Consultant: Pittsburgh parking worth up to $470m

An analysis by Texas-based Finance Scholars Group also said the city cannot rule out the possibility that it is conducting ‘fire sale’ of its parking assets. Also, the ‘considerable costs’ associated with such a transaction could be ‘potentially much greater’ than the costs of issuing public debt to shore-up its under-funded pension, according to the report.

Pittsburgh’s parking garages, meters and lots are worth up to $470 million over the life of a 50-year lease being contemplated by the city and any such lease could potentially constitute a “fire sale”, according to a consultant report prepared for the Pittsburgh City Council.

The $470 million figure places the winning offer of $452 million that Pittsburgh received for the lease near the top of the valuation range estimated in the report. The report determined that the assets would have an average value of $401 million over the life of the lease, with a minimum of $286 million.

The $452 million offer was the result of a competitive, two-round auction won by a team of JPMorgan Asset Management and LAZ Parking.

The report, presented to council on Friday by Texas-based Finance Scholars Group, based its calculation on the net present value the assets would bring to the city if they remained on its books. City council asked for the report so that they could complete their due diligence on the parking lease, which is due to go before the council in the next month or so.

The report cost Pittsburgh taxpayers $250,000.

Finance Scholars Group also said Pittsburgh could not be absolutely certain that the lease did not constitute a “fire sale” of the parking assets. “It's hard to judge whether this concern is valid,” Finance Scholars Group wrote, but the city “appears to be strongly motivated” to do the deal.

Additionally, “unless the concessionaire [JPMorgan and LAZ] has the ability to generate significantly more cash flow from the assets than the city, it is unlikely that the city will realise its full value of the assets through a long-term lease”, Finance Scholars Group wrote.

To determine whether the concessionaire can indeed generate more cash than the city, Finance Scholars Group advised city council to compare the $452 million offer to its valuation range of $286 million to $470 million.

Finance Scholars Group also advised the city that “there would be considerable costs” associated with leasing the assets, such as transaction costs, increased parking enforcement costs and other expenses Finance Scholars Group included in its model. These costs could be “potentially much greater than the costs of borrowing” funds to shore up the city’s underfunded pension, Finance Scholars Group concluded.

Borrowing $180 million via a bond issue with a 20-year maturity would result in increased debt service of $305 million to the city, Finance Scholars Group said. But this would be offset by $447 million in increased revenues, according to the firm’s analysis.

Mayor Luke Ravenstahl has staunchly opposed issuing debt to get the city’s pension up to a 50 percent funded status. If the city does not reach that threshold by the end of the year, it will lose control of the pension to the state government – an outcome Ravenstahl is trying to avoid by championing the 50-year lease.

The $452 million offer for the lease “certainly exceeded our expectations”, Ravenstahl said in a statement after the final bids were opened.

City council must take action on the lease before 1 November, when the $452 million offer expires.