AMA - How To Value A Parking Lot

Today's question comes from Zach who writes:

First, I love your podcast and get great value from it. I really appreciate your straight forward analytical approach and using data to back your conclusions, not just opinion as is so prevalent in todays media.

My question is about a parking lot lease. My company is redeveloping a historic building in a small town tertiary market in middle Georgia. We are converting the building to 7 apartments and 2 commercial units while taking advantage of historic tax credits and other state incentives. At the hearing for the zoning variance (which was approved) the city councils number one concern was the 7 new units taking up parking in the downtown area. In order to mitigate this I received agreement from a local bank you owns a large parking lot across the street to lease 6 parking spaces. This satisfied the city council. As we are nearing the end of construction, the bank has reached out to me asking what I thought the parking spaces were worth. I assume they are trying to set a rental rate. If I were buying them, I would use the income approach determining the income the spaces could bring and applying a relevant cap rate. I plan on billing the tenants $50 per month for “reserved parking”. However, I don’t know what is a good number to negotiate with the bank for the lease of the six spaces. With no comps there is no way to know if $50 is even a market rate. No tenants may be willing to pay that after which I may need to lower the rate.

Currently there is no charge to park in the city. While the city has and ordnance requiring a parking pass for downtown, it is not enforced.  There is no where in town that currently charges for parking. In my opinion (having lived in Boston) there is plenty of parking downtown. I hope to lease the spots as cheap as possibly as I set up the agreement mainly to appease the city council and pass zoning. Do you have any idea what I should recommend to the bank as a lease amount?

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Host: Victor Menasce

email: podcast@victorjm.com