Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / Private Equity Is Quietly Buying Up Parking Lots
Transcript
- Lucas: So Luna, you know that stretch of curb near your old gym, the one that always had a guy in a yellow vest with a handheld card machine? Luna: The one who charges you eight dollars to park for a smoothie. Yeah, I know him. Lucas: Okay, well, that guy's boss might soon be a private equity fund. Because over the last few years, firms have been quietly buying up parking lots and garages all over the country. Think about it: over a billion dollars in deals since 2021, and the biggest players are now LAZ Parking and SP Plus. Luna: Wait, the company that handles parking at the airport I flew out of last month, that's LAZ, right? I remember the logo. Lucas: Probably. They manage over a million spaces now. And here's the thing — a parking lot is a perfect private equity asset. It's got steady cash flow, almost no maintenance cost, and it's a monopoly on a patch of land. You can't just build another lot next door. Luna: But aren't we all supposed to be taking the train and riding bikes? Like, what's the long-term play here? Lucas: Right, and that's the exact question that makes this roll-up interesting. Because even with all the talk about transit, the number of cars on the road keeps hitting records. In most American cities, parking demand is still growing. And these firms aren't just buying the revenue stream — they're buying the land underneath. That's the real asset. Luna: So they're betting that even if the surface lot gets redeveloped into an apartment building, they still win? Lucas: Exactly. But the near-term cash flow is the hook. Take a typical suburban lot with a hundred spaces. At, say, two dollars an hour, half full during business hours, that's roughly a thousand dollars a day, maybe three hundred grand a year. Minus a few part-time attendants and some repaving every five years, and you're looking at an eighty percent operating margin. Luna: Eighty percent margin on a strip of asphalt. That's better than a lot of software companies. Lucas: And that's why they're piling in. Now, the consolidation story isn't new — you've seen it in car washes, self-storage, even pet cremation. But parking has a twist: the technology. The old play was just buying lots and raising rates. The new play is about dynamic pricing, app-based payments, and using data to squeeze more dollars out of every space. Luna: So the guy with the yellow vest is becoming a data scientist? Lucas: Pretty much. LAZ has been deploying sensors and cameras that track occupancy in real time, and they adjust pricing hour by hour. A space near a concert venue can be twelve dollars during a show and three dollars at two a.m. That kind of optimization can push revenue up twenty to thirty percent. Luna: But doesn't that just annoy drivers? I know I'd be pissed if I saw the price drop right after I parked. Lucas: There's pushback, for sure, but the demand is inelastic. You need to park. And that's exactly why the funds like it. The pricing power is almost total. It's not like a retail store where people can shop elsewhere. Luna: So who's actually selling? Like, are there a bunch of mom and pop lot owners out there? Lucas: Yes, and that's the classic roll-up pattern. You have thousands of independent operators, many of them older owners without a succession plan. They own a lot or two, maybe a garage, and they're happy to cash out to a national platform. The deal size is small, but the aggregation adds up. Luna: And that's where the billion dollars in deal volume comes from. Lucas: Right. Now, the donor-created question is: how do you value a parking lot? It's not like a typical business with a customer base. The value is tied to location, zoning, and what else could be built there. So funds are often paying a premium for the 'highest and best use' of the land, not just the parking income. Luna: But if the land is worth more as an apartment building, why are they still parking cars on it? Lucas: Because in many cities, zoning doesn't allow residential. And the cost of building a tower is enormous. So you sit on the land, collect the parking cash flow, and wait. That's the patient capital play. Luna: So it's like a bond with a free option on development. Lucas: Exactly. And the biggest players, like the one that operates under the SP Plus brand, they also run the garages under office towers and hotels. Those long-term management contracts are a stable base. The consolidation is as much about taking over management as it is about owning the asset. Luna: So if you're a pension fund or an endowment, this is a boring, steady, inflation-linked cash stream. That's got to be attractive. Lucas: That's the pitch. And in a world where ten-year Treasuries are yielding around four percent, parking can yield a six to eight percent cap rate. That's a real spread. So you're seeing not just private equity, but also infrastructure funds and some REITs get involved. Luna: And this is the kind of thing our listeners might be able to see in their own city. You know, that lot they pass every day might have a new owner and a new sign. Lucas: Yeah, and that's a good moment to pause. If today's episode helped you see the business behind that parking lot, or any of our other episodes have made you look at the world differently, the way we keep this show ad-free is through listener support. If you've ever gotten value from these conversations, you can buy me a coffee at buy me a coffee dot com slash fexingo. It's a small thing, but it keeps the lights on. Luna: And no ads. That's worth a coffee or two. Lucas: Exactly. So back to the lots. The consolidation also has a political dimension. Cities have been selling off their own parking garages to private operators to plug budget gaps. Chicago did a famous deal years ago, and now you see smaller cities following. Luna: But those deals often get criticized for giving away a public asset for a one-time check. Lucas: That's the trade-off. But the funds argue they bring efficiency and better maintenance. And for the city, an upfront payment can refinance a pension liability. It's not always popular, but it's happening. Luna: So what's the risk for a PE firm buying parking lots today? I mean, if we do finally move away from cars, that's a stranded asset. Lucas: That's the big tail risk. But the timeline for that transition is decades, not years. And even in dense cities like New York, car ownership is still rising. The funds are betting that the shift to autonomous vehicles will actually increase parking demand, because you'll have cars dropping people off and then parking themselves remotely, maybe in garages outside the core. Luna: So the self-driving future might mean more parking, not less. Lucas: That's the contrarian take some investors are making. But in the near term, the more immediate risk is interest rates. These deals are levered, so higher rates raise the cost of carry. That's why the pace of deals cooled a bit in 2024, but it's picking back up now that rates have stabilized. Luna: And what does the landscape look like in August of 2026? Is LAZ and SP Plus still the big two? Lucas: They are, but you're also seeing some private equity firms create their own platforms, buying a few lots in a region and building a regional brand. There's a lot of fragmentation left. Luna: So if someone is listening and thinking about selling their family's parking lot, what should they consider? Lucas: First, get an independent appraisal that looks at the land's development potential, not just the parking income. Second, understand the tax implications of a sale — a 1031 exchange might let you defer capital gains. And third, be aware that these buyers are sophisticated. They'll use data to show you why your lot is worth less than you think. You need your own advisor. Luna: So it's not just about selling your lot — it's about understanding what you're really selling. Lucas: And that's the bottom line. The parking lot is a perfect lens on how private equity finds value in the most mundane places. It's not about glamour; it's about cash flow, location, and patience. Next time you pay for parking, you might be funding a dividend check for a pensioner. Luna: I'll never look at that yellow vest the same way.