August 5, 2015
Want to Improve Your Multifamily Cap Rate? Turn to Automated Parking
When you begin to look deeply into cost/benefit ratios for multifamily housing construction expenses and their effects on cap rates, one element is evolving much more rapidly than all others. You are likely surprised to discover it is automobile parking.
First, let’s review that cap rate formula again. It’s simple but easy to misunderstand. It is Net Operating Income divided by Market Value. On a national level, that number is currently hovering in the 4-5% vicinity. There isn’t much that developers or architects who design housing projects can do about the market value. It is a direct result of housing supply and demand within any geographical region.
However, NOI is a different story. The best time to establish strong operating income is during the project conception phase. As a result, savvy developers in New York City, San Francisco, Boston, and other pricey regions have been embracing Automated Parking Systems (APS) for years.
Today, forward thinking cities including Houston, Atlantic City, Detroit, West Hollywood, and Minneapolis among others have also recognized the clear advantages of automated parking systems. They are just some of the many cities that need new parking facilities, and have taken the time to run complete and accurate comparisons.
Here are the obvious benefits:
- CityLift systems reduce the parking footprint by over 50%
- Lower operating and maintenance costs, including staffing, monitoring, and cleanup
- Lower insurance premiums
- Tax advantages resulting from accelerated depreciation
- Faster construction times
Cap Rate Enhancement Is Assured
From a strictly economic viewpoint, the advantages of a CityLift underground system clearly outweigh those of the traditional model. Rather than using valuable land for parking, it becomes additional retail space, more condos, or increased office space. The effect on cap rate is immediate and incontrovertible.
Since there is no human intervention with CityLift, parking specific payroll disappears. Insurance premiums are lower as violent crime, vandalism, and routine dings and dents are no longer factors. Significantly, the user spends much less time parking and retrieving the vehicle. Imagine how much more attractive automated parking is to a prospective condo buyer or retail shopper!
The tax benefits result from the fact that depreciation schedules accelerate with APS. Typical parking building depreciation ranges from 25 to 50 years, while CityLift systems can be depreciated in as little as seven years.
Lower Cost Per Space
One of the most common reasons that properties go undeveloped is that there is not enough land for the required parking density to make the project viable. CityLift solves that problem by creating more spaces within the same footprint since the number of square feet required per stall is far less:
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Bear in mind that CityLift systems continue to provide substantial cost savings each year after construction.
Cap Rate Effects
Too few developers take the time to fully analyze existing data. They simply compare total costs for conventional structures against those of automated parking. With improved technology, it is no longer just subterranean systems that enjoy a cost benefit. When you factor in the lower land costs, reduced payroll, lower utilities, and the rest, it turns out that APS has turned the corner for above ground applications, as well.
Don Manahan, the Vice President of Walker Parking Consultants in Denver, puts it this way:
“The savings in floor area for the automated garage at the high unit cost offsets the cost of the automated machinery such that the automated garage is then less expensive than the conventional garage.”
Recently, the trend has been accelerating. As APS costs have dropped relative to traditional drive-around-in-circles systems, their use has seen significant growth.
If you want to learn more about the benefits of automated parking systems, contact us to speak with a representative who will provide you with current pricing options.
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