-Audit unearths “catastrophic” conditions at site-

-Thompson charges pattern of neglect may cost City $6.1 million-

New York City Comptroller William C. Thompson, Jr. releases an audit on July 8, 2008 finding that the Economic Development Corporation’s inadequate oversight of the New York Skyports, Inc.’s lease may have jeopardized public safety, placed the City at financial risk, and may cost the City upwards of $5.5 million or more to rectify.

Column under the parking garage on 23rd Street
with visible concrete damage and structural corrosion.

View audit

Citing dangerous and dilapidated conditions, New York City Comptroller William C. Thompson, Jr. today demanded that the City take immediate action to clean up a leased property used as a marina, gas station and parking garage bordering the East River.

“The Economic Development Corporation’s inadequate oversight of this lease may have jeopardized public safety, placed the City at financial risk, and may cost the City upwards of $5.5 million or more to rectify conditions dangerous to the public,” an irate Thompson said.

“The parking garage at the site deteriorated to the point that the Department of Small Business Services admitted ‘catastrophic failure’ was imminent,” he added.

In his audit, Comptroller Thompson detailed the hazardous conditions and irresponsible pattern of neglect at the two-acre site, which stretches from East 18th Street to East 23rd Street. The site is leased by New York Skyports, Inc.

Thompson’s audit – available at www.comptroller.nyc.gov – identified a litany of problems. Chief among them:

• In September 2007, the Comptroller’s auditors and engineers observed degraded concrete piers with exposed and corroded steel, water penetration into the superstructure and cracked concrete, among other dangerous conditions. In November 2007—a year and a half after being notified of these conditions by its own consultant, EDC installed temporary shoring to prevent a possible failure of the structure along the expansion joint – at a taxpayer tab of $464,000.

• Numerous inspections and surveys conducted over the last six years on behalf of EDC also identified serious problems: unsafe pier conditions, elevators and bulkheads in poor condition, exposed electrical wiring, missing fire-stopping, an unsafe gangway, faulty fireproof doors, deteriorated timber pile caps, and cracked and spalled beams.

• The most recent survey released just three months ago estimated that the cost to restore and repair the garage structure would be $5,508,500.

“What is most troubling is that many of these problems could have been fixed if Skyports performed regular maintenance as required by the lease. More alarming is that these problems were readily apparent, but EDC failed to enforce the terms of the lease and require Skyports to maintain the property. And because of that, New Yorkers may have to pick up the tab.”

The City has leased the site since 1959. A decade ago, an amendment to the lease assigned all rights, title and interest to New York Skyports and subsequently a sub-lease was entered into with Gulf Oil Partnership for a gas station. Gulf then entered a lease with Kalish and Kerner Petroleum LLC to operate the station. The Department of Small Business Services assumed management of the property in July 2001 while the Economic Development Corporation (EDC) oversees the lease with Skyports.  In 2002, Skyports exercised their final 10-year renewal option on the lease, expiring April 11, 2012.

Overall, the audit, which covered Calendar Years 2006 and 2007, discovered that Skyports violated the terms of several major provisions in its lease with the City and as a result, may owe the City nearly $6.1 million. Of that $6.1 million, Thompson said it may cost more than $5.5 million to rectify the poor conditions. In addition, Skyports owes the City $548,135, which includes:

• $464,000 for emergency repairs performed by EDC to temporarily secure the garage structure.

• A minimum of $46,614 for not paying 50 percent of the revenue derived from the sale of goods, merchandise and advertising on the premises as described in the lease. Auditors discovered that Kalish and Kerner was selling beverages, candy, and cigarettes, and also had an ATM machine and advertising panels. Skyports did not obtain the City’s approval to allow the subtenant to conduct sales as required by the lease.

• Kalish and Kerner refused to provide the necessary information to determine the amount of revenue received from the operation of the convenience store, advertising and ATM machine.  However, based on the limited information the Comptroller’s Office was able to obtain, Kalish and Kerner earned at least $93,227 in revenue and as a result the City is owed a minimum of $46,614.

• Skyports didn’t pay one of its water and sewer bills to the City for a decade – yet another example of an EDC-leased property in which the City was cheated out of revenue for a number of years. Auditors noted that the premises had three accounts with the Department of Environmental Protection (DEP); two had been sent to Skyports since 1998, but the third was never generated. After the Comptroller notified DEP, they dispatched an inspector and subsequently billed Skyports for $37,521 in water and sewer use. The outstanding balance, as of June 2008, is $40,677.

“The lease clearly states that Skyports is to pay for all water, gas, heat, electricity and sewer charges. As lessee they are responsible for coordinating with DEP to ensure that proper accounts are established and to deal with any inaccuracies.  They now have the opportunity to make immediate restitution,” Thompson said.

Thompson further pointed out that under the lease, Skyports is required to furnish a surety bond with the City on an annual basis in the amount equal to the annual rent at the beginning of each term. Although Skyports did obtain a bond in 1998 for $222,749, it has failed to increase the value of the bond in 2002, the beginning of the third and final term, to reflect the increased rent of $406,140.

“Surety bonds protect the City’s interests and ensure that lessees comply with their leases.  The current bond is undervalued by more than $183,000 and is currently placing the City at additional financial risk,” Thompson said.

Additionally, EDC did not appraise the land every six months for insurance purposes as required by the lease. In fact, the last appraisal took place 15 years ago.

“There was a lack of effective oversight that put the public at risk” Thompson said.  I can at least take comfort that to the best of my knowledge no one was seriously injured as a result of these problems.”

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