If you don't know why you have X amount of parking spaces for Y number of reasons, you're in for one rude awakening. Keep in mind, when an investment property is being planned out between a developer and architect, one key area of concern is parking. The developer wants to maximize the rentable area and the architect has to make sure the property meets the parking requirements set by a given municipality. Balancing these two has always been a challenge and will continue to be for as long as we have cars in this world.
A common mistake I've seen developers make is in limiting the parking to the bare minimum, or, in some circumstances, even applying for variances to reduce the required parking by up to 20%. When the focus is on profit alone, or at least what looks good on paper, the property will most likely suffer later on in practical terms. You're then faced with limits on what uses are allowed for the building, under-performing tenants, low foot traffic, and an adverse effect on the resale value of the building.
Whenever addressing parking, there are two main characteristics that always have to be addressed. These are related to function and profits. There is no way around this. If you're building or purchasing an investment property, you have to take this into consideration.
Function pertains to the building's planned use, potential use, and practical use. Profits will include rentability, manageability, and resale value. Although I'm addressing these issues in general terms, I will go over these distinctions in more detail on future posts. You can check back periodically for updates.
It's important to find the right balance between these characteristics so there is a functional building at the end of the day. Too much in one area and not enough in the other could negatively affect your investment. Just because a property was approved by the building department and passed inspections doesn't mean that it's functional or optimized for future growth. After all, if you're developing a retail shopping center, you never know what type of business will come your way. So you always have to plan ahead and think not only in terms of specs, but in practical, real world scenarios as well.
The same is true if it's an already existing property. There are many details that could significantly affect how the property will be rented and even to some degree the building's profit potential. If you can't bring in the right tenants because the building doesn't meet the parking criteria, you may end up having to take a cut in rent just to fill up those costly vacancies.
Here are two examples of the more common parking issues faced by building owners and how it affects both the landlord and tenant. Also note, there are many different circumstances that can affect your bottom line depending on the type of building you have. For the sake of simplicity, these examples will be specifically addressing scenarios found in retail shopping centers.
There are a number of other factors to consider regarding parking. Even something as basic as maintenance could be a problem without the right number of parking spaces. A simple task as seal coating and re-striping the parking lot could turn into a logistical nightmare if the building doesn't have enough parking spaces for the current use. This is quite common in older buildings that haven't been keeping track of their parking restrictions. The building department won’t issue the permit necessary for the work and you’ll end up in a lengthy exemption process that could take months with no guarantee for approval.
In summary, it’s important to start thinking about parking and how it can affect your investment in more ways than one. There are, of course, many other situations to contend with, but this is a good start to understanding the importance to a functional parking lot. Whether developing or purchasing an existing property, the concerns are the same and can't be ignored. As a rule of thumb, always visit Municode online or your local building department to make sure the building meets or exceeds the required parking counts. A few hours of research can prove to be priceless.
If you or one of your colleagues is experiencing similar issues with their parking situation, please feel free to reach out to me for a free consultation. I’m happy to help in any way I can to ensure your property is running as effectively as possible.
www.allrealtymanagement.com
A common mistake I've seen developers make is in limiting the parking to the bare minimum, or, in some circumstances, even applying for variances to reduce the required parking by up to 20%. When the focus is on profit alone, or at least what looks good on paper, the property will most likely suffer later on in practical terms. You're then faced with limits on what uses are allowed for the building, under-performing tenants, low foot traffic, and an adverse effect on the resale value of the building.
Whenever addressing parking, there are two main characteristics that always have to be addressed. These are related to function and profits. There is no way around this. If you're building or purchasing an investment property, you have to take this into consideration.
Function pertains to the building's planned use, potential use, and practical use. Profits will include rentability, manageability, and resale value. Although I'm addressing these issues in general terms, I will go over these distinctions in more detail on future posts. You can check back periodically for updates.
It's important to find the right balance between these characteristics so there is a functional building at the end of the day. Too much in one area and not enough in the other could negatively affect your investment. Just because a property was approved by the building department and passed inspections doesn't mean that it's functional or optimized for future growth. After all, if you're developing a retail shopping center, you never know what type of business will come your way. So you always have to plan ahead and think not only in terms of specs, but in practical, real world scenarios as well.
The same is true if it's an already existing property. There are many details that could significantly affect how the property will be rented and even to some degree the building's profit potential. If you can't bring in the right tenants because the building doesn't meet the parking criteria, you may end up having to take a cut in rent just to fill up those costly vacancies.
Here are two examples of the more common parking issues faced by building owners and how it affects both the landlord and tenant. Also note, there are many different circumstances that can affect your bottom line depending on the type of building you have. For the sake of simplicity, these examples will be specifically addressing scenarios found in retail shopping centers.
- Older building with existing uses that require more parking than provided: In this scenario, you figure that there shouldn't be a problem since you'll most probably be grandfathered in, and hey, no harm no foul right. Well, in most cases that's true, but now you have two other issues to address.
- First, the parking situation may hinder the establishment of a superstar tenant because the other tenants have taken up the building's maximum parking allowed. Of course, as long as you maintain the same use, the grandfather clause will protect you. But, if you have a use that may require a bit more parking, let's say for a barber shop, restaurant, gym, day care, or a number of other uses, there's not much else you can do.
- Second, there is also the issue of under-performing tenants due to the deficient parking lot that can't accommodate the traffic needed to sustain the tenant's sales requirements. You then end up with high turnover rates, higher than normal vacancies, and a lot of time and effort being expended to keep the property rented.
- In this scenario, you have a developer with a limited amount of land that's been maxed out through shortcuts in parking counts. Due to the location, the property may be attracting high end tenants willing to pay top dollar for the spaces. The parking lot is always full and it seems like things are going well. However, you'll soon start to see a decline with some tenants. The more popular tenants, or uses, eat up most or all of the parking; leaving the other tenants with nothing more than a trickle to work with. And eventually, even the tenants that are producing will find it difficult to grow because the parking arrangement simply won't allow for more traffic.
- Also, if the property is up for sale, a smart investor will take this into account. The investor knows that it will be a challenge to find the right mix of tenants and won't offer top dollar for the property. After enough investors pass on the deal, it's only a matter of time before the owner has to come down on the price and sell for far less than anticipated.
There are a number of other factors to consider regarding parking. Even something as basic as maintenance could be a problem without the right number of parking spaces. A simple task as seal coating and re-striping the parking lot could turn into a logistical nightmare if the building doesn't have enough parking spaces for the current use. This is quite common in older buildings that haven't been keeping track of their parking restrictions. The building department won’t issue the permit necessary for the work and you’ll end up in a lengthy exemption process that could take months with no guarantee for approval.
In summary, it’s important to start thinking about parking and how it can affect your investment in more ways than one. There are, of course, many other situations to contend with, but this is a good start to understanding the importance to a functional parking lot. Whether developing or purchasing an existing property, the concerns are the same and can't be ignored. As a rule of thumb, always visit Municode online or your local building department to make sure the building meets or exceeds the required parking counts. A few hours of research can prove to be priceless.
If you or one of your colleagues is experiencing similar issues with their parking situation, please feel free to reach out to me for a free consultation. I’m happy to help in any way I can to ensure your property is running as effectively as possible.
www.allrealtymanagement.com