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The Lowdown on Sodexo’s Sweet Deal in Coney Island

Posted in Redevelopment, tagged Central Amusement International, Coney Island, NYCEDC, Sodexo on March 3, 2011| 4 Comments »

Sodexo Kiosk at Luna Park Coney Island. May 31, 2010. Photo © Tricia Vita/me-myself-i via flickr

While Coney Island’s veteran Mom & Pops hammer out a deal for one last summer on the Boardwalk, French food and facilities giant Sodexo has a sweet 10-year sublease with Luna Park operator Central Amusement International. A copy of the confidential sublease agreement between Sodexo and CAI was obtained through a Freedom of Information Act request to the NYCEDC.

Sodexo’s contract with CAI is dated April 26, 2010 and says it had to be approved by the NYCEDC since the sublease is subordinate to the underlying lease between the City and the amusement operator. Here are some of the terms of Sodexo’s sublease:

–Last season, Sodexo paid Luna Park operator CAI a “flat rental fee” of $75,000 to operate food kiosks in the park. Sodexo keeps all cash receipts and pays all operating expenses. What was the City’s cut? According to the Economic Development Corporation’s (NYCEDC) lease with CAI, the City receives 15% of the fixed rent paid by any subtenant. If you do the math, 15% of $75,000 is a paltry $11,250. By comparison, last year the City received 100 per cent of the rent paid by the Boardwalk businesses, which was $100,000 each for Paul’s Daughter, Ruby’s and the other food concessions.

–Sodexo’s initial investment of $1.432 million is considered a “Reimbursable Initial Capital Investment” for the purchase of four kiosks, a concession trailer, beer and liquor license, and equipment necessary for remodeling and operating the restaurant under construction at Surf Avenue and 10th St. The Reimbursable Capital Investment will be owned and depreciated by the amusement operator.

-In 2011, Sodexo will pay CAI a flat rental fee of $225,000, which means the City’s 15% cut will be $33,750. Pocket change! Beginning in 2012, Sodexo will pay a fee based on the prior year’s net sales. For example, if the prior year net sales are $2.7 million, then Sodexo would pay a flat rental fee of $432,000, or 16% of the net sales.

–CAI gets to decide whether Sodexo will have the option of operating “Branded Concepts” in the park. According to the contract, the term refers to “food and beverage systems operated by Sodexo through national and regional third party license agreements or franchise agreements or through Sodexo’s own in-house trademarked brands.” As ATZ reported in January, Sodexo is known for its cafeterias and individually branded restaurants, but nationally branded subtenants are also brought in under franchising or licensing agreements for the appearance of variety. Branded Concepts frequently mentioned in Sodexo’s ads are Starbucks, Pizza Hut, Sub Connections and Panera Bread.

—Luna Park cannot require Sodexo to use products from “non-Sodexo approved vendors” and suppliers. As we reported previously, Sodexo has a completely centralized purchasing system, which requires clients to choose from a list of “Right Products.” Another term used internally by Sodexo is “Compliant.” Vendors who offer rebates are “compliant” while those that do not are “locked out,” according to investigative reporter Lucy Komisar in “Cafeteria Kickbacks: How food-service providers like Sodexo bilk millions from taxpayers and customers.” Last July, then-Attorney General Cuomo issued a press release announcing “a $20 million settlement with food services provider Sodexo for overcharging 21 New York school districts as well as the SUNY system.”

–Sodexo is an independent contractor and has its own employees. The lease contains more than a dozen clauses to insure compliance with non discrimination and affirmative action policies as well as City programs such as Minority and Women Business Owned Enterprises. According to NPR, Sodexo executives say they are trying to create a more diverse workplace after settling an $80 million class action discrimination lawsuit brought by African-American employees in 2006.

–After 3 years, either party is free to terminate the lease. If the agreement is terminated by Sodexo for convenience or by CAI for cause, at the end of the third year CAI would have to reimburse the remaining unamortized value of the Reimbursable Initial Capital Investment ($1.432 million) over a three year period, payable on a monthly basis, with interest accruing at the prime rate in the Wall Street Journal plus 2%.

CAI’s Luna Park and soon-to-open Scream Zone are on City-owned land in Coney Island purchased from Thor Equities for $95 million and leased to the amusement operator for ten years. As the Sodexo sublease makes clear, CAI has a pretty sweet deal too. Their base rent is $100,000 annually plus a small percentage of the gross receipts. For example, ten percent of gross receipts over $7 million.

However, Central Amusements is also investing nearly $30 million in building and operating the park. According to CAI’s contract with the City, Luna Park also received a subsidy of $5.7 million from the City for “among other things, facilitating the purchase of certain equipment necessary for the Tenant to operate the Premises as a first class amusement park.”

Sodexo, which is the 21st largest corporation in the world, has a market value of 7.7 billion euros ($10.59 billion). The French food and facilities management giant has been CAI’s partner for “On Site Service Solutions” since Luna Park opened last May, though the partnership was not announced by the City or CAI. Sodexo’s presence was known only within Coney Island until ATZ first reported the news in November after the Boardwalk businesses received eviction notices on November 1st, the day after the 2010 season ended.

New Construction: Coney Island’s 1st Private Beachfront Condos on Boardwalk

Posted in Real Estate, Redevelopment, tagged beachfront condominium, Charles Denson, Coney Island, Coney Island History Project, Lincoln Baths, Taconic Investment Partners on February 17, 2011| 11 Comments »

Beachfront Condos Under Construction on Boardwalk at 32nd St, Coney Island. Photo © Bruce Handy/Pablo 57 via Android

The first private beachfront condominiums to be built on the Coney Island Boardwalk are under construction at West 32nd Street and are expected to be completed this summer. The four-story building will have 11 units including 1, 2 and 3 bedroom apartments, each with its own parking stall. Marina Krasnova of New Vision told ATZ that sales prices range from $685,000 for a one-bedroom to $1.55 million for the penthouse.

Located in the West End of Coney Island, across the street from the NYC Housing Authority’s Coney Island Houses, this new construction is a harbinger of more beachfront residential to come. The rezoning plan approved by the City Council in 2009 put 26 high rise residential towers and 5,000 new units of housing in Coney Island, including beachfront condos on Taconic Investment Partners 5.5 blocks of vacant land just west of MCU Park (West 20th Street).

We think it is the future beachfront residential, which Taconic has valued at $300-$900 per square foot, that is driving the City’s plan to gentrify the Boardwalk and make it into a year-round destination with upscale restaurants and bars.

Beachfront Condos Under Construction on Boardwalk at 32nd St, Coney Island. Photo © Bruce Handy/Coney Island Photo Diary via flickr

Coney Island History Project director Charles Denson, who grew up in Coney Island Houses, tells ATZ that the lot on West 32nd Street has been vacant since 1982. “It was the site of Sam’s Knishes and the Lincoln Baths,” said Denson, whose book Coney Island: Lost and Found combines a history of land use in his neighborhood and boyhood memoir. “Sam’s had the best cherry cheese knishes in the world and the Lincoln Baths go back over 110 years.” On the History Project’s blog “Ask Mr Coney Island,” Denson notes that the Lincoln Baths, along with the Washington Baths (W 21st St), Roosevelt Baths (W 30th St) and Jefferson Baths (W 33rd St) were Coney Island’s “presidential bathhouses.”

“The bathhouses were where people rented lockers and changed from street clothes to swim suits. You could also rent swimsuits and beach chairs and umbrellas,” writes Denson. “They were very social places and generations of families and friends from the same neighborhoods patronized the same bathhouses for years until the last one (Brighton Beach Baths) was demolished in the early 1990s.”

Coney Island Boardwalk east of West 33rd Street showing the Lincoln Baths in the foreground, 1924. Eugene L. Armbruster Collection, New York Public Library

How did it happen that land once occupied by bathhouses patronized by working class New Yorkers is destined to become luxury beachfront apartments? The Washington Baths site, which Thor Equities bought from Horace Bullard for $13 million, was flipped to Taconic for an exorbitant $90 million because both parties were sure the City would rezone it for residential.

Taconic Investment Partners plans to build a glittering city of 2,500 apartments and 200,000 square feet of retail west and north of MCU Park. According to Taconic’s website: “The North Venture consists of three city blocks on the North side of Surf Avenue totaling nearly 109,000 square feet. One block from the beach, these parcels include vacant or under-improved land. Coney Island South Venture encompasses 5.5 acres on the south side of Surf Avenue, interspersed over four blocks along the beachfront, and is also comprised of vacant or under-improved land totaling nearly 240,000 square feet.”

As Taconic CEO William Bendit told Eliot Brown of the New York Observer in an interview in 2009: “What attracted us to Coney Island was the fact that it’s vacant land—we didn’t have to dispossess anybody, relocate anybody. And it’s the beachfront. How much beachfront land is there in New York City? Not only that, but beachfront land that’s accessible to the subway. So, if you think about it, how many young people, or anybody, for that matter, would like to commute into New York or Brooklyn, and go home at night and live on the beach?”

What would it take to make you move to the new Coney Island?

Coney Island Aerial: Detail of Conceptual Rendering. CIDC Press Kit

Coney Island Aerial: Detail of Conceptual Rendering Shows Residential Towers West and North of MCU Park. CIDC Press Kit

Coney Island Boardwalk 8 Lease Deal in the Works for 2011

Posted in Redevelopment, tagged Boardwalk, Coney Island 8, Zamperla on February 15, 2011| 14 Comments »

Easter Brunch at Paul's Daughter on the Boardwalk. April 4, 2010. Photo © Tricia Vita/me-myself-i via flickr

Looks like the Coney Island Boardwalk may not be corporatized and Sodexo-fied this summer after all! Sources tell ATZ that the Mom and Pops known as “The Coney Island 8” who have been fighting eviction since November are being offered leases for the 2011 season by amusement operator Zamperla. The lease is said to be prepared and waiting for the parties to sign on the dotted line on or before February 16th. That’s tomorrow, when both sides are due back in court for the hearing that was postponed from last month.

The deal has been on our radar for the past few weeks, which is why we’ve been uncharacteristically silent on the subject. Sources have been telling us the lease has many stipulations, including a confidentiality clause, and the deal could go either way. If the deal gets done, we predict Zamperla will once again be seen as the good guy for giving up their strong arm tactics of recent months. Out with the old, in with the new will be postponed till 2012 and visitors will again be able to enjoy a beer at Ruby’s Bar and french fries at Paul’s Daughter. Shoot the Freak is expected to move to a new location to make way for the Boardwalk entrance of Zamperla’s new Scream Zone, but the rest of the businesses would reopen in their current locations.

The one-year reprieve for the Mom and Pops would end on November 1, 2011, when they will be required to pack up and go. The lease is said to be for the same amount of rent as previous years. Ruby’s, Paul’s Daughter, Cha Cha’s and others paid $100,000 for the season. An additional season would give the businesses an opportunity to set aside some money for moving costs and time to find a new location. Zamperla’s Central Amusement International has a 10-year lease on the City-owned property. As ATZ first reported last year, Zamperla also has an exclusive contract with Sodexo for food and facilities management.

Sources tell ATZ the lease stipulations include a confidentiality or nondisclosure clause, which would restrict the Coney Island 8 from making public statements about the situation. It won’t be the first time these businesses had to agree to zip their lips to keep their spot on the Boardwalk.

When Thor Equities owned the Boardwalk property, the majority of businesses had leases with a confidentiality clause prohibiting all public comments about the redevelopment of Coney Island, not only for the term of the lease, but for three years after its termination. Violation of this clause would have resulted in immediate eviction and a $10,000 fine for each instance of a violation. This clause prevented the businesses from participating in the public hearings that ultimately determined the rezoning and the future of Coney Island.

With 62 days left till Coney Island’s official opening day, we applaud a deal that insures the Boardwalk will be open for business. At the same time, that doesn’t let the City and its quasi-governmental agencies in charge of Coney Island redevelopment–the Economic Development Corporation (NYEDC) and the Coney Island Development Corporation (CIDC)–off the hook for not including a provision for local small businesses when the City made their lease agreement with Zamperla.

In regard to the Boardwalk operators prospects, City officials were less than candid from the day the property was purchased from Thor Equities. At the press conference, which we watched live, Shoot the Freak owner Anthony Berlingieri posed a question to the Mayor, who was taken aback. The question was “Is there a place for us?” NYEDC’s President Seth Pinsky, who is a very slick talker, stepped up to the mike to reply. Pinsky said “Our intention is for the foreseeable future to keep all the tenants in place, certainly through next summer [2010]. And we’re going to be looking to work with each of you to figure out where it makes sense for the various tenants to remain as we build out the amusement park.”

Interestingly, that part of the press conference was excised from the version that went up on the web. If a reporter from the Brooklyn Paper hadn’t followed up with a story, it would have been excised from history.

As it turns out the EDC and their satellite the CIDC did not work with each of the businesses to see where it made sense for them to remain. Apparently the EDC figured out it didn’t make sense for the Boardwalk tenants to remain, but neglected to tell anyone except Zamperla. We called out Pinsky on this quote on ATZ and twitter when he had the nerve to tweet “Support your local small business” just as Paul’s Daughter was throwing their goodbye party. We invited him to the party, but of course no one from the City would show. City officials, both elected and appointed, refused to support or say a word to the press about the small local businesses booted off City-owned property in Coney Island. It will be interesting to see what if anything City officials will have to say about the new leases and future prospects for the Boardwalk Mom and Pops.

UPDATE March 8

Yes, all eight of the Coney Island 8 signed the agreement that will allow 7 of them–Shoot the Freak is out– to lease their Boardwalk locations for one final summer before they exit quietly. We tweeted our reaction this morning. What else is there to say? If you want more info on why the Mom & Pops are being forced out, read our posts on Sodexo.

AmusingZillion
In 2010 @NYCEDC got $100K rent from Ruby’s but only $11.25K from Sodexo 4 rent on City-owned property bought for $95.6M http://bit.ly/gNPci3

AmusingZillion
Happy we’ll be able to drink @ Ruby’s, eat @ Paul’s Daughter this season. But deal nothing to celebrate. #ConeyIsland small biz on way out

UPDATE March 6

Tomorrow, March 7th, the Coney Island 8 and Zamperla are due back in court over the Boardwalk evictions. A one-year lease deal ihas been in the works for weeks. Will they all sign?

UPDATE February 15, 7:07 pm

New York Mag’s Grub Street just talked with Coney Island Island 8 attorney Marc Aronson who says: “We’re working on something that’ll be an amicable resolution for all the parties and something that’ll be really just for both sides, and we’re really close.” He says he expects tomorrow’s court date to be postponed for a weeks, “at which point we’ll finalize the details of the stipulation or agreement.”