In a city as crowded and fast-paced as New York, parking is a big deal—it’s hard to find it when you need it, and when you do find it, it’s usually very expensive. Since parking spaces in the city are such a hot  commodity, it’s not surprising that many co-op and condo buildings operate their own parking  facilities, both as an amenity for residents and as a source of revenue. And  which of these benefits the building’s residents most value—the money earned from the facility or their own convenience—could be the deciding factor in how their board of directors decides to manage  the garage.  

 Whether the facility is underneath the building or adjacent to it, there’s more to running a parking garage than just painting some stripes on the  pavement and watching the cash roll in. Supervising employees, sending out  bills and collecting fees, allocating spaces for residents and managing the  income are just some of the considerations that must be taken into account when  devising an appropriate parking facility operations plan. Understanding the  financial aspect of the process, and recognizing how buildings handle the pros  and cons of making money with parking, can position board members and other  residents to make the right choice in how to deal with their parking facility.  

 Who’s In Charge?

 How a residential board manages an underground or adjacent parking facility  differs from building to building. The boards of directors of some multi-family  residences take a more hands-on approach to managing their parking facility,  while others allow a professional parking facility operator to do nearly all  the work and pay the building for the opportunity to do so. It’s all about what works best for the building. Sometimes residents get preference  for parking spaces based upon their ownership in the building. Often, they get  a discounted rate on parking in the garage.  

 There are two ways to set up garage management—through a management contract or with a lease contract. A management structure  contract is more of a partnership between the parking facility operator and the  board, under which parking rates, hours of operation, service levels and  improvements to the facility are decided by the owner. About 20 percent of the  city’s co-op and condo buildings operate their parking garages in this manner. One  disadvantage of this setup is that some parking facility operators will shy  away from working under such a contract, preferring an arrangement in which  they’re free to set rates for the facility on their own.  

 That means when a board is looking for a new operating contract for its garage,  the number of potential operators bidding for the job will be fewer if having  lower-than-market-rate resident parking fees is a necessity for the building’s board. Having fewer bids means less competition, which can amount to a parking  operations contract that is less than as lucrative as it could be for the  building. The end result is less financial benefit for residents of the  building.  

 “The co-ops, especially, don’t like to manage the operation. They’d rather get a stream of income from rent and let the operators do their work,” says Andrew Grossman, vice president/counsel for Manhattan-based GGMC Parking  LLC.  

 Under both scenarios, the operator collects fees for the garage. But the more  popular type of parking facility management is a lease structure contract,  which about 80 percent of the city’s buildings use for their parking areas. Under a lease structure, the operator  signs a contract to manage the facility, usually for a term of ten years or  more. And though the owner has less control over how the facility is managed,  one advantage of this type of contract is that the building is guaranteed a  steady revenue stream, regardless of how many patrons use the facility.  

 Many residential parking garages also serve the community around them, which can  be lucrative in good times. But a downturn in the economy can mean lower  parking demand and lower revenues from a facility that’s under a management structure contract, says Steven Aiello, senior vice  president of Standard Parking Corporation in New York  

 “If having a say in pricing is a priority, a management agreement is the best  option. If the garage doesn’t really serve the building, a lease would be the best option,” Aiello says.  

 Some boards choose a management contract partly so they can set two different  parking rates—giving a lower rate for residents of the building and a higher one to  nonresidents—but such a choice can be a losing proposition. While it will benefit the  residents who park their cars in the garage, under a management contract, lower  resident parking rates means the building will get less revenue, which is a  disadvantage to all of the residents. In such a scenario, residents who are not  motorists will be subsidizing parking rates for the car owners. Some industry  pros say that method doesn’t make sense.  

 “A flat rate is fairer,” Grossman says.

 Shopping Around

 Pricing and revenues aren’t the only factors to consider when a board is mulling a new lease or  considering a new parking operator. Some operators are better than others,  which is why companies that are new to a building’s management should be properly vetted long before they are hired.  

 “When considering renewing a [parking operations] contract, look at the options  out there,” Aiello says. “It’s always good to shop around for parking operators.”  

 The search should include interviewing the would-be manager of the facility.  That individual should be customer-friendly and knowledgeable about his job and  the industry.  

 “Hire a company with a good track record. Check references and find out what  their plan is for the garage,” says Kristen Sokich, senior vice president of Propark America, a nationwide  garage management company, noting that some companies do more with eco-friendly  technology, like installing “green” lighting, which can help the building’s overall profile and attractiveness to buyers. “You could pitch your building as greener than other buildings.”  

 Some parking garage operators offer amenities that could be more attractive to  board members of buildings. With the increase in electric and hybrid car use,  some operators offer to install electric car charging stations in garages. The  cost of such installations could be shouldered by either the operator or the  building owner, depending upon the operator. Some parking garage operators are  becoming more eco-savvy, adopting new technologies far ahead of the trend and  in advance of their competitors. Parking garages will become the filling  stations of the future, Sokich predicts.  

 It may seem that there isn’t much room for considering aesthetics when poring over the details of a parking  facility operations contract, but in the city where the art scene never sleeps,  GGMC Parking has made art installations its trademark look. The company has its  own sign and graphics department, which focuses on improving the aesthetics of  the garages it manages, as well as increasing the place’s curb appeal. According to Grossman, they do so by installing artwork and  photos of the neighborhood in which the facility is located as a way to  beautify the space and remind people that the garage is part of the building.  

 Slower Economy, Changed Expectations

 In some cases, what works best for the building is a question of what contract  terms are most lucrative to the building. In a city where parking fees can  range from $2,000 to $6,000 per space annually, the amount of money under  consideration is sizable. During good economic times, leasing contracts  increase, because it’s easier for operators to make lease payments when business is good. High  unemployment, though, can make the city’s parking tax and other costs related to parking less attractive to commuters,  Sokich says. Those commuters might opt to bike to work or take public  transportation in their daily commutes.  

 “In today’s environment, parking revenues are down and a managed contract can make more  sense than leasing,” Sokich says.  

 The slower economy has taken its toll on many parking operations throughout the  city, shaking up the market. When there is a decrease in commercial activity in  the city, obviously it lowers parking demand, Aiello says. The recent economic  downturn adversely impacted parking garage operators, as well.  

 “A lot of operators have not been able to make their lease payments, so more  buildings are looking for managers,” Sokich says.  

 Federal tax legislation also has had an effect on parking practices for New York  co-op and condo buildings. The repeal a few years ago of the so-called “80/20 Rule” had an impact on co-ops with garages in high-traffic areas, such as those in  Midtown Manhattan. The 80/20 rule, which was a part of Section 216 of the IRS  federal tax code, stated that in order to avoid penalties, at least 80 percent  of a co-op building’s revenue had to come directly from shareholders, and that no more than 20  percent of the building’s income could come from sources outside the building, such as first-floor  retail tenants, exterior advertising space, or parking garages. It used to be  that co-ops wanted their residents’ parking fees monthly, but the 80/20 repeal has changed that, Grossman says. The  upside is that the issue is no longer a negotiating point with the parking  operator company.  

 “The bigger item was that some co-ops now prefer management agreements. We’ve seen all of our Manhattan co-ops go for management agreements because the  income is not lease income that way,” Aiello says.  

 Because of the high premium placed on nearby parking for co-op and condo  residents, it’s not very common for such multi-unit buildings to choose to sell their parking  facility. While there is some flipping of stand-alone, commercial garages owned  by residential buildings, it’s the exception. Part of that fact is due to the reality that the market to buy  garages under lease properties is not as attractive to would-be buyers.  

 Generally speaking, the boards of most residential buildings want their garages  to be as financially sustainable as possible. When those parking facilities are  doing well financially, there’s often no need, or desire on the part of residents, to sell them.   

 Jonathan Barnes is a freelance writer and a regular contributor to The  Cooperator.