A Good Parking Place is Hard to Find
In a city as crowded and fast-paced as New York, parking is a big deal—it’s hard to find it when you need it, and when you do find it, it’s usually very expensive. Since parking spaces in the city are such a hot commodity, it’s not surprising that many co-op and condo buildings operate their own parking facilities, both as an amenity for residents and as a source of revenue. And which of these benefits the building’s residents most value—the money earned from the facility or their own convenience—could be the deciding factor in how their board of directors decides to manage the garage.
Whether the facility is underneath the building or adjacent to it, there’s more to running a parking garage than just painting some stripes on the pavement and watching the cash roll in. Supervising employees, sending out bills and collecting fees, allocating spaces for residents and managing the income are just some of the considerations that must be taken into account when devising an appropriate parking facility operations plan. Understanding the financial aspect of the process, and recognizing how buildings handle the pros and cons of making money with parking, can position board members and other residents to make the right choice in how to deal with their parking facility.
Who’s In Charge?
How a residential board manages an underground or adjacent parking facility differs from building to building. The boards of directors of some multi-family residences take a more hands-on approach to managing their parking facility, while others allow a professional parking facility operator to do nearly all the work and pay the building for the opportunity to do so. It’s all about what works best for the building. Sometimes residents get preference for parking spaces based upon their ownership in the building. Often, they get a discounted rate on parking in the garage.
There are two ways to set up garage management—through a management contract or with a lease contract. A management structure contract is more of a partnership between the parking facility operator and the board, under which parking rates, hours of operation, service levels and improvements to the facility are decided by the owner. About 20 percent of the city’s co-op and condo buildings operate their parking garages in this manner. One disadvantage of this setup is that some parking facility operators will shy away from working under such a contract, preferring an arrangement in which they’re free to set rates for the facility on their own.
That means when a board is looking for a new operating contract for its garage, the number of potential operators bidding for the job will be fewer if having lower-than-market-rate resident parking fees is a necessity for the building’s board. Having fewer bids means less competition, which can amount to a parking operations contract that is less than as lucrative as it could be for the building. The end result is less financial benefit for residents of the building.
“The co-ops, especially, don’t like to manage the operation. They’d rather get a stream of income from rent and let the operators do their work,” says Andrew Grossman, vice president/counsel for Manhattan-based GGMC Parking LLC.
Under both scenarios, the operator collects fees for the garage. But the more popular type of parking facility management is a lease structure contract, which about 80 percent of the city’s buildings use for their parking areas. Under a lease structure, the operator signs a contract to manage the facility, usually for a term of ten years or more. And though the owner has less control over how the facility is managed, one advantage of this type of contract is that the building is guaranteed a steady revenue stream, regardless of how many patrons use the facility.
Many residential parking garages also serve the community around them, which can be lucrative in good times. But a downturn in the economy can mean lower parking demand and lower revenues from a facility that’s under a management structure contract, says Steven Aiello, senior vice president of Standard Parking Corporation in New York
“If having a say in pricing is a priority, a management agreement is the best option. If the garage doesn’t really serve the building, a lease would be the best option,” Aiello says.
Some boards choose a management contract partly so they can set two different parking rates—giving a lower rate for residents of the building and a higher one to nonresidents—but such a choice can be a losing proposition. While it will benefit the residents who park their cars in the garage, under a management contract, lower resident parking rates means the building will get less revenue, which is a disadvantage to all of the residents. In such a scenario, residents who are not motorists will be subsidizing parking rates for the car owners. Some industry pros say that method doesn’t make sense.
“A flat rate is fairer,” Grossman says.
Pricing and revenues aren’t the only factors to consider when a board is mulling a new lease or considering a new parking operator. Some operators are better than others, which is why companies that are new to a building’s management should be properly vetted long before they are hired.
“When considering renewing a [parking operations] contract, look at the options out there,” Aiello says. “It’s always good to shop around for parking operators.”
The search should include interviewing the would-be manager of the facility. That individual should be customer-friendly and knowledgeable about his job and the industry.
“Hire a company with a good track record. Check references and find out what their plan is for the garage,” says Kristen Sokich, senior vice president of Propark America, a nationwide garage management company, noting that some companies do more with eco-friendly technology, like installing “green” lighting, which can help the building’s overall profile and attractiveness to buyers. “You could pitch your building as greener than other buildings.”
Some parking garage operators offer amenities that could be more attractive to board members of buildings. With the increase in electric and hybrid car use, some operators offer to install electric car charging stations in garages. The cost of such installations could be shouldered by either the operator or the building owner, depending upon the operator. Some parking garage operators are becoming more eco-savvy, adopting new technologies far ahead of the trend and in advance of their competitors. Parking garages will become the filling stations of the future, Sokich predicts.
It may seem that there isn’t much room for considering aesthetics when poring over the details of a parking facility operations contract, but in the city where the art scene never sleeps, GGMC Parking has made art installations its trademark look. The company has its own sign and graphics department, which focuses on improving the aesthetics of the garages it manages, as well as increasing the place’s curb appeal. According to Grossman, they do so by installing artwork and photos of the neighborhood in which the facility is located as a way to beautify the space and remind people that the garage is part of the building.
Slower Economy, Changed Expectations
In some cases, what works best for the building is a question of what contract terms are most lucrative to the building. In a city where parking fees can range from $2,000 to $6,000 per space annually, the amount of money under consideration is sizable. During good economic times, leasing contracts increase, because it’s easier for operators to make lease payments when business is good. High unemployment, though, can make the city’s parking tax and other costs related to parking less attractive to commuters, Sokich says. Those commuters might opt to bike to work or take public transportation in their daily commutes.
“In today’s environment, parking revenues are down and a managed contract can make more sense than leasing,” Sokich says.
The slower economy has taken its toll on many parking operations throughout the city, shaking up the market. When there is a decrease in commercial activity in the city, obviously it lowers parking demand, Aiello says. The recent economic downturn adversely impacted parking garage operators, as well.
“A lot of operators have not been able to make their lease payments, so more buildings are looking for managers,” Sokich says.
Federal tax legislation also has had an effect on parking practices for New York co-op and condo buildings. The repeal a few years ago of the so-called “80/20 Rule” had an impact on co-ops with garages in high-traffic areas, such as those in Midtown Manhattan. The 80/20 rule, which was a part of Section 216 of the IRS federal tax code, stated that in order to avoid penalties, at least 80 percent of a co-op building’s revenue had to come directly from shareholders, and that no more than 20 percent of the building’s income could come from sources outside the building, such as first-floor retail tenants, exterior advertising space, or parking garages. It used to be that co-ops wanted their residents’ parking fees monthly, but the 80/20 repeal has changed that, Grossman says. The upside is that the issue is no longer a negotiating point with the parking operator company.
“The bigger item was that some co-ops now prefer management agreements. We’ve seen all of our Manhattan co-ops go for management agreements because the income is not lease income that way,” Aiello says.
Because of the high premium placed on nearby parking for co-op and condo residents, it’s not very common for such multi-unit buildings to choose to sell their parking facility. While there is some flipping of stand-alone, commercial garages owned by residential buildings, it’s the exception. Part of that fact is due to the reality that the market to buy garages under lease properties is not as attractive to would-be buyers.
Generally speaking, the boards of most residential buildings want their garages to be as financially sustainable as possible. When those parking facilities are doing well financially, there’s often no need, or desire on the part of residents, to sell them.
Jonathan Barnes is a freelance writer and a regular contributor to The Cooperator.