Unbundling

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Unbundling

In June’s Parking Magazine, Charlie Munn talks about unbundling services. He comments on unbundling service provided by everything from airlines (baggage and food) to grocery stores (shopping bags for sale) to auto companies charging extra for adding rust proofing. The then talks about charging additional for parking when it’s more secure, in a better location, and charging less in off hours. It’s a good article and has good information for parking facility operators and owners.

There is one type of unbundling that he didn’t mention. That is the unbundling of parking charges from the rent in many apartment and office buildings.

Consider this. A developer builds a 20 unit apartment building. He adds 40 parking spaces as amenities for the building. The cost for those spaces adds 25% to the cost of the building. So he adds 25% on to the rent to pay for them. Suppose he “unbundled” the cost for the parking space and reduced the rent price by 25%. What is the result?

First of all, people who don’t have cars would pay less rent. Those who do have cars would pay, as they should, the proper price for parking. The developer would realize that he didn’t have to provide 40 spaces, but that 20 would do. The cost of the project would go down, probably be easier to rent, and all would be right with the world.

Unbundling parking from office parks would do the same. Let’s say that the surface lot around an office building takes up five acres. It’s all parking, except for the footprint of the building. The developer provides “free” parking to the tenants as an amenity. However, his cost has skyrocketed because he is now having to keep that land free of other use. The rent goes up, and so does the cost of the development. However if he were to “unbundle” the cost of the land from the cost of the construction, and charge an appropriate amount for parking, the rent would be lower, the ability to rent out the offices could be easier, and if a tenant wanted to provide parking for their employees they could pay more ( probably market) rates for the space. Building cost is down, rent is down, all is right with the world.

AND a parking operator would most likely have to be employed to manage the parking, collect then fees, and maintain the parking area. Gee its good for us, too.

Be sure to check out Charlie’s story in Parking Magazine. It’s a good one, and humorous, too.

JVH

Picture of John Van Horn

John Van Horn

3 Responses

  1. Not that simple. If the parking is treated as rent, the building owner and tenant can avoid having to pay the parking tax!!

  2. As mentioned above, there is a cost to provide parking. However, developers do not build extra parking unless it is required by the local zoning department. Even if the developer knows that it will go unused. A variance may be obtained so that not all the spaces required have to be provided. As for the free office park parking, if you limit the parking to those who pay for it, now you have the added cost of parking equipment and management to operate the lot.

  3. Mario: Thanks for agreeing with me. Its good to know I get something right once in a while. The problem developers have is that cities often don’t offer a variance for parking and even when they do, it isn’t the right number. You are aware of course that no parking is “free”. If an owner provides acres of parking, that cost of land must be spread over the rent of all the tenants. Even those that walk to work or ride the bus. Isn’t it reasonable for parking to be paid for by the people who use it? Instead of every tenant paying an extra $5 a square foot per year for the parking, why shouldn’t only those that use the parking pay the extra cost. I know you are aware that there are costs to running a “free” lot. Lighting, security, cleaning, striping, and the rest. The cost of the land is certainly the highest part of this expense.
    John: The building owner never pays the parking tax, if there is one, the tenant pays it. The money only comes from one place. And it certainly isn’t appropriate for those that don’t use the parking facilities to pay the cost of the parking so those that do can avoid the tax. That drives rents even higher. What is more appropriate, to have those that use the parking facilities pay for its costs, or have everyone in the building pay for it? JVH

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