The Grand Central Apple Store has sparked a dispute between the MTA and New York State Comptroller Thomas DiNapoli. (Photo by flickr user redswept)

In one corner, Comptroller Thomas DiNapoli and his deputies. They allege that Apple, Metrazur and the MTA engaged in some backroom dealings that lead to a biased RFP process and a favorable lease for Apple in Grand Central Terminal.

In the other corner, Jeffrey Rosen, the MTA’s director of real estate. He says the process was transparent and resulted in major fiscal gains for the MTA. Only Apple or a similarly wealthy retail company could have bought out the Metrazur lease while upping the rent payments. It’s a fight for the ages and one indicative of the problems the MTA faces as a quasi-governmental agency with significant and sought-after real estate holdings.

This tale of government bureaucracy and a mostly insignificant much-ado-about-nothing got its start in December when The Post starting drumming up controversy over the Apple lease. For reasons unknown, Alexander Hamilton’s former newspaper continued to harp on the fact that Apple was paying a relatively low $60 per square-foot and did not have to share a percentage of profits with the MTA.

The Authority, noting that Apple is paying four times more than what Metrazur would have paid for another seven years, called the deal a good one for an anchor tenant. Apple’s rising tide could lift all real estate boats with increased traffic, and the early returns, in fact, bear that out. Even amidst a sluggish retail economy, business at Grand Central has been booming since the Apple Store opened up.

So seemingly at the behest of The Post, New York State Comptroller Thomas DiNapoli had his people do some digging, and yesterday, they released their report [pdf]. How you interpret it depends upon your experience with the way commercial real estate works. On the one hand, the Comptroller’s Office was none too pleased. “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 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.”

Essentially, as the Comptroller’s Office notes, the timeline is more than a little bit favorable to Apple. Apple and the MTA started talking about the Grand Central space in November of 2008, and the MTA later approached Metrazur concerning a buy out. In July of 2009, Metrazur and Apple began negotiations, and the two sides settled on a $5 million payout. As DiNapoli’s office notes, this amount eventually became a key requirement for the MTA and provided a significant barrier to entry for tenants not in Apple’s shoes. Whether or not this is a controversy depends upon we interpret that payment.

Meanwhile, once Metrazur and Apple had their price, on May 18, Apple agreed, in a non-binding document, to advance $2 million to Metrazur to vacate early. This money was contingent upon Apple’s winning the RFP. So with many of the financials worked out, the MTA opened the RFP on May 23 and closed it on June 27, receiving just one bid from Apple. Here’s how the Comptroller summarized things:

Although the RFP was competitive in the sense that other bidders were able to submit proposals, the circumstances of the MTA’s lengthy and substantial dealings with Apple support the conclusion that the playing field was not level amongst all potential bidders. At a minimum, Apple had both an informational and time advantage spanning many months, whereas other vendors were afforded approximately one month to determine if the space was practical and the price feasible for them. Moreover, Apple was directly involved in negotiating the amount of the buy-out of Metrazur which ultimately became a key requirement of the RFP.

As a result, the competitive process followed by MTA RED in this instance was at a minimum severely slanted toward Apple. While this procurement may not be unlawful, it surely evidences non-compliance with the intent of our prior audit recommendation requiring RED staff to ensure all rental units are marketed through one of the competitive processes required by the MTA. Moreover, we are concerned about the existence of such behind the scenes close dealings between a vendor and MTA officials prior to issuance of an RFP.

DiNapoli’s report also highlighted one bidder who claimed potential lessees should have been free to negotiate a buy-out with Metrazur and that the $5 million was simply too high. That seems like an oversimplification of a complex real estate transaction.

The MTA issued a vehement response to DiNapoli’s audit. “This audit is not fact-based, and accordingly, their opinion is worthless. The MTA’s lease process with Apple was open, transparent and followed both the spirit and letter of the law,” MTA Chairman Joe Lhota said in a statement. “The overt bias against the MTA and Apple in this audit is breathtaking. Trust, honesty, humility, transparency and accountability are the building blocks of a positive reputation. It’s a shame the Comptroller’s staff who prepared this audit showed none of these fine qualities.”

Offering up less bombast and more nuance, Rosen went into detail on the MTA’s process and outlined how the buyout of Metrazur would not have been possible without negotiations. The MTA, he noted, has increased their revenue from the space, if not maximizing it based upon the size and identity of the tenant. If no one else bid on the space, that’s because no one else could meet the steep financial demands that Metrazur, a tenant with a binding lease, could ask for and receive.

So where does this leave us? In the real world where Comptrollers aren’t free to poke around in every real estate transaction, what the MTA, Apple and Metrazur did was to make a deal. A landlord had a tenant in a below-market rent with a potential tenant interested enough in the space to pay a few million dollars to the restaurant. The landlord facilitated the deal and realized significant increased revenue because of that deal. It’s highly doubtful the landlord would have enjoyed such a bump in income without the deal, and no one else seemed interested enough in the space anyway. Because the MTA is subject to government oversight though, it’s a controversy.

As with many of DiNapoli’s audits, I believe there are bigger fish to fry. Of all the wasteful MTA real estate holdings, the East Balcony at Grand Central with Apple as a tenant ranks pretty low on that list, and the desire to grab political points seems to outweigh a truly egregious violation of decorum of the law here.