Apple Inc., (AAPL:US) the world’s biggest company by market value, was given an inside track to win a lease for a store in Grand Central Terminal by the Metropolitan Transportation Authority, an audit by New York Comptroller Thomas DiNapoli found.
Apple and MTA officials negotiated the lease for more than a year before the agency asked companies for proposals on filling the space, according to the audit, which DiNapoli released today. Before that request was released in May 2011, Apple and Metrazur, a restaurant then occupying the space, had already entered a $5 million buyout pact, the auditors found. The MTA then required companies bidding for the space to pay the same amount upfront.
“The MTA set a troubling precedent when it played favorites and gave Apple a competitive edge over others,” DiNapoli said in a statement.
DiNapoli said he performed the audit as a follow-up to a 2010 review of the real estate practices at the MTA, whose 8.5 million daily riders make it the biggest U.S. transit agency. It operates New York City’s subways, buses and the Long Island Rail Road and Metro-North rail lines. The previous audit found MTA’s real-estate division didn’t regularly use a competitive process to market rental properties.
MTA Chairman Joseph Lhota said in a statement that the audit wasn’t accurate and didn’t account for how high-profile commercial real estate works.
“The MTA’s lease process with Apple was open, transparent and followed both the spirit and letter of the law,” Lhota said. “This audit is not fact-based, and accordingly, the auditors’ opinion is worthless.”
In a letter to DiNapoli’s office attached to the audit, Jeffrey Rosen, the MTA’s real-estate director, said the agency intervened in negotiations between Apple and Metrazur because it saw an opportunity to have the restaurant surrender its lease almost 10 years early so Apple could take over and pay higher rent. Under Metrazur’s lease, which ran through 2019, the restaurant paid $263,997 annually, about a quarter of what Apple is paying, the letter said.
Metrazur was demanding that the lease be bought out and the sum be included in new proposals for the space, Rosen wrote. Given those circumstances, “this situation was highly unusual,” Rosen wrote.
Michaela Wilkinson, a spokeswoman for Cupertino, California-based Apple, maker of the iPad and iPhone, declined to comment.
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