Parking garages and lots can be smart, stable investments if you know how to identify and vet the right opportunities. While parking assets share similarities with other types of commercial real estate, there are unique aspects to parking facility ownership that buyers should understand. In particular, buyers should know how to identify opportunities with potential for a net operating income (NOI) increase that can quickly boost return on investment and expand free cash flow.
This article goes beyond surface-level real estate advice to help you understand the nuances of parking facility investments, whether you’re buying an existing asset or developing something new.
Parking facilities combine recurring revenue potential with physical asset ownership. This is an attractive blend for investors who want to move into lower-risk real estate categories with long-term upside. Other favorable aspects of parking assets as an investment option include:
Because parking assets are an attractive investment, they can move quickly once listed. You should be prepared to act quickly and evaluate options as soon as they’re available.
What should you look for when considering investment in a garage, lot, or other type of parking asset? First, it’s helpful to understand the types of parking assets available to purchase. There are a few general categories to consider:
The following sections outline more precise areas of research to help you uncover an asset’s potential value and possible risks.
Before investing in a parking garage or lot, you should have a clear picture of its value and ability to generate income. You’ll also need to decide how to finance the purchase (e.g., self-funded or with borrowed capital). Either way, the cost of capital, including interest rates, repayment terms, and loan structure, will all impact your total ROI.
The questions below will help you get a clearer picture of potential performance and return:
Total: $36,000
AirGarage helps buyers assess a property’s potential through parking consultation that includes an in-depth analysis of nearby competition (e.g., pricing, availability, features, etc.), traffic patterns, regional growth, and other data sources which highlight areas for improvement or optimization.
Compliance is about more than box checking. You’ll need to verify that the facility can run as advertised, and that there aren’t any outstanding legal issues, compliance violations, or tax implications that could impact revenue or operations. If you’re not in formal due diligence yet, the following questions could provide a good starting point while evaluating an opportunity:
We provide a more detailed breakdown of this process, the questions you should ask, and a helpful checklist in our full article on parking due diligence.
Proximity and access to popular destination points are vital for long-term investment viability. Repeat customers from sources like commercial office buildings, larger event venues, or a university can sustain strong revenue performance even when seasonal demand shifts. Here are a few quick criteria to check:
It’s also important to research competitors or other parking options in the nearby vicinity, which could include street parking or other private facilities. Assess their pricing, hours of operation, and other features that could help you understand current demand levels.
Parking management plays a huge role in overall profitability. While some parking agreements offer a favorable balance between potential upside and downside exposure, others are based on flat lease or management fees that can favor the operator. Research different parking management models to understand how they can help meet your revenue goals:
Additionally, if you won’t have automation or parking technology to augment (or replace) on-site employees, factor in other costs like payroll for staffing - which can add up quickly.
A property’s condition is a major factor in ongoing maintenance costs or larger capital investments, and different kinds of facilities will incur varying costs. For example, parking garages require more (and more expensive) upkeep when compared to surface lots. This problem can worsen as facilities age, and older properties may need to be brought up to code for accessibility or safety.
Restoration and construction experts place the average lifespan of a typical parking structure between 30-50 years, depending on maintenance habits. Once serious structural or safety issues start to show, even expensive repairs may only extend the facility lifespan by 3-5 years. This makes preventative maintenance critical, and you should factor these common costs into your evaluation:
A thorough facility assessment can give you better leverage in negotiations or expose reasons to reconsider the investment altogether.
A good parking investment is (often) one that’s not meeting its current potential due to underperformance, underpricing, or management issues.
Why?
Because, like most commercial assets with rental income, the price of a parking facility is typically based on the value of the facility (i.e. structure and land) plus parking revenue. If the parking lot or garage is performing well, you can expect that the higher revenue volume is factored into the asking price (possibly inflating it). Underperforming facilities may offer both a more competitive price and better long term ROI.
We’ve identified a few key indicators that you can look for:
When a parking lot or garage already has strong yields, there may be other methods of improving overall financial performance, including dynamic pricing, better technology to reduce operational costs, more effective enforcement and violation management, and creative facility use cases to drive additional business.
By increasing NOI and reducing operating costs as soon as possible, you reduce overall risk and improve returns much earlier in the investment horizon. This additional revenue can be used for capital improvements or to pay off outstanding loans faster.
We’re experts at spotting opportunities to improve performance and knowing which parking technology, pricing strategies, and marking activities can provide immediate revenue growth. In fact, we help our partners realize an average revenue uplift of 23% when assuming management for a new parking facility.
Having the right team early on helps you cover every angle and find the right opportunities. That means you’ll need a few key experts to help make the acquisition process smoother:
When you move forward, you may find that consultants and advisors are willing to help, but for a fee. Sometimes this is the right decision; other times you can work directly with a management provider.
An experienced partner like AirGarage offers a data-backed consulting approach based on real operating experience. Even when you’re still considering a purchase, we can conduct a site study to help you understand market dynamics, driver profiles, growth potential, and more. With data from similar facility types, we’re well positioned to offer unique expertise, candid insights, and real financial results for comparison.
This guidance will help you gain confidence in your decision to acquire an asset and the plan to improve performance with an incentivized management partner.
If you want to dive deeper into our resources for parking asset owners or potential investors, check out our recent articles on running a parking services RFP and when to consider working with a parking consultant.
