Further analysis into the impact of price hikes on parking utilization, and the types of parking spots that will improve the current shortage is needed to strengthen this assessment. Financial Analysis The likely alternatives evaluated in this memo are based on four scenarios: 1 Build a parking facility with a management firm and charge the same rates as the nearby garage (contract terms constant; renegotiation addressed in the sensitivity analysis) 2. Outsource garage operations, but adjust prices to favor short-term parking 3.
Sell the site to a developer and derive the property tax 4. Sell the site to a developer, derive property tax, and reinvest sales revenue at 5% interest Based on a comparison of discounted cash flows (DOC) and elated financial metrics, the second option has potential for the strongest financial performance. Option 2 yields the highest NP of nearly $5. 5 million, which is 58% higher than the next best outcome in scenario 4, and 75% higher than the poorest outcome in scenario 1 (Exhibit A).
Lastly, option g’s AIR is 35%, which is greater than Oakmont City required 10% ROI, and thus making the project financially feasible. Several assumptions regarding fee structure, volume, timing, and financing are built into the models (Exhibits B- E). Operating revenue in option 2 is based on structuring hourly rates to start owe, incrementally rise, and peak at $5/day. A survey of parking in the city found a daily deficit of 8,000 parking spots (Exhibit F).
This model assumes that an adjusted fee structure would increase volume in short-term parking during weekdays and decrease utilization of long-term parking, which is less profitable on an hourly basis. NP calculations are based on a 40-year horizon, assuming the current site is torn down and a new garage is built in the same year. The sale of the Elm Street site could also be structured for a 40-year contract. Therefore, cash inflows minus expenses begin in year one. Financing the garage’s construction is feasible by issuing 20-year tax-exempt bonds.
The 5% interest is below the project’s AIR and is covered by returns from operating the garage. Qualitative Assessment The project’s positive externalities have the potential to offset the negative impact of building a garage downtown. Increasing city parking spaces could enhance retail sales volume, and 800 additional spots could increase annual retail sales by as much as $8 million and add $240,000 in annual sales tax revenue based on the mayor’s estimates (Exhibit F). The traffic commissioner as concerned that more vehicle traffic would lead to road damage, air pollution, and traffic.
However, the city could utilize the increased tax and parking revenue to invest in road maintenance, more green space, radishes programs, and sustainable projects such as a city bicycle rental program. The finance director was concerned that building a parking garage WOUld exacerbate low subway utilization, but the contrary could also be true. It is unclear if people are not using the subway only due to CB parking options. We need to consider other factors, such the lack of park and ride options in burrs where people begin their journeys.
Building park and ride lots, investing in subway marketing, and making long-term parking in the city more expensive could also improve subway utilization, and boost annual revenues to the city by as much as $10. 6 million (Exhibit F). Sensitivity Analysis A sensitivity analysis leads to a decision consistent with the above. A major unknown factor in this project is how dependent downtown parking is on long-term parking. If we assume the garage can raise short-term parking by 25-50%, even a decrease in long-term parking by 50% still produces the shiest NP when building the garage.
If long-term parking volume drops below 25% capacity, then option 4 may be worth considering (Exhibit G). The management firm could also try to negotiate a 10-50% higher share of gross revenue and management fee, but this only changes the ordering of scenarios if long-term parking volume is below 40%, and simultaneously weekday short-term parking increases by less than 25% (Exhibit H). However, these scenarios are unlikely based on the current parking volume assumptions, which produces an AIR well above the hurdle rate. There are also limitations to this model.