Condoize parking spaces to create timeshares

Parking is likely to get increasingly scarce in cities. In an NDI-exclusive investment thesis, timeshares for parking might be the answer.

YIMBYism — a general belief in zoning reform to drive more housing construction — has been on a big winning streak lately.

Influenced by Shoup’s The High Cost of Free Parking, a common YIMBY goal is removing parking requirements from new buildings and properly pricing street spaces. As this coalition succeeds, it likely means parking will generally become more expensive in cities.

At the same time, return to office mandates are bringing employees that left town back to central business districts. This increased demand is raising prices in urban centers, which pushes residents into the suburbs and exurbs around their jobs.

Together, this means that we’re systemically increasing the price of parking at the same time that more workers will be driving into cities for work again. The likely result is a price shock and political reaction to the increased cost of parking and commuting.¹ The biggest beneficiaries will be the parking garages that can charge even more outrageous pricing.

But this isn’t the same market as 2019. An increasing share of employers — 60% in New York — are on a hybrid schedule, with only a few days a week in the office. Why should we force everybody into economically inefficient parking rentals? The future of parking in major metros might be fractional parking spaces.

A model for fractional parking ownership

My quick review of recent sale prices for parking spots in central business districts (CBDs) found prices from $50k to over $250k depending on the city. That’s more than most people can afford, outside of taking out a loan — a significant debt load for one person. But there’s no reason that one person needs to take all of that risk. Instead of purchasing it outright, let’s use fractional ownership.

To enable fractional parking ownership, a single-purpose LLC is established that purchases the space. The LLC records a declaration creating deeded intervals — essentially timed property rights — and an owner’s association. Members buy these deeded rights, giving ownership of a set period of usage — e.g. every Monday and Tuesday from 7am to 7pm. To handle weekends, a rental pool can be created to manage hourly rentals on a parking platform like Spothero, with proceeds distributed pro-rata. Members pay a monthly assessment covering taxes, insurance, management, and other costs.

This would be a niche arrangement today, but it doesn’t seem so outrageous for an entrepreneurial parking lot to allow something like this. As time goes on, operations could get streamlined: license plate whitelists, automatic fees and tow calls for non-owner parking, and an app to manage rentals to third party users.

There are a few challenges though:

1. There’s a coordination challenge to find people to share a spot with you. You might struggle to find someone who has a complementary hybrid schedule to you. This is a pretty easy solve: an app, a waiting list at the garage, even social media networks. If this really takes off, nearby companies could coordinate opposite in-office days to optimize matching for parking spaces.

2. There’s an enforcement challenge. You need to have some enforcement of your spot usage. This means that purchased spots will mostly live in garages, requiring carrying costs to pay for staff, insurance, and maintenance. The good news: it makes it significantly easier to rent out your parking space on weekends.

3. There are some regulatory challenges. I looked up the timeshare definition on the NY Attorney General’s website:

“A timeshare as any arrangement for sharing ownership of a vacation home, condominium, or other interest in realty where each of the joint purchasers may occupy the unit during a specified period each year.”

That sounds a lot like partial ownership of a parking space that’s timeboxed to specific hours. It’s paperwork heavy, but not fatal: timeshares have to register with the state, make a series of disclosures, use the phrase “timesharing” prominently and repeatedly in any plan documents, and let buyers get a full refund within 7 days.

You also need to repeatedly tell buyers this is a high-risk investment that they shouldn’t expect any returns from — which sort of feels like a proto-version of Matt Levine’s Certificate of Dumb Investment idea? None of these feel like idea-killers, but some states might subject you to deeper regulations that raise bigger concerns.

So on paper, this is plausible to execute. Do the economics make sense?

Parking ownership might be an attractive alternative over time

Let’s think about the economics of buying a shared parking spot.

As a novel asset class, it’s likely you won’t be able to get the same loan terms as a mortgage. Let’s make some basic assumptions:

• 7 year loan at 8%, no down payment

• $800 per month in carrying costs — things like taxes and paying your share of attendant wages

• Rent out the spot for $25 per day every Friday through Sunday, around $325 per month in income. This is likely low given you could rent spots overnight

• Appreciate at 3% per year, sell at 25 years

• Value of 2 days a week of parking space use is $2,700 per year

• Let’s assume a parking spot price of $100,000

Splitting it two ways, that implies a per person monthly net cost of $1,016 per month for the first 7 years, then $237.50 per month afterwards. Given $25 per day is roughly $225 per month for a 2x/week hybrid worker, you’re worse off from a pure cashflow perspective.

But that isn’t the whole story. Taking the net present value (NPV) of rental income, final sale proceeds, fees, and the abated cost of parking as cash, a $100,000 purchase price is around a -$22,000 present value transaction over 25 years. If you’re able to change any of these variables — purchase price, interest rate, daily parking price, or appreciation — it’s not too hard to have this be a logical transaction.

The appreciation thesis in particular feels pretty plausible. If cities systemically remove parking, there’s very likely to be an increase in the cost of parking (and thus the value of a parking space). If parking appreciated like NYC apartments at 6% over 25 years, the NPV of buying a spot gets to $9,000. Suddenly, this is a reasonable diversification option for a commuter that also acts as a call on their cost of parking.

Even if none of these work out, there’s still intangible value to drive purchases. Allegedly New Yorkers spend over 100 hours per year looking for parking. Reliability has a value in itself, and six-figure parking spot prices imply a lot of demand for a secure space. And given all of this demand, it raises the question: is there a better way to source parking spots?

Condoization, but for parking

You may be asking: who is selling individual parking spots in the city? If this idea is going to reach any scale, the answer has to be parking garages.

Today, parking garages are mostly operated as pure rentals — a central management company that rents out individual spots. But nothing (as far as I can tell) generally stops parking garages from condoizing like rental buildings do and selling their spaces to owners.

Let’s take a random parking garage for sale that I found: selling for $6.5 million for 110 spots, or roughly $60,000 per spot. If the sale price is greater than the present value of future cash flows, then it probably makes sense to convert and sell these as parking condos (with relevant condo fees for shared staffing, taxes, and maintenance).

Naively, let's assume a spot is rented every day for $25: the NPV over 25 years is ~$115k (including a 3% annual growth in termination value). That’s before taxes and other operating costs — comparable “car condos”² charge $400 or so per month per unit. Including these costs lowers the NPV to $64,420. Let’s assume 100% occupancy, minimal condo conversion costs³, and no platform/tax leakage, to keep it simple.

$64,420 is pretty high, but NYC parking spaces regularly go for $175,000 and above, not including monthly taxes and management fees. In neighborhoods like midtown, where there’s virtually no deeded spots available, the price is likely to be far higher.

It sure seems like there’s arbitrage in parking condoization. I know we have some private equity readers of No Dumb Ideas; you’re welcome in advance for this new investment thesis that I’m sure will make you very rich and very much villainized by people who hate paying for parking. Email me if you’re pursuing this.

Sure, an hour of parking is a security

With condoization, parking space hours (PSHs) — a standardized ownership of 1 hour of a parking spot — could be an attractive asset class. With legibility as an investment, new financialization opportunities open up.

One of the bottlenecks for selling parking spots upfront would be capital. Underwriters won’t have clear models for how to think of PSHs as collateral, leading to personal guarantees and high interest rates. But as this became something normal, specialized lenders would begin to issue and underwrite these loans. With greater access to capital, prices would go up and underwriting for condoized parking garages becomes a cinch.

To fund these loans, financial institutions can reach into the backlog of instruments used in mortgages. PSH backed securities can be sliced in creative ways — you can invest in entire spots, work hours, weekend parking, or even high yield overnight parking shares. Maybe the city of Chicago can restore their exposure to parking revenue through clever pension fund investment.

One of the bigger questions is whether this asset has overly-correlated risk. Attendance in the central business district is tied to employers bringing their employees into town to use the parking. If something causes demand for parking in CBDs to collapse at the same time as fractional owners lose their jobs — say, a once in a century pandemic or a big enough recession — you could end up with a lot of underwater loans on parking space timeshares.

But that’s a problem for the parking space timeshare CDS holders to worry about.

Official idea rating

5/5. I think the only reason this doesn’t exist today is the abundance of free parking spots, and maybe some hesitation with the novelty of the legal structure. The potential collapse of free parking is one of the last frontiers of enclosing the commons; people will find creative ways to allocate this increasingly scarce asset. I’m not sure if parking timeshares are the model that will win out, but I’m pretty certain it will at least be tried.

---

1. I’d love to think we solve increased demand for urban transit through better regional rail networks, but given increasing costs of public transit I’m not confident we’ll avoid a cost crunch.

2. As sometimes happens with a no dumb idea, I found out after finishing it that someone else came up with the name car condo before me. But the car condo timeshare is an NDI original.

3. Real estate readers may think that minimal condo conversion pain is a bit too optimistic; the first conversion will likely be regulatorily painful, but hopefully this won’t be an idea killer at scale.