Amazon is buying land piecemeal, lot by lot—probably roughly at market value, then. I don't think it's really comparable to someone buying Sears because they think Sears's land holdings are undervalued.
At worst, they're exposing themselves to the whims of the commercial real estate market as a whole. Not like Sears, where the value of their holdings depended on a pretty niche market—the value of malls.
A lot of businesses sell and lease back their real estate. That way their capital isn’t tied down in non core competencies. Also they can insulate themselves from real estate booms and busts.
But in a place like california why would you do it? You have movie studios who have owned their lots for almost a hundred years now. Tax on those assets are probably pocket change a year thanks to proposition 13. Now when you sell those backlots back to the holding companies to lease back for your own use, they get reassessed at todays market rate, and who knows how favorable of leasing terms the holding companies will offer you when there is a demand for soundstages from every production company in socal?
Owning land isn’t something that requires a great deal of skill/competence compared to leasing land - in fact if you want to stay in a property for a long time, there is more complexity in managing a lease if you have capital tied to it once the lease period is up and you are forced to renegotiate the deal.
IMO this idea that a giant logistics operation shouldn’t own it’s own warehouses just because owning warehouses isn’t a “core competency” is questionable. In reality this decision just depends on your corporate perspective on the cost of capital (eg the WACC).
lol, most of amazon's money comes from things that weren't the core competency that they figured out how to do at scale.
The 'focus on your core competency' is for small companies on tight budgets with tight human resource capacity. When you have a few mil employees, email is a core competency, when you have a dozen, it's a pain in the ass. The same goes for AWS. def wasn't a core competency, but a huge part of the reason we can tell businesses to focus on core competencies is because amazon made SaaS, IaaS, PaaS a thing.
IDK about real estate. It probably makes sense to own your office buildings and warehouses at scale. They probably have a real estate team that's bigger than most companies that are 'focusing on core competencies' and it probably doesn't look too different than any super focused brokerage.
Once you hit scale, the money is in doing it in house. When you're paying by seat, it becomes a core competency about the time the cost to run a team of pros to do the same job is <= to paying per seat.
This may have been a misstep assuming that their pandemic growth would continue. I believe that's what they said in their last earnings call, something to the effect that they scaled quickly to address additional market capacity that was short lived.
Would assume they'll be just fine. Probably read the tea leaves wrong but I don't think this is getting off track and forgetting what they do to make money.
What they could also do, if they don't want to ride commercial property prices, is bundle the property in a fund, and have it owned/managed by selling shares, but with the caveat that Amazon is effectively on 'rent control' and gets an infinite lease, until it decides to bail out.
> That way their capital isn’t tied down in non core competencies.
That nonsense of "non core competencies" has to stop. All that mindset does is exchange marginal cost savings (by going for the lowest bidder) for resilience.
Yes, it may not be a "core competency" of a rocket company to build valves, but now they are in complete control and not reliant on the valve builder company to not fudge with test results. Yes, it may not be a "core competency" of a logistics company to build and maintain their own warehouses, but that way they don't have to keep a landlord happy to not lose their location.
"Sale and lease back" is only one thing: foolish and dangerous, particularly when the thing that was sold and leased back were the stores.
At worst, they're exposing themselves to the whims of the commercial real estate market as a whole. Not like Sears, where the value of their holdings depended on a pretty niche market—the value of malls.
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