The Marriott Marquis, the 50-story convention hotel in Times Square, sits atop some of the most valuable land in all of New York City, if not the world.
But because of a lease signed by the Giuliani administration in 1998, Marriott can buy the property from the city for only $19.9 million, one-tenth of its current $193 million value, according to a new audit by the city comptroller, John C. Liu.
Mr. Liu said the problems with the 1998 lease could end up costing taxpayers $344.9 million in lost rent and proceeds from the sale of the property.
Marriott, whose Marquis Times Square generates more revenue than any hotel in its worldwide portfolio, also owes the city $3.6 million and failed to keep adequate records that would enable the city to determine whether it has received all the money that it is due, according to the audit.
“Even in 1998, it’s hard to imagine that property values would slump so badly,” Mr. Liu said. “There is an opportunity here to renegotiate this deal in a way that could bring millions back for taxpayers.”
Marriott and the Bloomberg administration sharply disputed the audit’s conclusions.
“The comptroller’s office did not understand the Marriott Marquis hotel deal, and its audit report is wrong on all counts,” Marriott said in a statement.
The Economic Development Corporation, a city agency, said the audit “fails to measure the significant impact the Marriott Marquis has had on the Times Square area and New York City overall.”
But Mr. Liu stood by his report, saying the audit relies on Marriott’s lease, prior audits and internal memos at the Economic Development Corporation.
Randy Levine, who was a deputy mayor in the Giuliani administration who negotiated the 1998 agreement, said he could not recall its specifics. Mr. Levine is now president of the New York Yankees.
The most striking finding in the audit is that the city appears to have drastically undervalued the land under the hotel.
The hotel, which includes over 1,900 rooms, a ballroom, exhibition and meeting space, shops and a theater, sits on the west side of Broadway, between 45th and 46th Streets. The hotel is the flagship for Marriott’s 33 hotels in New York City under nine different brands.
“Times Square is a unique market in which the sky may be the limit for land,” said Daniel F. Sciannameo, president of Albert Valuation Group, an appraiser. “Recent prices are off the charts.”
In the early 1980s, the city and the state were desperate to redevelop Times Square, then a district of T-shirt and X-rated shops and shuttered theaters that many New Yorkers avoided. With Times Square considered a risky location, government provided a menu of tax breaks and other incentives to encourage redevelopment projects by Marriott and others.
The city and the state signed a 75-year lease with Marriott in 1982 that was intended to ease the hotel’s financial burden by setting a low initial rent, a portion of which was deferred until the lease expired in 2057.
Under its original 1982 lease, Marriott had the option to buy the land for “fair market value,” after paying all deferred rent and a low-interest federal loan. The lease stipulated that each side would hire an appraiser to establish the price.
Seventeen years later in 1998, Marriott asked the Giuliani administration to revise the terms of its lease, so that it could comply with requirements for forming a real estate investment trust.
By then, Times Square was beginning to thrive.
Marriott agreed to pay $54 million to cover some deferred rent and to repay a federal loan. The city, in turn, changed the rent calculation and amended the purchase price, inserting a formula that effectively reduced it to $19.9 million, according to the audit.
Marriott contends that it does not owe the $3.6 million cited by the comptroller because the original sum had been paid in 1998.
As for the purchase option, Marriott said the annual rent payments it had made to the city should be deducted from the purchase price.
But the comptroller’s office points out that nowhere in the original lease does it say that there would be a deduction for rent payments.
But the revised 1998 lease eliminated the requirement for appraisers and instead set a price. According to the audit, the Economic Development Corporation failed to do a comparative analysis to establish whether the revised lease was in the best interests of the city.
According to internal city documents, Marriott offered to buy the property in 2010 for even less than what was stipulated in the revised lease, $10.7 million, although nothing came of it.
Marriott Marquis Deal Could Cost Taxpayers $344.9 Million, Audit Says
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Marriott Marquis Deal Could Cost Taxpayers $344.9 Million, Audit Says
