New York audit finds Apple had unfair advantage in Grand Central bid

Posted:
in General Discussion edited January 2014
A New York state audit has concluded that the Metropolitan Transportation Authority gave Apple an unfair advantage when the iPhone maker bid for its retail location at Grand Central Terminal.

New York state Comptroller Thomas DiNapoli concluded in his report that the MTA's process "was at a minimum severely slanted toward Apple," according to the New York Post. He found that rival bidders were at a disadvantage, as they had only a 30-day window to submit competing offers.

DiNapoli found that Apple was in private talks with the MTA for more than two years until the bidding process opened up. The company eventually inked a 10-year deal with the MTA last July for a 23,000-square-foot retail space inside New York's bustling Grand Central Terminal. The store opened last December.

The state of New York announced late last year that it would investigate Apple's deal with the MTA, as DiNapoli expressed concern that the authority may have "given away the store." His final conclusion that Apple was given unfair preferential treatment was delivered to members of the MTA last Friday.

In response, the authority said DiNapoli's office has an "overt bias against the MTA and Apple." MTA Chairman and CEO Joseph Lhota issued a statement dismissing DiNapoli's audit as "not fact-based," and calling the conclusion "worthless."

"The MTA's lease process with Apple was open, transparent, and followed both the spirit and letter of the law," Lhota said.

Grand Central Apple Store


Apple's unique deal with the MTA means the company does not share any of its sales revenue with the authority. That makes Apple the only store among about 100 in Grand Central Terminal that doesn't share a percentage of its sales with the MTA.

The MTA has noted that it is collecting more than four times what it was paid by the previous occupant, Charlie Palmer's Metrazur restaurant. Apple is said to pay $1.1 million in rent for the space this year.
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Comments

  • Reply 1 of 41
    rob53rob53 Posts: 3,010member


    I find the part about paying tenants of Grand Central Terminal having to "share" part of their sales with MTS as something I would investigate. Apple is paying a lot of rent so why should they have to pay anything else? Is this practice normal or just something that's done in NYC? 

  • Reply 2 of 41
    gprovidagprovida Posts: 252member


    My bet is all the other retailers are getting much better sales and traffic as well.  So the net income for New York is very good.  Regarding the 2 years of discussion, other bidders could have been active as well with New York on this deal.  All had an opportunity to bid in the 30days, and I suspect the bid offer was not a big surprise either.


     


    People are just getting greedy.  

  • Reply 3 of 41
    tribalogicaltribalogical Posts: 1,182member


    I'm sure there is no question Apple enjoyed an advantage on many levels...


     


    But an "unfair" advantage? Why… because they're an iconic company, a world-renowned brand, the largest company in the world by market cap? 


     


    By this logic, ANY advantage Apple would enjoy in ANY situation could be deemed "unfair". If I want to buy some Flash Memory, but Apple uses their massive cash hoard to snatch up all the available supply… is that an "unfair" advantage? I think not...


     


    I can cite many such examples… It's true that Apple has an inherent advantage just because of their position as a successful, cash-rich company. But are those inherently "unfair" advantages? I don't think that flies…….

  • Reply 4 of 41
    solipsismxsolipsismx Posts: 19,566member
    rob53 wrote: »
    I find the part about paying tenants of Grand Central Terminal having to "share" part of their sales with MTS as something I would investigate. Apple is paying a lot of rent so why should they have to pay anything else? Is this practice normal or just something that's done in NYC? 

    They'll make you an offer you can't refuse.


    I'm sure there is no question Apple enjoyed an advantage on many levels...

    But an "unfair" advantage? Why… because they're an iconic company, a world-renowned brand, the largest company in the world by market cap? 

    By this logic, ANY advantage Apple would enjoy in ANY situation could be deemed "unfair". If I want to buy some Flash Memory, but Apple uses their massive cash hoard to snatch up all the available supply… is that an "unfair" advantage? I think not...

    I can cite many such examples… It's true that Apple has an inherent advantage just because of their position as a successful, cash-rich company. But are those inherently "unfair" advantages? I don't think that flies…….

    It sound absurd to say that Apple had an unfair advantage because they had been trying to rent space there, unsuccessfully, for two years. Bottom line: The MTA and the businesses there, providing none are PC retailers, are benefiting from Apple's presence.
  • Reply 5 of 41
    quadra 610quadra 610 Posts: 6,756member


    LIFE JUST ISN'T FAIR!!! WHY????


     


    Lol


     


    So absurd.

  • Reply 6 of 41

    Quote:

    Originally Posted by rob53 View Post


    I find the part about paying tenants of Grand Central Terminal having to "share" part of their sales with MTS as something I would investigate. Apple is paying a lot of rent so why should they have to pay anything else? Is this practice normal or just something that's done in NYC? 



     


    This is a common practice for commercial space owners.  The revenue share is paid mostly by smaller tenants who could not afford large rent fees.  Large "anchor" tenants generally don't have revenue shares because they draw traffic to the mall and often get preferential treatments.  For example, Macy's may get 5 years lease free if it signs a 20 year contract with a new shopping mall.  So what Apple got was not out of ordinary.

  • Reply 7 of 41
    jukesjukes Posts: 213member

    Quote:

    Originally Posted by winstein2010 View Post




    Quote:

    Originally Posted by rob53 View Post


    I find the part about paying tenants of Grand Central Terminal having to "share" part of their sales with MTS as something I would investigate. Apple is paying a lot of rent so why should they have to pay anything else? Is this practice normal or just something that's done in NYC? 



     


    This is a common practice for commercial space owners.  The revenue share is paid mostly by smaller tenants who could not afford large rent fees.  Large "anchor" tenants generally don't have revenue shares because they draw traffic to the mall and often get preferential treatments.  For example, Macy's may get 5 years lease free if it signs a 20 year contract with a new shopping mall.  So what Apple got was not out of ordinary.



    Except that it is out of the ordinary of GCT, which itself is the "traffic draw" for the "mall", not Apple.

  • Reply 8 of 41
    zoolookzoolook Posts: 657member

    Quote:

    Originally Posted by rob53 View Post


    I find the part about paying tenants of Grand Central Terminal having to "share" part of their sales with MTS as something I would investigate. Apple is paying a lot of rent so why should they have to pay anything else? Is this practice normal or just something that's done in NYC? 





    Actually they're not paying a lot at all - they're paying well below market value. Also, to answer your question, yes its normal for business located in stations to share their profits with the owner of the station... all over the world.


     


    One has to hand it to Apple, they sure know how to negotiate, and the MTA is probably getting something out of this, otherwise they'd never have agreed. I just hope it's all above board. The insinuation is that it's not, but that remains to be seen.

  • Reply 9 of 41


    It appears to be a good deal for MTA and the area stores. Here's an extract from this link.


     


    From a Jun 25th NYDailyNews.com article:


     


    Apple's new megastore at Grand Central Terminal has helped boost sales at other businesses in the historic hub, officials said Monday.


    Sales at restaurants, stores and other outfits rose 7.5 % between December and March compared to the same time frame ending in March 2011, Nancy Marshall, director of Grand Central development at the MTA, said.


    "Apple has been a super thing for tenants and the overall public," Marshall said at an Metropolitan Transportation Committee meeting. "The tenants couldn't be happier."

  • Reply 10 of 41
    jeffdmjeffdm Posts: 12,951member
    zoolook wrote: »

    Actually they're not paying a lot at all - they're paying well below market value. Also, to answer your question, yes its normal for business located in stations to share their profits with the owner of the station... all over the world.

    One has to hand it to Apple, they sure know how to negotiate, and the MTA is probably getting something out of this, otherwise they'd never have agreed. I just hope it's all above board. The insinuation is that it's not, but that remains to be seen.

    According to the article:
    "The MTA has noted that it is collecting more than four times what it was paid by the previous occupant"

    I would call that a major plus for the MTA.
  • Reply 11 of 41
    jukesjukes Posts: 213member

    Quote:

    Originally Posted by JeffDM View Post




    Quote:

    Originally Posted by Zoolook View Post





    Actually they're not paying a lot at all - they're paying well below market value. Also, to answer your question, yes its normal for business located in stations to share their profits with the owner of the station... all over the world.



    One has to hand it to Apple, they sure know how to negotiate, and the MTA is probably getting something out of this, otherwise they'd never have agreed. I just hope it's all above board. The insinuation is that it's not, but that remains to be seen.




    According to the article:

    "The MTA has noted that it is collecting more than four times what it was paid by the previous occupant"



    I would call that a major plus for the MTA.


    But is it a major plus compared to a more traditional profit sharing lease...? We have no idea.

  • Reply 12 of 41
    solipsismxsolipsismx Posts: 19,566member
    jukes wrote: »
    But is it a major plus compared to a more traditional profit sharing lease...? We have no idea.

    I think the MTA's bean counters know the long term profits involved and they went with Apple. Remember that this was all happening during a recession when many businesses were folding and business was slowing down. Getting 4x the rent that before and having it be guaranteed is a pretty strong case even before one considered how a company like Apple can improve the traffic for other businesses just by being there.

    I'd like to hear from at least one business as to why being next to the Apple Store in GCS isn't a good thing for them.
  • Reply 13 of 41
    msimpsonmsimpson Posts: 452member


    Time for Apple to move...    


     


    The MTA can find a new customer.   Maybe Google or Microsoft can rent it to sell their phones.

  • Reply 14 of 41

    Quote:

    Originally Posted by CodeWarrior View Post


    It appears to be a good deal for MTA and the area stores. Here's an extract from this link.


     


    From a Jun 25th NYDailyNews.com article:


     


    Apple's new megastore at Grand Central Terminal has helped boost sales at other businesses in the historic hub, officials said Monday.


    Sales at restaurants, stores and other outfits rose 7.5 % between December and March compared to the same time frame ending in March 2011, Nancy Marshall, director of Grand Central development at the MTA, said.


    "Apple has been a super thing for tenants and the overall public," Marshall said at an Metropolitan Transportation Committee meeting. "The tenants couldn't be happier."





    So one of the two parties accused of colluding in a sweatheart deal says that it was a really good deal and everybody's happy... color me shocked.


     


    Top priority for the MTA should be keeping transit costs down for the citizens of New York state. No doubt they'll wave their hands and claim the deal will somehow increase overall revenue, making up for the Apple's low square foot rent. Unfortunately they're a known bunch of crooks (see the Atlantic Yards debacle, for instance, where they sold off prime real estate to the LOWEST bidder who just happened to be Mayor Bloomberg's ex-roommate) so the benefit of the doubt is no longer available.


     


    Which is exactly why we're supposed to have open bidding for these things. And anyone who thinks that 30 days is enough time to prepare a proper bid for a project of this scale, along with the 5 million dollar application fee... well, it's an overused phrase, but I've got a bridge to sell you. MTA and Apple clearly already had a backroom arrangement here; the 30 day window is a joke.

  • Reply 15 of 41
    MacProMacPro Posts: 19,500member
    gprovida wrote: »
    My bet is all the other retailers are getting much better sales and traffic as well.  So the net income for New York is very good.  Regarding the 2 years of discussion, other bidders could have been active as well with New York on this deal.  All had an opportunity to bid in the 30days, and I suspect the bid offer was not a big surprise either.

    People are just getting greedy.  

    Agreed. Greed seems to infect those that get close to Apple business.
  • Reply 16 of 41


    Put a Microsoft store there instead and watch the reverse happen.

  • Reply 17 of 41

    Quote:

    Originally Posted by gprovida View Post


    My bet is all the other retailers are getting much better sales and traffic as well.  So the net income for New York is very good.  Regarding the 2 years of discussion, other bidders could have been active as well with New York on this deal.  All had an opportunity to bid in the 30days, and I suspect the bid offer was not a big surprise either.


     


    People are just getting greedy.  



    New Yorkers? Greedy?


     


    /rolleyes

  • Reply 18 of 41

    Quote:

    Originally Posted by jukes View Post


    Except that it is out of the ordinary of GCT, which itself is the "traffic draw" for the "mall", not Apple.



    Re. GCT-with-Apple versus GCT-without, you know this how? Any evidence?


     


    Quote:

    Originally Posted by jukes View Post


    We have no idea.



    Yep, listen to yourself: see above.

  • Reply 19 of 41
    mcrsmcrs Posts: 172member


    Apple f4anbois have this believe that the world is revolving around their Apple grand central of universe. People ain't gonna take those subways and trains and are about to abandon the transit system entirely had it not for Apple having its store there.  That's their logic. It's absurdity at its best.


    Quote:

    Originally Posted by jukes View Post


    Except that it is out of the ordinary of GCT, which itself is the "traffic draw" for the "mall", not Apple.


  • Reply 20 of 41
    jukesjukes Posts: 213member

    Quote:

    Originally Posted by anantksundaram View Post




    Quote:

    Originally Posted by jukes View Post


    Except that it is out of the ordinary of GCT, which itself is the "traffic draw" for the "mall", not Apple.



    Re. GCT-with-Apple versus GCT-without, you know this how? Any evidence?



    It almost sounds like you don't know what the GCT is. They don't have a problem with foot traffic. My evidence is that they don't have any other stores without a profit sharing lease.

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