITs have entered the space the game is over- they have already picked up all the good deals and there is nothing left. As we have researched this investment class we have found that the institutionally owned SF rentals are approximately only 200,000 units across the country. That means there are still 15.8 to 19.8M SF rentals out there that are owned by small operators or most significantly “Ma & Pa” investors that only have 1 to 3 properties. As technology improves efficiencies and the big players continue to develop best practices, this space will see some of the best opportunities for investment regarding going in rates, rent growths and best overall risk-adjusted returns in comparison to all other asset classes.


This is a layout and look at our crystal ball predictions for 2017. We would love to hear your feedback or comments. We spend a lot of time researching these trends but didn’t want to go too in depth into an analysis that was too lengthy or verbose.

Let us know if you would like additional information on these asset classes. We are very open to helping by sharing our research and methodology behind the list.



Future of Downtown San Antonio - Bisnow

On July 28th 2016, we were a featured panel speaker for the Future of Downtown San Antonio ( This sold out event had over a couple hundred attendees that were all excited about the future growth of the city.

Some of our partners know this is related to our ( urban infill project in downtown San Antonio. This project is an 8+ acre high density (100 units/acre) mixed used project.

See an earlier local NBC news story about the rezoning. News4:

As we have more schematic design back from the architectural firms we will be releasing information. If you have any questions about this project or others feel free to reach out at any time.

- Thanks from everyone at Harris Bay (Anton, Jake, Chelsea & Brian)

Cap Rate Forecast 2017 (Compression or Expansion?)

At times we are so consumed in our daily grind of work that we have to remind ourselves to stop take a breath and pop our heads up and look at the macro view of the market. These times allow us to take the micro data we are exposed to in our local markets and activity and see how that translates into the global macro view of the future. As real estate moves at a much more glacial pace than say the equities market, we can help to identify macro trends that may cause minor course corrections to help us be better fiduciaries and deliver the best returns possible.

When we look at a macro view of the US real estate market, we are taking into account several factors. Those factors are GDP, US Treasury interest rates, Job creations, population (births and immigration), wage growth, CAP rates and foreign investments.

When we sit down and shift through this data, we are making analysis and forecast for the near future. Although, our crystal balls are quite fuzzy we have learned that there are some identifiers with economic factors before they become boom and bust cycles (bubble and burst). One of the key takeaways has been the current CAP rate compression in the Big 6 (Boston, Chicago, LA, NYC, SF and DC) and the other core markets. So a quick recap, if CAP rates are compressing that, means the real estate values are going up. So, CAP rate down (compression), asset values up. Currently, we now have real estate values in some of those core markets at new all-time highs. The question across the industry is with new all-time highs are we priming for a new correction and down market.

Given this macro look at the market and the current global environment here is my take on the data and forecast for cap rates and values in 2017. As we are fresh off the rumblings of the “Brexit”, we have to understand this, and other global factors are hamstringing the fed and their ability to make any additional rate increases for the near future.

We then take into account the foreign investment money that is looking for a safe harbor (Sovereign Wealth Funds, Foreign Insurance Companies, international blue chip corporations and PE firms with foreign investment capital). When we make those analyses and the fact that most of the global markets are sitting in a negative interest climate we understand that the spread of negative interest to those compressed CAP rates (high values) of core markets still seem quite attractive to a foreign investor. This, in my opinion, will drive more foreign capital investments into core markets and sustained or further CAP rate compression.

What does this mean for us if core markets continue to see a compressed cap rates (increase in values)? It is my prediction is that when those assets sell in SF, LA, NYC etc that capital will need to be reallocated and reinvested. I believe that most of those domestic fund will choose to reinvest back into the US. However, the fact that the capital is based in the US they will look reinvest into markets that they can make a safe return. This will lead to the spillover effect of more domestic capital into secondary and tertiary markets. Some of those secondary and tertiary markets are Denver, Dallas, Austin, Charlotte, Atlanta, Seattle, San Antonio, Phoenix, etc. That increase of capital will lead to an increase of values and further CAP rate compression for those markets as well. So the macro view of the US real estate market for 2017 is that we will see a very steady eddy status quo moving forward. This is not to say that the US economy or RE markets are doing anything spectacular it is just that we are currently the tallest midget in the global economy.

Have a cool and blessed rest of summer.


Hot Real Estate Markets (Starwood Capital Chief on CNBC)

With low-interest rates one would think that Real estate markets would be booming and lead to a bubble. However, difficult lending standards have caused the real estate markets to rely much more on traditional fundamentals (Jobs, Affordability, Population increases). Coincidentally the fundamentals of the real estate market have not been this aligned in 20 years. Thus making this one of the most unique and exciting times for real estate.

With the lack of new construction projects over the last 8-10 years, many markets are experiencing huge increases in absorption rates. There is a lack of inventory and has resulted in increases of rents and property values. With the caveat that these values are driven by those fundamentals vs. speculation in previous real estate cycles.

Over the last year and a half, I have been a very big proponent of these fundamentals. So much so we have moved a lot of our investments out of markets that don’t align with fundamentals. One of the biggest challenges we see in California, NYC, Miami and some other core markets is affordability. Of course, there is a lot of foreign capital and institutional money flowing into these core markets to take advantage of the price upswings. But it is hard to predict these types of capital investments, as they tend to follow trends and comes and go very quickly. This

I am sure there are plenty of companies that are taking advantage these upswings in core markets, but we have a healthy respect for down turns in real estate. As such we rely much more on markets with good affordability. As tertiary markets tend to be driven more by local investment dollars i.e. local homeowners and businesses. As a result, the capital investments in those affordable markets are much easier to formulate and predict.

In conclusion, we at Harris Bay look at massive amounts of data and spend a lot of time and hard work to try and make the most educated decision with a healthy amount of risk calculated into every investment. When we do make decisions to invest, they are typically driven by these fundamentals that we believe will be sustained over a long period.

Happy Friday the 13th!


Jake Harris - Managing Partner