Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / Why Private Equity Is Buying Up Parking Lots
Transcript
- Lucas: So here's a stat I found this morning — roughly 60 percent of all parking spaces in the United States are still owned by individual operators or small family-run companies. Not by Propark, not by LAZ, not by a REIT. Just a guy who bought a lot next to a hospital in 1985. Luna: Sixty percent — that's way higher than I would have guessed. I always assume the big parking companies have gobbled everything up by now. Lucas: That's exactly what private equity has been betting against. Over the last four or five years, a handful of mid-market PE firms have started quietly rolling up surface lots and parking garages in secondary cities. Not the trophy assets in Manhattan or downtown Chicago — the lots in mid-sized markets like Nashville, Raleigh, Charlotte, even parts of the Sun Belt. Luna: What's the deal math look like? Is this a cash-flow play, a real estate play, or both? Lucas: It's mostly cash-flow with a real estate tail. Let me give you a specific example. In March of this year — so just three months ago — a private equity firm based in Atlanta closed on a portfolio of 14 parking lots across four Southeastern cities. Total price: about $200 million. The lots averaged 300 spaces each, so roughly $47,000 per space. Luna: Per space. That's including the land, the pavement, the payment kiosks — the whole thing. Lucas: Right. The key metric PE firms look at is something called 'monthly parking revenue per space.' In that portfolio, the average was about $185 per space per month. That's not huge — it's roughly $6 a day — but the occupancy rate was 92 percent. So you multiply 300 spaces times $185 times 12 months, you get roughly $666,000 in annual revenue per lot. Subtract operating costs — about 35 percent — and you're left with an EBITDA margin in the high 60s. Luna: Sixty-plus percent margins on parking lots. That's better than a lot of SaaS companies I've seen. Lucas: It's absurdly high. And the beauty is, there's almost no CapEx. You repave every seven to ten years, you replace a kiosk now and then. The decay curve on a parking lot is very different from, say, a hotel or a restaurant. So you're buying a cash-flow machine with pricing power — because parking rates tend to rise with inflation, and occupancy stays sticky. Luna: Sticky how? If I'm visiting Nashville for a weekend, I don't really care which company owns the lot. I just park where's convenient. Lucas: Exactly. There's no brand loyalty in parking. You park because it's close to where you're going. So the operator doesn't have to spend on marketing. They just need to keep the lot clean, the payment system working, and the rates competitive within a two-block radius. That's it. And once PE owns a cluster of lots in a downtown core, they can actually push rates up across the portfolio without losing customers — because the alternative might be a longer walk. Luna: So it's almost like a mini-toll road. You own the only access point near a hospital or a stadium, and you've got pricing leverage. Lucas: That's exactly how the smartest operators think about it. One firm I spoke with calls their lots 'toll booths for the last mile.' And the exit strategy is pretty clear. There are three main paths: sell to a larger operator like Propark or SP Plus, sell to a parking-focused REIT, or sell to an infrastructure fund. Infrastructure funds love this asset class because the cash flows are long-duration and cpi linked. Luna: And the sellers? Who's selling into this consolidation? Lucas: A lot of it is succession planning. The guy who bought a lot in 1985 is now in his late 60s or early 70s. His kids don't want to run a parking lot. So when a PE firm comes in with an offer that values the business at 10 to 12 times EBITDA, it's a pretty easy sell. The seller gets a liquidity event, the buyer gets a cash-flow stream, and the customer barely notices the change. Luna: But aren't there risks? I mean, what about autonomous vehicles? If ride-hailing goes fully driverless and parking demand drops, the whole thesis falls apart. Lucas: That's the big bear case. And the PE firms I've talked to acknowledge it, but they argue that the timeline is longer than most people think. They point to cities like San Francisco and Boston, where even after years of Uber and Lyft, parking occupancy in downtown garages is still above 85 percent. The other counterargument is that autonomous vehicles still need parking — they just might park more efficiently, which actually could reduce the number of spaces needed per lot, but the land underneath retains value. Luna: So the land is the ultimate floor. Lucas: Exactly. And in growing Sun Belt cities, that land is appreciating faster than the cash flows from the parking. So even if autonomous vehicles dent demand in 15 years, the PE firm will have likely exited by year five or seven, and the next owner will figure it out. It's a time-arbitrage play as much as a cash-flow play. Luna: Is there any pushback from the small operators who don't want to sell? I imagine some of them see the PE firms coming in and worry about being squeezed out. Lucas: There is definitely anxiety. The National Parking Association — the trade group — has been hosting seminars for independent operators on how to compete with pe backed roll-ups. One strategy is to form local cooperatives where small operators share a common payment platform and negotiate rates together. But honestly, the economics are lopsided. A PE firm can offer a seller 11 times EBITDA cash out the door. A cooperative can't match that. Luna: So it's going to consolidate. The 60 percent mom and pop share is probably going to shrink. Lucas: I think it will, but maybe not as fast as in other industries. Parking is hyper-local. You can't roll up every lot in America from a headquarters in Atlanta — you still need local managers, local relationships with city zoning boards, local knowledge of event schedules. That friction slows the consolidation. But the trend is clear. Luna: Alright, so what should our listeners take away? If you're a small parking lot owner listening, what's the one number you should know? Lucas: Know your monthly revenue per space and your occupancy rate. If you're above $150 per space and 90 percent occupancy, you're probably sitting on an asset that a PE firm would value at 10 to 12 times EBITDA. That's a pretty attractive number if you've been thinking about retirement. Luna: And if you're an investor looking for stable cash flows, it's worth watching the parking roll-up space. It's quieter than urgent care or veterinary clinics, but the margins are just as good. Lucas: It's one of those asset classes that's been under the radar for a long time. I think the next five years will see a lot more attention on it. Luna: Before we wrap — Lucas, I know we don't do this often, but a quick thought. This show is ad-free, and honestly that's because a small number of listeners choose to support us through buy me a coffee dot com slash fexingo. It's not a big ask, but it's what keeps the episodes coming. Lucas: Yeah, I'm glad you brought that up. We pour a lot of research into each episode, and knowing that even a handful of people find it valuable enough to chip in makes a real difference. It's a simple way to keep this independent. Luna: It really does. So if you've gotten something out of these deep dives — whether it's the parking lot math today or the pet cremation episode a few weeks ago — that's the link. No pressure, just gratitude. Lucas: Alright — back to parking. One last stat: the largest parking operator in the U.S. by spaces is still Propark, with about 350,000 spaces. But the top 10 operators combined control less than 15 percent of the market. That's a huge fragmentation — and that's exactly the kind of market private equity loves to consolidate. Luna: Fragmentation plus high margins plus a clear exit. That's the formula. Lucas: It is. And we'll be watching to see who makes the next big move.