MTA Accused Of Favoring Apple in Grand Central Terminal

MTA Accused Of Favoring Apple in Grand Central Terminal

New York State Comptroller, Thomas DiNapoli, has charged the Metropolitan Transportation Authority (MTA) with unfairly giving Apple Inc. (NASDAQ:AAPL) an advantage over other applicants, when selecting it as the winning bidder to occupy a prime, 23,000-square-foot space in Grand Central Terminal, according to the Apple Insider.

DiNapoli says “The competitive process followed by MTA . . . was at a minimum severely slanted toward Apple.” In another statement he is quoted as saying, “The MTA set a troubling precedent when it played favorites and gave Apple a competitive edge over others. Apple was directly involved in setting the terms of the lease, and given exclusive access to information more than a year before any other vendor knew the Grand Central location was available. The company even signed a $2 million agreement with the current tenant to vacate its space five days before the MTA issued the RFP.”

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In the latest audit of the transaction, he claims that Apple Inc. (NASDAQ:AAPL) had the edge, first because it had been discussing the terms with MTA for almost two years, while other bidders had a window of only 30 days to pony up $5 million cash in advance.

It had been reported in the AppleInsider in November that Apple was to pay less per square foot for the Grand Central space compared to other retailers, and that it would not be sharing any portion of its revenues with MTA. The report said that Apple would be paying $60 per foot while other retailers such as Shake Shack paid more than $200 per foot.

The uber-chic store opened last December to a huge response from consumers, some of whom queued up for hours to be in at the opening. Apple is expected to earn revenues of hundreds of millions of dollars from the store annually. Apple Inc. (NASDAQ:AAPL) is said to be the only retailer, among over a 100 that operate out of Grand Central, that is not required to share its revenues with the MTA.

The MTA has lashed back at DiNapoli’s report, accusing his office of an overt bias against the MTA and Apple. “This audit is not fact-based, and, accordingly, their opinion is worthless,” MTA Chairman and CEO Joseph Lhota said in a statement. “The MTA’s lease process with Apple was open, transparent and followed both the spirit and letter of the law.”

MTA justifies that contrary to low rents, Apple is in fact paying four times what the earlier occupant, restaurant Metrazur, was paying. However DiNapoli’s office rejects this claim, saying the restaurant was already paying sub-market rates made even worse by other MTA goof-ups.

What about the charge regarding revenue-sharing? It may be noted that MTA could be giving up revenues in tens of millions of dollars by not claiming a stake in Apple’s take from the store, according to real estate specialists in the know.

The MTA claims, however, that the incremental customer traffic generated by the appeal of Apple’s store would make  better revenues at the other retailers.