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Is a public private partnership right for your institution's parking facilities?

November 21, 2018
Is a public private partnership right for your institution's parking facilities?

Parking facilities are valuable for the faculty, student and visitor experience at every university—and they are valuable real estate assets, too. In all likelihood, your humble lots and nondescript garages generate significant revenue each month— while also requiring substantial resources for maintenance and management. What if you could offload parking management and maintenance without losing control of your facilities? What if you could transform that periodic parking revenue into an upfront, lump sum totaling millions of dollars?

You can do both through a public private partnership (P3) with a qualified private-sector partner. Colleges and universities across the country have used P3s for a diverse range of projects, from student housing to mixed-use campus gateways and, yes, parking too.

The simplicity of a parking lot or garage makes these assets great candidates for P3s. The business and the assets are straightforward, without the many moving parts and complexities of student housing or a mixed-use complex.

Much like other types of real estate, a parking P3 may enable a college or university to bridge funding gaps and improve the campus experience without the need for public funding. Many private-sector companies with parking expertise are eager to partner with universities. Every urban area has multiple operators, developers and financiers interested in university parking. In remote areas, universities often have captive demand Commercial participation can enable colleges and universities to focus their resources on what’s most important: the educational mission.

Structured thoughtfully, a parking P3 will enable your institution to access the expertise, capital, innovation and efficiency of the private sector through a concession agreement. Here’s how it works: Your institution engages a private-sector company to provide some or all aspects of design, build, finance, operate, and maintain a facility or collection of facilities for a specified period. The private-sector partner compensates your institution in exchange for the rights to a portion of revenues generated by the facilities during that period. If new construction is needed, the private partner may be able to provide equity and secure debt financing for the project.

A parking P3 agreement can provide numerous benefits, but it’s important to be aware of the trade-offs that can emerge during P3 negotiations. It’s also important to challenge the many misperceptions that can take a project off-course. The following are some common myths about parking P3s— and the facts, gleaned from our years of experience advising on them.

Myth 1: An upfront, lump sum is the only financial arrangement option.

Myth, busted. While many institutions often do prefer an upfront, lump sum from their P3 parking concessionaire, you may prefer to receive payment in the form of a guaranteed fixed income stream. Or, your P3 could be structured to include participation—sharing revenues over time.

Participation provides a variable income stream throughout the life of the P3 agreement, with your income rising or falling according to overall parking revenues generated. You will still be “in” the parking business, and it’s important to be aware of the impact on your upfront lump sum payment.

Imagine you are negotiating a 30-to 50-year P3 agreement with a private parking operator. During the negotiations, the parking partner assesses your parking operation to determine how much revenue could reasonably be generated over the life of the P3 agreement. They’ll also estimate the cost of any technology and infrastructure investments would want to make to preserve or support parking revenues over time, and factor those expenses into their lump sum payment.

All these expenses will be considered when factoring the upfront, lump sum payment. However, should you decide to receive a portion of monthly parking revenues, those estimated revenues will be deducted from the lump sum payment. That is, you will receive reduced upfront payment given, your need for a future income stream.

Myth 2: The upfront, lump sum is the only real benefit of a parking P3.

Myth, busted. Working with a qualified parking P3 partner, your institution can gain access to new state-of-the art facilities that improve the user experience—without the upfront capital expense or the learning curve. 

Parking can be a constant source of complaints at busy universities, colleges and community colleges, especially if enrollment is growing. Yet, securing funding for new parking facilities, upgrades and parking technology can be difficult in an environment of credit constraints and more mission-centric needs. Your college or university may be reluctant or unable to fund deferred maintenance, or unwilling to take the risk of increasing your debt load by financing construction.

A parking P3 provides the opportunity to design and execute a master plan for parking aligned with other visions for your campus. How many new parking spaces will you need in the future? What spaces, lots or garages will become obsolete? Where will additional parking be required, and when? Is there an opportunity to add a student housing structure up above a parking lot? The P3 model can encompass these questions and goals.

Myth 3: A P3 means your loyal parking employees will face pay or benefit reductions—or even lose their jobs.

Myth, busted. Unlike a disposition as a means of extracting from your real estate assets, a P3 agreement is designed to be more like a mutually beneficial partnership. Your institution may retain oversight over staffing, while a private-sector partner assume much of the financial risk of operating your facility. Although uncommon, employees can also simply be retained in their current role. You can negotiate the management of your employees through the transition to a P3 and beyond.

For example, your agreement could mandate that the private parking operator “rebadge” your parking by hiring them. You protect employees’ benefits and compensation, and help ensure continuity and knowledge transfer for your parking facilities. Alternatively, you may want to move some personnel to other roles, and streamline the parking operation to maximize financial performance.

Myth 4: The parking operator, rather than your team, will determine parking rates.

Myth, busted. As you negotiate your P3 agreement, you will have the opportunity to ratify a parking rate “regime” that defines caps on future rate increases. You can contractually ensure that parking remains accessible and affordable faculty and students, and that faculty compensation or special event agreements are honored. Of course, any and all rate hikes increase parking revenues over the life of the P3. The more revenue the parking operator anticipates, the greater the return you will receive. Yet, rate increases are highly sensitive. With a P3, you can balance the need for a return with stakeholder expectations.

Myth 5: Parking P3 agreements always have lengthy terms.

Myth, busted. P3s involving all property types come in many shapes, sizes and term lengths. Thirty years is a typical starting point, but some are as short as 10 years oras long as 99 years. The private operator partner will generally prefer a longer timeframe to recoup their upfront payment and upgrade or maintenance costs. Also, a longer term means a larger upfront payment for your college or university. Ultimately, best term lengthis the one that fits both the needs of your institution and of your partners.

Myth 6: A P3 means losing control of the future of your campus real estate.

Myth, busted. Whether you’re negotiating a contract for 10 years or 99, it’s hard to predict how your campus needs will evolve. You may hesitate to enter into a parking P3 for fear of constraining future options for campus development. The reality? You can negotiate flexibility into the partnership.

For example, you could negotiate a P3 agreement with an option to remove and repurpose a parking lot at an unspecified future time. Additionally, you can use a P3 to advance goals without interfering with the overall campus vision and with the flexibility to respond to evolving campus needs.

A P3 agreement also can provide private financing to address deferred maintenance projects, deliver technology upgrades and create new facilities.

Bear in mind that the more flexibility you want, the greater the financial trade-off. For The Ohio State University, keeping 2,000 spaces in play likely meant a lower lump sum payment from the concessionaire. Parking operators excel at calculating future revenues and accounting for risk. Therefore, negotiate only the options you need, and expect lower returns with each risk that your partner assumes.

Myth 7: All P3s for parking are alike.

Myth, busted. Like educational institutions, no two parking P3s are the same. Your P3 should meet the financial and operational priorities of your institution as well as the requirements of the project—it’s not a ‘one size fits all’ agreement. As these examples illustrate, a P3 partnership can be structured to leave your institution with significant control of your parking assets. Your team can guide every step of the design and rate-setting process to ensure that the end product will best serve your campus community.

The University of California, Berkeley (UC Berkeley) used a P3 to replace a multi-purpose sports field on its southeast campus with a two-story, 450-space parking garage. Private donors funded a new sports field built on top of the parking structure.

UC Berkeley selected San Francisco-based Pacific Union Development Company and City Park, an affiliate of Imperial Parking Corporation, to design, build, finance, operate and maintain the garage. In a 65-year ground lease, Pacific Union and City Park leased the underlying land for the garage from UC Berkeley and developed the garage. City Park operates and maintains the garage, while the university retains ownership of the land and the structures.

In an operating P3, Ohio State entered into a 50-year agreement with QIC Global Infrastructure’s CampusParc affiliate to transfer management of garages and 196 parking lots totaling 37,000 spaces. Under the agreement, CampusParc paid the university a lump sum of $483 million in exchange for the opportunity to operate the parking facilities and receive all profits from parking pass sales, hourly fees and citation fines.

Ohio State maintains ownership of the facilities, and a preset formula controls rate increases. CampusParc is responsible for infrastructure investments, whether that means new technology or addressing deferred maintenance, and invested $10 million in the first year.

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