Audit Claims Apple Received Favorable Treatment in Grand Central Terminal Lease Talks

[Thunderhawks]

There was no upcoming vacancy. The current tenant had a multi-year contract that would have run out in a few years from now. Apple offered a contract where they would buy out the tenant's lease agreement to make them leave, then pay more money for the lease.




If that bidding process was too short, how many companies called and asked for an extension? Let's say Samsung heard of this and said "we never thought about opening a store in that location, might be a good idea but we've only got a month's time" - it would then be obvious to just call and ask for an extension. So did anyone do that and got denied?

And I wouldn't think the MTA usually starts bidding for a lease when there is a paying tenant with a long term contract who didn't give any sign of wanting to move - until Apple approached them and offered money. So the order of things is: Apple sees spot for a store, Apple talks to existing tenant and convinces them that moving is a good idea, then Apple talks to the MTA and tells them that they can make more money that way, and _then_ the bidding process starts. Apple had a head start because it was Apple's idea and Apple's initiative in the first place.

The nay sayers don't want to hear this.

Yes, Apple had a leg up for driving this.

What none of us know are the details of the bidding process.

If there was one maybe the law was followed?

If nobody else bid, then what went wrong?

As you say , anybody ask for an extension?

Now people will say , when XYZ found out Apple was in the bidding, they gave up. So, whose fault is that?

Actually I am not defending Apple, because they didn't do anything wrong going after what they went after. If they got it, fine.

I wish the people who want everything perfectly done, were in the situtuation the MTA guys were in.

"So, you want to pay us more money for the lease and longer, as in I don't need to find somebody in 2 years?

You will also pay for all renovation and pay $ 5 million in cash up front

You'll bring tons of foot traffic for all the other tenants?


Nah, I am not interested. We'll have to bid it out.

Maybe you get lucky if your bid makes the most sense for us.

YEAH RIGHT!

 

[atsysusa]

Where Ignorance is Bliss t'is Folly to be Wise

I never ceased to be amazed by the proclivity of instant experts to demonstrate their ignorance.

Having negotiated more than a few leases - shopping centers, commercial buildings and concessions on public agency property let me point out a few things:

1. The terms of the lease of the prior tenant were not secret and Apple did not have to engage in "shady" dealings to obtain them. Leases of this nature are public information and all that Apple had to do was request a copy from the MTA;
   
2. It is not uncommon, nor illegal, nor unethical to enter into a contingency contract with a current tenant that might cover, inter alia, an agreement not to rebid the existing lease or to be bought out of the lease;
   
3. Developers [including public agencies] frequently shop for buyers/lessees for new or renewed development - especially if they qualify as anchor tenants or marque tenants. Do you think that Macy's pays the same per sq foot as Joe's Baseball Caps? Of course Macy's has to agree to do other things that Joe's cannot do - like build a multi-million dollar building that they agree to occupy for a minimum of 30 years;
   
4. You don't walk in to a Public Agency and make a multi-million dollar offer without due diligence and full preparation - see above.

And on a personal opinion note - based on having managed a few general construction projects in NYC - the bureaucrats in NYC and Albany are Union pawns. They are socialist who simply hate to private business succeed without their intervention and guidance.

 

[IJ Reilly]

^^^
No hidden agenda here. All right up front.

 

[NY Guitarist]

I never ceased to be amazed by the proclivity of instant experts to demonstrate their ignorance.

Having negotiated more than a few leases - shopping centers, commercial buildings and concessions on public agency property let me point out a few things:

1. The terms of the lease of the prior tenant were not secret and Apple did not have to engage in "shady" dealings to obtain them. Leases of this nature are public information and all that Apple had to do was request a copy from the MTA;
   
2. It is not uncommon, nor illegal, nor unethical to enter into a contingency contract with a current tenant that might cover, inter alia, an agreement not to rebid the existing lease or to be bought out of the lease;
   
3. Developers [including public agencies] frequently shop for buyers/lessees for new or renewed development - especially if they qualify as anchor tenants or marque tenants. Do you think that Macy's pays the same per sq foot as Joe's Baseball Caps? Of course Macy's has to agree to do other things that Joe's cannot do - like build a multi-million dollar building that they agree to occupy for a minimum of 30 years;
   
4. You don't walk in to a Public Agency and make a multi-million dollar offer without due diligence and full preparation - see above.

And on a personal opinion note - based on having managed a few general construction projects in NYC - the bureaucrats in NYC and Albany are Union pawns. They are socialist who simply hate to private business succeed without their intervention and guidance.

I agree your experience helps to shed light on the process that may have been operating in this situation.

But your personal opinion paints with such an incredibly broad brush that it causes me to be skeptical regarding the accurate portrayal of your experience.

 

[Rajani Isa]

Next, Apple could have just taken that lease and kept the pricing for two years, but they didn't.

That assumes that the original tenets are allowed to sub-lease/let (which is what that would be, basically) their lease. I doubt that MTA would allow that.

 

[JAT]

I don't know how much money it cost to audit. I'm pretty sure the only reason there was an audit was because it was Apple. And things didn't add up.

Audit came because of media attention. No doubt. It's NYC. Only place we could be more sure would be London.

There was no upcoming vacancy.

As I recall, there was former vacant space leased by Apple, too. For a long time vacant. But I do agree with you.


One more comment:
If this was in Chicago, there wouldn't even be a story. We'd just hear about a new store.

 

[KevinN206]

I'm confused. Does it require that the RFP be public before money can be transacted? How does an RFP work for public property? I know that my company bids for a lot of projects with the government defense and space programs. However, the RFP for these projects are open simultaneously for all other companies to bid as well. Does it work the same here?

 

[theanimaster]

Here in Thailand, Apple would just need the grease the hands of the many politicians involved.

It's nice to see things are still done differently in the States.

 

[everything-i]

How open was the tender process given that Apple (before there was even an RFP) had pretty much locked up the space with a financial deal in place with the previous tenant.

Since the audit just occurred - who really can say for certainty that other companies didn't complain (just not to the press) and/or won't now that it's public knowledge.

Ultimately I think Apple is a great tenant. But that doesn't mean they didn't get the deal above board. You can argue all you want how great it is to have Apple there - what a boon for business, etc. But to suggest that things weren't shady (and yes - many times deals like this are) is dis genuine. It was without a doubt shady.

My argument is that when the process went to tender no one else came in with a better offer than Apple, there was a risk to Apple, given the money they had already spent, that another company could have done this and started a bidding war; but that didn't happen. If any other bidder had felt this was unfair at the time, the press would have been all over it given the high profile of this deal. To think that there were other bidders disgruntled by MTA awarding this to Apple is naive as the press would have picked up on it immediately. There were simply no other companies willing to even match the Apple offer let alone better it. This is not the first investigation into this so it is inconceivable that evidence of other bidders fighting the Apple deal would not have already come to light. This appears simply to be a low ranking politician making a noise in an attempt to draw attention to himself and grab a bit more power while he's at it.

 

[Winni]

But that's just not how capitalism works.

There's a German saying for that: "Der Teufel scheißt immer auf den größten Haufen."

The Devil always ***** on the tallest pile. I'm afraid that this is how capitalism works.

 

[IJ Reilly]

So... the first responder claims that it's only a free market if the quasi-government agency is allowed to choose the tenant in advance?

One of several to advance variations on that theory, based on the popular and romantic, but cynical and wrongheaded idea that the country actually had real free-market capitalism in the 19th century, but it's dead now. What they don't know or can't accept is that the 19th century is precisely when the great American tradition of government using its powers to aid commercial interests really began. This is when the government acquired huge swaths of the continent by various means, and promptly turned most of this land over to industrial interests (e.g., railroads, mining), mainly for free. As far as that is concerned, nothing has really changed in government's relationship to industry to the present day. The complaint we're hearing today is that government simply cannot do enough to promote corporate interests. Ironically, this amounts to little more than a slight repackaging of views expressed from before the Civll War onward. It has become virtually the definition of capitalism for some people, though in reality it never was the real thing.

 

[JAT]

I'm confused. Does it require that the RFP be public before money can be transacted? How does an RFP work for public property? I know that my company bids for a lot of projects with the government defense and space programs. However, the RFP for these projects are open simultaneously for all other companies to bid as well. Does it work the same here?

I would guess the RFP came only when the situation became complex. Former tenant decided they would leave and wanted to break/alter lease, perhaps in a fashion not laid out in the lease. (I don't remember, didn't look it up today) Also, Apple was offering something not in the normal pricing guidelines for the building. So, they needed to get extra levels of approval.

Even with a govt facility, I don't think simply leasing vacant locations at standard prices would require a special RFP and all the drama.

Your projects are the govt purchasing something. Different process.

 

[nickharris1992]

Bold

After reading all of these comments people are making some pretty BOLD statements off of little information. There are always two sides to a story and we haven't seen an official release from wither Apple or the MTA.

 

[rjohnstone]

The key thing everyone is forgetting is Apple got a sweetheart deal on the lease.

Quote from the Dec article...
"Apple's lease rates remain below that of many other tenants in the terminal and well below market rates charged in other prime shopping areas of Manhattan."

The $5 million they paid upfront did not go to the MTA, it went to the restaurant.
Apple is only paying $60 per sqft to lease the space. That is cheap by NYC standards.

The MTA has some explaining to do... period.

 

[gnasher729]

The key thing everyone is forgetting is Apple got a sweetheart deal on the lease.

Quote from the Dec article...
"Apple's lease rates remain below that of many other tenants in the terminal and well below market rates charged in other prime shopping areas of Manhattan."

The $5 million they paid upfront did not go to the MTA, it went to the restaurant.
Apple is only paying $60 per sqft to lease the space. That is cheap by NYC standards.

The MTA has some explaining to do... period.

And how exactly do you suppose the MTA would have found someone paying a higher lease - when there is a tenant already there paying a lot, lot less with a contract that the MTA cannot just cancel?

 

[Mattie Num Nums]

Regardless of if Apple paid more or brings more traffic... it appears they are again getting favorable treatment (Judy Koh?)

 

[rjohnstone]

And how exactly do you suppose the MTA would have found someone paying a higher lease - when there is a tenant already there paying a lot, lot less with a contract that the MTA cannot just cancel?

It's obvious Apple initiated the conversations with both the restaurant and the MTA. The MTA didn't seek out Apple.

Had Apple not done this, I'm sure the MTA would have gone on with business as usual with the current tenant until their lease expired or was renewed.

 

[gnasher729]

It's obvious Apple initiated the conversations with both the restaurant and the MTA. The MTA didn't seek out Apple.

Had Apple not done this, I'm sure the MTA would have gone on with business as usual with the current tenant until their lease expired or was renewed.

In other words, MTA would have made much less money than they are getting now. $20 per square foot instead of $60. So what exactly is the problem? If, as you say, $60 is "cheap by NYC standards", then how come they had a lease agreement with a restaurant for $20?

Regardless of if Apple paid more or brings more traffic... it appears they are again getting favorable treatment (Judy Koh?)

Nonsense. And are you suggesting that Judge Koh is not impartial? If that is what you want to say, then you should say it clearly. Not by putting her name in brackets, so that you can claim that wasn't what you meant.

 

[Tigger11]

The key thing everyone is forgetting is Apple got a sweetheart deal on the lease.

Quote from the Dec article...
"Apple's lease rates remain below that of many other tenants in the terminal and well below market rates charged in other prime shopping areas of Manhattan."

The $5 million they paid upfront did not go to the MTA, it went to the restaurant.
Apple is only paying $60 per sqft to lease the space. That is cheap by NYC standards.

The MTA has some explaining to do... period.

MTA doesnt need to explain anything. Half the space of the current Apple store was empty and deemed unrentable, half the space was occupied by the restaurant paying $20 a square foot. Now the entire space is making $60 a square foot, Apple paid for the exit of the previous tenant, apple paid for the modifications for the store (including the new elevator usable by all) and the MTA has already taken in more rent from apple then they would have for the entire rest of the restaurant contract. Its silly to complain about Apple getting a sweetheart deal when the MTA has already taken in more money from Apple then they would have from the restaurant till the end of its contract, so each and every day now increases MTA's profit on the space, not even accounting for the increased foot traffic that the store draws.

 

[JimA4Media]

Could be worse.

There could be a Chick-Fil-A store in there right now.