Financing new construction projects nationwide has become more and more challenging due to a number of factors, including land pricing and rising labor and construction costs. As a lender focusing on new development, I have been seeing a rising trend that creates a winning situation for both a lender as well as the developer when it comes to design creativity with parking ratio requirements. This trend is changing the way development deals are looked at from a number of standpoints.
We all know that traditional parking takes up space vertically as well as horizontally and is a significant budget line item for any developer in all sectors. That said, more parking is needed now, while all indicators point to less car ownership and use in the future. It is important to take that evolution into consideration when designing new projects.
One strategy is stacked parking. It is being used in cities like San Francisco and New York City but, as technology improves, this system is becoming more economically feasible for the greater construction and development industry. Stacked parking can allow three or four times (or more) the number of cars in a given area using vertical space at a fraction of the cost of traditional parking. Parking takes up pricey land and incurs parking structure development and ongoing maintenance costs.
When planning now for a new office project, for example, the developer creates a design in a multi-level building that includes stacked parking and allows for the potential to eliminate an entire level of parking for a conversion to more rentable office space in five, 10 or 15 years, garnering an enhanced NOI. From a financing standpoint, less space and lower development costs are being allocated for the project overall, creating less perceived risk against a new office project.
Cities Mandating No Parking
We recently provided a loan for a six-story office building in Berkeley, Calif. The project is within a walkable, transit-oriented development and the city isn’t requiring any parking. This is great news for the developer, and while many cities have stringent parking requirements, we will likely see them shrink or be eliminated for projects over the next decade or so.
I have also been seeing a number of other projects these days that are being planned for remote parking with a valet parking situation. Others have a shuttle service from a shared parking lot nearby. Creativity is key and needs to be strategically thought out and executed.
Ultimately, developers can reduce or eliminate their parking expenses, creating the opportunity for income-producing space now and in the future and benefiting everyone involved in the development, lending, and ownership process.
By Paul Rahimian, CEO at Parkview Financial