July 30, 2012
DiNapoli: MTA Gave Apple Inside Advantage For Grand Central Terminal Lease
Comptroller Recommends Change to Public Authorities Law to Ensure Fair, Competitive and Transparent Contracting
The Metropolitan Transportation Authority (MTA) slanted a supposedly competitive process to fill prime retail space in Grand Central Terminal (GCT) in Apple's favor, according to an audit issued today by New York State Comptroller Thomas P. DiNapoli. Auditors and investigators found that the MTA worked exclusively with Apple behind the scenes on a lease for more than a year before issuing a request for proposals (RFP) that resulted in only one response—from Apple.
"While Apple may turn out to be a good tenant, the MTA set a troubling precedent when it played favorites and gave Apple a competitive edge over others for the Grand Central space," DiNapoli said. "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.
"Our prior audit revealed problems with how the MTA managed and leased out its vast real estate portfolio. It is clear that more scrutiny is needed to ensure the best deal is struck."
Auditors examined the Apple lease while completing a follow up audit of real estate practices at the MTA. Auditors found only two of 12 recommendations from the 2010 audit had been fully implemented. One recommendation that was only partially implemented concerned MTA's Real Estate Department's (RED) use of a competitive process for marketing its rental properties.
When auditors examined the Apple lease, they found that while RED claimed the process for filling the GCT space was competitive, the playing field was not level and fair for all prospective lessees. Auditors found that Apple, with MTA's knowledge and support, began negotiating exclusively with Metrazur, the existing restaurant tenant, for the buyout of the space in GCT more than a year before the RFP was issued. This negotiation set the terms for the RFP.
A general timeline of how the process unfolded:
DiNapoli is recommending a statutory change to increase oversight of public authority contracts exceeding one million dollars. Under current law, only contracts over one million dollars that are non-competitive or funded with state dollars can be reviewed by the State Comptroller's office. DiNapoli's proposed change would make all contracts over one million dollars eligible for review. Because the MTA lease to Apple was purportedly a competitive process, it was not eligible for the Comptroller's review before it was finalized.
The MTA's full response is included in the audit. For further recommendations of the follow-up audit, please click here.