Nickels and Dimes Add Up to Millions in Lost Value

March 16, 2021

Parking operations may seem simple. A property team hires a parking operator and approves a budget. The operator collects revenue, pays the operating expenses and sends the balance to the property owner less their management fee. This all seems pretty straightforward.

Unfortunately, it’s not that simple, and the devil is in the details. Parking expenses directly impact the property’s bottom line, since recovery mechanisms for the operating expenses are rare. As a result, expense controls are critical to asset performance. This is particularly true during the COVID-19 downturn, since parking revenue declined at most facilities – in some cases significantly.

No one likes getting nickeled and dimed. However, many parking operators are struggling financially as a result of the COVID-19 downturn and other economic factors. Parking Advisors has visibility into operations nationwide, and we have seen many operators passing through new costs to their clients while others are increasing existing fees – often without notice or approval from clients. While these line item increases may seem incrementally small, they add up to significant reductions in cash flow and value.

In the following examples, the increases in four line items at an average sized commercial asset could equal $38,500 in hidden fees on an annualized basis. While the increases seem moderate on a line item basis, in the current environment (for example an office asset at a 6% cap rate) these increases could easily result in a reduction in asset value exceeding $640,000.

Credit Card Fee Markups

More and more, we discover unapproved markups on credit card fees. Most hourly parkers and many monthly parkers pay by credit card, and from Parking Advisors’ experience this is generally a good thing; credit card acceptance is accretive to cash flow and asset value, since the business risks of cash acceptance are mitigated and monthly parker A/R can be better controlled. Credit card fees vary based upon a number of factors, including the type of card used, the processing fees and other variables. However, in all cases there are actual fees charged to the merchant of record (i.e. the parking operator) and they appear on a bank statement. Some operators claim that it’s difficult to calculate the actual fee, so they pass through an “average” rate to their clients. In one example, a national parking operator charged a rate of 6.0% to clients in multiple markets. Actual fees are likely closer to 2.8%. As a property with annual credit card revenue of $1 million, this would accrue to $32,000 in new annualized profits to the operator.

SUTA Increases

Each year, parking operators receive a letter each year stating the State Unemployment Tax Act (SUTA, also referred to as SUI) rate for the following year. In most states (Alaska, New Jersey and Pennsylvania are the exceptions) this is an employer-paid tax with a rate based on the experience history for each industry category. SUTA rates have increased for 2021 in some states. However, Parking Advisors identified a large national operator that increased they SUTA pass-through to parking owners from the 2020 rate of 1.5% to a 2021 rate of 5%, even though the new rate is only 3.82%. At a property having $150,000 in payroll costs, this would have resulted in $1,770 in new annualized profits for the operator.

Audit Fees

Some parking operators charge an audit fee to their clients each month. The explanation given to Parking Advisors is that the fee covers the operator’s cost for performing periodic internal audits of the facility. The fees vary by operator, city and facility; however, Parking Advisors commonly sees charges of $200 to $500 per location per month. Our teams regularly perform operations reviews at various facilities, and as a part of our process we request copies of internal audits. It is extremely rare that examples of audits are actually produced. Rather, it is clear that this audit fee is simply an additional profit source for the operator.

Bank Fees

Many parking operators pass through bank fees on financial statements in addition their internal accounting fees. In some cases, minimal fees are charged for accounts that are regularly swept by property owners and maintain minimal balances. However, Parking Advisors commonly sees charges of $50 to $100 per month, and in many cases the fees are not actually charged by the bank. This commonly results in $500 or more in new annualized profits to the operator.

Since its founding in 2007, Parking Advisors has provided value-add parking advisory, asset management and investment services to many of the industry’s largest and most respected commercial property owners. The firm has been directly involved with hundreds of commercial parking assets valued in excess of $20 billion across all major US office markets. We currently provide active oversight for over $2.5 billion in parking assets on behalf of clients on an ongoing basis. Our projects have included many of the largest and most profitable commercial parking operations in the United States.