In the game of Monopoly®, the “Free Parking” space isn’t a property for sale. In the real world, however, investors can take advantage of parking as a form of physical property that can be bought, rented or sold like any other type of real estate. With spaces being sold for as much as $200,000 apiece in densely populated cities such as New York, parking spaces could very well be the new Park Place.
More than 237 million privately and commercially owned vehicles are registered in the U.S., according to the Department of Transportation. This works out to approximately one car for every two people. It may come as no surprise that with the abundance of private transportation, parking is getting harder to find, and as demand increases, so do parking space values. An increasing number of investors are realizing this and beginning to take advantage of a growing market.
Parking spaces can be used as a real estate investment
“Parking is a scarce commodity, and the ability to invest in it is now [in] the hands of the individual,” Richard Delaney, vice president of Palladian Development, and former developer for the Field Harbor Parking project in Chicago, said. Demand for parking is highest in “tier one” cities such as New York, Chicago and San Francisco, and is increasing in “tier two” cities such as Nashville, Houston and Cincinnati as these cities grow and become more densely populated, Delaney said.
The scarcity of parking spaces is compounded by the emergence of condominiums without parking for sale. Local governments in cities such as Seattle, Portland and San Francisco are reducing or eliminating the minimum number of parking spaces required for housing developments in an effort to lower housing prices and promote mass transit, according to a story published in The New York Times last year. With less residential parking available, it is likely that demand for “condominiumized” spaces, or spaces within a garage that are managed and leased like condo units, will increase.
Parking spaces are “a great investment,” Stephen Sinclair, founder of Parkingsearch.com, said. Sinclair said he observed a substantial appreciation in parking space values during the past three years.
“What we’ve noticed in the last three years of acquiring data is that these parking spaces have been increasing in value regardless of what’s going on with the real estate market,” Sinclair said.
Since 2005, Sinclair said he has seen a 13 to 20 percent increase in parking space values. “The average parking space on the ParkingSearch.com website for the city of Chicago—that’s any ZIP code that starts with 606—was $28,000 in 2005; $30,000...in 2006; and about $33,000 in 2007.”
A person who bought a space for $30,000 in 2005 and financed it with a loan at 80 percent LTV would make an equity investment of $6,000 with a $24,000 mortgage. Thus, for a fixed rate mortgage with 6 percent interest over a term of 15 years, the parking space buyer would have a mortgage payment of approximately $202 per month. However, lease rates for parking spaces have increased from $260 per month in 2005 to $272 per month in 2006, and to $285 per month in 2007, Sinclair said. Thus, an investor would accumulate returns of $58 to $73 per month from leasing out the spot. Furthermore, selling the parking space in 2007 for $34,000 would yield a gain of $4,000 because of the appreciation in value of the space. The overall return on the investment would total $6,552—a 109 percent return on investment.
“$6,000 is not much to invest, but you’ve turned $6,000 into $12,000 in three years, which is a pretty decent investment,” Sinclair said.
Each parking space has its own unique valuation in terms of its location within a city as well as its location within a parking garage. A parking garage has its own “micro-economy,” in the sense that the convenience of nearby elevators and lower floor parking may increase the value of a space, Sinclair said. Amenities such as heating and security can also add value.
There are a number of advantages to owning a parking space: First, parking spaces require minimal maintenance; owners pay a small monthly maintenance fee and avoid much of the hassle involved in managing condos and other types of residential property. Second, in the case of parking spaces in garages, eviction is an easy process: delinquent leasers are simply locked out. Finally, parking spaces are cheap compared to housing and present a more affordable opportunity for real estate investment. “It is actually a very good investment for small investors,” Sinclair said.
Buying and selling parking spaces is a relatively simple process and transactions can take place relatively quickly.
Amenities such as heating and security can add value to a parking garage investment
“At Field Harbor Parking, a typical sales cycle is one to six months; as far as rentals are concerned...there is about a one-month vacancy period,” Kirk Nortridge, a Property Consultants real estate agent in Illinois who specializes at Field Harbor Parking, said.
A real estate agent is the best bet for investors to find a wide selection of parking spaces for sale, Nortridge said. Websites such as Parkingsearch.com make it easier for potential buyers to peruse the market. Delaney said he is involved in plans to launch a similar website, ParkingBroker.com.
Finding a lender willing to finance a parking space might take some digging. However, “the practice is spreading...[and] if your bank can’t help you...[it] can direct you to [a lender] who can,” Delaney said. Field Harbor Parking spaces, for example, were financed by the Associated Bank in Chicago, which loaned directly against the stalls as collateral.
Additional responsibilities of owning a parking space typically involve obtaining a deed and property ID number, becoming a member of an owners' association, covering the property with liability insurance and paying taxes and maintenance fees. Title insurance is also highly recommended, and although legal representation in buying a space is not as important as it would be for purchasing a residential property, it “still might be a good idea,” Nortridge said.
Parking spaces might seem like a hot new investment, but investors should also take heed of possible factors that might suppress parking space values. Parking space appreciation is contingent upon a city’s growth, and if a city is “not going to make it,” then it is probably not a good idea to invest in parking spaces there, Delaney said. Increased efficiency in public transportation might also slow demand for parking.
Additionally, investors might want to keep an eye on the future as the dawn of new high-tech garages, such as RoboPark, will allow for denser parking lots. Should new parking technology become mainstream and more cost effective, parking space appreciation rates may flatten.