Apple got sweet deal on Grand Central lease, audit finds
The Metropolitan Transportation Authority tilted the bidding process for a prime retail spot in Grand Central Station to give Apple an unfair advantage, the state comptroller's office said in a report released Monday.
"The competitive process that was undertaken was not a level playing field, was not fair to all potential bidders and was significantly slanted in Apple's favor," concluded the audit from the office of state Comptroller Thomas DiNapoli.
Thousands of Metro-North commuters from the Hudson Valley descend daily on 99-year-old Grand Central, a Beaux-Arts structure that includes more than 130,000 square feet of retail space.
Apple opened its 23,000 square foot store on the terminal's east balcony last December after paying $5 million to the previous tenant of part of the space, the restaurant Metrazur, which still had more than 10 years remaining on its lease.
The audit found that the MTA and Apple began talks on leasing space at Grand Central as early as November 2008, more than two years before Apple submitted the sole bid to take the space.
The audit, whose details were first published in the New York Post, also said that on May 18, 2011, five days before the MTA requested bids for leasing of the balcony space, Apple and Metrazur cut a deal under which the technology giant would advance $2 million of the lease buyout fee to have Metrazur vacate the property early. That would let Apple remodel the property in time to open for part of the 2011 holiday season.
The comptroller's report said the MTA was aware of the side deal between Apple and Metrazur and the day after Apple and Metrazur concluded their deal, the MTA signed an agreement with the restaurateur to terminate its lease for $5 million, the exact buyout price agreed to by Apple.
When the MTA sought bidders for the east balcony space, it required a $5 million payment at lease signing to fund the termination deal with Metrazur.
At the MTA's June 27, 2011, deadline for bids on the lease, Apple was the lone responder.
Though the audit "was competitive in the sense that other bidders were able to submit proposals, the circumstances of the MTA's lengthy and substantial dealings with Apple support the conclusion that the playing field was not level amongst all potential bidders," the report said. "At a minimum, Apple had both an informational and time advantage spanning many months, whereas other vendors were afforded approximately one month to determine if the space was practical and the price feasible for them. Moreover, Apple was directly involved in negotiating the amount of the buyout of Metrazur which ultimately became a key requirement of the RFP."
A call to Apple was not immediately returned.
The MTA issued a statement from Chairman and Chief Executive Joseph Lhota, asserting that the audit was biased.
"This audit is not fact-based, and accordingly, their opinion is worthless," he said. "The MTA's lease process with Apple was open, transparent and followed both the spirit and letter of the law.
"The overt bias against the MTA and Apple in this audit is breathtaking. Trust, honesty, humility, transparency and accountability are the building blocks of a positive reputation. It's a shame the comptroller's staff who prepared this audit showed none of these fine qualities."