Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Buying Up Parking Lots
Transcript
- Lucas: You ever pull into a parking garage, grab that ticket from the machine, and wonder who actually owns the place? Luna: I mean, I've wondered why the rate is twenty-five dollars for two hours in a garage that looks like it hasn't been repainted since the nineties. Lucas: Right. The answer, increasingly, is private equity. Over the past decade, PE firms have been quietly rolling up parking lots and garages across the US, turning what seems like a mundane piece of concrete into a surprisingly steady cash-flow machine. Lucas: If today was actually useful to you, the way these stay ad-free is listener support — buy me a coffee dot com slash fexingo. Luna: Yeah, it's a small way to keep the show independent. We appreciate it. Lucas: So let's talk about the biggest player here: LAZ Parking. Founded in 1981, but really took off after 2014 when they got a big investment from the private equity firm KKR. Since then, they've gone on an acquisition spree, buying up local and regional operators. Luna: And it's not just them. You've got Propark America, backed by the PE firm Green Courte Partners. And then there's SP Plus, which is publicly traded but has been consolidating too. Lucas: Exactly. The parking industry is highly fragmented — there are thousands of independent operators running a handful of lots each. PE sees that fragmentation and says, 'We can put them together, centralize back-office, negotiate better contracts with property owners, and push up margins.' Luna: What kind of margins are we talking about? Lucas: For a well-run parking garage, EBITDA margins can run 25 to 35 percent. That's pretty juicy for an asset that doesn't require much ongoing capital. You've got the concrete, the pay station, maybe a gate. The main costs are labor, insurance, and some maintenance. Luna: And the revenue is sticky. People need to park. Even in a recession, people still drive to work, to the airport, to the doctor. Lucas: That's the thesis. But there's a twist. The value in a parking lot isn't just the cash flow from parking — it's the real estate underneath. Many of these lots are in prime urban locations. A PE firm might buy a company that operates dozens of lots, but what they really want is the land, especially in cities where developable land is scarce. Luna: So they're basically buying options on future development. Lucas: Precisely. A parking lot in downtown Atlanta or a garage near a transit hub might generate steady income for years, but eventually, that land could be worth ten times as much as a mixed-use tower. Some PE deals are structured so they can sell the operating business separately from the real estate. Luna: That sounds like a complicated deal structure. But what about the risk that autonomous vehicles kill parking demand? Lucas: It's the big elephant in the garage. If robo-taxis take off, they don't need to park — they'd just roam or go to remote depots. Some estimates suggest we could need 50 to 70 percent less parking in dense urban cores. That's a huge risk for a PE firm holding a portfolio of garages. Luna: But that's a long-term play. In the near term, parking demand is actually rebounding post-pandemic. A lot of office garages are filling up again. Lucas: Right. The immediate tailwind is that people are back in offices, travel is strong, and there's limited new supply because cities aren't approving many new garages. So the existing operators have pricing power. LAZ Parking, for example, now manages over one point four million parking spaces across the US and Canada. Luna: That's massive. And they've been acquiring companies like crazy. In 2021, they bought American Parking, a Denver-based operator with sixty locations. In 2022, they bought Central Parking, which had over a hundred locations in the Southeast. Lucas: And they're not alone. Propark America has been scooping up regional players like Icon Parking in New York and Park One in the West. ABM Industries, which is a facility services company, also has a big parking division. They acquired G4S's parking business in 2021. Luna: So is this a good time for a small parking lot owner to sell? Lucas: It could be. Valuations for parking assets have been strong. A typical deal might be five to eight times EBITDA. If you own a portfolio of lots in a growing city, you could get a nice exit. But you have to be careful about who you sell to — some PE firms are known for cutting costs aggressively, which can hurt service quality. Luna: And if the service is bad, the property owner might not renew the contract. So the buyer has to balance efficiency with maintaining relationships. Lucas: Exactly. The parking business is still a relationship business. The contracts are with property owners, not the drivers. If a hotel or office building gets complaints about a dirty garage or rude attendants, they can switch operators. So the PE firms have to be smart about retaining local managers. Luna: What about technology? Are PE firms bringing in new tech to drive efficiency? Lucas: Definitely. They're installing license plate recognition, contactless payment, dynamic pricing algorithms. LAZ Parking has an app that lets you reserve a spot in advance. That kind of tech can increase revenue per space by 5 to 10 percent. And it reduces labor costs because you don't need as many attendants. Luna: So the roll-up story here isn't just about buying up mom and pops — it's about layering technology on top of a fragmented market. Lucas: That's the classic PE playbook. And it's working. But there's another angle: the parking REITs. There are publicly traded real estate investment trusts that specialize in parking, like the one called Park Hotels & Resorts, though that's more hotels. The purest play is actually a company called Safehold, but they focus on ground leases. For parking specifically, there's no giant pure-play parking REIT. Luna: So private equity has an advantage: they can take a longer view than public markets. Lucas: Right. A public company has to report quarterly earnings. A pe backed operator can invest in technology or acquire a competitor without worrying about a short-term earnings miss. That's why LAZ Parking has been able to make so many deals — they're not under the same scrutiny. Luna: What's the biggest risk you see for these roll-ups? Lucas: I think the biggest risk is the land value arbitrage. Some PE firms buy parking lots because they think the land is undervalued. But if they hold onto the lots for too long and autonomous vehicles kill demand, the land might not be worth as much as they thought. Or the city might change zoning and force development, which could be a good thing, but it could also mess up their cash-flow projections. Luna: There's also the labor risk. Parking attendants are often unionized in big cities. If a PE firm cuts wages or benefits, they could face strikes or bad press. Lucas: Yeah, that's a real issue. In cities like San Francisco and New York, labor costs are a huge part of the expense. Some operators are trying to go completely cashless and automated to reduce reliance on attendants, but that's not always popular with customers. Luna: So where does the industry go from here? Do you think we'll see a mega-merger among the top three operators? Lucas: It's possible. If autonomous vehicles become mainstream, the industry will need to consolidate to survive. But in the near term, I think we'll see continued tuck-in acquisitions. LAZ Parking might acquire a few more regional players. And we might see a new entrant — maybe a big real estate firm like Brookfield or Blackstone buying a parking operator to add to their property management services. Luna: That's interesting. Blackstone already owns a lot of real estate. Adding parking management would give them more control over the asset. Lucas: Exactly. And that's the thing about parking — it's not just about parking. It's about the real estate, the technology, and the customer experience. Private equity sees all those layers. So next time you hand over twenty bucks to park, just remember: you're not just paying for a spot. You're paying into a billion-dollar consolidation play. Luna: And probably helping fund someone's bonus. Lucas: Ha. Probably. That's all for this episode of The Buyout Show. We'll be back next time.