Rebirth and vindication

To say that parking made a comeback in 2012 would be a gross understatement. On the strength of a single transaction – the Ohio State University (OSU) deal – parking has not only been revitalised as a viable infrastructure sector, but has served to breathe new life into public-private deal flow in America.

Before dismissing that as bombast, think back to 2008 and the role parking then had in serving to stoke investor confidence that the US had arrived as a frontier market for private investment in public infrastructure.

That December, Chicago signed off on what would go down as a public-private partnership (PPP or P3) watershed – a 3,600-meter on-street parking deal. Leading up to its lease, cash-strapped and crumbling Chicago had positioned itself as patient zero for privatisation in the US.

A 2004 concession had privatised its Chicago Skyway toll road, ushering in the first-ever PPP stateside.Now, the Windy City was embarking on a first-of-its-kind parking package in the US – a $1.5 billion transaction with blue-blood Wall Street firm Morgan Stanley, private equity powerhouse Allianz Capital Partners (ACP) and the Abu Dhabi Investment Authority (ADIA), a sovereign wealth fund. It was also set to lease its Midway International Airport in a deal with Citi Infrastructure Investors (CII) worth $2.5 billion.

Florida, Texas and Virginia took note: a transformation in how the country thought about, and paid for, its infrastructure was in the making – and parking was at the forefront.

OUT OF FAVOUR

Then, with America and the global infrastructure asset class watching, parking – and the would-be US market for public-private infrastructure along with it – fell flat. It was a rapid falling out of favour for a novel, relatively untested asset class and parking was the talking point as one potential Chicago-inspired deal after another between 2010 and 2011 died on the vine.

Pittsburgh and Los Angeles, in seeking to monetise their respective municipal parking, both cited Chicago and its precedent-setting billion-dollar deal. City Hall squabbling and political backbiting lost each city a windfall, with Pittsburgh turning its back on $300 million and L.A. costing itself $450 million.

There was – and still is – a tentative New Jersey Transit (NJT) plan to privatise parking. That plan, with a projected dollar value of $750 million, has remained mired in procurement. Hartford and New Haven in Connecticut had a brief dalliance with privatisation, with Hartford estimating its mandate to be worth from $80 million to $120 million. But neither Nutmeg State enclave opted to purse privatisation to its end.

Under unrelenting fiscal duress and facing ongoing political embarrassment, Harrisburg, Pennsylvania, did not pursue a bundled offer of up to $240 million to lease garage parking in 2011, and a current open bid – following the Keystone State capital being placed in court-appointed receivership – is in stasis.

STUNNING COLLAPSE

The emerging infrastructure investment market in America – scared after the stunning collapse of the Trans-Texas Corridor (TTC) project and cowed as the global financial crisis raged – went cool. But a worse fate awaited Chicago, the prime mover in introducing the public-private concept to America.

In 2010 Citi Infrastructure Investors (CII), the infrastructure investment arm of sub-prime mortgage-battered financial services provider Citi, dropped its offer for Midway International, leaving a hamstrung Chicago unable to find a comparable offer for a high-maintenance asset. But it was the parking meter lease that was fast becoming a lightning rod for criticism, stoking populist rage as – nationwide – a demoralised Main Street took umbrage at Wall Street.

A 2009 report from Chicago Inspector General David Hoffman savaged the lease, claiming Chicago had sold itself $1 billion short in a “dubious” transaction. A Bloomberg expose blasted the Morgan, Allianz and ADIA consortium – known as Chicago Parking Meters (CPM) – for earning a projected $11 billion over the course of its 75-year lease, while local media exulted in lambasting the deal as a throwback to Prohibition-era corruption.

The political blowback against Chicago Parking came to a head in November, when Rahm Emanuel ordered a full financial and operating audit of the consortium, which is claiming to be owed $50 million. For parking, as well as the asset class in America, the Chicago parking deal has become a tough lesson and a less than inspiring example.

“There is a consensus that aspects of the Chicago deal were not well done,” says Rick West flatly.

SPELLING INFRASTRUCTURE

A week after ‘Frankenstorm’ Hurricane Sandy had visited a projected $50 billion worth of destruction on the Tri-State region, Garden State resident West, a veteran of the parking business, is risking driving into New York in order to make a business meeting. His North Jersey neighborhood is still without power, but West is uncomplaining: neither he nor the people near and dear to him have undergone harm or trauma.

West has a rare talent as someone who can hold a conversation with a meter maid one minute then turn around and pitch a Wall Street investment banker the next. West worked at Kinney Parking System, rising to become vice president before the entrepreneurial bug bit and spurred him to start his own business, AviStar Parking – a successful venture he sold to Macquarie Group in 2002, joining the Australian financial services firm in the process. It was at Macquarie where West, by his own account, “learned how to spell ‘infrastructure’”.

Like most people who spend a long career dedicated to a specific, niche-market business, West is unflinching in telling the hard truth.

“When discussing a parking PPP, you still hear public officials go, ‘I don’t want to do a Chicago’,” West explains. The Ohio State deal, on the other hand, is, according to him, a “game changer”.

NO-BRAINER

While charging that Chicago got it wrong is too simplistic, stating that OSU got it right is a no-brainer. The 64,000-student Buckeye school in June netted $483 million in exchange for leasing its on-campus parking to Queensland Investment Corporation (QIC) and parking lot operator LAZ.

OSU had hoped to haul in $375 million. Australia-headquartered QIC offered Ohio State an even-bigger payout. One option was a $523 million deal with an annual 7.5 percent rate increase cap. Another option was $509 million with a 6.5 percent cap. But OSU selected the $483 million package, which has a 5.5 percent yearly cap. The winning bid was larger than Macquarie Group and Industry Funds Management (IFM), both of which received consideration, put forward. Macquarie, which partnered with Central Parking Systems, offered $417 million, while IFM, together with Parking Solutions, put together a $390 million deal.

Like Chicago, and its deal for municipal on-street parking, Ohio State was a first: no US college had ever offered to lease its on-campus parking before. Throughout the asset class, the attractiveness of the asset – as well as the asset holder – was immediately obvious.

Beginning with its evaluation of a potential parking lease, and then through procurement, OSU “ran a great process” for a “great” asset, according to attorney Kent Rowey. Mark Williamson, a managing director with Evercore Group, an adviser to QIC, stresses that a college, unlike a government, can approve a deal “unilaterally”.

“It has a monopolistic nature,” says Rowey, a specialist on parking privatisation who left Freshfields Bruckhaus Deringer for rival law firm Allen & Overy, saying that the emergence of a competing service to vie with campus parking is “unlikely”.

A JUMPING-OFF PLACE

Rowey cites the Ohio State lease as a jumping-off place for higher education to consider privatised parking. Indiana University followed suit. Estimating its on-campus parking to be capable of generating more than $20 million a year, the Midwest school appointed Goldman Sachs to advise on a possible concession.

But Rowey also points out that municipal government has also begun to revisit parking. New York in July issued a mandate to find a possible private operator to improve its 89,500-space system – the largest in the country – while Cincinnati in November published a request for proposal (RFP) for a potential $40 million mandate. In his opinion, privatised municipal parking has earned a bad reputation based on a widely-held misconception that Chicago got a raw deal.

“It has more to do with the place, and the political environment there, like in Los Angeles, than with parking,” Rowey insists. “The fact is, had there been no Chicago, there would be no privatised parking”.

West agrees, commenting that the lingering perception of the Chicago deal has unfairly maligned the opportunity to lease municipal parking.

“A city can only price parking based on what it can reasonably predict,” he says.

West is adamant, however, that the parking business could do more to assist the sell side and provide input before procurement.

“Parking companies need to invest the time to identify how to play a larger role in the PPP process,” West charges, crediting his stint with Macquarie with giving him insight into the P3 model.

“What is missing is going out and educating people in government about parking, and what a parking PPP is. Explaining that the private sector can run parking more effectively,” he says. “What else is missing is that parking, as a business, has tended to be filled with operational people. In a parking PPP, asset management and financial skill are also needed.”

2013: EVEN BETTER

Aside from major urban municipal parking, like Chicago (the third-largest US city), and leased parking outright, West cites the potential for ‘hybrid’ privatization. This was evidenced in Indianapolis with its 2010 concession – a $35 million lump sum and $400 million ‘revenue stream’ – plus a growing “second city” awareness of privatisation. In June, Wilkes-Barre, a community of 42,000 in Pennsylvania, packaged a bundled 830 on-street space, 2,113-garage spot deal, to fetch $30 million. Though the mandate was shut down in procurement, Wilkes-Barre demonstrated that a small municipality could entertain a concession.

In Sacramento, leased parking took the form of a single-purpose entity, when in September 2011 the California state capital published a mandate asking for $250 million to $300 million for its downtown parking. Unlike Chicago, which sought upfront capital to plug a budget gap, Sacramento wanted to use its imbursement to finance a sports complex to keep its professional basketball franchise from moving to a new city. Though the Kings National Basketball Association (NBA) team opted to leave, the bid solicited considerable interest, and might have proved successful had the Kings chosen to remain in Sacramento.

To Rowey, the resurgence in potential parking P3 interest in general is a sign that parking is back as an infrastructure sector of importance.

“I definitely agree that this has been a good year for privatised parking in the US,” Rowey says, “but 2013 is going to be even better.”