Tuesday, September 21, 2010

Parking Perambulation

We'll give it a news cycle to digest the $451 million bid for the city's parking assets before we do our own quantitative parsing  It will be interesting to deconstruct how JP Morgan justified that bid, but here are some quick incidental thoughts:

If the city could get such a good deal for the parking assets of the Pittsburgh Parking Authority, then maybe it is an opportune time to consider similar deals for some of the other parking assets in the city.  The Stadium Authority has a few parking lots over there on the North Shore.  There is even this new subway line I gear about that is going to start up and connect them to points Downtown.  That can only add to the value of those lots.  Why not sell/lease them as well if the market is so hot for parking assets right now.

The price makes you wonder about the choice the county/airport authority made recently to NOT monetize the parking out at the airport.   It's not as many spots in total, but I would have thought that per spot the airport spaces would be worth more.  Near capacity lots all the time and the low costs of surface lots (compared to the much costlier vertical lots of the PPA) should make for some pretty valuable spots. I wonder if they feel pressured to re-evaluate that decision.

If that is what they could get for leasing the lots, it really makes you wonder what the dollar amount could be had if they had actually done as I suggested (and as some of the top economists in the city have recommended) that they actually sold the garages outright.  That would have been an interesting number.

The perverse thing in the end about the bid.  The only way it was possible for JP Morgan to consider such a bid was because of the scale and depth of the recession.  The combination of low interest rates along with lack of performance for most other investments were both pretty much necessary conditions for JP Mogran to consider putting that much money on the table.  So the city is saved by economic conditions created by the hedge fund investors who brought down the economy in the first place.

Harrisburg may feel a lot of pressure to reverse itself and monteize their parking assets as well.

I still think the idea of the SEA buying out the lots is feasible.  I see news that the SEA just recently was able to refinance some already low-interest 1999 debt because interest are so low that it made sense to do so.  So they clearly can raise big money in the markets at low interest rates. The debt they just refinanced was mostly in revenue bonds backed by the county's hotel tax.  Awfully similar to revenue bonds that would be backed by parking revenue.

Finally...   what else can we sell?  I'm thinking a bridge or two might be fungible.


Anonymous MH said...

The combination of low interest rates along with lack of performance for most other investments were both pretty much necessary conditions for JP Mogran to consider putting that much money on the table.

If they're looking for a good rate of return, I know of a guy promising 6 to 7 percent.

Tuesday, September 21, 2010 9:00:00 AM  
Anonymous BrianTH said...

I'd like to know what leasing the assets for more like 20-30 years would bring. I think there are good reasons to believe the private firm discount rate gets high enough at that point to make it less worthwhile for a public entity to lease assets, and I now strongly suspect you could get to the magical 50% pension level, and maybe still have some left over, with a considerably shorter lease. Or to put it another way, how many years could we lop off the end at, say, $375 million?

On the other hand, I think there is a non-trivial risk of a disruptive technology (or something similar) making parking assets a lot less valuable in 20-30 years. So maybe in this case, the public discount rate shouldn't be all that low for the later years either.

I'd personally love to see other parking assets in the City get leased/sold to profit-motivated outsiders, since generally I'm not a fan of subsidizing parking. However, I'd have to think about parking at the airport, since I am OK with some subsidizing of air travel, and I might want to extend that to airport parking.

Tuesday, September 21, 2010 9:40:00 AM  
Anonymous BrianTH said...

Oh, another thought: if it is true this is an unusually favorable time to be financing long-term revenue-generating assets . . . and that seems both plausible in theory and somewhat confirmed in practice by this bidding process . . . then why restrict ourselves to leasing/selling assets that already exist? In other words, what new assets could we create and finance in this way?

Finally--man, that two-step bidding process sure seems like a great move. The winning bid went from $413m to $452m, a nice little $39m bonus for delaying the announcement by five days.

Tuesday, September 21, 2010 9:47:00 AM  
Anonymous Anonymous said...

And that first glass of bourbon was so great, why not have seven more?

Tuesday, September 21, 2010 10:00:00 AM  
Anonymous MH said...

Oops. That was me.

Anyway, if you have to pawn your stuff to buy groceries, you should focus on how to avoid having to pawn more even if you got more than you expected from the pawnshop.

Tuesday, September 21, 2010 10:02:00 AM  
Anonymous BrianTH said...

Or if you are holding a garage sale and sell one item for a good price, you should make a point not to sell anything else.

Wait, that makes less sense . . .

The way I see it, this has been framed as a desperation move, meaning something the City wouldn't consider doing if not for the threat of a state takeover of the pension. But I actually think it was a good move on its own merits, and the City should look to see what else it can get accomplished with this sort of public-private partnership approach.

Tuesday, September 21, 2010 11:24:00 AM  
Anonymous MH said...

It is nothing like a garage sale because what is being sold produces income. In terms of constraining future options, this is the same thing as borrowing money. We’ve traded a greater amount of future income for a smaller amount right now.

This is the second time in a decade Pittsburgh has been unable to pay its pensions out of either current revenue or past contributions. This has been framed as a desperation move because Pittsburgh is in desperate straights no matter which way you look at it.

Tuesday, September 21, 2010 11:33:00 AM  
Anonymous BrianTH said...

Hey, you started with analogies to shots of bourbon and stuff you pawn. It is a little late to complain my counter-analogy wasn't strictly limited to financial assets.

Anyway, selling (or in this case leasing) a financial asset isn't quite the same thing as borrowing money. To sum up a complex topic, typically the risk is allocated differently. And in this case, I don't really see the financial rationale for the City wanting to hold onto a bunch of risk concentrated in the City itself. In other words, if you are viewing this as something like a sovereign wealth fund, Rule #1 in rationally operating such a fund is to invest in assets outside your own jurisdiction.

All that said, I understand the point that this shouldn't be taken as an opportunity to ignore the fundamental pension issues. On the other hand, I think people need to understand why many of the pension issues are outside the City's hands and in the state's hands. The state mandates (through Act 111) that contract disputes with the unions go to binding arbitration. The state perversely ties its Act 205 pension contributions to current employment, and not the number of pensioners. Under those circumstances, there is not much the City can do without reform at the state level to address the fundamental issues plaguing its pensions.

And in the meantime--why not more public-private partnerships? The City has a public policy interest (and ultimately a financial interest, via taxation) in seeing more usable assets in the City. But from a financial perspective, it should be trying to diversify its holdings away from assets located within the City. So assuming--and I admit this is still a bit of an assumption--it has created a mechanism for striking such deals on fair terms, I don't see why it shouldn't be using that process quite a bit.

Tuesday, September 21, 2010 11:52:00 AM  
Anonymous Jim Burnham said...

The real danger here is that the $150 million over the amount needed for 50% funding will be used by the Mayor to get the votes in Council needed to pass the proposal. Then, every one will declare "victory" and go home.

Even if the "extra" $150 million is put in the fund, that would bring it up to only 65-70%, significantly better, but still far short of a reasonable goal of 80-85% funded.

Tuesday, September 21, 2010 11:55:00 AM  
Anonymous MH said...

Hey, you started with analogies to shots of bourbon...

I'm going to defend the bourbon analogy as accurately modeling what potential for abuse after an initial good reaction.

Tuesday, September 21, 2010 12:03:00 PM  
Anonymous MH said...

Anyway, I share Jim B's worry.

Tuesday, September 21, 2010 12:05:00 PM  

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