Liu audit says Seaport firm owes $1.8 million in back rent

City Comptroller John Liu, flanked by members of his audit staff, at a July 25 press conference outside Pier 17.  Downtown Express photo by Terese Loeb Kreuzer

City Comptroller John Liu, flanked by members of his audit staff, at a July 25 press conference outside Pier 17. Downtown Express photo by Terese Loeb Kreuzer

 

 BY TERESE LOEB KREUZER  | [UPDATED 11:40 AM JULY 31, 2013 — ORIGINALLY POSTED JULY 25,, 2013] City Comptroller John Liu released an audit last week saying The Howard Hughes Corporation owes almost $1.8 million in back rent for leases at the South Street Seaport.

The report faulted the New York City Economic Development Corporation, the master leaseholder at the Seaport, for failing to ride herd on the Dallas-based developer and for giving it preferential treatment.

“How sad that we must report that the management of the Seaport by the Economic Development Corporation has badly served the Seaport itself, the city and our taxpayers,” Liu said at a July 25 press conference on the Seaport’s Pier 17. “Especially at a time when retail here is struggling to recover after Superstorm Sandy, it is discouraging to find that the company that the E.D.C. contracted to run this historic area, the Howard Hughes Corporation, has shortchanged the city on its rent.”

Liu said that the E.D.C. had not noticed the underpaid rent until his office pointed it out.

By the terms of its lease, Hughes is supposed to be paying $3.50 a square foot for its leasehold. Liu said that the Hughes Corporation had understated the amount of square footage it was leasing and that the E.D.C. had never performed its own survey of square footage “so it had no idea that Howard Hughes was shorting it.’

Liu went on to say that he found it even more distressing that in 2010, “E.D.C. went out of its way to help Howard Hughes when the company emerged from bankruptcy.”

E.D.C. erased part of Howard Hughes’ debt and modified the lease terms to lower future payments to the city.

Patrick Muncie, an E.D.C. spokesperson, said Liu used inaccurate square footage numbers and should not have signed off on the bankruptcy agreement three years ago if he had any problems with it.

Liu told Downtown Express Friday that his office typically relies on information provided by the city’ administration’s attorneys, but “that doesn’t mean we don’t then check a few years later to see what actually happened.”

He said the idea that there was a miscalculation is ridiculous.

“My auditors are pretty decent at math,” he said. “It’s not that difficult to determine how much space is rentable — a tape measure, some basic multiplication and you can find out how much space there is. But E.D.C…. never measured the space.”

At the press conference, Liu said “If this is the best and most qualified candidate that the E.D.C. could find to manage the world-famous South Street Seaport, then we might be in trouble.”

He was referring to the fact that Howard Hughes is already redeveloping parts of the Seaport with its eye on more of it.

“As part of this impending redevelopment, there are significant amounts of revenue that the city and taxpayers should realize from this very important city asset,” said Liu, “and yet, because of what’s happened these past few years, it shakes our confidence that the city will actually get what it deserves in what it realizes.”

Liu, a Democratic candidate for mayor, has recommended that E.D.C. obtain an independent survey to determine the leasable square footage under its management and regularly review Howard Hughes’ financial reports to ensure they are accurate.

The comptroller’s office has also recommended that E.D.C. put Howard Hughes on notice that it owes rent and interest and that the failure to pay what it owes within 15 days would constitute default under its lease.

“It is now up to the Economic Development Corporation and City Hall to get the money back for the taxpayers,” Liu said.

E.D.C.’s Muncie said the bankruptcy agreement precludes it from going after outstanding debt, but Matthew Sweeney, a Liu spokesperson, said “there is no reason why the E.D.C. cannot collect the $1.8 million that Howard Hughes Corporation owes to the city. The E.D.C. didn’t know it was being underpaid in 2010, and wasn’t aware that it was being shortchanged until Comptroller Liu’s audit pointed it out.”

The Howard Hughes Corporation responded by saying that it was “extremely disappointed with today’s announcement by Comptroller Liu in regard to this audit and reject their findings. We have acted in good faith and are confident there is no merit to their report. We look forward to a timely resolution.”

The audit takes place in the context of an impending deadline for Hughes to announce its plans for a “mixed-use project” in the Seaport. Based on a letter of intent, it would presumably entail construction of hotels, apartment buildings and additional retail.

Save Our Seaport, a coalition of Seaport stakeholders and individuals opposed to this prospect, is lobbying for a moratorium on land use approvals until the issues raised in the comptroller’s report have been resolved. S.O.S. is also proposing that governance of the Seaport should be in the hands of a local development corporation instead of E.D.C.

“We were anxiously awaiting this report and it hits all the high points that we’ve been talking about,” said Michael Kramer, a member of the S.O.S. steering committee. “It talks about how E.D.C. has been asleep at the wheel and not adequately monitoring The Howard Hughes Corporation… We need a new form of governance at the South Street Seaport.”

— With reporting by Josh Rogers

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