Audit cites EDC for major violations of E. River lease

Comptroller asserts that insufficient oversight could cost City $6.1 million. A June 2008 audit by City Comptroller William C. Thompson concluded that New York Skyports, Inc. violated its lease agreement for a two-acre City-owned East River site, creating a potential cost of $6.1 million to the City.

Originally executed with the Gulf Oil Corp in 1959, the lease allowed the construction of a parking garage over the East River and the additional use of the two-acre parcel – running along the East River from East 18th to East 23rd Streets in Manhattan – for a seaplane operation, marina, gas station, and a plane, boat and auto repair facility. In exchange, the lease entitled the City to annual rents and 50 percent of all gross revenue from sales and advertising. Starting in 2002, several City inspections revealed needed repairs. In 2006, an inspection revealed issues with the garage’s structural support. In 2007, the City stepped in, spending $464,000 to install temporary shoring to support the floating garage.

The Comptroller’s audit covered 2006 through 2007. It found that Skyports correctly paid base and supplemental rents of $870,920, but failed to pay $37,521 in water and sewer charges and $46,614 in sales revenue. Skyports’ surety bond of $222,749 was below the $406,140 required by the lease. Its most significant finding was that Skyports’ lack of a maintenance program led to the garage’s deterioration, forced the emergency shoring, and created a future repair cost, which the audit estimated at $5.5 million.

The audit found EDC at fault for failing to insure maintenance of the site after inspections revealed deterioration, specifically a 2006 inspection, which revealed structural flaws. EDC last appraised the property in 1993. As a consequence, Skyports’ insurance policy could be undervalued, the audit noted. Ultimately, the Comptroller concluded that EDC should terminate its lease with Skyports or follow its recommendations to cure.

Skyports, in its response, called the report one-sided and accused the Comptroller’s office of working with EDC on the audit to force Skyports’ eviction. To support this claim, Skyports stated that the Comptroller failed to complete its own engineer’s report, relying instead on an EDChired consultant for its $5.5 million estimated repair cost.

The EDC’s response stated that the City’s Corporation Counsel is proceeding with litigation against Skyports to enforce the terms of the lease and to cure all outstanding defects.

Audit Report on the Compliance of New York Skyports, Inc., with its Lease Agreement, Office of the Comptroller, June 30, 2008.

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