Our parking career started in the dirt. Literally. We spent game days flagging down cars in the dirt lots around Notre Dame Stadium, with pizzabox signs and Sharpie markers, waving customers in to fill our lots. What we learned from those early days would become our guiding principles that would help parking investors make lots of money today.
We began purchasing dilapidated houses and dirt lots around the University of Notre Dame campus at double to triple what the properties were worth, because we held true to three driving rules of parking investing:
1. Parking is inelastic; it generates steady cash flow
2. Parking is a great hedge against inflation
3. Invest in great locations where land will appreciate
Rule #1 Inelastic Demand, and Steady Reliable Cash Flows
In our early days, we saved a lot of pizza boxes for game days because our prices changed according to demand. With our Sharpie in hand, we changed prices according to our lot capacity, game popularity, and at other times, just because we could. With parking investments, unlike other real estate investments, prices are very fluid and reliable. You can change parking rates monthly, daily, or even hourly according to demand and most customers will pay because they don’t have a choice (try changing the monthly rates on your tenants at your apartment building or your office space mid-month, and see if they stay).
Rule #2 Hedge Against Inflation
Parking assets are also the best protection against inflation of any investment. According to the US Department of Labor, inflation (CPI) rose at a rate of 1.7% in 2012, while parking rates nationally (according to Colliers annual parking rate survey) grew at a rate of 1.6%, while increasing 3.7% in major cities. In the city of Chicago alone, rates jumped 9.4%.
Rule #3 Appreciation of Land Value
Three years after we purchased the land next to the campus and ran them as parking lots, we were able to sell the land to developers at many multiples what we paid for the properties. Within just 2 years, our parking investment was worth a lot more as a development.
Notre Dame Area Condos Planned
September 21, 2006 | HEIDI PRESCOTT South Bend Tribune Staff Writer
As land becomes scarce, parking lots and garages are always the first targets for developers. You want to acquire parking assets in places where your investment will continue to appreciate in value, while you collect valuable parking revenues.
East 13th Street, LLC., – a partnership of DHA Capital and Continental Properties closed on the purchase of a 45,000+ square foot parking garage in Greenwich Village. The property, which sold Dec. 5, 2012 for $32 million at slightly more than $700 per square foot, is located at 12 East 13th Street and will be converted to luxury condominiums.
How Investors are Blinded by Cap Rates
Just as in our early days, people scoffed at the values we were paying for our parking investments. They claimed that we were crazy, delusional, just plain stupid, and that we would never make our money back. If we had focused on valuing the investments purely based on a Cap Rate and not on our three rules, they would have been correct.
Don’t be misled by the initial CAP rate on your parking investment; we will take a CAP rate of 5% in Chicago over a CAP rate of 8% in Nebraska any day. If you follow our third rule, your CAP rate in Chicago will be 8% in three years while your CAP rate in Nebraska can go down to 5%.
Demand for parking in cities, airports, sporting venues, hospitals, etc., is not going away. This is good news if you own a parking business, bad news if you want to get into one but continue to wait.
We’re ready when you are,
John & Lance
Parking Investing Blog
The Expired Meter
International Parking Institute
Donald Shoup on Parking
The Valet Spot
We Wrote the Book on Parking Investing