In the spring of 1979 Jerry Buss had a serious problem. As he flew over the Las Vegas desert thoughts of his meeting with Jack Cooke raced through his mind. Cooke had set a deadline and the escrow company had put in a final call for $3 million to close the deal on buying the Los Angeles Lakers.
Dr. Buss’s problem was that he was completely tapped, and his meeting with Cooke to work out a deal for the remaining $3 million had not gone well. He had less than 24 hours to come up with $3 million or watch his dream of owning an NBA team evaporate.
We can only speculate on what he was thinking on the flight back to LA, but the 1 hour flight must have seemed like an eternity. Like most winners in life, he exited the plane and immediately began to work.
His business partner Frank Mariani was able to secure a $2 million loan and Buss was able to secure the remaining $1 million from another investor. Then, with only a few hours left, Buss’ investor dropped out leaving him and his partner $1 million short.
With time continuing to work against him, Buss was forced to turn to an unlikely ally who many did not want to be indebted to... Donald Sterling (future owner of the Clippers).
While Jerry Buss became ridiculed for paying a record price for any sports franchise at the time, and being leveraged to the hilt, Buss was able to see not just a price tag of $67.5 million dollars for the transaction, but 3-4 separate assets within the purchase that if broken up could produce significantly more value than one asset alone. He would go on to prove his critics wrong.
Similar to the Lakers transaction, we advise our investors to look beyond the initial price tag or cap rate in order to see value where other investors do not. We look at three simple parameters when valuing any parking asset. These parameters are very similar to Dr. Buss’s investment model and help investors determine their own cap rate.
1) Are there other income producing assets that can be broken off and sold separately?
In the summer of 1979, after closing the Lakers deal, Dr. Buss embarked on a similar model to that we use for parking.
Rule #1 (Look for additional or increasing sources of Revenue)
Or as Chick Hearn, the long-time voice of the Lakers used to say, “The game’s in the refrigerator! The door is closed, the lights are out, the eggs are cooling, the butter is getting hard, and the Jello-O is jiggling”
On March 27th 2012, the news broke of the sale of the Los Angeles Dodgers by Frank McCourt to an investment group led by former basketball star Magic Johnson and the Guggenheim group for an eye popping $2.15 Billion dollars. The sale of the Dodgers was almost three times the previous record set by any MLB team (Chicago Cubs just 3 years earlier). The sports community was intrigued, the business community perplexed, and the general public shocked. How could a man that was bankrupt, unable to meet his team’s payroll, and hounded by legions of attorneys relating to his ex-wife’s divorce pull off such a shocking deal? In just 8 years time, McCourt was able to purchase arguably one the most historic Major League Baseball franchises - with no money out of pocket (pledging his parking assets in Boston) - and turned it into a $2.15 Billion dollar pay-day.
The media had gone so far as to make fun of his business background by labeling him “the parking lot attendant” and publicly mocked him by telling him to leave LA and to return to Boston to park cars.
In a case of irony, McCourt must have listened to his critics, because behind the headline of the $2.15 Billion sale, very few people noticed that he actually took the media's advice and really did return to parking cars. You see, in the $2.15 billion dollar sale of the Dodgers, he negotiated to keep the parking lots and have the Dodgers lease back the property to his newly created company, “Blue Land”.
McCourt, through Blue Land, purchased the parking lots for $140 Million, while leasing the parking lots back to the Dodgers for $14 Million annually. While a 10% Cap rate may seem like a good deal, when one considers that McCourt paid in essence nothing for the land, it becomes the mother of all cap rates, payback periods, and sweet revenge.
If we analyze this further and apply a 6% cap rate to value the parking asset, we find that the value of his parking lot at Dodger Stadium is worth an estimated $233 Million! (and as much as $1 Billion in redevelopment value although JNL believes that one day the land deal will be worth more than the $2.15 Dodger deal). Furthermore, there are steep increases built in beginning in 2015 and every 5 years thereafter.
In a hypothetical case, the Dodgers are landlocked (talk about striking out), and may have no choice but to pay any price that McCourt could demand in the future. If you think that the Dodgers can do anything about it, they may not be able to. If McCourt decided to increase the annual parking lease to $150 million annually from the current rate of $14 million, the Dodgers might have to pay. If he increased it to $300 million annually, the Dodgers might have to pay. In fact, short of moving the team to a new location, they are at the mercy of the Parking Pirate (as some bitter fans have called him). Whatever nicknames McCourt may have accumulated during his time with the Dodgers, we at JNL prefer to call McCourt, the "Parking Genius".
If the Guggenheim group had contacted JNL, we would have negotiated a deal to keep the parking lot for the group, or at least purchase a controlling interest in Blue Land. Although not verified, according to some unconfirmed sources, the parking contract could expire as early as 2025, after that, watch out! Blue Land could change their name to Blue Sky.
Don’t be taken by parking pirates, baseball bandits, or land sharks. At JNL Parking we can help you negotiate a sale of your parking asset that will not leave money on the table, or expose you to some risks that may have been previously unforseen. In fact, we have been contacted by owners to help analyze their expiring leases, negotiate longer term leases with current clients, and to research fair market values for their lots and garages.*
Contact JNL Parking today to avoid striking out.
We’re ready when you are,
John & Lance
* This article was written as a case to illustrate the power of a parking investment in relation to sports and contracts. The figures used in this article are not a case of insider information, but rather information widely available. This is not a criticism of any party involved in the above mentioned transactions and is simply an educational op-ed piece by JNL Parking.
We're not sure if this is the future of parking or just the latest parking fad. What we do know is this is a great way to add value to your investment. As any staffed parking business owner knows, payroll is almost always the biggest expense of running a parking lot. The parking unions must just love the thought of these these!
Hate Valet? Not to Worry; Help Is at Hand
By ALEXEI BARRIONUEVO
ONE OF THE BIGGEST curses the wealthy must endure in their otherwise pampered lives is the dreaded valet parking. You toss the keys of your Bentley to a parking attendant, who ends up changing your radio presets, sweating on your seats or, worse, leaving a scratch on your pristine paint job. Is this the good life?
But imagine a different world, one free of such proletarian strivers. You pull into your high-end condo building, drive your car onto a steel pallet and shut off the engine. The glass door of the oversized elevator closes and you and your car are whisked upward at 650 feet per minute. The elevator stops on the floor of your apartment and deposits your car in your parking space. You get out and walk a few steps into your home. As an added bonus, a glass wall separates your private garage from your living room, so you can stare at your fine automobile from your couch, as if it were in a showroom.
That reality doesn’t quite exist yet in the United States.
But a Miami developer, Gil Dezer, has planned such a system for the Porsche Design Tower Miami, a luxury condo complex in Sunny Isles Beach, Fla. The development, which has already sold over half of its 132 units, is expected to be ready in early 2016. In the meantime, a smattering of residential buildings in New York, Miami and Los Angeles boast fully — and semi — automated parking systems that are time savers for residents, and space savers for developers.
To me it seems like the ultimate amenity for the car-obsessed. Parking attendants, however well-meaning, are human, and a parking garage can be a house of horrors, especially in a place like Manhattan, where every inch counts. And for celebrities and billionaires trying to keep their activities as secret as possible, who’s to say whether the friendly valet isn’t a tipster for a gossip blog?
“We have some celebrities who bought specifically because they don’t have to see any valets or security when they come into the building,” Mr. Dezer said. “They don’t need to sign autographs, they don’t need to take pictures.”
In New York only one building, 200 11th Avenue, where Nicole Kidman and Keith Urban reportedly own an apartment, has created a parking system that lets residents ascend with their cars to their apartments. And it’s not even fully automated. In fact it seemed fraught with peril at first glance. Residents drive into the garage and onto a car elevator, shut off the engine, and then, once the elevator has risen to their floor, have to back their car themselves into the private space next to their unit.
It sounded to me like a recipe for scratch city, especially with my poor driving instincts. But Leonard Steinberg, a broker with Douglas Elliman who lives in the building, designed by Annabelle Selldorf, and who worked on its development, said that residents had encountered few problems with the system since the building opened in 2010. He says the elevator does not operate until the car is shut off. When the resident arrives with the car at the apartment, a sensor automatically turns on the lights and an exhaust fan in the garage.
“The only area where you have to have a little bit of skill is backing up in your garage; beyond that it is pretty basic stuff,” said Mr. Steinberg, who acknowledged that he is the only resident who doesn’t have one of the private garages. “The people that live in the building and use this system are really loving it.”
The garages are enclosed concrete structures with walls that can contain a fire for three hours, making them safe as well as soundproof, Mr. Steinberg said. “If someone crashed into a wall they would be crashing into a foot thick of concrete. There is not one bedroom or living space that abuts the garage or car elevator.”
Two Manhattan buildings — 1 York Street in TriBeCa and 123 Baxter Street in Chinatown — have automated parking systems in which the resident pulls up and steps out of the vehicle, and then the system parks the car somewhere in the garage.
At 1 York, the developer Stan Perelman, who heads Jani Real Estate, said he researched systems around the world, eventually teaming up with a New Jersey company, Park Plus, which had licensed Swiss technology for use in the United States.
Residents who bought early in the building, like Michael Hirtenstein, were skeptical at first. “It just sounded a little kooky,” said Mr. Hirtenstein, who has a 10,000-square-foot apartment he combined from five and a half separate units. “But I think it is great. Whenever there is any little problem, the service company comes and fixes it.” He has three cars parked in the garage.
The resident drives into the garage and onto a turntable. If you go too far to the right or left the computer will tell you. After shutting off the car, you exit. Then the turntable rotates your car on the elevator (so it’s facing out when it’s returned). Metal teeth grab the car underneath the tires, and a trolley then breaks away, moving the car vertically and horizontally to one of the 40 parking spaces. It remembers where it parks people’s cars based on a key fob used to retrieve it later. The whole process takes no more than a minute, Mr. Perelman said. (Mr. Hirtenstein says it takes about 75 seconds.) Motion detectors prevent the system from moving the car while someone is still in it (say if you left a kid or dog in there).The Park Plus system is capable of allowing residents to call their cars from their residences with a remote-control device or cellphone, but Mr. Perelman decided to turn that feature off. “What if you call for your car and then you get a phone call?” he said. “Your car will sit there for 20 minutes. We didn’t think it was onerous to wait 30 to 60 seconds for your car.”
For the developer, the automated system saved money and space. Park Plus built the spaces for a little over $35,000 apiece, and Mr. Perelman sold them to residents for $150,000 to $250,000, depending on the size of the car. The cars are parked only two inches apart.
There have been hiccups since residents started using the system in 2008. One woman ignored the “fold in mirrors” sign, and her Porsche got stuck in the elevator; the laser sensor refused to move it because it was perceived by the elevator as overly wide, Mr. Perelman said. Then there was the time the elevator wouldn’t move a Mercedes when a huge piece of slush fell onto the turntable and blocked a laser sensor.
In Los Angeles — arguably the car capital of the country — the automated parking technology is just starting to be used in residential buildings. Christopher Alan, a developer, said the City of Los Angeles had been hesitant for years because of safety concerns. Now the potential space savings have suddenly become attractive, he said.
Mr. Alan created a company called AutoParkiT that builds automated parking systems in partnership with Omron, a Japanese company with a subsidiary in Illinois. He showed me the system this week in an eight-apartment rental building in Sherman Oaks. It seemed to function well. The company says it is the first, in California at least, to offer an automated parking system that does not require an attendant. He is seeking to install it in several other residential buildings in both Northern and Southern California, and said he had also had discussions with developers in Miami.
But no developer seems quite as ambitious as Mr. Dezer when it comes to parking for the super-rich.
In 2008, during the height of the housing crisis, Mr. Dezer found himself stuck with some 900 apartments in Miami he couldn’t sell. He signed a licensing deal with Porsche Design and molded a concept around a building for car lovers, vowing to do something that no one else was.
After researching auto-park systems in Europe, where they have been in use for more than a decade, he contracted with an engineer who had built a special car-parking system in Germany for Volkswagen. Mr. Dezer asked the engineer to modify the system to allow for heavier cars and for passengers to be able to stay in the cars. The Porsche Design Tower’s system will be able to accommodate cars up to 8,000 pounds, including the gargantuan Rolls-Royce Phantom and a Hummer H2, he said. To deal with fire concerns, the developer plans to install a sprinkler system.
Mr. Dezer is spending $24 million to build three car lifts that will each deliver cars to 44 apartments, but sees that as a cost savings over a multilevel garage. Every apartment will have two parking spaces; they are being sold to residents for $500,000 per pair. In a building where two penthouses of 12,000 square feet have already sold for $22.5 million apiece, it seems almost like an afterthought.
That may be especially true when you consider that a Rolls-Royce Phantom Aviator Coupé runs a cool half million these days.
Parking Investing Blog
The Expired Meter
International Parking Institute
Donald Shoup on Parking
The Valet Spot
We Wrote the Book on Parking Investing