Pittsburgh will lease its parking garages and meters for $452 million. Quick cash is needed to save the city's ailing pension fund. The city was advised by Morgan Stanley. The Post-Gazettereported on the bid process:
The J.P. Morgan-LAZ team offered $413 million, while EQT Partners and The Carlyle Group bid $391.5 million and $311 million, respectively. Because the two highest bids were within 10 percent of each other, the city ordered a runoff process that culminated Monday with bids of $451.7 million from the J.P. Morgan-LAZ team and $423.1 million from EQT.
The (winning) bidder is operating as Pittsburgh Parking Partners LLC, which described itself in a statement Tuesday as a consortium of "institutional investors" advised by J.P. Morgan and LAZ affiliate P4 Partners.
Pittsburgh Parking spokeswoman Shannon Baker declined to identify the investors, except to say in an e-mail that they're entities such as "government and corporate pension plans, insurance companies, endowments and foundations."
Mayor Luke Ravenstahl stated $200 million of the proceeds would go into the pension fund. However, Controller Lamb has a different take:
"We would realize well over $1 billion if we continued to operate the garages on our own," he said, particularly if the city followed the parking rate increases that Mr. Ravenstahl has proposed as part of the lease plan.
Parking rate increases? That leads to Chicago's experience with LAZ Parking. The first came in 2006, a 99 year lease of parking garages with 9,178 spaces (Chicago Downtown Public Parking System):
Morgan Stanley and LAZ Parking have won the bidding for four underground parking garages in Chicago. It will pay $563 million to the City of Chicago for a 99-year lease on the garages, located on Michigan Avenue in the centre of the city.
Next came 36,000 parking meters (Chicago Metered Parking System), a 75 year lease for $1.15 billion. Allianz Capital Partners, a unit of Munich-based Allianz SE and the Abu Dhabi Investment Authority are partners with New York-based Morgan Stanley in the leasing consortium, called Chicago Parking Meters Venture LLC.
LAZ Parking, LLC is pleased to announce that a consortium led by Morgan Stanley's infrastructure investment group has been selected by the City of Chicago as the preferred bidder for the 75-year concession of the Chicago Metered Parking System.
LAZ Parking, headquartered in Hartford, will be responsible for the operation of the system. The Metered Parking System has up to 45,000 parking meters, together with surface parking lots, throughout downtown Chicago. The City retains all power and authority to set rates and periods of stay and operation for all of the parking meters in the System.
So what happened to metered rates? They went from 25 cents an hour to $1, then jumped in increments to $1.25, $1.50 in 2011, and $2 by 2013. Inside the loop rates are $4.25 an hour, but they'll hit $6.50 by 2013. Central business district parking costs $2.50 an hour. Sundays and evenings are no longer free. After 2013 rates will continue rising.
Chicago officials said that after the first five years of the 75-year parking meter lease, rate hikes will be subject to approval by alderman and are expected to be at the rate of inflation.
Cities seem to rush parking deals through, intent on a one time cash injection while sacrificing a long term revenue stream. Chicago Mayor Daley rammed his deal through in 48 hours.
The Windy City reaped nearly $2 billion between 2006 and 2008 in such deals. How were those proceeds used? Here's the promise:
The Daley administration said $400 million will go into a long-term reserve, $325 million will be spent in city budgets through 2012 and $100 million is earmarked for programs helping low-income people. An additional $324 million is headed toward a fund city officials said "may be used to help bridge the period until the nation's economy begins to grow again."
Daley spent about $792 million of the lease money in the last three years to balance budgets and for other needs, according to city reports including one from Saffold. That would leave $353 million of the upfront payment to put toward the 2011 budget, which is expected to have a $654.7 million deficit, according to estimates issued July 30.
The city will use 75 years of revenue in four short years. Amazing. On the flip side of the contract Morgan Stanley's long term take is $11.6 billion, over double the original estimate of $4 to 5 billion. Chicago is being sued for selling the meter franchise on the cheap. Bloomberg reported:
“The city was paid, conservatively, $974 million less for this 75-year lease than the city would have received” from the revenue generated by its 36,000 meters during that time, Bunting said, citing a 2009 report by the city’s inspector general.
In his report, then-Inspector General David Hoffman faulted the city for moving too quickly to approve the long-term lease and for failing to examine other alternatives.
Pittsburgh is in a hurry to shore up their pension fund by leasing parking to investors, comprised of other pension funds. Where will this interconnectedness land already stressed public pensions, cranking up risk for returns? Governments are stressed general contractors, selling their very lifeblood.
Stressed pensions and governments bode well for private equity underwriters (PEU's). While The Carlyle Group lost Pittsburgh parking, they'll get their turn to collect meter money..
Update: Pittsburgh's City Council killed the parking privatization deal on 10-19-10. An Indianapolis deal remains on the table. Rates could go up 1,000 percent.
Update 11-22-10: Pittsburgh Mayor Luke Ravenstahl may take another run at parking privatization to fund the city's pension.
Update 5-3-14: Chicago parking had another banner year with revenues of $135.6 million, up from $23.8 million in 2008 (the last year the city held the franchise)
PEU Report/State of the Division