Terms of Apple's Sweetheart Deal for Grand Central Terminal Retail Store Revealed

[i.mac]

Wirelessly posted (Mozilla/5.0 (iPhone; CPU iPhone OS 5_0_1 like Mac OS X) AppleWebKit/534.46 (KHTML, like Gecko) Version/5.1 Mobile/9A405 Safari/7534.48.3)

Yikes... this feels slimy. If it was a company like Walmart people would be rioting.

Apple is no Walmart. Folks go to grand central just because. Now there is another reason.

 

[the8thark]

So why doesn't apple have to pay a percentage of their profits, just like everyone else?

People pay a percentage of their profits to be in a location? This is madness. That'd not happen in my part of Australia. Here you just pay your per square metre rate for site rental per month and also pay for the utility fees (power/water/etc). That's it.

And if you are required to upkeep the premises every X years, you pay that yourself.

 

[addicted44]

Yikes... this feels slimy. If it was a company like Walmart people would be rioting.

Hmmm…you really think Walmart will draw the same people Apple does? And Walmart competes with everybody. If this was Walmart, all the rest of the stores in Grand Central would have to shut down. The Apple Store will draw a lot of people, and a much much higher proportion of extremely well heeled people.

Here are the rich neighborhoods from where people who will be coming to the Grand Central Apple Store:
1) People living in the Upper West Side (Take the 1/2/3 down to Times Square and take the S over).
2) People on the Upper East Side (Take the 4/5/6 directly to Grand Central).
3) Midtown East (All the embassies/consulates, the UN, are located here. Well heeled diplomats from all over the world).
4) Connecticutt, and North NY… Metro North runs out of here.
5) Around 2016, the LIRR will also run here. All the Long Island people will be leaving from Grand Central. Currently, a lot of people using the LIRR probably already use Grand Central to get to the West side, since a very large number work on the East side).

----------

Wirelessly posted (Mozilla/5.0 (iPhone; CPU iPhone OS 5_0_1 like Mac OS X) AppleWebKit/534.46 (KHTML, like Gecko) Version/5.1 Mobile/9A405 Safari/7534.48.3)



Apple is no Walmart. Folks go to grand central just because. Now there is another reason.

Grand Central is the best connected station on the East side. It is the best way to go West/East in Midtown (the S that runs between Times Square and Grand Central, and the 7, which will soon extend even further west).

Apple is the only store, possibly in the world, which will bring vast numbers of well earning people to Grand Central, in great numbers. The Grand Central store will be the busiest in NYC on a per square foot basis, because it is the best connected. The 59th St. Store only has the NQR close by. The F is about 2 avenues away. And thats it.

No one is going to the SOHO store, unless they are going to SOHO for shopping, or they live downtown. Venturing south of Houston is an adventure.

Grand Central Terminal will have the 4/5/6, which connects the entire east side, and the 7 and S, which form the best way to move East/West, and West/East in NYC. Additionally, it also has Metro North, and will have LIRR within the next decade.

----------

People pay a percentage of their profits to be in a location? This is madness. That'd not happen in my part of Australia. Here you just pay your per square metre rate for site rental per month and also pay for the utility fees (power/water/etc). That's it.

And if you are required to upkeep the premises every X years, you pay that yourself.

Do you have airports in Australia? Then it's likely they take a percentage of sales.

In reality, it doesnt really matter, because either way the proprietor is going to get a certain amount of money, and if they werent taking it as a percentage of sales, they would take it as a flat rent. The percentage method in fact, probably works better, since it allows smaller stores to weather weaker periods of the year better.

Also, besides the "driving traffic to Grand Central" reason, it doesnt make much sense for MTA to take a percentage of sales from Apple, because a large part of the Apple Store is intended to serve purposes other than selling. In lieu of taking a cut of sales, the MTA is probably charging a higher per square foot rent (or so I hope).

Frankly, all the MTA needs to charge Apple is the amount of money they would expect another retailer to pay them if they had occupied the space. Since Apple is the most successful retailer in the world in terms of sales/sq. ft. (more than 2-3 times greater than the next batch, which are high end jewelry chains like Tiffany). This is all the MTA needed to charge Apple, because if they charged more, Apple may have refused and this is all they would have got.

With Apple, as long as they make as much money that the next best retailer would have drawn them, they get additional perks like:
1) Drawing vast numbers of people to Grand Central.
2) Stability. The Apple Stores are not going anywhere in the near/medium term. Additionally, Apple is unlikely to leave Grand Central, because historically, they have wanted "iconic" stores, which the Grand Central one will certainly be.
3) Having a huge space rented out by a single, reliable tenant. This means they dont need to worry about refilling that space when a smaller retailer goes bust, or decides to move out.

 

[Apple 26.2]

Business. Ethics. 101.

 

[kalsta]

The size has no relevance, it's not like a company with $80B in the bank can't afford $200/sq. ft. anyway. The commercial value of the real estate doesn't change due to the size of the place, not where I'm from anyway.

The commercial value, in terms of sq ft leasing costs, is heavily dependant on size. Here on earth, anyway!

So many people, so little knowledge!

Well said!

Area is a big factor, in addition to the potential of the store to draw more people. In your local shopping mall, you would find that your larger supermarket is paying significantly less per square foot than your small hair salon—for both those reasons.

 

[^^BIGMac]

So simple...it's called iPower.

 

[dokujaryu]

To me, this is just another example of a space wanting the Apple Store enough to offer a good sq/ft deal. Why does it have to be something more sinister than that? Why give it a provocative name like "sweetheart deal"? Grand central wants an Apple Store, Apple wants a good deal, so they make it happen. That's capitalism baby.

 

[Rocketman]

So I took the time to actually read the underlying and related articles. Apple is paying 4x the rent the prior tenant was. In addition to that they built out an area that was not being rented at all to add square footage to the overall effort. It turns out this space is considered "oddball" because it is not formatted in a way very many tenants could find a way to make it work.

A similar situation arose when Apple took an underused basement and turned it into the 5th Avenue store. They turned lemons into lemonade and brought HUGE foot traffic to the site and the neighboring stores.

Now there is a "probe" by NYC over the terms of this lease. This is clearly caused by whiners making noises to annoy/harass Apple. While it is true they are not paying a percentage of gross in addition to rent, they are paying four times the prior rental rate to offset it.

If there is any blast back over this transaction resulting in breach of contract, Apple should simply declare a breach, sue for the upgrade and special costs they incurred (moving the prior tenant out at their expense), and go elsewhere.

At some point politically motivated breaches by governmental authorities should be treated exactly like any other landlord, because in this context they are nothing but a landlord.

Rocketman

 

[G4DP]

Now that is power. Getting special deals in primetime space.

No, power is not having to pay any rent what so ever. Marks and Spencer used to have that situation in the UK. That was power. Not sure if they get away with it now though.

 

[Liquorpuki]

So I took the time to actually read the underlying and related articles. Apple is paying 4x the rent the prior tenant was. In addition to that they built out an area that was not being rented at all to add square footage to the overall effort. It turns out this space is considered "oddball" because it is not formatted in a way very many tenants could find a way to make it work.

They're not occupying the same space as the prior tenant, they're occupying that space plus a ton more space. Including that oddball section of prime real estate that was previously off limits. Larger apartment = higher rent. Larger apartment + demolishing a chunk of the parking garage to make your room bigger = much higher rent.

Now there is a "probe" by NYC over the terms of this lease. This is clearly caused by whiners making noises to annoy/harass Apple. While it is true they are not paying a percentage of gross in addition to rent, they are paying four times the prior rental rate to offset it.

The probe doesn't care about Apple. It's targeting the MTA because it's a public entity. If the MTA, with its 30 billion in debt and taxpayer funding, is turning down revenue streams for no good reason, that's mismanagement. If the MTA is skirting the bidding process to issue a sweetheart deal under the table, that's illegal.

 

[kdarling]

Not only could the rent increase be from using more space, it's also very common in NYC for new tenants' rent to be several times higher than the old rent.

You see this all the time with rent-controlled apartments along Central Park that should be going for $5,000 a month, but the original tenants are still only paying around $1,000... 1971 prices. Once it goes vacant, the rent control disappears.

 

[jtsnyc47]

LOL@ all the ignorant speculation

First of all, much like everything else in life, a lease is a negotiation. Percentage of sales leases are risk mitigation tools for renters as well as incentive for landlords of well-maintained properties. It's an assurance that the tenant will get a certain return on their lease investment and that, mostly in cases where the leaseholder is in communal setting like a mall, that the landlord will maintain the environment to the degree necessary to ensure people go to the leaseholder's business.

Percentage of sales leases are not "you'll pay what I require plus a percentage of your sales". This may sound too straightforward for some of people commenting in this thread, but if you're in a PoS lease, you're paying less base rent and your sales upside becomes the landlord's upside.

The Grand Central location guarantees a certain level of foot traffic. The Apple Store magnet effect assures that people will find them among other retailers. Apple does not need to enter into a PoS lease, so they're paying more not to. They're taking up a huge chunk of irregular floor area, which is gold to a landlord, and paying less than Shake Shack on a square-foot basis because that's what happens when you take more space. The commenter that stated that "this doesn't happen where I'm from" should seriously look to opening several small businesses in that Bizarro universe. That's ain't the way stuff works in Manhattan, where Apple's real store is located.

I've negotiated with the MTA before. They're a huge NYC landholder and shrewd negotiators. Although I have the utmost respect for Apple's retail prowess, I seriously doubt that the MTA was "fleeced". The terms of the deal are fair, and I'm sure the other GS tenants are excited about it. Apple-haters, and/or (I tend to think "and") people who don't know anything about the NYC real estate market or the dynamics of lease negotiations are still going to be pissed.