CAN YOU AFFORD A PARKING STRUCTURE

The Cost of a Parking Structure Has Many Components: 1.Land costs 2.“Hard” construction cost - actual construction costs 3.“Soft” construction costs - including design costs, approval costs, inspection costs, and internal management costs during the planning, design, and construction phase 4.Construction contingency costs

The Cost of a Parking Structure Has Many Components: 5.Financing costs including bond issuing costs and construction loans 6.Operating costs including maintenance costs 7.Taxes on revenue 8.Sinking fund costs (cost of future repairs)

Financing Study of a Parking Structure A 500 car parking structure on a footprint of 123 feet by 303 feet with about 126 spaces on a level. To reach 500 spaces requires five levels.

Figure 1

1. Land Costs For this study it is assumed the land costs are 15% of the construction costs or $1,500,000. De ed

2. “Hard” Construction Cost A reasonable rule of thumb for a suburban parking structure is about $20,000 per space, hard construction costs. This correlates to a “hard” construction cost of $10,000,000 for a 500 space parking structure.

3. “Soft” Construction Costs: Architects and Engineers design fees Surveys Geotechnical investigations Testing and inspection Building permits Environment impact report including traffic study Miscellaneous expenses A reasonable estimate of these “soft” construction costs is 10% of the “hard” construction costs including land costs or about $1,150,000.

4. Construction Contingency Costs A 5% “Construction Phase” contingency is advisable to cover unforeseen circumstances. In this case a “construction” contingency cost is assumed equal to 5% of $10,000,000 or $500,000.

The Total Project Construction Costs: Item 1. Land Cost $ 1,500, Item 2. “Hard Construction Cost 10,000, Item 3. “Soft” Construction Cost 1,150, Item 4. Construction Contingency 500, For a Total Project Cost (P) = $ 13,150,000.00

Capital Recovery Factor The key term in the financial analyses is the Capital Recovery Factor “K”. It is the proportion of the original investment that must be recovered each year to recoup the original investment.

The Formula for Capital Recovery Factor K is: K = Wherer = rate n = number of periods r (1 + r) n (1 + r) n -1

Table I. Capital Recovery Factor

B = P - y o C 1 - (X 1 + X 2 + X 3 ) + (y 1 + y 2 ) The Determination of the Bond Issue Required to Cover the Project Costs is Found in the Formula

T he Meaning of the Other Terms in the Bond Issue Equation are as Follows: X 1 - Is capitalized interest (X 1 B) during Construction period (may or may not be at same rate as bond issue). X 2 - Debt Service Reserve (typical 1 year) = KB where K is the Capital Recovery Factor. This is for revenue dedicated bonds. X 3 - Bond Issue costs. This is typically 3%.

The Meaning of the Other Terms in the Bond Issue Equation are as Follows: Y 0 - Construction fund interest equal to the hard construction cost interest assuming the construction fund is invested with monthly draw- downs. As used in this analysis rather than use one half of the construction cost the interest rate is reduced to one half to accomplish the same result. Y 2 - Debt Service Reserve income (applies to revenue dedicated bonds only) = Ki = Capital Recovery Factor x interest rate.

The Meaning of the Other Terms in the Bond Issue Equation are as Follows: Y 1 - Capitalized interest income during construction period based on quarterly payouts and reinvesting what is left. This applies to the hard construction costs. Suggest factors for a one year construction period for the following interest environment is: 5% % % % % %

Bond Coverage Factor This is the ratio of revenue less expenses (excluding financing) versus financing costs. This is typically a factor of 1.2 for general obligation (or guaranteed revenue bonds) and 1.3 for revenue only dedicated bonds.

Bond Issue Required: Based on: The Total Project Cost P equals $13,150,000. Hard construction cost equals $ 10,000,000. The time of construction equals one year.

Bond Issue Required: The bond is assumed to be 30 years and the tax-free interest rate (i) used for this analysis is 5%. The following factors are used in the analysis: K =Capital Recovery factor.0651 (i=.05, n=30) Y 0 =Construction fund interest (1/2 (i))=1/2 (0.5)=.025 X 1 =Capitalized interest = 0.5= i (1year construction period)

Bond Issue Required: X 2 =Debt Service Reserve = K =.0651 X 3 =Bond Issue Cost =.03 Y 1 =Capitalized Interest Income Factor = Y 2 =Debt Service Factor Ki =.0651 (.05) =.00325

Bond Issue Required: B = P - y o C 1 - (X 1 + X 2 + X 3 ) + (y 1 + y 2 ) B = 13,150, (10,000,000) 1 - ( ) + ( ) B = $ 15,004,885.32

Debt Service The debt service (Ds) is the capital recovery factor K times the bond issue financing costs debt service = KB.0651 x 15,004, =Ds $ 976,818.03/year =Ds KB =Ds Note: This is item 5 on the list of parking project costs.

Sinking Fund In addition to the bond service cost, the bonding agency will probably (and, rightly) require a sinking fund to cover the cost of future repairs. It may equal about one half percent of the bond issue or about $75,000 per year only. This is Item 8 on the list of parking project costs.

Operational Cost Operational costs vary greatly with the type of operation. Systems that require revenue collection versus permit parking have substantially higher costs. A cost per space/per year in a gated cash revenue operation is about $1,500 while $1,200/per space/per year is reasonable for a metered operation. $750/per space/per year is reasonable for a permit operation.

Operational Cost In this study, an annual cost of $1,500/per space was used resulting in an annual operating costs of $750,000 for a 500 car parking structure. (Item 6 in the initial list of costs)

Debt Service Ratio The bonding company does not accept break even analysis. A debt service ratio of at least 1.2 is required for general obligation, or guaranteed revenue bonds are required and 1.3 or more for revenue only dedicated bonds. Using the 1.2 factor requires a surplus of 20% of the bond service cost. This results in a required minimum surplus or profit of.2 (976,818.03) = $195,364.

The Total Minimum Annual Revenue Required Before Taxes Is: Operating Cost $ 750, Financing Costs 976, Sinking Fund 75, Minimum required surplus (or profit) 195, (Debt Service Ratio) Total Net Revenue Required =$1,997,182.00

Required Revenue Per Space If an 8% tax rate is assumed, (taxes = $173,668). This is item 7 on the list of parking project costs. A $2,170,850 per year gross annual revenue is required. This is about $4,342 per space per year for 500 spaces. Based on 200 days effective operation this equals $21.70 per day per space gross revenue. Included in this cost is almost a 10% surplus of which about a dollar per day is true surplus or profit and about 80 cents per day is a sinking fund for future repairs.