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Why parking concessions may make a comeback in the US

Auctioning off a concession to a city’s street parking is not for the faint of heart. Proposed transactions often generate negative publicity and strong pushback from elected officials and citizens. 

But while the business of municipal car parking outsourcing is fraught with political and reputation risks, many of the concession sales in the US have delivered benefits to the private and public sector as well as motorists, according to industry consultants. They say there could be more transactions in the future as cities learn from past mistakes and there is a wider push for governments to consider selling assets to raise funds for new infrastructure investment. 

John Dorsett, a senior VP for Walker Consultants, says the right ingredients for putting together a public-private partnership or monetization plan are when a city wants to upgrade antiquated parking meter technology – think broken or jammed coin-fed meters – and has a strong need to raise funds to invest in infrastructure plans. 

Past parking meter concession sales in cities like Chicago and Harrisburg, Pennsylvania, attracted criticism in part because the municipalities used proceeds to solve short-term fiscal problems rather than invest. 

"On the Chicago Meters deal as I understand it, they received the upfront payment of USD 1.2bn but then within 18 months 85% of that had been spent to plug an operating budget gap, it didn't even get re-invested in infrastructure," Dorsett says.  

“When you do these types of programs it usually starts with a local government entity that has an inferior program with management and equipment … and they are looking to increase their revenue and cut expenses,” says Michael Lenza, managing principal of Transportation Funding Consultants.  

Since Chicago, successful deals have seen municipalities split revenue with the private sector while lease tenors have continually shrunk from 75 years to 50 and now around 30 or so years. When negotiating risk sharing with an investor, municipal officials should also aim to retain control over rights-of-way, according to former advisor and City Journal contributing editor Aaron M. Renn, who has written several analysis pieces on the Chicago deal.  

“In effect, these deals aren’t about just parking spots, they are assigning a property right interest in the biggest component of public space in the city to a private monopoly that doesn’t have the public’s best interest at heart. The city of Chicago has ceded a portion of its urban planning powers to a private company,” Renn wrote in an opinion piece for Smart Cities Dive.  

Dorsett says newer deals include “off-ramps” where the public sector can terminate the partnership within reason – a common feature of public-private partnership agreements.  

“It’s easier to sell these deals to the general public so they can get behind them,” he says about adding a contractual escape hatch. “It might not make it easier for the private sector to want to do a deal and they probably may prefer there not be an off-ramp, but that off-ramp provision can be written in a neutral way so that both parties have protection.”  

Three years after the Chicago transaction, Indianapolis struck a parking concession deal with a consortium called ParkIndy that featured revenue sharing and reinvestment of the proceeds from the sale into infrastructure projects. The city was able to grow net revenues 804% between 2010 – the last year under municipal run operations – and 2013 even under a shared revenue scheme with the concessionaire, a Reason Foundation study found. 

Next door in the Buckeye State, Ohio State University struck a 50-year lease and concession deal in 2012 with QIC-backed CampusParc. The school used an upfront payment of USD 483m to support and invest in faculty and student scholarships over the life of the lease.  

QIC reached a similar deal with Northeastern University in 2019, securing a 50-year concession to operate the Boston school’s parking systems with partner LAZ Parking. Eastern Michigan University also monetized its parking system, partnering with LAZ and Preston Hollow Capital. LAZ itself reached a deal in late 2021 to secure the backing of Argo Infrastructure Partners. 

Global infrastructure investor IFM sees potential for an up up-tick in North American university parking deals as cash-strapped schools think about ways to optimize noncore assets. 

“The question becomes is there a way that [universities] can better optimize that asset or use funds elsewhere … they may look at a partnership model or a long-term concession, bringing in a partner that has experience and can allocate their capital (to the asset),” says IFM Executive Director Aaron McGovern. 

JLL’s Kevin Wayer, president of the real estate advisory firm’s public sector and higher education team, says that universities want to focus on their core competencies and are seeking to “compete on a global stage with revenue model changes and technological transformations.” 

Selling a concession for parking on campus is one way for a school to raise capital that can support its core educational mission, especially as public universities increasingly rely on tuition to fund operations at the same time as enrollment in higher education is declining. 

“We see tremendous interest from both public clients and the private investor community given the strategic importance of core infrastructure,” he says, adding that DBFOM or ground-lease structures could lead the way for future dealmaking. 

Making the case for municipalities to sell parking concessions remains a challenge. 

Cities like Jacksonville, Florida; Nashville, Tennessee; and Pittsburgh have all chosen conventional concessions over monetization or P3 schemes for conventional concessions. This year the Philadelphia International Airport has been in talks to replace the city parking authority as manager of its parking garages but is not selling the concession. 

In Texas, the San Antonio International Airport is weighing how to procure a car parking “optimization” plan over the next several months.  

Buy vs build 

Instead of waiting for new procurements to hit the market, investors may find M&A opportunities arise from older concessions over the next few years. 

The lead fund in the Chicago parking concession — Morgan Stanley Infrastructure Partners-managed North Haven Infrastructure Partners I — is reaching the end of its tenor, raising the prospect that MSIP will explore a sale of its stake in the future. MSIP weighed a sale of the concession in 2016 but elected not to sell after bidders did not meet its price expectations. 

Chicago Parking Meters operates 36,000 metered street-level parking spaces in the city, making it the third largest such system in the US, according to its website. The consortium has invested USD 38m since 2009 in technology upgrades and customer service. 

Revenue has recovered since a slowdown in 2020 due to the Covid-19 pandemic, jumping to about USD 136m in 2021 compared to roughly USD 91m the year prior, filings with the city show. The gains come even as metered street parking competes with parking garages along with ride-sharing services. 

Yet, an increase in meter rates, especially downtown where rates more than doubled in the four years after deal was signed, has made the concession a lightning rod for politicians and local press in Chicago.  

Mayor Lori Lightfoot has previously castigated the lease arrangement as unfairly raising meter rates against a backdrop of municipal tax increases and blamed previous administrations for selling the asset under its intrinsic value. 

A new owner of the concession could seek further operational efficiencies and aim to maximize revenue across the entire system by using variable rates rather than focusing on maximizing rates on a per-meter basis. 

With city elections set for the first half of 2023, though, it is hard to imagine Morgan Stanley considering options in a heated political environment. The fund manager declined to comment. 

Other brownfield opportunities may arise given that most meter rate increases are contractually tied to the consumer price index, notes Lenza at Transportation Funding Consultants. Existing concessionaires may be tempted to sell out of their positions with expectations that inflation will be elevated for some time. 

“Everyone wants to sell future growth and the CPI provides that going forward,” he says.  

Another source of growth is for parking providers to move into electric vehicle charging. 

“We’re all still trying to figure out car charging … how many chargers need to be installed in parking facilities, where we’re going to be doing most of our charging, this is all still being sorted out,” Dorsett says. “But that might be a potential revenue source for the private sector so all of that needs to be negotiated in the development agreement.”  

Considered the first car parking P3 in the US, Millennium Parking Garages in Chicago this past June claimed it was launching the Midwest’s largest EV charging hub in partnership with electric utility ComEd. In Chicago’s Loop neighborhood, Millennium will provide 70 level-2 EV chargers in four of its facilities.