Cherrytree Group LLC Blog

If you are looking to commercial real estate for an investment opportunity, parking lots maybe worth a look.

If you can find one to bid on, and if the price is not already well out of your range.

A surface parking lot offers a good rate of return and its rewards are as close to being recession-proof as you’re going to get,” says Ross Moore, chief economist for Boston commercial real estate firm, Colliers International.

The older ones are nice little cash cows with relatively little maintenance,” adds Moore.

Investors are beginning to realize that a well-located urban parking facility offers stable, long-term revenue growth and that this asset class is becoming an important part of any diversified real estate portfolio.

The numbers overwhelmingly favor the US parking industry, which grosses some $25–30 billion annually, according to the International Parking Institute. There are nearly a quarter-billion registered U.S. passenger vehicles, which remain parked 96 percent of the time, IPI says.

But two problems loom for the average commercial real estate investor wanting to get into the parking business, says John Roy, co-author of The Ultimate Parking Business Buyer’s Guide.

Not many show up in real estate listings, and the ones that do are very expensive and usually out of reach for smaller investors," says Roy.

But the recession is pummeling the price of almost all real-estate assets, “This is the best time to get into parking market," he says.

Do an online search for the term “parking lot for sale,” and maybe add the city you’re eyeing.

Commercial Brokers

Another, more traditional approach is to find commercial brokers who specialize in parking lots. A commercial real estate lawyer can help you locate lots that may not be advertised.

There are a limited number of surface parking lots out there, but as with any real estate, sometimes people don’t know they want to sell until you present them with an offer. Other times, an illness, a pending move or a financial reversal may trigger a sale.

While $100,000 might get you a small lot “on the periphery of downtown,” a million-dollar lot will net a profit stream of at least $45,000 a year after taxes, insurance, debt service and on-site operation services, he says. That's a 4.5-percent annual return.

It is not a complicated business, they are pretty easy to run, relative to a lot of other commercial real estate products.

Even today, with many lots offering payment by credit card or even cell phone, Van Horn estimates the parking business is still 60 percent cash-driven.

Do Your Homework First

Anyone interested in buying a lot “take the time to do the research, and learn how to manage revenue, construction and design.

Attend a parking industry convention and ask a lot of questions. IPI is holding one next June in Phoenix, while Parking Today has another salted for March in Chicago.

Any new owner should operate the lot ”hands-on” for a year or two before turning it over to a third-party operator.

It will give them the ability to learn the industry — the ins and outs, peak hours, what works and doesn’t, what labor they’ll need. Then, if they decide to turn it over to an operator, they’ll be able to spot leakage and there’ll be no surprises.

Look for opportunities in your area; if you hear or read about a significant new development, start looking for raw land near it.

Know your area, listen to the news. If something big is going to get built, they’re going to need parking. You get to where everything you read about is a potential parking opportunity. It’s amazing how you look at things differently.

Original article CNBC