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Apple negotiated 'unique' bargain for Grand Central store lease

post #1 of 20
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Apple is said to be paying less per square foot for its Grand Central Station store, and will not share any of its sales with New York's Metropolitan Transportation Authority, as part of a "unique" and advantageous deal for the company.

The terms of the deal were disclosed on Wednesday by the New York Post, which revealed that Apple is paying $60 per square foot for the property. That's said to be well below what other tenants are paying, such as a Shake Shack restaurant that pays more than $200 per square foot.

"That's a sign that Apple drove a hard bargain with the MTA -- Despite the fact that the public agency's budget squeezes are pushing fares up for subway straphangers and suburban commuters across the region," the report said.

A spokesman for the MTA noted that the authority will receive more than quadruple what it was paid for the same space previously. In addition, no companies other than Apple responded to the authority's public request for proposal.

Another unique aspect of the deal is the fact that Apple is not sacrificing a percentage share of what it sells at the new storefront to the MTA. The authority said that it agreed to allow Apple to keep all of its sales because the new store will "generate significant new traffic" for the 100 other retail tenants of Grand Central.

Apple began teasing a week ago that its Grand Central store will open "soon," with a new digital sign posted in front of the location. The Post previously reported that the store is expected to be unveiled with a media event on Dec. 9, while the public will be able to shop there on Saturday, Dec. 10.

Thanks to AppleInsider reader "P" for the photo.

The opening will give Apple a few weeks to sell products to customers who travel through the popular destination ahead of Christmas. At 23,000 square feet, it will be one of Apple's largest retail stores in the world.

Apple reached a 10-year deal with the MTA in July for the "marquee space." Apple opted to buy out the remaining eight years on the lease of the previous tenant, Charlie Palmer's Metrazur restaurant.
post #2 of 20
Sounds like Apple drove a hard bargain in a down economy where signing up tenants for costly long-term leases is easier said than done. The MTA gets a bunch of money instead of no money while the space sits empty, so comparing that to some theoretical but not in the offing lease that gets them even more money is pointless.

So now commence the angry comments about how Apple is conspiring with MTA to fleece the taxpayers. Perhaps a senator or two can open an investigation.
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post #3 of 20
Quote:
Originally Posted by AppleInsider View Post

Apple is said to be paying less per square foot for its Grand Central Station store, and will not share any of its sales with New York's Metropolitan Transportation Authority, as part of a "unique" and advantageous deal for the company.


Apple is an Anchor Tenant. It is not surprising that they pay much lower rent than the restaurant which was mentioned. It is also unsurprising that apple will pay no percentage rent. Again, they are an Anchor Tenant.

Likely they don't pay lots and lots of niggling little (and big) fees that the landlord charges other tenants - things like advertising allowances, food court cleaning fees, and the like.

It is not unknown for an Anchor to pay no rent at all. They are a major reason that shoppers come to that particular shopping center. The other tenants are parasites of the center, the anchors are what give it life.
post #4 of 20
I've long suspected Apple has been negotiating anchor store rates in their other locations. They simply have too much traffic from a dominate mindshare for that to be ignored by location owners. Of course, many think Apple should pay more simply because they can afford it.


Quote:
Originally Posted by addabox View Post

Sounds like Apple drove a hard bargain in a down economy where signing up tenants for costly long-term leases is easier said than done. The MTA gets a bunch of money instead of no money while the space sits empty, so comparing that to some theoretical but not in the offing lease that gets them even more money is pointless.

So now commence the angry comments about how Apple is conspiring with MTA to fleece the taxpayers. Perhaps a senator or two can open an investigation.

But how many jobs did it bring to furniture makers in Maiden, NC?

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post #5 of 20
$1,380,000 a month is nothing to sneeze at.
post #6 of 20
Quote:
A spokesman for the MTA noted that the authority will receive more than quadruple what it was paid for the same space previously. In addition, no companies other than Apple responded to the authority's public request for proposal.

I would say what was unique about the deal is that Apple is willing to pay $1.4 million a month for something no one else is willing to pay that much money for.
post #7 of 20
$60 per square foot, but Apple also bought out 8 years on the previous lease. My guess is that is not factored into the $60

Watch retail explode at GC when the Apple store opens. The restaurants will be mobbed. Good to the MTA for thinking out of the box

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post #8 of 20
Quote:
Originally Posted by malax View Post

$1,380,000 a month is nothing to sneeze at.

$60 per square foot is probably per year, not per month. But Apple probably paid the entire 10 year lease upfront.
post #9 of 20
I don't get it.
Its supply and demand.
The MTA had a supply of excess retail space and ZERO demand.
If the article is correct and there were no other proposals for the space then the MTA had ZERO leverage.
Apple had the upper hand.
post #10 of 20
Quote:
A spokesman for the MTA noted that the authority will receive more than quadruple what it was paid for the same space previously.

So the real story here is that Metrazur restaurant had previously negotiated a much better deal!

(Anyone know when they first moved in? Maybe it was so long ago that the rents were four times lower in general.)
post #11 of 20
Quote:
Originally Posted by SolipsismX View Post

I've long suspected Apple has been negotiating anchor store rates in their other locations. They simply have too much traffic from a dominate mindshare for that to be ignored by location owners. Of course, many think Apple should pay more simply because they can afford it.




My guess is that Apple gets MUCH lower rent in general compared with other similarly-sized tenants, because although their stores are inline, their draw is like an anchor.

The other factor is creditworthiness. Many retailers are facing weak profits. Apple is not going to break the lease in a bankruptcy. Mall owners get cheaper loans if they have credit-worthy tenants.
post #12 of 20
Quote:
Originally Posted by Patranus View Post

If the article is correct and there were no other proposals for the space then the MTA had ZERO leverage.

That might be, unless the MTA was willing to let the restaurant coast along month-to-month at its present rent until the economy improves. (Too much missing information here to speculate further.)
post #13 of 20
Quote:
Originally Posted by ConradJoe View Post

Apple is an Anchor Tenant. It is not surprising that they pay much lower rent than the restaurant which was mentioned. It is also unsurprising that apple will pay no percentage rent. Again, they are an Anchor Tenant.

Likely they don't pay lots and lots of niggling little (and big) fees that the landlord charges other tenants - things like advertising allowances, food court cleaning fees, and the like.

It is not unknown for an Anchor to pay no rent at all. They are a major reason that shoppers come to that particular shopping center. The other tenants are parasites of the center, the anchors are what give it life.

100% correct. The other stores should be thrilled.
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post #14 of 20
I wonder if we'll see any good negotiations like this, now that Steve is gone? Steve was the ultimate negotiator.
post #15 of 20
Quote:
Originally Posted by TenoBell View Post

I would say what was unique about the deal is that Apple is willing to pay $1.4 million a month for something no one else is willing to pay that much money for.

See, there you go bringing logic to the Internet!

Stop that!
post #16 of 20
Quote:
Originally Posted by Red Oak View Post

$60 per square foot, but Apple also bought out 8 years on the previous lease. My guess is that is not factored into the $60

Watch retail explode at GC when the Apple store opens. The restaurants will be mobbed. Good to the MTA for thinking out of the box

Any other computer or electronics retailer would fail at this location, but this will be one of Apple's most profitable and valuable stores!
post #17 of 20
Note the cost is ~ $1.3MM a year. Not per month

This store is going to be massively profitable

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post #18 of 20
Quote:
Originally Posted by addabox View Post

Sounds like Apple drove a hard bargain in a down economy where signing up tenants for costly long-term leases is easier said than done. The MTA gets a bunch of money instead of no money while the space sits empty, so comparing that to some theoretical but not in the offing lease that gets them even more money is pointless.

So now commence the angry comments about how Apple is conspiring with MTA to fleece the taxpayers. Perhaps a senator or two can open an investigation.

Great post! Similarly, I remember Steve saying, "in a downturn, Apple doesn't lay people off, they redirect them to R&D so Apple is positioned ahead of their competition for the upswing!"

Steve said, "we've invested a lot of money and time hiring our employees!"

If only other American companies and their respective CEO's had some foresight instead of just foreskin!

Best.
post #19 of 20
Oh, and hey look, the State of NY actually is launching an investigation:

Quote:
State Comptroller Thomas DiNapoli has launched an investigation into whether the Metropolitan Transportation Authority gave Apple overly generous terms on its lease for the shop, which is slated for a splashy opening next week.

The probe comes in response to yesterday’s exclusive report by The Post, which noted that the cash-rich tech giant will be the only retailer among the 100 or so in MTA’s Grand Central Terminal not required to make revenue-sharing payments to the agency landlord.

State Comptroller Thomas DiNapoli, makin' headlines! To be fair, if the MTA's real estate portfolio is poorly managed, as the article states DiNapoli has alleged, then making sure they're getting their best bang for the buck makes sense in an era of reduced services and increasing fares.

But I don't think it's enough to look at Apple's lease compared to existing leases and conclude that Apple got a sweetheart deal. There are a lot of other factors (as has been mentioned, the desirability of a high visibility anchor tenant as an incentive to other potential leasers, whatever improvements Apple was willing to make to the property, length of lease, demand, etc.) that have to be taken into consideration.

Hopefully, DiNapoli isn't looking to score cheap points in the court of public opinion and will do a fair analysis of the terms offered Apple. If they are excessively generous, then I would be all for a renegotiation that brings more money into the transit systems coffers. Apple fan though I may be, I feel even more strongly about corporations paying their fair share.
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post #20 of 20
Quote:
Originally Posted by TenoBell View Post

I would say what was unique about the deal is that Apple is willing to pay $1.4 million a month for something no one else is willing to pay that much money for.

It is a space that you couldn't honestly call a "ghost" space, but nothing substantial has been there for quite a while. If my memory is serving right about the exact space there have been many temporary installations and events there but I can't even remember the last permanent tenant.

Makes sense that any other chain like Best Buy would pass on it. It only gets commuter traffic, and every town a commuter is going home to has a Best Buy. An Apple Store is really the best fit for it.
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