Finding the right parking management provider can maximize the value of your property and ensure a great experience for drivers, customers, and tenants. Structuring the right parking management agreement is also critical for improving profitability while minimizing day-to-day operational burdens.
When choosing a parking management company, there is a lot to research and digest in terms of the deal structure.
Our goal is to pull back the curtain on how parking management deals are really structured. We’ll offer an unfiltered, data-backed view with real examples from our experience negotiating and creating better options for long-term value.
There are 3 main types of parking management agreements:
Parking management agreements are the most common management arrangement in the parking industry. Yet other arrangements like parking lease agreements and revenue-sharing agreements can more favorably balance revenue potential (i.e. “upside”), day-to-day operating burdens, and protection against potential risks (i.e., “downside”).
How do you know which agreement is best for your parking asset?
Picking the right parking management agreement typically depends on factors like your type of facility, its use cases, the location, your desired level of involvement in daily operations, and your financial goals. The following sections cover each agreement type in more detail, including insider insights on how they’re really structured and serviced.
What it is:
A parking lease agreement is a contract in which a property owner rents a parking facility to an operator (tenant) for a specified period. This agreement provides the property owner with predictable income while shifting operational responsibilities to the tenant.
In a lease, the lessee also assumes responsibility for operational costs. However, the range and type of costs an operator covers usually depends on whether the lease is a single net, double net, or triple net agreement:
What to know:
Parking lease agreements are structured as a landlord and tenant relationship, and the lessee rates can be fixed or variable. Under the agreement, lessees are afforded control of the parking asset and the property owner is owed payment according to the agreement terms regardless of the monthly revenue.
Because parking operators cover base rates and operational expenses, parking leases can expose operators to losses when demand drops, like during the COVID-19 pandemic. Unsurprisingly, leases are less common throughout the parking industry as operators shift to agreements that better protect their interests.
Why they’re used:
Lease agreements can help asset owners create a long-term agreement that shifts operational expenses and burdens to an operator. Owners may opt for a lease if they want to secure consistent, reliable revenue that minimizes the downside risk of seasonality or prolonged downturn. Although lease agreements typically have a capped upside (because the lease rate is fixed), they can make it easier for a property owner to secure lender financing using the agreement as collateral.
If a property owner wants to benefit from their asset’s financial performance (above the monthly rental rate), they may ask the lessee to consider a base lease agreement with an added revenue share.
The base lease with revenue share, sometimes called a percentage lease, is a similar but less common type of agreement. The percentage lease agreement still offers protected downside for the property owner because the lessee will pay a fixed monthly rate. But an added revenue share can make the deal quite lucrative for property owners. However, lessees may not be willing to guarantee a fixed rent rate and share upside while assuming all downside risk and covering all operating expenses. These agreements are more likely when a property is known to offer high revenue potential.
What it is:
A parking management agreement is where a property owner hires a parking company to run their facility for a set fee. The owner still pays all operating expenses, which the operator usually passes through in monthly invoices. This model of adding a fixed management fee to operational expenses is often referred to as “cost-plus” pricing.
What to know:
Parking management agreements give property owners more control than a lease, but they can pose more financial risk. It’s true that a “fixed” management fee makes costs more predictable, slow periods are shouldered by the property owner while the management provider continues to collect their fee.
The reality of cost-plus pricing is that a management fee might appear lower at first, and the actual amount paid by the owners is significantly higher once expenses are added. There’s little incentive for the parking management company to innovate and adopt cost-saving technology, since passing through marked-up expenses is their revenue driver.
Why they’re used:
Involved owners often choose standard parking management agreements because they appear to offer a steady management presence without a long-term lease commitment. However, owners should weigh the trade-offs and create an agreement where the operator’s goals and incentives are aligned with theirs.
What it is:
Instead of charging a flat monthly fee for management, a revenue-share parking agreement is when a parking management company takes a percentage of the facility’s gross revenue. Revenue-sharing allows the owners and operators to share upside potential and downside exposure.
What to know:
Since the parking management provider’s earnings depend on performance, they’re strongly incentivized to maximize revenue, keep costs low, and invest in technology to improve efficiency. Unlike standard management agreements, where marked up expenses are passed through, the management provider covers operating costs from its share of the revenue.
Why they’re used:
Revenue sharing keeps property owners and operators aligned on incentives, and both parties can benefit if the facility does well. This agreement also shifts some financial risk away from the owner since the operator takes on expenses. A revenue-share agreement can be a smart choice for owners that want a hands-off approach with shared upside.
Standard parking management agreements might seem fine at first glance, even appearing to favor the property owner. Realistically, it’s more likely that the management provider has a plan to make the parking asset profitable in the following ways:
We’ve seen parking management providers use these approaches and many others to improve their revenue; especially when we assume control of a new facility. In the next sections, we’ll detail exactly how each type of parking agreement can have unforeseen negative effects.
Lease agreements have capped upside for the real estate owner. For example, management companies may significantly increase revenue by driving more demand or improving pricing, but real estate owners won’t benefit from better performance.
In one parking facility in Los Angeles, California, AirGarage drove a 4x revenue increase by partnering with local food trucks and implementing dynamic pricing to boost revenue. If the owner had been on a lease, they would not have shared in the upside, which is why AirGarage recommends revenue share agreements.
The following issues are also common with lease agreements:
Despite their popularity in the parking industry, standard management agreements can present significant downsides, including:
For example, the following image shows a real P&L from a management agreement before AirGarage took over and offered a transparent revenue share. Notice that the operator passed through bogus expenses like $4,600 for “telephone and computer,” alongside nondescript data processing and bank charges.
A revenue-share agreement creates a partnership between the owner and operator. For property owners, a revenue-share agreement offers downside protection because both parties rely on parking revenue for payment. Put simply: if the owner doesn’t get paid, neither does the operator.
Conversely, the owner and operator have uncapped upside and substantial motivation to increase revenue generation. This shared upside should incentivize the operator to use technology solutions that lower costs, increase customer satisfaction, and offer pricing capabilities that drive overall revenue growth.
Unlocking parking revenue potential requires the right strategy and approach, and this strategy should be built on the right agreement. The following considerations can help you strike a balance in your parking agreement:
Knowing the right questions to ask can save time, hassle, and hidden issues in your parking management agreement. The result should be an arrangement that balances financial incentives, prioritizes the customer, and promotes transparency.
