MTA tells New York to 'bring it on' & investigate Apple's Grand Central lease
Unfazed by plans to investigate Apple's lease on prime property in New York's Grand Central Terminal, the Metropolitan Transportation Authority struck back on Friday against what officials feel have been "inaccurate" reports.
A spokesman for the MTA reached out to AppleInsider on Friday to state that neighboring tenants at Grand Central are "very pleased" that Apple will be opening one of its largest retail stores in the world at the heavily trafficked terminal.
"Bring it on," the MTA's press release says in response to a New York state investigation. "This is the best possible deal for the MTA, quadrupling the rent we receive and bringing foot traffic to Grand Central Terminal that will increase revenue from all of our retailers. We look forward to explaining the details of this competitively bid transaction to anyone who is interested."
The MTA's statements came in response to New York State Comptroller Thomas DiNapoli, who revealed on Thursday that he is investigating the lease the agency awarded to Apple. The retail store is set to open next Friday, Dec., 9, and will cost Apple about $800,000 for the first year.
DiNapoli's investigation was prompted by an article from the New York Post, which characterized the deal between Apple and the MTA as "unique," and particularly favorable toward Apple. The Post said that Apple is paying about $60 per square foot for the property, while other tenants pay more than $200 per square foot.
In addition, Apple was portrayed has having driven a "hard bargain" with the MTA to ensure it will not share any of its sales revenue with the agency, unlike other storefronts in the terminal. The authority has said it is fair that Apple will keep all of its sales, because the new store will generate traffic for the 100 other retail tenants at Grand Central.
The original story quoted Robin Abrams, executive vice president at real estate firm Lansco, as saying that she was "surprised" by the terms of the deal. But in reaching out to AppleInsider on Friday, the MTA said that Lansco feels her comments were misrepresented by the Post.
The MTA also said that while Apple's new retail space is a "great location," it has "major limitations" for retail stores, including "strict historic preservation regulations." The previous tenant, Metrazur restaurant, had a lease through 2019 that paid $263,000 annually to the MTA.
Apple Store Grand Central photo courtesy AppleInsider reader Ryan.
The agency believed that it could generate more revenue for the space, and put it out for bid. Apple, in winning the bid, agreed to cover "significant upfront costs," including $5 million to buy out the Metrazur's existing lease, and more than $2.5 million for infrastructure improvements.
The MTA said the deal with Apple will quadruple rent coming to the MTA, from $263,000 to $1.1 million. They also believe it will drive traffic to all of the retailers at Grand Central, where every 1 percent in additional sales is worth $500,000 to the MTA.
"This is the best possible deal for the MTA," the agency said. "When all of the costs are included, Apple is paying more than $180 per square foot over the ten-year lease. As the competitive bidding process revealed, there are no other uses for this space that would generate the same revenue for the MTA given the up-front costs and limitations."
A spokesman for the MTA reached out to AppleInsider on Friday to state that neighboring tenants at Grand Central are "very pleased" that Apple will be opening one of its largest retail stores in the world at the heavily trafficked terminal.
"Bring it on," the MTA's press release says in response to a New York state investigation. "This is the best possible deal for the MTA, quadrupling the rent we receive and bringing foot traffic to Grand Central Terminal that will increase revenue from all of our retailers. We look forward to explaining the details of this competitively bid transaction to anyone who is interested."
The MTA's statements came in response to New York State Comptroller Thomas DiNapoli, who revealed on Thursday that he is investigating the lease the agency awarded to Apple. The retail store is set to open next Friday, Dec., 9, and will cost Apple about $800,000 for the first year.
DiNapoli's investigation was prompted by an article from the New York Post, which characterized the deal between Apple and the MTA as "unique," and particularly favorable toward Apple. The Post said that Apple is paying about $60 per square foot for the property, while other tenants pay more than $200 per square foot.
In addition, Apple was portrayed has having driven a "hard bargain" with the MTA to ensure it will not share any of its sales revenue with the agency, unlike other storefronts in the terminal. The authority has said it is fair that Apple will keep all of its sales, because the new store will generate traffic for the 100 other retail tenants at Grand Central.
The original story quoted Robin Abrams, executive vice president at real estate firm Lansco, as saying that she was "surprised" by the terms of the deal. But in reaching out to AppleInsider on Friday, the MTA said that Lansco feels her comments were misrepresented by the Post.
The MTA also said that while Apple's new retail space is a "great location," it has "major limitations" for retail stores, including "strict historic preservation regulations." The previous tenant, Metrazur restaurant, had a lease through 2019 that paid $263,000 annually to the MTA.
Apple Store Grand Central photo courtesy AppleInsider reader Ryan.
The agency believed that it could generate more revenue for the space, and put it out for bid. Apple, in winning the bid, agreed to cover "significant upfront costs," including $5 million to buy out the Metrazur's existing lease, and more than $2.5 million for infrastructure improvements.
The MTA said the deal with Apple will quadruple rent coming to the MTA, from $263,000 to $1.1 million. They also believe it will drive traffic to all of the retailers at Grand Central, where every 1 percent in additional sales is worth $500,000 to the MTA.
"This is the best possible deal for the MTA," the agency said. "When all of the costs are included, Apple is paying more than $180 per square foot over the ten-year lease. As the competitive bidding process revealed, there are no other uses for this space that would generate the same revenue for the MTA given the up-front costs and limitations."
Comments
The addition of a landmark Apple Store is a brilliant move. It will attract a whole new clientele and give hasty commuters a good reason to linger.
Isn't it also going to be the largest Apple Store. In many respects that could make it the new flagship store for Apple.
Studio City, thanks for the on-scene report. Wish I were there to see the difference when it opens.
I suspect he is prepping for the next step up.
Frankly, except perhaps for the bakeries and snack places, I really don't think that the presence of the Apple store is going to increase business for the other stores in the terminal.
I can see the MTA's position: they're getting 4x the rent they had gotten, Apple bared the cost of buying the restaurant out of the lease and is apparently paying the cost of infrastructure improvements (like the elevator) and they think Apple will increase prestige of the retail space thereby supposedly attracting higher rent-paying tenants for other locations in the Terminal in the future.
But I can also see the Controller's position: Why is a company as large and profitable as Apple getting public space for a very cheap rate at a time when the MTA is running incredible deficits and there will probably be fare increases again in the near future?
There's another issue and that's that after the Terminal was restored some years ago, there wasn't supposed to be any retail (aside from the two restaurants with very subtle signage) permitted in the main hall. If Apple is permitted signage up on the balcony, that's definitely going to violate those policies. Kodak used to have a giant mural up on that balcony that was removed during the renovation and never restored due to that reason.
If Microsoft was building the store instead of Apple, would you still be criticizing the investigation?
Although Apple won't do this, one thing I think they should do is to provide free WiFi throughout the Terminal (maybe not down to the track level, but everywhere else.) At least the MTA can then also say that there's a public benefit.
Does anyone else suspect that The Post may have stretched and twisted a bit to make up an anti-Apple story? Or an anti-MTA story?
Studio City, thanks for the on-scene report. Wish I were there to see the difference when it opens.
Conspiracy theory much?
Joke aside, anything controversial about major city moves like this, be it factual or well hyped up, will sells tons of paper? The more scandalous it SOUNDS the better.
My $0.02 based on my own observations.
If you would actually read the story, Apple is paying $180 per square foot for the life of the contract, though some of that is not directly rent, but installing new elevators (I believe in the terminal, not within the Apple Store), and in buying out the restaurant (which MTA has to do if it wants a replacement tenant paing 4x more rent).
Nobody was paing $15 a square foot for rent.
The popular wisdom is that a rising tide floats all boats. That is to say, the new Apple Store will increase business for everyone. Not necessarily. I worked at the Pheasant Lane store in Nashua, NH and it is a booming success (in part, due to its border location adjacent to Massachusetts...that would be 6.25% sales tax Massachusetts). So with New Hampshire being tax-free, we get the traffic. But, other stores in the mall...even the one right across from ours...don't see any bump in business because of proximity to Apple. In other words, no one says, "Now that I got my iPad, I think I'll go to that store right across the way to buy a whacked-out oil painting." Doesn't work that way. I applaud Apple for playing the 'Everybody will Benefit!' card, even though there's no empirical proof that the other stores will do 'better' with an Apple Store in the vicinity.
My $0.02 based on my own observations.
That is how it works. Location, Location, Location. Value of land is based on proximal factors. Always has been, always will be.
Remember when it was said Apple retail would be a failure like Gateway? Gateway thought the way you did and opened up stores all over the US in cheap, low-traffic areas. Apple went the opposite direction by paying a premium for prime locations. Now they are anchor tenants and can negotiate anchor tenant rates.
But seriously, the real story here is that the Comptroller reads the Post! I hope he reads the National Enquirer too, because I think Elvis has been evading his taxes all of these years that he's been pretending to be dead.
Conspiracy theory much?
Joke aside, anything controversial about major city moves like this, be it factual or well hyped up, will sells tons of paper… The more scandalous it SOUNDS the better.
I don't mind a good conspiracy theory when there's evidence. In this this case I haven't seen a single suspect thing, aside from the following:
. . . The original story quoted Robin Abrams, executive vice president at real estate firm Lansco, as saying that she was "surprised" by the terms of the deal. But in reaching out to AppleInsider on Friday, the MTA said that Lansco feels her comments were misrepresented by the Post. . . .
And there are all the slippery figures regarding square footage lease rate over time. Was The Post fair? Is that a dumb question? I tend not to seek out Newscorp tabloids for my news, so I'd like to see the original story parsed, as well as the MTA and the lease.
Conservative nonsense new york post, sickens me.
The controversy is much more profitable up front than facts afterwards.
Nice.
You've succinctly described the essence of US journalism.
Although Apple won't do this, one thing I think they should do is to provide free WiFi throughout the Terminal (maybe not down to the track level, but everywhere else.) At least the MTA can then also say that there's a public benefit.
I think the MTA seems to have a made a darn good case without your advice.
Thanks.
And there are all the slippery figures regarding square footage lease rate over time.
The figures are always slippery, because they are, in large part, driven by tax laws and accounting conventions.
For example, the MTA gets income for every dollar of rent paid by Apple. But if Apple builds an elevator instead? Is that income to the MTA? Is it taxable? Maybe Apple gets to amortize the elevator at a better rate than if it had paid the money in cash/psf to the MTA? Maybe Apple can claim it is a leasehold improvement, and can amortize it over 10 years, while the MTA (had they paid for the elevator) would count it as a permanent improvement, and amortize it over, say 30 years?
And the $5M buyout - maybe Apple can expense that in year one, while the MTA would have to expense it over the term of the replacement lease? Dunno. This stuff changes constantly, and only accountants and tax lawyers keep up to date.
Yes indeed, tax laws make for complicated lease terms. The various components are always slippery. Ownership of the improvements are a factor, as are insurance and maintenance expenses. It is the whole package that needs to be analyzed, and not just the $/s.f.