Property management

Parking Problems

Evaluating operations could lead to better service and greater profitability.

Parking is a vital part of many commercial property operations. In multifamily, office, and retail properties, parking is often the first thing that visitors experience, and parking facilities often serve as de facto lobbies for commercial buildings and complexes. As such, tenants expect convenient, safe, and secure parking for their staff and customers.

Yet, in spite of parking’s importance, many property owners take a hands-off approach to working with their parking operators. If specific problems don’t arise, owners are often content to give their operators a free hand from year to year. However, when assessing the bottom-line performance of an operator, it makes sense to take a closer look every now and then.

Since the recession and the slow market upswing, property owners and managers have focused on controlling costs as a way to improve a building’s financial profile. In addition, investors considering ways to add value to a property acquisition may have overlooked parking as a potential area to improve operations and profitability. In both cases, ignoring a parking operation could result in lost revenue to deficiencies in a number of key areas, including audit control, facility maintenance, marketing policies and pricing for daily and monthly rates, staffing requirements, and technological advancements.

Providers, Not Partners

In the past, property owners often regarded parking operators as their partners. However, parking management has changed dramatically in recent years. Today, parking operators should be viewed as providers, and owners must regularly gauge what services are being provided at what cost.

For example, previously owners would pay only the actual direct costs incurred for their operation, which included a fair profit for the operator. Now many operators assess additional fees for the cost of insurance, uniforms, payroll taxes, equipment, and credit card fees. This is a way of marking up expenses and an approach that many property owners and managers are not aware of. To ensure that only those direct costs associated with managing your asset are being paid, property owners and managers should implement a policy that requires regular and thorough reviews of all monthly operating expenses.

If an owner or manager feels they are leaving money on the table each month, it may be time to issue a request for proposal for a parking operator. The RFP process lets the owner and property manager know if they are paying too much, whether their parking operator is using the latest technologies that can save money, or if a high-volume parking structure is being operated as efficiently as possible.

Two Case Studies

The RFP process provides an opportunity to evaluate a parking operation on a number of criteria in addition to cost, and if necessary, select a new operator. Of course, because the property manager may choose an operator who may not be offering the best economic package or price point, it’s imperative that the selection process is fair and impartial, and that, in the case of public facilities, no favoritism is shown toward the winning operator. In addition, the RFP process offers support and validation for the chosen operator, based on an “apples to apples” comparison among competing service providers.

The experiences of two parking owners illustrate the value of issuing an RFP to assess the competence and competitive value offered by an incumbent parking operator. In the first case, the incumbent operator had handled the day-to-day management of a parking facility for more than 20 years, and the property manager frequently expressed satisfaction with the operator. However, because of continuing economic challenges and a new company-wide policy of obtaining competitive bids for all third-party services, an RFP for parking management services was issued. Through this process, the property manager discovered that his company was not receiving the best possible value for the management services being provided.

The RFP contained staffing schedules and historical revenue data that clearly defined the scope and magnitude of the operation. After receiving responses from several qualified operators, a side-by-side comparison matrix of proposed operating expenses was developed. The matrix compared the operating expenses proposed by the longtime operator with other proposals. Additionally, all the proposed expense budgets were compared to the annual budget submitted by the operator, three months prior to issuing the RFP, which the property manager felt was representative of the actual operating expenses required to manage the facility.

Much to the chagrin of the property manager, the expenses contained in an outside operator’s submittal were 12 percent less than those contained in incumbent’s budget submitted months earlier. When questioned about this variance, the competing operator stated, “We assumed some economies of scale that had gone unnoticed during the annual budget preparation cycle.”

Unhappy with this response, the property manager requested a best and final budget proposal from the incumbent operator. Ultimately, the operator with whom the parking manager had done business for two decades did not survive the final review process and was replaced by a respected third-party firm.

Additionally, other bidders offered an array of marketing opportunities the incumbent operator had failed to explore. The successful bidder also noted under-market pricing and proposed to manage the parking facility with the same level of staffing at considerably less cost. The end result was additional bottom-line profit for the owner.

This situation isn’t unusual. It’s easy for long-time vendors to become so comfortable in their relationships with owners that they fail to look for new opportunities to improve the operation and find efficiencies. That’s why it’s important for owners and managers not to become complacent with their operator, no matter how well they seem to be operating the facility — or how close a personal relationship they may enjoy with the operator.

In another case, an operator had managed a parking facility since its opening 15 years earlier. During this period, the property was sold and the operator was retained by the new owner under the terms and conditions of an existing agreement with the previous owner. Two years after purchasing the property, the new owner issued an RFP to assess operating costs as well as the fees charged to manage the asset.

In the proposal review process, several bidders offered new marketing initiatives and technological enhancement opportunities. The incumbent operator promised business as usual. A comparison matrix of proposed operating expenses also revealed that the incumbent proposed annual operating costs were 11.5 percent higher than the nearest bidder and 47 percent higher than the least expensive, using a base staffing schedule included with the RFP.

The owner subsequently requested that the operator submit a best and final budget proposal and revised marketing plan. Much to the owner’s dismay, the best and final budget was still 5.5 percent greater than the nearest bidder and 26 percent higher than the least expensive. Additionally, the revised marketing plan clearly lacked the creativity shown by other respondents. Eventually, the operator’s unwillingness to reduce expenses, explaining that “some operators are just better and in fact command greater fees,” resulted in the owner awarding the asset to another firm.

RFP Process

To begin the RFP process, the property owner or manager, with assistance from a parking consultant, prepares a list of qualified operators from whom they would like to request proposals. Along with the RFP documents, a sample management agreement is included to ensure an unbiased comparison among providers.

A pre-proposal meeting and walk-through is held after interested operators have had a chance to review the RFP document thoroughly. Questions are not typically allowed during the pre-proposal meeting and walk-through to ensure that no operator will have an unfair advantage by reason of unilateral conversations with the owner or the owner’s consultant. Any questions resulting from reviewing the RFP or from the walk-through are solicited from the operators and answered through a written addendum. Most owners and management companies select a committee to evaluate the proposals, attend finalist interviews, and select the best operator. The selection committee is usually comprised of people involved in overseeing the facility, but sometimes may include people engaged in the parking business that are employed elsewhere.

The owner’s parking consultant assists the selection committee with the evaluation process by preparing an objective analysis of the proposals and answering questions the selection committee may have when it performs its own analysis. Though usually attending the interviews, most consultants prefer, or even demand, to be a nonvoting committee member. In the public process, the consultant generally participates in the presentation to the final decision-making body such as a city council or airport commission.

For owners or property managers, the RFP can be an important tool. Whether the owner or manager feels the operator provides great service or whether there’s speculation that a replacement can provide similar service for less cost, issuing an RFP can be an eye-opening experience. It can often get the owner and property manager back on track when it comes to managing their parking asset to its fullest potential and also help to achieve the maximum bottom-line profitability for the owner.

Phill Schragal is director of the Parking Operations Consultant Group at Walker Parking Consultants. Contact him at phill.schragal@walkerparking.com.

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