Apple bias identified in Grand Central Store negotiations

Jul 31, 2012
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Apple's New York Grand Central store is at the heart of a debate over preferential treatment, with claims that the company and the Metropolitan Transportation Authority (MTA) acted uncompetitively in planning the new location. The Apple Store, which takes pride of place in the cavernous station, opened to huge response in December 2011, but according to an investigation by the New York State Comptroller was the culmination of more than a year of exclusive negotiations that contravene fair practice recommendations.

"Auditors and investigators found that the MTA worked exclusively with Apple behind the scenes on a lease for more than a year" the Comptroller's office wrote in its report, "before issuing a request for proposals (RFP) that resulted in only one response - from Apple." The MTA was apparently fully aware that Apple had been negotiating with the prior tenant, a restaurant, a year in advance of the RFP being issued, and indeed those negotiations went on to set the final terms for the RFP.

In fact, only two of the twelve recommendations from a previous, 2010 audit of real estate practices had been adhered to. The Comptroller says that, although Apple may indeed be a good match to the location, the behaviors of the company and the MTA demand further investigation and the possibility of statutory changes to oversight regulations.

"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," Comptroller Thomas P. DiNapoli said in a statement. "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."

According to the official timeline, the MTA approached restaurant owners Metrazur in April 2009 to discuss buying out the lease (on which 18 months remained); Metrazur then approached Apple in July 2009, with negotiations ongoing between the two pairs. Apple agreed to pay $2m early to Metrazur, and indeed did so on the same day that the MTA released the RFP to third-party bidders.


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