Mining the Gold in Your Garage

In the eternal quest to increase revenue and cut costs, co-op and condo boards are finding new ways to raise money from unexpected sources – including their garages and parking lots. Some boards try to expand their available parking space, some sell the land for a quick cash infusion, but most boards view it as a long-term asset too valuable to give up.

With 2,820 units, Penn South in Chelsea qualifies as a massive co-op, with a huge number of parking spaces – 839 of them – to match. Since the co-op’s shareholders require only 564 spots – half in an upstairs, open-air lot, and half in a ground-floor garage – the co-op entered into a long-term lease with a garage operator, Impact Parking, which specified that it could rent the remaining 275 outdoor spaces on an hourly, weekly, or monthly basis.

“Impact keeps the revenues from its operation and it pays us an annual rent that provides a major source of income to help keep maintenance charges down,” says Brendan Keany, who has been manager at Penn South for 22 years. “It also allows us to charge shareholders only $165 a month for downstairs parking and $125 for upstairs, while market rates are easily $550 and $350. After all, we’re a middle-income co-op, and we want to keep costs for amenities affordable. Hiring an outsider operator has been good for us overall.”

So good, in fact, that when it came time to renew the lease in 2001, the board readily agreed to Impact’s request for a 30-year term.

“At that time, Impact, which handles repairs and maintenance, had paid for lots of improvements to the outdoor deck, so they made the argument that they had to amortize that investment over a longer period of time,” explains Keany. “But one thing we didn’t envision was the tremendous development that has happened in the neighborhood, which has dramatically increased the demand for parking. As a result, the cost of daily and monthly parking has almost doubled. Impact is benefiting from that, but we are not.”

The development in the neighborhood includes the expansion of the High Line park, the construction of the massive Hudson Yards development, and the stunning rise in property values throughout Chelsea. It has all combined to make Penn South into an affordable oasis surrounded by a desert of luxury.

The lesson learned? “When you’re doing a long-term lease, it’s not enough to build in, say, a three-percent escalation every couple years, which is what we did,” says Keany. “There needs to be some form of reset in the lease, so the rent you’re charging won’t become woefully under-market.”