NY Audit Faults Grand Central Apple Store Deal as Unfair

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New York state Comptroller Thomas DiNapoli issued a report on Monday that said that the Metropolitan Transportation Authority (MTA) gave Apple an unfair deal when it signed the company to retail space in Grand Central Terminal in 2011. In an audit, the state accused the MTA of stacking the deck in Apple’s favor and giving Apple a multi-month lead on would-be competing buyers.

Grand Central Apple Store

Grand Central Apple Store
Credit: Apple

Apple leased the space in mid-2011 in a deal that included Apple buying out the then-current leaseholder, restaurant Metrazur, for US$5 million. That price was negotiated between the MTA, Apple, and the restaurant long before the bid process was opened to the public.

The state’s comptroller’s office announced the investigation in December of 2011, and Monday’s report was the result of that process. According to The New York Post, which broke the story, the audit found that, “The competitive process followed by MTA […] was at a minimum severely slanted toward Apple.”

The state believes that by establishing a buyout price ahead of time that Apple had already agreed to, and then giving other competitors just 30-days to put in their own bids, those other competitors were put at a disadvantage. That, in turn, could mean that the MTA didn’t get full value for the lease, which is what the state is concerned about.

The MTA is having none of it, however, and MTA Chairman and CEO Joseph Lhota said that the state comptroller’s office has an, “overt bias against the MTA and Apple.”

“This audit is not fact-based, and, accordingly, their opinion is worthless,” Mr. Lhota said, pulling his punches with the delicate touch one might expect from the head of a New York City institution. “The MTA’s lease process with Apple was open, transparent and followed both the spirit and letter of the law.”

The New York Times noted that Mr. Lhota also said, “The comptroller’s audit staff clearly has no understanding of how high-profile commercial real estate works, given the shockingly inaccurate and clearly biased audit they issued.”

According to The Times, negotiating high profile deals like this takes time, and Apple was worth the effort. The restaurant that was in the space had a lease through 2019, and the MTA thought it could get more money with a new client. Finding the right price to get the restaurant to move and finding someone willing to pay is simply par for the course at this level of commerce.

Perhaps more importantly, from the MTA’s point of view, Apple has already had a positive effect on sales. Stores that were open in the first quarter of both 2011 and 2012—the Apple Store opened in December of 2011—saw sales increase 6.5 percent in the middle of a sluggish economy. More sales equals more sales tax revenue, which was the point of signing Apple in the first place.

“We can’t say precisely how much of that is due to Apple,” Mr. Lhota wrote. “But we do think the number speaks for itself.”

Comments

daemon

High level commercial business is done that way. Unfortunatly for Mr. Lhota, the MTA is a public entity, restricted by law from acting like a commercial business. What he did violates the law. Hopefully he didn’t personally benefit from the deal…

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