Parking Dynamics How to Get the Most From Your Garage

Driving around Manhattan can be a hazardous sport. Cabbies signal lane changes by changing lanes. Brazen bike messengers yield for few things, and stop for fewer. Congested pedestrian groups form walls as they cross the street, stymieing cars attempting to make right-hand turns. The harrowing journey often ends in an expensive parking garage, awash in the smell of burning rubber as an attendant peels off in your car. Comparatively, it can seem like a privilege to sit idly for a $2 subway ride.

Some car-owning city residents do have a reprieve, however, if they live in a co-op or condo building with a parking facility. Not only do they have a guaranteed parking spot that's close to home and sometimes discounted below market rates, but they also benefit as shareholders in a corporation for which a garage can generate significant income.

"A parking garage is usually the largest source of income - other than shareholder maintenance - that a co-op or condo has," says Donald Levy, director of management at Lawrence Properties, a building management company based in Manhattan.

In fact, a commercial garage can be a significant enough source of revenue to tip the so-called "80/20 Rule" out of a co-op's favor by generating more than 20 percent of the building's income. By law, a residential co-op must get at least 80 percent of its total revenue from shareholders' monthly maintenance payments, or forfeit valuable tax exemptions and abatements; a successful garage operation could very easily disqualify its parent building by simply making too much money.

That's not the final word, however. In many cases, the sticky wicket posed by the 80/20 rule can be skirted by establishing an adjacent garage as a cooperative entity in and of itself, or by leasing the space to a wholly owned subsidiary that acts as a shield. In any case, Levy sees it as a happy problem.

"It's commonly referred to as the 80/20 "˜problem,' but there are thousands of buildings that would love to have the problem [of their garage turning too large a profit]," he says. "For many co-ops, the only additional money they get is from the laundry room."

Cost-Benefit Analysis

Because they can be so profitable, Levy says that it is important that a board or condo association make informed strategic decisions about how the parking facility is run. What this boils down to is an analysis of how to bring in maximum revenue at the least cost in logistical headaches.

Charles Bilodeau, an associate at Desman Parking, a parking consultancy in Manhattan, says that the first step a building should take is to gauge the supply and demand in the area, then determine the rates a garage can charge. "You don't want rates too high because you'll price yourself out of the market, or too low because the demand could exceed the supply," he says. "You want to be competitive, but not lowball."

Bilodeau says that while it is not essential to hire a consultant to conduct this research, it can be prudent. Desman Parking charges an hourly fee of $100-$150 to conduct a building's needs assessment. They generally begin by conducting an existing supply-and-demand analysis, evaluating the garage's rate structure, and determining its potential revenue. Additionally, they can help the building put together requests for proposals and/or qualifications for parking operators or management companies, and consult on the more minute details, like hours of operation, and whether to use a self-park or valet system, or some combination thereof.

One decision that is often predetermined in a building's Certificate of Occupancy is whether the garage can be open to transient parkers (most can) and whether residents have the first right of refusal to a spot. "Most of the [Certificates of Occupancy] allow 30-day parkers, and if a tenant wants to park they get preference," says Dennis Greenstein, a partner with Mandel Resnik Kaiser Moskowitz & Greenstein, a New York law firm specializing in real estate.

While most tenants have a spot if they want one, in Manhattan they often pay the same rates for it as an outsider. Buildings skate on thin ice with this issue, because they do not want to be unfair to tenants who do not own cars. The co-op as a whole will generate the most income receiving top market rates for the spots. This tug-of-war plays out differently throughout the city.

Elliot Brownstein, the owner of Manhattan's Mutual Parking, says that it works out to be about 50-50 for the buildings he manages, whereas Levy says that "very few" of the buildings he manages give preferential rates to tenants. According to Pernilla Andren, a principal with Manhattan-based parking company MTP Investment Group, they are a bit more common in an iffy economy.

"Today especially, the rates are coming down," she says. "It's hard to sell, so in order to lure a tenant in, many buildings will give a good rate."

Unfortunately, many buildings that might want to utilize that logic do not have the option because they are stuck in ten- or 15-year leases that were drawn up when it was a seller's market. Buildings must employ a great deal of foresight when negotiating the terms of a lease with a parking operator. That is, if they decide to bring one on at all.

Parking Politics

Some buildings opt to self-run their garage facilities. According to Levy, this option carries substantial expenses, including the financial burdens of additional insurance, garage staff salaries and utility costs, and headaches like fielding tenant and transient complaints about car damage, or requests for better parking locations within the garage. However, he says, this does not mean that the numbers and the aggravation are definitively not worth the trouble.

"No garage operator is going to enter into a lease unless he thinks he's taking in a good deal of money, so clearly if there's no intermediary, there are great profits to be made," he says.

Eric Goidel, an attorney who runs the co-op and condo department at Borah Goldstein Altschuler Schwartz & Nahins in Manhattan, says that in order to be maximally profitable, a garage generally must be open to the public, "which opens up a whole new set of liabilities."

"I wouldn't recommend operating a facility that was open to the public in the name of the corporation," says Goidel, noting that you can opt to run the garage as a separate corporation, which is the case at the Schwab House at 11 Riverside Drive in Manhattan.

At the Schwab House, a co-op building with 800-units, executive manager Lance Kolb is responsible for these two separate corporations, though he has a garage manager working beneath him. He says the figures definitely add up to make this endeavor worthwhile, in terms of the control the building has over the garage and the revenue it can bring in. "It's work," he says. "It's not simple, but it's not overly difficult either."

At any given time, the Schwab House keeps about eight people on staff for the garage, which is open 24 hours a day. Tenants are guaranteed a parking spot if they want one, but they do not receive preferential rates. About half of the garage's 200 spots are occupied by building residents, and the rest are filled with transient parkers paying monthly, daily and hourly rates.

Kolb guesses that most co-ops opt to hire parking operators because they would rather not deal with "the nuances of managing two corporations at the same time," but Goidel has his own take. "From a political standpoint," says Goidel, "having an outside management company can create a buffer between the board and its residents concerning parking."

Finding the Right Operator

There is no subtext in the yellow pages beneath the listings for parking operators. Goidel says a building must be sure to thoroughly examine an operator before entering into a lease agreement, and to that end he offers the following advice:

"I would check other locations that the operator is maintaining in cooperative buildings, and speak with the managing agent and board members to see what kind of operation is being run. Also observe the condition of the garage, because frequently the maintenance is delegated to the operator," he says.

In general, the parking operator leasing the space will assume responsibility for general repairs and maintenance, while the building will take responsibility for any structural damage.

Goidel also recommends checking with the Department of Consumer Affairs to see whether the operator has a significant complaint history. With regard to insurance, the operator must have a certain amount by city requirements, but Goidel says that a good operator will have more than what is required, and that it's a good idea to get a hold of the insurance record.

"Ask the garage operator to deliver a loss run that will show how often claims are filed for personal injury or property damage," he says.

According to Andren, the right operator will also be likely to show willingness to sign month-to-month leases with the building on a trial basis, as her company does, in an effort to display their confidence in the service provided.

Brownstein feels that lease renewal with other buildings is the surest sign that a garage is to be trusted. "The first lease I took, I still have," he says. "It's been over 40 years."

Negotiating a Lease

Most parking operators deal exclusively in ten-year leases or longer, so before signing one, it is essential for a building to conduct a sound analysis of the situation, factoring in an extensive list of variables. Among them is what Brownstein calls the "Good-Guy Clause," which in legal terms is known as a self-help clause, and can prevent an operator from "holding over" after the lease expires, or in the event of a breach - that is, squatting in the space but refusing to pay rent.

"It's a difficult situation when this occurs," says Goidel. "It's not like a tenant that has a store space that only they're using - the garage is being used by residents of the building, so you still have to provide that service."

The self-help clause allows the building to deliver possession of the garage to a new operator without going to court and getting an order of eviction. With a self-help clause, you can go in and change the locks and remove any personal property belonging to the operator without getting a marshal or a sheriff involved.

Brownstein says that he is rarely asked to insert such a clause because he has a good reputation, but when it is requested he approves it without taking issue. Anyone who quibbles over the insertion of a self-help clause is probably suspect for that reason alone. The primary concerns on a reputable operator's mind are to win a contract, to secure a long-term lease, and to have that lease renewed.

Because renewal is important to an operator - who will become most profitable the more familiar they are with the area - the building can dangle this as a bargaining chip, even if the lease is not up for some time. This is essential, because many things can change over the course of a ten- or 15-year lease that can have dramatic impact. A sports arena might be erected next to the garage, yielding considerably greater revenue for the operator, who may be willing to pay higher rent in exchange for a longer-term lease. Similarly, if property taxes are raised, the operator may be willing to shoulder some of that burden in exchange for a longer lease or a promised renewal.

In order to have the time to find and hire a new operator, Levy recommends taking early action to figure out if this will be necessary when an existing lease is up.

"I would recommend that at least two years before the lease expires, the board should begin negotiations for renewal so they know well in advance whether they will have to go out and find a new one," he says.

In light of all this, it seems that garages come attached with responsibilities that are, in fact, as unending as the line of cars heading eastbound through the Midtown Tunnel on Memorial Day weekend. Fortunately, they can also help fund your beach house destination, and shelter the car that takes you there.

Jessica O'Brien is a freelance writer and frequent contributor to The Cooperator.

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