SOMETHING'S "FISHY" ABOUT SOUTH STREET SEAPORT

LIU: AUDIT FINDS SOMETHING FISHY IN EDC'S MANAGEMENT OF SOUTH STREET SEAPORT

Failing to Protect Taxpayers, Agency Allowed Company to Short City on Rent

Payments and Provide an EDC Board Member with Rent-Free Office Space

Yesterday, City Comptroller John C. Liu announced that an audit of the NYC Economic Development Corporation's (EDC's) handling of the City's South Street Seaport properties found that the company EDC contracted with to manage office space there shortchanged the City by $1.3 million in unpaid rent. The audit also uncovered a conflict of interest in which an EDC Board Member accepted free services, including the apparent use of office space from the same company, Seaport Associates LLC.

"This is more of the same-old from the EDC playbook – hire a consultant to do your job and then doze off while that company stiffs the taxpayers for a pretty penny. What's more, the EDC failed to notice that a board member received free services from that company," Comptroller Liu said. "Who knows what other conflicts of interest remain to be discovered? Who knows how much more money the EDC has failed to collect?"

The EDC oversees the management and rent collections for City-owned properties at the South Street Seaport. The EDC contracted with South Street Seaport Associates to maintain and collect rents on the office spaces above the shops and restaurants in the historic Seaport area between Water and Fulton streets. Comptroller Liu's office audited this agreement to determine whether EDC properly monitored Seaport Associates and whether Seaport Associates followed the terms of its agreement.

Conflict of Interest

Comptroller Liu's audit found that a member of EDC's Executive Committee, who was formerly a principal of Seaport Associates, accepted free services from Seaport Associates, including apparently using office space. The EDC Board Member had paid Seaport Associates $3,000 per month for office space for his private business at 19 Fulton Street. In 2008, however, he stopped leasing this space and instead appears to have started sharing office space with Seaport Associates in the same building, paying no rent. He used this address as his private company's sole New York City location on his website and elsewhere.

The Board Member, who joined the EDC in 1995, did not disclose to the EDC his past relationship with Seaport Associates or his rent-free use of the office space in the 2010 and 2011 Disclosure Statements for Directors. EDC acknowledged the Board Member's conflict of interest and stated that he has since amended his 2011 Disclosure Statement and no longer uses Seaport Associates office space. After it was brought to their attention, EDC officials described the Board Member's use of Seaport Associates space as a "mail drop." The Board Member, however, had a name plate on the tenants list posted in the 19 Fulton St. lobby and listed the address as his company's sole New York City location on his website and elsewhere.

Unpaid Rent

Seaport Associates owes the City $1.3 million because it failed to report all its subtenant rental income. This amount includes $787,664 in unpaid rent and $507,172 in accrued interest.

The EDC relies on Seaport Associates to manage and collect rents for the office space in the Seaport. The lease agreement requires the company pay either a minimum base rent determined by the square footage of leasable space or 20 percent of its gross income — whichever was greater. Seaport Associates paid the City 20 percent of its income, but it paid 20 percent of its net income — after deducting all operating expenses — sharply reducing what it owed taxpayers for the right to manage these public properties.

Seaport Associates, EDC Audit Responses

Finally, although Seaport Associates offered no facts or documentation to dispute the audit's findings, the company nevertheless rejected them out of hand, claiming that the findings resulted from political infighting between the Comptroller's office and the EDC. Considering that the EDC agrees with the findings and recommendations of the Comptroller's audit, that accusation rings hollow.