The economics of parking lots
Paid parking lots: Those slabs of asphalt in the middle of cities with narrow spaces and often extortionate rates are pretty much a necessary evil if you own a car and spend any time in the city. But what’s their side of it like? Why even run a parking lot on a piece of urban land instead of building, like, an actual building? Are they goldmines, or what? What are their costs like?
Alongside Keith Bawolek, a real-estate expert who says he’s been involved in over a billion dollars in parking lot deals all over the country (and, we imagine, has a nice parking spot for himself), we’re going to try and find the perfect space to explain.
FIRST THINGS FIRST: WHY WOULD SOMEONE WHO OWNS LAND IN A CITY PUT A PARKING LOT ON IT INSTEAD OF AN OUTRAGEOUSLY OVERPRICED APARTMENT BLOCK OR WHATEVER?
Oftentimes, surface parking lots are a long-term play, according to Bawolek. Someone buys the land… and waits. Maybe the land is currently a few blocks from the action and still a bit, for lack of a better word, undesirable. They’ll wait for gentrification to creep closer, block by block. Maybe there are proposals for a stadium, arena or convention center to be built nearby. “To be in the path of future development,” is how Bawolek puts it.
Whatever the case, the owner is betting on the future value of the land. So the idea is to swoop it up now and cover their costs until it’s worth it to build condos, an apartment building, an office tower or whatever else.
This is happening in every city, by the way. “There are cranes up in places like Cincinnati and Milwaukee,” says Bawolek. There’s simply lots more urban living than there was even 10 years ago and running a surface parking lot is like putting your quarter on the arcade machine until it makes financial sense to build that building.
HOW DO THEY COVER THEIR COSTS?
By leasing the land to a parking-lot operator. As long as the property tax on the land is paid for by leasing it, a parking lot is a good temporary use of the property, and can maybe even earn the landowner a little profit. For one thing, they obviously leave a tiny footprint: When the time is right to build on the land, all they have to do is tear up the asphalt and remove the little electronic gates, chain fences and orange cones. And cities are in need of parking lots: There are huge fluxes of people into cities every day, for different reasons — work, dining, entertainment, personal stuff, you name it.
SO HOW MUCH DOES A PARKING LOT MAKE?
It’s extremely hard to give numbers because they’re all so different. But it’s pretty easy to figure how much one near the baseball stadium will make on game day when parking costs, say, $50, and you see that it has 30 spots or whatever.
ARE THEY GOLDMINES, THEN?
Bawolek calls paid parking lots “reasonably profitable,” bearing in mind all the variables, the main one of which is the old real-estate saw — location, location, etc. “Two exact garages three blocks apart in the same city could have two completely different operating incomes because of who’s parking there,” he says.
WHAT KINDS OF EXPENSES DO THEY HAVE?
Not many! Whereas in the old days you’d have a guy in a folding chair with a coffee can collecting fees, nowadays it’s as automated as possible. Maybe it’s the type where you pull a ticket when you drive in, then pay your fee at a pay-on-foot machine before you return to your car. Or you pay at the exit. Or pay via app. The goal for an operator is to cut costs as much as possible. Which, in the 21st century, we all realize technology is great at doing.
But for certain lots, that’s not possible. Think about fancy-hotel parking lot operators: They pay for the wages (and perhaps benefits) of valets to drive your car away for you, and they also pay high insurance premiums, Bawolek says, to cover their asses if they accidentally hired valets like the ones in Ferris Bueller’s Day Off.
DO PARKING LOTS GET SPECIFICALLY TAXED FOR ANYTHING?
It’s usually up to individual cities, but yes, many cities have a specific “parking tax” (of course they do). Here’s a look at the city of Chicago’s parking tax rates, as an example.
ARE THERE ANY LAWS GOVERNING THE AMOUNT A PARKING LOT CAN CHARGE?
Sorry, Bawolek says no. The market really dictates what a lot can reasonably (ha!) charge. Much depends on who’s parking there, and again, where it’s located. Is it office worker bees? Minimum-wage employees? Sports fans? Concert goers? The local parking-lot economy is at the mercy of the essential economic forces: supply and demand. “Because at a certain point you can’t be 50 bucks and everyone else around you is 20,” Bawolek points out.
WHAT’S THE PERFECT PARKING LOT LIKE?
“Ideally, during Monday through Friday you have daily office parkers,” Bawolek says. “At night maybe you have the residential that’s in the area, and some activity like theaters. And then on the weekends, you have theaters and sporting events.” If the whole process is automated, all the better (for the parking lot operator, that is).
Bear in mind, though, an ideal lot wouldn’t be full of only office workers. They’re parked there all day! Ideally you get shoppers, who turn over their parking spot every hour or two.
SO IS THIS A CUTTHROAT ENVIRONMENT, OR WHAT?
Oh yeah. One thing is the rates that we just explained. Bawolek also says a fascinating sub-economy is that of off-site airport parking. These are large surface lots near the airport that aren’t owned by the airport. They’re usually the purview of large corporations, because you need a lot of volume to make them work. For one thing, the operating expenses are high: Since these are often too far away to just walk to the terminal, you’ve got to have a shuttle to take parkers to and from the airport — and it better be a good shuttle! If it’s not coming through the terminal every few minutes, best of luck surviving. Then there’s the competition with the airport. They usually have the ability to charge below-market rates for a time, Bawolek says, to price the private operators out. It’s a doggy-dog world we’re living in.
HOW DOES ALL THIS GET AFFECTED BY UBER AND THE LIKE?
Ride-sharing is the elephant in the room when it comes to paid parking. It’s affecting not only public and private airport parking, but airport car rental as well. And even more so, the whole concept of parking.
Thinking ahead then, when we’re all being ferried around in self-driving cars, will there be a need for parking lots? Maybe not — in which case, the parking lot owners will figure out something else to do with the land if they’re not ready to build on it.
Basically, whether it’s a car sitting in a single spot or a whole lot on a city block, parking, it seems, is always just a temporary occurrence: Usually an expensive one for you, a profitable one for the parking operator and a cost-covering one for the landowner.