Developers Bet on Orange County Boom : Parking Firms See a Lot of Potential Profit
When the first parking structure opened at Costa Mesa’s giant South Coast Plaza mall in 1972, shoppers hunted for open-air parking spaces much farther from the stores to avoid driving into the five tiers of concrete.
“It took a long time to catch on,” said Stan Taeger, property manager, about the parking structure.
Today, Orange County residents are not only learning to live with parking structures but to pay for the privilege. The current explosion of high-rise office building construction in the county has been accompanied by the development of multileveled parking controlled by mechanical arms and attendants with open palms.
Some of the same urbanizing forces that are prompting the county’s developers to shift from building sprawling garden offices to high-rises--spiraling land values, burgeoning demand for office space and the desire to concentrate more development on smaller lots--also have persuaded them to start stacking parking spaces sky high.
Though pay parking may be an irritation for Orange County drivers, some real estate analysts say they may in time become significant profit centers for their owners.
Potential Gold Mine
Already some Los Angeles-based parking management companies are eyeing Orange County as a potential new gold mine. They say it is just a matter of time--maybe five years--before parking becomes a big business in the county, just as it already is in Los Angeles.
When the Orange County Board of Supervisors recently sought a management company to handle the parking concession at John Wayne Airport, it attracted no fewer than 12 applicants. The winning company, AMPCO of Los Angeles, a subsidiary of American Building Maintenance, made such a low bid on the job that in its proposal the firm showed it might take a loss.
Tom Barnett, AMPCO’s vice president of administration, said the firm was betting that the expansion of John Wayne Airport would push the parking operation there into the black. He said that in any case, AMPCO was willing to accept “a low profit margin” at the airport for the opportunity to gain high visibility in Orange County. By landing the airport contract and having its name on airport parking tickets and shuttle buses, Barnett said his firm will have a better shot at winning other parking management accounts in the county.
Similarly, Ed Simmons, president of Westwood-based Executive Parking, said that although parking management contracts in Orange County currently are not nearly as numerous or lucrative as in downtown Los Angeles, he expects the gap to begin closing. “We are going to bid (in Orange County) a little bit on the come,” he said.
John Spiezia, an office specialist for Coldwell Banker in Newport Beach, said all of the 27 mid- to high-rise office projects either newly built or in various stages of development near the John Wayne Airport and South Coast Plaza sport parking structures.
Escalating Land Values
The reason for the recent proliferation is escalating land values. “If construction (of a parking structure) costs $15 a square foot and land costs $20 a square foot you immediately save $5 a square foot. It doesn’t take a brain surgeon to understand that,” said Costa Mesa architect Carl McClaren.
Still, the cost of building parking structures--from $5,000 to $7,000 per stall--needs to be recaptured. So landlords impose parking fees.
Prices for unreserved spaces in Costa Mesa and the airport area, Spiezia said, are averaging $35 a month, while the monthly charges for reserved parking spaces average $81.
Riding the crest of the county’s rising parking rates is C. J. Segerstrom & Sons office building complex next to South Coast Plaza. Charges for that area’s newest parking structure--a $12-million state-of-the-art edifice built around an atrium and designed to do double duty by serving a plush new office tower and the coming Orange County Performing Arts Center--are the county’s stiffest to date.
Office tenants in the structure pay $50 a month for a unreserved stall and $125 for reserved, while office visitors are charged 75 cents a half hour to a maximum of $6 a day. Performing Arts Center patrons will pay $3 per event.
But real estate industry experts say that pay parking is only in its infancy in Orange County, where office tenants have been spoiled by decades of free parking at their doorsteps. They point to much higher rates in downtown Los Angeles, where office building tenants pay an average of about $125 a month for unreserved spaces and $150 for reserved, and their visitors are charged up to $1.90 a half hour or a maximum of $15 a day.
Rates Are Lower
A single parking stall in Los Angeles can generate as much as $2,000 in revenue a year, while the most expensive stall in Orange County can reap a little less than half that, or about $900 a year, according to Raymond Liesegang, president and owner of Century Parking Inc., a parking management company based in downtown Los Angeles that grosses more than $40 million a year.
Officials at Century Parking, which has the parking contract for Segerstrom’s office buildings, say that people in Orange County must be gradually eased into pay parking.
“If you start the public off slowly, at 25 cents or 35 cents a half hour, it becomes something you’re used to,” one Century Parking official explained. He said that gasoline price hikes had the same psychological effect. “When gasoline prices reached $1 a gallon, people went crazy,” he recalled. “But a year later $1 became cheap.”
Office development experts doubt that parking fees in Orange County will ever match those in the urban core of Los Angeles because local governments in Orange County are requiring developers to provide sufficient parking spaces. Astronomical parking prices in downtown Los Angeles stem in part from a parking shortage planned by the city to ease street traffic by encouraging employees to car pool and use mass transit.
But once pay parking gets started in a market, a domino effect begins, parking experts say. When the first building in an area initiates pay parking, buildings next door frequently react by imposing similar charges to discourage the neighbors from using their lots.
One of the first parking lots in the county to inaugurate fees was in Douglas Plaza, across the street from John Wayne Airport, which charges for parking.
Fees Were Needed
At first the tenants at Douglas Plaza were “up in arms” about the parking fees, said Robin Jeu, facilities coordinator at Century 21 corporate headquarters in the plaza. But, she said, it was apparent that fees were needed so that airport customers would not use up the plaza’s parking spaces.
Pay parking also increased the cost of operating businesses at Douglas Plaza. Ralph V. Yack, who owns a florist shop there, said providing parking for his employees and validating customers’ parking tickets now costs him about $3,000 a year. “It adds to my monthly rent and obviously the (cost) is passed on to my customers,” he said.
Parking consultants and developers say Orange County’s parking fees are being temporarily kept in check by a flood of new office space on the market. Typically, landlords are doling out free parking for up to 5 years while negotiating leases for prime tenants in the new, deluxe office towers rising in Irvine, Newport Beach and Costa Mesa. And although parking structures are also beginning to appear in the less prestigious north county office market, just about every new tenant there is getting free parking, real estate brokers say.
Costs Have Risen
Some parking structures built 15 or more years ago in Los Angeles and other urban areas now are reaping fortunes for their owners or leaseholders. But parking consultants point out that developers of parking lots today have to deal with much higher construction and land costs that erode profitability.
“Nobody would build a garage if they didn’t have to,” asserted the representative of a major Orange County office developer who requested anonymity. He said that at current parking rates in the county, a parking structure reaps only a 7% to 8% return on investment. By comparison, he said, office buildings yield about an 11% return. Monthly parking rates in the county would have to jump to about $90 a month, he said, before parking would become profitable.
But other office building experts predict that while new parking structures may not be profitable in the short-term, they will be down the road as parking rates most certainly rise.
Jeff Gunther, president of the Building Owners & Managers Assn. of Orange County and executive regional manager the Charles Dunn Co., a commercial real estate management and brokerage firm, estimated that parking structures being built today will pay themselves off in 8 to 10 years. “After that, it is pure profit,” he said.
Al Masters, a sales consultant with Coldwell Banker in Newport Beach, said a parking structure “does most definitely eventually pay for itself.” He added, “I don’t think any developer wants the general public to think he will eventually make money on parking.”
