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Audit finds MTA allowed Apple unfair bid for Grand Central
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Jul 30, 2012, 09:28 AM
 
New York City's Metropolitan Transportation Authority gave Apple an unfair advantage in bidding for the retail space it now occupies in Grand Central Terminal, according to a newly-completed audit by state Comptroller Thomas DiNapoli. The report says that last May, the MTA allowed Apple to put forward an offer including $5 million in cash, which other parties had just 30 days to attempt to beat. "The competitive process followed by MTA...was at a minimum severely slanted toward Apple," the document reads.

The MTA is moreover said to have been in talks with Apple for over two years leading up to the bid. It did, however, refuse one Apple effort to get taxpayer funds in compensation for the $2 million the company paid a restaurant, Metrazur, to leave the location now home to the Grand Central Apple Store. The MTA has already responded to the audit, insisting that it has "overt bias against the MTA and Apple." The organization's CEO, Joseph Lhota, is in fact saying that the audit "is not fact-based, and accordingly their [the Comptroller's] opinion is worthless." He adds that the leasing process was "open, transparent and followed both the spirit and letter of the law;" other MTA officials comment that Apple is paying $1.1 million in rent this year, four times what Metrazur was last paying on its 12-year-old lease. Officials with the Comptroller's office take issue with that though, pointing out that Metrazur was paying rates well below market value, and at one point earned an extra $2.4 million in lease concessions because of earlier mistakes made by the MTA. Making Apple's bid more lopsided is that on top of higher rent and a $5 million payout, the company isn't sharing a percentage of sales with the MTA. That's unique among the over 100 retailers based in Grand Central, and could deprive the MTA of millions of dollars. The MTA has said, though, that it expects the increased foot traffic from Apple Store visitors to increase the revenue pulled from other stores.
     
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Jul 30, 2012, 10:02 AM
 
I fail to see the problem.

A company wants a specific space.

They make a deal with the previous tenants, who agree to move out in exchange for cash.

They make a deal with the owners, who agree to forgo a revenue percentage deal in exchange for rent four times higher than the previous tenants', plus a significant amount of cash up-front.

Owner agrees in part because new tenant is extremely high-profile and may significantly increase revenue-percentage income from other stores nearby, and probably in part because the cash + quadruple rent is actually a pretty good deal for them.

Other contenders are given 30 days to come up with a better offer for a space that wouldn't even be vacated if Apple didn't have the deal with the previous tenants.

Nobody does.

Apple moves in.

What, exactly, is the issue?
     
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Jul 30, 2012, 10:42 AM
 
From my understanding, the revenue sharing model is useful for small shops because they have lower upfront and fixed costs. In the end though, it is a devils bargain because the harder you work, the more you pay in rent. Apple can afford to pay more upfront which show mean that they do not have to share in the profits. Also, some of the "profits" are not realized in the retail location.

The determining factor as to whether a tenant pays a higher rent versus lower rent and profit sharing should be based solely on their ability to pay upfront and as a fixed cost going forward. If a non-retail tenant such as a school or law firm moved in, there would be no expectation of profit sharing but instead they would be expected to pay a higher rate that is the fair market value of space in the venue they occupy. If a larger retailer such as Apple can afford to pay upfront, they should not be expect to pay more and share their profits.
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Jul 30, 2012, 10:58 AM
 
I have to agree with the prior two posters. I don't see the big deal. "OH NO! They only had 30 days to match!!" If they couldn't come up with a better deal in 30 days, I doubt the could ever.
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Jul 30, 2012, 11:05 AM
 
Seems like any entity which could have come up with $5 million could do it in 30 days. Don't you have some socks to wash... or something?
     
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Jul 30, 2012, 11:44 AM
 
Originally Posted by apple4ever View Post
I have to agree with the prior two posters. I don't see the big deal. "OH NO! They only had 30 days to match!!" If they couldn't come up with a better deal in 30 days, I doubt the could ever.
The big deal? Again, they put up the space for all, maybe they get a better deal from another company (what if Abercrombie and Fitch offered 10 million, for example). You all act like apple is under great scrutiny when they aren't any more than anyone else. And, in fact, the auditors are looking at the MTA to make sure they weren't being improper.

If the MTA gave dell a contract to provide computers and software, and only gave competitors 30 days to counter, you'd all be screaming pay offs!". And demanding review.
     
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Jul 30, 2012, 11:51 AM
 
Originally Posted by c. haynes View Post
Seems like any entity which could have come up with $5 million could do it in 30 days. Don't you have some socks to wash... or something?
It isn't about coming up with money, it's about coming up with a complete offer, something apple probably had months to do and, as such, had an advantage over anyone else.
     
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Jul 30, 2012, 11:59 AM
 
There has to be a joke somewhere in there about how Apple doesn't do revenue sharing but forces all developers and content subscriptions to do just that.
     
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Jul 30, 2012, 12:24 PM
 
I also fail to see the problem. Compared to other retailers in MTA they are different. As one person pointed out many are restaurants or smaller retailers who will pay a percentage to protect themselves from fluctuations.

But seriously. I would hardly call this a sweetheart deal, as one person posted apple paid many times what the previous tenant paid and at least didn't get a deal like the Yankees(or insert other sports franchise). I came through just a few months ago and that place is hopping, I'm sure if you pulled the other tenants they love the fact that apple is in there.
     
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Jul 31, 2012, 07:37 AM
 
Really.
     
   
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