Pershing Square Garage Vote Delayed

The City Council today delayed a vote on a controversial program that would farm out operations of the Pershing Square garage to a private operator for 50 years, rescheduling the hearing to Aug. 18.
The decision came partly at the request of Downtown civic and business stakeholders who fear the plan, which is intended to raise cash to help bolster the citys beleaguered general fund, could spell the end of affordable parking at the 1,590-space lot. The three-level underground facility is considered a crucial amenity for the local workforce, as well as patrons of nearby retail and nightlife establishments.

Under terms of the proposal, a private company would pay for the rights to operate and collect revenue from parking and advertising at the Pershing Square garage and nine other city-owned facilities, plus two more parking facilities now under development. The deal would require the operator to pay a lump sum at the start of the agreement, providing the city with an immediate cash infusion.

The plan is said to be worth hundreds of millions of dollars, but the city has not publicly disclosed the deals estimated value so as not to set a benchmark for bidders, city Chief Administrative Officer Miguel Santana told Los Angeles Downtown News.

The plan is part of a larger effort by Mayor Antonio Villaraigosa and Santana to lessen the citys stake in operations of certain venues that officials say could be more efficiently run by private companies.

The facilities packaged in the proposal include 8,231 spaces. They generated $22 million in revenue last year, but after overhead costs including debt service on two Hollywood garages that collectively owed about $95 million in January the properties only netted $2 million, Santana said.

Parking is not a cash cow for the city and it clearly isnt an asset that weve learned to maximize, so the basic premise is that we want the opportunity for a private vendor to maximize it as an asset, but also to make it more effective in use, he said.

Profit Margins

While most of the city garages have proved to be a financial drain, the Pershing Square garage owned by the Department of Recreation and Parks, but operated by the General Services Department generated about $2.3 million in profits in 2008-2009, according to a report released by Santanas office last week. The money pays for Recreation and Parks programs at the park, and about $500,000 is transferred to the general fund, according to a city report in January.

The citys request for qualifications, released to potential bidders in February, touts the Pershing Square garages profitability, as well as projections of heightened demand generated by future Downtown development, as investment highlights in the deal. The request generated 15 applications.

Talk of relinquishing the garage has some Downtown stakeholders on edge about the prospect of increased rates and fewer parking spots available for commercial patrons, especially if residential use in the area increases. Skeptics of the plan point to the city of Chicagos recent experience in privatizing several public garages along with 43,000 parking meters. That led to sharply increased rates, especially in Chicagos urban core, and prompted a community outcry.

With Pershing Square considered the cream of the city garage crop, skeptics of the plan see the garage as a likely candidate for increased rates if it ends up being run by an outsider with little stake otherwise in the economic development of the area.

Please dont leave this in the hands of investment bankers who have an aerial view, said land use consultant Kate Bartolo, who addressed the council on behalf of nearby jewelry and hospitality industry stakeholders.

Russell Brown, executive director of the Historic Downtown Business Improvement District, criticized the proposal to sell the garages at a low point in the economy.

Theyre basically saying, give it to us up front and the future revenue gets privatized, he said.

In response to council advice in June, Santana and city Chief Legislative Analyst Gerry Miller recently added a caveat to the proposed deal that would require a future operator to accommodate 1,200 vehicles for evening hours to Broadway visitors.

Still, Brown insists the devil may be lurking in the details.

What do they mean by accommodate? Brown asked. Does that mean, Sure, you can come in and park for $30? I know theyre talking about reserving 1,200 of 1,590 spaces, so I think thats a good attempt at understanding how important being able to have affordable parking is for the nightlife in Downtown, but the problem is that many of these details are not very well defined.

The 1,200-vehicle requirement will be up for negotiation. The request for proposals the council considered today directs bidders to name a price for the entire portfolio with and without the 1,200-vehicle caveat. Before the council put off voting on the issue, 14th District Councilman José Huizar asked Miller and Santana to consider eliminating that direction, so bidders see the 1,200 spaces as cemented city policy.

Miller countered that it would be in the citys interest for bidders to name a price for the portfolio with and without 1,200 spaces reserved for commercial users because it will show how much theyre willing to pay to not be bound by the rule.

Pricing, Now and Tomorrow

Currently, it costs $7.72 to park at Pershing Square for one hour, with a daily maximum of $15.40. Perhaps its main draw though is the $6.60 rate for those who enter after 5 p.m. and leave by 2:30 a.m., a deal that the Historic Downtown BID helped broker as a way to stimulate nightlife activity Downtown, Brown said.

According to Desman Associates, a parking research firm that the city commissioned to study the deal, there are 19 other parking facilities within a block-and-a-half of Pershing Square. Six of them charge more than $15.40 for daily maximums, making Pershing Square one of the more expensive options for drivers who leave their cars more than two hours, but only two of the garages are priced lower than Pershing Square for daytime drivers staying an hour or less.

The Desman study proposes new rates under a private operator that would jump Pershing Square prices to $8 for the first hour in 2011, with $1 increases every other year, bringing the first-hour rate to $10 by 2015. Under the Desman reports price increase schedule, by 2015 the post-5 p.m. rate would jump to $10.

Its unclear what rates would look like after 2015, but city officials say that the deal will have restrictions prohibiting exorbitant rate increases. The Department of Recreation and Parks board of commissioners, approved adding the Pershing Square garage to the city proposal on Aug. 2, stipulated that any deal must include agreements with the operator to reserve some free parking for attendees of events at the park.

I believe people have overreacted to the city simply going out to see if somebody would give us good terms, said Barry Sanders, president of the Recreation and Parks Commission.

Santana also said that the lease will include a fee schedule that the operator will have to live by. But he conceded that the plan will include some flexibility the opportunity to profit, after all, is what will attract bidders to the garage portfolio.

I cant speak about the details about whats going to be required, but there will be a schedule and limitations on how high rates can be increased, Santana said. Ultimately the market will be the best regulator of rates. But if someones seeking to make a profit, they need to strike a balance between being competitive and making a profit.

If approved by the council, Santanas office would proceed with issuing an official request for proposals. Bidders will be required to submit four distinct offers, including one with Pershing Square removed from the deal. The separate bid requirement aims to establish values of individual assets in the portfolio, including the Pershing Square garage.

With the proposal now set to return to the council this week, skeptics of the plan say theyll be studying the request for proposals document, released for public view on Aug. 10.

This is a game changer, Bartolo told the council. We need to do this right. We need time.
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