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Summer 1995
City Journal Summer 1995.
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This Market Sure Isn't Free
Richard Miniter
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The cash-strapped City of New York is considering a plan to subsidize the Pathmark supermarket chain to the tune of $12 million in loan guarantees and tax breaks to open a store in East Harlem. To take advantage of this largesse, Pathmark has agreed to pay $20 per square foot—double the market rent—for the store. The project's supporters say only special benefits will tempt a major supermarket into an impoverished area.

But the subsidies will most benefit two politically connected nonprofit organizations, whose supporters, a who's who of the African-American establishment, include Congressman Charles Rangel and the Reverend Calvin Butts. Pathmark will pay the rent to the East Harlem Abyssinian Triangle, a joint venture of the two nonprofits.

That rent is so high, says Abyssinian Triangle project manager Joan McCloud, because "that's what we need to pay the debt." But the numbers tell a different story. The nonprofits are buying the land from the city for $1.5 million, borrowing another $7.5 million for construction and other expenses. Collecting $1.06 million a year in rent, they could pay off a $9 million loan at a market rate of interest in about 16 years. But instead they will be paying back the loan over 25 years at a mere 3 percent. City Councilman Antonio Pagan, a fierce critic of the Pathmark deal, characterizes it as a "massive payoff" for the powerful nonprofits.

The deal is already hurting local merchants. Efraim Olavarria planned to expand his East Harlem supermarket into a larger Fine Fare store. But General Trading, Fine Fare's holding company, told him: "Due to the fact that Pathmark is going to open a superstore within your store's customer base ... we feel that it's in the best interest of General Trading not to make any investments in that neighborhood."

A short hop to Newark would disprove the claim that major supermarkets need special enticements to open stores in poor urban areas. In that city's Central Ward, as impoverished as Harlem, Monsignor William Linder persuaded Pathrnark to open a superstore in 1990 without subsidies or tax breaks. The store is very profitable, with revenues per square foot more than twice the national average for supermarkets. A nonprofit run by Monsignor Linder owns the store in partnership with Pathmark and receives two-thirds of the profits, which it uses to provide an array of social services.

The contrast with East Harlem couldn't be sharper. Instead of charging rent' ' the Newark nonprofit shares the risk with Pathmark by taking a portion of the profits. In East Harlem the nonprofit coalition has no financial stake in the supermarket's success; it just cashes in as an above-market landlord. In a heads-I-win-tails-you-lose arrangement, the East Harlem Abyssinian Triangle collects rent payments if the store succeeds, and because of its loan guarantee, the city gets the tab if it fails.

The Pathmark project is now on the mayor's desk. He should veto it. If Newark can open a Pathmark without government aid, why can't New York?
 

 

 


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