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Thread: How do you feel about leasing public spaces?

  1. #1

    How do you feel about leasing public spaces?

    We are currently leasing public spaces for $35/mo. The theory behind this price, is that at 30 years of leasing, we would be able to replace the spaces being leased with spaces in a parking structure (garage), since a typical space is $12-15k in a garage (depending on the size). Is this a good number? I feel it is wayy too low, but our pricing is set up so that it encourages developers who can't provide enough spaces of their own for their development to be attractive. In particular, we have a 165 space lot (which typically runs about 60% full on any given day) in which we are intending on leasing out 49 spaces at the above rate. 40 are going to a developer who is going to renovate an old hotel into condo units. The remaining 9 are to be leased to another developer who is renovating a delapidated building into condo units also. Is this a good policy, or should the prices be set so that we can recover the costs sooner? We intend on building a garage A LOT sooner than in 30 years. What are your feelings/experiences on such a deal?? It is worth noting that in thier agreements it is stated that these leases are explicitly for development of these properties, and therefore CANNOT be leased by existing businesses.
    Last edited by ssnyderjr; 12 May 2005 at 10:42 PM. Reason: clarification
    Who's gonna re-invent the wheel today?

  2. #2
    Cyburbian
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    Lets look at the numbers....
    300 space parking garage at $15,000 per space = $4,500,000
    49 spaces at $35/mo = $20,580 per year
    It will take almost 220 years to recoup the cost of the garage.

    In order to recoup the cost of the structure in 30 years from 49 spaces, the monthly rental fee would need to be $255 per space.

  3. #3

    Ok

    Quote Originally posted by savemattoon
    Lets look at the numbers....
    300 space parking garage at $15,000 per space = $4,500,000
    49 spaces at $35/mo = $20,580 per year
    It will take almost 220 years to recoup the cost of the garage.

    In order to recoup the cost of the structure in 30 years from 49 spaces, the monthly rental fee would need to be $255 per space.
    Our math was figuring for 1 space = $35x12x30 = $12,600/space for pricing for a garage. Keep in mind that we DON'T (and likely won't) have all 166 spaces leased in this lot. We wanted to make the pricing comparable to replacement for the space(s) lost. We are fully realistic in that we know leasing 49 spaces will not pay for an entire structure.
    Who's gonna re-invent the wheel today?

  4. #4
    Cyburbian mallen's avatar
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    Feb 2003
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    My take...

    Strictly from a financial desire to “recover” the cost of a parking deck space, the short answer is “No” it doesn’t make financial sense in that regard. But, there may very well be good reasons to do this other than pay for a deck. Let me stress that point again – there may very well be good reasons to do this such as neighborhood revitalization, economic development, etc. Having said that here I go.

    Your numbers in today’s dollars for a parking deck are probably pretty accurate ($12K - $15K per space). But, that is using today’s dollars. A rule of thumb (and very rough rule) is that money invested and reinvesting in the stock market doubles every 7-8 years. To be conservative, lets use 10 years and $12K per space. Using that figure, a parking deck space in 30 years is going to “cost” $36K per space in today’s dollars. So your $12,600 ($35 for 30 years) doesn’t really cover it. But, the actual cost is hard to determine, construction costs are all over the place.

    Another (and better way) to determine the “monthly” value of the parking space is by using the value of the property. If you are talking about a parking deck at all, then you are probably around a minimum of $750,000.00 per acre for raw land in the area (retail market value). That equates to about $17 per square foot ($750,000/43,560). A 9’ X 19’ space is about 171 square feet. Add 108 square feet for half of a typical 24-foot drive isle (12’X 9’) and you get 279 square feet of effective area for a single parking space. At $17 per square foot, the space is “worth” $4,734. $4,734 financed over 30 years at 8% interest costs $34.74 per month. So of course, if you land values are higher or lower than $750K, that impacts that calculation. But, you are probably pretty close to fair market value.

    It is not surprising that the costs are so similar, that is the way the market works. The developer has run the numbers and figured this out independently. If I were him, I would simply offer to buy the land from you. But a 30 year lease is almost a purchase.

    Now for your questions. Should government lease property to the private market? Sure you can. But you better get something out of the deal. If you cannot use it to leverage something out of the deal, you should probably simply hold onto it or sell it outright for fair market value. If you can tie the project to the spaces, that would be great. If not, you do run the risk of the developer re-leasing the spaces for $40, $50, $100 in the future. But that is capitalism. You have guaranteed revenue, they have the risk.

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