On Friday December 9, Apple will open up its largest retail store to date – smack dab in the center of New York’s famed Grand Central Station. Last week, a small cloud of controversy enveloped Apple’s latest retail initiative following news that Apple was paying the Metropolitan Transportation Authority (which oversees leasing activities at Grand Central Station) just $60 per square foot in monthly rent as opposed to the $200 per square foot that other retailers there pay.
As a result, New York Senator Tony Avellia exclaimed that NYC taxpayers are getting ripped off that “there needs to be an investigation of who negotiated this deal”
As is typically the case with politicians, Avellia was more concerned with getting up on his soapbox than he was with gathering all of the pertinent facts and making an informed decision on the matter. As it turns out, Apple paid a huge $5 million up front sum for the space, with MTA spokesman Aaron Donovan explaining that Apple over the course of its 10-year lease will be paying about $180 per square foot.
Following that, the MTA went even further and egged Avellia and anyone else interested in investigating to “bring it on.” You gotta like that kinda moxie!
With regard to any calls for an investigation into the lease, our comment is this: “Bring it on. 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.”
As we’ve explained before, retailers generally love the addition of an Apple Store to a shopping area in that it radiates an air of elegance and undeniably drives an increase in surrounding foot traffic.
This “let’s investigate everything” mantra is sickening and has to go. Apple is satisfied with the lease. The MTA is satisfied. Other retailers in Grand Central Station are satisfied. So what is there left to bicker about?
An astute commenter on MacRumors writes:
The previous tenant had EIGHT YEARS remaining on his lease which was only $15 per square foot. Apple offered to foot the bill to buy that guy out of his lease which was extremely cheap (i.e.: save the MTA from only getting $15 per square foot on the same space for eight more years). Then Apple signed a 10 year lease (not much longer than the previous tenant, but still guaranteeing a solid tenant for ten more years). Then agreed to give MTA four times the rent ($60) per esquire foot over that eight year lease period plus two more years. Additionally, Apple is footing the bill for all the improvements being made to the space including an elevator AND Apple will drive more business to other businesses in Grand Central thus increasing the chance of revenue sharing from those businesses for MTA. If MTA had not made this deal what other “competitive bid” would have been better? Who else was going to buy out the existing tenant’s eight year lease and replace it with a ten year lease at four times the rent and do their own improvements.
If Apple vacates in ten years, MTA gets to keep the capital improvements and rent at a much higher rate if they want. If Apple stays, MTA can negotiate a new rental rate.
MTA got the sweetheart deal in all this — though if the store does well for Apple then it will be mutually beneficial. The sad thing is that MTA will likely mismanage the money and train fares will still go up.