MTA Economics

Zocalo in the GCT food court may soon be replaced by a Shake Shack. (Photo by flickr user Crashworks)

In the basement food court of Grand Central Terminal sits a restaurant called Zocalo. Like many of the old guard food business there, it is an overpriced, mediocre spot albeit one that features some decent margaritas and otherwise uninspiring Mexican food. If the MTA had its legal druthers, Zocalo would be long gone, and Danny Meyer’s Shake Shack would be on the way in. That is, at least, what was supposed to happen.

Zocalo, however, has something else in mind, and the restaurant will not go quietly into the night. Already in unlawful possession of the space, owner Robert Shapiro has filed suit against the MTA, Crain’s New York recently reported. Adrianne Pasquarelli had more:

In the case, Zócalo alleges that the “bidding process [for retail space in Grand Central] is corrupted.” The restaurant is also protesting the eviction notice it received in February, and hopes to stay in the space as long as possible…

In January 2011, when the MTA put out a request for proposals, Zócalo submitted a bid to stay where it has been since 1998, but failed to win it. Shortly after, it was announced that Shake Shack, the popular burger and ice cream eatery owned by restaurateur Danny Meyer, was planning to move into Zócalo’s spot. Zócalo has been on a month-to-month lease since last fall.

“Zócalo is desperately pursuing any possible means to remain in possession of space it no longer has the legal right to occupy, contrary to the legal rights of the MTA and Shake Shack,” said an MTA spokesman. He noted that a civil court in a landlord-tenant proceeding already ruled that the Mexican eatery is in unlawful possession of the space, since its lease has expired.

The Zocalo owner claims that Shack Shake operates more locations than permitted under the RFP, and thus, the winning bid is ineligible. This is unlikely to be a particularly convincing argument though as Zocalo fights its eviction.

Meanwhile, as Crain’s notes, the MTA is not only going to have to pay costs to fight this legal battle but is losing money on the rent. Zocalo is paying an annual minimum rent of $336,698 while Shake Shack’s lease starts at $435,000 a year with escalators to $567,000. Meyer’s group will also pay a percentage of gross sales as well. And so Midtown Manhattan and GCT travelers will have to wait a little bit longer for their burgers, fries and custards.

Facing record ridership, internal cost controls and a slightly sunnier financial outlook, the MTA today announced over $29 million in service enhancements that will go into effect over the next year. Included in this package of improvements — the single largest investment in service in recent years — are a permanent extension of the G train to Church Ave., more frequent commuter rail service during off-peak hours and a sweeping array of new bus lines and restorations of routes lost to the 2010 cuts. Additionally, MTA Chairman Joe Lhota announced that the 2013 fare hikes will likely be delayed 60 days from January 1 until March 1.

Subway riders, unfortunately, seemed to draw the shorter straw during today’s announcement. The only subway improvement involved a five-stop extension of the G train to Church Ave. that’s currently in place today due to the rehabilitation work on the Culver Viaduct. The loss of service along 4th Ave. in Brooklyn as well as the W and V trains will not be coming back, but more importantly, the MTA has chosen not to revise load guidelines that have led to more crowded trains and slightly longer waits for subway commuters.

According to MTA officials, the decision to focus on buses was one of expediency and efficiency. With dollars thin, buses offer more flexible options for transit-poor areas. Officials also explained that the subway cuts from 2010 had a minimal impact on riders and did not result in ridership losses. Thus, with bus ridership in free fall over the last few years, Transit has focused its efforts on bringing service to underserved neighborhoods and offering connections to new job areas — such as health care centers — that the subway doesn’t easily provide.

For the most part, the new bus routes will connect what MTA officials termed “new areas of residential and commercial growth.” The Bx13, for instance, will head to the Gateway Center Mall, an area currently inaccessible by transit. In Red Hook, where community activists and union officials have lobbied hard for better service, the B57 will now provide a new bus connection to the rest of Brooklyn.

Overall, over 25 bus routes will enjoy service enhancements. For a closer look, check out the MTA information available here. More intriguing to me than the extensions though are a series of new routes Transit has unveiled. These include a new north-south route along the far West Side of Manhattan; a bus from the South Bronx to western Hunts Point; a route in Brooklyn connecting Downtown with Dumbo, Vinegar Hill and the Navy Yard; and Williamsburg/Greenpoint waterfront service. These areas are truly the under-served.

The commuter rail agencies announced similar service expansions as well. Facing record ridership, Metro-North will add 230 additional trains each week, and they will be relaxing load guidelines as well. The LIRR will increase off-peak service to every 30 minutes and will restore late-night trains from the Atlantic Terminal. Not coincidentally, the Barclays Center opening this fall is expected to spur LIRR demand into and out of Brooklyn.

Finally, in a bit of guardedly good news, Lhota announced that the 2013 fare hikes will be delayed by two months. The MTA needs the revenue to cover increasing health care and pension costs as well as its ballooning debt service, but he is willing to wait as long as possible. “We owe it to the riders to wait to collect until we absolutely need to collect,” he said. So we have a reprieve until March 1 and new services that will roll out over the next year. Even as I wish for more subway service, this is nothing to sneeze at indeed.

At some point, when the MTA finally opens the Fulton Street Transit Center and perhaps too when East Side Access comes online, the authority will have a wealth of commercial real estate in high-traffic areas that they want someone else to manage. When the time comes, the authority will try to identify a private entity to take out a master lease for the space and manage it. For now, though, the rehabilitated Columbus Circle with 11,500 unused square feet of retail space will serve as a guinea pig.

The authority announced this week that it has begun the RFP process to find a real estate company willing to sublease 13 spaces in the Columbus Circle space. The winning bidder will oversee the various retailers while also marketing the concourse as a retail destination and keeping the straphanger circulation areas in front of the stores free of trash and other potential hazards. The stores would occupy the concourse that runs underneath 8th Ave. for a few blocks. (Check out some photos right here.)

“It is imperative that the MTA find new ways to reduce expenses and make the most out of its real estate portfolio,” MTA Chairman Joseph J. Lhota said in a statement. “Thinking creatively about our real estate holdings and the way we engage with the private sector has led us to pursue a partnership that we expect will increase MTA revenue and allow us to focus our resources on those parts of the station where they are most needed. We think this public-private partnership will prove to be a useful model that will help us improve the management of retail spaces at larger stations going forward.”

In the release touting this effort, the MTA noted that this would be the first agreement of its kind. A private sector firm would be for subletting individual retail spaces and for maintaining adjoining public areas within the transit system. At Grand Central, the MTA maintains the public concourses. If all goes well, the same model will be exported to Fulton St.

In a way though, it’s easy to view this as a tacit admission from the MTA that retail isn’t a strength. Columbus Circle is the seventh busiest station in the system, and the renovations have been completed for some time now. The retail spots though remain empty, and with each passing day, the MTA isn’t realizing dollars it could use. As long as they draw some interest in the space, they’ll earn some dollars too.

A new restaurant in Grand Central could overlook the Terminal's busy market.

As the MTA looks to better utilize its real estate holdings, the authority announced this week plans to solicit proposals for two new restaurants in Grand Central. The two areas could add nearly 17,000 square feet of dining space in the Terminal and would open next year, in time for the building’s centennial celebration. If all goes well, the MTA could realize up to $20 million annually from these spaces.

“Grand Central will always be the greatest train station in the United States and the crown jewel of the MTA’s transportation network,” MTA Chairman Joseph J. Lhota said in a statement. “It’s a focal point for the economic and social life of the region and a superb setting for the daily business of moving people. At the same time, over the past 15 years, it’s also been transformed into one of the world’s most well-known destinations for shopping and dining. These latest additions will only heighten its reputation.”

With a new Apple Store attracting crowds and a Shake Shack on tap, Grand Central has become a major attraction in midtown. These two spaces could further cement its reputation as a foodie destination. The larger of the two consists of up to 12,300 square feet and includes the west side of Vanderbilt Hall, the former waiting area and current home of the GCT Holiday Market. The other space contains 4700 square feet above the Grand Central Market with views of Lexington Ave. According to some reports, the authority hopes to attract a farm-to-table restaurant for the smaller space.

A Crain’s New York article delved further into the MTA’s thinking behind these new space offerings:

Adding the restaurants is part of the MTA’s plan to wring more money out of its assets. The agency is also hoping to lease or sell several of its buildings. Additionally, the MTA is seeking private companies to manage Fulton Center downtown—formerly called the Fulton Street Transit Center—to make it a shopping destination. Private firms may also manage the future retail spaces in the Long Island Rail Road station being built underneath Grand Central, Crain’s reported last week.

The gross revenue from Grand Central retail leasing and special events hit $27.4 million in 2011. That’s a mere 0.22% of the MTA’s operating expenses of $12.5 billion. Still, every little bit helps at the cash-challenged agency. The MTA isn’t requesting a minimum rent for the new venues, leaving the restaurateurs to make a proposal. However, based on assumptions that the restaurants would each generate between $8 million and $10 million a year in sales, a rent of $80 a square foot to $100 a square foot seems reasonable, sources said. The agency typically takes a portion of the sales above an unspecified amount. Currently, the existing restaurants average sales of $750 a square foot.

Restaurateurs interested in the Vanderbilt Hall space will have to devise a plan for coexisting with the events held there, especially the holiday market, which takes up the entire venue. The MTA isn’t offering advice on that, but it is asking the winning bidder to serve breakfast, lunch and dinner. “We want to see what kind of ideas they come up with,” said Ms. Marshall, adding she could see a spot like SoHo brasserie Balthazar working well.

According to the report, the authority will require the restaurants stay open seven days a week, and chains will be excluded. The MTA is hoping to draw in New York-based restauranteurs for a train depot that is an icon of the city. This is the type of commercial development the MTA should be encouraging in its properties.