Did Apple Get A Sweetheart Grand Central Deal?
This is the question being asked by some real estate experts & at least one elected official. The company which is set to open its new store in Grand Central Terminal next Friday has arranged a very sweet deal of only $60 per square foot. James Covert & Garett Sloane of the New York Post have more:
But while real estate insiders estimate the shop will rake in $100 million a year in sales, Apple won’t be sharing a nickel with Grand Central’s operator, the Metropolitan Transportation Authority.
The tech giant is the only retailer in the fast-growing retail transit hub to have such a sweet lease.Critics likewise note that Apple’s $60-a-square-foot lease is well below what many other tenants are paying — including a future Shake Shack burger joint that will be shelling out more than $200 a square foot, according to the leases, copies of which have been obtained by The Post.
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 up fares for subway straphangers and suburban commuters across the region.
“We set out to maximize the rent we receive for this space, and we’re thrilled that we were able to more than quadruple what we had been receiving previously,” said MTA spokesman Aaron Donovan, noting that no other companies responded to its public request for proposal.“I am surprised they didn’t get some kind of percentage,” said Robin Abrams, executive vice president at real estate firm Lansco. “You’d think if they were going to do, say, $50 million in sales, the MTA would at least get some percentage of anything over that.”
In a summary prepared in July in the wake of the Apple lease signing, the MTA justified its no-percentage rent deal by insisting that the gadget store will “generate significant new traffic” for Grand Central Terminal’s other 100 or so retail tenants.
All of those shops and restaurants, with the exception of a Chase ATM branch, pay the MTA a percentage of their sales that exceed a given threshold. For every 1 percent increase in their sales, the MTA projects it will reap $500,000.
While Apple is said to have grabbed the basement space for its “Cube” in front of the GM Building for less than $5 million a year, sources estimate the 10,000-square-foot location is generating annual volume of more than $400 million — and at least $15 million in percentage proceeds for the landlord.
Click here to read the complete story.
State Senator Tony Avella is calling for an investigation after telling WCBS:
There needs to be an investigation of who negotiated this deal. The taxpayers of this state are being ripped off that Apple is getting this sweetheart deal.
Click here for the complete CBS report.
When I first read the amount per square foot Apple would be paying, I laughed out loud & asked to myself, who in the blue hell was dumb enough to negotiate such a deal. I am glad to see I am not the only one wondering this as this screams sweetheart deal from beginning to end.
Now on one hand, the MTA is at somewhat of a disadvantage since there are not many fair comparisons to base fair market value of in terms of the property. However on the flip side, they have to know how much of an asset they have in their corner & not get bamboozled into a bad deal.
While Apple has a new policy of not entering new “percentage rent” deals, the MTA should have forced their hand considering they have such a deal in place for their GM Building location which nets the landlord approximately $15 million per year. While they are paying 4x more than the previous tenant & covering all renovation costs, they are still getting off too easy. The money that the agency saved in renovation is nothing compared to what they could have made per year on a long term basis.
I also take issue with the agency having had no one else bid for the property. How could they possibly not have found other potential suitors for such a prime piece of real estate? In my opinion, not enough was done to attract more bids.
In the end, they will get some extra cash as the extra foot traffic will lead to increased revenue at other retailers in the terminal. However even that is only if non-Apple retailer revenues increase by at least 1% which would net them $500,000 for each occurrence. So in reality, the money they might make from Apple should have been more robust & guaranteed if the deal was properly negotiated.
This deal just infuriates me as I spend a lot of time with commercial real estate & know a smelly sweetheart deal when I come across one. Why does the MTA dishing out sweetheart deals which leave their overall finances screwed seem to be the norm? Somethings just never change….
xoxo Transit Blogger
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