Brownfield parking leases are attractive investments for investors. Chicago Parking Meters, the first significant US parking meter lease bought by Morgan Stanley Infrastructure Partners for $1.16 billion in 2008, said in its bond offering memorandum that it expects to earn at least $11.6 billion in revenue, over its 75-year term for sponsors Morgan Stanley (50.1%), Allianz Capital Partners (25%) and Abu Dhabi Investment Authority (24.9%).

At least seven firms expressed interest in both the Pittsburgh and Indianapolis assets, though the grantors ultimately received only three and seven bids, respectively. A consortium of JP Morgan Asset Management and LAZ Parking was named preferred bidder for Pittsburgh with a $451.7 million proposal, significantly higher than the $300 million threshold set by the local mayor. Now the concessions’ future is unclear.

On 19 October, the Pittsburgh city council rejected mayor Luke Ravenstahl’s proposal to lease the city’s roughly 17,650 metered parking spaces to the preferred bidders. The next day, Indianapolis mayor Gregory Ballard announced a renegotiated concession agreement with Xerox subsidiary ACS (no relation to Grupo ACS) for the proposed lease of more than 24,000 metered spaces in response to complaints by the local city council. The Pittsburgh deal is now back on the table, following a failure of the city council’s proposed alternative to raise the funds, and the Indianapolis deal is awaiting approval by its council.

The Pittsburgh deal is central to Ravenstahl’s plan to close part of the city’s $697 million unfunded pension liability. Roughly $200 million of the $451.7 million upfront payment for the 50-year lease is to be used to reach a 50% threshold needed to avert a state takeover of the city’s pension fund on 1 January 2011. The remainder would go towards defeasing $94.8 million in outstanding parking-related debt and investing in city infrastructure improvements. Under the terms of the agreement, the sponsors would be able to collect all meter revenues and are responsible for $50 million in upgrades as well as maintenance for the duration of the lease. The city would set rates, provide enforcement and set parking violation fines, revenue from which would go back to the city.

Pittsburgh’s council would have nothing of it. It rejected the lease seven-to-one, with one abstention at its 19 October meeting in what, according to one source, was a purely political decision. During the session, councilman Patrick Dowd said that if the lease was approved, it would be tantamount to selling the city “down the river” for 50 years. Whether the decision was all politics is unclear. Another source close to the deal says the inclusion of neighbourhood parking outside the central business district proved to be too sensitive for the council to approve the deal.

Pittsburgh could yet revive the lease. On 4 November, councilwoman Theresa Kail-Smith introduced a bill that asks Ravenstahl to renegotiate the original concession agreement to include a shorter term and lower rate increases. A spokesperson for JP Morgan said the bidder has always been willing to work with the city to reach an agreement that works for everyone but added that it is not sure if it can now reach financial close before 31 December.

Indianapolis was a slightly different story. Ballard acknowledged the city council’s trepidation early on in the process, announcing a concession agreement that included a $35 million upfront payment as well as revenue sharing for the duration of the 50-year lease, which he estimated could bring the city as much as $400 million in additional revenue, to make it more palatable. But the council was still hesitant. Responding to additional concerns from the council, Ballard renegotiated the lease to include a for convenience termination clause every 10 years and a more advantageous revenue sharing agreement, which could net the city as much as $620 million over the term. The upfront payment was decreased to $20 million. The city council could vote on the deal as soon as its 15 November meeting.

Despite all the challenges deals in Pittsburgh and Indianapolis faced, market participants remain optimistic about the US brownfield parking market. From the standpoint of bidder interest, it is incredibly strong,” says John Schmidt, a partner at law firm Mayer Brown who worked on Chicago’s 2006 underground parking garage concession. A banker added that there is demand for more metered parking deals and said they could not understand why cities were not taking advantage of the opportunity.

Barclays Capital, Credit Suisse and Morgan Stanley successfully priced Chicago Parking Meters’ relaunched debt issuance at 300bp over ten-year treasury notes on 4 November. The 10-year bullet maturity bonds increased to $600 million from $500 million, enough to repay half of the sponsors’ equity, and carry a coupon and yield of 5.489%. The concessionaire’s original attempt to raise debt was pulled from the market due to lower than expected interest in July. After the sponsors agreed to a tightening of covenants from the original deal, the deal sold strongly.

One deal that market participants are watching is a proposed 30- to 50-year lease of a portion of NJ Transit’s 48,000 owned or controlled spaces. Many say the assets are not as politically charged as those in Pittsburgh and Indianapolis, which makes the deal more feasible. According to the request for qualifications, released 15 October, the agency, which is responsible for all transit services in the state of New Jersey, will allow a concessionaire to operate the facilities and increase parking rates (subject to approval) in exchange for expanding parking capacity and improving service for its customers. This presents a tangible benefit to many NJ Transit users, especially ones who use stations with multiple-year waiting lists for parking spaces.

In the US, on-street metered parking is a politically sensitive asset that can get derailed by local opposition even when private operators offer tempting upfront payments. One banker recommends that sponsors, before they pursue a parking deal, should make sure that political support, from both the mayor and the bodies that must approve the deal, is there. Debt markets, as the Chicago meters refinancing shows, are looking more reliable. n