A sense of déjà vu

On paper, the recent deal to privatise parking in Cincinnati was a winner.

Last autumn, the ‘Queen City,’ the third-largest municipality in the US Midwest state of Ohio, put a package of garage, on-street and metered parking out to bid, publishing a request for proposal (RFP) asking for a minimum of $40 million upfront. What came back was enviable: a private consortium teamed with the Port of Greater Cincinnati Development Authority was offering $92 million upfront in a long-term contract with a total economic value topping $100 million.

But the essential problem – that the real world doesn’t exist on paper – made what happened next predictable, especially given what had happened with parking privatisation in Los Angeles and Pittsburgh. Even though the city council approved the lease in a March 7 meeting, the deal was halted when a judge issued a restraining order after a public group filed a lawsuit against Cincinnati.

With the deal in limbo, media outrage is mounting and political cunning manifest. John Cranley, a mayoral challenger to incumbent Mark Mallory, panned the public-private partnership (PPP; P3) as a “100 percent hidden tax increase,” while a report has surfaced charging that the would-be private partner would earn double current parking revenue.

For privatised parking, the significance of Cincinnati is twofold:  it raises the spectre of the 2008 Chicago parking P3 that cast a pall over the $452 million Pittsburgh lease and 2011 Los Angeles parking deal; while reinforcing the appeal of privatised campus parking, as seen in last year’s $483 million Ohio State University (OSU) deal.

Cincinnati parking is a solid asset. A 15,000-space package spread among on-street and garage parking, the deal also included Sycamore Garage, a 725-space structure.

The RFP garnered interest from nine consortia featuring the likes of Morgan Stanley Infrastructure (MSI) and Vinci Concessions. The Port of Greater Cincinnati Development Authority also responded. Though the Authority was not selected, winning bidder ParkCincy partnered with the public office.

The $92 million upfront sum offered would come from a Port of Greater Cincinnati Development Authority bond offering, and include a $3 million annual installment, $20 million in capital improvement to the meter system and Sycamore Garage, and $98 million in capital investment over the course of the lease – a 30-year term for on-street parking and a 50-year term for off-street.

Aside from the Authority, consortium ParkCincy includes underwriter Guggenheim Partners, asset manager AEW Capital Management, with Xerox managing on-street parking and Denison managing off-street parking.

ParkCincy has estimated that, in 2014, meter and ticket revenues are expected to increase from $7.3 million to $10 million. By 2016, that revenue doubles to $14.3 million. The projected increase in revenue is, of course, due to private sector efficiency, but also to stringent enforcement.

For his part, City Hall hopeful Cranley has alleged that Wall Street, not the Authority, will be in control of the partnership. The lawsuit, meanwhile, said the lease should be subject to a referendum.   

The ongoing backlash against leased municipal parking (New York has also shelved a decision to privatise parking out of fear of negative publicity) is further proof that on-campus parking is, for the asset class, a more viable proposition.  

Ohio State was allowed to unilaterally approve a deal with Queensland Investment Corporation. Indiana University is pursuing a lease, while the University of Michigan and University of Texas are examining privatisation.

While auctioning off-street parking might make sense for a municipality, the current Cincinnati deal is illustrative that navigating procurement processes can still be highly problematic for the asset class.