Parking Income
In real estate underwriting, Parking Income refers to revenue derived from renting parking spaces at the property. In standard apartment retail, office, and industrial underwriting, Parking Income is generally an Other Income item given that the income is secondary to the core rental revenue, although in urban locations where parking is scarce, the Parking Income earned may be substantial.
Putting ‘Parking Income’ in Context
Scenario Overview
In this hypothetical scenario, Urban Edge Capital, a real estate private equity firm, has acquired CityPoint Tower, a 200,000-square-foot Class A office building in downtown Chicago, Illinois. The property includes a 300-space parking garage, which provides an additional revenue opportunity given the high demand for parking in the area. CityPoint Tower caters to a mix of professional services tenants, including law firms, financial advisors, and consulting firms.
Parking Income at CityPoint Tower
Urban Edge Capital identified Parking Income as a critical secondary revenue stream during underwriting. While the building’s core income comes from office leases, the parking garage generates significant additional revenue due to its location in a densely populated urban area with limited parking options. Below are the primary components of Parking Income at CityPoint Tower:
- Monthly Reserved Spaces: 100 reserved parking spaces are leased to tenants at $250 per month per space.
- Monthly Unreserved Spaces: 150 unreserved spaces are leased at $175 per month per space.
- Hourly Parking: The remaining 50 spaces are available for hourly parking at $5 per hour, with an average of 500 hours of usage per month.
Calculation of Parking Income
Here’s how the Parking Income line item is calculated based on these revenue streams:
Monthly Parking Income:
- Reserved Spaces: 100 x 250 = $25,000
- Unreserved Spaces: 150 x 175 = $26,250
- Hourly Parking: 500 x 5 = $2,500
Total Monthly Parking Income: $25,000 + $26,250 + $2,500 = $53,750
Annual Parking Income:
To annualize the Parking Income, multiply the monthly total by 12:
$53,750 x 12 = $645,000
Integration with the Pro Forma
The Parking Income of $645,000 is recorded under the Other Income line item in the pro forma. This additional income enhances the property’s Gross Potential Revenue, which subsequently increases the Net Operating Income (NOI). The inclusion of Parking Income contributes to a higher valuation for CityPoint Tower, making it a more attractive investment for Urban Edge Capital.
Frequently Asked Questions about “Parking Income” in Real Estate Underwriting
What is Parking Income in real estate underwriting?
Parking Income refers to revenue derived from renting parking spaces at a property. It is typically categorized as Other Income in underwriting since it supplements, rather than replaces, core rental revenue.
How is Parking Income treated in a pro forma?
Parking Income is recorded under the Other Income line item in the pro forma. It contributes to Gross Potential Revenue and increases the Net Operating Income (NOI), which can enhance the property’s valuation.
Can Parking Income significantly affect a property’s value?
Yes. In urban locations where parking is scarce, Parking Income can be substantial. For example, CityPoint Tower generated $645,000 annually from parking, providing meaningful NOI contribution and positively impacting valuation.
How is Parking Income calculated?
It is calculated by summing income from various parking streams. At CityPoint Tower:
Reserved Spaces: 100 x $250 = $25,000/month
Unreserved Spaces: 150 x $175 = $26,250/month
Hourly Parking: 500 hours x $5 = $2,500/month
Total monthly = $53,750 → Annual = $645,000
Why is Parking Income classified as Other Income?
Because it is secondary to the property’s primary rental revenue. While meaningful, especially in urban markets, Parking Income is not the core lease income from tenant occupancy and is thus treated separately in financial models.
Click here to get this CRE Glossary in an eBook (PDF) format.